-----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, TPGBfpNL8JOHRBn00qNTsnlmVYxcVatRpnoFQet1wjLmImycYeRZ+g7qDTM3g3x+ e+JxNGQwyyeDWpP3B77hNg== 0000950134-00-002476.txt : 20000329 0000950134-00-002476.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950134-00-002476 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMADYNE HOLDINGS CORP /DE CENTRAL INDEX KEY: 0000850660 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 742482571 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23378 FILM NUMBER: 580211 BUSINESS ADDRESS: STREET 1: 101 S HANLEY ROAD CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147215573 MAIL ADDRESS: STREET 1: 101 SOUTH HANLEY RD STREET 2: SUITE 300 CITY: ST LOUIS STATE: MO ZIP: 63105 FORMER COMPANY: FORMER CONFORMED NAME: TD II DATE OF NAME CHANGE: 19940131 FORMER COMPANY: FORMER CONFORMED NAME: THERMADYNE HOLDINGS CORP DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMADYNE CAPITAL CORP CENTRAL INDEX KEY: 0001063381 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742878453 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-57457-03 FILM NUMBER: 580212 BUSINESS ADDRESS: STREET 1: 101 SOUTH HANLEY ROAD, SUITE 300 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147215573 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMADYNE MFG LLC CENTRAL INDEX KEY: 0001063382 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 742878452 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-57457 FILM NUMBER: 580213 BUSINESS ADDRESS: STREET 1: 101 SOUTH HANLEY ROAD, SUITE 300 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3147215573 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-23378 THERMADYNE HOLDINGS CORPORATION (Exact name of Registrant as Specified in its Charter) DELAWARE 74-2482571 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
COMMISSION FILE NUMBER 333-57457 THERMADYNE MFG. LLC (Exact name of Registrant as Specified in its Charter) DELAWARE 74-2878452 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
COMMISSION FILE NUMBER 333-57457 THERMADYNE CAPITAL CORP. (Exact name of Registrant as Specified in its Charter) DELAWARE 74-2878453 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.)
101 S. HANLEY, SUITE 300 63105 ST. LOUIS, MISSOURI (Zip Code) (Address of Principal Executive Offices)
Registrant's telephone number, including area code: (314) 721-5573 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: TITLE OF CLASS Common Stock, par value $0.01 per share Indicate by checkmark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant: approximately $5.2 million based on the closing sales price of the Common Stock, on March 20, 2000. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 3,590,326 shares of Common Stock, outstanding at March 20, 2000. Thermadyne Mfg. LLC and Thermadyne Capital Corp. meet the conditions set forth in General Instruction I of Form 10-K and are therefore filing this form with the reduced disclosure format. DOCUMENTS INCORPORATED BY REFERENCE: NONE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS The statements in this Annual Report on Form 10-K that relate to future plans, events or performance are forward-looking statements. Actual results could differ materially due to a variety of factors and the other risks described in this Annual Report and the other documents the Company files from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or that reflect the occurrence of unanticipated events. PART I ITEM 1. BUSINESS. GENERAL Thermadyne Holdings Corporation, a Delaware corporation ("Thermadyne" or the "Company"), is a leading global manufacturer of cutting and welding products and accessories. The Company manufactures a broad range of gas (oxy-fuel) and electric arc cutting and welding products that are ultimately sold to end-user customers principally engaged in the aerospace, automotive, construction, metal fabrication, mining, mill and foundry, petroleum and shipbuilding industries. Thermadyne Mfg. LLC ("Thermadyne LLC") is a wholly owned and the principal operating subsidiary of the Company and Thermadyne Capital Corp. ("Thermadyne Capital") is a wholly owned subsidiary of Thermadyne LLC. BACKGROUND In 1999 the Company made the following two acquisitions. On March 11, the Company acquired all the issued and outstanding capital stock of Soltec S.A. ("Soltec"), a manufacturer of manual electrodes and tubular wires for hardfacing and special applications, located in Santiago, Chile. On April 14, the Company acquired all the issued and outstanding capital stock of Tecmo Srl ("Tecmo"), a manufacturer of torches and plasma and laser consumables, located in Rastignano, Italy. The aggregate consideration paid for these two acquisitions was approximately $6 million and was financed through existing bank facilities. These transactions were accounted for as purchases. On May 22, 1998, the Company consummated (i) the merger (the "Merger") of Mercury Acquisition Corporation ("Mercury"), a corporation organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"), with and into the Company and (ii) the associated recapitalization of the Company (collectively, the "Recapitalization"). The DLJMB Funds acquired approximately 80.6% of the outstanding common stock, par value $0.01 per share ("Common Stock") of the Company pursuant to such transactions. PRINCIPAL PRODUCTS The Company manufactures a broad range of both gas (oxy-fuel) and arc cutting and welding equipment (including a line of advanced plasma arc cutting systems and oxy-fuel apparatus), accessories and consumables, including repair parts used in the cutting and welding industry. Gas cutting and welding torches burn a mixture of oxygen and fuel gas, typically acetylene. Arc cutting and welding systems are powered by electricity. The major arc cutting and welding systems are plasma, stick, metal inert gas ("MIG") and tungsten inert gas ("TIG"). Arc technology is more sophisticated than gas technology and can be used on more types of metals. In addition, arc equipment produces less distortion in the surrounding metal and it cuts and welds faster, reducing labor costs. However, gas technology is more portable and generally less expensive than arc technology and therefore remains important in many industries. 2 3 The Company conducts its operations through the following subsidiaries: Thermal Dynamics -- Plasma Arc Cutting Products. Thermal Dynamics Corporation ("Thermal Dynamics"), located in West Lebanon, New Hampshire and founded in 1957, developed many of the early plasma cutting systems and maintains its position as a leading manufacturer of plasma cutting systems and replacement parts. Thermal Dynamics' product line ranges from a portable 12-amp unit to large 1,000-amp units. Thermal Dynamics' end users are engaged primarily in fabrication and repair of sheet metal and plate products found in fabricated structural steel and nonferrous metals, automotive products, appliances, sheet metal, heating, ventilation and air conditioning ("HVAC"), general fabrication, shipbuilding and general maintenance. Advantages of the plasma cutting process over other methods include faster cutting speeds, the ability to cut ferrous and nonferrous alloys and minimum heat distortion on the material being cut. Plasma cutting also permits metal cutting using only compressed air and electricity. Tweco -- Electric Arc Products and Arc Gouging Systems. Tweco Products, Inc. ("Tweco"), located in Wichita, Kansas and founded in 1936, manufactures a line of arc welding replacement parts and accessories, including electrode holders, ground clamps, cable connectors, terminal connectors and lugs and cable splicers, and a variety of automatic and semiautomatic welding guns and cable assemblies utilized in the arc welding process. Tweco also manufactures manual stick electrode holders, ground clamps and accessories. Manual stick welding is one of the oldest forms of welding and is used primarily by smaller welding shops which perform general repair, maintenance and fabrication work. Tweco's end users are primarily engaged in the manufacture or repair and maintenance of transportation equipment, including automobiles, trucks, aircraft, trains and ships; the manufacture of a broad range of machinery; and the production of fabricated metal products, including structural metal, hand tools and general hardware. Tweco is a leading domestic manufacturer of MIG welding guns. The MIG process is an arc welding process utilized in the fabrication of steel, aluminum, stainless steel and other metal products and structures. In the MIG process, a small diameter consumable electrode wire is continuously fed into the arc. The welding arc area is protected from the atmosphere by a "shielding" gas. The welding guns and cable assemblies manufactured by Tweco carry the continuous wire electrode, welding current and shielding gas to the welding arc. Tweco manufactures a related line of robotic welding accessory products. This new accessory line includes, but is not limited to, a robotic torch with patented consumables, a robotic deflection mount, a robotic cleaning station, robotic arms and an anti-splatter misting system. Through its Arcair product line, Tweco manufactures equipment and related consumable materials for "gouging," a technique that liquefies metal in a narrow groove and then removes it using compressed air. Gouging products are often used in joint preparation prior to a welding process. Numerous other applications exist for these gouging systems, such as removal of defective welds, removal of trim in foundries and repair of track, switches and freight cars in the railroad industry. Arcair also manufactures a line of underwater welding and gouging equipment. In addition to gouging products, Arcair produces a patented exothermic cutting system, SLICE(R). This system generates temperatures in excess of 7000 degrees F and can quickly cut through steel, concrete and other materials. SLICE(R) has many applications, including opening clogged steel furnaces and providing rapid entry in fire and rescue operations. Arcair has developed an underwater version of the SLICE(R) cutting system for use in the marine repair and salvage industry. Arcair also manufactures TIG torches and accessories. The TIG process can be used to fuse metals of almost all alloys and in thicknesses down to foil size. TIG welding is used for pressure vessels, such as tanks, valves and pipes and is relied on heavily in welding nuclear components. Fabrications involving aluminum, magnesium and other specialty metals for use in aircraft, ships and weapon systems also utilize the TIG process. Arcair provides a complete line of chemicals used in the welding industry. Chemicals are used for weld cleaning and as agents to reduce splatter adherence on the metal being welded. Chemicals are also used to reduce splatter adherence in welding nozzles in MIG applications. 3 4 Victor -- Oxy-Fuel Gas Products. Victor Equipment Company ("Victor") has plants in Abilene and Denton, Texas and Gallman, Mississippi, and was founded in 1913. Victor is a leading domestic manufacturer of gas-operated cutting and welding torches and gas and flow pressure regulation equipment. Victor's torches are used to cut ferrous metals and to weld, heat, solder and braze a variety of metals, and its regulation equipment is used to control pressure and flow of most industrial and specialty gases. In addition, Victor manufactures a variety of replacement parts, including welding nozzles and cutting tips of various types and sizes and a line of specialty gas regulators purchased by end users in the process control, electronics and other industries. Victor also manufactures a wide range of medical regulation equipment serving the oxygen therapy market, including home health care and hospitals. The torches produced by Victor are commonly referred to as oxy-fuel torches. These torches combine a mixture of oxygen and a fuel gas, typically acetylene, to produce a high-temperature flame. These torches are designed for maximum durability, repairability and performance utilizing patented built-in reverse flow check valves and flash arresters in several models. Victor also manufactures lighter-duty handheld heating, soldering and brazing torches. Pressure regulators, which are basically diaphragm valves, serve a broad range of industrial and specialty gas process control operations. The principal uses of the Victor torch are cutting steel in metal fabricating applications such as shipbuilding, construction of oil refineries, power plants and manufacturing facilities, and welding, heating, brazing and cutting in connection with maintenance of machinery, equipment and facilities. Victor sells its lighter-duty products to end-user customers principally engaged in the plumbing, refrigeration and heating, ventilation and air conditioning industries. The relative low cost, mobility and ease of use of Victor torches make them suitable for a wide variety of uses. Cigweld -- Electric Arc Products, Oxy-Fuel Products, Filler Metals, Gas Control Products and Safety Products. The business now known as Cigweld, located in Melbourne, Australia, and founded in 1922, is the leading Australian manufacturer of gas equipment and welding products. Cigweld manufactures arc welding equipment products for both the automatic arc and manual arc welding markets. The Cigweld range of automatic welding equipment includes packages specifically designed for particular market segments. End users of this product range include the rural market and the vehicle repair, metal fabrication, shipbuilding, general maintenance and heavy industries. Manual arc equipment products range from small welders designed for the home handyman to units designed for heavy industry. Cigweld manufactures a range of consumable products (filler metals) for manual and automatic arc and gas welding. The range of manual arc electrodes includes over 50 individual electrodes for different applications. Cigweld markets its manual arc electrodes under such brand names as Satincraft, Weldcraft, Ferrocraft(R), Alloycraft(R), Satincrome, Cobalarc(R), Castcraft and Weldall(R). For automatic and semiautomatic welding applications, Cigweld manufactures a significant range of solid and flux-cored wires, principally under the Autocraft(R), Verti-Cor, Satin-Cor, Metal-Cor and Cobalarc(R) brand names. For gas and TIG welding, Cigweld manufactures and supplies approximately 40 individual types of wires and solders for use in different applications. Cigweld's filler metals are manufactured to standards appropriate for their intended use, with the majority of products approved by agencies such as Lloyd's Register of Shipping, American Bureau of Shipping, De Norske Veritas and U.S. Naval Ships. Cigweld manufactures a comprehensive range of equipment for gas welding and cutting and ancillary products such as gas manifolds, gas regulators and flowmeters. Gas welding and cutting equipment is sold in kit form or as individual products. Kits are manufactured for various customer groups and their components include combinations of oxygen and acetylene regulators, blowpipes, cutting attachments, mixers, welding and heating tips, cutting nozzles, roller guides, twin welding hoses, goggles, flint lighters and tip cleaners, combination spanners and cylinder keys. In addition to its kits, Cigweld manufactures and/or distributes a complete range of gas equipment, including a range of blowpipes and attachments, regulators (for oxygen, acetylene, argon and carbon dioxide), flashback arrestors, cutting nozzles, welding and heating tips, hoses and fittings, gas manifolds and accessories. 4 5 Cigweld also manufactures a range of gas control equipment including specialty regulators (for use with different gases, including oxygen, acetylene, liquefied petroleum gas, argon, carbon dioxide, nitrogen, air, helium, hydrogen, carbon monoxide, ethylene, ethane and nitrous oxide), manifold systems, cylinder valves and spares and natural gas regulators. Cigweld's gas control items are primarily sold to gas companies. Cigweld manufactures and/or distributes a range of safety products for use in welding and complementary industries. The product range includes welding helmets and accessories, respirators and masks, breathing apparatus, earmuffs and earplugs, safety spectacles, safety goggles and gas welding goggles, safety helmets, faceshields, flashields (see-through welding curtains and screens) and welding apparel. Medical products are also manufactured by Cigweld in its manufacturing plant in Melbourne, Australia. These products are sold through distributors in the Australian market and exported through third-party distributors and related entities. The product range includes regulators, flowmeters, suction units, oxygen therapy, resuscitation and outlet valves for medical gas systems. C&G Systems -- Cutting Tables. C&G Systems Inc. ("C&G"), located in Itasca, Illinois, and founded in 1968, manufactures a line of mechanized cutting tables for fabricating sheet metal and metal plate. The machines utilize either oxy-fuel or plasma cutting torches produced by other divisions of the Company. C&G has a wide range of cutting tables from the relatively inexpensive cantilever type used in general fabrication and job shops to the large precision gantry type found in steel service centers and specialty cutting applications. These metal cutting tables can be used in virtually any metal fabrication plant. Stoody -- Hardfacing Products. Stoody Company ("Stoody"), located in Bowling Green, Kentucky and with operations founded in 1921, is a recognized world leader in the development and manufacture of hardfacing welding wires, electrodes and rods. While Stoody's primary product line is iron-based welding wires, Stoody also participates in the markets for cobalt-based and nickel-based electrodes, rods and wires, which are essentially protective overlays, deposited on softer base materials by various welding processes. This procedure, referred to as "hardfacing" or "surface treatment," adds a more resistant surface, thereby increasing the component's useful life. Lower initial costs, the ability to treat large parts, and ease and speed of repairs in the field are some of the advantages of hardfacing over solid wear resistant components. A variety of products have been developed for hardfacing applications in industries utilizing earth-moving equipment, agricultural tools, crushing components, and steel mill rolls, and in virtually all applications where metal is exposed to external wear factors. Thermal Arc -- Arc Welders, Plasma Welders and Wire Feeders. In 1997, the inverter and plasma arc welder business of Thermal Dynamics and the welding division of Prestolite Power Corporation ("Arcsys"), were combined to form Thermal Arc, Inc. ("Thermal Arc"). The combined operation is located in Troy, Ohio and produces a full line of inverter and transformer-based electric arc welders, plasma welders, engine-driven welders and wire feeders. Thermal Arc products compete in the marketplace for construction, industrial and automated applications, and serve a large and diverse user base. The inverter arc welding power machines use high-frequency power transistors to provide welding machines that are extremely portable and power-efficient when compared to conventional welding power sources. Plasma welding dramatically improves productivity for the end user. Additionally, conventional transformer-based machines provide a cost-effective alternative for markets where low cost and simplicity of maintenance are a high priority. GenSet -- Engine-Driven Welders and Generators. GenSet S.p.A. ("GenSet"), which was acquired by the Company in January 1997 and is located in Pavia, Italy, commenced operations in 1976 with the production of small generating sets. In 1976, it developed its first engine-driven welder and, in 1977, obtained its first patent for the synchronous alternator designed for welding purposes. It now offers a full range of technologically advanced generators and engine-driven welders that are sold throughout the world. These products are used both where main power is not available and for stand-by power where continuous power supply is a key requirement. Victor Gas Systems -- Cryogenic Pumps, Ambient and Electric Vaporizers and Automatic Cylinder Filling Systems. The operations of Victor Gas Systems, Inc. ("Victor Gas"), formerly known as Woodland 5 6 Cryogenics Company, commenced in 1986, and were acquired by the Company in November 1997. Victor Gas is a leading manufacturer, distributor and installer of cryogenic and high-pressure gas fill plants, vaporizers and pumps, and its products are used to control, mix and package both cryogenic and high-pressure gases into containment vessels such as gas cylinders. The principal uses of Victor Gas products are for the filling of cryogenic and high-pressure gases for applications in industrial, medical and specialty gas markets served by gas distributors and producers. Victor Gas has developed computerized filling equipment to maximize productivity while also offering conventional or manual filling equipment. Victor Brazil -- Oxy-Fuel Products and Cutting Tables. Thermadyne Victor Ltda. ("Victor Brazil"), with offices and manufacturing facilities located in Rio de Janeiro, Brazil, was acquired by the Company in 1998. Victor Brazil is the leading manufacturer of oxy-fuel products for industrial and medical use and of mechanized cutting tables for shaping and fabricating sheet metal and metal plate in South America. Victor Brazil primarily serves the Latin American market. The oxy-fuel product line is very competitive in the region and offers the customer a broad range of gas cutting and welding equipment. Metal fabricators of all sizes, including applications such as shipbuilding, steel construction, machinery manufacturing, pressure vessel producers, and steel mills, use the industrial oxy-fuel products. Hospitals, home care, and doctors' offices use the medical oxy-fuel products. The cutting table line of products uses either oxy-fuel or plasma cutting systems produced by Victor Brazil or other divisions of the Company. The line of products is oriented to the needs of the Latin American market. Inexpensive cantilever tables and higher-precision, computer numeric-controlled tables are produced by Victor Brazil. These products are used in all types of metal fabricating plants. INTERNATIONAL BUSINESS The Company had aggregate international sales from continuing operations of approximately $198.9 million, $199.4 million and $220.2 million for the fiscal years ended December 31, 1999, 1998 and 1997, respectively, or approximately 38%, 37% and 42%, respectively, of net sales in each such period. The Company's international sales are influenced by fluctuations in exchange rates of foreign currencies, foreign economic conditions and other risks associated with foreign trade. Additionally, as a result of the recent downturn in the Asian and certain South American economies, there may be a decrease in infrastructure development in these regions or an overall worldwide contraction of industrial development. The impact of decreased development could have a material adverse effect on the Company's business, financial condition or results of operations. The Company's international sales consist of (a) export sales of Thermadyne products manufactured at domestic manufacturing facilities and, to a limited extent, products manufactured by third parties, sold through overseas field representatives of Thermadyne International Corporation ("Thermadyne International"), a subsidiary of Thermadyne, and (b) sales of Thermadyne products manufactured at international manufacturing facilities, sold by Thermadyne's foreign subsidiaries. For further information concerning the international operations of the Company, see the notes to the consolidated financial statements of the Company included elsewhere herein. Thermadyne International was formed in 1980 to coordinate Thermadyne's efforts to increase international sales and sells cutting and welding products through independent distributors in more than 80 countries. In support of this effort, the Company operates distribution centers in Canada, Australia, Italy, Mexico, Japan, Singapore, Brazil, the Philippines, Malaysia, Indonesia and the United Kingdom and employs salespeople located in 23 additional countries. COMPETITION The Company competes principally with a number of domestic manufacturers of cutting and welding products, the majority of which compete only in limited segments of the overall market. Management believes that competition is based primarily on product quality and brand name, breadth and depth of product lines, effectiveness of distribution channels, a knowledgeable sales force capable of solving customer application 6 7 problems, price and quality of customer service. To date, the Company has experienced little direct foreign competition in its U.S. markets due to the relatively limited size of such markets, the inability of foreign manufacturers to establish effective distribution channels and the relatively non-labor-intensive nature of the cutting and welding product manufacturing process. The Company also competes in certain international markets in which it faces substantial competition from foreign manufacturers of cutting and welding products. DISTRIBUTION The Company's cutting and welding products are distributed through a domestic network of approximately 1,100 independent cutting and welding products distributors with over 2,800 locations that carry one or more of its product lines. Relationships with the distributors are maintained by a separate sales force for each of the Company's principal product lines. In addition, a national accounts group exists to support the sale of all of the Company's product lines to its major distributors. The Company's products are distributed internationally through a direct sales force and independent distributors. RAW MATERIALS The Company has not experienced any difficulties in obtaining raw materials for its operations because its principal raw materials, copper, brass, steel and plastic, are widely available and need not be specially manufactured for use by the Company. Certain of the raw materials used in hardfacing products, such as cobalt and chromium, are available primarily from sources outside the United States, some of which are located in countries that may be subject to economic and political conditions which could affect pricing and disrupt supply. Although the Company has historically been able to obtain adequate supplies of these materials at acceptable prices and has been able to recover the costs of any increases in the price of raw materials in the form of higher unit sales prices, restrictions in supply or significant fluctuations in the prices of cobalt, chromium and other raw materials could adversely affect the Company's business. The Company also purchases certain products which it either uses in its manufacturing processes or resells. These products include, but are not limited to, electronic components, circuit boards, semiconductors, motors, engines, pressure gauges, springs, switches, lenses and chemicals. The Company believes its sources of such products are adequate to meet foreseeable demand. RESEARCH AND DEVELOPMENT The Company has research and development groups for each of its product lines that primarily conduct process and product development to meet market needs. As of December 31, 1999, the Company employed approximately 125 persons in its research and development groups, most of whom are engineers. EMPLOYEES As of December 31, 1999, the Company employed 3,196 people, of whom approximately 587 were engaged in sales and marketing activities, 173 were engaged in administrative activities, 2,342 were engaged in manufacturing activities and 94 were engaged in engineering activities. Labor unions represent none of the Company's workforce in the United States and virtually all of the manufacturing employees in its foreign operations. The Company believes that its employee relations are good. The Company has not experienced any significant work stoppages. PATENTS, LICENSES AND TRADEMARKS The Company's products are sold under a variety of trademarks and trade names. The Company owns trademark registrations or has filed trademark applications for all trademarks and has registered all trade names that the Company believes are material to the operation of its businesses. The Company also owns various patents and from time to time acquires licenses from owners of patents to apply such patents to its operations. The Company does not believe any single patent or license is material to the operation of its businesses taken as a whole. 7 8 ITEM 2. PROPERTIES. The Company operates 17 manufacturing facilities in the United States, Italy, the Philippines, Brazil, Indonesia, Malaysia and Australia. All domestic manufacturing facilities, leases and leasehold interests are encumbered by liens securing the Company's obligations under its senior credit facility. The Company considers its plants and equipment to be modern and well-maintained and believes its plants have sufficient capacity to meet future anticipated expansion needs. The Company leases and maintains a 43,600-square-foot facility located in St. Louis, Missouri, which houses the executive offices of the Company and its operating subsidiaries, as well as all centralized services. The following table describes the location and general character of the Company's principal properties:
SUBSIDIARY/ BUILDING SPACE/ PROPERTY LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE - -------------------- ------------------- -------- Thermal Dynamics/West Lebanon, New Hampshire............................ 187,000 sq. ft 8.0 acres 5 buildings (office, manufacturing, sales training, future expansion) Tweco/Wichita, Kansas.................. 220,816 sq. ft 21.7 acres 3 buildings (office, manufacturing, storage space) Victor/Denton, Texas................... 222,403 sq. ft 30.0 acres 4 buildings (office, manufacturing, storage, sales training center) Victor/Abilene, Texas.................. 123,740 sq. ft 32.0 acres 1 building (office, manufacturing) Victor Brazil/Rio de Janeiro, Brazil... 200,000 sq. ft 6.0 acres 6 buildings (office, manufacturing, warehouse) Thermadyne Canada/Oakville, Ontario, Canada............................... 57,000 sq. ft 8.3 acres 1 building (office, warehouse) Modern Engineering Company/Gallman, Mississippi.......................... 60,000 sq. ft 9.0 acres 1 building (office, manufacturing) Thermadyne Australia/Melbourne, Australia............................ 588,000 sq. ft 32.4 acres 8 buildings (office, manufacturing, storage, research) Comweld Philippines/Cebu, Philippines.......................... 41,380 sq. ft 1.2 acres 1 building (office, manufacturing) Comweld Indonesia/Jakarta, Indonesia... 52,500 sq. ft 2.1 acres 1 building (office, manufacturing) Comweld Malaysia/Kuala Lumpur, Malaysia............................. 56,000 sq. ft, 2.2 acres 1 building (office, manufacturing, warehouse) C&G/Itasca, Illinois................... 38,000 sq. ft 2.0 acres 1 building (office, manufacturing, future expansion) Stoody/Bowling Green, Kentucky......... 185,000 sq. ft 37.0 acres 1 building (office, manufacturing)
8 9
SUBSIDIARY/ BUILDING SPACE/ PROPERTY LOCATION OF FACILITY NUMBER OF BUILDINGS SIZE - -------------------- ------------------- -------- GenSet/Pavia, Italy.................... 193,000 sq. ft 7.9 acres 2 buildings (office, manufacturing, warehouse) OCIM/Milan, Italy...................... 10,000 sq. ft 0.5 acre 1 building (office, manufacturing) Thermal Arc/Troy, Ohio................. 120,000 sq. ft 6.5 acres 1 building (office, manufacturing, warehouse, sales training) Victor Gas/Conshohocken, Pennsylvania......................... 18,000 sq. ft 7.0 acres 1 building (office, manufacturing)
All of the above facilities are leased, except for the facilities located in Melbourne, Cebu, Pavia, Rio de Janeiro and Gallman, which are owned. The facility in Gallman is unoccupied and currently listed for sale. The Company also has additional assembly and warehouse facilities in Canada, the United Kingdom, Italy, Japan, Singapore, Mexico, the Philippines, Indonesia, Brazil and Australia. In addition, the Company has subleased 295,000 square feet of its 325,000-square-foot facility in City of Industry, California, which formerly was the manufacturing facility for certain products now manufactured at the Company's Bowling Green, Kentucky facility. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to ordinary litigation incidental to its businesses, including a number of product liability cases seeking substantial damages. The Company maintains insurance against any product liability claims. Coverage for most years has a $500,000 self insured retention with $500,000 of primary insurance per claim. In addition, the Company maintains umbrella policies providing an aggregate of $50,000,000 in coverage for product liability claims. Although it is difficult to predict the outcome of litigation with any certainty, the Company believes that the liabilities which might reasonably result from such lawsuits, to the extent not covered by insurance, will not have a material adverse effect on the Company's financial condition or results of operations. The Company's operations are subject to federal, state, local and foreign laws and regulations relating to the storage, handling, generation, treatment, emission, release, discharge and disposal of certain substances and wastes. The Company is currently not aware of any citations or claims filed against it by any local, state, federal and foreign governmental agencies, which, if successful, would have a material adverse effect on the Company's financial condition or results of operations. The Company may be required to incur costs relating to remediation of properties, including properties at which the Company disposes waste, and environmental conditions could lead to claims for personal injury, property damage or damages to natural resources. The Company is aware of environmental conditions at certain properties which it now owns or leases or previously owned or leased which are undergoing remediation. The Company does not believe that the cost of such remediation will have a material adverse effect on the Company's business, financial condition or results of operations. Certain environmental laws, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act and the equivalent state laws, provide for strict, joint and several liability for investigation and remediation of spills or other releases of hazardous substances. Such laws may apply to conditions at properties presently or formerly owned or operated by the Company or by its predecessors or previously owned business entities, as well as to conditions at properties at which wastes or other contamination attributable to the Company or its predecessors or previously owned business entities come to be located. The Company has in the past and may in the future be named a potentially responsible party at off-site 9 10 disposal sites to which it has sent waste. The Company does not believe that the ultimate cost relating to such sites will have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the shareholders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock began trading on The NASDAQ Stock Market ("NASDAQ") on May 17, 1994. On October 15, 1998 the NASDAQ delisted the Common Stock. Following its delisting from NASDAQ, the Common Stock traded in the over the counter market. The following table shows, for the periods indicated, the high and low sale prices of a share of the Common Stock for the fiscal years 1998 and 1999 as reported by published financial sources.
CLOSING SALE PRICE($) ------------- HIGH LOW ---- --- 1998 First Quarter............................................. 34 1/4 28 Second Quarter............................................ 47 37 3/8 Third Quarter............................................. 40 5/8 24 Fourth Quarter............................................ 29 1/16 15 1999 First Quarter............................................. 20 13 Second Quarter............................................ 20 16 Third Quarter............................................. 22 7/8 18 3/4 Fourth Quarter............................................ 23 1/2 19 1/2
On March 20, 2000 the last reported bid price for the Common Stock as reported by published financial sources was $19.50 per share. As of March 10, 2000 there were approximately 84 holders of record of Common Stock. The Company has historically not paid any cash dividends on Common Stock and it does not have any present intention to commence payment of any cash dividends. The Company intends to retain earnings to provide funds for the operation and expansion of the Company's business and to repay outstanding indebtedness. The Company's debt agreements contain certain covenants restricting the payment of dividends on, or repurchases of, Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." 10 11 ITEM 6. SELECTED FINANCIAL DATA. The selected financial data for and as of each of the years in the five-year period ended December 31, 1999 set forth below has been derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements including the notes thereto in each case included elsewhere herein.
FISCAL YEAR ENDED DECEMBER 31, ----------------------------------------------- 1995(1) 1996(1) 1997 1998 1999 ------- ------- ------- ------- ------- (IN MILLIONS, EXCEPT PER SHARE DATA) Operating Results Data: Net sales.................................. $ 316.8 $ 439.7 $ 520.4 $ 532.8 $ 521.1 Cost of goods sold......................... 176.0 259.8 320.0 340.2 342.2 Selling, general and administrative expenses................................ 72.4 95.9 110.7 102.6 99.2 Amortization of goodwill(2)................ 92.9 83.0 1.6 1.5 1.6 Amortization of intangibles(3)............. 48.4 12.4 6.8 2.4 3.0 Net periodic postretirement benefits....... 2.1 2.7 2.8 2.6 3.2 Special charges............................ 2.3 -- -- 50.5 21.9 ------- ------- ------- ------- ------- Operating income (loss).................... (77.3) (14.1) 78.5 33.0 50.0 Interest expense........................... 41.3 45.7 45.3 62.2 72.4 Other expense, net......................... 4.8 3.7 4.6 5.6 3.1 Income (loss) from continuing operations available to common shares.............. (131.8) (62.9) 15.1 (46.2) (34.3) Income (loss) per share from continuing operations: Basic................................... (12.97) (5.83) 1.36 (7.95) (11.68) Diluted................................. (12.97) (5.83) 1.33 (7.95) (11.68) Consolidated Balance Sheet Data: Working capital(4)......................... $ 52.3 $ 67.6 $ 88.5 $ 121.2 $ 121.3 Total assets............................... 416.4 353.4 354.5 420.2 400.4 Total debt................................. 456.5 421.3 358.1 710.7 729.4 Total shareholders' equity (deficit)....... (132.2) (185.3) (162.8) (496.3) (534.1) Consolidated Cash Flow Data: Net cash provided by (used in) operating activities.............................. $ 31.2 $ 21.5 $ 15.0 $ (50.3) $ 53.9 Net cash provided by (used in) investing activities.............................. (15.7) 18.7 36.8 (39.5) (17.1) Net cash provided by (used in) financing activities.............................. (20.9) (40.6) (51.7) 89.7 (24.8) Other Data: Adjusted EBITDA(5)......................... $ 74.6 $ 95.7 $ 102.1 $ 105.1 $ 98.6 Depreciation............................... 8.5 11.7 12.5 15.1 18.9 Capital expenditures....................... 7.2 11.4 16.3 17.5 10.2
- --------------- (1) In 1996 the Company announced plans to sell, and in 1997 consummated the sale of, its wear resistance business and in late 1995 announced its plans to sell, and in 1996 consummated the sale of, its gas containment and floor maintenance businesses. These businesses are accounted for as discontinued operations in the Company's consolidated financial statements. (2) In conjunction with the Restructuring, the Company's assets and liabilities were revalued at the effective date thereof. The assets and liabilities were stated at their reorganization value. The portion of the reorganization value not attributable to specific assets was amortized over a three-year period. (3) Includes $33.0 million in 1995 related to the write-down of intangible assets in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 121. (4) Excludes net assets of discontinued operations. 11 12 (5) "Adjusted EBITDA" is defined as operating income plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense and special charges and is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles). Adjusted EBITDA is also one of the financial measures by which the Company's compliance with its covenants is calculated under its debt agreements. The Company believes that Adjusted EBITDA is a useful supplement to net income (loss) and other consolidated statement of operations data in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, the Company's method of computation may or may not be comparable to other similarly titled measures of other companies. In addition, Adjusted EBITDA is not necessarily indicative of amounts that may be available for discretionary uses and does not reflect any legal or contractual restrictions on the Company's use of funds. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. OVERVIEW Thermadyne, through its subsidiaries, is engaged in the design, manufacture and distribution of cutting and welding products and accessories. Since 1994, the Company has embarked on a strategy designed to focus its business exclusively on the cutting and welding industry and enhance the Company's market position within that industry. The following is a discussion and analysis of the consolidated financial statements of the Company. The Company conducts its operations through its wholly owned subsidiary Thermadyne LLC. The accompanying consolidated financial statements for the Company and Thermadyne LLC are substantially the same except for certain debt and equity securities issued by the Company, and therefore, a separate discussion of Thermadyne LLC is not presented. Included in the following discussions are comparisons of Adjusted EBITDA which is defined as operating income plus depreciation, amortization of goodwill, amortization of intangibles, net periodic postretirement benefits expense and special charges and is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with generally accepted accounting principles). Adjusted EBITDA is also one of the financial measures by which the Company's compliance with its covenants is calculated under its debt agreements. The Company believes that Adjusted EBITDA is a useful supplement to net income (loss) and other consolidated statement of operations data in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, the Company's method of computation may or may not be comparable to other similarly titled measures of other companies. In addition, Adjusted EBITDA is not necessarily indicative of amounts that may be available for discretionary uses and does not reflect any legal or contractual restrictions on the Company's use of funds. RESULTS OF OPERATIONS The following discussion of results of operations is presented for the fiscal years ended December 31, 1997, 1998 and 1999. The results of operations of the Company include the operations of GenSet, Arcsys, Victor Gas, Pro-tip, Mid-America, OCIM, Victor Brazil, Tecmo and Soltec from their respective dates of acquisition. 1999 COMPARED TO 1998 Net Sales Net sales for the year ended December 31, 1999 were $521.1 million compared to net sales of $532.8 million for the year ended December 31, 1998, a decrease of $11.7 million, or 2.2%. Domestic sales were $322.2 million, a decrease of $11.2 million from 1998 domestic sales of $333.4 million. This 3.4% decrease is the result of the continued weak demand in most of the Company's domestic industrial markets. International sales were $198.9 million in 1999 which is essentially equal to 1998 international sales of $199.4 million. Excluding the results of businesses acquired in Europe and South America in 1999, international sales decreased $17.1 million, or 8.6%. Sales in Asia and Canada increased in 1999, up 11.2% and 6.0%, respectively, over 1998 sales. Sales in Australia continue to decline, down 9.0% in 1999, as the 12 13 Australian economy remains weakened from the economic crisis that hit Asia and Australia in late 1997. Sales in Latin America increased 26.0% in a comparison of 1999 and 1998 due to acquisitions in the area since September 1998. Excluding the results of these acquired businesses, sales in Latin America decreased 14.4% in 1999. This decrease resulted from weak economic conditions prevalent throughout the region and unfavorable currency fluctuations, particularly the Brazilian real against the U.S. dollar. The increase in sales reported for Europe was 3.3%, but when excluding the results of an April 1999 acquisition, sales in Europe in 1999 actually decreased 8.1% due in large part to weak demand in many of the industrial sectors of the European market. Costs and Expenses Cost of goods sold as a percentage of sales was 65.7% and 63.9% for the years ended December 31, 1999 and 1998, respectively. A major Company initiative in 1999 was to reduce working capital levels. This included eliminating a large number of low-volume, nonstrategic items from the Company's product offerings and liquidating slow-moving and excess inventory. In addition, lower sales brought on by a depressed industrial economy have resulted in a more competitive, price-driven market. The focus on working capital and a decrease in sales have combined to lower the volume of product flowing through the factories and the related absorption of fixed factory overhead. Selling, general and administrative expenses were $99.2 million in 1999, a decrease of $3.4 million, or 3.3%, from $102.6 million in 1998. Excluding the incremental expenses related to acquisitions, this decrease is 5.7%. As a percentage of sales, selling, general and administrative expenses were 19.0% and 19.2% for the years ended December 31, 1999 and 1998, respectively. Cost reduction programs implemented in the past two years continue to produce positive results for the Company. Special charges of $21.9 million were recorded in 1999. These charges related to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with junior subordinated notes. In 1998, special charges of $50.5 million were recorded related to the Merger and headcount reductions. Interest expense was $72.4 million in 1999, an increase of $10.3 million, or 16.6%, from interest expense of $62.2 million in 1998. The average level of debt outstanding in 1999 was higher than that in 1998 as a result of the Merger in May 1998. Related amortization of deferred financing costs was also higher in 1999 as a result of the Merger, increasing $0.9 million to $3.6 million in 1999 compared to $2.7 million in 1998. An income tax provision of $8.8 million was recorded in 1999 on a pre-tax loss of $25.5 million. The 1999 income tax provision differs from that determined by applying the U.S. federal statutory rate primarily due to the issuance of warrants for the purchase of the Company's common stock, the disallowance of foreign losses and an increase in the valuation allowance for deferred tax assets. In 1998, an income tax provision of $11.4 million was reported on a pre-tax loss of $34.8 million. Non-deductible expenses recorded in connection with the Merger and an increase in the valuation allowance for deferred tax assets result in an income tax provision different than that determined by applying the U.S. federal statutory rate. Adjusted EBITDA Adjusted EBITDA in 1999 was $98.6 million, or 18.9% of net sales. In 1998, Adjusted EBITDA was $105.1 million, or 19.7% of net sales. 1998 COMPARED TO 1997 Net Sales Net sales from continuing operations for the year ended December 31, 1998 were $532.8 million, an increase of $12.3 million, or 2.4%, over net sales from continuing operations of $520.4 million for the year ended December 31, 1997. Domestic sales increased 10.6% in 1998, including $13.9 million related to acquisitions. Excluding acquisitions, domestic sales increased 6.0% in 1998, which is largely the result of successful new product introductions and marketing programs. International sales decreased 9.0% in a 13 14 comparison of 1998 and 1997. Results in Asia and Australia continue to significantly impact consolidated results. Combined sales in those regions decreased 27.4% in 1998. Approximately 70% of this decrease related to changes in currency exchange rates. Also included in the overall 9.0% international sales decrease is $4.5 million in sales attributable to a recently acquired company in Brazil. Excluding the effects of the decreases in Asia and Australia, and the acquisition in Brazil, international sales increased 7.7% in 1998 compared to 1997. Costs and Expenses Cost of goods sold from continuing operations as a percentage of sales for the year ended December 31, 1998 was 63.9% compared to 61.5% for the year ended December 31, 1997. Acquisitions continue to put downward pressure on gross margins as the Company expands its product line in the cutting and welding industry which often includes adding lower gross margin businesses. Current sales mix is also influencing the gross margin percentage as the Company is experiencing growth in some of it's lower margin product lines, which results in a lower overall gross margin percentage. Cost of goods sold as a percentage of sales would have been 63.3%, excluding the effect of acquisitions. Selling, general and administrative expenses from continuing operations decreased $8.1 million, or 7.4%, from $110.7 million for the year ended December 31, 1997 to $102.6 million for the year ended December 31, 1998. As a percentage of sales, selling, general and administrative expenses were 19.2% for the year ended December 31, 1998 compared to 21.3% for the year ended December 31, 1997. This decrease in costs is primarily the result of a broad cost reduction program implemented by the Company in 1998. Amortization of other intangibles decreased 65.2%, or $4.4 million, to $2.4 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. This decrease results from events that occurred during 1997, including the recognition of net operating loss carryforward benefits and the sale of the wear resistance business. Special charges of $50.5 million in 1998 are the result of the Merger and headcount reductions in the third and fourth quarters. The amounts applicable to these two events were $44.2 million, and $6.3 million, respectively. Interest expense increased $16.8 million in 1998 to $62.2 million, from $45.3 million in 1997. This 37.1% increase resulted from increased debt levels as a result of the Merger. Amortization of deferred financing costs was $2.7 million for the year ended December 31, 1998 compared to $1.6 million for the year ended December 31, 1997. This $1.1 million, or 70.1%, increase is a result of Merger-related debt placement costs. An income tax provision of $11.4 million was reported for the year ended December 31, 1998 on a pre-tax loss of $34.8 million. An income tax provision of $13.5 million was reported for the year ended December 31, 1997 on pre-tax income of $28.5 million. The 1998 income tax provision differs from the amount determined by applying the U.S. federal statutory rate to pre-tax loss primarily as a result of certain non-deductible expenses recorded in connection with the Merger as well as an increase in the valuation allowance for deferred tax assets. The 1997 income tax provision differs from the amount determined by applying the U.S. federal statutory rate to pre-tax income primarily as a result of non-deductible goodwill amortization and other non-deductible expenses. Adjusted EBITDA Adjusted EBITDA was $105.1 million, or 19.7% of net sales, for the year ended December 31, 1998. This compares to Adjusted EBITDA from continuing operations of $102.1 million for the year ended December 31, 1997, which is 19.6% of net sales. 14 15 Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm or forecasted commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. LIQUIDITY AND CAPITAL RESOURCES Working Capital and Cash Flows. Cash provided by operating activities was $53.9 million for the year ended December 31, 1999, an increase of $104.2 million over cash used by operating activities of $50.3 million for the year ended December 31, 1998. This increase in cash provided by operating activities is the result of an increase in earnings, adjusted for non-cash expenses, of $44.5 million plus a net decrease in operating assets and liabilities of $59.7 million in 1999 compared to 1998. The net loss reported in 1999 was $27.0 million less than that reported in 1998 primarily due to a decrease in special charges and extraordinary items of $43.8 million partially offset by increases in certain other expenses and non-cash items. A focus on reducing working capital provided a significant amount of cash in 1999. Net increases in cash flow in 1999, as compared to 1998, as a result of this initiative were $27.5 million in accounts receivable, $44.9 million in inventory and $7.9 million in accounts payable. Prepaid expenses and accrued interest were also net providers of cash in the amounts of $0.9 million and $2.4 million, respectively. These cash inflows were partially offset by increases in the use of cash of $13.3 million in accrued liabilities, $9.7 million in income taxes payable and $0.9 million in other long-term liabilities. The use of cash by accrued liabilities is the result of lower rebate and bonus accruals at December 31, 1999, compared to the prior year and the reduction of the severance and restructuring accruals due to payments throughout 1999. Net cash used in investing activities was $17.1 million in 1999, down $22.4 million from a $39.5 million use of cash in 1998. This decrease is primarily the result of the Company spending $13.1 million less on acquisitions and $7.3 million less on capital expenditures. Financing activities used $24.8 million in cash in the twelve months ended December 31, 1999, compared to providing cash of $89.7 million in the twelve months of the prior year. In 1999, $23.8 million was used in terminating the Company's accounts receivable securitization and an additional $0.9 million was used for financing fees. These uses of cash were offset by cash provided by net borrowings of $3.4 million, including $25.0 million in proceeds from the issuance of Junior Subordinated Notes, and other financing activities of $6.1 million. In 1998, the issuance of debt and equity securities in conjunction with the Merger provided $116.7 million in cash. This was partially offset by cash used for financing fees of $23.8 million and cash used in the accounts receivable securitization of $4.5 million. Capital Expenditures. The Company had $10.2 million of capital expenditures related to continuing operations in 1999. The Company's new senior secured loan facility (the "New Credit Facility") contains restrictions on the Company's ability to make capital expenditures. Based on present estimates, management believes that the amount of capital expenditures permitted to be made under the New Credit Facility will be adequate to maintain the properties and businesses of the Company's continuing operations. Liquidity. The Company's principal sources of liquidity are cash flow from operations and borrowings under the New Credit Facility. The Company's principal uses of cash will be debt service requirements, capital expenditures, acquisitions and working capital. The Company expects that ongoing requirements for debt service, capital expenditures and working capital will be funded from operating cash flow and borrowings under the New Credit Facility. In connection with future acquisitions, the Company may require additional funding which may be provided in the form of additional debt, equity financing or a combination thereof. There can be no assurance that any such additional financing will be available to the Company on acceptable terms, if at all. 15 16 The term loan facility under the New Credit Facility consists of (i) a $100 million Term A loan, (ii) a $115 million Term B loan, and (iii) a $115 million Term C loan. The Term A loan will mature in 2004, the Term B loan will mature in 2005 and the Term C loan will mature in 2006. The New Credit Facility also includes a $100 million revolving credit facility, which is subject to increase by up to $25 million upon request by Thermadyne LLC and which will terminate six years after the closing date. On November 10, 1999, the Company amended the New Credit Facility to allow the restructuring of certain of its manufacturing operations and to adjust its financial covenants. In accordance with the amendment, the rate at which the New Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the administrative agent's alternative base rate or the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.50% for revolving and Term A loans, (y) 1.75% for Term B loans and (z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75% for revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for Term C loans. The applicable margin may vary based on Thermadyne LLC's ratio of consolidated indebtedness to Adjusted EBITDA. In addition, the amendment required the issuance of $25.0 million of Junior Subordinated Notes with detachable warrants for the purchase of the Company's common stock. Thermadyne LLC's obligations under the New Credit Facility are secured by substantially all of the assets of Thermadyne LLC, including a pledge of the capital stock of all of its subsidiaries, subject to certain limitations with respect to foreign subsidiaries. In addition, the Company has guaranteed the obligations of Thermadyne LLC under the New Credit Facility. Such guarantee is the only recourse to the Company's pledge of all of the outstanding capital stock of Thermadyne LLC to secure Thermadyne LLC's obligations under the New Credit Facility. The New Credit Facility contains customary covenants and events of default including substantial restrictions on Thermadyne LLC's ability to make dividends or other distributions to the Company. Mercury issued 12 1/2% Senior Discount Debentures (the "Debentures") which became obligations of the Company following the Merger and are not guaranteed by Thermadyne LLC or any of its consolidated subsidiaries. The debentures will mature in 2008 and will not require cash interest payments until 2003. The debentures contain customary covenants and events of default, including covenants that limit the ability of the Company and its subsidiaries to incur debt, pay dividends and make certain investments. Thermadyne LLC and Thermadyne Capital issued 9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"), which were guaranteed by certain of the Company's domestic subsidiaries. Interest on the Senior Subordinated Notes will be payable semiannually in cash. The Senior Subordinated Notes contain customary covenants and events of default, including covenants that limit the ability of Thermadyne LLC and its subsidiaries to incur debt, pay dividends and make certain investments. The Company anticipates that its operating cash flow, together with borrowings under the New Credit Facility, will be sufficient to meet its anticipated future operating expenses and capital expenditures and to service its debt requirements as they become due. However, the Company's ability to make scheduled payments of principal of, to pay interest on or to refinance its indebtedness and to satisfy its other debt obligations will depend upon its future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond its control. MARKET RISK AND RISK MANAGEMENT POLICIES The Company's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. The Company is also exposed to changes in interest rates from its long-term debt arrangements. See Item 7A "Quantitative and Qualitative Disclosures About Market Risk" for further discussion. EFFECT OF INFLATION; SEASONALITY Inflation has not been a material factor affecting the Company's business. In recent years, the cost of electronic components has remained relatively stable due to competitive pressures within the industry, which 16 17 has enabled the Company to contain its service costs. The Company's general operating expenses, such as salaries, employee benefits, and facilities costs, are subject to normal inflationary pressures. The operations of the Company are generally not subject to seasonal fluctuations. YEAR 2000 COMPLIANCE Year 2000 Issue To date, the Company has not experienced any material Year 2000 problems in products that it sells or in its internal systems. While we are not currently aware of any internal or external Year 2000 failures impacting our operations or those of our customers due to Year 2000 failures of our products, we continue to monitor the compliance of our products and internal systems, as well as third party software purchased from suppliers prior to January 1, 2000. Although we believe that we have successfully modified our products, services and internal systems as necessary to be Year 2000-compliant, we cannot be sure that our products or our internal systems do not contain undetected errors or defects associated with Year 2000 functions that may manifest themselves over time and may result in a material adverse impact on the Company's business, financial condition, or results of operations. With regard to the Company's products, the most likely worst-case scenario with respect to any Year 2000 problems will be insignificant given the mechanical nature of the vast majority of the products. With regard to the Company's internal systems, and products and services acquired from third-party suppliers, the most likely worst-case scenario will be a delayed Year 2000-related failure. Information technology staff have continued testing internal systems after the rollover date of January 1, 2000, and as of the date hereof, have detected no errors or malfunctions resulting from Year 2000 issues. Information technology staff will continue to monitor internal systems and investigate reports of Year 2000-related errors or failures in our products well into the future. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. A substantial portion of the Company's operations consist of manufacturing and sales activities in foreign regions, particularly Europe, Australia/Asia, Canada and South America. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products. The Company's exposure to foreign currency transactions is partially mitigated by having manufacturing locations in Australia, Italy, Indonesia, Malaysia, the Philippines and Brazil as well as in the United States. A substantial portion of the product manufactured in these regions is sold locally and denominated in the local currency. A significant amount of the export sales from the U.S. are denominated in U.S. dollars which further limits the Company's exposure to changes in the exchange rates. The Company is most susceptible to a strengthening U.S. dollar and the negative effect when local currency financial statements are translated into U.S. dollars, the Company's reporting currency. The Company does not believe its exposure to transaction gains or losses resulting from changes in foreign currency exchange rates is material to its financial results. As a result, the Company does not actively try to manage its exposure through foreign currency forward or option contracts. The Company is also exposed to changes in interest rates primarily from its long-term financial arrangements which are predominantly denominated in U.S. dollars. At December 31, 1999, the Company had approximately $294.8 million of variable rate U.S. debt. The Company limited its exposure to variations in the interest rate by entering into an interest rate swap arrangement effective January 1, 1999, with respect to approximately $61.5 million of this debt. The Company also has approximately $19.9 million and $10.5 million of variable rate debt denominated in Australian dollars and Italian lira, respectively. A hypothetical 100 basis point increase in the Company's variable borrowing rates would result in an increase in interest expense of approximately $2.6 million for the year ended December 31, 1999. 17 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements that are filed as part of this Annual Report on Form 10-K are set forth in the Index to Consolidated Financial Statements at page F-1 hereof and are included at pages F-2 to F-54 thereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information concerning the current directors and executive officers of the Company. Each officer of the Company serves in the same capacity for Thermadyne LLC and Thermadyne Capital.
NAME AGE POSITION(S) - ---- --- ----------- Randall E. Curran...................... 45 Director of the Company, Thermadyne LLC and Thermadyne Capital, Chairman of the Board, President and Chief Executive Officer James H. Tate.......................... 52 Director of the Company, Thermadyne LLC and Thermadyne Capital, Senior Vice President and Chief Financial Officer Peter T. Grauer........................ 54 Director of the Company, Thermadyne LLC and Thermadyne Capital William F. Dawson, Jr. ................ 35 Director of the Company, Thermadyne LLC and Thermadyne Capital John F. Fort III....................... 58 Director of the Company Harold A. Poling....................... 74 Director of the Company Lawrence M.v.D. Schloss................ 45 Director of the Company Stephanie N. Josephson................. 46 Vice President, General Counsel and Corporate Secretary Thomas C. Drury........................ 43 Vice President, Human Resources Robert D. Maddox....................... 40 Vice President and Corporate Controller
Mr. Curran has been a Director of the Company since February 1994 and was elected Chairman of the Board and Chief Executive Officer in February 1995, having previously served as President of the Company from August 1994 and as Executive Vice President and Chief Operating Officer of the Company from February 1994. From 1992 to 1994 Mr. Curran was President of the cutting and welding division of the Company. From 1986 to 1992, Mr. Curran was Chief Financial Officer of the Company and/or its predecessors. Prior to 1986, Mr. Curran held various executive positions with Cooper Industries, Inc. Mr. Curran presently serves on the boards of directors of Insilco Holding Co. and the Whitfield School. Mr. Tate has been a Director of the Company since October 1995. He was elected Senior Vice President and Chief Financial Officer of the Company in February 1995, having previously served as Vice President of the Company and Vice President and Chief Financial Officer of the Company's subsidiaries since April 1993. Prior to joining the Company, Mr. Tate was employed by the accounting firm of Ernst & Young LLP for eighteen years, the last six of which he was a partner. Mr. Tate currently serves on the board of directors of Rowe International, Inc. Mr. Grauer has been a Director of the Company since May 1998. Mr. Grauer has been a Managing Director of DLJ Merchant Banking II, Inc. ("DLJMB II Inc.") (and its predecessor) since September 1992. Mr. Grauer is a director of Doane Pet Care Enterprises, Inc., Total Renal Care Holdings, Inc., Formica Corporation and Bloomberg, Inc. 18 19 Mr. Dawson has been a Director of the Company since May 1998. Mr. Dawson has been a Principal of DLJMB II Inc. since August 1997. From December 1995 to August 1997, he was a Senior Vice President in Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") High Yield Capital Markets Group. Prior thereto Mr. Dawson was a Vice President in the Leveraged Finance Group within DLJSC's Investment Banking Group. Mr. Dawson serves as a director of Von Hoffmann Corporation and Insilco Holding Co. Mr. Fort has been a Director of the Company since May 1998. Mr. Fort is currently Chairman of the Board of Mueller-Grinnel Corp. and Insilco Corp. Mr. Fort retired as Chairman of the Board of Tyco International Ltd. in January of 1993. In 1964, after receiving degrees in Aeronautical Engineering and Industrial Management from Princeton and the MIT Sloan School, respectively, he joined the Simplex Wire & Cable Company (now a subsidiary of Tyco). Mr. Fort held a broad range of positions throughout his thirty years at Tyco. He currently holds directorships at Tyco International, Ltd., Roper Industries, Manufacturers Services, Ltd. and DeCrane Aircraft Holding Co. He is an active participant on advisory boards at MIT, Princeton University, Full Circle Investments and the Appalachian Mountain Club. Mr. Poling has been a Director of the Company since May 1998. Mr. Poling retired as Chairman of the Board and Chief Executive Officer of Ford Motor Company on January 1, 1994, a position he held since 1990. Mr. Poling is a director of Shell Oil Company, Flint Ink Corporation, the Kellogg Company and Meritor Automotive, Inc. He is a board consultant for the LTV Corporation, a member of the DLJ Executive Advisory Board and a member of the board of directors and trustee of William Beaumont Hospital. Mr. Poling is a director of the Monmouth (Ill.) College Senate and a member of the Dean's Advisory Council for the Indiana University School of Business. He was national chairman of Indiana University's Annual Fund campaigns from 1986-88. Mr. Schloss has been a Director of the Company since May 1998. Mr. Schloss has been the Managing Partner of DLJMB II Inc. since November 1995. Prior to November 1995, he was the Chief Operating Officer and a Managing Director of DLJ Merchant Banking, Inc. Mr. Schloss currently serves as Chairman of the Board of McCulloch Corporation and as a director of Merrill Corporation. Ms. Josephson, having previously been elected Corporate Counsel and Corporate Secretary of the Company in March 1995, was elected Vice President and General Counsel in April 1995. Prior to joining the Company, Ms. Josephson was Corporate Counsel for Mills & Partners, Inc. from 1993 to 1995 and an Adjunct Professor at Saint Louis University School of Business in the MBA program from 1991 to 1993. Prior thereto, Ms. Josephson was employed in Houston, Texas as Counsel for Cooper Industries, Inc. and in private practice with the law firms Andrews & Kurth and Weycer and Kaplan from 1979 to 1991. Mr. Drury was elected Vice President -- Human Resources of the Company in March 1995. Prior to that time, Mr. Drury served as Director of Human Resources for the Company since November 1991. Prior to joining the Company, Mr. Drury was Manager -- Human Resources at McDonnell Douglas Systems Integration Company from 1988 through 1991. Mr. Maddox was elected Vice President and Corporate Controller of the Company in April 1996. Prior to that time, Mr. Maddox served as Vice President and Controller of the Company's operating subsidiaries from April 1995 to April 1996 and Controller from May 1992 to April 1995. Prior to joining the Company, Mr. Maddox was a senior audit manager with the accounting firm of Ernst & Young LLP. 19 20 ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth information in respect of the compensation of the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company (collectively, the "Named Executive Officers") for services in all capacities to the Company and its subsidiaries for the years ended December 31, 1999, 1998 and 1997. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL ------------ COMPENSATION SECURITIES ALL OTHER -------------------- UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1) - ------------------------------ ---- --------- -------- ------------ ------------ Randall E. Curran........................ 1999 564,724 134,600 -- 37,289 Chairman of the Board, President and 1998 538,400 506,634 99,397 36,282 Chief Executive Officer 1997 517,847 538,400 30,600 33,807 James H. Tate............................ 1999 316,962 58,313 -- 19,590 Director, Senior Vice President and Chief 1998 294,741 219,488 51,686 19,230 Financial Officer 1997 275,093 188,614 27,000 18,039 Stephanie N. Josephson................... 1999 208,962 28,188 -- 10,833 Vice President, General Counsel and 1998 181,577 94,935 10,603 10,248 Corporate Secretary 1997 168,719 84,625 10,000 10,210 Thomas C. Drury.......................... 1999 173,269 23,375 -- 8,275 Vice President -- Human Resources 1998 150,481 78,279 10,603 7,292 1997 132,206 66,479 10,000 7,444 Robert D. Maddox......................... 1999 173,269 23,375 -- 6,955 Vice President and Controller 1998 150,481 78,279 10,603 6,854 1997 134,254 67,417 5,000 7,749
- --------------- (1) All other compensation includes group life insurance premiums paid by the Company and contributions made on behalf of the Named Executive Officers to the Company's 401(k) retirement and profit sharing plan. The amounts of insurance premiums paid and 401(k) contributions made on behalf of the Named Executive Officers for 1999 are as follows: Mr. Curran $5,148 and $32,141, respectively; Mr. Tate, $3,497 and $16,093, respectively; Ms. Josephson, $1,716 and $9,117, respectively; Mr. Drury, $859 and $7,416, respectively; and Mr. Maddox, $389 and $6,566, respectively. OPTION GRANTS IN LAST FISCAL YEAR No stock options were granted to the Named Executive Officers in 1999. 20 21 The following table provides information related to the number and value of options held by the Named Executive Officers at the end of 1999. On December 31, 1999, the last reported close price for the Common Stock was $19.50. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END AT FISCAL YEAR-END ---------------------------- ---------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) (#) ($) ($) - ---- ----------- ------------- ----------- ------------- Randall E. Curran.......................... 17,891 81,506 -- -- James H. Tate.............................. 9,303 42,383 -- -- Stephanie N. Josephson..................... 1,908 8,695 -- -- Thomas C. Drury............................ 1,908 8,695 -- -- Robert D. Maddox........................... 1,908 8,695 -- --
All options currently outstanding were granted under the Management Incentive Plan. For a discussion of the Management Incentive Plan, see "Employment Arrangements". EMPLOYMENT ARRANGEMENTS Employment Contracts. The employment agreements with Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson have an original termination date of May 22, 2001; however, such agreements automatically renew for an additional year on each May 22 beginning in 1999 so that a new three-year term begins upon each extension (unless the agreements are earlier terminated as provided therein). Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson serve in their current executive capacities with the Company as a requirement of their respective employment agreements. Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson are entitled to annual base salaries (subject to increase at the Board of Directors' discretion) of $575,000, $326,500, $178,500, $178,500 and $215,300, respectively. In addition, Messrs. Curran, Tate, Drury and Maddox and Ms. Josephson are eligible to participate in an annual bonus plan providing for an annual bonus opportunity of not less than 100%, 75%, 55%, 55% and 55%, respectively, of such executive's base salary. Each executive is also entitled to such benefits as are customarily provided to the executives of the Company and its subsidiaries. All five executives are required to devote all of their business time and attention to the business of the Company and its subsidiaries. Each employment agreement provides that if the executive's employment ceases as a result of disability or death, the executive or the executive's estate, heirs or beneficiaries, as the case may be, will continue to receive the executive's then current salary for a period of 24 months from the date of his or her disability or death. If the executive's employment is terminated by the Company for Cause (as defined in each employment agreement) or voluntarily by the executive for any reason other than death, disability or upon a constructive termination (which includes, among other things, reduction of compensation, title, position or duties) the executive will not be entitled to receive compensation or any accrued benefits after the date of termination. If the executive's employment is terminated by the Company without Cause or is terminated by the executive upon a constructive termination, the executive will continue to receive his or her then current salary and other benefits provided by the agreement during the unexpired term of the agreement. Management Incentive Plan. The Management Incentive Plan provides for the granting of options to acquire up to 500,000 shares of Common Stock to certain officers and employees of the Company. All options are non-qualified stock options granted at 100% of the fair market value on the grant date. In fiscal 1999, options to purchase approximately 19,700 shares of Common Stock were granted under the Management Incentive Plan to certain officers and employees of the Company at an exercise price of $34.50 per option share. These options vest pro rata over five years. Pursuant to the terms of the Management Incentive Plan, 21 22 options granted to certain members of senior management provide for both a "Time Vesting Option" and a "Cliff Vesting Option." Under the Time Vesting Option, the option vests and is exercisable with respect to 20% of the shares subject to the option on the day it was granted. Then, on each of the first five anniversaries from that date the Time Vesting Option was granted, an additional 16% of the shares subject to the option vests and becomes exercisable as long as the option recipient is still employed by the Company or its subsidiaries. The Cliff Vesting Option becomes vested and exercisable with respect to 20% of the shares on the thirtieth day after the availability of the audited financial statements for each of the fiscal years ended December 31, 1998 through December 31, 2002, provided that the option recipient is still employed by the Company or its subsidiaries on such date of determination, and further provided, that the targeted implied common equity value of the Company was met for such fiscal year. If the targeted implied common equity value of the Company is not attained for any fiscal year ending on or before December 31, 2002, the Cliff Vesting Option will be treated as vested and exercisable if the target is attained for any subsequent year as long as the option recipient is still employed by the Company or its subsidiaries on such date of determination. If, after eight years from receipt of the Cliff Vesting Option, all shares subject to such option have not vested, such shares shall become fully vested and exercisable as long as the option recipient is still employed by the Company or its subsidiaries on such date. The following table sets forth the number of shares of Common Stock issuable upon the exercise of options granted to each Named Executive Officer under the Management Incentive Plan. MANAGEMENT INCENTIVE PLAN OPTION GRANTS
NAME TIME VESTING SHARES CLIFF VESTING SHARES - ---- ------------------- -------------------- Randall E. Curran................................. 49,699 49,698 James H. Tate..................................... 25,843 25,843 Stephanie N. Josephson............................ 5,302 5,301 Thomas C. Drury................................... 5,302 5,301 Robert D. Maddox.................................. 5,302 5,301
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee of the Board of Directors served as an officer or employee of the Company or any of its subsidiaries during 1999. COMPENSATION OF DIRECTORS Other than Messrs. Curran, Tate, Dawson, Schloss and Grauer, each director of the Company is entitled to receive a $12,000 annual retainer plus a $1,000 fee for each regular meeting of the Board of Directors attended and a $500 fee for each meeting of a board committee attended. Additionally, certain non-employee directors (as described in the Thermadyne Holdings Corporation 1998 Non-Employee Directors Stock Option Plan (the "Directors Plan")) are eligible to receive options under the Directors Plan. The Directors Plan provides that certain non-employee directors shall receive options to purchase 3,000 shares of Common Stock upon becoming a director and options to purchase 500 shares of Common Stock each year thereafter. All options are non-qualified stock options granted at 100% of the fair market value on the grant date. During 1999, the Board of Directors awarded each of Messrs. Fort and Poling options to purchase 500 shares of Common Stock at $34.50 per share pursuant to the Directors Plan. Directors also are reimbursed for all reasonable travel and other expenses of attending meetings of the Board of Directors or committees of the Board of Directors. 22 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of March 2, 2000, certain information regarding the ownership of Common Stock (i) by each person known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) by each director or director nominee of the Company, (iii) by each executive officer named in the Summary Compensation Table included elsewhere in this Annual Report on Form 10-K and (iv) by all current directors and executive officers of the Company as a group. Other than as set forth below, no director, director nominee, or executive officer of the Company is the beneficial owner of any shares of Common Stock. The Company believes that, unless otherwise noted, each person shown in the following table has sole voting and sole investment power with respect to the shares indicated.
BENEFICIAL OWNERSHIP OF COMMON STOCK ------------------------ NAME OF NUMBER PERCENT OF BENEFICIAL OWNER OF SHARES CLASS(1) - ---------------- ---------- ----------- DLJ Merchant Banking Partners II, L.P. and related investors(2).............................................. 3,399,089 84.4% Magten Asset Management Corp................................ 267,339 7.4% 35 East 21st Street New York, NY 10010(3) Randall E. Curran(4)........................................ 75,117 2.1% James H. Tate(5)............................................ 27,930 * Peter T. Grauer(6).......................................... -- * William F. Dawson, Jr.(6)................................... -- * John F. Fort III(7)......................................... 8,500 * Harold A. Poling(8)......................................... 55,400 1.5% Lawrence M.v.D. Schloss(6).................................. -- * Stephanie N. Josephson(9)................................... 14,126 * Thomas C. Drury(10)......................................... 11,556 * Robert D. Maddox(11)........................................ 12,124 * All directors and executive officers as a group (10 persons)(6)(12)........................................... 204,753 5.6%
- --------------- * Represents less than 1%. (1) Based on 3,590,326 shares of Common Stock outstanding at March 2, 2000 and calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (2) Consists of shares held directly by DLJMB and the following investors related to DLJMB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a Delaware limited partnership, DLJMB Funding II, Inc. ("Funding"), a Delaware corporation, DLJ Merchant Banking Partners II-A, L.P. ("DLJMBPIIA"), a Delaware limited partnership, DLJ Diversified Partners-A, L.P. ("Diversified A"), a Delaware limited partnership, DLJ Millennium Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited partnership, DLJ EAB Partners, L.P. ("EAB"), a Delaware limited partnership, UK Investment Plan 1997 Partners ("UK Partners"), a Delaware partnership, DLJ First ESC L.P. ("DLJ First ESC"), a Delaware limited partnership, and DLJ ESC II, L.P. ("DLJ ESC II"), a Delaware limited partnership. DLJMB, Offshore, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium, Millennium A, EAB, DLJ First ESC and DLJ ESC II are herein referred to as the "DLJ Funds."The address of each of DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium, Millennium A, EAB, DLJ First ESC and DLJ ESC II is 277 Park Avenue, New York, New York 10172. The address of Offshore is John B. Gorsiraweg, 14 Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is 2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. Includes 436,965 shares of Common Stock issuable upon exercise of warrants that are currently exercisable. (3) The following information is based on a Schedule 13D, dated July 25, 1996, as amended on September 25, 1996, on February 12, 1998, on March 9, 1998, and on June 10, 1998, filed with the 23 24 Securities and Exchange Commission (the "Commission") by Magten Asset Management Corp. ("Magten"), an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "Investment Advisers Act"). Magten has (i) shared voting power over 227,897 of the shares and no voting power over 39,442 of the shares and (ii) shared investment power over all 267,339 shares. (4) Includes 25,843 shares of Common Stock issuable to Mr. Curran upon the exercise of vested stock options or stock options that will vest within 60 days. (5) Includes 13,438 shares of Common Stock issuable to Mr. Tate upon the exercise of vested stock options or stock options that will vest within 60 days. (6) Messrs. Grauer, Dawson and Schloss are officers of DLJMB II Inc., the general partner of DLJMB. Share data shown for such individuals excludes shares shown as held by the DLJMB Funds, as to which such individuals disclaim beneficial ownership. (7) Includes 3,500 shares of Common Stock issuable to Mr. Fort upon the exercise of vested stock options or stock options that will vest within 60 days. (8) Includes 3,500 shares of Common Stock issued to Mr. Poling upon the exercise of vested stock options or stock options that will vest within 60 days. (9) Includes 2,756 shares of Common Stock issuable to Ms. Josephson upon the exercise of vested stock options or stock options that will vest within 60 days. (10) Includes 2,756 shares of Common Stock issuable to Mr. Drury upon the exercise of vested stock options or stock options that will vest within 60 days. (11) Includes 2,756 shares of Common Stock issuable to Mr. Maddox upon the exercise of vested stock options or stock options that will vest within 60 days. (12) Includes 54,549 shares of Common Stock issuable upon the exercise of vested stock options or stock options that will vest within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On December 22, 1999, the DLJ Funds purchased, for an aggregate purchase price of $25,000,000, pursuant to a Subscription Agreement ("Subscription Agreement") among the Company, Thermadyne Mfg. LLC (the "Subsidiary") and the DLJ Funds [defined elsewhere] dated December 22, 1999, a principal amount of $25,000,000 Junior Subordinated Notes due 2009 (the "Notes") of the Subsidiary and warrants to purchase 436,965 shares ("Warrants"). Each Warrant is exercisable at a price of $0.01 per Warrant Share (as defined below), subject to adjustment. The investment of additional capital in the Company and the Subsidiary was used for general corporate purposes. The Company, the Subsidiary and the DLJ Funds have entered into a Registration Rights Agreement which grants the holders of 50% or more of the Notes or Warrants the right to demand the Company or the Subsidiary, as the case may be, to effect a registration of the Notes or Warrants under the Securities Act of 1933, as amended (the "Act"). The Company is obliged to effect one demand registration for the Warrants and the Subsidiary is obliged to effect up to two demand registrations for the Notes. If any Warrants are included in a demand registration, the Company must prepare a shelf registration statement under Rule 415 of the Act permitting the resale of Warrants and the shares issuable upon exercise of the warrants ("Warrant Shares") and must use its best efforts to cause the warrant shelf registration statement to be declared effective within 90 days of the time such demand registration is effected. The Company must keep the warrant shelf registration statement effective until the earlier of (i) two years following the date as of which no Warrants remain outstanding and (ii) if all of the Warrants expire unexercised, December 15, 2009. The Company's registration obligations in respect of the Warrants shall expire on the earlier of (i) the date on which each Warrant or Warrant Share has been disposed of in accordance with a warrant registration statement or when such Warrant Share is issued upon exercise of a Warrant in accordance with a registration statement and (ii) the date on which each Warrant or Warrant Share is distributed to the public pursuant to Rule 144 under the Act. The Subsidiary's registration obligations in respect of the Notes shall expire on the 24 25 earlier of (i) the date on which each Note has been disposed in accordance with a note registration statement and (ii) the date on which each Note is distributed to the public pursuant to Rule 144 under the Act. The Registration Rights Agreement also grants "piggy-back" rights to the DLJ Funds to participate in certain registration statements filed by Thermadyne in respect of any equity securities of the Company. The Registration Rights Agreement also contains a "lock-up" provision pursuant to which the DLJ Funds may be restricted from transferring Notes or Warrants in public sales during an underwriter's public offering of Notes or Warrants. Pursuant to a letter agreement dated January 16, 1998 (the "Engagement Letter"), DLJMB engaged DLJSC to act as DLJMB's exclusive financial advisor for a period of five years (the "Engagement Period") with respect to the review and analysis of financial and structural alternatives available to the Company. DLJMB's obligations under the Engagement Letter have since been assumed by the Company. As compensation for the services to be provided by DLJSC under the Engagement Letter, DLJSC is entitled to receive an annual advisory fee of $300,000, payable quarterly in equal installments of $75,000. DLJSC is also entitled to reimbursement for all of its out-of-pocket expenses incurred in connection with its engagement. During the Engagement Period, DLJSC is also entitled to act as the Company's exclusive financial advisor, sole placement agent, sole initial purchaser, sole managing underwriter or sole dealer-manager, as the case may be, with respect to any Transaction (as hereinafter defined) the Company determines to pursue. The term "Transaction" includes the following: (i) the sale, merger, consolidation or any other business combination, in one or a series of transactions, involving any portion of the business, securities or assets of the Company; (ii) the acquisition (and any related matters such as financings, divestitures, etc.) in one or a series of transactions, of all or a portion of the business, securities or assets of another entity or person; (iii) any recapitalization, refinancing, repurchase or restructuring of the Company's equity or debt securities or indebtedness or any amendments or modifications to the Company's debt securities or indentures whether or not in connection therewith, involving, by or on behalf of the Company, an offer to purchase or exchange for cash, property, securities, indebtedness or other consideration, or a solicitation of consents, waivers of authorizations with respect thereto; (iv) any spin-off, split-off or other extraordinary dividend of cash, securities or other assets to stockholders of the Company; or (v) any sale of securities of the Company effected pursuant to a private sale or an underwritten public offering. The Company has agreed to indemnify and hold harmless DLJSC and its affiliates, and the respective directors, officers, agents and employees of DLJSC and its affiliates (each, an "Indemnified Person") from and against any losses, claims, damages, judgments, assessments, costs and other liabilities and will reimburse such Indemnified Persons for all fees and expenses (including the reasonable fees and expenses of counsel) as they are incurred in investigating, preparing, pursuing or defending any claim, action, proceeding or investigation arising out of or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to the Engagement Letter, the transactions contemplated by the Engagement Letter or any Indemnified Person's action or inactions in connection with any such advice, services or transactions, other than liabilities or expenses that are determined by a judgment of a court of competent jurisdiction to have resulted solely from such Indemnified Person's gross negligence or willful misconduct. The Engagement Letter makes available the resources of DLJSC concerning a variety of financial and operational matters. The services that have been and will continue to be provided by DLJSC could not otherwise be obtained by the Company without the addition of personnel or the engagement of outside professional advisors. In the opinion of management, the fees provided for under the Engagement Letter reasonably reflect the benefits received and to be received by the Company. Messrs. Grauer, Dawson and Schloss, directors of the Company, are officers of DLJMB II Inc., which is an affiliate of each of DLJMB, DLJSC, DLJ Capital Funding, Inc. and DLJ Bridge Finance, Inc. The Company has entered into the Investors' Agreement with the DLJMB Funds and the senior executive officers of the Company. The Investors' Agreement, among other things, contains provisions regarding the composition of the Board of Directors of the Company, grants the parties thereto certain 25 26 registration rights and contains provisions requiring the senior executive officers parties thereto to sell their shares of Common Stock in connection with certain sales of the Common Stock by the DLJMB Funds and granting the senior executive officers parties thereto the right to include a portion of their shares of Common Stock in certain sales of the Common Stock by the DLJMB Funds. In 1998, Messrs. Curran, Tate, Maddox and Drury and Ms. Josephson received secured, non-recourse loans from the Company in the amount of $1,249,890, $367,606, $237,630, $223,222 and $288,413, respectively, to purchase shares of the Company. The current principal balances of the loans are $1,284,957, $377,920, $244,297, $229,485 and $296,505, respectively. The loans bear interest at the rate of 5.69% per annum and are due in full on May 22, 2006. Upon the termination of a participant's employment with the Company, other than as a result of the participant's death, any outstanding loan will become due and payable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. FINANCIAL STATEMENT SCHEDULES Report of Ernst & Young LLP, Independent Auditors is included at page S-1 hereof. Schedule II -- Valuation and Qualifying Accounts is included at page S-2 hereof. All other schedules for which provision is made in the applicable accounting regulation of the Commission are not required under the related instructions or are inapplicable and therefore have been omitted. REPORTS ON FORM 8-K None. EXHIBITS
EXHIBIT NO. EXHIBIT ------- ------- 2.1 -- First Amended and Restated Plan of Reorganization of TDII Company under Chapter 11 of the Bankruptcy Code, confirmed by the United States Bankruptcy Court, District of Delaware, on January 18, 1994.(1) 2.2 -- Agreement and Plan of Merger, dated as of January 20, 1998, between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(2) 2.3 -- Amendment No. 1 to Agreement and Plan of Merger between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(3) 2.4 -- Certificate of Merger of Mercury Acquisition Corporation with and into Thermadyne Holdings Corporation.(3) 3.1 -- Certificate of Incorporation of Thermadyne Holdings Corporation.(included in Exhibit 2.4) 3.2 -- Bylaws of Thermadyne Holdings Corporation.(3) 3.3 -- Certificate of Incorporation of Thermadyne Capital Corp.(4) 3.4 -- Bylaws of Thermadyne Capital Corp.(4) 3.5 -- Limited Liability Company Agreement of Thermadyne Mfg. LLC.(4) 4.1 -- Indenture, dated as of May 22 1998, between Mercury Acquisition Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.2 -- First Supplemental Indenture, dated as of May 22, 1998, between Thermadyne Holdings Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3)
26 27
EXHIBIT NO. EXHIBIT ------- ------- 4.3 -- Form of 12 1/2% Senior Discount Debenture.(3) 4.4 -- A/B Exchange Registration Rights Agreement dated as of May 22, 1998, among Mercury Acquisition Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.5 -- Amendment to Registration Rights Agreement dated May 22, 1998, among Thermadyne Holdings Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.6 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and Chemical Bank, as Trustee, with respect to $179,321,000 principal amount of the Senior Subordinated Notes Due November 1, 2003.(1) 4.7 -- Form of Senior Subordinated Note (included in Exhibit 4.3).(1) 4.8 -- Indenture, dated May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and State Street Bank and Trust Company, as Trustee.(3) 4.9 -- Form of 9 7/8% Senior Subordinated Notes.(3) 4.10 -- A/B Exchange Registration Rights Agreement dated as of May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.11+ -- Subscription Agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein. 4.12+ -- Registration Rights Agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein. 4.13+ -- Form of Indenture relating to Junior Subordinated Notes. 4.14+ -- Form of Warrants (included in Exhibit 4.11). 4.15+ -- Form of Junior Subordinated Notes (included in Exhibit 4.11). 10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco Acquisition Company (now Thermadyne Holdings Corporation) and its subsidiaries and National Warehouse Investment Company.(5) 10.2 -- Escrow Agreement, dated as of August 11, 1988, among National Warehouse Investment Company, Palco Acquisition Company (now Thermadyne Holdings Corporation) and Title Guaranty Escrow Services, Inc.(5) 10.3 -- Amended and Restated Industrial Real Property Lease dated as of August 11, 1988, between National Warehouse Investment Company and Tweco Products, Inc., as amended by First Amendment to Amended and Restated Industrial Real Property Lease dated as of January 20, 1989.(5) 10.4 -- Schedule of substantially identical lease agreements.(5) 10.5 -- Amended and Restated Continuing Lease Guaranty, made as of August 11, 1988, by Palco Acquisition Company (now Thermadyne Holdings Corporation) for the benefit of National Warehouse Investment Company.(5) 10.6 -- Schedule of substantially identical lease guaranties.(5) 10.7 -- Lease Agreement, dated as of October 10, 1990, between Stoody Deloro Stellite and Bowling Green-Warren County Industrial Park Authority, Inc.(5) 10.8 -- Lease Agreement, dated as of February 15, 1985, as amended, between Stoody Deloro Stellite, Inc. and Corporate Property Associates 6.(5)
27 28
EXHIBIT NO. EXHIBIT ------- ------- 10.9 -- Receivables Purchase Agreement, dated as of December 28, 1994, among Thermadyne Receivables, Inc., as Transferor, and NationsBank of Virginia, N.A., as Trustee.(6) 10.10 -- Purchase Agreement, dated as of August 2, 1994, between Coyne Cylinder Company and BA Credit Corporation.(6) 10.11 -- Sublease Agreement, dated as of April 7, 1994, between Stoody Deloro Stellite, Inc., and Swat, Inc.(6) 10.12 -- Share Sale Agreement dated as of November 18, 1995, among certain scheduled persons and companies, Rosny Pty Limited, Byron Holdings Limited, Thermadyne Holdings Corporation, and Thermadyne Australia Pty Limited relating to the sale of the Cigweld Business.(7) 10.13 -- Rights Agreement dated as of May 1, 1997, between Thermadyne Holdings Corporation and BankBoston, N.A., as Rights Agent.(8) 10.14 -- First Amendment to Rights Agreement, dated January 20, 1998, between Thermadyne Holdings Corporation and BankBoston, N.A.(2) 10.15+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.16+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.17+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.18+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.19+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.20+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.21+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.22+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.23+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.24+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.25+ -- Thermadyne Holdings Corporation Management Incentive Plan.(3) 10.26+ -- Thermadyne Holdings Corporation Direct Investment Plan.(3) 10.27 -- Investors' Agreement dated as of May 22, 1998, between Thermadyne Holdings Corporation, the DLJ Entities (as defined therein) and the Management Stockholders (as defined therein).(3) 10.28 -- Credit Agreement dated as of May 22, 1998, between Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro Bank N.V., as Administrative Agent.(3)
28 29
EXHIBIT NO. EXHIBIT ------- ------- 10.29+ -- First Amendment to Credit Agreement, dated as of November 10, 1999, among Thermadyne Mfg. LLC., Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro N.V., as Administrative Agent. 10.30 -- Letter Agreement dated as of January 16, 1998, between Donaldson, Lufkin & Jenrette Securities Corporation and DLJ Merchant Banking II, Inc.(3) 10.31 -- Assignment and Assumption Agreement dated as of May 22, 1998, between DLJ Merchant Banking II, Inc. and Thermadyne Holdings Corporation.(3) 21.1 -- Subsidiaries of Thermadyne Holdings Corporation.* 23.1 -- Consent of Ernst & Young LLP, Independent Auditors.* 27.1 -- Financial Data Schedule.*
- --------------- + Indicates a management contract or compensatory plan or arrangement. * Filed herewith. (1) Incorporated by reference to the Company's Registration Statement on Form 10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on February 7, 1994. (2) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21, 1998. (3) Incorporated by reference to the Company's Registration Statement on Form S-1, (File No. 333-57455) filed on June 23, 1998. (4) Incorporated by reference to Thermadyne LLC and Thermadyne Capital's Registration Statement on Form S-1 (File No. 333-57457) filed on June 23, 1998. (5) Incorporated by reference to the Company's Registration Statement on Form 10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the Exchange Act, on April 28, 1994. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (7) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18, 1996. (8) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997. 29 30 THERMADYNE HOLDINGS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Thermadyne Holdings Corporation Report of Ernst & Young LLP, Independent Auditors......... F-2 Consolidated Balance Sheets at December 31, 1999 and 1998................................................... F-3 Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997...................... F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1999, 1998, and 1997................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997...................... F-6 Notes to Consolidated Financial Statements................ F-7 Thermadyne Mfg. LLC Report of Ernst & Young LLP, Independent Auditors......... F-26 Consolidated Balance Sheets at December 31, 1999 and 1998................................................... F-27 Consolidated Statements of Operations for the years ended December 31, 1999, 1998, and 1997...................... F-28 Consolidated Statements of Shareholder's Equity (Deficit) for the years ended December 31, 1999, 1998, and 1997................................................... F-29 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997...................... F-30 Notes to Consolidated Financial Statements................ F-31
F-1 31 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Thermadyne Holdings Corporation We have audited the accompanying consolidated balance sheets of Thermadyne Holdings Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thermadyne Holdings Corporation and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP St. Louis, Missouri February 11, 2000 F-2 32 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Current assets: Cash and cash equivalents................................. $ 13,321 $ 1,319 Accounts receivable, less allowance for doubtful accounts of $3,275 and $2,852, respectively..................... 94,731 87,905 Inventories............................................... 100,831 122,733 Prepaid expenses and other................................ 5,954 7,365 --------- --------- Total current assets.............................. 214,837 219,322 Property, plant and equipment, at cost, net................. 93,811 104,997 Deferred financing costs, net............................... 20,459 23,118 Intangibles, at cost, net................................... 40,170 39,159 Deferred income taxes....................................... 29,105 32,402 Other assets................................................ 2,014 1,251 --------- --------- Total assets...................................... $ 400,396 $ 420,249 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 41,773 $ 44,170 Accrued and other liabilities............................. 27,052 36,444 Accrued interest.......................................... 3,080 3,154 Income taxes payable...................................... 9,575 5,211 Current maturities of long-term obligations............... 12,080 9,180 --------- --------- Total current liabilities......................... 93,560 98,159 Long-term obligations, less current maturities.............. 717,322 701,529 Other long-term liabilities................................. 62,172 62,834 Redeemable preferred stock (paid in kind), $0.01 par value, 15,000,000 shares authorized and 2,000,000 shares issued and outstanding at December 31, 1999 and 1998............. 61,430 54,053 Shareholders' equity (deficit): Common stock, $.01 par value, 30,000,000 and 25,000,000 shares authorized, 3,590,326 and 3,236,898 shares issued and outstanding, at December 31, 1999 and 1998, respectively........................................... 36 32 Additional paid-in capital................................ (111,444) (116,551) Accumulated deficit....................................... (394,819) (360,520) Management loans.......................................... (3,966) (3,753) Accumulated other comprehensive loss...................... (23,895) (15,534) --------- --------- Total shareholders' deficit....................... (534,088) (496,326) --------- --------- Total liabilities and shareholders' deficit....... $ 400,396 $ 420,249 ========= =========
See accompanying notes to consolidated financial statements. F-3 33 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Net sales............................................... $521,115 $532,777 $520,440 Operating expenses: Cost of goods sold.................................... 342,250 340,236 320,120 Selling, general and administrative expenses.......... 99,151 102,554 110,696 Amortization of goodwill.............................. 1,575 1,524 1,591 Amortization of other intangibles..................... 3,047 2,360 6,776 Net periodic postretirement benefits.................. 3,200 2,550 2,750 Special charges....................................... 21,886 50,523 -- -------- -------- -------- Operating income........................................ 50,006 33,030 78,507 Other income (expense): Interest expense...................................... (72,439) (62,151) (45,325) Amortization of deferred financing costs.............. (3,590) (2,700) (1,587) Other................................................. 531 (2,939) (3,051) -------- -------- -------- Income (loss) from continuing operations before income taxes and extraordinary item.......................... (25,492) (34,760) 28,544 Income tax provision.................................... 8,807 11,415 13,475 -------- -------- -------- Income (loss) from continuing operations before extraordinary item.................................... (34,299) (46,175) 15,069 Discontinued operations: Gain on sale of discontinued operations, net of income taxes of $12,623................................... -- -- 16,015 Income from discontinued operations, net of income taxes.............................................. -- -- 3,173 -------- -------- -------- Income (loss) before extraordinary item................. (34,299) (46,175) 34,257 Extraordinary item -- loss on early extinguishment of long-term debt, net of income tax benefit of $8,151... -- (15,137) -- -------- -------- -------- Net income (loss)....................................... (34,299) (61,312) 34,257 Preferred stock dividends (paid in kind)................ 7,377 4,053 -- -------- -------- -------- Net income (loss) applicable to common shares........... $(41,676) $(65,365) $ 34,257 ======== ======== ======== Basic earnings (loss) per share amounts applicable to common shares: Income (loss) from continuing operations.............. $ (11.68) $ (7.95) $ 1.36 Net income (loss)..................................... $ (11.68) $ (10.35) $ 3.09 Diluted earnings (loss) per share amounts applicable to common shares: Income (loss) from continuing operations.............. $ (11.68) $ (7.95) $ 1.33 Net income (loss)..................................... $ (11.68) $ (10.35) $ 3.01
See accompanying notes to consolidated financial statements. F-4 34 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE COMMON PAID-IN ACCUMULATED MANAGEMENT INCOME STOCK CAPITAL DEFICIT LOANS (LOSS) TOTAL ------ ---------- ----------- ---------- ------------- --------- January 1, 1997.................. $110 $ 143,237 $(333,465) $ -- $ 4,849 $(185,269) Comprehensive income (loss): Net income..................... -- -- 34,257 -- -- 34,257 Other comprehensive loss -- foreign currency translation................. -- -- -- -- (17,623) (17,623) --------- Comprehensive income............. 16,634 --------- Exercise of stock options........ 1 1,498 -- -- -- 1,499 Stock issued under employee stock purchase plan.................. 1 1,993 -- -- -- 1,994 Recognition of net operating loss carryforwards.................. -- 2,295 -- -- -- 2,295 ---- --------- --------- ------- -------- --------- December 31, 1997................ 112 149,023 (299,208) -- (12,774) (162,847) Comprehensive loss: Net loss....................... -- -- (61,312) -- -- (61,312) Other comprehensive loss -- foreign currency translation................. -- -- -- -- (4,150) (4,150) --------- Comprehensive loss............... (65,462) --------- Exercise of stock options........ -- 624 -- -- -- 624 Merger........................... (80) (262,145) -- (3,632) 1,390 (264,467) Interest on management loans..... -- -- -- (121) -- (121) Accretion of preferred stock..... -- (4,053) -- -- -- (4,053) ---- --------- --------- ------- -------- --------- December 31, 1998................ 32 (116,551) (360,520) (3,753) (15,534) (496,326) Comprehensive loss: Net loss....................... -- -- (34,299) -- -- (34,299) Other comprehensive loss -- foreign currency translation................. -- -- -- -- (8,361) (8,361) --------- Comprehensive loss............... (42,660) --------- Exercise of warrants............. 4 (4) -- -- -- -- Issuance of warrants............. -- 9,175 -- -- -- 9,175 Interest on management loans..... -- -- -- (213) -- (213) Accretion of preferred stock..... -- (7,377) -- -- -- (7,377) Recognition of net operating loss carryforwards.................. -- 3,313 -- -- -- 3,313 ---- --------- --------- ------- -------- --------- December 31, 1999................ $ 36 $(111,444) $(394,819) $(3,966) $(23,895) $(534,088) ==== ========= ========= ======= ======== =========
See accompanying notes to consolidated financial statements. F-5 35 THERMADYNE HOLDINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Cash flows provided by (used in) operating activities: Net income (loss)................................. $(34,299) $(61,312) $ 34,257 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Net periodic postretirement benefits.......... 3,200 2,550 2,750 Depreciation.................................. 18,860 15,089 12,448 Amortization of goodwill...................... 1,575 1,524 1,591 Amortization of other intangibles............. 3,047 2,360 6,776 Non-cash interest expense..................... 13,134 7,270 -- Amortization of deferred financing costs...... 3,590 2,700 1,587 Recognition of net operating loss carryforwards............................... 3,313 -- 2,343 Deferred income taxes......................... 3,468 3,185 (1,836) Loss on asset disposal........................ 2,740 -- -- Issuance of stock warrants.................... 9,175 12,190 -- Non-cash portion of extraordinary item........ -- (2,272) -- Non-cash charges for discontinued operations.................................. -- -- 1,621 Gain on sale of discontinued operations....... -- -- (16,015) Changes in operating assets and liabilities: Accounts receivable........................... 19,239 (8,251) (19,905) Inventories................................... 25,425 (19,487) (17,228) Prepaid expenses and other.................... 1,638 728 (1,628) Accounts payable.............................. (3,751) (11,610) 20,605 Accrued and other liabilities................. (10,453) 2,809 (5,757) Accrued interest.............................. (71) (2,429) (258) Income taxes payable.......................... (1,818) 7,920 (3,498) Other long-term liabilities................... (4,126) (3,272) (3,152) Discontinued operations....................... -- -- 285 -------- -------- -------- Total adjustments........................ 88,185 11,004 (19,271) -------- -------- -------- Net cash provided by (used in) operating activities............................. 53,886 (50,308) 14,986 -------- -------- -------- Cash flows provided by (used in) investing activities: Capital expenditures, net....................... (10,168) (17,506) (16,339) Change in other assets.......................... (1,046) (3,046) 4,162 Acquisitions, net of cash....................... (5,886) (18,953) (37,895) Investing activities of discontinued operations.................................... -- -- (1,680) Proceeds from sale of discontinued operations... -- -- 88,543 -------- -------- -------- Net cash provided by (used in) investing activities............................. (17,100) (39,505) 36,791 -------- -------- -------- Cash flows provided by (used in) financing activities: Change in long-term receivables................. (353) 638 170 Repayment of long-term obligations.............. (23,166) (408,970) (131,486) Borrowing of long-term obligations.............. 26,535 753,865 72,855 Issuance of common stock........................ 4 90,624 3,069 Issuance of preferred stock..................... -- 50,000 -- Repurchase of common stock...................... -- (368,815) -- Change in accounts receivable securitization.... (23,843) (4,462) 5,676 Financing fees.................................. (901) (23,824) -- Financing activities of discontinued operations.................................... -- -- (2,808) Other........................................... (3,060) 595 808 -------- -------- -------- Net cash provided by (used in) financing activities............................. (24,784) 89,651 (51,716) -------- -------- -------- Net increase (decrease) in cash and cash equivalents..................................... 12,002 (162) 61 Cash and cash equivalents at beginning of year.... 1,319 1,481 1,420 -------- -------- -------- Cash and cash equivalents at end of year.......... $ 13,321 $ 1,319 $ 1,481 ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 36 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY Thermadyne Holdings Corporation ("Thermadyne" or the "Company"), a Delaware corporation, is a global manufacturer of cutting and welding products and accessories. As used in this report, the term "Mercury" means Mercury Acquisition Corporation, the term "Issuer" means Mercury before the Merger and Thermadyne Holdings Corporation after the Merger (as defined in Note 2), the term "Holdings" means Thermadyne Holdings Corporation, the terms "Thermadyne" and the "Company" mean Thermadyne Holdings Corporation, its predecessors and subsidiaries, the term "Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the principal operating subsidiary of Thermadyne Holdings Corporation, and the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly owned subsidiary of Thermadyne LLC. 2. RECENT EVENTS Special Charges Special charges of $21.9 million were recorded in 1999 and relate to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with junior subordinated notes. In 1998, special charges of $50.5 million were recorded related to the merger of the Company and headcount reductions. Merger with Mercury Acquisition Corporation On May 22, 1998, Holdings consummated the merger of Mercury, a corporation organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"), with and into Holdings, with Holdings continuing as the surviving corporation (the "Merger"). The funding required to pay cash for common stock not receiving the right to retain Holdings common stock; to pay cash in lieu of each previously outstanding employee stock option; to pay cash in lieu of the right to purchase common stock under the Company's employee stock purchase plan; to refinance and/or retire outstanding indebtedness of the Company; and to pay expenses incurred in connection with the Merger was approximately $808 million. These cash requirements were funded with the proceeds obtained from concurrent equity and debt financings. Thermadyne LLC and Thermadyne Capital issued $207 million principal amount of 9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes") and Thermadyne LLC entered into a syndicated senior secured loan facility providing for term loan borrowings in the aggregate principal amount of $330 million and revolving loan borrowings of $100 million (the "New Credit Facility"). In connection with the Merger, Thermadyne LLC borrowed all term loans available under the New Credit Facility plus $25 million of revolving loans, which were subsequently repaid. The revolving loans are available to fund the working capital requirements of Thermadyne LLC. The proceeds of such financings were distributed to Holdings in the form of a dividend. Mercury issued approximately $94.6 million aggregate proceeds of 12 1/2% Senior Discount Debentures due 2008 (the "Debentures"). In connection with the Merger, Holdings succeeded to the obligations of Mercury with respect to the Debentures. The DLJMB Funds also purchased 2,608,696 shares of common stock of Mercury ("Mercury Common Stock"), 2,000,000 shares of preferred stock of Mercury ("Mercury Preferred Stock") and warrants to purchase 353,428 shares of Mercury Common Stock at an exercise price of $0.01 per share (the "DLJMB Warrants") for approximately $140 million. As a result of the Merger, the proceeds of such purchases became an asset of Holdings, each share of Mercury Common Stock became a share of Holdings Common Stock, each share of Mercury Preferred Stock became a share of exchangeable preferred stock of Holdings ("Holdings Preferred Stock") and each DLJMB Warrant to acquire Mercury Common Stock became exercisable for an equal number of shares of Holdings Common Stock. In addition, in F-7 37 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) connection with the Merger, certain members of senior management purchased 143,192 shares of Holdings Common Stock for approximately $4.9 million (the "Management Share Purchase"), of which approximately $3.6 million was provided through non-recourse loans from Holdings (the "Management Loans"). The Management Loans have a term of eight years and bear interest at the rate of 5.69% compounded annually. As a result of these transactions, the Company experienced an approximate 85% ownership change, the DLJMB Funds obtained ownership of approximately 80.6% of the Company's outstanding common stock, and the Company became highly leveraged. The Merger and related transactions have been treated as a leveraged recapitalization in which the issuance and retirement of debt have been accounted for as financing transactions, the sales and purchases of the Company's common stock have been accounted for as capital transactions at amounts paid to or received from stockholders, and no changes were made to the carrying values of the Company's assets and liabilities that were not directly affected by the transaction. In connection with the Merger, the Company incurred special charges of approximately $44.2 million, consisting of expenses of approximately $18.5 million related to employee stock options and related plans and $25.7 million of non-capitalizable transaction fees. In addition, the Company recorded an extraordinary loss in the amount of $23.3 million due to the early extinguishment of long-term debt. The Company paid DLJMB approximately $20 million for professional services in connection with the Merger. Acquisitions In 1999 the Company made the following two acquisitions. On March 11, the Company acquired all the issued and outstanding capital stock of Soltec S.A., a manufacturer of manual electrodes and tubular wires for hardfacing and special applications, located in Santiago, Chile. On April 14, the Company acquired all the issued and outstanding capital stock of Tecmo Srl, a manufacturer of torches and plasma and laser consumables, located in Rastignano, Italy. The aggregate consideration paid for these two acquisitions was approximately $6 million and was financed through existing bank facilities. These transactions were accounted for as purchases. In 1998 the Company made the following four acquisitions. On September 1, the Company acquired all the issued and outstanding capital stock of Thermadyne Victor Ltda. (formerly known as Equi Solda SA), a leading manufacturer of gas cutting apparatus in Brazil. On July 24, the Company acquired substantially all the assets of Mid-America Cryogenics Company, which specializes in the design, installation and service of cryogenic equipment and is located in Indianapolis, Indiana. On May 21, the Company acquired substantially all the assets of OCIM Srl, a manufacturer of a variety of arc welding accessories including MIG and TIG torches and consumables, located in Milan, Italy. On February 1, the Company acquired substantially all the assets of Pro-tip, a division of Settles Ground Support, Inc., a producer of low-cost oxygen fuel cutting tips in Cuthbert, Georgia. The aggregate consideration paid for these four acquisitions was approximately $19 million and was financed through existing bank facilities. These transactions were all accounted for as purchases. In 1997 the Company completed three acquisitions. On November 25, the Company acquired substantially all of the assets of Woodland Cryogenics, Incorporated, a manufacturer of cryogenic pumps, ambient and electric vaporizers and automatic cylinder filling systems located in Philadelphia, Pennsylvania. On September 26, the Company acquired substantially all of the assets of the welding division of Prestolite Power Corporation, a manufacturer of arc welders, plasma welders and wire feeders, located in Troy, Ohio. On January 31, the Company acquired all of the issued and outstanding capital stock of GenSet S.p.A., a leading manufacturer of engine-driven welders and generators in Italy. The aggregate consideration paid for these three acquisitions was approximately $38 million and was financed through existing bank facilities. These transactions were all accounted for as purchases. The operating results of the acquired companies have been included in the Consolidated Statements of Operations from their respective dates of acquisition. Pro forma unaudited results of operations for the twelve F-8 38 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) months ended December 31, 1999, 1998 and 1997 have not been presented, since they would not have differed materially from actual results. Sale of Discontinued Operations On September 30, 1997, the Company completed the sale of its Wear Resistance business for $96,000 which consisted of $88,500 in cash and $7,500 in the assumption of long-term liabilities. The Company realized a net gain of $16,015 on this transaction, net of income taxes of $12,623. The net proceeds were used to reduce debt. The financial results of the Wear Resistance operations were reported separately as discontinued operations in the Consolidated Statements of Operations. Sales from the discontinued business totaled $76,163 for the year ended December 31, 1997. Certain expenses were allocated to discontinued operations including interest expense, which was allocated on a ratio of earnings before interest, taxes, depreciation and amortization for the year presented. Interest expense allocated to discontinued operations was $2,048 for the year ended December 31, 1997. Income (loss) from discontinued operations included in the accompanying Consolidated Statements of Operations includes immaterial amounts of income taxes. 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of Thermadyne and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain amounts from prior years have been reclassified to conform to current year presentation. Preparation of financial statements in conformity with generally accepted accounting principles requires certain estimates and assumptions be made that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories. Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method for domestic subsidiaries and the first-in, first-out ("FIFO") method for foreign subsidiaries. Inventories at foreign subsidiaries amounted to approximately $42,179 and $56,183 at December 31, 1999 and 1998, respectively. Property, Plant and Equipment. Property, plant and equipment are carried at cost and are depreciated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 years; and machinery and equipment -- two to ten years. Property, plant and equipment recorded under capital leases is depreciated using the lower of either the lease term or the underlying assets useful life. Deferred Financing Costs. The Company capitalizes loan origination fees and other costs incurred arranging long-term financing. These costs are amortized over the respective lives of the obligations using the effective interest method. Intangibles. The excess of costs over the net tangible assets of businesses acquired consists of assembled workforces, customer and distributor relationships, patented and unpatented technology, and goodwill. Identified intangible assets are amortized on a straight-line basis over the various estimated useful lives of such assets, which generally range from three to 25 years. Goodwill related to acquisitions is amortized over 40 years. The Company records impairment losses on long-lived assets including goodwill or related intangibles when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the carrying value of assets and liabilities for financial F-9 39 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reporting purposes and their tax bases and carryforward items. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Revenue Recognition. Revenue from the sale of cutting and welding products is recognized upon shipment to the customer. Costs and related expenses to manufacture cutting and welding products are recorded as cost of sales when the related revenue is recognized. Comprehensive Income. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("FASB 130"). FASB 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. FASB 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FASB 130. During 1999, 1998 and 1997, total comprehensive income (loss) amounted to $(42,660), $(65,462) and $16,634, respectively. Earnings Per Share. Basic and diluted earnings per share is calculated in accordance with the Financial Accounting Standards Board Statement No. 128, "Earnings per Share". All earnings per share amounts for all periods have been presented to conform to the requirements of Statement 128. The effects of options, warrants and convertible securities have not been considered for the years ended December 31, 1999 and 1998 because the result would be anti-dilutive.
1999 1998 1997 ---------- ---------- ----------- Basic earnings (loss) per share amounts applicable to common shares: Income (loss) from continuing operations before extraordinary item................................. $ (11.68) $ (7.95) $ 1.36 Discontinued operations............................... -- -- 1.73 ---------- ---------- ----------- Income (loss) before extraordinary item............... (11.68) (7.95) 3.09 Extraordinary item -- loss on early extinguishment of long-term debt..................................... -- (2.40) -- ---------- ---------- ----------- Net income (loss)....................................... $ (11.68) $ (10.35) $ 3.09 ========== ========== =========== Diluted earnings (loss) per share amounts applicable to common shares: Income (loss) from continuing operations before extraordinary item................................. $ (11.68) $ (7.95) $ 1.33 Discontinued operations............................... -- -- 1.68 ---------- ---------- ----------- Income (loss) before extraordinary item............... (11.68) (7.95) 3.01 Extraordinary item -- loss on early extinguishment of long-term debt..................................... -- (2.40) -- ---------- ---------- ----------- Net income (loss)............................. $ (11.68) $ (10.35) $ 3.01 ========== ========== =========== Weighted average shares -- basic earnings per share..... 3,567,087 6,317,568 11,072,088 Effect of dilutive securities: Employee stock options.................................. -- -- 296,109 ---------- ---------- ----------- Weighted average shares -- diluted earnings per share... 3,567,087 6,317,568 11,368,197 ========== ========== ===========
F-10 40 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock-Based Compensation. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for these stock option grants in accordance with Accounting Principles Board Opinion No. 25 -- "Accounting for Stock Issued to Employees" ("APB 25"), and, accordingly, recognizes no compensation expense for the stock option grants. Statements of Cash Flows. For purposes of the statements of cash flows, Thermadyne considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short maturity of these investments. The following table shows the interest and taxes paid (refunded) during the periods presented in the accompanying Consolidated Statements of Cash Flows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Interest........................................ $53,071 $57,407 $48,683 Taxes........................................... 2,663 (989) 12,276
Foreign Currency Translation. Local currencies have been designated as the functional currencies for all subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items of these subsidiaries are translated at average monthly rates of exchange. The resultant translation gains or losses are included in other comprehensive income in the component of shareholders' equity (deficit) designated "Foreign currency translation." The effect on the consolidated statements of operations of transaction gains and losses is insignificant for all years presented. The Company's foreign operations are discussed in Note 13. Interest Rate Swap. The Company uses an interest rate swap to manage its cost of borrowing on a portion of its floating rate debt, as required by its credit facility. Recent Accounting Pronouncements. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm or forecasted commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. 4. ACCOUNTS RECEIVABLE The Company was party to a trade accounts receivable securitization agreement whereby it sold on an ongoing basis, through November 15, 1999, participation interests in up to $50,000 of designated accounts receivable. The amount of participation interests sold under this financing arrangement was subject to change based on the level of eligible receivables and restrictions on concentrations of receivables, and was approximately $23,843 at December 31, 1998. The sold accounts receivable are reflected as a reduction of accounts receivable on the Consolidated Balance Sheets. Interest expense was incurred on participation interests at the rate of one-month LIBOR plus 50 basis points, per annum. F-11 41 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On January 31, 2000, the Company entered into a similar accounts receivable securitization agreement for a three year period, whereby it will sell participation interests in up to $45,000 of designated accounts receivable. The terms, eligibility criteria and accounting treatment have not materially changed. Interest expense will be incurred at the rate of one-month LIBOR plus 65 basis points, per annum. 5. INVENTORIES The composition of inventories at December 31, is as follows:
1999 1998 -------- -------- Raw materials............................................... $ 26,707 $ 31,189 Work-in-process............................................. 23,718 27,414 Finished goods.............................................. 51,278 65,623 -------- -------- 101,703 124,226 LIFO reserve................................................ (872) (1,493) -------- -------- $100,831 $122,733 ======== ========
6. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment at December 31, is as follows:
1999 1998 -------- -------- Land........................................................ $ 15,148 $ 15,478 Building.................................................... 35,080 41,555 Machinery and equipment..................................... 102,428 91,372 -------- -------- 152,656 148,405 Accumulated depreciation.................................... (58,845) (43,408) -------- -------- $ 93,811 $104,997 ======== ========
Assets recorded under capitalized leases were $19,245 ($13,835 net of accumulated depreciation) and $17,556 ($13,619 net of accumulated depreciation) at December 31, 1999 and 1998, respectively. 7. INTANGIBLES The composition of intangibles at December 31, is as follows:
1999 1998 -------- -------- Goodwill.................................................... $ 36,673 $ 35,795 Other....................................................... 14,399 12,914 -------- -------- 51,072 48,709 Accumulated amortization.................................... (10,902) (9,550) -------- -------- $ 40,170 $ 39,159 ======== ========
F-12 42 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. LONG-TERM OBLIGATIONS The composition of long-term obligations at December 31, is as follows:
1999 1998 -------- -------- Revolving Credit Facility................................... $ -- $ 14,000 Term A Facility -- United States............................ 68,250 70,000 Term A Facility -- Australia................................ 19,943 19,480 Term A Facility -- Italy.................................... 8,771 10,410 Term B Facility............................................. 113,275 114,425 Term C Facility............................................. 113,275 114,425 Senior subordinated notes, due June 1, 2008, 9 7/8% interest payable semiannually on June 1 and December 1............. 207,000 207,000 Debentures, due June 1, 2008, 12 1/2% interest payable semiannually on June 1 and December 1..................... 115,015 101,881 Subordinated notes, due November 1, 2003, 10.75% interest payable semiannually on May 1 and November 1.............. 37,060 37,060 Junior subordinated notes due December 15, 2009, 15% interest payable quarterly on March 15, June 15, September 15 and December 15........................................ 25,000 -- Capital leases.............................................. 18,333 17,804 Other....................................................... 3,480 4,224 -------- -------- 729,402 710,709 Current maturities.......................................... (12,080) (9,180) -------- -------- $717,322 $701,529 ======== ========
At December 31, 1999, the schedule of principal payments on long-term debt, excluding capital lease obligations, is as follows: 2000..................................................... $ 11,854 2001..................................................... 17,661 2002..................................................... 25,014 2003..................................................... 71,825 2004..................................................... 75,678 Thereafter............................................... 509,037
New Credit Facility The New Credit Facility includes a $330 million term loan facility (the "Term Loan Facility") and a $100 million revolving credit facility (subject to adjustment as provided below), which provides for revolving loans and up to $50 million of letters of credit (the "Revolving Credit Facility"). The Term Loan Facility is comprised of a term A facility of $100 million (the "Term A Facility"), which has a maturity of six years, a term B facility of $115 million (the "Term B Facility"), which has a maturity of seven years, and a term C facility of $115 million (the "Term C Facility"), which has a maturity of eight years. The Revolving Credit Facility terminates six years after the date of initial funding of the New Credit Facility and is subject to a potential, but uncommitted, increase of up to $25 million at Thermadyne LLC's request at any time prior to such sixth anniversary. Such increase is available only if one or more financial institutions agrees, at the time of Thermadyne LLC's request, to provide it. At December 31, 1999, the Company had $10,323 of standby letters of credit outstanding under the Revolving Credit Facility. Unused borrowing capacity under the Revolving Credit Facility was $89,677. F-13 43 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On November 10, 1999, the Company amended the New Credit Facility to allow the restructuring of certain of its manufacturing operations and to adjust its financial covenants. In accordance with the amendment, the rate at which the New Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the administrative agent's alternative base rate or the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.50% for revolving and Term A loans, (y) 1.75% for Term B loans and (z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75% for revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for Term C loans. The applicable margin may vary based on Thermadyne LLC's ratio of consolidated indebtedness to Adjusted EBITDA. In addition, the amendment required the issuance of $25.0 million of Junior Subordinated Notes with detachable warrants for the purchase of the Company's common stock. At December 31, 1999, the prime rate was 8.5%. Prior to the amendment of the New Credit Facility applicable margins were (i) in the case of alternative base rate loans, (x) 1.00% for revolving and Term A loans, (y) 1.25% for Term B loans and (z) 1.50% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.25% for revolving and Term A loans, (y) 2.50% for Term B loans and (z) 2.75% for Term C loans. Thermadyne LLC pays a commitment fee calculated at a rate of 0.50% per annum on the daily average unused commitment under the Revolving Credit Facility (whether or not then available). Such fee is payable quarterly in arrears and upon termination of the Revolving Credit Facility (whether at stated maturity or otherwise). The applicable margin for the Term A Facility and the Revolving Credit Facility, as well as the commitment fee and letter of credit fee, is subject to possible reductions based on the ratio of consolidated Debt to EBITDA (each as defined in the New Credit Facility). Thermadyne LLC pays a letter of credit fee calculated (i) in the case of standby letters of credit, at a rate per annum equal to the then applicable margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii) in the case of documentary letters of credit, at a rate per annum equal to 1.25% plus, in each case, a fronting fee on the stated amount of each letter of credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC pays customary transaction charges in connection with any letters of credit. The Term Loan Facility is subject to the following amortization schedule:
YEAR TERM LOAN A TERM LOAN B TERM LOAN C - ---- ----------- ----------- ----------- 1............................................... 0.0% 1.0% 1.0% 2............................................... 5.0% 1.0% 1.0% 3............................................... 10.0% 1.0% 1.0% 4............................................... 20.0% 1.0% 1.0% 5............................................... 25.0% 1.0% 1.0% 6............................................... 40.0% 1.0% 1.0% 7............................................... -- 94.0% 1.0% 8............................................... -- -- 93.0% ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
The Term Loan Facility is subject to mandatory prepayment: (i) with 100% of the net cash proceeds from the issuance of debt, subject to certain exceptions, (ii) with 100% of the net cash proceeds of asset sales and casualty events, subject to certain exceptions, (iii) with 50% of Thermadyne LLC's excess cash flow (as defined in the New Credit Facility) to the extent that the Leverage Ratio (as defined in the New Credit Facility) exceeds 3.5 to 1.0, and (iv) with 50% of the net cash proceeds from the issuance of equity to the extent that the Leverage Ratio exceeds 4.0 to 1.0. Thermadyne LLC's obligations under the New Credit F-14 44 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Facility are secured by a first-priority perfected lien on: (i) substantially all domestic property and assets, tangible and intangible (other than accounts receivable sold or to be sold into the accounts receivable program and short-term real estate leases), of Thermadyne LLC and its domestic subsidiaries (other than the special purpose subsidiaries involved in the accounts receivable program); (ii) the capital stock of (a) Thermadyne LLC held by Holdings and (b) all subsidiaries of Thermadyne LLC (provided that no more than 65% of the equity interest in non-U.S. subsidiaries held by Thermadyne LLC and its domestic subsidiaries and no equity interests in subsidiaries held by foreign subsidiaries are required to be pledged); and (iii) all intercompany indebtedness. Holdings has guaranteed the obligations of Thermadyne LLC under the New Credit Facility. In addition, obligations under the New Credit Facility are guaranteed by all domestic subsidiaries. The New Credit Facility contains customary covenants and restrictions on Thermadyne LLC's ability to engage in certain activities, including, but not limited to: (i) limitations on the incurrence of liens and indebtedness, (ii) restrictions on sale lease-back transactions, consolidations, mergers, sale of assets, capital expenditures, transactions with affiliates and investments, and (iii) severe restrictions on dividends, and other similar distributions. The New Credit Facility contains financial covenants requiring Thermadyne LLC to maintain a minimum level of Adjusted EBITDA (as defined in the New Credit Facility); a minimum Interest Coverage Ratio (as defined in the New Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined in the New Credit Facility); and a maximum Leverage Ratio (as defined in the New Credit Facility). Interest Rate Swap At December 31, 1999, the Company has an interest rate swap agreement outstanding with a notional amount of $61,500, which matures in January of 2000, under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the interest rate swap agreement without the exchange of the underlying notional amount. The interest rate swap agreement converted a portion of the credit facility from a floating rate obligation to a fixed rate obligation. The fair market value of the interest rate swap is estimated based on current interest rates, and was $1,419 at December 31, 1999. The Company is subject to loss if the counterparty to this agreement does not perform. Interest differentials to be paid or received because of the swap agreement are reflected as an adjustment to interest expense over the related debt period. This agreement is accounted for on the accrual basis. Senior Subordinated Notes Thermadyne LLC and Thermadyne Capital have outstanding $207 million aggregate principal amount of the Senior Subordinated Notes. The Senior Subordinated Notes are general unsecured obligations of Thermadyne LLC and Thermadyne Capital and will be subordinated in right of payment to all existing and future senior indebtedness of Thermadyne LLC and Thermadyne Capital (including borrowings under the New Credit Facility). The Senior Subordinated Notes are unconditionally guaranteed on a senior subordinated basis by certain of Thermadyne LLC's existing domestic subsidiaries (the "Guarantor Subsidiaries"). The note guarantees will be general unsecured obligations of the Guarantor Subsidiaries, are subordinated in right of payment to all existing and future senior indebtedness of the Guarantor Subsidiaries, including indebtedness under the New Credit Facility, and will rank senior in right of payment to any future subordinated indebtedness of the Guarantor Subsidiaries. Debentures Holdings has outstanding $115,015 of Debentures. The Debentures initially are limited in aggregate principal amount at maturity to $174 million. The Debentures were issued at $94.6 million, a substantial discount from their principal amount at maturity. Until June 1, 2003, no interest will accrue on the F-15 45 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Debentures, but the accreted value will increase (representing amortization of original issue discount) between the date of original issuance and June 1, 2003, on a semiannual bond equivalent basis using a 360-day year comprised of twelve 30-day months, such that the accreted value shall be equal to the full principal amount at maturity of the Debentures on June 1, 2003. Beginning on June 1, 2003, interest on the Debentures will accrue at the rate of 12 1/2% per annum and will be payable in cash semiannually in arrears on June 1 and December 1, commencing on December 1, 2003, to holders of record on the immediately preceding May 15 and November 15. Interest on the Debentures will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 1, 2003. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Subject to certain covenants, additional notes may be issued under the Indenture having the same terms in all respects as the Debentures. The indentures governing the Senior Subordinated Notes, the Debentures and the subordinated notes restrict, subject to certain exceptions, the Company and its subsidiaries from incurring additional debt, paying dividends or making other distributions on or redeeming or repurchasing capital stock, making investments, loans or advances, disposing of assets, creating liens on assets and engaging in transactions with affiliates. Junior Subordinated Notes Thermadyne LLC has outstanding $25.0 million of Junior Subordinated Notes (the "Junior Notes") with detachable warrants for the purchase of the Company's common stock. The Junior Notes are general unsecured obligations of Thermadyne LLC and will be subordinated in right of payment to all existing and future senior and senior subordinated indebtedness of Thermadyne LLC. Thermadyne LLC, at its option, may pay interest in additional Junior Notes between the date of original issuance and December 15, 2004 on each March 15, June 15, September 15 and December 15 at the rate of 15%. Beginning December 15, 2004, interest will accrue at the rate of 15% per annum on each interest payment date, provided that if and for so long as payment of interest on the Junior Notes is prohibited under the terms of the New Credit Facility, interest shall be paid by the issuance of additional Junior Notes. The estimated fair value amounts of the Company's long-term obligations have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The fair values of the Senior Subordinated Notes, the Debentures and the subordinated notes were based on the most recent market information available, and are estimated to be 86%, 68.8% and 92.25% of their current carrying values at December 31, 1999, or $178,020, $79,130 and $34,188, respectively. The fair value of the Junior Notes is estimated to be their carrying value since these notes have not traded since their issuance in December 1999. The fair values of the credit agreement and the Company's other long-term obligations are estimated at their current carrying values since these obligations are fully secured and have varying interest charges based on current market rates. 9. REDEEMABLE PREFERRED STOCK Holdings has outstanding 2,000,000 shares of Holdings Preferred Stock, par value $0.01 per share, with an initial liquidation preference of $25.00 per share. Holdings Preferred Stock accrues dividends at a rate equal to 13% per annum, computed on the basis of a 360-day year. Such dividends are payable quarterly on March 31, June 30, September 30, and December 31 of each year. Prior to the fifth anniversary of the issuance of the Holdings Preferred Stock, dividends are payable through increases in the liquidation preference of the Holdings Preferred Stock or, at the election of the holders, dividends may be payable by the issuance of additional shares. Following the fifth anniversary of the issuance, dividends shall be payable in cash. The Holdings Preferred Stock is mandatorily redeemable on May 15, 2010 at a redemption price of 100% of the F-16 46 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) liquidation preference plus accrued and unpaid dividends. In the event of a change in control, the Holdings Preferred Stock is mandatorily redeemable at a redemption price of 101% of the liquidation preference plus accrued and unpaid dividends. The Holdings Preferred Stock may be redeemed by Holdings prior to May 15, 2001, in whole, at a redemption price per share equal to 113% of the liquidation preference per share plus accrued and unpaid dividends with the proceeds of a public equity offering. In addition, the Holdings Preferred Stock may be redeemed at any time on or after May 15, 2003, in whole, at certain established redemption prices. Holders of a majority of the outstanding shares of Holdings Preferred Stock will have the right to elect two members to the board of directors of Holdings upon the failure of Holdings to pay cash dividends for more than four consecutive quarters or six quarters, satisfy mandatory redemption obligations, provide required notices or comply with certain other specified provisions relating to the Holdings Preferred Stock. This right terminates and the term of the additional directors ceases upon cure. In addition, Holdings cannot amend, alter or repeal any provision that would adversely affect the preferences, rights or powers of the Holdings Preferred Stock or create, authorize or issue any class of stock ranking prior to or on a parity with the Holdings Preferred Stock without the written consent of a majority of the holders. 10. STOCK OPTIONS The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("FASB 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FASB 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of 5.3%, 5.6% and 6.1%; a dividend yield of 0.0% for each year presented; volatility factors of the expected market price of the Company's common stock of 0.65, 0.35, and 0.38; and a weighted-average expected life of the options of six years for each year presented. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Pro forma net income (loss) applicable to common shares.......................................... $(42,476) $(66,166) $32,239 Pro forma net income (loss) per share: Basic........................................... (11.91) (10.47) 2.91 Diluted......................................... (11.91) (10.47) 2.84
F-17 47 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has two option plans for the grant of options to its employees and directors. The 1998 Management Incentive Plan (the "1998 Management Plan") provides for the grant of options to acquire up to 500,000 shares of common stock to key officers and employees of the Company or its affiliates. Grants under the 1998 Management Plan vest either a) immediately on the date of grant, b) ratably over five years from the date of grant, c) upon the attainment of yearly targeted implied common equity values of the Company or, d) if yearly targeted implied common equity values are not attained, after an eight-year period. The Non-Employee Directors Stock Option Plan (the "1998 Directors Plan") provides for the grant of options to acquire up to 20,000 shares of common stock to non-employee directors of the Company. Grants under the 1998 Directors Plan vest immediately on the date of grant. All options granted under the two plans described above are non-qualified stock options granted at 100% of the fair market value on the grant dates. In connection with the Merger, the 1993 Management Option Plan (the "1993 Management Plan"), the Non-Employee Directors Plan (the "1995 Directors Plan") and the 1996 Employee Stock Option Plan (the "1996 Employee Plan") were terminated. At that time, the option holders received a cash payment with respect to each option and the underlying options were canceled. Information regarding stock options is summarized as follows:
1999 1998 1997 --------------------------- ------------------------------ ----------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE -------- ---------------- ----------- ---------------- ---------- ---------------- Outstanding -- beginning of year......................... 326,566 $34.50 1,061,217 $16.91 963,055 $14.27 Granted........................ 20,700 34.50 328,866 34.50 217,200 27.00 Exercised...................... -- -- (27,549) 12.17 (87,255) 12.38 Canceled or forfeited.......... (3,910) 34.50 (1,035,968) 17.08 (31,783) 18.32 -------- ----------- ---------- Outstanding-end of year........ 343,356 34.50 326,566 34.50 1,061,217 16.91 ======== =========== ========== Exercisable at end of year: 1993 Management Plan......... -- -- 430,399 1995 Directors Plan.......... -- -- 23,000 1996 Employee Plan........... -- -- 39,355 1998 Management Plan......... 57,354 30,213 -- 1998 Directors Plan.......... 7,000 6,000 -- Reserved for future grants: 1993 Management Plan......... -- -- 15,704 1995 Directors Plan.......... -- -- 22,000 1996 Employee Plan........... -- -- 470,500 1998 Management Plan......... 163,644 179,434 -- 1998 Directors Plan.......... 13,000 14,000 -- Weighted-average fair value of options granted during the year......................... $ 11.83 $ 15.16 $ 13.14 Weighted-average remaining contractual life of options (years)...................... 8.5 9.4 7.2
F-18 48 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. LEASES Future minimum lease payments related to continuing operations under leases with initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 2000........................................................ $ 3,884 $ 7,171 2001........................................................ 3,776 6,321 2002........................................................ 3,813 5,420 2003........................................................ 4,056 4,869 2004........................................................ 4,477 4,209 Thereafter.................................................. 41,969 23,841 -------- Total minimum lease payments...................... 61,975 Amount representing interest................................ (43,642) -------- Present value of net minimum lease payments, including current obligations of $226............................... $ 18,333 ========
Rent expense under operating leases from continuing operations amounted to $7,347, $9,528 and $9,358 for the years ended December 31, 1999, 1998 and 1997, respectively. 12. INCOME TAXES Pre-tax income (loss) from continuing operations was taxed under the following jurisdictions:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Domestic............................ $ (7,228) $(27,450) $ 31,104 Foreign............................. (18,264) (7,310) (2,560) -------- -------- -------- Income (loss) before income taxes.......................... $(25,492) $(34,760) $ 28,544 ======== ======== ========
The provision (benefit) for income taxes charged to continuing operations is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Current: Federal........................... $ 240 $ (768) $11,014 Foreign........................... 2,206 1,458 1,064 State and local................... 400 350 927 ------ ------- ------- Total current............. 2,846 1,040 13,005 ------ ------- ------- Deferred............................ 5,961 10,375 470 ------ ------- ------- $8,807 $11,415 $13,475 ====== ======= =======
F-19 49 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The composition of deferred tax assets and liabilities attributable to continuing operations at December 31 is as follows:
1999 1998 -------- -------- Deferred tax assets: Post-employment benefits.................................. $ 9,126 $ 8,862 Accrued liabilities....................................... 4,685 7,482 Intangibles............................................... 8,535 8,781 Deferred interest......................................... 6,770 2,412 Other..................................................... 480 1,489 Fixed assets.............................................. 7,090 6,769 Net operating loss carryforwards.......................... 37,711 35,654 -------- -------- Total deferred tax assets......................... 74,397 71,449 Valuation allowance for deferred tax assets............... (41,493) (35,519) -------- -------- Net deferred tax assets........................... 32,904 35,930 -------- -------- Deferred tax liabilities: Inventories............................................... 3,800 3,528 -------- -------- Total deferred tax liabilities.................... 3,800 3,528 -------- -------- Net deferred tax asset............................ $ 29,104 $ 32,402 ======== ========
The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Tax at U.S. statutory rates......... $(8,922) $(12,166) $ 9,991 Nondeductible goodwill amortization and other nondeductible expenses.......................... 1,032 2,660 2,048 Change in valuation allowance....... 5,000 12,000 -- Foreign tax rate differences and nonrecognition of foreign tax loss benefits.......................... 8,225 1,032 833 Issuance of warrants................ 3,212 -- -- Nondeductible merger costs.......... -- 7,662 -- State income taxes, net of federal tax benefit....................... 260 227 603 ------- -------- ------- $ 8,807 $ 11,415 $13,475 ======= ======== =======
At December 31, 1999, the Company had net operating loss carryforwards of approximately $108,000 available for U.S. federal income tax purposes which expire beginning 2001. Utilization of the majority of these net operating loss carryforwards is subject to various limitations because of previous changes in control of ownership (as defined in the Internal Revenue Code) of the Company. Pursuant to the requirements of the American Institute of Certified Public Accountants Statement of Position No. 90-7, "Financial Entities in Reorganization Under the Bankruptcy Code," the tax benefit resulting from the utilization of net operating loss carryforwards that existed on the effective date of the Company's financial reorganization will be reported as a direct addition to paid-in capital. F-20 50 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's foreign subsidiaries have undistributed earnings at December 31, 1999. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation. 13. EMPLOYEE BENEFIT PLANS 401(k) Retirement Plan. The 401(k) Retirement Plan covers the majority of the Company's domestic employees. The Company, at its discretion, can make a base contribution of 1% of each employee's compensation and an additional contribution equal to as much as 4% of the employee's compensation. At the employee's discretion, an additional 1% to 15% voluntary employee contribution can be made. The plan requires the Company to make a matching contribution of 50% of the first 6% of the voluntary employee contribution. Total expense for this plan related to continuing operations was approximately $2,223, $2,115, and $2,628 for the years ended December 31, 1999, 1998 and 1997, respectively. Employee Stock Purchase Plan. The Employee Stock Purchase Plan was canceled in connection with the Merger. For the plan year ended December 31, 1997, 1,098 employee participants purchased 82,085 shares at an aggregate purchase price of $1,989. Pension Plans. The Company's subsidiaries have had various noncontributory defined benefit pension plans which covered substantially all U.S. employees. The Company froze and combined its three noncontributory defined benefit pension plans through amendments to such plans effective December 31, 1989. All former participants of these plans became eligible to participate in the 401(k) Retirement Plan effective January 1, 1990. There was no prepaid benefit cost at December 31, 1999 or 1998. Accrued benefit liabilities at December 31, 1999 and 1998 were $192 and $336, respectively. In addition, the Company's Australian subsidiary has a Superannuation Fund established by a Trust Deed which operates on a lump sum scheme to provide benefits for its employees. Prepaid benefit cost at December 31, 1999 and 1998 was $6 and $5, respectively. There were no accrued benefit liabilities at December 31, 1999 or 1998. Other Postretirement Benefits. The Company has a retirement plan covering both salaried and nonsalaried retired employees, which provides postretirement health care benefits (medical and dental) and life insurance benefits. The postretirement health care portion is contributory, with retiree contributions adjusted annually as determined by the Company based on claim costs. The postretirement life insurance portion is noncontributory. The Company recognizes the cost of postretirement benefits on the accrual basis as employees render service to earn the benefit. The Company continues to fund the cost of health care and life insurance benefits in the year incurred. F-21 51 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides a reconciliation of benefit obligations, plan assets and status of the Pension and Other Postretirement Benefit Plans as recognized in the Company's Consolidated Balance Sheet for the years ended December 31, 1999 and 1998:
OTHER POSTRETIREMENT PENSION BENEFITS BENEFITS ----------------- ------------------- 1999 1998 1999 1998 ------- ------- -------- -------- Change in Benefit Obligation: Benefit obligation at beginning of year............ $41,702 $44,439 $ 12,774 $ 12,010 Service cost....................................... 989 1,057 761 1,218 Participant contributions............................ 732 795 -- -- Interest cost........................................ 2,514 2,424 842 1,330 Actuarial (gain) loss................................ (209) (266) 872 (870) Foreign currency exchange rate changes............... 1,643 (1,507) -- -- Benefits paid........................................ (6,889) (5,240) (2,244) (914) ------- ------- -------- -------- Benefit obligation at end of year.................... $40,482 $41,702 $ 13,005 $ 12,774 ======= ======= ======== ======== Change in plan assets: Fair value of plan assets at beginning of year..... $45,266 $44,399 Actual return on plan assets......................... 8,040 3,968 Sponsor contributions................................ 798 3,086 Participant contributions............................ 732 795 Benefits paid........................................ (6,889) (5,240) Foreign currency exchange rate changes............... 1,890 (1,632) Administrative expenses.............................. (118) (110) ------- ------- Fair value of plan assets at end of year............. $49,719 $45,266 ======= ======= Funded status of the plan (underfunded).............. $ 9,237 $ 3,564 $(13,005) $(12,774) Unrecognized net actuarial loss (gain)............. (3,333) 989 (10,807) (9,426) Unrecognized prior service cost.................... 76 99 (1,272) (1,927) ------- ------- -------- -------- Prepaid (accrued) benefit cost..................... $ 5,980 $ 4,652 $(25,084) $(24,127) ======= ======= ======== ======== Weighted-average assumptions as of December 31: Discount rate...................................... 8% 7% 8% 7% Expected return on plan assets..................... 8% 8% N/A N/A Rate of compensation increase...................... 3% 3% N/A N/A
Net periodic pension and other postretirement benefit costs include the following components:
PENSION BENEFITS OTHER BENEFITS --------------------------- ------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ------- ------ ------ Components of the net periodic benefit cost: Service cost....................... $ 989 $ 1,057 $ 1,259 $ 761 $1,218 $1,255 Interest cost...................... 2,514 2,424 3,045 842 1,330 1,496 Expected return on plan assets..... (3,733) (3,366) (3,644) -- -- -- Recognized (gain) loss............. -- -- -- 1,698 2 (1) Amortization of prior service cost............................ -- 2 3 -- -- -- Prior service cost recognized...... 23 23 23 (101) -- -- ------- ------- ------- ------- ------ ------ Benefit cost (credit)................ $ (207) $ 140 $ 686 $ 3,200 $2,550 $2,750 ======= ======= ======= ======= ====== ======
F-22 52 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1999, declining gradually to 6.0% in 2012. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1998 and 10.5% in 1997. A one percentage point change in the assumed health care cost trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- Effect on total of service and interest cost components in 1999.................................................... $ 309 $ (240) Effect on postretirement benefit obligation as of December 31, 1999................................................ 1,436 (1,188)
14. SEGMENT INFORMATION The Company reports its segment information by geographic region. Although the Company's domestic operation is comprised of several individual business units, similarity of products, paths to market, end users, and production processes results in performance evaluation and decisions regarding allocation of resources being made on a combined basis. The Company's reportable geographic regions are the United States, Europe and Australia/Asia. The Company evaluates performance and allocates resources based principally on operating income net of any special charges or significant one-time charges. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales are based on market prices. F-23 53 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes the elimination of intersegment sales and profits, corporate related items and other costs not allocated to the reportable segments.
ALL OTHER UNITED GEOGRAPHIC STATES EUROPE AUSTRALIA/ASIA REGIONS OTHER CONSOLIDATED -------- ------- -------------- ---------- --------- ------------ 1999 Revenue from external customers............... $343,521 $56,449 $ 76,763 $44,382 $ -- $521,115 Intersegment revenues..... 34,290 15,678 2,819 414 (53,201) -- Depreciation and amortization of intangibles............. 11,164 2,737 4,603 590 4,388 23,482 Operating income (loss)... 71,941 3,109 (5,576) (1,460) (118,020) (50,006) Identifiable assets....... 146,860 54,756 91,949 32,213 74,618 400,396 Capital Expenditures...... 5,047 644 2,623 1,317 537 10,168 1998 Revenue from external customers............... 363,371 54,657 82,238 32,511 -- 532,777 Intersegment revenues..... 39,715 14,355 4,447 -- (58,517) -- Depreciation and amortization of intangibles............. 9,562 2,682 3,979 646 2,104 18,973 Operating income (loss)... 90,691 3,953 (1,549) (48) (60,017) 33,030 Identifiable assets....... 174,272 57,539 107,991 31,686 48,761 420,249 Capital expenditures...... 7,965 1,114 7,091 420 916 17,506 1997 Revenue from external customers............... 333,871 51,900 109,984 24,685 -- 520,440 Intersegment revenues..... 35,503 4,699 2,700 -- (42,902) -- Depreciation and amortization of intangibles............. 12,190 2,333 4,677 57 1,558 20,815 Operating income (loss)... 85,279 3,416 2,304 1,148 (13,640) 78,507 Identifiable assets....... 158,038 48,684 102,342 9,285 36,178 354,527 Capital expenditures...... 7,843 2,464 4,828 78 1,126 16,339
Product Line Information The Company manufactures a variety of products, substantially all of which are used in the cutting, welding or fabrication of metal. End users of the Company's products are engaged in various applications including construction, automobile manufacturing, repair and maintenance and shipbuilding. The following table shows sales for each of the Company's key product lines:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Gas apparatus....................... $186,279 $183,688 $183,253 Arc welding equipment............... 104,857 103,803 90,440 Arc welding consumables............. 149,693 162,696 171,922 Plasma and automated cutting equipment......................... 71,083 71,742 61,685 All other........................... 9,203 10,848 13,140 -------- -------- -------- $521,115 $532,777 $520,440 ======== ======== ========
F-24 54 THERMADYNE HOLDINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. CONTINGENCIES Thermadyne and certain of its wholly owned subsidiaries are defendants in various legal actions, primarily in the product liability area. While there is uncertainty relating to any litigation, management is of the opinion that the outcome of such litigation will not have a material adverse effect on the Company's financial condition or results of operations. F-25 55 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Thermadyne Mfg. LLC We have audited the accompanying consolidated balance sheets of Thermadyne Mfg. LLC and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholder's equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thermadyne Mfg. LLC and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP St. Louis, Missouri February 11, 2000 F-26 56 THERMADYNE MFG. LLC CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Current assets: Cash and cash equivalents................................. $ 13,321 $ 1,319 Accounts receivable, less allowance for doubtful accounts of $3,275 and $2,852 respectively...................... 94,731 87,905 Inventories............................................... 100,831 122,733 Prepaid expenses and other................................ 5,954 7,365 --------- --------- Total current assets.............................. 214,837 219,322 Property, plant and equipment, at cost, net................. 93,811 104,997 Deferred financing costs, net............................... 17,289 19,572 Intangibles, at cost, net................................... 40,170 39,159 Deferred income taxes....................................... 25,838 29,135 Other assets................................................ 2,014 1,251 --------- --------- Total assets...................................... $ 393,959 $ 413,436 ========= ========= LIABILITIES AND SHAREHOLDER'S DEFICIT Current liabilities: Accounts payable.......................................... $ 41,773 $ 44,170 Accrued and other liabilities............................. 27,052 36,444 Accrued interest.......................................... 2,416 498 Income taxes payable...................................... 9,575 5,211 Current maturities of long-term obligations............... 12,080 9,180 --------- --------- Total current liabilities......................... 92,896 95,503 Long-term obligations, less current maturities.............. 565,247 562,588 Other long-term liabilities................................. 62,172 62,834 Shareholder's deficit: Accumulated deficit....................................... (385,425) (368,408) Accumulated other comprehensive loss...................... (23,895) (15,534) --------- --------- Total shareholder's deficit....................... (409,320) (383,942) Net equity and advances to/from parent.................... 82,964 76,453 --------- --------- Total liabilities and shareholder's deficit....... $ 393,959 $ 413,436 ========= =========
See accompanying notes to consolidated financial statements. F-27 57 THERMADYNE MFG. LLC CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Net sales............................................. $521,115 $532,777 $520,440 Operating expenses: Cost of goods sold.................................. 342,250 340,236 320,120 Selling, general and administrative expenses........ 99,151 102,554 110,696 Amortization of goodwill............................ 1,575 1,524 1,591 Amortization of other intangibles................... 3,047 2,360 6,776 Net periodic postretirement benefits................ 3,200 2,550 2,750 Special charges..................................... 21,886 50,523 -- -------- -------- -------- Operating income...................................... 50,006 33,030 78,507 Other income (expense): Interest expense.................................... (55,321) (52,545) (45,325) Amortization of deferred financing costs............ (3,214) (2,480) (1,587) Other............................................... 319 (3,059) (3,051) -------- -------- -------- Income (loss) from continuing operations before income taxes and extraordinary item........................ (8,210) (25,054) 28,544 Income tax provision.................................. 8,807 14,682 13,475 -------- -------- -------- Income (loss) from continuing operations before extraordinary item.................................. (17,017) (39,736) 15,069 Discontinued operations: Gain on sale of discontinued operations, net of income taxes of $12,623.......................... -- -- 16,015 Income from discontinued operations, net of income taxes............................................ -- -- 3,173 -------- -------- -------- Income (loss) before extraordinary item............... (17,017) (39,736) 34,257 Extraordinary item-loss on early extinguishment of long-term debt, net of income tax benefit of $8,151.............................................. -- (15,137) -- -------- -------- -------- Net income (loss)..................................... $(17,017) $(54,873) $ 34,257 ======== ======== ========
See accompanying notes to consolidated financial statements. F-28 58 THERMADYNE MFG. LLC CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
ACCUMULATED OTHER ACCUMULATED COMPREHENSIVE DEFICIT INCOME (LOSS) TOTAL ----------- ------------- --------- January 1, 1997......................................... $(333,465) $ 4,849 $(328,616) Comprehensive income (loss): Net income............................................ 34,257 -- 34,257 Other comprehensive loss -- foreign currency translation........................................ -- (17,623) (17,623) --------- Comprehensive income.................................... 16,634 --------- -------- --------- December 31, 1997....................................... (299,208) (12,774) (311,982) Comprehensive loss: Net income............................................ (54,873) -- (54,873) Other comprehensive loss -- foreign currency translation........................................ -- (4,150) (4,150) --------- Comprehensive loss...................................... (59,023) Merger.................................................. (14,327) 1,390 (12,937) --------- -------- --------- December 31, 1998....................................... (368,408) (15,534) (383,942) Comprehensive loss Net income............................................ (17,017) -- (17,017) Other comprehensive loss -- foreign currency translation........................................ -- (8,361) (8,361) --------- Comprehensive loss...................................... (25,378) --------- -------- --------- December 31, 1999....................................... $(385,425) $(23,895) $(409,320) ========= ======== =========
See accompanying notes to consolidated financial statements. F-29 59 THERMADYNE MFG. LLC CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Cash flows provided by (used in) operating activities: Net income (loss)....................................... $(17,017) $ (54,873) $ 34,257 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Net periodic postretirement benefits............... 3,200 2,550 2,750 Depreciation....................................... 18,860 15,089 12,448 Amortization of goodwill........................... 1,575 1,524 1,591 Amortization of other intangibles.................. 3,047 2,360 6,776 Amortization of deferred financing costs........... 3,214 2,480 1,587 Recognition of net operating loss carryforwards.... 3,313 -- 2,343 Deferred income taxes.............................. 3,468 6,452 (1,836) Loss on asset disposal............................. 2,739 -- -- Non-cash portion of extraordinary item............. -- (2,272) -- Non-cash charges for discontinued operations....... -- -- 1,621 Gain on sale of discontinued operations............ -- -- (16,015) Changes in operating assets and liabilities: Accounts receivable................................ 19,239 (8,251) (19,905) Inventories........................................ 25,425 (19,487) (17,228) Prepaid expenses and other......................... 1,638 728 (1,628) Accounts payable................................... (3,751) (11,610) 20,605 Accrued and other liabilities...................... (10,453) 2,809 (5,757) Accrued interest................................... 1,921 (5,085) (258) Income taxes payable............................... (1,818) 7,920 (3,498) Other long-term liabilities........................ (4,126) (3,272) (3,152) Discontinued operations............................ -- -- 285 -------- --------- --------- Total adjustments............................. 67,491 (8,065) (19,271) -------- --------- --------- Net cash provided by (used in) operating activities.................................. 50,474 (62,938) 14,986 -------- --------- --------- Cash flows provided by (used in) investing activities: Capital expenditures, net............................. (10,168) (17,506) (16,339) Change in other assets................................ (1,046) (3,046) 4,162 Acquisitions, net of cash............................. (5,886) (18,953) (37,895) Investing activities of discontinued operations....... -- -- (1,680) Proceeds from sale of discontinued operations......... -- -- 88,543 -------- --------- --------- Net cash provided by (used in) investing activities.................................. (17,100) (39,505) 36,791 -------- --------- --------- Cash flows provided by (used in) financing activities: Change in long-term receivables....................... (353) 638 170 Repayment of long-term obligations.................... (23,166) (408,970) (131,486) Borrowing of long-term obligations.................... 26,535 622,194 72,855 Change in accounts receivable securitization.......... (23,843) (4,462) 5,676 Financing fees........................................ (901) (20,058) -- Change in net equity of parent........................ 3,198 (87,010) -- Issuance of common stock.............................. -- -- 3,069 Financing activities of discontinued operations....... -- -- (2,808) Other................................................. (2,842) (51) 808 -------- --------- --------- Net cash provided by (used in) financing activities.................................. (21,372) 102,281 (51,716) -------- --------- --------- Net increase (decrease) in cash and cash equivalents.... 12,002 (162) 61 Cash and cash equivalents at beginning of year.......... 1,319 1,481 1,420 -------- --------- --------- Cash and cash equivalents at end of year................ $ 13,321 $ 1,319 $ 1,481 ======== ========= =========
See accompanying notes to consolidated financial statements. F-30 60 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) 1. THE COMPANY As used in this report, the term "Mercury" means Mercury Acquisition Corporation, the term "Issuer" means Mercury before the Merger and Thermadyne Holdings Corporation after the Merger (as defined in Note 2), the term "Holdings" means Thermadyne Holdings Corporation, the terms "Thermadyne" and the "Company" mean Thermadyne Holdings Corporation, its predecessors and subsidiaries, the term "Thermadyne LLC" means Thermadyne Mfg. LLC, a wholly owned and the principal operating subsidiary of Thermadyne Holdings Corporation, and the term "Thermadyne Capital" means Thermadyne Capital Corp., a wholly owned subsidiary of Thermadyne LLC. The Company is a global manufacturer of cutting and welding products and accessories. Thermadyne Capital, a wholly owned subsidiary of Thermadyne LLC, was formed solely for the purpose of serving as co-issuer of the 9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"). Thermadyne Capital has no substantial assets or liabilities and no operations of any kind and the Indenture pursuant to which the Senior Subordinated Notes were issued limits Thermadyne Capital's ability to acquire or hold any significant assets, incur any liabilities or engage in any business activities, other than in connection with the issuance of the Senior Subordinated Notes. 2. RECENT EVENTS Special Charges Special charges of $21.9 million were recorded in 1999 and relate to the reorganization of the Company's Australian and Asian operations, the consolidation of two domestic facilities and detachable warrants issued in conjunction with junior subordinated notes. In 1998, special charges of $50.5 million were recorded related to the merger of the Company and headcount reductions. Merger with Mercury Acquisition Corporation On May 22, 1998, Holdings consummated the merger of Mercury, a corporation organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"), with and into Holdings, with Holdings continuing as the surviving corporation (the "Merger"). The funding required to pay cash for common stock not receiving the right to retain Holdings common stock; to pay cash in lieu of each previously outstanding employee stock option; to pay cash in lieu of the right to purchase common stock under the Company's employee stock purchase plan; to refinance and/or retire outstanding indebtedness of the Company; and to pay expenses incurred in connection with the Merger was approximately $808 million. These cash requirements were funded with the proceeds obtained from concurrent equity and debt financings. Thermadyne LLC and Thermadyne Capital issued the Senior Subordinated Notes and Thermadyne LLC entered into a syndicated senior secured loan facility providing for term loan borrowings in the aggregate principal amount of $330 million and revolving loan borrowings of $100 million (the "New Credit Facility"). In connection with the Merger, Thermadyne LLC borrowed all term loans available under the New Credit Facility plus $25 million of revolving loans, which were subsequently repaid. The revolving loans are available to fund the working capital requirements of Thermadyne LLC. The proceeds of such financings were distributed to Holdings in the form of a dividend. Mercury issued approximately $94.6 million aggregate proceeds of 12 1/2% Senior Discount Debentures due 2008 (the "Debentures"). In connection with the Merger, Holdings succeeded to the obligations of Mercury with respect to the Debentures. The DLJMB Funds also purchased 2,608,696 shares of common stock of Mercury ("Mercury Common Stock"), 2,000,000 shares of preferred stock of Mercury ("Mercury Preferred Stock") and warrants to purchase 353,428 shares of Mercury Common Stock at an exercise price of $0.01 per share (the "DLJMB Warrants") for approximately $140 million. As a result of the Merger, the F-31 61 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) proceeds of such purchases became an asset of Holdings, each share of Mercury Common Stock became a share of Holdings Common Stock, each share of Mercury Preferred Stock became a share of exchangeable preferred stock of Holdings ("Holdings Preferred Stock") and each DLJMB Warrant to acquire Mercury Common Stock became exercisable for an equal number of shares of Holdings Common Stock. In addition, in connection with the Merger, certain members of senior management purchased 143,192 shares of Holdings Common Stock for approximately $4.9 million (the "Management Share Purchase"), of which approximately $3.6 million was provided through non-recourse loans from Holdings (the "Management Loans"). The Management Loans have a term of eight years and bear interest at the rate of 5.69% compounded annually. As a result of these transactions, the Company experienced an approximate 85% ownership change, the DLJMB Funds obtained ownership of approximately 80.6% of the Company's outstanding common stock, and the Company became highly leveraged. The Merger and related transactions have been treated as a leveraged recapitalization in which the issuance and retirement of debt have been accounted for as financing transactions, the sales and purchases of the Company's common stock have been accounted for as capital transactions at amounts paid to or received from stockholders, and no changes were made to the carrying values of the Company's assets and liabilities that were not directly affected by the transaction. In connection with the Merger, the Company incurred special charges of approximately $44.2 million, consisting of expenses of approximately $18.5 million related to employee stock options and related plans and $25.7 million of non-capitalizable transaction fees. In addition, the Company recorded an extraordinary loss in the amount of $23.3 million due to the early extinguishment of long-term debt. The Company paid DLJMB approximately $20 million for professional services in connection with the Merger. Acquisitions In 1999 the Company made the following two acquisitions. On March 11, the Company acquired all the issued and outstanding capital stock of Soltec S.A., a manufacturer of manual electrodes and tubular wires for hardfacing and special applications, located in Santiago, Chile. On April 14, the Company acquired all the issued and outstanding capital stock of Tecmo Srl, a manufacturer of torches and plasma and laser consumables located in Rastignano, Italy. The aggregate consideration paid for these two acquisitions was approximately $6 million and was financed through existing bank facilities. These transactions were accounted for as purchases. In 1998 the Company made the following four acquisitions. On September 1, the Company acquired all the issued and outstanding capital stock of Thermadyne Victor Ltda. (formerly known as Equi Solda SA), a leading manufacturer of gas cutting apparatus in Brazil. On July 24, the Company acquired substantially all the assets of Mid-America Cryogenics Company, which specializes in the design, installation and service of cryogenic equipment and is located in Indianapolis, Indiana. On May 21, the Company acquired substantially all the assets of OCIM Srl, a manufacturer of a variety of arc welding accessories including MIG and TIG torches and consumables, located in Milan, Italy. On February 1, the Company acquired substantially all the assets of Pro-tip, a division of Settler Ground Support, Inc., a producer of low-cost oxygen fuel cutting tips in Cuthbert, Georgia. The aggregate consideration paid for these four acquisitions was approximately $19 million and was financed through existing bank facilities. These transactions were all accounted for as purchases. In 1997 the Company completed three acquisitions. On November 25, the Company acquired substantially all of the assets of Woodland Cryogenics, Incorporated, a manufacturer of cryogenic pumps, ambient and electric vaporizers and automatic cylinder filling systems located in Philadelphia, Pennsylvania. On September 26, the Company acquired substantially all of the assets of the welding division of Prestolite Power Corporation, a manufacturer of arc welders, plasma welders and wire feeders, located in Troy, Ohio. On January 31, the Company acquired all of the issued and outstanding capital stock of GenSet S.p.A., a leading manufacturer of engine-driven welders and generators in Italy. The aggregate consideration paid for these F-32 62 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) three acquisitions was approximately $38 million and was financed through existing bank facilities. These transactions were all accounted for as purchases. The operating results of the acquired companies have been included in the Consolidated Statements of Operations from their respective dates of acquisition. Pro forma unaudited results of operations for the twelve months ended December 31, 1999, 1998 and 1997 have not been presented since they would not have differed materially from actual results. Sale of Discontinued Operations On September 30, 1997, the Company completed the sale of its Wear Resistance business for $96,000 which consisted of $88,500 in cash and $7,500 in the assumption of long-term liabilities. The Company realized a net gain of $16,015 on this transaction, net of income taxes of $12,623. The net proceeds were used to reduce debt. The financial results of the Wear Resistance operations were reported separately as discontinued operations in the Consolidated Statements of Operations. Sales from the discontinued business totaled $76,163 for the year ended December 31, 1997. Certain expenses were allocated to discontinued operations including interest expense, which was allocated on a ratio of earnings before interest, taxes, depreciation and amortization for the year presented. Interest expense allocated to discontinued operations was $2,048 for the year ended December 31, 1999. Income from discontinued operations included in the accompanying Consolidated Statements of Operations includes immaterial amounts of income taxes. 3. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of Thermadyne and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain amounts from prior years have been reclassified to conform to current year presentation. Preparation of financial statements in conformity with generally accepted accounting principles requires certain estimates and assumptions be made that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories. Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method for domestic subsidiaries and the first-in, first-out ("FIFO") method for foreign subsidiaries. Inventories at foreign subsidiaries amounted to approximately $42,179 and $56,183 at December 31, 1999 and 1998, respectively. Property, Plant and Equipment. Property, plant and equipment are carried at cost and are depreciated using the straight-line method. The average estimated lives utilized in calculating depreciation are as follows: buildings -- 25 years; and machinery and equipment -- two to ten years. Property, plant and equipment recorded under capital leases is depreciated using the lower of either the lease term or the underlying asset's useful life. Deferred Financing Costs. The Company capitalizes loan origination fees and other costs incurred arranging long-term financing. These costs are amortized over the respective lives of the obligations using the effective interest method. Intangibles. The excess of costs over the net tangible assets of businesses acquired consists of assembled workforces, customer and distributor relationships, patented and unpatented technology, and goodwill. Identified intangible assets are amortized on a straight-line basis over the various estimated useful lives of such assets, which generally range from three to 25 years. Goodwill related to acquisitions is amortized over 40 years. The Company records impairment losses on long-lived assets including goodwill or related F-33 63 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) intangibles when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the carrying value of assets and liabilities for financial reporting purposes and their tax bases and carryforward items. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Revenue Recognition. Revenue from the sale of cutting and welding products is recognized upon shipment to the customer. Costs and related expenses to manufacture cutting and welding products are recorded as cost of sales when the related revenue is recognized. Comprehensive Income. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("FASB 130"). FASB 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. FASB 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FASB 130. During 1999, 1998 and 1997, total comprehensive income (loss) amounted to $(25,378), $(59,023) and $16,634, respectively. Statements of Cash Flows. For purposes of the statements of cash flows, Thermadyne considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short maturity of these investments. The following table shows the interest and taxes paid (refunded) during the periods presented in the accompanying Consolidated Statements of Cash Flows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Interest............................ $52,407 $57,722 $48,683 Taxes............................... 2,663 (989) 12,276
Foreign Currency Translation. Local currencies have been designated as the functional currencies for all subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items of these subsidiaries are translated at average monthly rates of exchange. The resultant translation gains or losses are included in other comprehensive income in the component of shareholders' equity (deficit) designated "Foreign currency translation." The effect on the consolidated statements of operations of transaction gains and losses is insignificant for all years presented. The Company's foreign operations are discussed in Note 12. Interest Rate Swap. The Company uses an interest rate swap to manage its cost of borrowing on a portion of its floating rate debt, as required by its credit facility. Recent Accounting Pronouncements. In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not F-34 64 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability or firm or forecasted commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. 4. ACCOUNTS RECEIVABLE The Company was party to a trade accounts receivable securitization agreement whereby it sold on an ongoing basis, through November 15, 1999, participation interests in up to $50,000 of designated accounts receivable. The amount of participation interests sold under this financing arrangement was subject to change based on the level of eligible receivables and restrictions on concentrations of receivables, and was approximately $23,843 at December 31, 1998. The sold accounts receivable are reflected as a reduction of accounts receivable on the Consolidated Balance Sheets. Interest expense was incurred on participation interests at the rate of one-month LIBOR plus 50 basis points, per annum. On January 31, 2000, the Company entered into a similar accounts receivable securitization agreement for a three year period, whereby it will sell participation interests in up to $45,000 of designated accounts receivable. The terms, eligibility criteria and accounting treatment have not materially changed. Interest expense will be incurred at the rate of one-month LIBOR plus 65 basis points, per annum. 5. INVENTORIES The composition of inventories at December 31, is as follows:
1999 1998 -------- -------- Raw materials........................................... $ 26,707 $ 31,189 Work-in-process......................................... 23,718 27,414 Finished goods.......................................... 51,278 65,623 -------- -------- 101,703 124,226 LIFO reserve............................................ (872) (1,493) -------- -------- $100,831 $122,733 ======== ========
6. PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment at December 31, is as follows:
1999 1998 -------- -------- Land.................................................... $ 15,148 $ 15,478 Building................................................ 35,080 41,555 Machinery and equipment................................. 102,428 91,372 -------- -------- 152,656 148,405 Accumulated depreciation................................ (58,845) (43,408) -------- -------- $ 93,811 $104,997 ======== ========
Assets recorded under capitalized leases were $19,245 ($13,835 net of accumulated depreciation) and $17,556 ($13,619 net of accumulated depreciation) at December 31, 1999 and 1998, respectively. F-35 65 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INTANGIBLES The composition of intangibles at December 31, is as follows:
1999 1998 -------- ------- Goodwill................................................. $ 36,673 $35,795 Other.................................................... 14,399 12,914 -------- ------- 51,072 48,709 Accumulated amortization................................. (10,902) (9,550) -------- ------- $ 40,170 $39,159 ======== =======
8. LONG-TERM OBLIGATIONS The composition of long-term obligations at December 31, is as follows:
1999 1998 -------- -------- Revolving Credit Facility............................... $ -- $ 14,000 Term A Facility -- United States........................ 68,250 70,000 Term A Facility -- Australia............................ 19,943 19,480 Term A Facility -- Italy................................ 8,771 10,410 Term B Facility......................................... 113,275 114,425 Term C Facility......................................... 113,275 114,425 Senior subordinated notes, due June 1, 2008, 9 7/8% interest payable semiannually on June 1 and December 1..................................................... 207,000 207,000 Junior subordinated notes, due December 15, 2009, interest payable quarterly on March 15, June 15, September 15, and December 15......................... 25,000 -- Capital leases.......................................... 18,333 17,804 Other................................................... 3,480 4,224 -------- -------- 577,327 571,768 Current maturities...................................... (12,080) (9,180) -------- -------- $565,247 $562,588 ======== ========
At December 31, 1999, the schedule of principal payments on long-term debt, excluding capital lease obligations, is as follows: 2000..................................................... $ 11,854 2001..................................................... 17,661 2002..................................................... 25,014 2003..................................................... 34,765 2004..................................................... 75,678 Thereafter............................................... 394,022
New Credit Facility The New Credit Facility includes a $330 million term loan facility (the "Term Loan Facility") and a $100 million revolving credit facility (subject to adjustment as provided below), which provides for revolving loans and up to $50 million of letters of credit (the "Revolving Credit Facility"). The Term Loan Facility is comprised of a term A facility of $100 million (the "Term A Facility"), which has a maturity of six years, a term B facility of $115 million (the "Term B Facility"), which has a maturity of seven years, and a term C F-36 66 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) facility of $115 million (the "Term C Facility"), which has a maturity of eight years. The Revolving Credit Facility terminates six years after the date of initial funding of the New Credit Facility and is subject to a potential, but uncommitted, increase of up to $25 million at Thermadyne LLC's request at any time prior to such sixth anniversary. Such increase is available only if one or more financial institutions agrees, at the time of Thermadyne LLC's request, to provide it. At December 31, 1999, the Company had $10,323 of standby letters of credit outstanding under the Revolving Credit Facility. Unused borrowing capacity under the Revolving Credit Facility was $89,677. On November 10, 1999, the Company amended the New Credit Facility to allow the restructuring of certain of its manufacturing operations and to adjust its financial covenants. In accordance with the amendment, the rate at which the New Credit Facility bears interest was adjusted to, at Thermadyne LLC's option, the administrative agent's alternative base rate or the reserve-adjusted London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins of (i) in the case of alternative base rate loans, (x) 1.50% for revolving and Term A loans, (y) 1.75% for Term B loans and (z) 2.00% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.75% for revolving and Term A loans, (y) 3.00% for Term B loans and (z) 3.25% for Term C loans. The applicable margin may vary based on Thermadyne LLC's ratio of consolidated indebtedness to Adjusted EBITDA. In addition, the amendment required the issuance of $25.0 million of Junior Subordinated Notes with detachable warrants for the purchase of the Company's common stock. At December 31, 1999, the prime rate was 8.5%. Prior to the amendment of the New Credit Facility applicable margins were (i) in the case of alternative base rate loans, (x) 1.00% for revolving and Term A loans, (y) 1.25% for Term B loans and (z) 1.50% for Term C loans and (ii) in the case of LIBOR loans, (x) 2.25% for revolving and Term A loans, (y) 2.50% for Term B loans and (z) 2.75% for Term C loans. Thermadyne LLC pays a commitment fee calculated at a rate of 0.50% per annum on the daily average unused commitment under the Revolving Credit Facility (whether or not then available). Such fee is payable quarterly in arrears and upon termination of the Revolving Credit Facility (whether at stated maturity or otherwise). The applicable margin for the Term A Facility and the Revolving Credit Facility, as well as the commitment fee and letter of credit fee, is subject to possible reductions based on the ratio of consolidated Debt to EBITDA (each as defined in the New Credit Facility). Thermadyne LLC pays a letter of credit fee calculated (i) in the case of standby letters of credit, at a rate per annum equal to the then applicable margin for LIBOR loans under the Revolving Credit Facility minus 0.125% and (ii) in the case of documentary letters of credit, at a rate per annum equal to 1.25% plus, in each case, a fronting fee on the stated amount of each letter of credit. Such fees are payable quarterly in arrears. In addition, Thermadyne LLC pays customary transaction charges in connection with any letters of credit. The Term Loan Facility is subject to the following amortization schedule:
YEAR TERM LOAN A TERM LOAN B TERM LOAN C - ---- ----------- ----------- ----------- 1....................................... 0.0% 1.0% 1.0% 2....................................... 5.0% 1.0% 1.0% 3....................................... 10.0% 1.0% 1.0% 4....................................... 20.0% 1.0% 1.0% 5....................................... 25.0% 1.0% 1.0% 6....................................... 40.0% 1.0% 1.0% 7....................................... -- 94.0% 1.0% 8....................................... -- -- 93.0% ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
F-37 67 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Term Loan Facility is subject to mandatory prepayment: (i) with 100% of the net cash proceeds from the issuance of debt, subject to certain exceptions, (ii) with 100% of the net cash proceeds of asset sales and casualty events, subject to certain exceptions, (iii) with 50% of Thermadyne LLC's excess cash flow (as defined in the New Credit Facility) to the extent that the Leverage Ratio (as defined in the New Credit Facility) exceeds 3.5 to 1.0, and (iv) with 50% of the net cash proceeds from the issuance of equity to the extent that the Leverage Ratio exceeds 4.0 to 1.0. Thermadyne LLC's obligations under the New Credit Facility are secured by a first-priority perfected lien on: (i) substantially all domestic property and assets, tangible and intangible (other than accounts receivable sold or to be sold into the accounts receivable program and short-term real estate leases), of Thermadyne LLC and its domestic subsidiaries (other than the special purpose subsidiaries involved in the accounts receivable program); (ii) the capital stock of (a) Thermadyne LLC held by Holdings and (b) all subsidiaries of Thermadyne LLC (provided that no more than 65% of the equity interest in non-U.S. subsidiaries held by Thermadyne LLC and its domestic subsidiaries and no equity interests in subsidiaries held by foreign subsidiaries are required to be pledged); and (iii) all intercompany indebtedness. Holdings has guaranteed the obligations of Thermadyne LLC under the New Credit Facility. In addition, obligations under the New Credit Facility are guaranteed by all domestic subsidiaries. The New Credit Facility contains customary covenants and restrictions on Thermadyne LLC's ability to engage in certain activities, including, but not limited to: (i) limitations on the incurrence of liens and indebtedness, (ii) restrictions on sale lease-back transactions, consolidations, mergers, sale of assets, capital expenditures, transactions with affiliates and investments, and (iii) severe restrictions on dividends, and other similar distributions. The New Credit Facility contains financial covenants requiring Thermadyne LLC to maintain a minimum level of Adjusted EBITDA (as defined in the New Credit Facility); a minimum Interest Coverage Ratio (as defined in the New Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined in the New Credit Facility); and a maximum Leverage Ratio (as defined in the New Credit Facility). Interest Rate Swap At December 31, 1999, the Company has an interest rate swap agreement outstanding with a notional amount of $61,500, which matures in January of 2002, under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the interest rate swap agreement without the exchange of the underlying notional amount. The interest rate swap agreement converted a portion of the Credit Facility from a floating rate obligation to a fixed rate obligation. The fair market value of the interest rate swap is estimated based on current interest rates, and was $1,419 at December 31, 1999. The Company is subject to loss if the counterparty to this agreement does not perform. Interest differentials to be paid or received because of the swap agreement are reflected as an adjustment to interest expense over the related debt provided. This agreement is accounted for on the accrual basis. Senior Subordinated Notes Thermadyne LLC and Thermadyne Capital have outstanding $207 million aggregate principal amount of the Senior Subordinated Notes. The Senior Subordinated Notes are general unsecured obligations of Thermadyne LLC and Thermadyne Capital and will be subordinated in right of payment to all existing and future senior indebtedness of Thermadyne LLC and Thermadyne Capital (including borrowings under the New Credit Facility). The Senior Subordinated Notes are unconditionally guaranteed on a senior subordinated basis by certain of Thermadyne LLC's existing domestic subsidiaries (the "Guarantor Subsidiaries"). The note guarantees will be general unsecured obligations of the Guarantor Subsidiaries, are subordinated in right of payment to all existing and future senior indebtedness of the Guarantor Subsidiaries, including F-38 68 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) indebtedness under the New Credit Facility, and will rank senior in right of payment to any future subordinated indebtedness of the Guarantor Subsidiaries. The indentures governing the Senior Subordinated Notes restrict, subject to certain exceptions, the Company and its subsidiaries from incurring additional debt, paying dividends or making other distributions on or redeeming or repurchasing capital stock, making investments, loans or advances, disposing of assets, creating liens on assets and engaging in transactions with affiliates. Junior Subordinated Notes Thermadyne LLC has outstanding $25.0 million of Junior Subordinated Notes (the "Junior Notes") with detachable warrants for the purchase of the Company's common stock. The Junior Notes are general unsecured obligations of Thermadyne LLC and will be subordinated in right of payment to all existing and future senior and senior subordinated indebtedness of Thermadyne LLC. Thermadyne LLC, at its option, may pay interest in additional Junior Notes between the date of original issuance and December 15, 2004 on each March 15, June 15, September 15 and December 15 at the rate of 15%. Beginning December 15, 2004, interest will accrue at the rate of 15% per annum on each interest payment date, provided that if and for so long as payment of interest on the Junior Notes is prohibited under the terms of the New Credit Facility, interest shall be paid by the issuance of additional Junior Notes. The estimated fair value amounts of the Company's long-term obligations have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The fair value of the Senior Subordinated Notes was based on the most recent market information available, and is estimated to be 86% of their current carrying value at December 31, 1999, or $178,020. The fair value of the Junior Notes is estimated to be their carrying value since these notes have not traded since their issuance in December 1999. The fair values of the credit agreement and the Company's other long-term obligations are estimated at their current carrying values since these obligations are fully secured and have varying interest charges based on current market rates. 9. LEASES Future minimum lease payments related to continuing operations under leases with initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 2000........................................................ $ 3,884 $7,171 2001........................................................ 3,776 6,321 2002........................................................ 3,813 5,420 2003........................................................ 4,056 4,869 2004........................................................ 4,477 4,209 Thereafter.................................................. 41,969 23,841 -------- Total minimum lease payments...................... 61,975 Amount representing interest................................ (43,642) -------- Present value of net minimum lease payments, including current obligations of $226............................... $ 18,333 ========
F-39 69 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rent expense under operating leases from continuing operations amounted to $7,347, $9,528 and $9,358 for the years ended December 31, 1999, 1998 and 1997, respectively. 10. INCOME TAXES Pre-tax income (loss) from continuing operations was taxed under the following jurisdictions:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Domestic............................ $ 10,054 $(17,744) $31,104 Foreign............................. (18,264) (7,310) (2,560) -------- -------- ------- Income (loss) before income taxes.......................... $ (8,210) $(25,054) $28,544 ======== ======== =======
The provision (benefit) for income taxes charged to continuing operations is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ----------------- ----------------- ----------------- Current: Federal........................... $ 314 $ (768) $11,014 Foreign........................... 2,206 1,458 1,064 State and local................... 400 350 927 ------- ------- ------- Total current............. 2,920 1,040 13,005 ------- ------- ------- Deferred.......................... 11,696 13,642 470 ------- ------- ------- $14,616 $14,682 $13,475 ======= ======= =======
The composition of deferred tax assets and liabilities attributable to continuing operations at December 31 is as follows:
1999 1998 -------- -------- Deferred tax assets: Post-employment benefits.................................. $ 9,126 $ 8,862 Accrued liabilities....................................... 4,685 7,482 Intangibles............................................... 8,535 8,781 Other..................................................... (100) 1,488 Fixed assets.............................................. 7,090 6,769 Net operating loss carryforwards and AMT credits.......... 30,184 27,658 -------- -------- Total deferred tax assets......................... 59,520 61,040 Valuation allowance for deferred tax assets............... (33,966) (28,377) -------- -------- Net deferred tax assets........................... $ 25,554 $ 32,663 -------- -------- Deferred tax liabilities: Inventories............................................... 3,800 3,528 -------- -------- Total deferred tax liabilities.................... 3,800 3,528 -------- -------- Net deferred tax asset............................ $ 21,754 $ 29,135 ======== ========
F-40 70 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Tax at U.S. statutory rates..................... $(2,874) $(8,767) $ 9,991 Nondeductible goodwill amortization and other nondeductible expenses........................ 793 2,528 2,048 Change in valuation allowance................... 5,000 12,000 -- Foreign tax rate differences and nonrecognition of foreign tax loss benefits.................. 8,225 1,032 833 Issuance of warrants............................ 3,212 -- -- Non-deductible merger costs..................... -- 7,662 -- State income taxes, net of federal tax benefit....................................... 260 227 603 ------- ------- ------- $14,616 $14,682 $13,475 ======= ======= =======
At December 31, 1999, the Company had net operating loss carryforwards of approximately $86,000 available for U.S. federal income tax purposes which expire beginning 2001. Utilization of the majority of these net operating loss carryforwards is subject to various limitations because of previous changes in control of ownership (as defined in the Internal Revenue Code) of the Company. Pursuant to the requirements of the American Institute of Certified Public Accountants Statement of Position No. 90-7, "Financial Entities in Reorganization Under the Bankruptcy Code," the tax benefit resulting from the utilization of net operating loss carryforwards that existed on the effective date of the Company's financial reorganization will be reported as a direct addition to paid-in capital. The Company's foreign subsidiaries have undistributed earnings at December 31, 1999. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation. 11. EMPLOYEE BENEFIT PLANS 401(k) Retirement Plan. The 401(k) Retirement Plan covers the majority of the Company's domestic employees. The Company, at its discretion, can make a base contribution of 1% of each employee's compensation and an additional contribution equal to as much as 4% of the employee's compensation. At the employee's discretion, an additional 1% to 15% voluntary employee contribution can be made. The plan requires the Company to make a matching contribution of 50% of the first 6% of the voluntary employee contribution. Total expense for this plan related to continuing operations was approximately $2,223, $2,115, and $2,628 for the years ended December 31, 1999, 1998 and 1997, respectively. Employee Stock Purchase Plan. The Employee Stock Purchase Plan was canceled in connection with the Merger. For the plan year ended December 31, 1997, 1,098 employee participants purchased 82,085 shares at an aggregate purchase price of $1,989. Pension Plans. The Company's subsidiaries have had various noncontributory defined benefit pension plans which covered substantially all U.S. employees. The Company froze and combined its three noncontrib- F-41 71 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) utory defined benefit pension plans through amendments to such plans effective December 31, 1989. All former participants of these plans became eligible to participate in the 401(k) Retirement Plan effective January 1, 1990. There was no prepaid benefit cost at December 31, 1999 or 1998. Accrued benefit liabilities at December 31, 1999 and 1998 were $192 and $336, respectively. In addition, the Company's Australian subsidiary has a Superannuation Fund established by a Trust Deed which operates on a lump sum scheme to provide benefits for its employees. Prepaid benefit cost at December 31, 1999 and 1998 was $6 and $5, respectively. There were no accrued benefit liabilities at December 31, 1999 or 1998. Other Postretirement Benefits. The Company has a retirement plan covering both salaried and nonsalaried retired employees, which provides postretirement health care benefits (medical and dental) and life insurance benefits. The postretirement health care portion is contributory, with retiree contributions adjusted annually as determined by the Company based on claim costs. The postretirement life insurance portion is noncontributory. The Company recognizes the cost of postretirement benefits on the accrual basis as employees render service to earn the benefit. The Company continues to fund the cost of health care and life insurance benefits in the year incurred. The following tables provide a reconciliation of benefit obligations, plan assets and status of the Pension and Other Postretirement Benefit Plans as recognized in the Company's Consolidated Balance Sheet for the years ended December 31, 1999 and 1998:
PENSION BENEFITS POSTRETIREMENT ----------------- ------------------- 1999 1998 1999 1998 ------- ------- -------- -------- Change in Benefit Obligation: Benefit obligation at beginning of year.... $41,702 $44,439 $ 12,774 $ 12,010 Service cost............................... 989 1,057 761 1,218 Participant contributions.................. 732 795 -- -- Interest cost.............................. 2,514 2,424 842 1,330 Actuarial (gain) loss...................... (209) (266) 872 (870) Foreign currency exchange rate changes..... 1,643 (1,507) -- -- Benefits paid.............................. (6,889) (5,240) (2,244) (914) ------- ------- -------- -------- Benefit obligation at end of year.......... $40,482 $41,702 $ 13,005 $ 12,774 ======= ======= ======== ======== Change in plan assets: Fair value of plan assets at beginning of year.................................... $45,266 $44,399 Actual return on plan assets............... 8,040 3,968 Sponsor contributions...................... 798 3,086 Participant contributions.................. 732 795 Benefits paid.............................. (6,889) (5,240) Foreign currency exchange rate changes..... 1,890 (1,632) Administrative expenses.................... (118) (110) ------- ------- Fair value of plan assets at end of year... $49,719 $45,266 ======= ======= Funded status of the plan (underfunded)...... $ 9,237 $ 3,564 $(13,005) $(12,774) Unrecognized net actuarial loss (gain)..... (3,333) 989 (10,807) (9,426) Unrecognized prior service cost............ 76 99 (1,272) (1,927) ------- ------- -------- -------- Prepaid (accrued) benefit cost............. $ 5,980 $ 4,652 $(25,084) $(24,127) ======= ======= ======== ======== Weighted-average assumptions as of December 31: Discount rate.............................. 8% 7% 8% 7% Expected return on plan assets............. 8% 8% N/A N/A Rate of compensation increase.............. 3% 3% N/A N/A
F-42 72 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net periodic pension and other postretirement benefit costs include the following components:
PENSION BENEFITS OTHER BENEFITS --------------------------- ------------------------ 1999 1998 1997 1999 1998 1997 ------- ------- ------- ------ ------ ------ Components of the net periodic benefit cost: Service cost......................... $ 989 $ 1,057 $ 1,259 $ 761 $1,218 $1,255 Interest cost........................ 2,514 2,424 3,045 842 1,330 1,496 Expected return on plan assets....... (3,733) (3,366) (3,644) -- -- -- Recognized (gain) loss............... -- -- -- 1,698 2 (1) Amortization of prior service cost... -- 2 3 -- -- -- Prior service cost recognized........ 23 23 23 (101) -- -- ------- ------- ------- ------ ------ ------ Benefit cost (credit).................. $ (207) $ 140 $ 686 $3,200 $2,550 $2,750 ======= ======= ======= ====== ====== ======
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1999, declining gradually to 6.0% in 2012. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1998 and 10.5% in 1997. A one percentage point change in the assumed health care cost trend rate would have the following effects:
1-PERCENTAGE 1-PERCENTAGE POINT INCREASE POINT DECREASE -------------- -------------- Effect on total of service and interest cost components in 1999.................................................... $ 309 $ (240) Effect on postretirement benefit obligation as of December 31, 1999................................................ 1,436 (1,188)
12. SEGMENT INFORMATION The Company reports its segment information by geographic region. Although the Company's domestic operation is comprised of several individual business units, similarity of products, paths to market, end users, and production processes results in performance evaluation and decisions regarding allocation of resources being made on a combined basis. The Company's reportable geographic regions are the United States, Europe and Australia/Asia. The Company evaluates performance and allocates resources based principally on operating income net of any special charges or significant one-time charges. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales are based on market prices. F-43 73 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes the elimination of intersegment sales and profits, corporate related items and other costs not allocated to the reportable segments.
ALL OTHER UNITED GEOGRAPHIC STATES EUROPE AUSTRALIA/ASIA REGIONS OTHER CONSOLIDATED -------- ------- -------------- ---------- --------- ------------ 1999 Revenue from external customers.................... $343,521 $56,449 $ 76,763 $44,382 $ -- $521,115 Intersegment revenues.......... 34,290 15,678 2,819 414 (53,201) -- Depreciation and amortization of intangibles............... 11,164 2,737 4,603 590 4,388 23,482 Operating income (loss)........ 71,941 3,109 (5,576) (1,460) (118,020) (50,006) Identifiable assets............ 140,423 54,756 91,949 32,213 74,618 393,959 Capital expenditures........... 5,047 644 2,623 1,317 537 10,168 1998 Revenue from external customers.................... 363,371 54,657 82,238 32,511 -- 532,777 Intersegment revenues.......... 39,715 14,355 4,447 -- (58,517) -- Depreciation and amortization of intangibles............... 9,562 2,682 3,979 646 2,104 18,973 Operating income (loss)........ 90,691 3,953 (1,549) (48) (60,017) 33,030 Identifiable assets............ 174,272 57,539 107,991 31,686 41,948 413,436 Capital expenditures........... 7,965 1,114 7,091 420 916 17,506 1997 Revenue from external customers.................... 333,871 51,900 109,984 24,685 -- 520,440 Intersegment revenues.......... 35,503 4,699 2,700 -- (42,902) -- Depreciation and amortization of intangibles............... 12,190 2,333 4,677 57 1,558 20,815 Operating income (loss)........ 85,279 3,416 2,304 1,148 (13,640) 78,507 Identifiable assets............ 158,038 48,684 102,342 9,285 36,178 354,527 Capital expenditures........... 7,843 2,464 4,828 78 1,126 16,339
Product Line Information The Company manufactures a variety of products, substantially all of which are used in the cutting, welding or fabrication of metal. End users of the Company's products are engaged in various applications including construction, automobile manufacturing, repair and maintenance and shipbuilding. The following table shows sales for each of the Company's key product lines:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ Gas apparatus................................... $186,279 $183,688 $183,253 Arc welding equipment........................... 104,857 103,803 90,440 Arc welding consumables......................... 149,693 162,696 171,922 Plasma and automated cutting equipment.......... 71,083 71,742 61,685 All other....................................... 9,203 10,848 13,140 -------- -------- -------- $521,115 $532,777 $520,440 ======== ======== ========
F-44 74 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. CONTINGENCIES Thermadyne and certain of its wholly owned subsidiaries are defendants in various legal actions, primarily in the product liability area. While there is uncertainty relating to any litigation, management is of the opinion that the outcome of such litigation will not have a material adverse effect on the Company's financial condition or results of operations. 14. GUARANTOR SUBSIDIARIES In connection with the merger of Holdings and Mercury, Thermadyne LLC and Thermadyne Capital, both wholly owned subsidiaries of Holdings, issued $207 million of Senior Subordinated Notes. Holdings received all of the net proceeds from the issuance of the Senior Subordinated Notes and Thermadyne LLC and Thermadyne Capital are jointly and severally liable for all payments under the Senior Subordinated Notes. Additionally, the Senior Subordinated Notes are fully and unconditionally (as well as jointly and severally) guaranteed on an unsecured senior subordinated basis by certain subsidiaries of the Company (the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is wholly owned by Thermadyne LLC. The following condensed consolidating financial information of Thermadyne LLC includes the accounts of Thermadyne LLC, the combined accounts of the Guarantor Subsidiaries and the combined accounts of the non-guarantor subsidiaries for the periods indicated. Separate financial statements of each of the Guarantor Subsidiaries are not presented because management has determined that such information is not material in assessing the Guarantor Subsidiaries. F-45 75 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999 ASSETS
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ --------- Current assets: Cash and cash equivalents..... $ -- $ 2,566 $ 10,755 $ -- $ 13,321 Accounts receivable........... -- 51,895 42,836 -- 94,731 Inventories................... -- 59,042 41,789 -- 100,831 Prepaid expenses and other.... -- 2,853 3,101 -- 5,954 --------- --------- -------- --------- --------- Total current assets.............. -- 116,356 98,481 -- 214,837 Property, plant and equipment, at cost, net............... -- 43,985 49,826 -- 93,811 Deferred financing costs, net........................ 17,020 -- 269 -- 17,289 Intangibles, at cost, net..... -- 11,937 28,233 -- 40,170 Deferred income taxes......... -- 25,046 792 -- 25,838 Investment in and advances to/from subsidiaries....... 209,719 -- -- (209,719) -- Other assets.................. -- 692 1,322 -- 2,014 --------- --------- -------- --------- --------- Total assets.......... $ 226,739 $ 198,016 $178,923 $(209,719) $ 393,959 ========= ========= ======== ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable.............. $ -- $ 18,141 $ 23,632 $ -- $ 41,773 Accrued and other liabilities................ -- 18,060 8,992 -- 27,052 Accrued interest.............. 2,400 -- 16 -- 2,416 Income taxes payable.......... -- 11,725 (2,150) -- 9,575 Current maturities of long-term obligations...... 9,800 253 2,027 -- 12,080 --------- --------- -------- --------- --------- Total current liabilities......... 12,200 48,179 32,517 -- 92,896 Long-term obligations, less current maturities............ 517,000 16,906 31,341 -- 565,247 Other long-term liabilities..... -- 51,797 10,375 -- 62,172 Shareholders' equity (deficit): Retained earnings (accumulated deficit)................... (385,425) (279,825) (46,716) 326,541 (385,425) Accumulated other comprehensive loss......... -- (7,742) (16,153) -- (23,895) --------- --------- -------- --------- --------- Total shareholders' equity (deficit).... (385,425) (287,567) (62,869) 326,541 (409,320) Net equity and advances to/from subsidiaries.................. 82,964 368,701 167,559 (536,260) 82,964 --------- --------- -------- --------- --------- Total liabilities and shareholders' equity (deficit)........... $ 226,739 $ 198,016 $178,923 $(209,719) $ 393,959 ========= ========= ======== ========= =========
F-46 76 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 ASSETS
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ --------- Current assets: Cash and cash equivalents..... $ -- $ (1,051) $ 2,370 $ -- $ 1,319 Restricted cash............... -- -- 26,646 (26,646) -- Accounts receivable........... -- 13,682 96,606 (22,383) 87,905 Inventories................... -- 68,742 53,991 -- 122,733 Prepaid expenses and other.... -- 1,259 6,325 (219) 7,365 --------- --------- -------- --------- --------- Total current assets.............. -- 82,632 185,938 (49,248) 219,322 Property, plant and equipment, at cost, net............... -- 48,023 56,974 -- 104,997 Deferred financing costs, net........................ 19,001 -- 571 -- 19,572 Intangibles, at cost, net..... -- 10,561 28,598 -- 39,159 Deferred income taxes......... -- 26,470 2,665 -- 29,135 Investment in and advances to/from subsidiaries....... 209,369 9,969 -- (219,338) -- Other assets.................. -- (55) 1,306 -- 1,251 --------- --------- -------- --------- --------- Total assets.......... $ 228,370 $ 177,600 $276,052 $(268,586) $ 413,436 ========= ========= ======== ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable.............. $ -- $ 21,003 $ 23,167 $ -- $ 44,170 Accrued and other liabilities................ -- 26,060 10,384..... -- 36,444 Accrued interest.............. 275 6 217 -- 498 Income taxes payable.......... -- 7,927 (2,716) -- 5,211 Current maturities of long-term obligations...... 5,000 60 4,120 -- 9,180 --------- --------- -------- --------- --------- Total current liabilities......... 5,275 55,056 35,172 -- 95,503 Long-term obligations, less current maturities............ 515,050 16,101 81,437 (50,000) 562,588 Other long-term liabilities..... -- 52,116 10,718 -- 62,834 Shareholders' equity (deficit): Retained earnings (accumulated deficit)................... (368,408) (295,702) (16,201) 311,903 (368,408) Accumulated other comprehensive (loss)....... -- 224 (15,758) -- (15,534) --------- --------- -------- --------- --------- Total shareholders' equity (deficit).... (368,408) (295,478) (31,959) 311,903 (383,942) Net equity and advances to/from subsidiaries.................. 76,453 349,805 180,684 (530,489) 76,453 --------- --------- -------- --------- --------- Total liabilities and shareholders' equity (deficit)........... $ 228,370 $ 177,600 $276,052 $(268,586) $ 413,436 ========= ========= ======== ========= =========
F-47 77 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net sales....................... $ -- $408,406 $200,827 $(88,118)(a) $521,115 Operating expenses: Cost of goods sold............ -- 262,185 169,780 (89,715)(a) 342,250 Selling, general and administrative expenses.... -- 66,766 32,385 -- 99,151 Amortization of goodwill...... -- 97 1,478 -- 1,575 Amortization of other intangibles................ -- 1,931 1,116 -- 3,047 Net periodic postretirement benefits................... -- 3,200 -- -- 3,200 Special charges............... -- 12,524 9,362 -- 21,886 -------- -------- -------- -------- -------- Operating income (loss)......... -- 61,703 (13,294) 1,597 50,006 Other income (expense): Interest expense.............. -- (49,808) (8,243) 2,730 (55,321) Amortization of deferred financing costs............ -- (2,973) (241) -- (3,214) Equity in net loss of subsidiaries............... (17,017) -- -- 17,017 -- Other......................... -- 11,277 (4,252) (6,706) 319 -------- -------- -------- -------- -------- Income (loss) before income tax provision..................... (17,017) 20,199 (26,030) 14,638 (8,210) Income tax provision............ -- 4,322 4,485 -- 8,807 -------- -------- -------- -------- -------- Net income (loss)............... $(17,017) $ 15,877 $(30,515) $ 14,638 $(17,017) ======== ======== ======== ======== ========
- --------------- (a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries. F-48 78 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
TOTAL THERMADYNE TOTAL NON- LLC GUARANTORS GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net sales......................... $ -- $438,013 $195,940 $(101,176)(a) $532,777 Operating expenses: Cost of goods sold.............. -- 279,470 161,817 (101,051)(a) 340,236 Selling, general and administrative expenses...... -- 73,081 29,473 -- 102,554 Amortization of goodwill........ -- 72 1,452 -- 1,524 Amortization of other intangibles.................. -- 1,520 840 -- 2,360 Net periodic postretirement benefits..................... -- 2,550 -- -- 2,550 Special charges................. -- 46,448 4,075 -- 50,523 -------- -------- -------- --------- -------- Operating income (loss)........... -- 34,872 (1,717) (125) 33,030 Other income (expense): Interest expense................ -- (46,447) (9,583) 3,485 (52,545) Amortization of deferred financing costs.............. -- (2,276) (204) -- (2,480) Equity in net loss of subsidiaries................. (54,873) -- -- 54,873 -- Other........................... -- 2,276 (775) (4,560) (3,059) -------- -------- -------- --------- -------- Income (loss) before income tax provision and extraordinary item............................ (54,873) (11,575) (12,279) 53,673 (25,054) Income tax provision.............. -- 14,428 254 -- 14,682 -------- -------- -------- --------- -------- Income (loss) before extraordinary item............................ (54,873) (26,003) (12,533) 53,673 (39,736) Extraordinary item, net of tax.... -- (15,137) -- -- (15,137) -------- -------- -------- --------- -------- Net income (loss)................. $(54,873) $(41,140) $(12,533) $ 53,673 $(54,873) ======== ======== ======== ========= ========
- --------------- (a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries. F-49 79 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net sales....................... $ -- $405,039 $210,462 $(95,061)(a) $520,440 Operating expenses: Cost of goods sold............ -- 246,794 167,430 (94,104)(a) 320,120 Selling, general and administrative expenses.... -- 76,676 34,020 -- 110,696 Amortization of goodwill...... -- 86 1,505 -- 1,591 Amortization of other intangibles................ -- 6,137 639 -- 6,776 Net periodic postretirement benefits................... -- 2,750 -- -- 2,750 ------- -------- -------- -------- -------- Operating income (loss)......... -- 72,596 6,868 (957) 78,507 Other income (expense): Interest expense.............. -- (39,641) (10,823) 5,139 (45,325) Amortization of deferred financing costs...................... -- (1,346) (241) -- (1,587) Equity in net loss of subsidiaries............... 15,069 -- -- (15,069) -- Other......................... -- 1,889 1,882 (6,822) (3,051) ------- -------- -------- -------- -------- Income (loss) from continuing operations before income tax provision..................... 15,069 33,498 (2,314) (17,709) 28,544 Income tax provision............ -- 13,012 463 -- 13,475 ------- -------- -------- -------- -------- Income (loss) from continuing operations.................... 15,069 20,486 (2,777) (17,709) 15,069 Discontinued operations: Gain on sale of discontinued operations, net of income taxes of $12,623........... 16,015 -- -- -- 16,015 Income from discontinued operations, net of income taxes...................... 3,173 -- -- -- 3,173 ------- -------- -------- -------- -------- Net income (loss)............... $34,257 $ 20,486 $ (2,777) $(17,709) $ 34,257 ======= ======== ======== ======== ========
- --------------- (a) Reflects the elimination of intercompany sales among all of the Company's subsidiaries. F-50 80 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net cash provided by (used in) operating activities.............. $(14,892) $ 47,751 $ 2,977 $ 14,638 $ 50,474 Cash flows used in investing activities: Capital expenditures, net......... -- (7,003) (3,165) -- (10,168) Change in other assets............ -- (488) (558) -- (1,046) Acquisitions, net of cash......... -- (3,000) (2,886) -- (5,886) -------- -------- ------- -------- -------- Net cash used in investing activities........................ -- (10,491) (6,609) -- (17,100) Cash flows provided by (used in) financing activities: Change in long-term receivables... -- (530) 177 -- (353) Repayment of long-term obligations.................... (4,049) -- (19,117) -- (23,166) Borrowing of long-term obligations.................... 10,799 998 14,738 -- 26,535 Change in accounts receivable securitization................. -- (23,843) -- -- (23,843) Financing fees.................... -- (901) -- -- (901) Changes in net equity and advances to/from subsidiaries........... 8,142 (6,110) 15,804 (14,638) 3,198 Other............................. -- (3,257) 415 -- (2,842) -------- -------- ------- -------- -------- Net cash provided by (used in) financing activities.............. 14,892 (33,643) 12,017 (14,638) (21,372) -------- -------- ------- -------- -------- Net increase in cash and cash equivalents....................... -- 3,617 8,385 -- 12,002 Cash and cash equivalents at beginning of year................. -- (1,051) 2,370 -- 1,319 -------- -------- ------- -------- -------- Cash and cash equivalents at end of year.............................. $ -- $ 2,566 $10,755 $ -- $ 13,321 ======== ======== ======= ======== ========
F-51 81 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ -------- Net cash provided by (used in) operating activities.............. $ (60,028) $(36,628) $(19,955) $ 53,673 $(62,938) Cash flows used in investing activities: Capital expenditures, net......... -- (8,227) (9,279) -- (17,506) Change in other assets............ -- (2,592) (454) -- (3,046) Acquisitions, net of cash......... -- (1,125) (17,828) -- (18,953) --------- -------- -------- -------- -------- Net cash used in investing activities........................ -- (11,944) (27,561) -- (39,505) Cash flows provided by (used in) financing activities: Change in long-term receivables... -- -- 638 -- 638 Repayment of long-term obligations.................... (408,810) (160) -- -- (408,970) Borrowing of long-term obligations.................... 608,751 -- 13,443 -- 622,194 Change in accounts receivable securitization................. -- (4,462) -- -- (4,462) Financing fees.................... (20,058) -- -- -- (20,058) Changes in net equity and advances to/from subsidiaries........... (119,855) 51,835 34,683 (53,673) (87,010) Other............................. -- -- (51) -- (51) --------- -------- -------- -------- -------- Net cash provided by (used in) financing activities.............. 60,028 47,213 48,713 (53,673) 102,281 --------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................. -- (1,359) 1,197 -- (162) Cash and cash equivalents at beginning of year................. -- 308 1,173 -- 1,481 --------- -------- -------- -------- -------- Cash and cash equivalents at end of year.............................. $ -- $ (1,051) $ 2,370 $ -- $ 1,319 ========= ======== ======== ======== ========
F-52 82 THERMADYNE MFG. LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
THERMADYNE TOTAL TOTAL LLC GUARANTORS NON-GUARANTORS ELIMINATIONS TOTAL ---------- ---------- -------------- ------------ --------- Net cash provided by (used in) operating activities............... $ 17,369 $ 15,561 $ (235) $(17,709) $ 14,986 Cash flows provided by (used in) investing activities: Capital expenditures, net.......... -- (9,084) (7,255) -- (16,339) Change in other assets............. -- 2,722 1,440 -- 4,162 Acquisitions, net of cash.......... -- (10,140) (27,755) -- (37,895) Investing activities of discontinued operations......... -- -- (1,680) -- (1,680) Proceeds from sale of discontinued operations...................... 88,543 -- -- -- 88,543 --------- -------- -------- -------- --------- Net cash provided by (used in) investing activities............... 88,543 (16,502) (35,250) -- 36,791 Cash flows provided by (used in) financing activities: Change in long-term receivables.... -- 170 -- -- 170 Repayment of long-term obligations..................... (123,450) -- (8,036) -- (131,486) Borrowing of long-term obligations..................... 63,950 301 8,604 -- 72,855 Change in accounts receivable securitization.................. -- 5,676 -- -- 5,676 Issuance of common stock........... 3,069 -- -- -- 3,069 Changes in net equity and advances to/from subsidiaries............ (49,821) (7,346) 39,458 17,709 -- Financing activities of discontinued operations......... -- -- (2,808) -- (2,808) Other.............................. 340 1,758 (1,290) -- 808 --------- -------- -------- -------- --------- Net cash provided by (used in) financing activities............... (105,912) 559 35,928 17,709 (51,716) --------- -------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents................... -- (382) 443 -- 61 Cash and cash equivalents at beginning of year.................. -- 690 730 -- 1,420 --------- -------- -------- -------- --------- Cash and cash equivalents at end of year............................... $ -- $ 308 $ 1,173 $ -- $ 1,481 ========= ======== ======== ======== =========
F-53 83 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMADYNE HOLDINGS CORPORATION By: /s/ JAMES H. TATE ------------------------------------ James H. Tate Senior Vice President and Chief Financial Officer Date: March 27, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ RANDALL E. CURRAN Chairman of the Board, President, March 27, 2000 - ----------------------------------------------------- and Chief Executive Officer Randall E. Curran (principal executive officer) /s/ JAMES H. TATE Director, Senior Vice President, March 27, 2000 - ----------------------------------------------------- and Chief Financial Officer James H. Tate (principal financial and accounting officer) /s/ PETER T. GRAUER Director March 27, 2000 - ----------------------------------------------------- Peter T. Grauer /s/ WILLIAM F. DAWSON Director March 27, 2000 - ----------------------------------------------------- William F. Dawson /s/ JOHN F. FORT III Director March 27, 2000 - ----------------------------------------------------- John F. Fort III /s/ HAROLD A. POLING Director March 27, 2000 - ----------------------------------------------------- Harold A. Poling /s/ LAWRENCE M.V.D. SCHLOSS Director March 27, 2000 - ----------------------------------------------------- Lawrence M.V.D. Schloss
84 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMADYNE MFG. LLC By: /s/ JAMES H. TATE ---------------------------------- James H. Tate Senior Vice President and Chief Financial Officer Date: March 27, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ RANDAL E. CURRAN Chairman of the Board, March 27, 2000 - ----------------------------------------------------- President, and Chief Randall E. Curran Executive Officer (principal executive officer) /s/ JAMES H. TATE Director, Senior Vice March 27, 2000 - ----------------------------------------------------- President, and Chief James H. Tate Financial Officer (principal financial and accounting officer) /s/ PETER T. GRAUER Director March 27, 2000 - ----------------------------------------------------- Peter T. Grauer /s/ WILLIAM F. DAWSON Director March 27, 2000 - ----------------------------------------------------- William F. Dawson
85 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMADYNE CAPITAL CORP. By: /s/ JAMES H. TATE ---------------------------------- James H. Tate Senior Vice President and Chief Financial Officer Date: March 27, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ RANDALL E. CURRAN Chairman of the Board, March 27, 2000 - ----------------------------------------------------- President, and Chief Randall E. Curran Executive Officer (principal executive officer) /s/ JAMES H. TATE Director, Senior Vice March 27, 2000 - ----------------------------------------------------- President, and Chief James H. Tate Financial Officer (principal financial and accounting officer) /s/ PETER T. GRAUER Director March 27, 2000 - ----------------------------------------------------- Peter T. Grauer /s/ WILLIAM F. DAWSON Director March 27, 2000 - ----------------------------------------------------- William F. Dawson
86 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Thermadyne Holdings Corporation We have audited the consolidated financial statements of Thermadyne Holdings Corporation and Thermadyne Mfg. LLC as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 and have issued our report thereon dated February 11, 2000. Our audits also included the financial statement schedule, Schedule II, Valuation and Qualifying Accounts. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP St. Louis, Missouri February 11, 2000 S-1 87 SCHEDULE II THERMADYNE HOLDINGS CORPORATION THERMADYNE MFG. LLC VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLLECTION BALANCE AT OF PREVIOUSLY BALANCE AT BEGINNING OF WRITTEN OFF END OF ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD PROVISION WRITEOFFS ACCOUNTS PERIOD - ------------------------------- ------------ --------- --------- ------------- ---------- Year ended December 31, 1999........... $2,852 $ 916 $916 $423 $3,275 Year ended December 31, 1998........... 2,217 1,267 632 0 2,852 Year ended December 31, 1997........... 1,649 875 315 8 2,217
S-2 88 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT ------- ------- 2.1 -- First Amended and Restated Plan of Reorganization of TDII Company under Chapter 11 of the Bankruptcy Code, confirmed by the United States Bankruptcy Court, District of Delaware, on January 18, 1994.(1) 2.2 -- Agreement and Plan of Merger, dated as of January 20, 1998, between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(2) 2.3 -- Amendment No. 1 to Agreement and Plan of Merger between Thermadyne Holdings Corporation and Mercury Acquisition Corporation.(3) 2.4 -- Certificate of Merger of Mercury Acquisition Corporation with and into Thermadyne Holdings Corporation.(3) 3.1 -- Certificate of Incorporation of Thermadyne Holdings Corporation.(included in Exhibit 2.4) 3.2 -- Bylaws of Thermadyne Holdings Corporation.(3) 3.3 -- Certificate of Incorporation of Thermadyne Capital Corp.(4) 3.4 -- Bylaws of Thermadyne Capital Corp.(4) 3.5 -- Limited Liability Company Agreement of Thermadyne Mfg. LLC.(4) 4.1 -- Indenture, dated as of May 22 1998, between Mercury Acquisition Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.2 -- First Supplemental Indenture, dated as of May 22, 1998, between Thermadyne Holdings Corporation and IBJ Schroder Bank & Trust Company, as Trustee.(3) 4.3 -- Form of 12 1/2% Senior Discount Debenture.(3) 4.4 -- A/B Exchange Registration Rights Agreement dated as of May 22, 1998, among Mercury Acquisition Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.5 -- Amendment to Registration Rights Agreement dated May 22, 1998, among Thermadyne Holdings Corporation and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.6 -- Indenture, dated as of February 1, 1994, between Thermadyne Holdings Corporation and Chemical Bank, as Trustee, with respect to $179,321,000 principal amount of the Senior Subordinated Notes Due November 1, 2003.(1) 4.7 -- Form of Senior Subordinated Note (included in Exhibit 4.3).(1) 4.8 -- Indenture, dated May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and State Street Bank and Trust Company, as Trustee.(3) 4.9 -- Form of 9 7/8% Senior Subordinated Notes.(3) 4.10 -- A/B Exchange Registration Rights Agreement dated as of May 22, 1998, among Thermadyne Mfg. LLC, Thermadyne Capital Corp., the guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation.(3) 4.11+ -- Subscription Agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein. 4.12+ -- Registration Rights Agreement dated December 22, 1999, among Thermadyne Mfg. LLC, Thermadyne Holdings Corporation, and the buyers named therein. 4.13+ -- Form of Indenture relating to Junior Subordinated Notes. 4.14+ -- Form of Warrants (included in Exhibit 4.11). 4.15+ -- Form of Junior Subordinated Notes (included in Exhibit 4.11).
89
EXHIBIT NO. EXHIBIT ------- ------- 10.1 -- Omnibus Agreement, dated as of June 3, 1988, among Palco Acquisition Company (now Thermadyne Holdings Corporation) and its subsidiaries and National Warehouse Investment Company.(5) 10.2 -- Escrow Agreement, dated as of August 11, 1988, among National Warehouse Investment Company, Palco Acquisition Company (now Thermadyne Holdings Corporation) and Title Guaranty Escrow Services, Inc.(5) 10.3 -- Amended and Restated Industrial Real Property Lease dated as of August 11, 1988, between National Warehouse Investment Company and Tweco Products, Inc., as amended by First Amendment to Amended and Restated Industrial Real Property Lease dated as of January 20, 1989.(5) 10.4 -- Schedule of substantially identical lease agreements.(5) 10.5 -- Amended and Restated Continuing Lease Guaranty, made as of August 11, 1988, by Palco Acquisition Company (now Thermadyne Holdings Corporation) for the benefit of National Warehouse Investment Company.(5) 10.6 -- Schedule of substantially identical lease guaranties.(5) 10.7 -- Lease Agreement, dated as of October 10, 1990, between Stoody Deloro Stellite and Bowling Green-Warren County Industrial Park Authority, Inc.(5) 10.8 -- Lease Agreement, dated as of February 15, 1985, as amended, between Stoody Deloro Stellite, Inc. and Corporate Property Associates 6.(5) 10.9 -- Receivables Purchase Agreement, dated as of December 28, 1994, among Thermadyne Receivables, Inc., as Transferor, and NationsBank of Virginia, N.A., as Trustee.(6) 10.10 -- Purchase Agreement, dated as of August 2, 1994, between Coyne Cylinder Company and BA Credit Corporation.(6) 10.11 -- Sublease Agreement, dated as of April 7, 1994, between Stoody Deloro Stellite, Inc., and Swat, Inc.(6) 10.12 -- Share Sale Agreement dated as of November 18, 1995, among certain scheduled persons and companies, Rosny Pty Limited, Byron Holdings Limited, Thermadyne Holdings Corporation, and Thermadyne Australia Pty Limited relating to the sale of the Cigweld Business.(7) 10.13 -- Rights Agreement dated as of May 1, 1997, between Thermadyne Holdings Corporation and BankBoston, N.A., as Rights Agent.(8) 10.14 -- First Amendment to Rights Agreement, dated January 20, 1998, between Thermadyne Holdings Corporation and BankBoston, N.A.(2) 10.15+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.16+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3) 10.17+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.18+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.19+ -- Executive Employment Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.20+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Randall E. Curran.(3) 10.21+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and James H. Tate.(3)
90
EXHIBIT NO. EXHIBIT ------- ------- 10.22+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Stephanie N. Josephson.(3) 10.23+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Thomas C. Drury.(3) 10.24+ -- Award Agreement dated May 22, 1998, between Thermadyne Holdings Corporation and Robert D. Maddox.(3) 10.25+ -- Thermadyne Holdings Corporation Management Incentive Plan.(3) 10.26+ -- Thermadyne Holdings Corporation Direct Investment Plan.(3) 10.27 -- Investors' Agreement dated as of May 22, 1998, between Thermadyne Holdings Corporation, the DLJ Entities (as defined therein) and the Management Stockholders (as defined therein).(3) 10.28 -- Credit Agreement dated as of May 22, 1998, between Thermadyne Mfg. LLC, Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro Bank N.V., as Administrative Agent.(3) 10.29+ -- First Amendment to Credit Agreement, dated as of November 10, 1999, among Thermadyne Mfg. LLC., Comweld Group Pty. Ltd., GenSet S.P.A. and Thermadyne Welding Products Canada Limited, as Borrowers, Various Financial Institutions, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, Societe Generale, as Documentation Agent, and ABN Amro N.V., as Administrative Agent. 10.30 -- Letter Agreement dated as of January 16, 1998, between Donaldson, Lufkin & Jenrette Securities Corporation and DLJ Merchant Banking II, Inc.(3) 10.31 -- Assignment and Assumption Agreement dated as of May 22, 1998, between DLJ Merchant Banking II, Inc. and Thermadyne Holdings Corporation.(3) 21.1 -- Subsidiaries of Thermadyne Holdings Corporation.* 23.1 -- Consent of Ernst & Young LLP, Independent Auditors.* 27.1 -- Financial Data Schedule.*
- --------------- + Indicates a management contract or compensatory plan or arrangement. * Filed herewith. (1) Incorporated by reference to the Company's Registration Statement on Form 10 (File No. 0-23378) filed under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on February 7, 1994. (2) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 21, 1998. (3) Incorporated by reference to the Company's Registration Statement on Form S-1, (File No. 333-57455) filed on June 23, 1998. (4) Incorporated by reference to Thermadyne LLC and Thermadyne Capital's Registration Statement on Form S-1 (File No. 333-57457) filed on June 23, 1998. (5) Incorporated by reference to the Company's Registration Statement on Form 10/A, Amendment No. 2 (File No. 0-23378) filed under Section 12(g) of the Exchange Act, on April 28, 1994. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (7) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on January 18, 1996. (8) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23378) filed under Section 12(g) of the Exchange Act on May 12, 1997. EX-4.11 2 SUBSCRIPTION AGREEMENT 1 EXHIBIT 4.11 SUBSCRIPTION AGREEMENT dated as of December 22, 1999 by and among DLJ MERCHANT BANKING PARTNERS II, L.P., DLJ MERCHANT BANKING PARTNERS II-A, L.P., DLJ OFFSHORE PARTNERS II, C.V., DLJ DIVERSIFIED PARTNERS, L.P., DLJ DIVERSIFIED PARTNERS-A, L.P., DLJMB FUNDING II, INC., DLJ MILLENNIUM PARTNERS, L.P., DLJ MILLENNIUM PARTNERS-A, L.P., DLJ EAB PARTNERS, L.P., DLJ ESC II L.P., DLJ FIRST ESC, L.P., THERMADYNE HOLDINGS CORPORATION and THERMADYNE MFG. LLC relating to the purchase and sale of Junior Subordinated Notes due 2009 of Thermadyne Mfg. LLC and Warrants to Purchase Shares of Common Stock of Thermadyne Holdings Corporation 2 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions......................................................................1 ARTICLE 2 PURCHASE AND SALE SECTION 2.01. Purchase and Sale................................................................5 SECTION 2.02. Closing..........................................................................5 SECTION 2.03. Purchase Price Allocation........................................................5 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE ISSUERS SECTION 3.01. Corporate Existence and Power....................................................6 SECTION 3.02. Corporate Authorization..........................................................6 SECTION 3.03. Noncontravention.................................................................6 SECTION 3.04. Capitalization; Indebtedness.....................................................7 SECTION 3.05. Subsidiaries.....................................................................8 SECTION 3.06. Parent 34 Act Reports............................................................8 SECTION 3.07. Litigation.......................................................................8 SECTION 3.08. Environmental Matters............................................................8 SECTION 3.09. Licenses and Permits.............................................................9 SECTION 3.10. Financial Statements.............................................................9 SECTION 3.11. Investment Company Act...........................................................9 SECTION 3.12. Registration Obligations........................................................10 SECTION 3.13. No Violation of Regulation G, T, U or X.........................................10 SECTION 3.14. No Ratings Decline..............................................................10 SECTION 3.15. No Material Change..............................................................10 SECTION 3.16. No Solicitation.................................................................10 SECTION 3.17. Labor Matters...................................................................11 SECTION 3.18. Accounting Controls.............................................................11 SECTION 3.19. Intellectual Property...........................................................11 SECTION 3.20. Indenture.......................................................................12 SECTION 3.21. No Registration.................................................................12 SECTION 3.22. Certificates....................................................................12
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PAGE ---- ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYERS SECTION 4.01. Corporate/Partnership Existence and Power.......................................12 SECTION 4.02. Corporate/Partnership Authorization.............................................12 SECTION 4.03. Governmental Authorization......................................................12 SECTION 4.04. Noncontravention................................................................13 SECTION 4.05. Purchase for Investment.........................................................13 SECTION 4.06. Litigation......................................................................13 SECTION 4.07. Finders' Fees...................................................................13 ARTICLE 5 COVENANTS OF THE PARTIES SECTION 5.01. Best Efforts; Further Assurances................................................14 SECTION 5.02. Certain Filings.................................................................14 SECTION 5.03. Public Announcements............................................................14 ARTICLE 6 CONDITIONS TO CLOSING SECTION 6.01. Conditions to Obligations of each Party.........................................14 SECTION 6.02. Conditions to Obligation of the Buyers..........................................15 SECTION 6.03. Conditions to Obligation of the Issuers.........................................16 ARTICLE 7 SURVIVAL; INDEMNIFICATION SECTION 7.01. Survival........................................................................17 SECTION 7.02. Indemnification.................................................................18 SECTION 7.03. Procedures......................................................................18 ARTICLE 8 MISCELLANEOUS SECTION 8.01. Notices.........................................................................19 SECTION 8.02. Amendments and Waivers..........................................................20 SECTION 8.03. Expenses........................................................................20 SECTION 8.04. Successors and Assigns..........................................................20 SECTION 8.05. Governing Law...................................................................20 SECTION 8.06. Jurisdiction....................................................................21 SECTION 8.07. WAIVER OF JURY TRIAL............................................................21
ii 4 SECTION 8.08. Counterparts; Third Party Beneficiaries.........................................21 SECTION 8.09. Appointment of Agent............................................................21 SECTION 8.10. Entire Agreement................................................................22 SECTION 8.11. Captions........................................................................22 SECTION 8.12. Enforcement of Voting Rights....................................................22 EXHIBITS Exhibit A-- Form of Notes, including attached Form of Indenture Exhibit B-- Form of Registration Rights Agreement Exhibit C-- Form of Warrants SCHEDULE Schedule 3.05 -- Subsidiaries
5 SUBSCRIPTION AGREEMENT AGREEMENT dated as of December 22, 1999 by and among DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ EAB Partners, L.P., DLJ ESC II L.P. and DLJ First ESC, L.P., (each of the foregoing, a "DLJ BUYER", and collectively, the "DLJ BUYERS" and sometimes referred to as the "BUYERS"), Thermadyne Holdings Corporation, a Delaware corporation ("PARENT"), and Thermadyne Mfg. LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (the "COMPANY"). W I T N E S S E T H : WHEREAS, the Buyers desire to purchase, and Parent and the Company desire to issue and sell to the Buyers, the Securities (as defined below), upon the terms and subject to the conditions hereinafter set forth. NOW THEREFORE, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; provided that no securityholder of Parent shall be deemed an Affiliate of any other securityholder of Parent or any Subsidiary solely by reason of any investment in Parent. For the purpose of this definition, the term "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 and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 6 "CLOSING DATE" means the date of the Closing. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMON STOCK" means the Common Stock, par value $0.01 per share, of Parent. "CREDIT AGREEMENT" means the Credit Agreement dated as of May 22, 1998 among the Company, Comweld Group Pty. Ltd., GenSet S.p.A., Thermadyne Welding Products Canada Limited, the various financial institutions party thereto from time to time, DLJ Capital Funding, Inc., as syndication agent, Societe Generale, as documentation agent and ABN AMRO Bank N.V., as administrative agent, as amended from time to time, together with the related documents thereto (including, without limitation, the term loans, revolving loans and swingline loans thereunder, the letters of credit issued pursuant thereto and any guarantees and security documents). "FEDERAL TAX" means any Tax imposed under Subtitle A of the Code. "FINAL DETERMINATION" shall mean (i) any final determination of liability in respect of a Tax that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise (including the expiration of a statute of limitations or a period for the filing of claims for refunds, amended returns or appeals from adverse determinations), including a "determination" as defined in Section 1313(a) of the Code or execution of an Internal Revenue Service Form 870AD or (ii) the payment of Tax by the Buyers, Parent or a Subsidiary, whichever is responsible for payment of such Tax under applicable law, with respect to any item disallowed or adjusted by a Taxing Authority, provided that such responsible party determines that no action should be taken to recoup such payment and the other party agrees. "INDENTURE" means the Indenture relating to the Notes, substantially in the form attached to Exhibit A hereto. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. 2 7 "MATERIAL ADVERSE EFFECT" means a material adverse effect on the condition (financial or otherwise), business, assets or results of operations of Parent and the Subsidiaries, taken as whole. "1933 ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "1934 ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "NOTES" means the Junior Subordinated Notes of the Company due 2009, a specimen certificate substantially the form of which is attached hereto as Exhibit A. "PARENT 1934 ACT REPORTS" means the reports filed by Parent in compliance with the 1934 Act during Parent's most recent fiscal year and, in any event, Parent's annual report on Form 10-K for the year ended December 31, 1998. "PERSON" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, substantially in the form attached hereto as Exhibit B. "SECURITIES" means, collectively, the Notes and the Warrants. "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by Parent (including, without limitation, the Company). "TAX" means (i) any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, withholding on amounts paid to or by any Person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (a "TAXING AUTHORITY") responsible for the imposition of any such tax (domestic or foreign), (ii) in the case of Parent or any Subsidiary, liability for the payment of any amount of the type described in clause (i) as a result of being or having been before the Closing Date a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of Parent or any Subsidiary to a Taxing Authority is determined or taken into account with 3 8 reference to the liability of any other Person, and (iii) liability of Parent or any Subsidiary for the payment of any amount as a result of being party to any Tax Sharing Agreement or with respect to the payment of any amount of the type described in (i) or (ii) as a result of any existing express or implied obligation (including, but not limited to, an indemnification obligation). "TAX SHARING AGREEMENTS" means all existing agreements or arrangements (whether or not written) binding Parent or any Subsidiary that provide for the allocation, apportionment, sharing or assignment of any Tax liability or benefit, or the transfer or assignment of income, revenues, receipts, or gains for the principal purpose of determining any person's Tax liability. "TRANSACTION DOCUMENTS" means this Agreement, the Notes, the Warrants, the Indenture and the Registration Rights Agreement. "TRANSACTIONS" means the transactions contemplated by the Transaction Documents. "WARRANTS" means warrants to purchase an aggregate of 436,965 shares of Common Stock, a specimen certificate substantially the form of which is attached hereto as Exhibit C. (b) Each of the following terms is defined in the Section set forth opposite such term:
TERM SECTION Authorizations 3.09 Buyers recitals Closing 2.02 Company recitals Damages 7.02 DLJ Buyers recitals Environmental Laws 3.08(a) ERISA 3.08(a) Indemnified Party 7.03 Indemnifying Party 7.03 intellectual property 3.19 Issuer 2.01 Parent recitals Parent Securities 3.04 Purchase Price 2.01
4 9 ARTICLE 2 PURCHASE AND SALE SECTION 2.01. Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, Parent and the Company (each, an "ISSUER") agree to issue and sell to each Buyer, and each Buyer agrees, severally and not jointly, to purchase from the applicable Issuer at the Closing such Notes and Warrants as are set forth opposite such Buyer's name on Schedule 2.01. The aggregate purchase price (the "PURCHASE PRICE") for the Notes and the Warrants applicable to each Buyer is set forth opposite such Buyer's name on Schedule 2.01. The aggregate Purchase Price payable by all Buyers shall be paid at Closing as provided in Section 2.02. SECTION 2.02. Closing. The closing (the "CLOSING") of the purchase and sale of the Securities hereunder shall take place at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York, as soon as possible after satisfaction of the conditions set forth in Article 6, or at such other time or place as the parties hereto may agree. At the Closing: (a) Each Buyer shall deliver to the applicable Issuer the amounts set forth opposite its name on Schedule 2.01 with respect to the Notes and the Warrants to be purchased by it, in immediately available funds by wire transfer to an account of the applicable Issuer designated by such Issuer, by notice to the Buyers, not later than two business days prior to the Closing Date. (b) The applicable Issuer shall deliver to each Buyer duly-executed Notes and Warrants, as the case may be, in the amounts set forth opposite such Buyer's name on Schedule 2.01. SECTION 2.03. Purchase Price Allocation. The Issuers and the Buyers agree that the Purchase Price shall be allocated to the Notes and the Warrants for U.S. federal income tax purposes in a manner to be mutually agreed by the Issuers and the Buyers. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE ISSUERS Parent and the Company jointly and severally represent and warrant to the Buyers as of the Closing Date that: 5 10 SECTION 3.01. Corporate Existence and Power. (a) Each Issuer is a corporation duly incorporated or a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, as the case may be, and has all requisite power and authority to carry on its business as now conducted. Each Issuer is duly qualified to do business as a foreign corporation or foreign limited liability company, as the case may be, and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. (b) All equity interests of each of the Issuers have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights. (c) Neither Issuer nor any of its subsidiaries is in violation of its respective organizational documents or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument to which such Issuer or any of its subsidiaries is a party or by which such Issuer or any of its subsidiaries or their respective property is bound, except for such defaults which, singly or in the aggregate, would not have a Material Adverse Effect. SECTION 3.02. Corporate Authorization. The execution, delivery and performance by each Issuer of the Transaction Documents to which such Issuer is a party and the consummation of the transactions contemplated thereby are within such Issuer's powers and have been duly authorized by all necessary action on the part of such Issuer. This Agreement constitutes (and, when executed and delivered, each other Transaction Document to which each Issuer is a party will constitute) a valid and binding agreement of each Issuer, enforceable against each of the Issuers in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally, (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability and (iii) rights to indemnity and contribution thereunder may be limited by applicable law. SECTION 3.03. Noncontravention. The execution, delivery and performance by each Issuer of the Transaction Documents to which such Issuer is a party and the consummation of the transactions contemplated thereby do not and will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under federal securities or Blue Sky laws of the various states or have been or will be obtained prior to the Closing Date), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, (A) the charter or 6 11 bylaws or limited liability company agreement of such Issuer or any of its subsidiaries or (B) any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to such Issuer and its subsidiaries, taken as a whole, to which such Issuer or any of its subsidiaries is a party or by which such Issuer or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over such issuer any of its subsidiaries or their respective property, (iv) result in the imposition or creation of (or the obligation to create or impose) a Lien under, any agreement or instrument to which such Issuer or any of its subsidiaries is a party or by which such Issuer or any of its subsidiaries or their respective property is bound, or (v) result in the termination, suspension or revocation of any Authorization (as defined below) of such Issuer or any of its subsidiaries or result in any other impairment of the rights of the holder of any such Authorization, except, in the case of clauses (i), (ii)(B), (iv) and (v), as would not, singly or in the aggregate, have a Material Adverse Effect. SECTION 3.04. Capitalization; Indebtedness. (a) The authorized capital stock of Parent consists of 30,000,000 shares of Common Stock and 15,000,000 shares of Preferred Stock. After giving effect to the Closing, there will be outstanding (i) 3,590,326 shares of Common Stock and 2,000,000 shares of Preferred Stock, (ii) options to purchase 342,356 shares of Common Stock, (iii) the rights associated with Parent's rights plan in place as of the date hereof and (iv) the Warrants. (b) All outstanding shares of capital stock of Parent have been duly authorized and validly issued and are fully paid and non-assessable. Other than the Parent Securities, there are no outstanding (i) shares of capital stock or voting securities of Parent, (ii) securities of Parent convertible into or exchangeable for shares of capital stock or voting securities of Parent or (iii) options or other rights to acquire from Parent, or other obligation of Parent to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of Parent (the items in clauses 3.04(B)(I), 3.04(B)(II), 3.04(B)(III) and 3.04(b)(iv) being referred to collectively as the "PARENT SECURITIES"). There are no outstanding obligations of Parent or any Subsidiary to repurchase, redeem or otherwise acquire any Parent Securities, except the obligation of Parent to redeem its Preferred Stock in accordance with the terms thereof. (c) When executed and delivered pursuant to this Agreement, the Notes and the Warrants will constitute valid and binding obligations of the applicable Issuer. Upon the consummation of the Closing, the shares of Common Stock issuable upon the exercise of the Warrants will have been duly authorized and reserved for issuance upon exercise of the Warrants and, when issued upon such 7 12 exercise and payment of the exercise price thereof, will be validly issued, fully paid and non-assessable, and the issuance of such shares is not subject to any preemptive or similar rights. SECTION 3.05. Subsidiaries. (a) The entities listed on Schedule 3.05 hereto are the only subsidiaries, direct or indirect, of Parent. Except as otherwise set forth on such Schedule, all of the outstanding equity interests of each of Parent's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, as applicable, and are owned by Parent, directly or indirectly through one or more subsidiaries, free and clear of any Lien. SECTION 3.06. Parent 34 Act Reports. Parent has made all required filings under the 1934 Act. All of the information contained in the Parent 34 Act Reports is correct in all material respects as of the date thereof and not misleading. SECTION 3.07. Litigation. (a) No action has been taken and no law, statute, rule or regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the execution, delivery and performance of any of the Transaction Documents, or suspends the sale of the Notes or the Warrants in any jurisdiction and no injunction, restraining order or other order or relief of any nature by a federal or state court or other tribunal of competent jurisdiction has been issued with respect to any Issuer which would prevent or suspend the issuance or sale of the Notes or the Warrants in any jurisdiction. (b) There are no legal or governmental proceedings pending or threatened to which either Issuer or any of its subsidiaries is or could be a party or to which any of their respective property is or could be subject, which might result, singly or in the aggregate, in a Material Adverse Effect. SECTION 3.08. Environmental Matters. (a) Neither Issuer nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any provisions of the Foreign Corrupt Practices Act or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a Material Adverse Effect. (b) Except as otherwise set forth in the Parent 1934 Act Reports, there are no costs or liabilities associated with Environmental Laws (including, without 8 13 limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a Material Adverse Effect. SECTION 3.09. Licenses and Permits. Each Issuer and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "AUTHORIZATION") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a Material Adverse Effect. Each such Authorization is valid and in full force and effect and each Issuer and its subsidiaries is in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization; and such Authorizations contain no restrictions that are burdensome to such Issuer or any of its subsidiaries; except, in each case, where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a Material Adverse Effect. SECTION 3.10. Financial Statements. The historical financial statements, together with related notes forming part of the Parent 34 Act Reports (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of Parent and its subsidiaries on the basis stated in the Parent 34 Act Reports 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 Parent 34 Act Reports (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of Parent. SECTION 3.11. Investment Company Act. None of the Issuers is or, after giving effect to the offering and sale of the Securities and the application of the 9 14 net proceeds thereof will be, and "investment company," as such term is defined in the Investment Company Act of 1940 as amended. SECTION 3.12. Registration Obligations. There are no contracts, agreements or understanding between any Issuer and any person granting such person the right to require such Issuer to file a registration statement under the 1933 Act with respect to any securities of such Issuer or to require such Issuer to include such securities with the securities registered pursuant to any Issuer registration statement, except as contemplated in the Registration Rights Agreement and the Investors' Agreement dated as of May 22, 1998 among Parent and the investors and stockholders party thereto. SECTION 3.13. No Violation of Regulation G, T, U or X. Neither Issuer nor any agent thereof acting on the behalf of them has taken, and none of them will take, any action that may cause the Transaction Agreements or the issuance or sale of the Securities 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. SECTION 3.14. No Ratings Decline. No "nationally recognized statistical rating organization" (as such term is defined for purposes of Rule 436(g)(2) under the 1933 Act (i) has imposed (or has informed any Issuer that it is considering imposing) any condition (financial or otherwise) on such Issuer's retaining any rating assigned to such Issuer or any securities of such Issuer or (ii) has indicated to such Issuer that it is considering (A) the downgrading suspension, or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (B) any change in the outlook for any rating of such Issuer or any securities of such Issuer. SECTION 3.15. No Material Change. Since the respective dates as of which information is given in the Parent 34 Act Reports other than as set forth in the Parent 34 Act Reports (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, management or operations of Parent and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of Parent or any of its subsidiaries and (iii) neither Parent nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. SECTION 3.16. No Solicitation. No form of general solicitation or general advertising (as defined in Regulation D under the 1933 Act) was used by any 10 15 Issuer or any of its representatives (other than the DLJ Buyers, as to whom the Issuers make no representation) in connection with the offer and sale of the Securities contemplated here, including, but not limited to, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. No securities of the same class as the Notes or the Warrants have been issued and sold by any Issuer within the six-month period immediately prior to the date hereof. SECTION 3.17. Labor Matters. There is no (i) material unfair labor practice complaint, grievance or arbitration proceeding pending or threatened against either Issuer before the National Labor Relations Board or any state or local labor relations board or (ii) strike, labor dispute, slowdown or stoppage pending or threatened against either Issuer, except for such actions specified in clause (i) or (ii) above, which, singly or in the aggregate, would not have a Material Adverse Effect. To the best of the Issuers' knowledge, no collective bargaining organizing activities are taking place with respect to either Issuer, which, singly or in the aggregate, would have a Material Adverse Effect. SECTION 3.18. Accounting Controls. Each Issuer maintains a system of internal accounting controls sufficient to provide 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 in conformity 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. SECTION 3.19. Intellectual Property. Except as otherwise set forth in the Parent 34 Act Reports, Parent and its subsidiaries own or possess, or can acquire on reasonable terms, all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names ("INTELLECTUAL PROPERTY") currently employed by them in connection with the business now operated by them, except where the failure to own or possess or otherwise be able to acquire such intellectual property would not, singly or in the aggregate, have a Material Adverse Effect; and, to the best of the Issuers' knowledge, neither Parent nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of such intellectual property which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. 11 16 SECTION 3.20. Indenture. Prior to the effectiveness of any registration statement relating to the Notes, the Indenture is not required to be qualified under the TIA. SECTION 3.21. No Registration. No registration under the 1933 Act of the Securities is required for the sale of the Securities to the Buyers as contemplated hereby or for exempt resales assuming the accuracy of the Buyers' representations and warranties and agreements set forth in Article 4. SECTION 3.22. Certificates. Each certificate signed by an officer of any Issuer and delivered to the Buyers or counsel for the Buyers shall be deemed to be a representation and warranty by such Issuer to the Buyers as to the matters covered thereby. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYERS Each Buyer, severally as to itself and not jointly, represents and warrants to Parent and the Company as of the Closing Date that: SECTION 4.01. Corporate/Partnership Existence and Power. Such Buyer is a partnership duly organized or a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization. SECTION 4.02. Corporate/Partnership Authorization. The execution, delivery and performance by such Buyer of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby are within the powers (corporate, partnership or otherwise) of such Buyer and have been duly authorized by all necessary action on the part of such Buyer. This Agreement constitutes (and, when executed and delivered, each other Transaction Document to which such Buyer is a party will constitute) a valid and binding agreement of such Buyer. SECTION 4.03. Governmental Authorization. The execution, delivery and performance by such Buyer of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby require no action by or in respect of, or filing with, any governmental body, agency or official (other than any filing pursuant to the HSR Act that may be required by a holder of the Warrants in connection with the exercise of the Warrants). 12 17 SECTION 4.04. Noncontravention. The execution, delivery and performance by such Buyer of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby do not and will not (i) violate the partnership agreement or certificate of incorporation or bylaws, as the case may be, of such Buyer, (ii) violate any material indenture, agreement or mortgage to which such Buyer is a party or by which such Buyer is bound, or (iii) assuming compliance with the matters referred to in Section 4.03, violate any applicable material law, rule, regulation, judgment, injunction, order or decree or require any material consent of any other Person. SECTION 4.05. Purchase for Investment. Such Buyer acknowledges that the Securities have not been registered under the 1933 Act or any state securities laws and that the purchase and sale of the Securities contemplated hereby is to be effected pursuant to an exemption from the registration requirements imposed by such laws. In this regard, such Buyer is purchasing the Securities to be purchased by it hereunder for its own account and not with a view to, or for sale in connection with, any distribution thereof in violation of the 1933 Act. Such Buyer (either alone or together with its advisors) is an "accredited investor" (as defined in Regulation D under the 1933 Act), has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in such Securities and is capable of bearing the economic risks of such investment. Such Buyer has been given the opportunity to ask questions of, and receive answers from, management of Parent concerning its investment in the Issuers. SECTION 4.06. Litigation. There is no action, suit, investigation or proceeding pending against, or to the knowledge of such Buyer threatened against or affecting, such Buyer before any court or arbitrator or any governmental body, agency or official which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Transactions. SECTION 4.07. Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of such Buyer who might be entitled to any fee or commission from such Buyer or from Parent or any of its Affiliates upon consummation of the Transactions. 13 18 ARTICLE 5 COVENANTS OF THE PARTIES Each party hereto agrees that: SECTION 5.01. Best Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, such party will use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the Transactions. Such party agrees to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the Transactions. SECTION 5.02. Certain Filings. The parties hereto shall cooperate with one another (i) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the Transactions and (ii) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. SECTION 5.03. Public Announcements. The parties agree to consult with each other before issuing any press release or making any public statement with respect to any Transaction Document or the Transactions and, except as may be required by applicable law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement prior to such consultation. ARTICLE 6 CONDITIONS TO CLOSING SECTION 6.01. Conditions to Obligations of each Party. The obligations of each party to consummate the Closing are subject to the satisfaction of the following conditions: (a) No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Closing. 14 19 (b) No proceeding challenging this Agreement or any of the Transactions or seeking to prohibit, alter, prevent or materially delay the Closing shall have been instituted by any Person before any court, arbitrator or governmental body, agency or official and be pending, where, in the reasonable judgment of the Buyers, on the one hand, or the Issuers, on the other hand, there is a significant possibility of a determination in accordance with the plaintiff's demand. SECTION 6.02. Conditions to Obligation of the Buyers. The obligation of the Buyers to consummate the Closing is subject to the satisfaction of the following further conditions: (a) (i) The Issuers shall have performed in all material respects all of their obligations hereunder required to be performed by them on or prior to the Closing Date and (ii) the representations and warranties of the Issuers contained in this Agreement and in any certificate or other writing delivered by either of them pursuant hereto shall be true in all material respects at and as of the Closing Date (it being understood that where any such representation and warranty already includes a material adverse effect or materiality exception, no further materiality exception is to be permitted by this Section 6.02(a)(ii)). (b) There shall not be threatened, instituted or pending any action or proceeding by any Person before any court or governmental authority or agency, domestic or foreign, (i) seeking to restrain, prohibit or otherwise interfere with the ownership or operation by Parent or any of its Affiliates of all or any material portion of the business or assets of Parent or any Subsidiary, or to compel Parent or any of its Affiliates to dispose of all or any material portion of such businesses or assets, (ii) seeking to impose or confirm limitations on the ability of any Buyer or any of its Affiliates effectively to exercise full rights of ownership of its Securities or (iii) seeking to require divestiture by any Buyer or any of its Affiliates of any of its Securities. (c) There shall not be any action taken, or any statute, rule, regulation, injunction, order or decree proposed (where, in the reasonable judgment of the Buyers, there is a significant possibility that such proposal will be enacted), enacted, enforced, promulgated, issued or deemed applicable to the purchase of their Securities, by any court, government or governmental authority or agency, domestic or foreign, that, in the reasonable judgment of any Buyer has a significant possibility of, directly 15 20 or indirectly, resulting in any of the consequences referred to in clauses 6.02(b)(i) through 6.02(b)(iii) above. (d) Each of the Transaction Documents (other than the Indenture) shall have been executed and delivered by the parties thereto other than the Buyers, the conditions to closing of each of the parties to the Transaction Documents (other than the Buyers) as set forth in such Transaction Documents shall have been satisfied or waived and, assuming due execution and delivery by the Buyers, each such Transaction Document shall be in full force and effect. (e) The costs and expenses of the Buyers referred to in Section 8.03, shall have been paid by the Issuers. (f) The Buyers shall have received an opinion or opinions of Weil, Gotshal & Manges (or other counsel reasonably satisfactory to the Buyers), counsel to the Issuers, dated the Closing Date, in form and substance reasonably satisfactory to the Buyers. In rendering such opinion, such counsel may rely upon certificates of public officers and, as to matters of fact, upon certificates of officers of the Issuers, copies of which certificates shall be contemporaneously delivered to the Buyers. (g) The Buyers shall have received all documents they may reasonably request relating to the existence of each Issuer and the authority of each Issuer for each of the Transaction Documents, all in form and substance reasonably satisfactory to the Buyers. SECTION 6.03. Conditions to Obligation of the Issuers. The obligation of the Issuers to consummate the Closing is subject to the satisfaction of the following further conditions: (a) (i) The Buyers shall have performed in all material respects all of their obligations hereunder required to be performed by them at or prior to the Closing Date and (ii) the representations and warranties of the Buyers contained in this Agreement and in any certificate or other writing delivered by the Buyers pursuant hereto shall be true in all material respects at and as of the Closing Date (it being understood that where any such representation and warranty already includes a material adverse effect or materiality exception, no further materiality exception is to be permitted by this Section 6.03(a)(ii)). (b) There shall not be threatened, instituted or pending any action or proceeding by any Person before any court or governmental authority or 16 21 agency, domestic or foreign, seeking to restrain or prohibit the ownership or operation by Parent or its Affiliates of all or any material portion of the business or assets of Parent or any Subsidiary, or to compel Parent or its Affiliates to dispose of all or any material portion of such businesses or assets. (c) There shall not be any action taken, or any statute, rule, regulation, injunction, order or decree proposed (where, in the reasonable judgment of the Issuers, there is a significant possibility that such proposal will be enacted), enacted, enforced, promulgated, issued or deemed applicable to the sale of Securities, by any court, government or governmental authority or agency, domestic or foreign that, in the reasonable judgment of the Issuers has a significant possibility of, directly or indirectly, resulting in any of the consequences referred to in Section 6.03(b) above. (d) Each of the Transaction Documents (other than the Indenture) shall have been executed and delivered by the parties thereto other than the Issuers and, assuming due execution and delivery by the Issuers, each such Transaction Document shall be in full force and effect. (e) The Issuers shall have received all documents they may reasonably request relating to the existence of the Buyers and the authority of such Persons for each of the Transaction Documents, all in form and substance reasonably satisfactory to the Issuers. ARTICLE 7 SURVIVAL; INDEMNIFICATION SECTION 7.01. Survival. The covenants, agreements, representations and warranties of the parties hereto contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall survive the Closing until eighteen months after the Closing Date; provided that the representations and warranties contained in Sections 3.04, 3.05, 3.08, and the covenants and agreements set forth in Articles 7 and 8 shall survive indefinitely. Notwithstanding the preceding sentence, any covenant, agreement, representation or warranty in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to the preceding sentence, if notice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time. 17 22 SECTION 7.02. Indemnification. (a) Parent and the Company, without duplication, hereby jointly and severally indemnify each Buyer against and agree to hold such Buyer harmless from any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("DAMAGES") incurred or suffered by such Buyer arising out of any misrepresentation or breach of warranty, covenant or agreement made or to be performed by Parent or the Company pursuant to this Agreement. (b) Each Buyer, severally but not jointly, hereby indemnifies Parent and the Company, without duplication, against and agrees to hold each of them harmless from any and all Damages incurred or suffered by them arising out of any misrepresentation or breach of warranty, covenant or agreement made or to be performed by such Buyer pursuant to this Agreement. (c) Any amount paid by Parent, any Subsidiary or the Buyers under Article 7 will be treated as an adjustment to the Purchase Price unless a Final Determination causes any such amount not to constitute an adjustment to the Purchase Price for Federal Tax purposes. In the event of such a Final Determination, the Buyers, Parent or any Subsidiary, as the case may be, shall pay an amount that reflects the hypothetical Tax consequences of the receipt or accrual of such payment, using the maximum statutory rate (or rates, in the case of an item that affects more than one Tax) applicable to the recipient of such payment for the relevant year, reflecting for example, the effect of deductions available for interest paid or accrued and for Taxes such as state and local income Taxes. SECTION 7.03. Procedures. The party seeking indemnification under Section 7.02 (the "INDEMNIFIED PARTY") agrees to give prompt notice to the party against whom indemnity is sought (the "INDEMNIFYING PARTY") of the assertion of any claim, or the commencement of any suit, action or proceeding in respect of which indemnity may be sought under such Section. The Indemnifying Party may at the request of the Indemnified Party participate in and control the defense of any such suit, action or proceeding at its own expense. The Indemnifying Party shall not be liable under Section 7.02 for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder. 18 23 ARTICLE 8 MISCELLANEOUS SECTION 8.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, if to the DLJ Buyers, to: c/o DLJ Merchant Banking Partners II, L.P. 277 Park Avenue New York, NY 10172 Attention: William F. Dawson, Jr. Fax: (212) 892-7272 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 Attention: Richard D. Truesdell, Jr. Fax: (212) 450-4800 if to the Issuers, to: Thermadyne Holdings Corporation 101 South Hanley Road St. Louis, Missouri 63105 Attention: Jim Tate or Stephanie Josephson Fax: (314) 746-2374 (314) 746-2327 with a copy to: R. Scott Cohen, Esq. Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, TX 75201-6950 Fax: (214) 746-7777 19 24 All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. SECTION 8.02. Amendments and Waivers. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective, provided that the DLJ Buyers agree that DLJ Merchant Banking Partners II, L.P. may agree to an amendment or waiver on behalf of, and as agent for, all DLJ Buyers. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 8.03. Expenses. All costs and expenses incurred in connection with the Transaction Documents shall be paid by the party incurring such cost or expense; provided that (i) any costs and expenses (including fees and expenses of counsel) of each Buyer shall be reimbursed by the Issuers at the Closing and (ii) all transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with transactions contemplated by this Agreement shall be paid by Parent when due, and Parent will, at its own expense, file all necessary Tax returns and other documentation with respect to all such Taxes and fees, and, if required by applicable law, the Buyers will join in the execution of any such Tax returns and other documentation. SECTION 8.04. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. SECTION 8.05. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York, without regard to the conflicts of law rules of such state. 20 25 SECTION 8.06. Jurisdiction. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in the United States District Court for the Southern District of New York or any other New York State court sitting in New York City, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 8.01 shall be deemed effective service of process on such party. SECTION 8.07. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 8.08. Counterparts; Third Party Beneficiaries. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. No provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. SECTION 8.09. Appointment of Agent. Each of the DLJ Buyers hereby irrevocably constitutes and appoints DLJ Merchant Banking Partners II, L.P. as its agent and true and lawful attorney in fact with full power and discretion, in the name of and for and on behalf of each of the DLJ Buyers, in connection with all matters arising from, contemplated by or relating to the Transaction Documents. The powers of DLJ Merchant Banking Partners II, L.P. include, without limitation, the power to represent each of the DLJ Buyers with respect to all aspects of the Transaction Documents, which power shall include, without limitation, the power to (i) waive any conditions of the Transaction Documents, (ii) amend the Transaction Documents in any respect, (iii) receive notices or other communications, (iv) deliver any notices, certificates or other documents required and (v) take all such other action and to do all such other things as DLJ Merchant Banking Partners II, L.P. deems necessary or advisable with respect to the Transaction Documents. The Issuers shall have the right to rely upon the acts 21 26 taken or omitted to be taken by DLJ Merchant Banking Partners II, L.P. on behalf of the DLJ Buyers, and shall have no duty to inquire as to the acts and omissions of DLJ Merchant Banking Partners II, L.P. SECTION 8.10. Entire Agreement. The Transaction Documents constitute the entire agreement between the parties with respect to the subject matter of the Transaction Documents and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of the Transaction Documents. SECTION 8.11. Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. SECTION 8.12. Enforcement of Voting Rights. In the event that after December 15, 2004 the Company does not pay interest in cash on four consecutive Interest Payment Dates (as defined in the Indenture) or on six Interest Payment Dates, each of the DLJ Buyers agrees to cause, to the extent such DLJ Buyers and their affiliates shall have the power to cause, two people selected by the Holders (as defined in the Indenture) of a majority of the Accreted Value (as defined in the Indenture) of the Notes, voting as a single class, to be elected to the Board of Directors of Parent. Further, each of the DLJ Buyers agrees to cause, to the extent such DLJ Buyers shall have the power to cause, such directors to serve on the Board of Directors of Parent until such time as the Company pays interest in cash on four consecutive Interest Payment Dates following their election. 22 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THERMADYNE HOLDINGS CORPORATION. By: /s/ JAMES H. TATE ------------------------------------------- Name: JAMES H. TATE Title: SR. VP & CFO THERMADYNE MFG. LLC By: /s/ JAMES H. TATE ------------------------------------------- Name: JAMES H. TATE Title: SR. VP & CFO DLJ MERCHANT BANKING PARTNERS II, L.P. By: /s/ WILLIAM F. DAWSON, JR. ------------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ MERCHANT BANKING PARTNERS II-A, L.P. By: /s/ WILLIAM F. DAWSON, JR. ------------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ OFFSHORE PARTNERS II, C.V. By: /s/ WILLIAM F. DAWSON, JR. ------------------------------------------- Name: William F. Dawson, Jr. Title: Principal 23 28 DLJ DIVERSIFIED PARTNERS, L.P. By: /s/ IVY DODES -------------------------------------------- Name: IVY DODES Title: Vice President DLJ DIVERSIFIED PARTNERS-A, L.P. By: /s/ IVY DODES -------------------------------------------- Name: IVY DODES Title: Vice President DLJM FUNDING II, INC. By: /s/ IVY DODES -------------------------------------------- Name: IVY DODES Title: Vice President DLJ MILLENNIUM PARTNERS, L.P. By: /s/ WILLIAM F. DAWSON, JR. ------------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ MILLENNIUM PARTNERS-A, L.P. By: /s/ WILLIAM F. DAWSON, JR. ------------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ EAB PARTNERS, L.P. By: /s/ IVY DODES ------------------------------------------- Name: IVY DODES Title: Vice President 24 29 DLJ ESC II L.P. By: /s/ IVY DODES ------------------------------------------- Name: IVY DODES Title: Vice President DLJ FIRST ESC, L.P. By: /s/ IVY DODES ------------------------------------------- Name: IVY DODES Title: Vice President 25 30 Schedule 2.01 Notes to be Purchased from the Company and Warrants to be Purchased from Parent
BUYERS SECURITIES PURCHASE PRICE - ---------------------------------------------------------------------------------------- DLJ Merchant Banking (1) $15,748,000 Initial Accreted $15,748,000 Partners II, L.P. Value of Notes (2) Warrants to purchase 275,255 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ Merchant Banking (1) $627,000 Initial Accreted $ 627,000 Partners II-A, L.P. Value of Notes (2) Warrants to purchase 10,962 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ Offshore Partners (1) $774,000 Initial Accreted $ 774,000 II, C.V. Value of Notes (2) Warrants to purchase 13,536 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ Diversified (1) $921,000 Initial Accreted $ 921,000 Partners, L.P. Value of Notes (2) Warrants to purchase 16,093 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ Diversified (1) $342,000 Initial Accreted $ 342,000 Partners-A, L.P. Value of Notes (2) Warrants to purchase 5,976 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJMB Funding II, Inc. (1) $3,212,000 Initial Accreted $ 3,212,000 Value of Notes (2) Warrants to purchase 56,152 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ Millennium (1) $255,000 Initial Accreted $ 255,000 Partners, L.P. Value of Notes (2) Warrants to purchase 4,451 shares of Common Stock - ----------------------------------------------------------------------------------------
31
BUYERS SECURITIES PURCHASE PRICE - ---------------------------------------------------------------------------------------- DLJ Millennium (1) $50,000 Initial Accreted Value $ 50,000 Partners-A, L.P. amount at maturity of Notes (2) Warrants to purchase 868 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ EAB Partners, L.P. (1) $71,000 Initial Accreted Value $ 71,000 amount at maturity of Notes (2) Warrants to purchase 1,236 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ ESC II L.P. (1) $2,970,000 Initial Accreted $2,970,000 Value of Notes (2) Warrants to purchase 51,906 shares of Common Stock - ---------------------------------------------------------------------------------------- DLJ First ESC, L.P. (1) $30,000 Initial Accreted Value $ 30,000 of Notes (2) Warrants to purchase 530 shares of Common Stock - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- TOTALS 1) $25,000,000 Initial Accreted $25,000,000 Value of Notes (2) Warrants to purchase 436,965 shares of Common Stock - ----------------------------------------------------------------------------------------
32 Schedule 3.05
NAME JURISDICTION OF ORGANIZATION - ---- ----------------------------- Arcair Stoody Europe S.A Belgium BBM Srl* Italy C&G Systems Holding, Inc. Delaware C&G Systems, Inc. Illinois Canadian Cylinder Company Canada Comet Property Holdings, Inc. Philippines Comweld Group Pty. Ltd Australia Comweld Malaysia SDN BHD Malaysia Comweld Philippines Inc. Philippines Coyne Natural Gas Systems, Inc. Missouri Duxtech Pty. Ltd. Australia Genset SpA Italy Marison Cylinder Company Delaware MECO Holding Company Delaware Metalservice SA Chile Modern Engineering Company, Inc. Missouri Ocim Srl* Italy Palco Trading Company* Dubai Philippine Welding Equipment Inc.* Philippines PT Thermadyne Utama Indonesia Indonesia PT Comweld Indonesia Indonesia Quetack Pty. Ltd Australia Quetala Pty. Ltd. Australia Quetala Unit Trust Australia Soltec SA Chile Stoody Company Delaware TAG Realty, Inc. Texas Tecmo Srl Italy Tec. Mo. Cut Srl* Italy Tec. Mo. Control Srl* Italy THC Italia Srl Italy Thermadyne Asia/Pacific PTE Ltd. Singapore Thermadyne Asia SDN BHD Malaysia
33
NAME JURISDICTION OF ORGANIZATION - ---- ---------------------------- Thermadyne Australia Pty. Ltd. Australia Thermadyne Brazil Holdings, Ltd. Cayman Islands Thermadyne Capital Corp. Delaware Thermadyne Chile Holdings, Ltd. Cayman Islands Thermadyne Cylinder Company California Thermadyne de Brasil S.C. Ltda Brazil Thermadyne de Mexico S.A. de C.V Mexico Thermadyne Foreign Sales Corporation Barbados Thermadyne Hong Kong Limited Hong Kong Thermadyne Industries, Inc. Delaware Thermadyne Industries Limited United Kingdom Thermadyne International Corp. Delaware Thermadyne Italia Srl Italy Thermadyne Japan, K.K Japan Thermadyne Korea, Limited Korea Thermadyne Receivables, Inc. Delaware Thermadyne South America Holdings, Ltd. Cayman Islands Thermadyne Thailand Co. Ltd.* Thailand Thermadyne Victor Ltda Brazil Thermadyne Welding Products Canada, Ltd. Canada Thermal Arc, Inc. Delaware Thermal Arc Philippines, Inc. Philippines Thermal Dynamics Corp. Delaware Tweco Products, Inc. Delaware Victor Coyne International, Inc. Delaware Victor Equipment Company Delaware Victor Gas Systems, Inc. Delaware Wichita Warehouse Corp. Kansas
100% of the stock of all domestic subsidiaries are pledged pursuant to the Credit Agreement. 65% of the stock of all foreign subsidiaries are pledged pursuant to the Credit Agreement. *These subsidiaries are not 100% owned. 34 EXHIBIT A THIS NOTE IS SUBJECT TO, AND IS TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF A SUBSCRIPTION AGREEMENT DATED AS OF DECEMBER 22, 1999. COPIES OF THE ABOVE REFERENCED AGREEMENT ARE ON FILE AT THE OFFICE OF THE COMPANY AT 101 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63105. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE U.S. TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY), AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE U.S. IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904, AS APPLICABLE, UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY 35 RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (G) PURSUANT TO ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH SECTION 3.14(J) OF THE INDENTURE AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE COMPANY. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A NON-U.S. PERSON THAT, IN EITHER CASE, IS NOT A QUALIFIED INSTITUTIONAL BUYER, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S." AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE COMPANY TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. THERMADYNE MFG. LLC. Junior Subordinated Note due 2009 Initial Accreted Value No. ___ $__________ THERMADYNE MFG. LLC, a Delaware limited liability company (the "COMPANY"), which term includes any successor Persons under the Indenture hereinafter referred to), for value received, promises to pay to __________, or its registered assigns, the Accreted Value (as defined below) of this Note, on December 15, 2009. 2 36 "ACCRETED VALUE" means with respect to this Note, as of any date of determination, the sum of: (a) the Accreted Value of such Note on the immediately preceding Interest Payment Date (in the event such date of determination falls before the first Interest Payment Date, the "Initial Accreted Value" specified on the face hereof) plus (b) an amount determined by multiplying (i) the amount referred to in clause (a) by (ii) 15% (provided that the accretion rate applicable to any period or portion of a period during which no interest accrues that occurs after December 15, 2004 shall be 16%) by (iii) the number of days in the period from and including the preceding Interest Payment Date to such date of determination divided by 360, less (c) any interest that accrues with respect to such period in accordance with the terms of the Note. Interest Rate: Prior to December 15, 2004, unless a Cash Payment Notice (as defined below) is properly delivered by the Company, no interest shall accrue or be payable with respect to the Notes. If the Company elects to pay interest on any Interest Payment Date prior to December 15, 2004, the Company shall give written notice (each such notice a "CASH PAYMENT NOTICE") of such election to Holders five business days prior to the immediately preceding Interest Payment Date. Commencing on such immediately preceding Interest Payment Date until such Interest Payment Date for which a Cash Payment Notice has been properly delivered, interest will accrue and be payable at a rate of 15% per annum to Holders of record of the Notes at the close of business on the Regular Record Date immediately preceding the Interest Payment Date for which such Cash Payment Notice has been properly delivered, whether or not a Business Day. Failure to pay interest after proper delivery of a Cash Payment Notice for any reason shall not constitute a breach of this Note or the Indenture and the Accreted Value shall be determined as if such Cash Payment Notice had not been delivered. On or after December 15, 2004 interest will accrue and be payable at a rate of 15% per annum on each Interest Payment Date to Holders of record of the Notes at the close of business on the immediately preceding Regular Record Date; provided, that if and for so long as payment of interest on the Notes is prohibited under the terms of the Credit Agreement (as defined in the Indenture) interest shall not accrue or be payable with respect to the Notes. Interest Payment Dates: March 15, June 15, September 15 and December 15 of each year. Regular Record Dates: March 1, June 1, September 1 and December 1 of each year. 3 37 Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: December 22, 1999 THERMADYNE MFG. LLC, as Issuer By: -------------------------------- Name: Title: 4 38 THERMADYNE MFG. LLC Junior Subordinated Note due 2009 This Note is one of a duly authorized issue of Notes of the Company consisting of other Junior Subordinated Notes due 2009 of the Company issued on December 22, 1999 and any replacement Notes issued in exchange for, or in lieu of, the foregoing in accordance with the Indenture. The Notes are limited in aggregate principal at maturity to the Accreted Value attributable to $25,000,000. All of such Notes shall be treated as a single issue and vote together as one class for all purposes of this Note and the Indenture. 1. Incorporation by Reference of Provisions of the Indenture. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture (as amended in accordance herewith, the "INDENTURE") attached hereto as Exhibit A. At all times during which an indenture is not required to be qualified under the TIA with respect to the Notes or the Indenture has not otherwise been executed and delivered, to the extent not inconsistent with any other terms of the Notes set forth herein, all of the terms and conditions of the Indenture shall be and are hereby incorporated by this reference in the Notes as if fully set forth herein, and shall be binding upon the Company and, by accepting a Note, each Holder, and inure to the benefit of the Holders of the Notes, except that, to the extent that the Indenture requires (i) any notices, certificates or other items to be delivered by the Company to the Trustee or any Paying Agent, such notices, certificates or other items shall be delivered instead to each Holder, (ii) any notices, certificates or other items to be delivered to the Trustee shall be delivered instead to the Company (and shall be delivered by the Company to each Holder), (iii) any notices, certificates or other items to be delivered by the Trustee to the Holders, such notices, certificates or other items shall be delivered instead by the Company to the Holders, (iv) any payments to be made by the Company to the Trustee or Paying Agent for payment to Holders, such payments shall instead be paid directly by the Company to the applicable Holder in the same manner as set forth in Section 3 below, (v) approval of the form of Notes or notations, legends or endorsements thereon by the Trustee, the Holders of a majority in outstanding principal amount of the Notes shall instead approve such form and notations, legends or endorsements (the form of Notes delivered to the initial Holders on the date of original issuance of the Notes and notations, legends and endorsements thereon being deemed to have been so approved) , (vi) any Note to be authenticated by the Trustee or an Authenticating Agent, the Notes shall instead be authenticated by the Company (the execution and delivery of any Note by manual signature of the Company to be deemed to constitute such authentication for all purposes), (vii) that a Person other than the Company and 5 39 any Affiliate thereof act as Paying Agent for presentation or surrender of Notes for payment, the Company or any Affiliate thereof may nonetheless so act, (viii) the Company to initially appoint the Trustee as Registrar or Paying Agent (to the extent of acting as agent for receiving surrender or presentations of, but not deposits of payments on, Notes) and agents for service of demands and notices in connection with the Notes, the Company instead hereby appoints its office at 101 South Hanley Road, Suite 300, St. Louis, MO 63105 for such purpose (with Section 4.02 of the Indenture not to apply thereto), (ix) Notes to be canceled by the Trustee, such Notes shall instead be canceled by the Company, (x) the Opinions of Counsel to be delivered to the Trustee pursuant to the Indenture shall instead be delivered to the Holders, (xi) any Notes to be surrendered or forwarded to the Trustee or any Paying Agent or Registrar, such Notes shall be surrendered or forwarded instead to the Company, (xii) any notices, certificates or other items to be delivered by the Holders to the Registrar or Paying Agent, such notices, certificates or other items shall be delivered instead to the Company and (xiii) Notes to be redeemed upon a partial redemption to be selected by the Trustee, such Notes shall be selected instead by the Company. 2. Accreted Value and Interest; Subordination. The Company agrees to pay the Accreted Value of this Note on December 15, 2009. The Company agrees to pay interest on the Accreted Value of this Note at the rate and in the manner specified below. "ACCRETED VALUE" means with respect to this Note, as of any date of determination, the sum of: (a) the Accreted Value of such Note on the immediately preceding Interest Payment Date (in the event such date of determination falls before the first Interest Payment Date, the "Initial Accreted Value" specified on the face hereof) plus (b) an amount determined by multiplying (i) the amount referred to in clause (a) by (ii) 15% (provided that the accretion rate applicable to any period or portion of a period during which no interest accrues on the Notes that occurs after December 15, 2004 shall be 16%) by (iii) the number of days in the period from and including the preceding Interest Payment Date to such date of determination divided by 360, less (c) any interest that accrues with respect to such period in accordance with the terms of the Note. Interest Rate: Prior to December 15, 2004, unless a Cash Payment Notice (as defined below) is properly delivered by the Company, no interest shall accrue or be payable with respect to the Notes. If the Company elects to pay interest on any Interest Payment Date prior to December 15, 2004, the Company shall give written notice (each such notice a "CASH PAYMENT NOTICE") of such 6 40 election to Holders five business days prior to the immediately preceding Interest Payment Date. Commencing on such immediately preceding Interest Payment Date until such Interest Payment Date for which a Cash Payment Notice has been properly delivered, interest will accrue and be payable at a rate of 15% per annum to Holders of record of the Notes at the close of business on the Regular Record Date immediately preceding the Interest Payment Date for which such Cash Payment Notice has been properly delivered, whether or not a Business Day. Failure to pay interest after proper delivery of a Cash Payment Notice for any reason shall not constitute a branch of this Note or the Indenture and the Accreted Value shall be determined as if such Cash Payment Notice had not been delivered. On or after December 15, 2004 interest will accrue and be payable at a rate of 15% per annum on each Interest Payment Date to Holders of record of the Notes at the close of business on the immediately preceding Regular Record Date; provided, that if and for so long as payment of interest on the Notes is prohibited under the terms of the Credit Agreement (as defined in the Indenture) interest shall not accrue or be payable with respect to the Notes. Interest on this Note will accrue as and to the extent set forth above; provided that, after December 15, 2004 if there is no failure or delay in the payment of interest and if this Note is authenticated between a Regular Record Date and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue payments of interest and Accreted Value, to the extent lawful, at a rate per annum equal to 1% per annum in excess of the rate of interest applicable to the Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness and all Senior Subordinated Indebtedness, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and agrees to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture. 3. Method of Payment. The Company will pay interest on the Notes on each Interest Payment Date for which interest is to be paid to the Persons who are Holders (as reflected in the Register at the close of business on the Regular Record Date immediately preceding the Interest Payment Date), in each case, even if the Note is canceled on registration of transfer or registration of exchange after 7 41 such Regular Record Date; provided that, with respect to the payment of Accreted Value at maturity, the Company will make payment to the Holder that surrenders this Note to any Paying Agent (which is initially the Company) on or after December 15, 2009. The Company will make all payments hereunder in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company will make all payments hereunder by wire transfer of immediately available funds to the accounts specified by the Holder hereof or, if no such account is specified, by mailing a check to the Holder's registered address. If a payment date is a date other than a Business Day, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 4. Paying Agent and Registrar. Initially, the Company will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar upon written notice to the Holders. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar. 5. Indenture; Limitations. In the event an indenture is required to be qualified under the Trust Indenture Act of 1939 (U.S. Code Section 77aaa-77bbbb), as amended from time to time (the "TIA"), with respect to the Notes, or at any time upon the request of Holders of in excess of 25% in aggregate principal amount of the outstanding Notes, the Company shall, and at any other time the Company, in its sole discretion, may, appoint a trustee (the "TRUSTEE") who satisfies the eligibility requirements set forth in Section 7.10 of the Indenture and, in any such event, the Company shall take whatever actions are necessary to cause an Indenture substantially in the form of Exhibit A attached hereto to be executed and delivered by the Company and the Trustee and to be qualified under the TIA. In such event, (i) this Note shall be deemed to be one of an issue of Notes of the Company issued under the Indenture; (ii) the terms of the Notes shall be deemed to include those stated in the Indenture and those made part of the Indenture by reference to the TIA, as amended from time to time; and (iii) the Notes shall be subject to all such terms. Holders of Notes are referred to the Indenture and the TIA for a statement of all such terms. In such event, the Company may require holders of the Notes, and each Holder by his or her acceptance hereof agrees upon the Company's request, to surrender to the Trustee all Notes in the form hereof in exchange for replacement Notes substantially in the form of Exhibit A to the Indenture. The Notes are unsecured junior subordinated obligations of the Company. 8 42 6. Optional Redemption. The Notes may be redeemed at the option of the Company, in whole, at any time and from time to time, on and prior to maturity at the following Redemption Prices (expressed in percentages of the Accreted Value thereof on the relevant Redemption Date), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date); provided that the Company shall not optionally redeem any Notes except and to the extent permitted by the Credit Agreement, (a) if redeemed prior to December 15, 2004 at a redemption price equal to 115% of the Accreted Value of the Notes; and (b) if redeemed during the 12-month period commencing December 15 of each of the years set forth below:
YEAR REDEMPTION PRICE ---- ---------------- 2004 .................... 107.5% 2005 .................... 105.0% 2006 .................... 102.5% 2007 and thereafter ..... 100%
Notice of a redemption will be mailed, first-class postage prepaid, at least 30 days but not more than 60 days before the Redemption Date to each Holder's registered address. On and after the Redemption Date, interest ceases to accrue on, and the Accreted Value shall cease to increase with respect to, Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 7. Repurchase upon a Change in Control. Upon the occurrence of a Change in Control, each Holder shall have the right to require that the Company repurchase such Holder's Notes at a purchase price in cash equal to 101% of the Accreted Value thereof on the date of purchase, plus, if applicable, accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date); provided, that the Company shall not be required to repurchase Notes upon a Change of Control if the Company is unable to obtain all necessary consents under the Credit Agreement for such repurchase. 9 43 8. Denominations; Transfer; Exchange. The Notes are in fully registered form without coupons, in denominations of $1,000 and any integral multiples of $1,000. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Company may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. 9. Persons Deemed Owners. A Holder may be treated as the owner of a Note for all purposes. 10. Discharge Prior to Redemption or Maturity. If the Company irrevocably deposits, or causes to be deposited, with a trustee who could qualify to serve as Trustee under the Indenture money or U.S. Government Obligations sufficient to pay the then outstanding Accreted Value of and accrued interest, if any, on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to redemption or maturity, the Company will be discharged from certain covenants set forth in the Indenture. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate Accreted Value of the Notes then Outstanding. Without notice to or the consent of any Holder, the Company may amend the Indenture or the Notes to the extent set forth in the Indenture. 12. Restrictive Covenants. The Indenture contains certain covenants, including, without limitation, covenants with respect to the following matters: (i) redemption of or payments on Junior Securities and Parity Securities; (ii) dividends on Junior Securities; (iii) transactions with Affiliates; and (iv) repurchase of Notes upon a Change in Control. Within 120 days after the end of each fiscal year, the Company must report to the Holders on compliance with such limitations. 13. Voting. The Subscription Agreement dated as of December 22, 1999 relating to the initial purchase of this Note provides that in the event that after December 15, 2004 the Company does not pay interest in cash on four consecutive Interest Payment Dates or on six Interest Payment Dates, the Principal and its affiliates who are signatories to the Subscription Agreement shall cause, to the extent that they shall have the power to so cause, two members selected by the Holders of a majority of the Accreted Value of the Notes, voting as a single class, to be elected to the Board of Directors of Parent. Further, the Principal and such affiliates shall cause, to the extent that they shall have the power to so cause, such directors to serve on the Board of Directors until such time as the Company pays 10 44 interest in cash on four consecutive Interest Payment Dates following their election. 14. Successor Persons. When a successor person or other entity (other than a Subsidiary of the Company) assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. 15. 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). 16. Provisions of Indenture. Each Holder, by accepting a Note, agrees, subject to Section 1 above, to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. 17. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: Thermadyne Holdings Corporation 101 South Hanley Road St. Louis, Missouri 63105 Facsimile No: (314) 746-2374 (314) 746-2327 Attn: Jim Tate or Stephanie Josephson with a copy to: R. Scott Cohen, Esq. Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, TX 75201-6950 Fax: (214) 746-7777 11 45 Any notice required to be given to a Holder shall be deemed to have been given upon the mailing by first class mail, postage prepaid, of such notices to Holders at their registered address as recorded in the Register and shall be sufficiently given to a Holder if so mailed within the time prescribed. In any case where notice to Holders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 12 46 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - -------------------------------------------------------------------------------- (Please print or typewrite name and address including zip code of assignee) - -------------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably constituting and appointing - -------------------------------------------------------------------------------- attorney to transfer such Note on the books of the Company with full power of substitution in the premises. 13 47 In connection with any transfer of this Note occurring prior to the Resale Restriction Termination Date for this Note, the undersigned confirms that without utilizing any general solicitation or general advertising that: Check One (a) [ ] this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or (b) [ ] this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Company shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.10 of the Indenture shall have been satisfied. Date: ------------------------ - ---------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature Guarantee: ---------------------------------------------- Signatures must be guaranteed by an "ELIGIBLE GUARANTOR INSTITUTION" meeting the requirements of the Company, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "SIGNATURE GUARANTEE PROGRAM" as may be determined by the Company in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 14 48 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "QUALIFIED INSTITUTIONAL BUYER" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------------- - ----------------------------------------- To be executed by an executive officer 15 49 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.10 of the Indenture, check the box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to 4.10 of the Indenture, state the amount (in Accreted Value) below: $---------------------. Date: ------------------------ Your Signature: --------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------- Signatures must be guaranteed by an "ELIGIBLE GUARANTOR INSTITUTION" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "SIGNATURE GUARANTEE PROGRAM" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. 50 EXHIBIT A Form of Indenture [see Exhibit 4.13] 51 EXHIBIT B Registration Rights Agreement [see Exhibit 4.12] 52 EXHIBIT C THERMADYNE HOLDINGS CORPORATION WARRANT FOR THE PURCHASE OF SHARES OF THERMADYNE HOLDINGS CORPORATION NO. ___ WARRANT TO PURCHASE _____ SHARES OF COMMON STOCK THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. FOR VALUE RECEIVED, THERMADYNE HOLDINGS CORPORATION, a Delaware corporation (the "COMPANY"), hereby certifies that __________, its successor or permitted assigns (the "HOLDER"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at the times specified herein, __________ fully paid and non-assessable shares of Common Stock of the Company, par value $0.01 per share (the "WARRANT SHARES"), at a purchase price per share equal to the Exercise Price (as hereinafter defined). The number of Warrant Shares to be received upon the exercise of this Warrant and the price to be paid for a Warrant Share are subject to adjustment from time to time as hereinafter set forth. (a) DEFINITIONS. The following terms, as used herein, have the following meanings: "AFFILIATE" shall have the meaning given to such term in Rule 12b-2 promulgated under the Securities and Exchange Act of 1934, as amended. 53 "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized by law to close. "COMMON STOCK" means the Common Stock, par value $0.01 per share, of the Company or any other security for which this Warrant may be exercised pursuant to paragraph (i) hereof after the occurrence of any of the transactions described in such paragraph. "EXERCISE PRICE" means $0.01 per Warrant Share, such Exercise Price to be adjusted from time to time as provided herein. "EXPIRATION DATE" means December 15, 2009 at 5:00 p.m. New York City time. "FAIR MARKET VALUE" means, with respect to one share of Common Stock on any date, the Current Market Price Per Common Share as defined in paragraph (h)(3) hereof. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PRINCIPAL HOLDERS" means, on any date, the Holders of at least 50% of the Warrants. "SUBSCRIPTION AGREEMENT" means the Subscription Agreement dated as of the date hereof between the Company, Thermadyne Mfg. LLC and the investors party thereto. "WARRANTS" means the Warrants issued pursuant to the Subscription Agreement. (b) EXERCISE OF WARRANT. (1) The Holder is entitled to exercise this Warrant in whole or in part at any time, or from time to time, until the Expiration Date or, if such day is not a Business Day, then on the next succeeding day that shall be a Business Day. To exercise this Warrant, the Holder shall execute and deliver to the Company a Warrant Exercise Notice substantially in the form annexed hereto. No earlier than ten days after delivery of the Warrant Exercise Notice, the Holder shall deliver to the Company this Warrant Certificate duly executed by the Holder, together with payment of 2 54 the applicable Exercise Price. Upon such delivery and payment, the Holder shall be deemed to be the holder of record of the Warrant Shares subject to such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. Notwithstanding anything herein to the contrary, in lieu of payment in cash of the applicable Exercise Price, the Holder may elect (i) to receive upon exercise of this Warrant, the number of Warrant Shares reduced by a number of shares of Common Stock having the aggregate Fair Market Value equal to the aggregate Exercise Price for the Warrant Shares, (ii) to deliver as payment, in whole or in part of the aggregate Exercise Price, shares of Common Stock having the aggregate Fair Market Value equal to the applicable portion of the aggregate Exercise Price for the Warrant Shares or (iii) to deliver as payment, in whole or in part of the aggregate Exercise Price, such number of Warrants which, if exercised, would result in a number of shares of Common Stock having an aggregate Fair Market Value equal to the applicable portion of the aggregate Exercise Price for the Warrant Shares. Notwithstanding anything to the contrary in this paragraph (b)(1), if the aggregate Fair Market Value of the Common Stock applied or delivered pursuant to (i), (ii) or (iii) above exceeds the aggregate Exercise Price, in no event shall the Holder be entitled to receive any amounts from the Company. (2) The Exercise Price may be paid in cash or by certified or official bank check or bank cashier's check payable to the order of the Company or by any combination of such cash or check. The Company shall pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. (3) If the Holder exercises this Warrant in part, this Warrant Certificate shall be surrendered by the Holder to the Company and a new Warrant Certificate of the same tenor and for the unexercised number of Warrant Shares shall be executed by the Company. The Company shall register the new Warrant Certificate in the name of the Holder or in such name or names of its transferee pursuant to paragraph (f) hereof as may be directed in writing by the Holder and deliver the new Warrant Certificate to the Person or Persons entitled to receive the same. 3 55 (4) Upon surrender of this Warrant Certificate in conformity with the foregoing provisions, the Company shall transfer to the Holder of this Warrant Certificate appropriate evidence of ownership of the shares of Common Stock or other securities or property (including any money) to which the Holder is entitled, registered or otherwise placed in, or payable to the order of, the name or names of the Holder or such transferee as may be directed in writing by the Holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share as provided in paragraph (e) below. (c) RESTRICTIVE LEGEND. Certificates representing shares of Common Stock issued pursuant to this Warrant shall bear a legend substantially in the form of the legend set forth on the first page of this Warrant Certificate to the extent that and for so long as such legend is applicable. (d) RESERVATION OF SHARES. The Company hereby agrees that at all times it shall reserve for issuance and delivery upon exercise of this Warrant such number of its authorized but unissued shares of Common Stock or other securities of the Company from time to time issuable upon exercise of this Warrant as will be sufficient to permit the exercise in full of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights. (e) FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant and in lieu of delivery of any such fractional share upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the Current Market Price Per Common Share (as defined in paragraph (h)(3)) at the date of such exercise. The Company further agrees that it will not change the par value of the Common Stock from par value $0.01 per share to any higher par value which exceeds the Exercise Price then in effect, and will reduce the par value of the Common Stock upon any event described in paragraph (h) that would, but for this provision, reduce the Exercise Price below the par value of the Common Stock. 4 56 (f) EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT. (1) This Warrant and the Warrant Shares are subject to the provisions of a Registration Rights Agreement dated as of December 22, 1999. Each holder of this Warrant Certificate by holding the same, consents and agrees that the registered holder hereof may be treated by the Company and all other persons dealing with this Warrant Certificate as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby. The Holder, by its acceptance of this Warrant, will be subject to the provisions of, and will have the benefits of, the Registration Rights Agreement. (2) Upon surrender of this Warrant to the Company, together with the attached Warrant Assignment Form duly executed, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee or assignees named in such instrument of assignment (and, if the Holder's entire interest is not being assigned, in the name of the Holder) and this Warrant shall promptly be cancelled. (g) LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the loss, theft, destruction or mutilation of this Warrant Certificate, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant Certificate, if mutilated, the Company shall execute and deliver a new Warrant Certificate of like tenor and date. (h) ANTI-DILUTION PROVISIONS. The Exercise Price of this Warrant and the number of shares of Common Stock for which this Warrant may be exercised shall be subject to adjustment from time to time upon the occurrence of certain events as provided in this paragraph (h); provided that notwithstanding anything to the contrary contained herein, the Exercise Price shall not be less than the par value of the Common Stock, as such par value may be reduced from time to time in accordance with paragraph (e). (1) In case the Company shall at any time after the date hereof (i) declare a dividend or make a distribution on Common Stock payable in Common Stock, (ii) subdivide or split the outstanding Common Stock, (iii) combine or reclassify the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of 5 57 Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the surviving corporation), the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, split, combination or reclassification shall be proportionately adjusted so that, after giving effect to paragraph (h)(5), the exercise of this Warrant after such time shall entitle the holder to receive the aggregate number of shares of Common Stock or other securities of the Company (or shares of any security into which such shares of Common Stock have been reclassified pursuant to clause (iii) or (iv) above) which, if this Warrant had been exercised immediately prior to such time, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (2) In case the Company shall fix a record date for the making of a distribution to holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of evidences of indebtedness, cash, assets or other property (other than dividends payable in Common Stock), the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price Per Common Share on such record date, less the fair market value (determined as set forth below) of the portion of the evidences of indebtedness, cash, assets or other property so to be distributed which is applicable to one share of Common Stock, and the denominator of which shall be such Current Market Price Per Common Share. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. The fair market value of any such evidences of indebtedness, assets or other property shall be determined by the Board of Directors of the Company; provided that if the Principal Holders shall object to any such determination, the Board of Directors shall retain an independent appraiser reasonably satisfactory to the Principal Holders to determine such fair market value. The Holder shall be notified promptly of any 6 58 such distribution and furnished with a description and the fair market value thereof, as determined by the Board of Directors. (3) For the purpose of any computation under paragraph (e) or paragraph (h)(2) hereof, on any determination date, the Current Market Price Per Common Share shall be deemed to be the average (weighted by daily trading volume) of the Daily Prices (as defined below) per share of the Common Stock for the 20 consecutive trading days ending three days prior to such date. "DAILY PRICE" means (1) if the shares of Common Stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the closing price on such day as reported on the NYSE Composite Transactions Tape; (2) if the shares of Common Stock then are not listed and traded on the NYSE, the closing price on such day as reported by the principal national securities exchange on which the shares are listed and traded; (3) if the shares of Common Stock then are not listed and traded on any such securities exchange, the last reported sale price on such day on the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"); (4) if the shares of Common Stock then are not listed and traded on any such securities exchange and not traded on the NASDAQ National Market, the average of the highest reported bid and lowest reported asked price on such day as reported by NASDAQ; or (5) if such shares are not listed and traded on any such securities exchange, not traded on the NASDAQ National Market and bid and asked prices are not reported by NASDAQ, then the average of the closing bid and asked prices, as reported by The Wall Street Journal for the over-the-counter market. If on any determination date the shares of Common Stock are not quoted by any such organization, the Current Market Price Per Common Share shall be the fair market value of such shares on such determination date as determined by the Board of Directors, without regard to considerations of the lack of liquidity or applicable regulatory restrictions. If the Principal Holders shall object to any determination by the Board of Directors of the Current Market Price Per Common Share, the Current Market Price Per Common Share shall be the fair market value per share of Common Stock as determined by an independent appraiser retained by the Company and reasonably acceptable to the Principal Holders. The expenses of such independent appraiser shall be paid by (x) the Principal Holders, if the fair market value determined by such appraiser is less than that determined by the Board of Directors, and otherwise 7 59 (y) by the Company. For purposes of any computation under this paragraph (h), the number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or its subsidiaries. (4) In the event that, at any time as a result of the provisions of this paragraph (h), the holder of this Warrant upon subsequent exercise shall become entitled to receive any shares of capital stock or other securities of the Company other than Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained herein. (5) Upon each adjustment of the Exercise Price as a result of the calculations made in paragraphs (h)(1) or (h)(2) hereof, the number of shares for which this Warrant is exercisable immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Common Stock obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to this adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. (6) The Company shall notify all Holders of the fixing of a record date for the purpose of payment of a cash dividend to holders of Common Stock as soon as reasonably practicable, but in no event less than 20 days prior to any such record date. (7) Not less than 10 nor more than 30 days prior to the record date or effective date, as the case may be, of any action which requires or might require an adjustment or readjustment pursuant to this paragraph (h), the Company shall forthwith file in the custody of the secretary or any assistant secretary at its principal executive office and with its stock transfer agent or its warrant agent, if any, an officers' certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers' certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any 8 60 assistant secretary of the Company. Each such officers' certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to paragraph (f) and the Company shall, forthwith after each such adjustment, mail a copy, by first-class mail, of such certificate to the Holder. (8) The Holder shall, at its option, be entitled to receive, in lieu of the adjustment pursuant to paragraph (h)(2) otherwise required thereof, on the date of exercise of the Warrants, the evidences of indebtedness, other securities, cash, property or other assets which such Holder would have been entitled to receive if it had exercised its Warrants for shares of Common Stock immediately prior to the record date with respect to such distribution. The Holder may exercise its option under this paragraph (h)(8) by delivering to the Company a written notice of such exercise within seven days of its receipt of the certificate of adjustment required pursuant to paragraph (h)(7) to be delivered by the Company in connection with such distribution. (i) CONSOLIDATION, MERGER, OR SALE OF ASSETS. In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock) or any sale or transfer of all or substantially all of the assets of the Company or of the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, the Holder shall have the right thereafter to exercise this Warrant for the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock for which this Warrant may have been exercised immediately prior to such consolidation, merger, sale or transfer, assuming (i) such holder of Common Stock is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("CONSTITUENT PERSON"), or an Affiliate of a constituent Person and (ii) in the case of a consolidation, merger, sale or transfer which includes an election as to the consideration to be received by the holders, such holder of Common Stock failed to exercise its rights of election, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock held immediately prior to such consolidation, merger, sale or transfer by other than a 9 61 constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purpose of this paragraph (i) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Adjustments for events subsequent to the effective date of such a consolidation, merger and sale of assets shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. In any such event, effective provisions shall be made in the certificate or articles of incorporation of the resulting or surviving corporation, in any contract of sale, conveyance, lease or transfer, or otherwise so that the provisions set forth herein for the protection of the rights of the Holder shall thereafter continue to be applicable; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon exercise, such shares of stock, other securities, cash and property. The provisions of this paragraph (i) shall similarly apply to successive consolidations, mergers, sales, leases or transfers. (j) NOTICES. Any notice, demand or delivery authorized by this Warrant Certificate shall be in writing and shall be given to the Holder or the Company as the case may be, at its address (or telecopier number) set forth below, or such other address (or telecopier number) as shall have been furnished to the party giving or making such notice, demand or delivery: If to the Company: Thermadyne Holdings Corporation 101 South Hanley Road St. Louis, Missouri 63105 Fax: (314) 746-2374 (314) 746-2327 Attention: Jim Tate or Stephanie Josephson If to the Holder: c/o DLJ Merchant Banking Partners II, L.P. 277 Park Avenue New York, NY 10172 Telecopy: (212) 892-7272 Attention: William F. Dawson, Jr. Each such notice, demand or delivery shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified herein and the intended recipient confirms the receipt of such telecopy or (ii) if given by any other means, when received at the address specified herein. 10 62 (k) RIGHTS OF THE HOLDER. Prior to the exercise of any Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends or other distributions or to receive any notice of meetings of shareholders or any notice of any proceedings of the Company except as may be specifically provided for herein. (l) GOVERNING LAW. THIS WARRANT CERTIFICATE AND ALL RIGHTS ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS. (m) AMENDMENTS; WAIVERS. Any provision of this Warrant Certificate may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Principal Holders and the Company, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 11 63 IN WITNESS WHEREOF, the Company has duly caused this Warrant Certificate to be signed by its duly authorized officer and to be dated as of December 22, 1999. THERMADYNE HOLDINGS CORPORATION By: ------------------------------------ Name: Title: Acknowledged and Agreed: [HOLDER] By: ----------------------------- Name: Title: 64 WARRANT EXERCISE NOTICE To: Thermadyne Holding Corporation The undersigned hereby notifies you of its intention to exercise the Warrant to purchase shares of Common Stock, par value $.01 per share, of Thermadyne Holdings Corporation. The undersigned intends to exercise the Warrant to purchase ___________ shares (the "SHARES") at $______ per Share (the Exercise Price currently in effect pursuant to the Warrant). The undersigned intends to pay the aggregate Exercise Price for the Shares by __________ [specify any method permitted by paragraph (b) of the Warrant]. Date: ----------------- --------------------------------- (Signature of Owner) --------------------------------- (Street Address) --------------------------------- (City) (State) (Zip Code) 65 WARRANT ASSIGNMENT FORM Dated ___________ ___, _____ FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers unto ______________________________________(the "ASSIGNEE"), (please type or print in block letters) - -------------------------------------------------------------------------------- (insert address) its right to purchase up to ______ shares of Common Stock represented by this Warrant and does hereby irrevocably constitute and appoint __________________ Attorney, to transfer the same on the books of the Company, with full power of substitution in the premises. Signature: ---------------------------------- EX-4.12 3 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.12 REGISTRATION RIGHTS AGREEMENT Dated as of December 22, 1999 by and among THERMADYNE HOLDINGS CORPORATION, THERMADYNE MFG. LLC, DLJ MERCHANT BANKING PARTNERS II, L.P., DLJ MERCHANT BANKING PARTNERS II-A, L.P., DLJ OFFSHORE PARTNERS II, C.V., DLJ DIVERSIFIED PARTNERS, L.P., DLJ DIVERSIFIED PARTNERS-A, L.P., DLJMB FUNDING II, INC., DLJ MILLENNIUM PARTNERS, L.P., DLJ MILLENNIUM PARTNERS-A, L.P., DLJ EAB PARTNERS, L.P., DLJ ESC II L.P. and DLJ FIRST ESC, L.P. relating to the registration of Junior Subordinated Notes due 2009 of Thermadyne Mfg. LLC and Warrants for the Purchase of Shares of Common Stock of Thermadyne Holdings Corporation 2 This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of December 22, 1999, by and among Thermadyne Mfg. LLC, a Delaware limited liability company (the "COMPANY"), Thermadyne Holdings Corporation, a Delaware corporation ("PARENT"), DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners, L.P., DLJ Millennium Partners-A, L.P., DLJ EAB Partners, L.P., DLJ ESC II L.P. and DLJ First ESC, L.P. (each a "DLJ BUYER" and, collectively, the "DLJ BUYERS" and sometimes referred to as the "BUYERS"), each of whom has agreed to purchase the Company's Junior Subordinated Notes due 2009 (the "NOTES") and Warrants for the Purchase of Shares of Common Stock of Parent (the "WARRANTS") pursuant to the Subscription Agreement (as defined below). This Agreement is made pursuant to the Subscription Agreement, dated December 22, 1999 (the "SUBSCRIPTION AGREEMENT"), by and among the Company, Parent and the Buyers. In order to induce the Buyers to purchase the Notes and the Warrants, the Company and Parent have agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Buyers set forth in Section 2 of the Subscription Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Indenture, attached as Exhibit A to the Notes (the "INDENTURE"). The parties hereby agree as follows: SECTION 1. (a) Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: ACCRETED VALUE: Shall have the meaning assigned to it in the Indenture. ACT: The Securities Act of 1933, as amended. AFFILIATE: As defined in Rule 144 of the Act. AFFILIATED MARKET MAKER: A Broker-Dealer who is deemed to be an Affiliate of the Company and/or Parent and who is, therefore, required to deliver a prospectus in connection with sales or market making activities. BROKER-DEALER: Any broker or dealer registered under the Exchange Act. 2 3 COMMON STOCK: The common stock, par value $0.01 per share, of Parent. COMMISSION: The Securities and Exchange Commission. DEMAND REGISTRATION: As defined in Section 4 hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. EXPIRATION DATE: 5:00 p.m. New York City time on December 15, 2009. NOTE REGISTRATION STATEMENT: Any registration statement of the Company relating to the registration of Transfer Restricted Notes, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. PARENT SECURITIES: The Common Stock and securities convertible into or exchangeable for Common Stock and options, warrants or other rights to acquire Common Stock or any other equity security issued by Parent. PROSPECTUS: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. PUBLIC OFFERING: An underwritten public offering of Transfer Restricted Securities of the Company or Parent pursuant to an effective registration statement under the Act. REGISTRATION STATEMENT: Any Note Registration Statement or Warrant Registration Statement. RULE 144: Rule 144 promulgated under the Act. SECURITIES: shall mean the Notes, the Warrants and the Warrant Shares. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. TRANSFER RESTRICTED NOTES: Each Note, until the earliest to occur of (a) the date on which such Note has been disposed of in accordance with a Note 3 4 Registration Statement, or (b) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. TRANSFER RESTRICTED SECURITIES: Each Transfer Restricted Note and each Transfer Restricted Warrant Security. TRANSFER RESTRICTED WARRANT SECURITIES: (a) Each Warrant and Warrant Share until the earlier to occur of (i) the date on which such Warrant or Warrant Share has been disposed of in accordance with a Warrant Registration Statement or the date on which such Warrant Share is issued upon exercise of a Warrant in accordance with a registration statement filed under the Act and (ii) the date on which such Warrant or Warrant Share is distributed to the public pursuant to Rule 144 under the Act. WARRANT AGENT: The warrant agent, if any, with respect to the Warrants. WARRANT SHARE: The Common Stock of Parent issuable on the exercise of the Warrants. WARRANT REGISTRATION STATEMENT: Any registration statement of Parent relating to the registration of Transfer Restricted Warrant Securities, including any Warrant Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. (b) Other Definitions.
Defined in Term Section ---- ---------- Applicable Holdback Period 6 Demand Registration 4(a) Demand Registration Reguest 3(a) Holder 2 Incidental Registration 5(a) indemnified party 10(c) indemnifying person 10(c) Inspectors 8(a) Losses 10(a) Maximum Offering Size 4(e) Recommencement Date 8(c) Records 8(a) Selling Holders 4(a) Suspension Notice 8(c) Warrant Shelf Registration Statement 7(a)
4 5 SECTION 2. Holders. A person is deemed to be a holder of Transfer Restricted Securities whenever such person is the record holder of Transfer Restricted Securities. As used herein, "HOLDER" refers to the holder of a Transfer Restricted Note or a Transfer Restricted Warrant Security, or both, as the context may require. SECTION 3. Demand Registration Rights. (a) Notes: At any time after Parent has filed its annual report on Form 10-K for the year ended December 31, 1999, if the Company or Parent, as the case may be, shall receive a written request (a "DEMAND REGISTRATION REQUEST") from the Holders of 50% or more of the aggregate Accreted Value of Transfer Restricted Notes then outstanding to effect the registration of such Transfer Restricted Notes, then the Company or Parent, as the case may be, shall effect the registration under the Act of such Transfer Restricted Notes in accordance with Section 4 hereof. (b) Warrant Securities: At any time after Parent has filed its annual report on Form 10-K for the year ended December 31, 1999 if Parent shall receive a Demand Registration Request from the Holders of 50% or more of the aggregate Transfer Restricted Warrant Securities then outstanding to effect the registration of such Transfer Restricted Warrant Securities, then Parent shall effect the registration under the Act of such Transfer Restricted Warrant Securities in accordance with Section 4 and Section 7 hereof. SECTION 4. Demand Registration. (a) If the Company or Parent, as the case may be shall receive a Demand Registration Request from the Holders (the "SELLING HOLDERS") of Transfer Restricted Securities that the Company or Parent, as the case may be, effect the registration under the Act of all or a portion of such Selling Holders' Transfer Restricted Securities, and specifying the intended method of disposition thereof, then the Company or Parent, as the case may be, shall promptly give written notice of such requested registration (a "DEMAND REGISTRATION") at least 30 days prior to the anticipated filing date of the registration statement relating to such Demand Registration to all Holders and thereupon will use its best efforts to effect, as expeditiously as possible, the registration under the Act of: 5 6 (i) the Transfer Restricted Securities which the Company or Parent, as the case may be, has been so requested to register by the Selling Holders, then held by such Selling Holders; and (ii) subject to the restrictions set forth in Section 4(e), all other Transfer Restricted Securities of the same type as that to which the request by the Selling Holders relates which any other person entitled to request Parent to effect an Incidental Registration (as such term is defined in Section 5) pursuant to Section 5 has requested Parent to register by written request received by Parent within 15 days after the receipt by such Holders of such written notice given by Parent, all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Transfer Restricted Securities so to be registered; provided that, (A) the Company shall not be obligated to effect more than two Demand Registrations with respect to Transfer Restricted Notes, and (B) Parent shall not be obligated to effect more than one Demand Registration with respect to Transfer Restricted Warrant Securities in addition to its obligations under Section 7; provided, further that the Company shall not be obligated to effect any shelf registration of Transfer Restricted Notes and neither the Company nor Parent shall be obligated to effect a Demand Registration unless the aggregate proceeds expected to be received from the sale of the Transfer Restricted Securities to be included in such Demand Registration, in the reasonable opinion of DLJ Merchant Banking Partners II, L.P. exercised in good faith, equals or exceeds $15,000,000. In no event will the Company or Parent be required to effect more than one Demand Registration within any four-month period. (b) Promptly after the expiration of the 15-day period referred to in Section 4(a)(ii) hereof, Parent will notify all of the Selling Holders of the other Holders who have requested to include their Transfer Restricted Warrant Securities in the registration and the number of Transfer Restricted Securities requested to be included therein. The Selling Holders requesting a registration under this Section 4 may, at any time prior to the effective date of the registration statement relating to such registration, revoke such request, without liability to any of the other Holders, by providing a written notice to the Company or Parent, as the case may be, revoking such request, in which case such request, so revoked, shall be considered an effected Demand Registration unless the Selling Holders reimburse the Company or Parent, as the case may be, for all costs incurred by the Company or Parent, as the case may be, in connection with such registration, or unless such revocation arose out of the fault of the Company or Parent, as the case may be, in which case such request shall not be considered an effected Demand Registration. 6 7 (c) The Company or Parent, as the case may be, will pay all registration expenses as set forth in Section 9 hereof. (d) A registration made pursuant to this Section 4 shall not be deemed to have been effected (i) unless the registration statement relating thereto (A) has become effective under the Act and (B) has remained effective for a period of at least 180 days (or such shorter period in which all Transfer Restricted Securities of the Holders included in such registration have actually been sold thereunder); provided that if after any registration statement filed pursuant to this Section 4 becomes effective (x) such registration statement is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court and (y) less than 75% of the Transfer Restricted Securities included in such registration statement has been sold thereunder, such registration statement shall not be considered an effected Demand Registration or (ii) if the Maximum Offering Size (as defined below) is reduced in accordance with Section 5.01(e) or 5.01(f) such that less than 66 2/3% of the Transfer Restricted Securities of the Selling Holders sought to be included in such registration are included. (e) If a Demand Registration involves an underwritten Public Offering and the managing underwriter shall advise the Company or Parent, as the case may be, and the Selling Holders that, in its view, (i) the number of Transfer Restricted Securities requested to be included in such registration (including any securities which the Company or Parent, as the case may be, proposes to be included which are not Transfer Restricted Securities) or (ii) the inclusion of some or all of the Transfer Restricted Securities owned by the Holders, in any such case, exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold (the "MAXIMUM OFFERING SIZE"), the Company or Parent, as the case may be, will include in such registration, in the priority listed below, up to the Maximum Offering Size: (i) first, the Transfer Restricted Securities requested to be included in such registration pursuant to Section 4(a)(i) and pursuant to Section 5 by the Holders, allocated (if necessary) pro rata among such Holders on the basis of the relative number of Transfer Restricted Securities each such Holder has requested to be included in such registrations; and (ii) second, securities to be sold for the account of other persons (including the Company or Parent, as the case may be), with such priorities 7 8 among them as the Company or Parent, as the case may be, shall determine. (f) Registration Statement Form. Registrations under this Section 4 shall be on such appropriate registration form of the Commission (i) as shall be selected by the Company or Parent, as the case may be, and as shall be reasonably acceptable to the Holders and (ii) as shall permit the disposition of Transfer Restricted Securities in accordance with the method or methods of disposition intended on the part of the Holders. Notwithstanding anything herein to the contrary, if, pursuant to a registration pursuant to this Section 4, the Company or Parent, as the case may be, proposes to effect registration by filing of a registration statement on Form S-3 (or any successor or similar short-form registration statement) and any managing underwriter shall advise the Company or Parent, as the case may be, in writing that, in its opinion, the use of another form of registration statement is of material importance to the success of such proposed offering, then such registration shall be effected on such other form. SECTION 5. Incidental Registration. (a) If Parent proposes to register any Parent Securities under the Act (other than a registration (A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of Parent or (C) in connection with a direct or indirect acquisition by Parent of another company, whether or not for sale for its own account), it will each such time, subject to the provisions of Section 5(b), give prompt written notice at least 40 days prior to the anticipated filing date of the registration statement relating to such registration to each Holder of Transfer Restricted Warrant Securities, which notice shall set forth such Holder's rights under this Section 5 and shall offer such Holders the opportunity to include in such registration statement such number of Transfer Restricted Warrant Securities as each such Holder may request (an "INCIDENTAL REGISTRATION"). Upon the written request of any such Holder made within 20 days after the receipt of notice from Parent (which request shall specify the number of Transfer Restricted Warrant Securities intended to be disposed of by such Holder), Parent will use its best efforts to effect the registration under the Act of all Transfer Restricted Warrant Securities which Parent has been so requested to register by such Holders, to the extent required to permit the disposition of the Transfer Restricted Warrant Securities so to be registered; provided that (I) if such registration involves a Public Offering, all such Holders requesting to be included in Parent's registration must sell their Transfer Restricted Warrant Securities to the underwriters on the same terms and conditions as apply to Parent and (II) if, at any time after giving written notice of its intention to register any Parent Securities pursuant to this Section 5 and prior to the effective date of the registration statement filed in connection with such registration, Parent shall determine for any reason not to 8 9 register such securities, Parent shall give written notice to all such Holders of Transfer Restricted Warrant Securities and, thereupon, shall be relieved of its obligation to register any Transfer Restricted Warrant Securities in connection with such registration. No registration effected under this Section 5 shall relieve Parent of its obligations to effect a Demand Registration to the extent required by Section 4. Parent will pay all Registration Expenses in connection with each registration of Transfer Restricted Warrant Securities requested pursuant to this Section 5. (b) If a registration pursuant to this Section 5 involves a Public Offering (other than in the case of a Public Offering requested under Section 3 by the Holders in a Demand Registration, in which case the provisions with respect to priority of inclusions in such offering as set forth in Section 4(e) shall apply) and the managing underwriter advises Parent that, in its view, the number of Parent Securities and Transfer Restricted Warrant Securities that Parent and Holders intend to include in such registration exceeds the Maximum Offering Size, Parent will include in such registration, in the following priority, up to the Maximum Offering Size: (i) first, so much of the Parent Securities proposed to be registered by Parent as would not cause the offering to exceed the Maximum Offering Size; (ii) second, all Transfer Restricted Warrant Securities requested to be included in such registration by the Holders pursuant to this Section 5 (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of Transfer Restricted Warrant Securities so requested to be included in such registration); and (iii) third, securities to be sold for the account of other persons, with such priorities among them as Parent shall determine. SECTION 6. Holdback Agreements. If any registration of Transfer Restricted Securities shall be in connection with a Public Offering, the Holders agree not to effect any public sale or distribution, including any sale pursuant to Rule 144, or any successor provision, under the Act, of any Transfer Restricted Securities, and not to effect any such public sale or distribution of any other securities of the Company or Parent or of any stock convertible into or exchangeable or exercisable for any securities of the Company or Parent (in each case, other than as part of such Public Offering) during the 14 days prior to the effective date of such registration statement (except as part of such registration) or during the period after such effective date equal to the lesser of (i) such period of 9 10 time as agreed between such managing underwriter, the Company and Parent and (ii) 180 days (such lesser period, the "APPLICABLE HOLDBACK PERIOD"). SECTION 7. Warrant Shelf Registration. (a) If any Warrants are included in a Demand Registration, Parent shall prepare and cause to be filed with the Commission on or prior to 30 days (or, if the Warrants are not at such time of the same class as securities listed on a national securities exchange or quoted in a U.S. automated system (as determined pursuant to Rule 144A under the Act, 90 days)) after the date of the Demand Registration Request, pursuant to Rule 415 under the Act, a Registration Statement (each a "WARRANT SHELF REGISTRATION STATEMENT") on the appropriate form relating to resales of Transfer Restricted Warrant Securities by the Holders thereof. Parent shall use its best efforts to cause the Warrant Shelf Registration Statement to be declared effective by the Commission on or before 90 days (or, if the Warrants are not at such time of the same class as securities listed on a national securities exchange or quoted in a U.S. automated system (as determined pursuant to Rule 144A under the Act, 180 days), after the date the Demand Registration is effected. To the extent necessary to ensure that the Warrant Shelf Registration Statement is available for sales of Transfer Restricted Warrant Securities by the Holders thereof entitled to the benefit of this Section 7(a), Parent shall use its best efforts to keep any Warrant Shelf Registration Statement required by this Section 7(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 8(b) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, until the earlier of (i) two years following the first date as of which no Warrants remain outstanding and (ii) if all of the Warrants expire unexercised, the Expiration Date; provided that such obligation shall expire before such date if Parent delivers to the Warrant Agent (if there is a Warrant Agent at such time, or, if there is no Warrant Agent, to the Holders) a written opinion of counsel to Parent (which opinion of counsel shall be satisfactory to Parent) that all Holders (other than Affiliates of Parent) of Warrants and Warrant Shares may resell the Warrants and the Warrant Shares without registration under the Act and without restriction as to the manner, timing or volume of any such sale and instruct the Warrant Agent to (or if there is no Warrant Agent, Parent shall) remove the private placement legend from all Warrants and Warrant Shares; provided, further, that notwithstanding the foregoing, any Affiliate of Parent may, with notice to Parent, require Parent to keep the Registration Statement continuously effective for resales by such Affiliate for so long as such Affiliate holds Warrants or Warrant Shares, including as a result of any market-making activities or other trading activities of such Affiliate. 10 11 (b) Provision by Holders of Certain Information in Connection with the Warrant Shelf Registration Statement. No Holder of Transfer Restricted Warrant Securities may include any of its Transfer Restricted Warrant Securities in any Warrant Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to Parent in writing the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Warrant Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Each Selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to Parent by such Holder not materially misleading. Parent will promptly prepare and file a Prospectus supplement including such information provided by any Holder to the extent that such Holder reasonably determines that a Prospectus supplement is required in connection with such Holder's sale of Transfer Restricted Warrant Securities under the Warrant Shelf Registration Statement and so notifies Parent. (c) Parent shall have no registration obligations under this Agreement with respect to any Warrants or Warrant Shares except as provided in Section 3(b) or this Section 7. References herein to the Warrants, Warrant Shares and Transfer Restricted Warrant Securities shall only refer to such securities to the extent that Parent has registration obligations therefor. SECTION 8. Registration Procedures. (a) Whenever Holders request that any Transfer Restricted Securities be registered pursuant to Sections 3, 4 or 5, the Company or Parent, as the case may be, will, subject to the provisions of such Sections, use its best efforts to effect the registration and the sale of such Transfer Restricted Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (i) The Company or Parent, as the case may be, will as expeditiously as possible prepare and file with the Commission a registration statement on any form, subject to Section 4(f), for which the Company or Parent, as the case may be, then qualifies or which counsel for the Company or Parent, as the case may be, shall deem appropriate and which form shall be available for the sale of the Transfer Restricted Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days. (ii) The Company or Parent, as the case may be, will, if requested, prior to filing a registration statement or prospectus or any 11 12 amendment or supplement thereto, furnish to participating Holder and each underwriter, if any, of the Transfer Restricted Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter the Company or Parent, as the case may be, will furnish to such Holder and underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Transfer Restricted Securities owned by such Holder. (iii) After the filing of the registration statement, the Company or Parent, as the case may be, will promptly notify each Holder holding Transfer Restricted Securities covered by such registration statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (iv) The Company or Parent, as the case may be, will use its best efforts to (A) register or qualify the Transfer Restricted Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions in the United States as any Holder holding such Transfer Restricted Securities reasonably (in light of such Holder's intended plan of distribution) requests and (B) cause such Transfer Restricted Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company or Parent, as the case may be, and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the disposition of the Transfer Restricted Securities owned by such Holder; provided that the Company or Parent, as the case may be, will not be required to (1) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (2) subject itself to taxation in any such jurisdiction or (3) consent to general service of process in any such jurisdiction. (v) The Company or Parent, as the case may be, will immediately notify each Holder holding such Transfer Restricted Securities, at any time when a prospectus relating thereto is required to be delivered under the Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter 12 13 delivered to the purchasers of such Transfer Restricted Securities, such prospectus will not contain an 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 promptly prepare and make available to each such Holder any such supplement or amendment. (vi) The Holder will have the right, in its sole discretion, to select an underwriter or underwriters in connection with any Public Offering, which underwriter or underwriters may include any Affiliate of DLJ Merchant Banking Partners II, L.P. In connection with any Public Offering, the Company or Parent, as the case may be, will enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of Transfer Restricted Securities in any such Public Offering, including the engagement of a "qualified independent underwriter" in connection with the qualification of the underwriting arrangements with the NASD. (vii) Upon the execution of confidentiality agreements in form and substance satisfactory to the Company or Parent, as the case may be, the Company or Parent, as the case may be, will make available for inspection by any Holder and any underwriter participating in any disposition pursuant to a registration statement being filed by the Company or Parent, as the case may be, pursuant to this Section 8 and any attorney, accountant or other professional retained by any such Holder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company or Parent, as the case may be, (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's or Parent's, as the case may be, officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records that the Company or Parent, as the case may be, determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (A) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (B) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each Holder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in Company's or Parent's securities unless and until such information is made generally available to the public. Each Holder further agrees that it will, upon learning that 13 14 disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company or Parent, as the case may be, and allow the Company or Parent, as the case may be, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (viii) The Company or Parent, as the case may be, will furnish to each such Holder and to each such underwriter, if any, a signed counterpart, addressed to such underwriter, of (A) an opinion or opinions of counsel to the Company or Parent, as the case may be, and (B) a comfort letter or comfort letters from the Company's or Parent's, as the case may be, independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as a majority of such Holders or the managing underwriter therefor reasonably requests. The Company or Parent, as the case may be, may require each such Holder to promptly furnish in writing to the Company or Parent, as the case may be, such information regarding the distribution of the Transfer Restricted Securities as the Company or Parent, as the case may be, may from time to time reasonably request and such other information as may be legally required in connection with such registration. Each such Holder agrees that, upon receipt of any notice from the Company or Parent, as the case may be, of the happening of any event of the kind described in Section 8(a)(v), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the registration statement covering such Transfer Restricted Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 8(a)(v), and, if so directed by the Company or Parent, as the case may be, such Holder will deliver to the Company or Parent, as the case may be, all copies, other than any permanent file copies then in such Holder's possession, of the most recent prospectus covering such Transfer Restricted Securities at the time of receipt of such notice. In the event that the Company or Parent, as the case may be, shall give such notice, the Company or Parent, as the case may be, shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 8(a)(i)) by the number of days during the period from and including the date of the giving of notice pursuant to Section 8(a)(v) to the date when the Company or Parent, as the case may be, shall make available to such Holder a prospectus supplemented or amended to conform with the requirements of Section 8(a)(v). 14 15 (b) Special Warrant Shelf Registration Procedures. In connection with any Warrant Shelf Registration Statement and any related Prospectus required by this Agreement, Parent shall: (i) use its best efforts to keep such Warrant Shelf Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 7 of this Agreement. Upon the occurrence of any event that would cause any such Warrant Shelf Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of the relevant Transfer Restricted Warrant Securities during the period required by this Agreement, Parent shall file promptly an appropriate amendment to such Warrant Shelf Registration Statement curing such defect, and, if Commission review is required, use best efforts to cause such amendment to be declared effective as soon as practicable. (ii) prepare and file with the Commission such amendments and post-effective amendments to the Warrant Shelf Registration Statement as may be necessary to keep such Warrant Shelf Registration Statement effective for the period set forth in Section 7 hereof; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Warrant Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Warrant Shelf Registration Statement or supplement to the Prospectus; (iii) advise each Holder who is an Affiliated Market Maker promptly and, if requested by such person, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Warrant Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Warrant Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Warrant Shelf Registration Statement under the Act or of the suspension by any state securities commission of 15 16 the qualification of the relevant Transfer Restricted Warrant Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, and (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Warrant Shelf Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Warrant Shelf Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Warrant Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the relevant Transfer Restricted Warrant Securities under state securities or Blue Sky laws, Parent shall use best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 8(b)(i), if any fact or event contemplated by Section 8(b)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Warrant Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the relevant Transfer Restricted Warrant Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to each Holder and each Affiliated Market Maker in connection with such exchange or sale, if any, before filing with the Commission, copies of any Warrant Shelf Registration Statement or any Prospectus included therein or any amendments or supplements to any such Warrant Shelf Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Warrant Shelf Registration Statement), which documents will be subject to the review and comment of such persons in connection with such sale, if any, for a period of at least five business days, and Parent will not file any such Warrant Shelf Registration Statement or Prospectus or any amendment or supplement to any such Warrant Shelf Registration Statement or Prospectus (including all such documents incorporated by reference) to which such persons shall reasonably object within five business days after 16 17 the receipt thereof. Such person shall be deemed to have reasonably objected to such filing if such Warrant Shelf Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Act; (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Warrant Shelf Registration Statement or Prospectus, provide copies of such document to each Holder and each Affiliated Market Maker in connection with such exchange or sale, if any, make Parent's representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such persons may reasonably request; (vii) make available, at reasonable times, for inspection by each Holder and each Affiliated Market Maker and any attorney or accountant retained by such persons, all financial and other records, pertinent corporate documents of Parent and cause Parent's officers, directors and employees to supply all information reasonably requested by any such persons, attorney or accountant in connection with such Warrant Shelf Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any Holders in connection with such exchange or sale or any Affiliated Market Maker, promptly include in any Warrant Shelf Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such persons may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the relevant Transfer Restricted Warrant Securities and the use of the Warrant Shelf Registration Statement or Prospectus for market making activities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after Parent is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder in connection with such exchange or sale and each Affiliated Market Maker, without charge, at least one copy of the Warrant Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); 17 18 (x) deliver to each Holder and each Affiliated Market Maker without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such persons reasonably may request; Parent hereby consents to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each selling person in connection with the offering and the sale of the Transfer Restricted Warrant Securities covered by the Prospectus or any amendment or supplement thereto and all market making activities of such Affiliated Market Maker, as the case may be; (xi) upon the request of any Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Warrant Securities pursuant to any applicable Warrant Shelf Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder in connection with any sale or resale pursuant to any applicable Warrant Shelf Registration Statement. In such connection, and also in connection with market making activities by any Affiliated Market Maker, Parent shall: (A) upon request of any person, furnish (or in the case of Sections 8(b)(xi)(A)(2) and 8(b)(xi)(A)(3), use best efforts to cause to be furnished) to each person, upon the effectiveness of the Warrant Shelf Registration Statement or in connection with any sale of the Warrants (or Warrant Shares) pursuant to the Warrant Shelf Registration Statement: (1) a certificate, dated such date, signed on behalf of Parent by (x) the chief executive officer and (y) the principal financial or accounting officer of Parent confirming, as of the date thereof, the matters set forth in Section 6.02(a) of the Subscription Agreement and such other matters as are customary in connection with public offerings of securities similar to the Warrants (or Warrant Shares) as such person may reasonably request; (2) an opinion, dated the date of effectiveness of the Warrant Shelf Registration Statement or the closing date of such sale of Warrants (or Warrant Shares) of counsel for Parent covering matters as are customary for public offerings of securities similar to the Warrants (or 18 19 Warrant Shares) and such other matters as such person may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of Parent and representatives of the independent public accountants for Parent and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of Parent and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Warrant Shelf Registration Statement, at the time such Warrant Shelf Registration Statement or any post-effective amendment thereto became effective and, in the case of any sale pursuant to a Warrant Shelf Registration Statement, as of the date of the purchase agreement for such sale and the closing date therefor, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Warrant Shelf Registration Statement as of its date and, in the case of the opinion dated the closing date of a sale, as of the closing date of such sale, as applicable, contained an untrue statement of a material fact or omitted 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. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Warrant Shelf Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of effectiveness of the Warrant Shelf Registration Statement, or as of the date of closing of a sale pursuant to the Warrant 19 20 Shelf Registration Statement, as the case may be, from the independent accountants for Parent in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings; and (B) deliver such other documents and certificates as may be reasonably requested by the selling such persons to evidence compliance with the matters covered in Section 8(b)(xi)(A) above and with any customary conditions contained in any agreement entered into by Parent pursuant to this Section 8(b)(xi); (xii) prior to any public offering of Transfer Restricted Warrant Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Warrant Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Warrant Securities covered by the applicable Warrant Shelf Registration Statement; provided, however, that Parent shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Warrant Shelf Registration Statement, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Warrant Securities that will result in such securities no longer being Transfer Restricted Warrant Securities, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Warrant Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Warrant Securities in such denominations and such names as the selling Holders may request at least two business days prior to such sale of Transfer Restricted Warrant Securities; (xiv) use their respective best efforts to cause the disposition of the Transfer Restricted Warrant Securities covered by the Warrant Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Warrant Securities, subject to the proviso contained in Section 8(b)(xii) above; 20 21 (xv) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Warrant Shelf Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Warrant Shelf Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xvi) provide promptly to each Holder and Affiliated Market Maker, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (c) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security and each Affiliated Market Maker agrees that, upon receipt of the notice referred to in Section 8(b)(iii)(C) or any notice from the Company (in the case of a Note Registration Statement) or Parent (in the case of a Warrant Registration Statement) of the existence of any fact of the kind described in Section 8(b)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such person will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such person has received copies of the supplemented or amended Prospectus contemplated by Section 8(b)(iv) hereof, or (ii) such person is advised in writing by the Company or Parent, as applicable, that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each person receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such person's possession which have been replaced by the Company or Parent, as applicable with more recently dated Prospectuses or (ii) deliver to the Company or Parent, as applicable(at the Company's or Parent's expense) all copies, other than permanent file copies, then in such person's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 4 or Section 7 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. 21 22 SECTION 9. Registration Expenses. (a) All expenses incident to the Company's and Parent's performance of or compliance with this Agreement will be borne by the Company or Parent, as the case may be, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws (including without limitation the costs and expenses of any Trustee selected pursuant to the requirements of the Trust Indenture Act); (iii) all expenses of printing (including printing of Prospectuses whether for sales, market making or otherwise), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, Parent and the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Warrants or the Warrant Shares on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company and Parent (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company and Parent will each, in any event, bear its respective internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company or Parent. The Holders will bear any underwriting discounts and commissions incurred in connection with the resale of any of their securities. (b) In connection with any Registration Statement required by this Agreement, the Company or Parent, as the case may be, will reimburse the Buyers and the Holders of Transfer Restricted Securities who are selling or reselling Transfer Restricted Notes pursuant to the "Plan of Distribution" contained in a Note Registration Statement or selling or reselling Warrants or Warrant Shares pursuant to a Warrant Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Davis Polk & Wardwell, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 10. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder, its directors, officers and each person, if any, who controls such Holder (within 22 23 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, judgments, (including without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) (collectively, "LOSSES") caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any Holder or any prospective purchaser of Notes 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 are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by any of the Holders; provided that the Company shall not be liable to any Holder, its directors, officers and any controlling person for any Losses that are caused by any untrue statement or alleged untrue statement of a material fact if (i) such Holder was required by law to send or deliver, and failed to send or deliver, a copy of the Prospectus with or prior to delivery of written confirmation of the sale by such Holder to the person asserting the claims from which such Losses arise and (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or omission or alleged omission. Parent agrees to indemnify and hold harmless each Holder, its directors, officers and each person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all Losses caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by Parent to any Holder or any prospective purchaser of registered Warrants or Warrant Shares, 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 are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to Parent by any of the Holders; provided that Parent shall not be liable to any Holder, its directors, officers and any controlling person for any Losses that are caused by any untrue statement or alleged untrue statement of a material fact if (i) such Holder was required by law to send or deliver, and failed to send or deliver, a copy of the Prospectus with or prior to delivery of written confirmation of the sale by such Holder to the person asserting the claims from which such Losses arise and (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or omission or alleged omission. 23 24 (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company (in the case of any Note Registration Statement) or Parent (in the case of any Warrant Registration Statement), and their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company or Parent, as applicable, to the same extent as the foregoing indemnity from the Company or Parent, as applicable, set forth in Section 10(a) above, but only with reference to information relating to such Holder furnished in writing to the Company or Parent, as applicable, by such Holder expressly for use in such Registration Statement. In no event shall any Holder, its directors, officers or any person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 10(a) or 10(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 10(a) and 10(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 10(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the 24 25 indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 10(a), and by the Company or Parent, as applicable, in the case of parties indemnified pursuant to Section 10(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that 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 or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company (in the case of any Note Registration Statement) or Parent (in the case of any Warrant Registration Statement), on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 10(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 10(d)(i) above but also the relative fault of the Company or Parent, as applicable, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted 25 26 in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company or Parent, as applicable, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or Parent, as applicable, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, Parent and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 10(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the 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 incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 10, no Holder, its directors, its officers or any person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder 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 Holders' obligations to contribute pursuant to this Section 10(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. (e) The Company and Parent agree that the indemnity and contribution provisions of this Section 10 shall apply to Affiliated Market Makers to the same extent, on the same conditions, as it applies to Holders. SECTION 11. Rule 144A and Rule 144. Each of the Company and Parent agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in 26 27 which such person (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 12. Miscellaneous. (a) Remedies. The Company and Parent acknowledge and agree that any failure by the Company and/or Parent to comply with their respective obligations under Section 4 or Section 7 hereof may result in material irreparable injury to the Buyers, the Holders or any Affiliated Market Makers for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Buyers, any Holder or any Affiliated Market Makers may obtain such relief as may be required to specifically enforce the Company's obligations under Section 4 hereof and Parent's obligations under Section 4 and Section 7 hereof. The Company and Parent further agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor Parent will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor Parent has previously entered into any agreement granting any registration rights with respect to its securities to any person other than the Investors' Agreement dated as of May 22, 1998 among Parent and the investors and stockholders party thereto as in effect on the date hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and Parent's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of this clause 12(c)(i), the Company and Parent have obtained the written consent of Holders of all outstanding Transfer Restricted Securities, (ii) in the case of all other provisions hereof with respect to the Transfer Restricted Notes, the Company has obtained the written consent of Holders of a majority of the 27 28 outstanding principal amount of Transfer Restricted Notes and (iii) in the case of all other provisions hereof with respect to the Transfer Restricted Warrant Securities, Parent has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Warrant Securities (excluding in each case Transfer Restricted Securities held by Parent, the Company and any Affiliate of the Company or Parent other than the Buyers). (d) Third Party Beneficiary. The Holders and any Affiliated Market Makers shall be third party beneficiaries to the agreements made hereunder between the Company and Parent, on the one hand, and the Buyers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders and Affiliated Market Makers hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder of Notes: at the address set forth on the records of the Registrar under the Indenture or the Notes, as applicable, with a copy to the Registrar (if other than the Company) under the Indenture; (ii) if to a Holder of Warrants and/or Warrant Shares, at the address set forth on the records of the Company; and (iii) if to the DLJ Buyers, to: c/o DLJ Merchant Banking Partners II, L.P. 277 Park Avenue New York, NY 10172 Attention: William F. Dawson, Jr. Fax: (212) 892-7272 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 Attention: Richard D. Truesdell, Jr. Fax: (212) 450-4800 28 29 (iv) if to the Company and/or Parent Thermadyne Holdings Corporation 101 South Hanley Road St. Louis, Missouri 63105 Attention: Jim Tate or Stephanie Josephson Fax: (314) 746-2374 (314) 746-2327 with a copy to: R. Scott Cohen, Esq. Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, TX 75201-6950 Fax: (214) 746-7777 All such notices and communications 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 receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the person giving the same to the Trustee (if there is a Trustee as of such date) and the Warrant Agent (if there is a Warrant Agent as of such date) at the address specified in the Indenture and in the terms of the Warrant, respectively. Upon the date of filing of any Registration Statement, notice shall be delivered to any Affiliated Market Makers at the addresses specified by such Affiliated Market Makers in writing to Parent. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Subscription Agreement, the Indenture or the Warrants. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking 29 30 and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 30 31 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THERMADYNE HOLDINGS CORPORATION. By: /s/ JAMES H. TATE ----------------------------------------- Name: JAMES H. TATE Title: SR. VP & CFO THERMADYNE MFG. LLC By: /s/ JAMES H. TATE ----------------------------------------- Name: JAMES H. TATE Title: SR. VP & CFO DLJ MERCHANT BANKING PARTNERS II, L.P. By: /s/ WILLIAM F. DAWSON, JR. ----------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ MERCHANT BANKING PARTNERS II-A, L.P. By: /s/ WILLIAM F. DAWSON, JR. ----------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ OFFSHORE PARTNERS II, C.V. By: /s/ WILLIAM F. DAWSON, JR. ----------------------------------------- Name: William F. Dawson, Jr. Title: Principal 31 32 DLJ DIVERSIFIED PARTNERS, L.P. By: /s/ IVY DODES ----------------------------------------- Name: IVY DODES Title: Vice President DLJ DIVERSIFIED PARTNERS-A, L.P. By: /s/ IVY DODES ----------------------------------------- Name: IVY DODES Title: Vice President DLJMB FUNDING II, INC. By: /s/ IVY DODES ----------------------------------------- Name: IVY DODES Title: Vice President DLJ MILLENNIUM PARTNERS, L.P. By: /s/ WILLIAM F. DAWSON, JR. ----------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ MILLENNIUM PARTNERS-A, L.P. By: /s/ WILLIAM F. DAWSON, JR. ----------------------------------------- Name: William F. Dawson, Jr. Title: Principal DLJ EAB PARTNERS, L.P. By: /s/ IVY DODES ----------------------------------------- Name: IVY DODES Title: Vice President 32 33 DLJ ESC II L.P. By: /s/ IVY DODES ----------------------------------------- Name: IVY DODES Title: Vice President DLJ FIRST ESC, L.P. By: /s/ IVY DODES ----------------------------------------- Name: IVY DODES Title: Vice President 33 EX-4.13 4 INDENTURE 1 EXHIBIT 4.13 THERMADYNE MFG. LLC, AS ISSUER AND [TRUSTEE], AS TRUSTEE -------------- INDENTURE DATED AS OF [_______] -------------- JUNIOR SUBORDINATED NOTES DUE 2009 2 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions......................................................................1 SECTION 1.02. Other Definitions...............................................................10 SECTION 1.03. Rules of Construction...........................................................10 SECTION 1.04. Incorporation by Reference of TIA...............................................11 SECTION 1.05. Conflict with TIA...............................................................11 SECTION 1.06. Compliance Certificates and Opinions............................................11 SECTION 1.07. Form of Documents Delivered to Trustee..........................................12 SECTION 1.08. Acts of Noteholders; Record Dates...............................................12 SECTION 1.09. Notices, Etc., to Trustee and Company...........................................14 SECTION 1.10. Notices to Holders; Waivers.....................................................14 SECTION 1.11. Effect of Headings and Table of Contents........................................15 SECTION 1.12. Successors and Assigns..........................................................15 SECTION 1.13. Separability Clause.............................................................15 SECTION 1.14. Benefits of Indenture...........................................................15 SECTION 1.15. Governing Law...................................................................15 SECTION 1.16. Legal Holidays..................................................................15 SECTION 1.17. No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders........................................................16 SECTION 1.18. Exhibits and Schedules..........................................................16 SECTION 1.19. Counterparts....................................................................16 ARTICLE 2 NOTE FORMS SECTION 2.01. Forms Generally.................................................................16 SECTION 2.02. Form of Trustee' Certificate of Authentication..................................16 SECTION 2.03. Restrictive Legends.............................................................17 ARTICLE 3 THE NOTES SECTION 3.01. Title and Terms.................................................................18 SECTION 3.02. Denominations...................................................................20 SECTION 3.03. Execution, Authentication and Delivery and Dating...............................20 SECTION 3.04. Registration, Registration of Transfer and Exchange.............................20 SECTION 3.05. Mutilated, Destroyed, Lost and Stolen Notes.....................................21 SECTION 3.06. Payment of Interest Rights Preserved............................................22 SECTION 3.07. Persons Deemed Owners...........................................................22 SECTION 3.08. Cancellation....................................................................22 SECTION 3.09. Computation of Interest and Accretion...........................................23 SECTION 3.10. Transfer Provisions.............................................................23
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PAGE ---- ARTICLE 4 COVENANTS SECTION 4.01. Payment of Accreted Value and Interest..........................................25 SECTION 4.02. Maintenance of Office or Agency.................................................25 SECTION 4.03. Taxes...........................................................................25 SECTION 4.04. Stay, Extension and Usury Laws..................................................25 SECTION 4.05. Certificates to Trustee.........................................................25 SECTION 4.06. Limitation on Certain Indebtedness..............................................26 SECTION 4.07. Limitation on Redemption of Parity Securities and Junior Securities............................................................................26 SECTION 4.08. Transactions with Affiliates....................................................26 SECTION 4.09. Corporate Existence.............................................................27 SECTION 4.10. Offer to Repurchase upon Change of Control......................................28 ARTICLE 5 CONSOLIDATION, MERGER OR SALE OF ASSETS SECTION 5.01. Consolidation, Merger or Sale of Assets.........................................29 SECTION 5.02. Opinion of Counsel to Trustee...................................................29 ARTICLE 6 REMEDIES SECTION 6.01. Control by Majority.............................................................29 SECTION 6.02. Limitation on Suits.............................................................30 SECTION 6.03. Rights of Holders to Receive Payment............................................30 SECTION 6.04. Trustee May File Proofs of Claim................................................30 SECTION 6.05. Priorities......................................................................31 SECTION 6.06. Undertaking for Costs...........................................................31 SECTION 6.07. Restoration of Rights and Remedies..............................................31 SECTION 6.08. Rights and Remedies Cumulative..................................................31 ARTICLE 7 THE TRUSTEE SECTION 7.01. Certain Duties and Responsibilities.............................................32 SECTION 7.02. Certain Rights of Trustees......................................................32 SECTION 7.03. Not Responsible for Recitals or Issuance of Notes...............................33 SECTION 7.04. Trustee's Disclaimer............................................................34 SECTION 7.05. May Hold Notes..................................................................34 SECTION 7.06. Money Held in Trust.............................................................34 SECTION 7.07. Compensation and Reimbursement..................................................34 SECTION 7.08. Conflicting Interests...........................................................34 SECTION 7.09. Corporate Trustee Required; Eligibility.........................................35
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PAGE ---- SECTION 7.10. Resignation and Removal; Appointment of Successor...............................35 SECTION 7.11. Acceptance of Appointment by Successor..........................................36 SECTION 7.12. Merger, Conversion, Consolidation or Succession to Business.....................37 SECTION 7.13. Preferential Collection of Claims Against the Company...........................37 SECTION 7.14. Appointment of Authenticating Agent.............................................37 ARTICLE 8 HOLDERS' LIST AND REPORTS BY TRUSTEE AND THE COMPANY SECTION 8.01. The Company to Furnish Trustee Names and Addresses of Holders...............................................................................37 SECTION 8.02. Preservation of Information; Communications to Holders..........................38 SECTION 8.03. Reports by Trustee..............................................................38 ARTICLE 9 AMENDMENT, SUPPLEMENT OR WAIVER SECTION 9.01. Without Consent of the Holders..................................................38 SECTION 9.02. With Consent of Holders.........................................................39 SECTION 9.03. Execution of Amendments, Supplements or Waivers.................................40 SECTION 9.04. Revocation and Effect of Consents...............................................40 SECTION 9.05. Conformity with TIA.............................................................41 SECTION 9.06. Notation on or Exchange of Notes................................................41 ARTICLE 10 REDEMPTION OF NOTES SECTION 10.01. Right of Redemption............................................................41 SECTION 10.02. Applicability of Article.......................................................42 SECTION 10.03. Notice of Redemption...........................................................42 SECTION 10.04. Deposit of Redemption Price....................................................43 SECTION 10.05. Notes Payable on Redemption Date...............................................43 ARTICLE 11 SATISFACTION AND DISCHARGE SECTION 11.01. Satisfaction and Discharges of Indenture.......................................43 SECTION 11.02. Application of Trust Money.....................................................44 ARTICLE 12 DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.01. Option of the Company to Effect Defeasance or Covenant Defeasance............................................................................45 SECTION 12.02. Legal Defeasance and Discharge.................................................45 SECTION 12.03. Covenant Defeasance............................................................45
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PAGE ---- SECTION 12.04. Conditions to Legal or Covenant Defeasance.....................................46 SECTION 12.05. Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions.................................................47 SECTION 12.06. Repayment to Company...........................................................48 SECTION 12.07. Reinstatement..................................................................48 ARTICLE 13 SUBORDINATION SECTION 13.01. Agreement to Subordinate.......................................................48 SECTION 13.02. Liquidation; Dissolution; Bankruptcy...........................................49 SECTION 13.03. Default on Designated Senior Indebtedness......................................49 SECTION 13.04. When Distributions Must Be Paid Over...........................................50 SECTION 13.05. Notice.........................................................................51 SECTION 13.06. Subrogation....................................................................51 SECTION 13.07. Relative Rights................................................................52 SECTION 13.08. The Company and Holders May Not Impair Subordination...........................52 SECTION 13.09. Distribution or Notice to Representative.......................................53 SECTION 13.10. Rights of Trustee and Paying Agent.............................................53 SECTION 13.11. Authorization to Effect Subordination..........................................53 SECTION 13.12. Payment........................................................................54
EXHIBIT A - Form of Note EXHIBIT B - Form of Regulation S Certificate EXHIBIT C - Form of Accredited Investor Certificate iv 6 INDENTURE, dated as of [________] (as amended, supplemented or otherwise modified from time to time, the "INDENTURE"), between Thermadyne Mfg. LLC, a Delaware limited liability company, as Issuer (the "COMPANY"), and [TRUSTEE], a [________] banking corporation, as trustee (the "TRUSTEE"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of Junior Subordinated Notes due 2009 of the Company in an initial aggregate principal amount at maturity of the Accreted Value attributable to $25,000,000 (the "NOTES") issuable as provided in this Indenture. All things necessary to make the Notes, when duly issued, executed and delivered by the Company and authenticated and delivered by the Trustee hereunder, the valid obligation of the Company, and to make this Indenture a valid agreement of the Company as of the date hereof, in accordance with the terms of the Notes and this Indenture, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually agreed, for the equal and ratable benefit of all Holders, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. "AFFILIATE" means, as applied to any Person, (i) any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise or (ii) without limiting the foregoing, the beneficial ownership of 10% or more of the voting power of the Voting Stock of such Person (on a fully diluted basis) or of warrants or rights to acquire such Voting Stock whether or not presently exercisable. "AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant to Section 7.14 to act on behalf of the Trustee to authenticate Notes of one or more series. "BANK INDEBTEDNESS" means all Obligations, and all other obligations (monetary or otherwise) pursuant to the Credit Agreement and all Hedging Obligations payable to a lender or an Affiliate thereof or to a Person that was a lender or an Affiliate thereof at the time the contract was entered into under the Credit Agreement or any of its Affiliates (including, without limitation, all interest accruing on or after, or which would accrue 7 but for, the filing of any petition in bankruptcy or for reorganization, whether or not allowed thereby). "BOARD OF DIRECTORS" means, with respect to any Person, the board of directors or board of managers of such Person or any committee thereof duly authorized to act on behalf of such board. Unless the context otherwise requires, "BOARD OF DIRECTORS" refers to the Board of Directors of the Company. "BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by its Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. Unless the context otherwise requires, "BOARD RESOLUTION" refers to a Board Resolution of the Company. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized by law to close. "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 (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) 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. "CEDEL" means Cedel Bank, societe anonyme. "CHANGE OF CONTROL" means (i) the failure of Parent at any time to own, directly or indirectly, free and clear of all Liens and encumbrances (other than Liens of the types permitted to exist under clauses (b), (f) and (i) of Section 7.2.3 of the Credit Agreement), all right, title and interest in 100% of the Capital Stock of the Company; (ii) the failure of DLJMB to own at least 51% (on a fully diluted basis) of the economic and voting interest in the Voting Stock of Parent; or (iii) the failure of DLJMB at any time to have the right to designate or nominate at least 51% of the Board of Directors of Parent. "CLOSING DATE" means the date on which the Notes are originally issued. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMON STOCK" means, with respect to any Person, any and all shares of such Person's Capital Stock (excluding Preferred Stock of such Person), including, without limitation, all series and classes of such common stock. 2 8 "COMPANY" means Thermadyne Mfg. LLC, a Delaware limited liability company, and any successor in interest thereto. "COMPANY REQUEST," "COMPANY ORDER" and "COMPANY CONSENT" mean, respectively, a written request, order or consent signed in the name of the Company by an Officer of the Company. "CONTINUING MEMBERS" means, as of any date of determination, any member of the Board of Directors of the Company who (a) was a member of such Board of Directors immediately after the issuance of the Notes or (b) was nominated for election or elected to such Board of Directors with the approval of, or whose election to the Board of Directors was ratified by, at least a majority of the Continuing Members who were members of such Board of Directors at the time of such nomination or election. "CORPORATE TRUST OFFICE" means the principal office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office on the Closing Date is located at [_____________]. "CREDIT AGREEMENT" means that certain Credit Agreement, dated as of May 22, 1998, by and among the Company and certain of its foreign subsidiaries, Donaldson, Lufkin & Jenrette Securities Corporation, as arranger, DLJ Capital Funding, Inc., as syndication agent, and ABN AMRO Bank N.V., Chicago Branch, as administrative agent, 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, including, without limitation, any agreement (i) extending or shortening the maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder, or (iv) otherwise altering the terms and conditions thereof. "DESIGNATED SENIOR INDEBTEDNESS" means the Bank Indebtedness and the High Yield Notes. "DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates. "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). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect on the Closing Date, including without limitation, those 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 approved by a significant segment of the accounting profession. 3 9 "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 or reimbursement agreements in respect thereof), of all or any party of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "HIGH YIELD NOTES" means the 9 7/8% Senior Subordinated Notes due 2008 of the Company and Thermadyne Capital Corporation. "HOLDER" or "NOTEHOLDERS" means the Person in whose name a Note is registered on the Registrar's books. "INCUR" means, with respect to any Indebtedness, to incur, create, issue, assume, guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness; provided that (i) the Indebtedness of a Person existing at the time such Person became a Subsidiary shall be deemed to have been Incurred by such Subsidiary and (ii) that neither the accrual of interest, the accretion of original issue discount or the payment-in-kind of interest shall be considered an Incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person 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 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 (a) the accreted value thereof (together with any interest thereon that is more than 30 days past due), in the case of any Indebtedness that does not require current payments of interest, and (b) the principal amount thereof, in the case of any other Indebtedness. "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "INTEREST PAYMENT DATES" means each of the payment dates specified as Interest Payment Dates on the face of the Notes. 4 10 "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). "JUNIOR SECURITIES" means with respect to the Company any equity securities of the Company or Parent and any debt of the Company or Parent which is by its terms junior in right of payment to the Notes. "MANAGEMENT LOANS" means one or more loans by the Company or Parent to officers and/or directors of the Company and any of its Subsidiaries to finance the purchase by such officers and directors of common stock of Parent; provided, however, that the aggregate principal amount of all such Management Loans outstanding at any time shall not exceed $6.0 million. "NON-U.S. PERSON" means a Person who is not a U.S. person, as defined in Regulation S. "NOTES" means the Company's Junior Subordinated Notes Due 2009, issued on the Closing Date. "OBLIGATIONS" means all obligations (whether in existence on the Closing Date or arising thereafter) for, or guaranteeing the payment of, principal, premium, interest (including, without limitation, all interest accrued or accruing after the commencement of any Reorganization of any Person obligated with respect thereto in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing or governing any Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such case or proceeding), penalties, fees, indemnifications, reimbursements and other amounts in respect of any Indebtedness, and any amendment, extension or refunding of any of the foregoing, without duplication. "OFFICER" means, with respect to the Company or any other obligor upon the Notes, the Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer or any Vice President (a) of such Person or (b) if such Person is owned or managed by a single entity, of each such entity. "OFFICER'S CERTIFICATE" means, with respect to the Company or any other obligor upon the Notes, a certificate signed by an Officer of each such Person. "OPINION OF COUNSEL" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. 5 11 "OUTSTANDING" when used with respect to Notes means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Notes, provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor reasonably satisfactory to the Trustee has been made; and (iii) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture. A Note does not cease to be Outstanding because the Company or any Affiliate of the Company holds the Note, provided that in determining whether the Holders of the requisite amount of Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee actually knows are so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the reasonable satisfaction of the Trustee the pledgee's right to act with respect to such Notes and that the pledgee is not the Company or an Affiliate of the Company. "PARITY SECURITIES" means, with respect to the Company, any debt that ranks pari passu in right of payment with the Notes. "PAYING AGENT" means any Person authorized by the Company to pay the Accreted Value of or interest, if any, on any Notes on behalf of the Company. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency, instrumentality 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). "PLACE OF PAYMENT" means a city or any political subdivision thereof referred to in Article 3 and initially designated under Section 4.02. "PREDECESSOR NOTES" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under 6 12 Section 3.05 in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note. "PREFERRED STOCK" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non- voting) of such Person's preferred or preference stock, whether now outstanding or hereafter issued, including, without limitation, all series and classes of such preferred or preference stock. "PRINCIPAL" means DLJMB. "QIB", or "QUALIFIED INSTITUTIONAL BUYER" means a "qualified institutional buyer," as the term is defined in Rule 144A under the Securities Act. "RECEIVABLES FACILITY" means one or more receivables financing facilities, as amended from time to time, pursuant to which the Company or any of its Subsidiaries sells its accounts receivable. "REDEMPTION DATE" when used with respect to any Note to be redeemed or purchased means the date fixed or such redemption or purchase by or pursuant to this Indenture and the Notes. "REDEMPTION PRICE" when used with respect to any Note to be redeemed or purchased means the price at which it is to be redeemed or purchased pursuant to this Indenture and the Notes. "REFINANCE" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the Closing Date among the Company and the buyers party thereto, as such agreement may be amended from time to time. "REGISTRATION STATEMENT" means any Note Registration Statement as defined in the Registration Rights Agreement. "REGULAR RECORD DATE" means each of the record dates specified as a Regular Record Date on the face of the Notes. "REGULATION S" means Regulation S under the Securities Act. "RELATED PARTY" means, with respect to the Principal, (i) any controlling stockholder or partner of the Principal on the date the Notes are first issued, or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding (directly or through one or more Subsidiaries) a 7 13 51% or more controlling interest of which consist of the Principal and/or such other Persons referred to in the immediately preceding clauses (i) or (ii). "REORGANIZATION" means, with respect to any Person, any reorganization, bankruptcy, insolvency, receivership or other similar statutory or common law proceedings or arrangements, including without limitation any proceeding under Title 11, United States Code or any similar federal, state or foreign law for the relief of debtors, involving such Person or the readjustment of such Person's liabilities or any assignment for the benefit of creditors or any marshaling of the assets or liabilities of such Person. "REPRESENTATIVE" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company. "RESALE RESTRICTION TERMINATION DATE" means, with respect to any Note, the date that is two years (or such other period as may hereafter be provided under Rule 144(k) under the Securities Act or any successor provision thereto as permitting the resale by non- affiliates of Restricted Securities without restriction) after the later of the original issue date in respect of such Note and the last date on which the Company or any Affiliate of the Company was the owner of such Note (or any Predecessor Note thereto). "RESPONSIBLE OFFICER" when used with respect to the Trustee means any officer in the corporate trust department of the Trustee, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "RESTRICTED PERIOD" means, with respect to any Notes, the 40-day distribution compliance period as defined in Regulation S with respect to such Notes. "RESTRICTED SECURITY" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to receive, at its request, and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR INDEBTEDNESS" means, with respect to any Person, (a) all Obligations of such Person outstanding under (i) the High Yield Notes and (ii) the Credit Agreement and all Hedging Obligations payable to a lender or an Affiliate thereof or to a Person that was a lender or an Affiliate thereof at the time the contract was entered into under the Credit Agreement or any of its Affiliates, including, without limitation, interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, whether or not such interest is an allowable claim in such bankruptcy proceeding, (b) any other Indebtedness, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to any other Senior Indebtedness of such Person and (c) all Obligations with respect to the 8 14 foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) any liability for federal, state, local or other taxes, (ii) any Indebtedness of such Person (other than pursuant to the Credit Agreement) to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any Indebtedness that is incurred in violation of this Indenture. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.06. "STATED MATURITY" means (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal or Accreted Value of such debt security is due and payable and (ii) with respect to any scheduled installment of principal or Accreted Value of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable, in each case, as set forth in the original documentation governing such debt security. "SUBSIDIARY" means, with respect to any Person, (a) 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 (b) any partnership or limited liability company (i) the sole general partner or the managing general partner or managing member of which is such Person or a Subsidiary or such Person or (ii) the only general partners or managing members of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sections 77aaa-77bbbb) as in effect on the date of this Indenture. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "U.S. GOVERNMENT OBLIGATIONS" means securities issued or directly and fully guaranteed or insured by the United States of America or any agent or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof). "VOTING STOCK" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. 9 15 SECTION 1.02. Other Definitions.
DEFINED TERM IN SECTION Accreted Value 3.01 Act 1.08 Affiliate Transaction 4.08 Authentication Order 3.03 Blockage Notice 13.03 Cash Payment Notice 3.01 Change of Control Offer 4.10(a) Change of Control Payment 4.10(a) Change of Control Payment Date 4.10(a) Covenant Defeasance 12.03 Defaulted Interest 3.06 Expiration Date 1.08 Interest Payment Date 3.01 Junior Securities Distribution 4.07 Legal Defeasance 12.02 pay the Notes 13.03 Payment Blockage Period 13.03 Place of Payment 3.01 Private Placement Legend 2.03 Redemption Amount 10.01 Regular Record Date 3.01 Successor Company 5.01
SECTION 1.03. Rules of Construction. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Indenture have the meanings assigned to them in this Indenture; (b) "or" is not exclusive; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP and, unless expressly provided otherwise, all determinations and computations made pursuant to any provision hereof shall be made in accordance with GAAP; (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (e) all references to "$" or "dollars" shall refer to the lawful currency of the United States of America; 10 16 (f) the words "include," "included" and "including" as used herein shall be deemed in each case to be followed by the phrase "without limitation," if not expressly followed by such phrase or the phrase "but not limited to"; (g) words in the singular include the plural, and words in the plural include the singular; and (h) any reference to a Section or Article refers to such Section or Article of this Indenture unless otherwise indicated. SECTION 1.04. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. This Indenture is subject to the mandatory provisions of the TIA, which are incorporated by reference in and made a part of this Indenture. Any terms incorporated by reference in this Indenture that are defined by the TIA, defined by any TIA reference to another statute or defined by SEC rule under the TIA, have the meanings so assigned to them therein. The following TIA terms have the following meanings: "INDENTURE SECURITIES" means the Notes. "INDENTURE SECURITY HOLDER" means a Holder or Noteholders. "INDENTURE TO BE QUALIFIED" means this Indenture. "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee. "OBLIGOR" on the indenture securities means the Company and any other obligor on the indenture securities. SECTION 1.05. Conflict with TIA. If any provision hereof limits, qualifies or conflicts with a provision of the TIA that is required under the TIA to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed (a) to apply to this Indenture as so modified or (b) to be excluded, as the case may be. SECTION 1.06. Compliance Certificates and Opinions. Upon any application or request by the Company or by any other obligor upon the Notes to the Trustee to take any action under any provision of this Indenture, the Company or such other obligor upon the Notes, as the case may be, shall furnish to the Trustee such certificates and opinions as may be required under the TIA. Each such certificate or opinion shall be given in the form of one or more Officer's Certificates, if to be given by an Officer, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the TIA and any other requirements set forth in this Indenture. Notwithstanding the foregoing, in the case of any such request or application as to which the furnishing of any Officer's Certificate or Opinion of Counsel is specifically required by any provision of 11 17 this Indenture relating to such particular request or application, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (except for certificates provided for in Section 4.05) shall include: (a) a statement that the individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (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 individual, he or she made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with. SECTION 1.07. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers to the effect that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.08. Acts of Noteholders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such 12 18 action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.01) conclusive in favor of the Trustee, the Company and any other obligor upon the Notes, if made in the manner provided in this Section 1.08. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership or other entity, on behalf of such corporation or partnership or other entity, such certificate or affidavit shall also constitute sufficient proof of such Person's authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind the Holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee, the Company or any other obligor upon the Notes in reliance thereon, whether or not notation of such action is made upon such Note. (e) (i) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Notes entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in Section 1.08(e)(ii). If any record date is set pursuant to this paragraph, the Holders of Outstanding Notes on such record date (or their duly designated proxies), and no other Holders, shall be entitled to take the relevant action, whether or not such Persons remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite Accreted Value of Outstanding Notes on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite Accreted Value of Outstanding Notes on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration 13 19 Date to be given to the Trustee in writing and to each Holder in the manner set forth in Section 1.10. (ii) With respect to any record date set pursuant to this Section 1.08, the party hereto that sets such record dates may designate any day as the "EXPIRATION DATE" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the Company or the Trustee, whichever such party is not setting a record date pursuant to this Section 1.08(e) in writing, and to each Holder in the manner set forth in Section 1.10, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto that set such record date shall be deemed to have initially designated the 90th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 90th day after the applicable record date. (iii) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Note may do so with regard to all or any part of the Accreted Value of such Note or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Accreted Value. SECTION 1.09. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company or any other obligor upon the Notes shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at [____________] (telephone: [____________]; facsimile: [____________]), or at any other address furnished in writing to the Company by the Trustee, or (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder if in writing and delivered in person or mailed, first-class postage prepaid, to the Company at [___________________________], or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.10. Notices to Holders; Waivers. Where this Indenture provides for notice to Holders of any event, such notice shall be deemed to have been given upon the mailing by first class mail, postage prepaid, of such notices to Holders at their registered addresses as recorded in the Register, not later than the latest date, and not earlier than the earliest date, prescribed herein for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. 14 20 Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail notice of any event as required by any provision of this Indenture, then such notification as shall be made with the approval of the Trustee (such approval not to be unreasonably withheld) shall constitute a sufficient notification for every purpose hereunder. SECTION 1.11. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.12. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.13. Separability Clause. In case any provision in this Indenture or in the 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 1.14. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.15. Governing Law. THIS INDENTURE, THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONFLICT OF LAWS TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE TRUSTEE, THE COMPANY, ANY OTHER OBLIGORS IN RESPECT OF THE NOTES AND (BY THEIR ACCEPTANCE OF THE NOTES) THE HOLDERS, AGREE TO SUBMIT TO THE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT LOCATED IN THE BOROUGH OF MANHATTAN, IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES. SECTION 1.16. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of interest or Accreted Value need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity. 15 21 SECTION 1.17. No Personal Liability of Directors, Officers, Employees, Incorporators and Stockholders. No director, officer, employee, incorporator, member or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 1.18. Exhibits and Schedules. All exhibits and schedules attached hereto are by this reference made a part hereof with the same effect as if herein set forth in full. SECTION 1.19. Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. ARTICLE 2 NOTE FORMS SECTION 2.01. Forms Generally. The Notes and the Trustee's certificate of authentication relating thereto shall be in substantially the forms set forth, or referenced, in Exhibit A, annexed hereto and in this Article 2. The Notes may have such appropriate insertions, omissions, substitutions, notations, legends, endorsements, identifications and other variations as are required or permitted by law, stock exchange rule or depository rule or usage, agreements to which the Company are subject, if any, or other customary usage, or as may consistently herewith be determined by the Officers of the Company executing such Notes, as evidenced by such execution (provided always that any such notation, legend, endorsement, identification or variation is in a form acceptable to the Company). Each Note shall be dated the date of its authentication. The Notes shall be issued in the form of permanent certificated Notes substantially in the form set forth in Exhibit A. SECTION 2.02. Form of Trustee' Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Notes referred to in the within-mentioned Indenture. ----------------------------------------- as Trustee Dated: By: ---------------------- -------------------------------------- Authorized Signatory 16 22 If an appointment of an Authenticating Agent is made pursuant to Section 7.14, the Notes may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Notes referred to in the within-mentioned Indenture. ------------------------------ As Trustee By --------------------------------------- As Authenticating Agent By --------------------------------------- Authorized Signatory Dated: SECTION 2.03. Restrictive Legends. Unless and until a Note is sold pursuant to an effective Registration Statement pursuant to the Registration Rights Agreement, such Note shall bear the following legend set forth below (the "PRIVATE PLACEMENT LEGEND") on the face thereof: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE U.S. TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH 17 23 TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE U.S. IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (G) PURSUANT TO ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH SECTION 3.14(J) OF THE INDENTURE AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A NON-U.S. PERSON THAT, IN EITHER CASE, IS NOT A QUALIFIED INSTITUTIONAL BUYER, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S." AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. ARTICLE 3 THE NOTES SECTION 3.01. Title and Terms. (a) The aggregate principal amount at maturity of Notes that may be authenticated and delivered under this Indenture on the Closing Date is limited to the Accreted Value attributable to $25,000,000. All the Notes shall vote and consent together on all matters as one class, and none of the Notes will have the right to vote or consent as a class separate from one another on any matter. The Notes shall be known and designated as the "JUNIOR SUBORDINATED NOTES DUE 2009" of the Company. The final Stated Maturity of the Notes shall be December 15, 2009. The Company agrees to pay interest on the Accreted Value of the Notes at the rate and in the manner specified below. "ACCRETED VALUE" means with respect to any Note, as of any date of determination, the sum of (a) the Accreted Value of such Note on the immediately preceding Interest Payment Date (in the event such date of determination falls before the 18 24 first Interest Payment Date, the "Initial Accreted Value" specified on the face of such Note) plus (b) an amount determined by multiplying (i) the amount referred to in clause (a) by (ii) 15% (provided that the accretion rate applicable to any period or portion of a period during which no interest accrues that occurs after December 15, 2004 shall be 16%) by (iii) the number of days in the period from an including the preceding Interest Payment Date to such date of determination divided by 360, less (c) any interest that accrues with respect to such period in accordance with the terms of the Note. Interest Rate: Prior to December 15, 2004, unless a Cash Payment Notice (as defined below) is properly delivered by the Company, no interest shall accrue or be payable with respect to the Notes. If the Company elects to pay interest on any Interest Payment Date prior to December 15, 2004, the Company shall give written notice (each such notice a "CASH PAYMENT NOTICE") of such election to Holders five business days prior to the immediately preceding Interest Payment Date. Commencing on such immediately preceding Interest Payment Date until such Interest Payment Date for which a Cash Payment Notice has been properly delivered, interest will accrue and be payable at a rate of 15% per annum to Holders of record of the Notes at the close of business on the Regular Record Date immediately preceding such Interest Payment Date for which a Cash Payment Notice has been properly delivered, whether or not a Business Day. Failure to pay interest after proper delivery of a Cash Payment Notice for any reason shall not constitute a breach of the Indenture and the Accreted Value shall be determined as if such Cash Payment Notice had not been delivered. On or after December 15, 2004 interest will accrue and be payable at a rate of 15% per annum on each Interest Payment Date to Holders of record of the Notes at the close of business on the immediately preceding Regular Record Date; provided, that if and for so long as payment of interest on the Notes is prohibited under the terms of the Credit Agreement (as defined in the Indenture) interest shall not accrue or be payable with respect to the Notes. (b) The Company will pay interest on overdue payments of interest and Accreted Value, to the extent lawful at a rate of 1% per annum in excess of the interest rate referred to above. (c) The Accreted Value of and interest, if any, on the Notes shall be payable at the Corporate Trust Office or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York (each, a "PLACE OF PAYMENT") in the manner provided in Section 4.01(b); provided, however, that, under the circumstances set forth in Section 4.01(b), payment of interest on a Note may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register. 19 25 SECTION 3.02. Denominations. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 3.03. Execution, Authentication and Delivery and Dating. The Notes shall be executed on behalf of the Company by an Officer of the Company. The signature of such Officer on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signature of an individual who was at any time a proper Officer of the Company shall bind the Company, notwithstanding that such individual has ceased to hold such office prior to the authentication and delivery of such Notes or did not hold such office at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication; and the Trustee shall authenticate and deliver (i) Notes for original issue in the aggregate principal amount not to exceed the Accreted Value attributable to $25,000,000, which is the initial aggregate offering price of the Notes upon a written order of the Company in the form of an Officer's Certificate of the Company (an "AUTHENTICATION ORDER"). Such Officer's Certificates shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to include the Private Placement Legend, that the issuance of such Notes does not contravene any provision of Article 4 of this Indenture and such other information as the Company may include or the Trustee may reasonably request. All Notes shall be dated the date of their authentication. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. SECTION 3.04. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Trustee is hereby appointed "REGISTRAR" for the purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for transfer of any Note at the office or agency of the Company in a Place of Payment, in compliance with all applicable requirements of this Indenture and applicable law, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes, of any authorized denominations and of a like tenor and aggregate Accreted Value. 20 26 At the option of the Holder, Notes may be exchanged for other Notes, of any authorized denominations and of a like tenor and aggregate Accreted Value, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes that the Holder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or such Holder's attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes under this Section 3.04. SECTION 3.05. Mutilated, Destroyed, Lost and Stolen Notes. If (a) any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and (b) there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon receipt of an Authentication Order the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of like tenor and Accreted Value, bearing a number not contemporaneously Outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section 3.05, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section 3.05 in lieu of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and ratably with any and all other Notes duly issued hereunder. 21 27 The provisions of this Section 3.05 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 3.06. Payment of Interest Rights Preserved. Interest on any Note that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest specified in Section 3.01. SECTION 3.07. Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of Accreted Value of and (subject to Section 3.06) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.08. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder that the Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 3.08, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee shall be disposed of as directed by a Company Order. SECTION 3.09. Computation of Interest and Accretion. Interest and accretion on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.10. Transfer Provisions. Unless and until a Note is sold pursuant to an effective Registration Statement, the following provisions shall apply: (a) General. The provisions of this Section 3.10 shall apply to all transfers involving any Note. (b) Transfers to Non-QIB Institutional Accredited Investors. With respect to the registration of any proposed transfer of a Note that is a Restricted Security to any Institutional Accredited Investor which is not a QIB, the Registrar shall register such transfer if it complies with all other applicable requirements of this Indenture (including Section 3.04) and, if (i) such transfer is after the relevant Resale Restriction Termination Date with respect to such Note, or (ii) the proposed transferee has delivered to the Registrar a Certificate substantially in the form of Exhibit C, and, if such transfer is in respect of an aggregate Accreted Value of Notes of less than $100,000, the Trustee and the Company have received an opinion of counsel, certifications and other information satisfactory to the Company and the Trustee, the Registrar shall reflect on its books and 22 28 records the date of the transfer, and the Trustee shall cancel the Note so transferred and the Company shall execute and the Trustee shall authenticate and deliver one or more Notes of like tenor and amount. (c) Transfers to QIBs. With respect to the registration of any proposed transfer of a Note that is a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons), the Registrar shall register such transfer if it complies with all other applicable requirements of this Indenture (including Section 3.04) and, if such transfer is being made by a proposed transferor who has checked the box provided for on the form of such Note stating, or has otherwise certified to the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of such Note stating, or has otherwise certified to the Company and the Registrar in writing, that it is purchasing such Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A, the Registrar shall reflect on its books and records the date of the transfer, and the Trustee shall cancel the Note so transferred. (d) Transfers to Non-U.S. Persons. The following provisions shall apply with respect to any transfer of a Note to a Non-U.S. Person: (i) prior to the end of the Restricted Period, the Registrar shall register any proposed transfer of a Note to a Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit B hereto from the proposed transferor. (ii) after the end of the Restricted Period, the Registrar shall register any proposed transfer to any Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit B from the proposed transferor. (e) Execution, Authentication and Delivery of Notes. In any case in which the Registrar is required to deliver a Note to a transferee or transferor, the Company shall execute, and the Trustee shall authenticate and make available for delivery, such Note. (f) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend, unless (i) the requested transfer is after the relevant Resale Restriction Termination Date with respect to such Notes, (ii) upon written request of the Company after there is delivered to the Registrar an opinion of counsel (which opinion and counsel are satisfactory to the Company and the Trustee) to the effect that neither such legend nor the related restrictions on transfer are required in order to 23 29 maintain compliance with the provisions of the Securities Act, or (iii) such Notes are sold or exchanged pursuant to an effective Registration Statement under the Securities Act. (g) Other Transfers. The Registrar shall effect and register, upon receipt of a written request from the Company to do so, a transfer not otherwise permitted by this Section 3.10, such registration to be done in accordance with the otherwise applicable provisions of this Section 3.10, upon the furnishing by the proposed transferor or transferee of a written opinion of counsel (which opinion and counsel are satisfactory to the Company and the Trustee) to the effect that, and such other certifications or information as the Company may require to confirm that, the proposed transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. A Note that is a Restricted Security may not be transferred other than as provided in this Section 3.10. (h) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to this Section 3.10 (including all Notes received for transfer pursuant to this Section 3.10). The Company shall have the right to require the Registrar to deliver to the Company, at the Company's expense, copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. In connection with any transfer of any Note, the Trustee, the Registrar and the Company shall be entitled to receive, shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in relying upon the certificates, opinions and other information referred to herein (or in the forms provided herein, attached hereto or to the Notes, or otherwise) received from any Holder and any transferee of any Note regarding the validity, legality and due authorization of any such transfer, the eligibility of the transferee to receive such Note and any other facts and circumstances related to such transfer. (i) Certain Additional Terms. Any transferee entitled to receive a Note may request that the Accreted Value thereof be evidenced by one or more Notes in any authorized denomination or denominations and the Registrar shall comply with such request if all other transfer restrictions are satisfied. 24 30 ARTICLE 4 COVENANTS SECTION 4.01. Payment of Accreted Value and Interest. (a) The Company will duly and punctually pay the Accreted Value of and interest, if any, on the Notes in accordance with the terms of the Notes and this Indenture. An installment of Accreted Value or interest shall be considered paid on the date it is due if the Trustee or Paying Agent or Paying Agents hold on that date money designated for and sufficient to pay the installment. (b) The Company will make all payments of Accreted Value and interest, if any, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. SECTION 4.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York an office or agency where Notes may be presented or surrendered for payment, where Notes may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency. If at any time the Company shall fail to maintain such 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 hereby designates the Corporate Trust Office as an initial Place of Payment and as such office of the Company in the Borough of Manhattan, the City of New York, and appoint the Trustee as its agent to receive all such presentations, surrenders, notices and demands so long as such Corporate Trust Office remains a Place of Payment. SECTION 4.03. 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 Notes. SECTION 4.04. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, 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 (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenant 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 4.05. Certificates to Trustee. (a) The Company will deliver to the Trustee within 90 days after the end of each fiscal year of the Company a certificate from the principal executive, financial or accounting officer of the Company stating that such 25 31 officer has conducted or supervised a review of the activities of the Company and the Company's performance under this Indenture and stating, to the best of such officer's knowledge, based upon such review, whether or not the Company has fulfilled all obligations thereunder. (b) The Company will deliver to the Trustee within 90 days after the end of each fiscal year of the Company a written statement by the Company's independent public accountants stating that their audit examination has included a review of the terms of Section 4.07 of this Indenture as they relate to financial and accounting matters. SECTION 4.06. Limitation on Certain Indebtedness. The Company will not Incur any Indebtedness that is subordinate or junior in right of payment to the High Yield Notes and senior in right of payment to the Notes. SECTION 4.07. Limitation on Redemption of Parity Securities and Junior Securities. (a) So long as any Notes are outstanding, no Parity Securities shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such Parity Securities) by the Company, directly or indirectly, unless, in each case, the Company simultaneously redeems, purchases or otherwise acquires the Notes on a pro rata basis except that Parity Securities may be Refinanced with Parity Securities or Junior Securities. (b) So long as any Notes are outstanding, no dividends (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Junior Securities) shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan of the Company or any Subsidiary) (all such dividends, distributions, redemptions or purchases being hereinafter referred to as a "JUNIOR SECURITIES DISTRIBUTION") for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such Junior Securities) by the Company, directly or indirectly (except by conversion into or exchange for Junior Securities). The foregoing provisions will not prohibit any Junior Securities Distribution that would be permitted by terms of the indenture governing the High Yield Notes as in effect as of the date of this Indenture. SECTION 4.08. Transactions with Affiliates. The Company shall not, and will not permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its 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 of the Company (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (a) such Affiliate 26 32 Transaction is on terms that are no less favorable to the Company or such Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee, with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, either (i) a resolution of the board of directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors or (ii) 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. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (a) customary directors' fees, indemnification or similar arrangements or any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Subsidiaries in the ordinary course of business (including ordinary course loans to employees not to exceed (i) $5.0 million outstanding in the aggregate at any time and (ii) $2.0 million to any one employee) and consistent with the past practice of the Company or such Subsidiary; (b) transactions between or among the Company and/or its Subsidiaries; (c) payments of customary fees by the Company or any of its Subsidiaries to DLJMB and its Affiliates made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which are approved by a majority of the board of directors in good faith; (d) any agreement as in effect on the date of this Indenture or any amendment thereto (so long as such amendment is not disadvantageous to the Holders of the Notes in any material respect) or any transaction contemplated thereby; (e) payments and transactions in connection with the Credit Agreement (including commitment, syndication and arrangement fees payable thereunder) and under any future underwritten offerings led by the Principal or any of its Affiliates (including underwriting discounts and commissions in connection therewith) and the application of the proceeds thereof, and the payment of the fees and expenses with respect thereto; (f) sales of accounts receivable, or participations therein, in connection with any Receivables Facility; and (g) transactions pursuant to the Management Loans. SECTION 4.09. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) the corporate, partnership or other existence of itself and each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of itself and any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. 27 33 SECTION 4.10. Offer to Repurchase upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 of Accreted Value or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate Accreted Value thereof, plus accrued and unpaid interest, if any, thereon to the date of repurchase (the "CHANGE OF CONTROL PAYMENT"). Within 60 days following any Change of Control, the Company will (or will cause the Trustee to) mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase 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 this 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 Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture relating to such Change of Control Offer, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate Accreted Value of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in Accreted Value to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will have an Accreted Value of $1,000 or an integral multiple thereof; provided that each such new Note will have an Accreted Value of $1,000 or an integral multiple thereof provided further, that the Company shall not be required to repurchase Notes upon a Change of Control if the Company is unable to obtain all necessary consents under the Credit Agreement for such repurchase. 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. (b) Notwithstanding anything to the contrary in this Section 4.10, 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 this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. 28 34 ARTICLE 5 CONSOLIDATION, MERGER OR SALE OF ASSETS SECTION 5.01. Consolidation, Merger or Sale of Assets. (a) The Company shall not consolidate with, merge with or into, or sell, convey, transfer, or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person nor permit any Person to merge with or into the Company unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the obligations of the Company on all of the Notes and under the Indenture; and (ii) the Company delivers to the Trustee an Officers' Certificate and opinion of counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this Article 5 and the terms of the Indenture. (b) Notwithstanding the foregoing, in no event shall any (i) consolidation or merger by the Company with or into or (ii) sale, assignment, transfer, conveyance or other disposition by the Company of all or substantially all of its property or assets to, one or more Subsidiaries of the Company relieve the Company from any of its obligations under the Indenture and the Notes. (c) The Company shall not lease all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person other than to a wholly-owned Subsidiary. SECTION 5.02. Opinion of Counsel to Trustee. The Trustee, subject to the provisions of Sections 7.01 and 7.02, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, conveyance, sale, transfer, lease, exchange or other disposition referred to in Section 5.01 complies with the applicable provisions of this Indenture. ARTICLE 6 REMEDIES SECTION 6.01. Control by Majority. The Holders of at least a majority in aggregate Accreted Value of the Outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in 29 35 personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from the Holders. SECTION 6.02. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Notes unless: (a) the Holder gives the Trustee written notice of its intent to pursue a remedy; (b) the Holders of at least 25% in aggregate Accreted Value of Outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer the Trustee reasonable security or indemnity against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt thereof and the offer of security or indemnity; and (e) during such 60 day period, the Holders of at least a majority in aggregate Accreted Value of the Outstanding Notes do not give the Trustee a direction inconsistent with the request. SECTION 6.03. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of Accreted Value and interest, if any, on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.04. 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 Notes), their creditors or their 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. 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 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 which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or 30 36 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, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.05. Priorities. Subject to Article 13, 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, 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 Notes for Accreted Value and interest, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for Accreted Value and interest, 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 6.05 upon five Business Days prior notice to the Company. SECTION 6.06. 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 and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.02, or a suit by Holders of more than 10% in aggregate Accreted Value of the then Outstanding Notes. SECTION 6.07. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture or any Note and such proceeding has been discontinued or abandoned for any reason, or has been deter mined adversely to the Trustee or to such Holder, then and in every such case the Company, any other obligor upon the Notes, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.08. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment 31 37 of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. ARTICLE 7 THE TRUSTEE SECTION 7.01. Certain Duties and Responsibilities. (a) (i) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon 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 (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (b) The Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability 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 Section 7.01(a); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02. (d) The Trustee may refuse to perform any duty or exercise any right or power or expend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense. (e) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of Sections 7.01 and 7.02 hereof. SECTION 7.02. Certain Rights of Trustees. (a) Subject to the provisions of Section 7.01: (i) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, 32 38 report, notice, request, direction, consent, order, bond, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or a Company Order thereof, and any resolution of any Person's board of directors shall be sufficiently evidenced if certified by an Officer of such Person as having been duly adopted and being in full force and effect on the date of such certificate; (iii) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon the Officer's Certificates of the Company; (iv) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (v) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against any loss, liability or expense which might be incurred by it in compliance with such request or direction; (vi) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, other evidence of indebtedness or other paper or document; and (vii) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 7.03. Not Responsible for Recitals or Issuance of Notes. (a) The recitals contained herein and in the Notes, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Notes and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility and Qualification on Form T-1 supplied to the Company in connection with the registration of any Notes issued hereunder are and will be true and accurate subject to the qualifications set forth therein. 33 39 Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Notes or the proceeds thereof. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes, it shall not be responsible for any statement in the offering memorandum for the Notes or in the Indenture or the Notes (other than its certificate of authentication), the acts of a prior Trustee hereunder, or the determination as to which beneficial owners are entitled to receive any notices hereunder. SECTION 7.05. May Hold Notes. (a) The Trustee, any Authenticating Agent, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to Section 7.08 and Section 7.13, may otherwise deal with the Company or their Affiliates with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Registrar or such other agent. SECTION 7.06. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 7.07. Compensation and Reimbursement. The Company agrees: (a) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, advances and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, damage, claims, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Company's payment obligations pursuant to this Section 7.07 shall survive the discharge of this Indenture. SECTION 7.08. Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the TIA, the Trustee shall either eliminate such 34 40 conflicting interest, apply to the SEC for permission to continue as Trustee with such conflicting interest, or resign, to the extent and in the manner provided by, and subject to the provisions of, the TIA and this Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Notes, or a trustee under any other indenture between the Company and the Trustee. SECTION 7.09. Corporate Trustee Required; Eligibility. (a) There shall at all times be one (and only one) Trustee hereunder. The Trustee shall be a Person that is eligible pursuant to the TIA to act as such and has a combined capital and surplus of at least $100,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 7.09 and to the extent permitted by the TIA, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.09, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 7.10. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 7.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 7.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in Accreted Value of the Outstanding Notes, delivered to the Trustee and to the Company. If at any time: (i) the Trustee shall fail to comply with Section 7.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder for at least six months, or (ii) the Trustee shall cease to be eligible under Section 7.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, 35 41 then, in any such case, (A) the Company may remove the Trustee, or (B) subject to Section 6.06, any Holder who has been a bona fide Holder for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee or Trustees. (d) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company shall promptly appoint a successor Trustee and shall comply with the applicable requirements of Section 7.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in Accreted Value of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 7.11, become the successor Trustee and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 7.11, then, subject to Section 6.06, any Holder who has been a bona fide Holder for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.10. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 7.11. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to above. (c) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article 7. 36 42 SECTION 7.12. Merger, Conversion, Consolidation or Succession to Business. (a) Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article 7, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. SECTION 7.13. Preferential Collection of Claims Against the Company. (a) If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the TIA regarding the collection of claims against the Company (or any such other obligor). SECTION 7.14. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent acceptable to the Company to authenticate the Notes. Any such appointment shall be evidenced by an instrument in writing signed by a Trust Officer, a copy of which instrument shall be promptly furnished to the Company. Unless limited by the terms of such appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication (or execution of a certificate of authentication) by the Trustee includes authentication (or execution of a certificate of authentication) by such Authenticating Agent. An Authenticating Agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. ARTICLE 8 HOLDERS' LIST AND REPORTS BY TRUSTEE AND THE COMPANY SECTION 8.01. The Company to Furnish Trustee Names and Addresses of Holders. (a) The Company will furnish or cause to be furnished to the Trustee (i) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (ii) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Registrar, no such list need be furnished pursuant to this Section 8.01. 37 43 SECTION 8.02. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list, if any, furnished to the Trustee as provided in Section 8.01 and the names and addresses of Holders received by the Trustee in its capacity as Registrar; provided, however, that if and so long as the Trustee shall be the Registrar, the Register shall satisfy the requirements relating to such list. None of the Company, the Trustee or any other Person shall be under any responsibility with regard to the accuracy of such list. The Trustee may destroy any list furnished to it as provided in Section 8.01 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Notes, and the corresponding rights and privileges of the Trustee, shall be as provided by the TIA. (c) Every Holder, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the TIA. SECTION 8.03. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the TIA at the times and in the manner provided pursuant thereto. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Notes are listed, with the SEC and with the Company. The Company will notify the Trustee when any Notes are listed on any stock exchange and of any delisting thereof. ARTICLE 9 AMENDMENT, SUPPLEMENT OR WAIVER SECTION 9.01. Without Consent of the Holders. Without the consent of any Holder, the Company and the Trustee may enter into one or more indentures supplemental hereto, for any of the following purposes: (i) to cure any ambiguity, omission, defect or inconsistency, (ii) to provide for the assumption by a successor of the obligations of the Company under this Indenture, (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; provided that the uncertified Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code, (iv) to add guarantees with respect to the Notes, to secure the Notes, to confirm and evidence the release, termination or discharge of any guarantee or 38 44 Lien with respect to or securing the Notes when such release, termination or discharge is provided for under this Indenture, (v) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power conferred upon the Company, (vi) to make any change that does not adversely affect the rights of any Holder under the Notes or this Indenture, or (vii) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the TIA or otherwise. SECTION 9.02. With Consent of Holders. (a) Subject to Section 6.03, the Company and the Trustee may amend or supplement this Indenture or the Notes with the written consent of the Holders of not less than a majority in aggregate Accreted Value of the Outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes), and compliance with any provisions may also be waived with the written consent of the Holders of not less than a majority in aggregate Accreted Value of the Outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). (b) Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the amount of Notes whose holders must consent to an amendment, (ii) reduce the rate of accretion of any Note, (iii) reduce the rate of or extend the time for payment of interest on any Note, (iv) reduce the Accreted Value or extend the Stated Maturity of any Note, (v) reduce the amount payable upon the redemption of any Note or change the time at which any Note may be redeemed (vi) make any Note payable in money other than that stated in the Note, (vii) impair the right of any holder of the Notes to receive payment of Accreted Value of and interest, if any, on such holder's Notes, on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes, 39 45 (viii) make any change in the amendment provisions which require each holder's consent or in the waiver provisions, or (ix) make any change to Article 13 of the Indenture that would adversely affect the Noteholders. provided that no modification or change may be made to any provision of this Indenture adversely affecting the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consent to such modification or change. (c) It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. (d) After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders of each Note affected thereby, with a copy to the Trustee, 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 supplemental indenture or the effectiveness of any such amendment, supplement or waiver. SECTION 9.03. Execution of Amendments, Supplements or Waivers. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 9 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, supplement or waiver, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel to the effect that the execution of such amendment, supplement or waiver has been duly authorized, executed and delivered by the Company and that, subject to applicable bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, reorganization, moratorium and other laws now or hereinafter in effect affecting creditors' rights or remedies generally and the general principles of equity (including, without limitation, standards of materiality, good faith, fair dealing and reasonableness), whether considered in a proceeding at law or at equity, such amendment, supplement or waiver is a valid and binding agreement of the Company, enforceable against it in accordance with its terms. SECTION 9.04. Revocation and Effect of Consents. (a) 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 that Note or any Note that evidences all or any part of the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph of this Section 9.04, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note by notice to the Trustee or the Company received by the Trustee or the Company, as the case may be, before the date on which the Trustee receives an Officer's Certificate certifying that the Holders of the requisite Accreted Value of Notes have consented (and not theretofore revoked such consent) to the amendment, 40 46 supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver as set forth in Section 1.08. (b) After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (i) through (viii) of the second paragraph of Section 9.02. In that case, the amendment, supplement or waiver shall bind each Holder of a Note who has consented to it and every subsequent Holder of such Note or any Note that evidences all or any part of the same debt as the consenting Holder's Note. SECTION 9.05. Conformity with TIA. (a) Every amendment or supplemental indenture executed pursuant to this Article shall conform to the requirements of the TIA as then in effect. SECTION 9.06. Notation on or Exchange of Notes. (a) If an amendment, supplement or waiver changes the terms of a Note, the Trustee shall (if required by the Company and in accordance with the specific direction of the Company) request the Holder to deliver its Note to the Trustee. The Trustee shall (if required by the Company and in accordance with the specific direction of the Company) place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. ARTICLE 10 REDEMPTION OF NOTES SECTION 10.01. Right of Redemption. Optional Redemption. The Notes will be redeemable, at the option of the Company, in whole at any time and from time to time, on and prior to maturity. Such redemption may be made upon notice mailed by first-class mail to each Holder's registered address in accordance with Section 10.03. The Notes will be so redeemable at the following Redemption Prices (expressed as a percentage of the Accreted Value thereof on the relevant Redemption Date), plus accrued and unpaid interest, if any, to the relevant Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date); provided that the Company shall not optionally redeem any Notes except and to the extent permitted by the Credit Agreement, (i) if redeemed prior to December 15, 2004 at a redemption price equal to 115% of the Accreted Value of the Notes; and (ii) if redeemed during the 12-month period commencing December 15 of each of the years set forth below: 41 47
YEAR REDEMPTION PRICE 2004......................... 107.5% 2005......................... 105.0% 2006......................... 102.5% 2007 and thereafter.......... 100%
SECTION 10.02. Applicability of Article. Redemption or purchase of Notes as permitted by Section 10.01 shall be made in accordance with this Article 10. SECTION 10.03. Notice of Redemption. (a) Notice of redemption or purchase as provided in Section 10.01 shall be deemed to have been given upon the mailing by first class mail, postage prepaid, of such notice to each Holder of Notes to be redeemed, at its registered address as recorded in the Register, not later than 30 nor more than 60 days prior to the Redemption Date. Any such notice shall state: (i) the expected Redemption Date, (ii) the Redemption Price, (iii) that on the Redemption Date the Redemption Price will become due and payable upon each such Note, and that, unless the Company defaults in making such redemption payment or any Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest thereon shall cease to accrue from and after said date, (iv) the place where such Notes are to be surrendered for payment of the Redemption Price and the name and address of the Paying Agent or Paying Agents, (v) the section of this Indenture pursuant to which the Notes are to be redeemed. (b) Notice of such redemption or purchase of Notes to be so redeemed or purchased at the election of the Company shall be given by the Company or, at the written request of the Company delivered at least 30 days prior to the date proposed for the mailing of such notice, by the Trustee in the name and at the expense of the Company. (c) The notice if mailed in the manner herein provided shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any 42 48 Note designated for redemption as a whole shall not affect the validity of the proceedings for the redemption of any other Note. SECTION 10.04. Deposit of Redemption Price. On or prior to 10:00 a.m., New York City time any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust) an amount of money sufficient to pay the Redemption Price of, and any accrued and unpaid interest on, all the Notes or portions thereof which are to be redeemed on that date. SECTION 10.05. Notes Payable on Redemption Date. (a) Notice of redemption having been given as provided in this Article 10, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price herein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price or any Paying Agent is prohibited from paying the Redemption Price pursuant to the terms of this Indenture) such Notes shall cease to bear interest. Upon surrender of such Notes for redemption in accordance with such notice, such Notes shall be paid by the Company at the Redemption Price. Installments of interest whose Interest Payment Date is on or prior to the Redemption Date shall be payable to the Holders of such Notes registered as such on the relevant Regular Record Dates according to their terms and the provisions of Section 3.06. (b) On and after any Redemption Date, if money sufficient to pay the Redemption Price of and any accrued and unpaid interest on Notes called for redemption shall have been made available in accordance with Section 10.04, the Notes called for redemption will cease to accrue interest and the only right of the Holders of such Notes will be to receive payment of the Redemption Price of, and subject to the last sentence of Section 10.05(a), any accrued and unpaid interest on such Notes to the Redemption Date. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the Accreted Value shall, until paid, bear interest or accrete from the Redemption Date at the rate borne by the Note (or portion thereof). ARTICLE 11 SATISFACTION AND DISCHARGE SECTION 11.01. Satisfaction and Discharges of Indenture. (a) This Indenture shall cease to be of further effect (except as to any surviving rights of transfer or exchange of Notes herein provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (i) either (A) all Notes theretofore authenticated and delivered (other than (y) Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 3.05, and (z) Notes for whose 43 49 payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee canceled or for cancellation; or (B) all such Notes not theretofore delivered to the Trustee canceled or for cancellation (x) have become due and payable, or (y) will become due and payable at their Stated Maturity within one year, or (z) are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, (ii) the Company has irrevocably deposited or caused to be deposited with the Trustee an amount in United States dollars, U.S. Government Obligations, or a combination thereof, sufficient to pay and discharge the entire Indebtedness on such Notes not theretofore delivered to the Trustee canceled or for cancellation, for Accreted Value and interest, if any, to the date of such deposit (in the case of Notes that have become due and payable), or the Accreted Value to the Stated Maturity or Redemption Date assuming for this purpose that the Notes accrete and do not pay interest until such date, as the case may be; (iii) the Company has paid or caused to be paid all other sums then payable hereunder by the Company; and (iv) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel each to the effect that all conditions precedent provided for in this Section 11.01 relating to the satisfaction and discharge of this Indenture have been complied with; provided that any such counsel may rely on any Officer's Certificate as to matters of fact (including as to compliance with the foregoing clauses (i), (ii) and (iii)). (b) Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.07 and, if money shall have been deposited with the Trustee pursuant to clause (ii) of Section 11.01(a), the obligations of the Trustee under Section 11.02, shall survive. SECTION 11.02. Application of Trust Money. All money deposited with the Trustee pursuant to Section 11.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the Accreted Value and 44 50 interest, if any, on the Notes; but such money need not be segregated from other funds except to the extent required by law. ARTICLE 12 DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.01. Option of the Company to Effect Defeasance or Covenant Defeasance. The Company may at its option by a Board Resolution, at any time, elect to have either Section 12.02 or Section 12.03 applied to the Outstanding Notes upon compliance with the conditions set forth below in this Article 12. SECTION 12.02. Legal Defeasance and Discharge. Upon the exercise by the Company under Section 12.01 of the option applicable to this Section 12.02, the Company shall be deemed to have been discharged from any and all Obligations with respect to all Outstanding Notes on the date which is the 123rd day after the deposit referred to in Section 12.04(a); provided that all of the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the Outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 12.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 12.02, and to have satisfied all its other obligations under such 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: (i) the rights of Holders of Outstanding Notes to receive solely from the trust fund described in Section 12.04 hereof, and as more fully set forth in such Section, payments in respect of the Accreted Value of, and interest, if any, on such Notes when such payments are due, (ii) the obligations of the Company with respect to such Notes under Sections 1.06, 2.03, 3.03, 3.04, 3.05, 3.10, 4.01, 4.02 and 12.05 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.07 hereof, and the obligations of the Company in connection therewith and with this Article 12. Subject to compliance with this Article 12, the Company may exercise its option under this Section 12.02 notwithstanding the prior exercise of their option under Section 12.03 hereof with respect to the Notes. SECTION 12.03. Covenant Defeasance. Upon the exercise by the Company under Section 12.01 of the option applicable to this Section 12.03, the Company shall be released from their obligations under the covenants contained in Sections 4.06 through 4.10 hereof with respect to the Outstanding Notes on the date which is the 123rd day after the deposit referred to in Section 12.04(a); provided that all of the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the 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. For this purpose, such Covenant Defeasance means that, with respect to the 45 51 Outstanding 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, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 12.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to application of either Section 12.02 or Section 12.03 to the Outstanding Notes: (a) the Company has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (i) the Accreted Value of and accrued interest, if any, on the Notes when such payments are in accordance with the terms of this Indenture and the Notes or (ii) accrued interest, if any, on the Notes through a scheduled redemption date and the Accreted Value of, the Notes on such redemption date; provided that, at the time of deposit, the Company irrevocably authorizes the Trustee to issue a timely notice of redemption and to take such other steps reasonably requested by the Trustee to ensure that such redemption will be effectuated; (b) in the case of an election under Section 12.02, the Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for Federal income tax purposes as a result of the exercise by the Company of their option under this Article 12 and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable Federal income tax law after the date of this Indenture such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect that, as a result of the creation of the defeasance trust, the Company will not be required to register under the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (c) in the case of an election under Section 12.03, the delivery by the Company to the Trustee of (i) an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (ii) an Opinion of Counsel to the effect that, as a result of the creation of the defeasance trust, the Company will not be required to register under the Investment Company Act of 1940 and after the 46 52 passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (d) such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which the Company is bound; (e) if at such time the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge; (f) the Company shall have delivered to the Trustee Officer's Certificates stating that the deposit made by the Company pursuant to its election under Sections 12.02 or 12.03 was not made by the Company with the intent of preferring the Holders over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (g) the Company shall have delivered to the Trustee Officer's Certificates and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 12.02 or the Covenant Defeasance under Section 12.03 (as the case may be) have been complied with as contemplated by this Section 12.04. SECTION 12.05. Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions. Subject to Section 12.06, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 12.04 in respect of the Outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such 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 Notes of all sums due and to become due thereon in respect of Accreted Value and interest, if any, 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 money or U.S. Government Obligations deposited pursuant to Section 12.04 hereof or the Accreted Value and interest, if any, 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 Notes. Anything in this Article 12 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 U.S. Government Obligations held by it as provided in Section 12.04 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 12.04(a) hereof), are in excess of the amount thereof 47 53 which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 12.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the Accreted Value of or interest, if any, on any Note and remaining unclaimed for two years after such Accreted Value or interest, if any, has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general 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 12.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 12.02 or 12.03, 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 obligations of the Company under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.02 or 12.03 until such time as the Trustee or Paying Agent is permitted to apply all such amounts in accordance with Section 12.02 or 12.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of Accreted Value of or interest, if any, on any Note following the reinstatement of its Obligations, the Company shall be subrogated to the rights of the Holder of such Note to receive such payment from the amounts held by the Trustee or Paying Agent. ARTICLE 13 SUBORDINATION SECTION 13.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, any provision of this Indenture or the Note to the contrary notwithstanding, that all obligations owed under and in respect of the Notes are subordinated in right of payment, to the extent and in the manner provided in this Article 13, to the prior payment in full of all Senior Indebtedness of the Company, and that the subordination of the Notes pursuant to this Article 13 is for the benefit of all holders of all Senior Indebtedness of the Company whether outstanding on the Closing Date or incurred thereafter. For purposes of this Article, "payment in full", as used with respect to Senior Indebtedness, means the payment in full of cash to the Holders of such Senior Indebtedness. 48 54 SECTION 13.02. Liquidation; Dissolution; Bankruptcy. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of such Senior Indebtedness before the Noteholders are entitled to receive any payment from the Company, and until such Senior Indebtedness is paid in full, any payment or distribution to which Noteholders would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear except that Noteholders may receive shares of stock (other than any shares of stock which, by their terms or the terms of any security into which they are convertible or for which they are exchangeable, or upon the happening of any event, mature or are mandatorily redeemable or are redeemable at the option of the holder thereof, in whole or in part) and any debt securities that are subordinated to such Senior Indebtedness to at least the same extent as the Notes; provided that such stock and debt securities are provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy, insolvency or other similar law. If a distribution is made to Noteholders that, due to the subordination provisions, should not have been made to them, such Noteholders are required to hold it in trust for the holders of the relevant Senior Indebtedness and pay it over to them to the extent due and payable to the them. SECTION 13.03. Default on Designated Senior Indebtedness. (a) No direct or indirect payment, deposit or distribution of any kind or character, whether in cash, property or securities (including any payment made to the Holders under the terms of Indebtedness subordinated to the Notes), may be made by set-off or otherwise, by or on behalf of the Company of Accreted Value of or interest (if any) on, or any other obligation in respect of, the Notes, whether pursuant to the terms of the Notes by way of repurchase, redemption, defeasance or otherwise (the making of all such payments, deposits and distributions being referred to herein, individually and collectively, as to, "PAY THE NOTES") if any Designated Senior Indebtedness of the Company is not paid when due, whether at maturity, on account of mandatory redemption or prepayment, acceleration or otherwise, unless the default has been cured or waived and any acceleration resulting therefrom has been rescinded or such Designated Senior Indebtedness has been paid in full. However, the Company may pay the Notes without regard to the foregoing if it and the Trustee receive written notice approving such payment from the Representative of the Designated Senior Indebtedness with respect to which the events set forth in the immediately preceding sentence have occurred and is continuing. During the continuance of any default (other than a default described in the second preceding sentence) with respect to any Designated Senior Indebtedness of the Company pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or upon the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "PAYMENT BLOCKAGE PERIOD") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "BLOCKAGE NOTICE") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage 49 55 Notice, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions described in the first sentence of this Section 13.03), unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Notes after the end of such Payment Blockage Period. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. To the extent any payment of Senior Indebtedness (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Senior Indebtedness is declared to be fraudulent, invalid, or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Indebtedness for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. (b) Notwithstanding anything to the contrary in Section 13.02 or this Section 13.03, Holders may continue to receive payments from any trust established pursuant to Section 12.04 prior to occurrence of an event prohibiting payment of or on the Notes. SECTION 13.04. When Distributions Must Be Paid Over. If the Company shall make any payment to the Trustee on account of the Accreted Value of or interest, if any, on, the Notes, or the Holders shall receive from any source any payment on account of the Accreted Value of or interest, if any, on, the Notes or any obligation in respect of the Notes, at a time when such payment is prohibited by this Article 13, the Trustee or such Holders shall hold such payment in trust for the benefit of, and shall pay over and deliver to, the holders of the Senior Indebtedness of the Company (pro rata as to each of such holders on the basis of the respective amounts of such Senior Indebtedness held by them) or their Representative, to the extent due and payable to them, for application to the payment of all outstanding Senior Indebtedness of the Company until all such Senior Indebtedness has been paid in full, after giving effect to all other payments or distributions to, or provisions made for, the holders of Senior Indebtedness of the Company. With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform only such obligations on its part as are specifically set forth in this Article 13, and no implied covenants or obligations with respect to any holders of the 50 56 Senior Indebtedness of the Company shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of the Senior Indebtedness of the Company, and shall not be liable to any holders of such Senior Indebtedness if the Trustee shall pay over or distribute to, or on behalf of, Holders, the Company or any other Person, money or assets to which any holders of such Senior Indebtedness are entitled pursuant to this Article 13, except if such payment is made at a time when a Responsible Officer has actual knowledge that the terms of this Article 13 prohibit such payment. SECTION 13.05. Notice. Neither the Trustee nor the Paying Agent shall at any time be charged with the knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee or Paying Agent under this Article 13 unless and until the Trustee or Paying Agent shall have received written notice thereof from the Company or one or more holders of the Senior Indebtedness of the Company or a representative of any holders of such Senior Indebtedness; and, prior to the receipt of any such written notice, the Trustee or Paying Agent shall be entitled to assume conclusively that no such facts exist; provided that if a Responsible Officer of the Trustee shall not have received the notice provided for in this Section 13.05 at least one Business Day prior to the date such payment is due pursuant to the terms hereof, then, notwithstanding anything herein to the contrary, the Trustee shall have full power and authority to make such payment and shall not be affected by any notice to the contrary which may be received by it within one Business Day prior to such date (it being understood that nothing contained in this Section 13.05 shall limit the rights of the holders of the Senior Indebtedness of the Company to recover any payment pursuant to Section 13.04). The Trustee shall be entitled to rely on the delivery to it of written notice by a Person representing itself to be a holder of the Senior Indebtedness of the Company (or a Representative thereof) to establish that such notice has been given. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article, and if such evidence is not furnished, the Trustee may defer any payment which it may be required to make for the benefit of such person pursuant to the terms of this Indenture pending judicial determination as to the rights of such person to receive such payment. The Company shall promptly notify the Trustee and the Paying Agent in writing of any facts it knows that would cause a payment of Accreted Value of or interest, if any, on, the Notes or any other obligation in respect of the Notes to violate this Article 13, but failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness of the Company provided in this Article 13 or the rights of holders of such Senior Indebtedness under this Article 13. SECTION 13.06. Subrogation. After all Senior Indebtedness of the Company has been paid in full and until the Notes are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders 51 57 of such Senior Indebtedness to receive distributions applicable to such Senior Indebtedness to the extent that distributions otherwise payable to the Holders have been applied to the payment of such Senior Indebtedness. A distribution made under this Article 13 to holders of the Senior Indebtedness of the Company that otherwise would have been made to Holders is not, as between the Company and the Holders, a payment by the Company on its Senior Indebtedness. SECTION 13.07. Relative Rights. This Article 13 defines the relative rights of Holders and holders of the Senior Indebtedness of the Company. Nothing in this Indenture shall: (1) impair, as between the Company and Holders, the obligations of the Company, which are absolute and unconditional, to pay Accreted Value of and interest, if any, on the Notes in accordance with their terms; or (2) affect the relative rights of Holders and the creditors of the Company other than their rights in relation to holders of the Senior Indebtedness of the Company. SECTION 13.08. The Company and Holders May Not Impair Subordination. (a) No right of any holder of the Senior Indebtedness of the Company to enforce the subordination as provided in this Article 13 shall at any time or in any way be prejudiced or impaired by any act or failure to act by the Company or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture or the Notes or any other agreement regardless of any knowledge thereof with which any such holder may have or be otherwise charged. (b) Without in any way limiting Section 13.08(a), the holders of any Senior Indebtedness of the Company may, at any time and from time to time to the extent not otherwise prohibited by this Indenture, without the consent of or notice to any Holders, without incurring any liabilities to any Holder and without impairing or releasing the subordination and other benefits provided in this Indenture or the Holders' obligations to the holders of such Senior Indebtedness, even if any Holder's right of reimbursement or subrogation or other right or remedy is affected, impaired or extinguished thereby, do any one or more of the following: (i) amend, renew, exchange, extend, modify, increase or supplement in any manner such Senior Indebtedness or any instrument evidencing or guaranteeing or securing such Senior Indebtedness or any agreement under which such Senior Indebtedness is outstanding (including, but not limited to, changing the manner, place or terms of payment or changing or extending the time of payment of, or renewing, exchanging, amending, increasing or altering, (A) the terms of such Senior Indebtedness, (B) any security for, or any guarantee of, such Senior Indebtedness, (C) any liability of any obligor on such Senior Indebtedness (including any guarantor) or any liability incurred in respect of such Senior Indebtedness); (ii) sell, exchange, release, surrender, realize upon, enforce or otherwise deal with in any manner and in any order any property pledged, mortgaged or otherwise securing such Senior Indebtedness or any liability of any obligor thereon, to such holder, or any liability incurred in respect thereof; (iii) settle or compromise any such Senior Indebtedness or any other liability of any obligor of such Senior Indebtedness to such holder or any security therefor or any liability incurred in respect thereof and apply any sums by whomsoever paid and however realized to any liability (including, without limitation, payment of any of the Senior Indebtedness of the Company) in any manner or order; and (iv) fail to take or to record or otherwise perfect, for any reason or for no reason, any lien or security interest securing such Senior 52 58 Indebtedness by whomsoever granted, exercise or delay in or refrain from exercising any right or remedy against any obligor or any guarantor or any other Person, elect any remedy and otherwise deal freely with any obligor and any security for such Senior Indebtedness or any liability of any obligor to the holders of such Senior Indebtedness or any liability incurred in respect of such Senior Indebtedness. (c) Each Holder by accepting a Note agrees not to compromise, release, forgive or otherwise discharge the obligations with respect to such Holder's Note unless holders of a majority of the outstanding amount of each class of Senior Indebtedness of the Company consent to such compromise, release, forgiveness or discharge. SECTION 13.09. Distribution or Notice to Representative. Whenever a distribution is to be made, or a notice given, to holders of Senior Indebtedness of the Company, the distribution may be made and the notice given to their Representative, if any. If any payment or distribution of the assets of the Company is required to be made to holders of any of the Senior Indebtedness of the Company pursuant to this Article 13, the Trustee and the Holders shall be entitled to rely upon any order or decree of any court of competent jurisdiction, or upon any certificate of a representative of such Senior Indebtedness or a custodian, in ascertaining the holders of such Senior Indebtedness entitled to participate in any such payment or distribution, the amount to be paid or distributed to holders of such Senior Indebtedness and all other facts pertinent to such payment or distribution or to this Article 13. SECTION 13.10. Rights of Trustee and Paying Agent. The Trustee or Paying Agent may continue to make payments on the Notes unless prior to any payment date it has received written notice of facts that would cause a payment of Accreted Value of or interest, if any, on, the Notes to violate this Article 13. Only the Company, a Representative of Senior Indebtedness of the Company, or a holder of Senior Indebtedness of the Company that has no Representative may give such notice. To the extent permitted by the TIA, the Trustee in its individual or any other capacity may hold Indebtedness of the Company (including Senior Indebtedness) with the same rights it would have if it were not Trustee. Any agent of the Trustee may do the same with like rights. Nothing in this Article 13 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 13.11. Authorization to Effect Subordination. Each Holder by its acceptance thereof authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 13, and appoints the Trustee as such Holder's attorney-in-fact for any and all such purposes (including, without limitation, the timely filing of a claim for the unpaid balance of the Note that such Holder holds in the form required in any insolvency or liquidation proceeding and causing such claim to be approved). If a proper claim or proof of debt in the form required in such proceeding is not filed by or on behalf of all Holders prior to 30 days before the expiration of the time to 53 59 file such claims or proofs, then the holders or a Representative of any Senior Indebtedness of the Company is hereby authorized, and shall have the right (without any duty), to file an appropriate claim for and on behalf of the Holders. SECTION 13.12. Payment. A payment on account of or with respect to any Note shall include, without limitation, Accreted Value or interest, if any, with respect to or in connection with any optional redemption or purchase provisions, any direct or indirect payment payable by reason of any other Indebtedness or obligation being subordinated to the Notes, and any direct or indirect payment or recovery on any claim as a Holder relating to or arising out of this Indenture or any Note, or the issuance of any Note, or the transactions contemplated by this Indenture or referred to herein. 54 60 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. THERMADYNE MFG. LLC, as Issuer By: -------------------------------------- Name: Title: [TRUSTEE], as Trustee By: -------------------------------------- Name: Title: 61 EXHIBIT A [FORM OF ORIGINAL NOTE] THERMADYNE MFG. LLC Junior Subordinated Note due 2009 No.________ Initial Accreted Value $ ------------- THERMADYNE MFG. LLC, a Delaware limited liability company (the "COMPANY") which term includes any successor Persons under the Indenture hereinafter referred to), for value received, promises to pay to __________, or its registered assigns, the Accreted Value (as defined below) of this Note, on December 15, 2009. "ACCRETED VALUE" means with respect to this Note, as of any date of determination, the sum of: (a) the Accreted Value of such Note on the immediately preceding Interest Payment Date (in the event such date of determination falls before the first Interest Payment Date, the "Initial Accreted Value" specified above) plus (b) an amount determined by multiplying (i) the amount referred to in clause (a) by (ii) 15% (provided that the accretion rate applicable to any period or portion of a period during which no interest accrues that occurs after December 15, 2004 shall be 16%) by (iii) the number of days in the period from and including the preceding Interest Payment Date to such date of determination divided by 360, less (c) any interest that accrues with respect to such period in accordance with the terms of the Note. Interest Rate: Prior to December 15, 2004, unless a Cash Payment Notice (as defined below) is properly delivered by the Company, no interest shall accrue or be payable with respect to the Notes. If the Company elects to pay interest on any Interest Payment Date prior to December 15, 2004, the Company shall give written notice (each such notice a "CASH PAYMENT NOTICE") of such election to Holders five business days prior to the immediately preceding Interest Payment Date. Commencing on such immediately preceding Interest Payment Date until such Interest Payment Date for which a Cash Payment Notice has been properly delivered, interest will accrue and be payable at a rate of 15% per annum to Holders of record of the Notes at the close of business on the Regular Record Date immediately preceding the Interest Payment Date for which such Cash Payment Notice has been properly delivered, whether or not a Business Day. A-1 62 Failure to pay interest after proper delivery of a Cash Payment Notice for any reason shall not constitute a breach of this Note or the Indenture and the Accreted Value shall be determined as if such Cash Payment Notice had not been delivered. On or after December 15, 2004 interest will accrue and be payable at a rate of 15% per annum on each Interest Payment Date to Holders of record of the Notes at the close of business on the immediately preceding Regular Record Date; provided, that if and for so long as payment of interest on the Notes is prohibited under the terms of the Credit Agreement (as defined in the Indenture) interest shall not accrue or be payable with respect to the Notes. Interest Payment Dates: March 15, June 15, September 15 and December 15 of each year. Regular Record Dates: March 1, June 1, September 1 and December 1 of each year. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-2 63 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: ------------------ THERMADYNE MFG. LLC, as Issuer By: -------------------------------------- Name: Title: A-3 64 (Form of Trustee's Certificate of Authentication) This is one of the Junior Subordinated Notes due 2009 referred to in the within-mentioned Indenture. [TRUSTEE], as Trustee Dated: By: ----------------------------- -------------------------------------- Authorized Signatory A-4 65 [REVERSE SIDE OF NOTE] THERMADYNE MFG. LLC Junior Subordinated Note due 2009 This Note is one of a duly authorized issue of Notes of the Company consisting of other Junior Subordinated Notes due 2009 of the Company issued on December 22, 1999 and any replacement Notes issued in exchange for, or in lieu of, the foregoing in accordance with the Indenture. The Notes are limited in aggregate principal at maturity to the Accreted Value attributable to $25,000,000. All of such Notes shall be treated as a single issue and vote together as one class for all purposes of this Note and the Indenture. (1) Accreted Value and Interest; Subordination. The Company agrees to pay the Accreted Value of this Note on December 15, 2009. The Company agrees to pay interest on the Accreted Value of this Note at the rate and in the manner specified below. "ACCRETED VALUE" means with respect to this Note, as of any date of determination, the sum of: (a) the Accreted Value of such Note on the immediately preceding Interest Payment Date (in the event such date of determination falls before the first Interest Payment Date, the "Initial Accreted Value" specified on the face hereof) plus (b) an amount determined by multiplying (i) the amount referred to in clause (a) by (ii) 15% (provided that the accretion rate applicable to any period or portion of a period during which no interest accrues that occurs after December 15, 2004 shall be 16%) by (iii) the number of days in the period from and including the preceding Interest Payment Date to such date of determination divided by 360, less (c) any interest that accrues with respect to such period in accordance with the terms of the Note. Interest Rate: Prior to December 15, 2004, unless a Cash Payment Notice (as defined below) is properly delivered by the Company, no interest shall accrue or be payable with respect to the Notes. If the Company elects to pay interest on any Interest Payment Date prior to December 15, 2004, the Company shall give written notice (each such notice a "CASH PAYMENT NOTICE") of such election to Holders five business days prior to the immediately preceding Interest Payment Date. Commencing on such immediately preceding Interest Payment Date until such Interest Payment Date for which a Cash Payment Notice has been properly delivered, interest will accrue and be payable at a rate of 15% per annum to Holders of record of the Notes at the close of business on the Regular Record Date immediately preceding such Interest Payment Date for which a Cash Payment Notice has been properly delivered, whether or not a Business Day. Failure to pay interest after proper delivery of a Cash Payment Notice for any reason shall not constitute a breach of this Note or the Indenture and the A-5 66 Accreted Value shall be determined as if such Cash Payment Notice had not been delivered. On or after December 15, 2004 interest will accrue and be payable at a rate of 15% per annum on each Interest Payment Date to Holders of record of the Notes at the close of business on the immediately preceding Regular Record Date; provided, that if and for so long as payment of interest on the Notes is prohibited under the terms of the Credit Agreement (as defined in the Indenture) interest shall not accrue or be payable with respect to the Notes. The Holder of this Note is entitled to the benefits of the Registration Rights Agreement, dated as of December 22, 1999, among the Company and the buyers party thereto (the "Registration Rights Agreement"). Interest on this Note will accrue as and to the extent set forth above; provided that, after December 15, 2004 if there is no failure or delay in the payment of interest and if this Note is authenticated between a Regular Record Date and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue payments of interest and Accreted Value, to the extent lawful, at a rate per annum equal to 1% per annum in excess of the rate of interest applicable to the Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness and all Senior Subordinated Indebtedness, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and agrees to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture. (2) Method of Payment. The Company will pay interest on the Notes on each Interest Payment Date for which interest is to be paid to the Persons who are Holders (as reflected in the Register at the close of business on the Regular Record Date immediately preceding the Interest Payment Date), in each case, even if the Note is canceled on registration of transfer or registration of exchange after such Regular Record Date; provided that, with respect to the payment of Accreted Value at maturity, the Company will make payment to the Holder that surrenders this Note to any Paying Agent (which is initially the Company) on or after December 15, 2009. The Company will make all payments hereunder in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company will make all payments hereunder by wire transfer of immediately available funds to the accounts specified by the Holder hereof or, if no such account is specified, by mailing a check to the Holder's registered address. If a payment date is a date other than a Business Day, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. A-6 67 (3) Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar upon written notice thereto. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar. (4) Indenture; Limitations. The Company issued the Notes under an Indenture dated as of ______________, _____ (the "INDENTURE"), among the Company and [__________], as trustee (the "TRUSTEE"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "TIA"). The Notes are subject to all such terms and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. The Notes are unsecured junior subordinated obligations of the Company. (5) Optional Redemption. The Notes may be redeemed at the option of the Company, in whole, at any time and from time to time, on and prior to maturity at the following Redemption Prices (expressed in percentages of the Accreted Value thereof on the relevant Redemption Date), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date); provided that the Company shall not optionally redeem any Notes except and to the extent permitted by the Credit Agreement, (a) if redeemed prior to December 15, 2004 at a redemption price equal to 115% of the Accreted Value of the Notes; and (b) if redeemed during the 12-month period commencing December 15 of each of the years set forth below:
YEAR REDEMPTION PRICE 2004............................ 107.5% 2005............................ 105.0% 2006............................ 102.5% 2007 and thereafter............. 100%
Notice of a redemption will be mailed, first-class postage prepaid, at least 30 days but not more than 60 days before the Redemption Date to each Holder's registered address. On and after the Redemption Date, interest ceases to accrue on, and the Accreted Value shall cease to increase with respect to, Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. A-7 68 (6) Repurchase upon a Change in Control. Upon the occurrence of a Change in Control, each Holder shall have the right to require that the Company repurchase such Holder's Notes at a purchase price in cash equal to 101% of the Accreted Value thereof on the date of purchase, plus, if applicable, accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date); provided, that the Company shall not be required to repurchase Notes upon a Change of Control if the Company is unable to obtain all necessary consents under the Credit Agreement for such repurchase. (7) Denominations; Transfer; Exchange. The Notes are in fully registered form without coupons, in denominations of $1,000 and any integral multiples of $1,000. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Company may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. (8) Persons Deemed Owners. A Holder may be treated as the owner of a Note for all purposes. (9) Discharge Prior to Redemption or Maturity. If the Company irrevocably deposits, or causes to be deposited, with a trustee who could qualify to serve as Trustee under the Indenture money or U.S. Government Obligations sufficient to pay the then outstanding Accreted Value of, and accrued interest, if any, on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to redemption or maturity, the Company will be discharged from certain covenants set forth in the Indenture. (10) Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate Accreted Value of the Notes then Outstanding. Without notice to or the consent of any Holder, the Company may amend the Indenture or the Notes to the extent set forth in the Indenture. (11) Restrictive Covenants. The Indenture contains certain covenants, including, without limitation, covenants with respect to the following matters: (i) redemption of or payments on Junior Securities and Parity Securities; (ii) dividends on Junior Securities; (iii) transactions with Affiliates; and (iv) repurchase of Notes upon a Change in Control. Within 120 days after the end of each fiscal year, the Company must report to the Holders on compliance with such limitations. (12) Voting. The Subscription Agreement dated as of December 22, 1999 relating to the initial purchase of this Note provides that in the event that after December 15, 2004 the Company does not pay interest in cash on four consecutive Interest Payment Dates or on six Interest Payment Dates, the Principal and its affiliates who are signatories to the Subscription Agreement shall cause, to the extent that they shall have the power to so cause, two members selected by the Holders of a majority of A-8 69 the Accreted Value of the Notes, voting as a single class, to be elected to the Board of Directors of Parent. Further, the Principal and such affiliates shall cause, to the extent that they shall have the power to so cause, such directors to serve on the Board of Directors until such time as the Company pays interest in cash on four consecutive Interest Payment Dates following their election. (13) Successor Persons. When a successor person or other entity (other than a Subsidiary of the Company) assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. (14) Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may make loans to, accept deposits from, perform services for, and otherwise deal with, the Company and its Affiliates as if it were not the Trustee. (15) Authentication. This Note shall not be valid until the Trustee signs the certificate of authentication on this Note. (16) 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). (17) Provisions of Indenture. Each Holder, by accepting a Note, agrees, subject to Section 1 above to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. (18) Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: Thermadyne Holdings Corporation 101 South Hanley Road St. Louis, Missouri 63105 Facsimile No: (314) 746-2374 (314) 746-2327 Attn: Jim Tate or Stephanie Josephson A-9 70 with a copy to: R. Scott Cohen, Esq. Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, TX 75201-6950 Facsimile No: (214) 746-7777 Any notice required to be given to a Holder shall be deemed to have been given upon the mailing by first class mail, postage prepaid, of such notices to Holders at their registered address as recorded in the Register and shall be sufficiently given to a Holder if so mailed within the time prescribed. In any case where notice to Holders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Company. A-10 71 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - -------------------------------------------------------------------------------- (Please print or typewrite name and address including zip code of assignee) - -------------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably constituting and appointing - -------------------------------------------------------------------------------- attorney to transfer such Note on the books of the Company with full power of substitution in the premises. A-11 72 [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES BEARING A PRIVATE PLACEMENT LEGEND] In connection with any transfer of this Note occurring prior to the Resale Restriction Termination Date for this Note, the undersigned confirms that without utilizing any general solicitation or general advertising that: Check One (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 3.10 of the Indenture shall have been satisfied. Date: ----------------------------- - ---------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature Guarantee: --------------------------------------- Signatures must be guaranteed by an "ELIGIBLE GUARANTOR INSTITUTION" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "SIGNATURE GUARANTEE PROGRAM" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "QUALIFIED INSTITUTIONAL BUYER" within the meaning A-12 73 of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------------ - --------------------------------------- To be executed by an executive officer A-13 74 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.10 of the Indenture, check the box: |_| If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.10 of the Indenture, state the amount (in Accreted Value) below: $ . --------------------- Date: ----------------- Your Signature: ----------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ------------------------------------- Signatures must be guaranteed by an "ELIGIBLE GUARANTOR INSTITUTION" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "SIGNATURE GUARANTEE PROGRAM" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-14 75 EXHIBIT B Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S -------------------------------------------- ---------, ---- [Trustee] Attention: Corporate Trust Administration Re: Thermadyne Mfg. LLC Junior Subordinated Notes due 2009 (the "Notes") Dear Sirs: In connection with our proposed sale of U.S.$________ aggregate Accreted Value of the Notes as of __________________, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act of 1933. B-1 76 You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: -------------------------------------- Authorized Signatory B-2 77 EXHIBIT C FORM OF ACCREDITED INVESTOR CERTIFICATE TRANSFEREE LETTER OF REPRESENTATION [Trustee] Attention: Corporate Trust Administration Ladies and Gentlemen: In connection with our proposed purchase of $[ ] aggregate Accreted Value as of ____________ of the Junior Subordinated Notes due 2009 (the "NOTES") of Thermadyne Mfg. LLC (the "COMPANY"), we confirm that: 1. We are an institutional "ACCREDITED INVESTOR" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of 1933, as amended (the "SECURITIES ACT"), purchasing for our own account or for the account of such an institutional "ACCREDITED INVESTOR" as to which we exercise sole investment discretion, and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any account for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand and acknowledge that the Notes have not been registered under the Securities Act or any other applicable securities law, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any account for which we are acting, that if we should sell any Notes within the time period referred to in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "QUALIFIED INSTITUTIONAL BUYER" (as defined therein), (C) to an institutional "ACCREDITED INVESTOR" (as defined above) that, prior to such transfer, furnishes to the Trustee under the Indenture a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes (the form of which letter can be obtained from the Trustee) and, if such transfer is in respect of an aggregate Accreted Value of less than $100,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (D) outside the Untied States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Company and the Trustee such certifications, legal opinions and other information as the Company and the Trustee may reasonably require to C-1 78 confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are acquiring the Notes for investment purposes and not with a view to distribution thereof or with any present intention of offering or selling any Notes, except as permitted above; provided that the disposition of our property and property of any accounts for which we are acting as fiduciary will remain at all times within our control. You and the Company are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereto to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN ANY MANDATING THE APPLICATION OF SUCH LAWS). Very truly yours, (Name of Purchaser) By: -------------------------------------- Name: Title: Date: ------------------------------------ Upon transfer, the Notes would be registered in the name of the new owner as follows: By: -------------------------------- Date: ------------------------------ Taxpayer ID number: ---------------- C-2 EX-10.29 5 1ST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.29 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of November 10, 1999 (this "First Amendment"), is among Thermadyne Mfg. LLC, a Delaware limited liability company (the "Company"), Comweld Group Pty. Ltd. (the "Initial Australian Borrower"), GenSet S.p.A. (the "Initial Italian Borrower"), Thermadyne Welding Products Canada Limited (the "Initial Canadian Borrower"), the various financial institutions listed on the signature pages hereto (collectively, the "Lenders"), DLJ Capital Funding, Inc. ("DLJ"), as syndication agent for the Lenders (the "Syndication Agent"), Societe Generale, as documentation agent for the Lenders (the "Documentation Agent"), and ABN AMRO Bank N.V. ("ABN AMRO"), as administrative agent for the Lenders (the "Administrative Agent"; the Syndication Agent and the Administrative Agent are sometimes referred to herein as the "Agents" and each as an "Agent"). WITNESSETH: WHEREAS, the Borrowers, the Lenders, the Syndication Agent, the Administrative Agent and the Documentation Agent are parties to a Credit Agreement, dated as of May 22, 1998 (as heretofore amended, waived or modified, the "Existing Credit Agreement"); and WHEREAS, the Borrowers have requested that the Required Lenders amend the Existing Credit Agreement in certain respects to, among other things, allow the Company to restructure certain of its and its Subsidiaries' manufacturing operations, including the establishment of certain new Foreign Subsidiaries and the relocation of such operations to locations in Mexico and Asia; and WHEREAS, the Required Lenders have agreed, subject to the terms and conditions hereinafter set forth, to so amend the Existing Credit Agreement as set forth below (the Existing Credit Agreement, as so amended by this First Amendment, being referred to as the "Credit Agreement"); NOW, THEREFORE, in consideration of the agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 PART I DEFINITIONS SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this First Amendment, including its preamble and recitals, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Credit Agreement" is defined in the third recital. "Existing Credit Agreement" is defined in the first recital. SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this First Amendment, including its preamble and recitals, have the meanings ascribed thereto in the Existing Credit Agreement. PART II AMENDMENTS TO THE EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the First Amendment Effective Date, and in reliance upon the representations and warranties made herein, the Existing Credit Agreement is hereby amended in accordance with this Part II. Except as expressly so amended, the Existing Credit Agreement shall continue in full force and effect in accordance with its terms. SUBPART 2.1. Amendments to Section 1.1. Section 1.1 of the Existing Credit Agreement is hereby amended by inserting the following definitions in such Section in the appropriate alphabetical sequence: "Asian Relocation" means the closure and/or disposition of certain manufacturing operations of Duxtech Pty, Ltd. and its Subsidiaries (collectively, "Cigweld") and the relocation of such operations to Indonesia and/or Malaysia and shall include the establishment of and transfer of any such operations to a Foreign Subsidiary in connection therewith. "Existing Capitalized Lease" means each of those certain domestic capitalized leases listed on Schedule I hereto for the current term of such lease, but shall not include any renewal, continuation, extension or replacement of any such lease. -2- 3 "First Amendment" means the First Amendment to the Credit Agreement, dated as of November 10, 1999, among the Borrowers, the Lenders signatory thereto, and the Agents. "First Amendment Effective Date" is defined in Subpart 3.1 of the First Amendment. "Junior Subordinated Debt" means junior subordinated debt of the Company issued pursuant to the New Securities Purchase Agreement, which debt shall have terms and conditions substantially as set forth in Exhibit A to the First Amendment and shall have such other terms and conditions and be in a form satisfactory to the Syndication Agent and the Administrative Agent. "Mexican Relocation" means the (i) closure and/or disposition of certain manufacturing operations of the Mexican Relocation Subsidiaries, (ii) formation of a Mexican corporation that is a wholly owned Subsidiary of Tweco Products, Inc., (iii) acquisition, development and construction of a manufacturing facility by such Subsidiary in or near Hermosillo, Mexico, (iv) relocation of the operations and equipment of Tweco Products, Inc. to such facility, and (v) other related transactions incidental thereto. "Mexican Relocation Subsidiaries" means each of Tweco Products, Inc., a Delaware corporation, and its Subsidiaries. "New Securities Purchase Agreement" means that certain securities purchase agreement entered into by and among Holdco, the Company and the purchasers party thereto, pursuant to which such purchasers agree to purchase (a) (i) Junior Subordinated Debt or (ii) with the consent of the Administrative Agent and the Syndication Agent, preferred and/or common stock of a corporate holding company parent of the Company (such holding company to be formed on terms and conditions satisfactory to the Administrative Agent and the Syndication Agent), and (b) New Warrants, which purchase shall result in gross proceeds to the Company of at least $25,000,000 on or prior to December 31, 1999. "New Warrants" means warrants to acquire common stock of Holdco issued pursuant to the New Securities Purchase Agreement, which warrants shall have terms and conditions substantially as set forth in Exhibit B to the First Amendment and shall have such other terms and conditions and be in a form satisfactory to the Syndication Agent and the Administrative Agent. "Relocation Capital Expenditures" means capital expenditures made by the Company or its Subsidiaries in connection with the Mexican Relocation and the Asian Relocation, in an aggregate amount not to exceed (i) $16,500,000 in the case of the Mexican Relocation (less the amount of Relocation Expenses related to the Mexican Relocation) and (ii) $19,500,000 in the case of the Asian Relocation (less the amount of Relocation Expenses related to the Asian Relocation). "Relocation Expenses" means costs, expenses and charges not capitalized or classified as -3- 4 capital expenditures incurred by the Company or its Subsidiaries in connection with the Mexican Relocation and the Asian Relocation, in an aggregate amount not to exceed (i) $16,500,000 in the case of the Mexican Relocation (less the amount of Relocation Capital Expenditures related to the Mexican Relocation) and (ii) $19,500,000 in the case of the Asian Relocation (less the amount of Relocation Capital Expenditures related to the Mexican Relocation). SUBPART 2.2. Amendment to Definition of Applicable Margin. The definition of Applicable Margin in the Existing Credit Agreement is hereby amended and restated to read in its entirety as follows: "Applicable Margin" means at all times during the applicable periods set forth below, (a) with respect to the unpaid principal amount of each Term-B Loan maintained as a (i) Base Rate Loan, (A) for each day prior to the First Amendment Effective Date, 1.25% and (B) for each day on or after the First Amendment Effective Date, 1.75% per annum and (ii) LIBO Rate Loan, (A) for each day prior to the First Amendment Effective Date, 2.5% and (B) for each day on or after the First Amendment Effective Date, 3.0% per annum; (b) with respect to the unpaid principal amount of each Term-C Loan maintained as a (i) Base Rate Loan, (A) for each day prior to the First Amendment Effective Date, 1.5% and (B) for each day on or after the First Amendment Effective Date, 2.0% per annum, and (ii) LIBO Rate Loan, (A) for each day prior to the First Amendment Effective Date, 2.75% and (B) for each day on or after the First Amendment Effective Date, 3.25% per annum; (c) from the Closing Date through (but excluding) the date upon which the Compliance Certificate for the second full Fiscal Quarter ending after the Closing Date is delivered by the Company to the Administrative Agent pursuant to clause (c) of Section 7.1.1, with respect to the unpaid principal amount of each (i) Swing Line Loan (which shall be borrowed and maintained only as a U.S. Dollar denominated Base Rate Loan) and each Committed Revolving Loan and Term-A Loan maintained as a Base Rate Loan, 1.00% per annum, and (ii) Committed Revolving Loan and Term-A Loan maintained as a LIBO Rate Loan, 2.25% per annum; and (d) at all times after the date of such delivery of the Compliance Certificate described in clause (c) above, with respect to the unpaid principal amount of each Swing Line Loan (which shall be borrowed and maintained only as a U.S. Dollar denominated Base Rate Loan) and each Committed Revolving Loan and Term-A Loan, by reference to the applicable Leverage Ratio and at the applicable percentage per annum (i) for each day prior to the First Amendment Effective Date, as set forth in the Existing Credit Agreement and (ii) for each day on or after the First Amendment Effective Date, as set forth below under the column entitled "Applicable Margin for Base Rate Loans", in the case of Base Rate Loans, or by reference to the applicable Leverage Ratio and at the applicable percentage per annum set forth below under the column entitled "Applicable Margin for LIBO Rate Loans", in the case -4- 5 of LIBO Rate Loans: APPLICABLE MARGIN FOR COMMITTED REVOLVING LOANS, SWING LINE LOANS AND TERM-A LOANS
APPLICABLE APPLICABLE MARGIN FOR BASE MARGIN FOR LIBO LEVERAGE RATIO RATE LOANS RATE LOANS -------------- --------------- --------------- GREATER THAN OR EQUAL TO 5.0:1 1.5% 2.75% GREATER THAN OR EQUAL TO 4.0:1 AND LESS THAN 5.0:1 1.25% 2.5% GREATER THAN OR EQUAL TO 3.0:1 AND LESS THAN 4.0:1 0.75% 2.0% LESS THAN 3.0:1 0.25% 1.5%
The Leverage Ratio used to compute the Applicable Margin for Swing Line Loans, Committed Revolving Loans and Term-A Loans for any day referred to in clause (d) above shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Company to the Administrative Agent on or prior to such day pursuant to clause (c) of Section 7.1.1. Changes in the Applicable Margin for Swing Line Loans, Committed Revolving Loans and Term-A Loans resulting from a change in the Leverage Ratio shall become effective (as of the first day following the Fiscal Quarter in respect of which such Compliance Certificate was required to be delivered) upon delivery by the Company to the Administrative Agent of a new Compliance Certificate pursuant to clause (c) of Section 7.1.1. In the event such Compliance Certificate indicates a Leverage Ratio that would result in an Applicable Margin which is greater or lesser than the Applicable Margin theretofore in effect, then (A) such greater or lesser Applicable Margin shall be deemed to be in effect for all purposes of this Agreement from the first day following the Fiscal Quarter in respect of which such Compliance Certificate was required to be delivered by the Company to the Administrative Agent pursuant to clause (c) of Section 7.1.1 and (B) if any Borrower shall have theretofore made any payment of interest in respect of Swing Line Loans, Committed Revolving Loans or Term-A Loans, or of Letter of Credit fees pursuant to the first sentence of Section 3.3.3, in any such case in respect of the period from the first day following the Fiscal Quarter in respect of which such Compliance Certificate was required to be delivered to the actual date of delivery of such Compliance Certificate, then, on the next Quarterly Payment Date, either (x) if the new Applicable Margin is greater than the Applicable Margin theretofore in effect, such Borrower shall pay as a supplemental payment of interest and/or Letter of Credit fees, an amount which equals the difference between the amount of interest and Letter of Credit fees that would otherwise have been paid based on such new Leverage Ratio and the amount of such interest and Letter of Credit fees actually so paid, or (y) if the new Applicable Margin is less than the Applicable Margin theretofore in effect, an amount shall be deducted from the interest on Committed Revolving Loans, commitment fees and Letter of Credit fees (in the case of differences in respect of interest on -5- 6 Committed Revolving Loans and Letter of Credit fees) or from the interest on Term-A Loans (in the case of differences in respect of interest on Term-A Loans) thereafter payable by such Borrower in an amount which equals the difference between the amount of interest and Letter of Credit fees so paid and the amount of interest and Letter of Credit fees that would otherwise have been paid based on such new Leverage Ratio (or, if no payment by such Borrower to the Revolving Lenders or Term-A Lenders, as the case may be, will thereafter accrue hereunder, or if the amount that so accrues is less than such difference, the Revolving Lenders or the Term-A Lenders, as the case may be, will promptly pay to such Borrower an amount equal to such difference less the amount, if any, of such accrued and unpaid payments); provided, that if the Company shall fail to deliver a Compliance Certificate within the number of days required pursuant to clause (c) of Section 7.1.1 (without giving effect to any grace period), the Applicable Margin for all Committed Revolving Loans, Term-A Loans and Letters of Credit from and including the first day after the date on which such Compliance Certificate was required to be delivered to but not including the date the Company delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Margin for the relevant type of Loan set forth in clause (d) above." SUBPART 2.3. Amendment to Definition of Change of Control. Clause (i) of the definition of Change of Control is hereby amended and restated as follows: "(i) the failure of Holdco at any time to own, directly or indirectly, free and clear of all Liens and encumbrances (other than Liens of the types permitted to exist under clauses (b), (f) and (i) of Section 7.2.3), all right, title and interest in 100% of the Capital Stock of the Company other than Capital Stock issued pursuant to the New Securities Purchase Agreement;" SUBPART 2.4. Amendment to Definition of EBITDA. The existing paragraphs (f) and (g) of the definition of EBITDA of the Existing Credit Agreement are hereby relettered as paragraphs (g) and (h), respectively, the word "minus" shall be deleted immediately following clause (e) thereof and a new paragraph is hereby added to read as follows: "plus (f) the amount deducted in determining Net Income representing expenses and charges incurred on account of Relocation Expenses, minus" SUBPART 2.5. Amendment to Definition of Excluded Equity Proceeds. The definition of Excluded Equity Proceeds is hereby amended by (i) adding, at the end of clause (v) thereof and before the word "or", the phrase "or the issuance of the New Warrants" and (ii) adding, following the word "Warrants" in clause (vi) thereof, the expression ", the New Warrants". -6- 7 SUBPART 2.6. Amendment to Definition of Fixed Charge Coverage Ratio. Paragraph (b)(i) of the definition of Fixed Charge Coverage Ratio is hereby amended and restated as follows: "(b) the sum (without duplication) of (i) Capital Expenditures actually made during all such Fiscal Quarters pursuant to clause (a) of Section 7.2.7 (excluding (x) Relocation Capital Expenditures, (y) Capital Expenditures constituting Capitalized Lease Liabilities and (z) Capital Expenditures made by way of the incurrence of Indebtedness permitted pursuant to Section 7.2.2(c) to a vendor of any assets permitted to be acquired pursuant to Section 7.2.7 to finance the acquisition of such assets);" SUBPART 2.7. Amendment to Definition of Indebtedness. (a) Clause (c) of the definition of Indebtedness is hereby amended and restated to read as follows: "(c) all Capitalized Lease Liabilities; provided that, for the purpose of calculating the Leverage Ratio, the total amount of Capitalized Lease Liabilities shall be reduced by an amount equal to the lesser of (x) the amount of Indebtedness related to Existing Capitalized Leases and (y) $3,800,000;" (b) The final sentence of the definition of Indebtedness is hereby amended and restated to read as follows: "For all purposes of this Agreement, (i) the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer (to the extent such Person is liable for such Indebtedness), and (ii) the Junior Subordinated Debt shall not constitute Indebtedness." SUBPART 2.8. Amendment to Definition of Interest Expense. The definition of Interest Expense is hereby amended and restated to read as follows: "Interest Expense" means, for any period, the aggregate consolidated interest expense of the Company and its Subsidiaries for such period, as determined in accordance with GAAP, including (a) financing costs in respect of any Receivables Transaction and (b) the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense, but excluding (to the extent included in interest expense) (x) up-front fees and expenses and the amortization of all deferred financing costs and (y) for purposes other than calculating Excess Cash Flow and EBITDA, payments made in respect of Capitalized Lease Liabilities allocable to interest expense incurred in respect of the Existing Capitalized Leases." SUBPART 2.9. Amendment to Definition of Material Documents. The definition of Material Documents is hereby amended and restated to read as follows: -7- 8 "'Material Documents' means the Merger Agreement, the Organic Documents of the Company, the Investors' Agreement and the New Securities Purchase Agreement, each as amended, supplemented, amended and restated or otherwise modified from time to time as permitted in accordance with the terms hereof or of any other Loan Document." SUBPART 2.10. Amendment to Article 7.1. Article 7.1 of the Existing Credit Agreement is hereby amended and restated by adding a new Section 7.1.14 to read as follows: "SECTION 7.1.14. Mexican Relocation. Within 30 days (or, if the Borrowers shall have commenced such actions within such 30-day period and diligently pursued the same, such longer period of time as shall be reasonably necessary to complete such actions) of the date when inventory and equipment of the Mexican Relocation Subsidiaries having an aggregate value in an amount equal to or greater than $500,000 have arrived in Mexico, the Borrowers: (a) shall have delivered to the Agents all supplements and other documents necessary in the judgment of the Agents and their counsel to perfect the Liens granted to the Administrative Agent pursuant to the Security Agreements in equipment and inventory owned or leased by the Mexican Relocation Subsidiaries and located or to be located in Mexico; (b) shall have caused to be delivered to the Agents from each Mexican Relocation Subsidiary which owns a Mexican Subsidiary, (i) certificates evidencing 65% of the issued and outstanding shares of Capital Stock of each such Mexican Subsidiary, which certificates shall in each case be accompanied by undated stock powers duly executed in blank and shall be pledged pursuant to a Pledge Agreement, and (ii) any and all other documents or instruments of further assurance required to be filed or customarily provided in respect thereof in the local jurisdiction of each such Mexican Subsidiary, including but not limited to opinions of foreign counsel; provided, however, that no Subsidiary shall be required to pledge in excess of 65% of the outstanding voting stock of any Non-U. S. Subsidiary. If any securities pledged pursuant to a Pledge Agreement are uncertificated securities, the Agents shall have received confirmation and evidence satisfactory to each of them that appropriate book entries have been made in the relevant books or records of a financial intermediary or the issuer of such securities, as the case may be, or other appropriate steps have been taken under applicable law resulting in the perfection of the security interest granted in favor of the Administrative Agent in such securities pursuant to the terms of the applicable Pledge Agreement; and (c) shall have delivered to the Agents an opinion, on or prior to such 30th day and addressed to the Agents and all Lenders, from Davis Polk & Wardwell, special New York counsel to the Obligors, in form and substance satisfactory to the Agents." SUBPART 2.11. Amendment to Section 7.2.2. Clause (e) of Section 7.2.2 of the Existing Credit Agreement is hereby amended and restated to read as follows: -8- 9 "(e) intercompany Indebtedness (i) (x) of any U.S. Subsidiary of the Company owing to the Company or any Subsidiary or (y) of the Company owing to any of its U.S. Subsidiaries, and (ii) of any Non-U.S. Subsidiary of the Company owing to the Company or any U.S. Subsidiary of the Company; provided that in respect of (A) any such Indebtedness described in this clause (ii), the U.S. Dollar Equivalent of such Indebtedness (other than any such intercompany Indebtedness, (w) into which any Investment by the Company or a U.S. Subsidiary in a Non-U.S. Subsidiary that was outstanding on the First Amendment Effective Date was converted, (x) incurred to finance any acquisition permitted hereunder, (y) outstanding on the First Amendment Effective Date or (z) incurred as part of, or to finance, Relocation Capital Expenditures or Relocation Expenses incurred by Non-U.S. Subsidiaries) shall not exceed, when taken together with the aggregate amount at such time of all outstanding Investments made pursuant to clause (i) of Section 7.2.5 (other than any such Investments (1) into which any Indebtedness of any Non-U.S. Subsidiary owing to the Company or any U.S. Subsidiary that was outstanding on the First Amendment Effective Date was converted, (2) made as part of, or to finance, any acquisition permitted hereunder, (3) outstanding on the First Amendment Effective Date, (4) made as part of, or to finance, Relocation Capital Expenditures or Relocation Expenses incurred by Non-U.S. Subsidiaries or (5) consisting of the contribution by U.S. Subsidiaries of equipment used at the manufacturing facilities referred to in clause (iii) of the definition of Mexican Relocation to the Non-U. S. Subsidiaries that operate such facilities, but only to the extent, in the case of this clause (5), required or determined by the Company in good faith to be advisable to avoid adverse Mexican tax consequences) $20,000,000 at any time outstanding and (B) any such Indebtedness described in this clause (e) which is owing to the Company or any of its U.S. Subsidiaries, (1) to the extent requested by the Administrative Agent, such Indebtedness shall be evidenced by one or more promissory notes in form and substance satisfactory to the Agents which (except in the case of any such notes held by a Receivables Subsidiary in connection with a Receivables Transaction) shall be duly executed and delivered to (and indorsed to the order of) the Administrative Agent in pledge pursuant to a Pledge Agreement and (2) in the case of any such Indebtedness owed by a Person other than the Company or a Subsidiary Co-Obligor, such Indebtedness shall not be forgiven or otherwise discharged for any consideration other than payment (Dollar for Dollar or, if denominated in a Foreign Currency, the applicable Currency) in cash unless the Agents otherwise consent;" SUBPART 2.12. Amendment to Section 7.2.4. Section 7.2.4 of the Existing Credit Agreement is hereby amended and restated to read as follows: "SECTION 7.2.4. Financial Covenants. (a) EBITDA. The Company will not permit EBITDA for the period of four consecutive Fiscal Quarters ending on the last day of any Fiscal Quarter occurring during any period set forth below to be less than the amount set forth opposite such period: -9- 10
Period EBITDA ------ ------ Closing Date to 12/30/01 $ 90,000,000 12/31/01 to 12/30/02 $100,000,000 12/31/02 to 12/30/03 $105,000,000 12/31/03 to 12/30/04 $110,000,000 12/31/04 to 12/30/05 $120,000,000 12/31/05 to 12/30/06 $125,000,000 12/31/06 to 12/30/07 $130,000,000 12/31/07 and thereafter $135,000,000
provided, that, to the extent the amount of EBITDA for the immediately preceding four consecutive Fiscal Quarter period exceeds the amount of EBITDA required to be maintained for such four consecutive Fiscal Quarter period pursuant to this clause (a), an amount equal to 50% of such excess amount may be carried forward to (but only to) the then current Fiscal Quarter (any such amount to be certified to the Administrative Agent in the Compliance Certificate delivered for the last Fiscal Quarter of such four consecutive Fiscal Quarter period). (b) Leverage Ratio. The Company will not permit the Leverage Ratio as of the end of any Fiscal Quarter ending after the Closing Date and occurring during any period set forth below to be greater than the ratio set forth opposite such period:
Period Leverage Ratio ------ -------------- Closing Date to 12/30/00 6:00:1:00 12/31/00 to 12/30/01 5.75:1.00 12/31/01 to 12/30/02 5.25:1.00 12/31/02 to 12/30/03 4.25:1.00 12/31/03 to 12/30/04 3.50:1.00 12/31/04 and thereafter 3.00:1.00
(c) Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio as of the end of any Fiscal Quarter ending after the Closing Date and occurring during any period set forth below to be less than the ratio set forth opposite such period:
Interest Coverage Period Ratio ------ ----------------- Closing Date to 12/30/00 1.55:1.00 12/31/00 to 12/30/01 1.55:1.00 12/31/01 to 12/30/02 1.85:1.00 12/31/02 to 12/30/03 2.25:1.00 12/31/03 to 12/30/04 2.70:1.00 12/31/04 to 12/30/05 3.00:1.00 12/31/05 to 12/30/06 4.00:1.00 12/31/06 to 12/30/07 4.50:1.00 12/31/07 and thereafter 5.00:1.00
-10- 11 (d) Fixed Charge Coverage Ratio. The Company will not permit the Fixed Charge Coverage Ratio as of the end of any Fiscal Quarter ending after the Closing Date to be less than 1.10:1.00." SUBPART 2.13. Amendment to Section 7.2.5. Clause (l) of Section 7.2.5 of the Existing Credit Agreement is hereby amended and restated to read as follows: "(l) equity Investments of the Company or any U.S. Subsidiary in Non-U.S. Subsidiaries (x) outstanding as of the First Amendment Effective Date or (y) incurred on or after the First Amendment Effective Date, in an aggregate amount (in the case of this clause (y)) at any time outstanding not to exceed (exclusive of any such Investments (w) made as part of, or to finance, any acquisition permitted hereunder, (x) into which any Indebtedness of a Non-U.S. Subsidiary to the Company or a U.S. Subsidiary that was outstanding on the First Amendment Effective Date was converted, (y) made as part of, or to finance, the Asian Relocation or the Mexican Relocation or Relocation Capital Expenditures or Relocation Expenses incurred by Non-U.S. Subsidiaries or (z) consisting of the contribution by U.S. Subsidiaries of equipment used at the manufacturing facilities referred to in clause (iii) of the definition of Mexican Relocation to the Non-U.S. Subsidiaries that operate such facilities, but only to the extent, in the case of this clause (z), required or determined by the Company in good faith to be advisable to avoid adverse Mexican tax consequences) $20,000,000 less the aggregate principal amount outstanding at such time of Indebtedness permitted under clause (e)(ii) of Section 7.2.2 (other than any such intercompany Indebtedness (A) incurred to finance any acquisition permitted hereunder, (B) into which any Investment by the Company or a U.S. Subsidiary in a Non-U.S. Subsidiary that was outstanding on the First Amendment Effective Date was converted, (C) outstanding on the First Amendment Effective Date, and (D) incurred as part of, or to finance, the Relocation Capital Expenditures or Relocation Expenses incurred by Non-U.S. Subsidiaries);" SUBPART 2.14. Amendment to Section 7.2.6. Clauses (a) and (b) of Section 7.2.6 of the Existing Credit Agreement are hereby amended and restated to read as follows: "(a) the Company will not, and will not permit any of its Subsidiaries to, declare, pay or make any dividend, distribution or exchange (in cash, property or obligations) on or in respect of any shares of any class of Capital Stock (now or hereafter outstanding) of the Company or on any warrants, options or other rights with respect to any shares of any class of Capital Stock (now or hereafter outstanding) of the Company (other than (i) dividends or distributions payable in its common stock or warrants to purchase its common stock, (ii) dividends or distributions on preferred stock issued -11- 12 pursuant to the New Securities Purchase Agreement payable in additional shares of such preferred stock as provided for in the certificate of designation for such preferred stock as in effect on the First Amendment Effective Date and (iii) splits or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, exchange, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase, redeem or exchange, any shares of any class of Capital Stock (now or hereafter outstanding) of the Company or warrants, options or other rights with respect to any shares of any class of Capital Stock (now or hereafter outstanding) of the Company; (b) the Company will not, and will not permit any of its Subsidiaries to (i) directly or indirectly, make any payment or prepayment of principal of, or make any payment of interest on, any Subordinated Note or Junior Subordinated Debt, on any day other than the stated, scheduled date for such payment or prepayment set forth in the documents and instruments memorializing such Subordinated Note or Junior Subordinated Debt, or which would violate the subordination provisions of such Subordinated Note or Junior Subordinated Debt, (ii) redeem, purchase or defease any Subordinated Note, Junior Subordinated Debt or Discount Debenture, or (iii) make any payment of interest on any Junior Subordinated Debt prior to the maturity date of such Junior Subordinated Debt other than in additional Junior Subordinated Debt or through accretion to the principal amount thereof (the foregoing prohibited acts referred to in clauses (a) and (b) above are herein collectively referred to as "Restricted Payments");" SUBPART 2.15. Amendment to Section 7.2.7. Clause (a) of Section 7.2.7 is hereby amended and restated to read as follows: "(a) The Company will not, and will not permit any of its Subsidiaries to, make or commit to make Capital Expenditures, except (i) Relocation Capital Expenditures, plus (ii) in any Fiscal Year, Capital Expenditures which do not aggregate in excess of $25,000,000 in such Fiscal Year, plus (iii) an additional aggregate amount equal to $20,000,000 over the term of this Agreement; provided, however, that to the extent the amount of Capital Expenditures permitted to be made in any Fiscal Year pursuant to clause (a)(ii) of this Section exceeds the aggregate amount of Capital Expenditures actually made during such Fiscal Year, such excess amount (up to an aggregate of 50% of the amount of Capital Expenditures permitted for such Fiscal Year, without giving effect to this proviso) may be carried forward to (but only to) the next succeeding Fiscal Year (any such amount to be certified by the Company to the Agents in the Compliance Certificate delivered for the last Fiscal Quarter of such Fiscal Year, and any such amount carried forward to a succeeding Fiscal Year shall be deemed to be used prior to the Company and its Subsidiaries using the amount of Capital Expenditures permitted by this Section in such succeeding Fiscal Year, without giving effect to such carry-forward)." -12- 13 PART III CONDITIONS TO EFFECTIVENESS SUBPART 3.1. Effective Date. This First Amendment (and the amendments and modifications contained herein) shall become effective as of November 10, 1999 and shall have retroactive effect from said date, and shall thereafter be referred to as the "First Amendment," on the date (the "First Amendment Effective Date") when all of the conditions set forth in this Subpart 3.1 have been satisfied. SUBPART 3.1.1. Execution of Counterparts. The Agents shall have received counterparts of this First Amendment executed on behalf of the Borrowers, and the Administrative Agent shall have confirmed to the Borrowers and the Syndication Agent that it has received from the Required Lenders their respective executed counterparts hereto. SUBPART 3.1.2. Delivery of New Securities Purchase Agreement. The Agents shall have received counterparts of the New Securities Purchase Agreement, dated on or before the First Amendment Effective Date, duly executed and delivered by an Authorized Officer of the Company and the Purchasers, in form and substance and containing such terms and conditions as are reasonably satisfactory to the Agents. SUBPART 3.1.3. Affirmation and Consent. The Agents shall have received an affirmation and consent in form and substance satisfactory to them, executed and delivered by an Authorized Officer of each Obligor (other than the Borrowers) under the Existing Credit Agreement and related Loan Documents. SUBPART 3.1.4. Amendment Fee. The Agents shall have received, for the account of each Lender signatory hereto on or prior to November 10, 1999 (the "Fee Calculation Date"), an amendment fee equal to .25% of each such Lender's Percentage of the Total Exposure Amount as of the Fee Calculation Date and all other fees, costs and expenses due and payable pursuant to Section 11.3 of the Credit Agreement, if then invoiced. SUBPART 3.1.5. Legal Details, etc. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Agents and their counsel. The Agents and their counsel shall have received all information and such counterpart originals or such certified or other copies or such materials, as the Agents or their counsel may reasonably request, and all legal matters incident to the transactions contemplated by this First Amendment shall be satisfactory to the Agents and their counsel. -13- 14 PART IV REPRESENTATIONS AND WARRANTIES, ETC. SUBPART 4.1. Representations and Warranties; No Default. In order to induce the Required Lenders to enter into this First Amendment, the Borrowers hereby jointly and severally (a) confirm, reaffirm and restate that the representations and warranties set forth in Article VI of the Existing Credit Agreement and in each other Loan Document are true and correct in all material respects as of the date hereof after giving effect to this First Amendment (unless such representations and warranties are stated to relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date) and (b) represent and warrant that, after giving effect to the First Amendment set forth herein, no Default or Event of Default has occurred and is continuing. PART V MISCELLANEOUS SUBPART 5.1. Cross-References. References in this First Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this First Amendment. References in this First Amendment to any Article or Section are, unless otherwise specified, to such Article or Section of the Credit Agreement. SUBPART 5.2. Loan Document Pursuant to Credit Agreement. This First Amendment is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Credit Agreement, including Article XI thereof. SUBPART 5.3. Counterparts, etc. This First Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same Agreement. SUBPART 5.4. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SUBPART 5.5. Successors and Assigns. This First Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. -14- 15 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their respective officers hereunto duly authorized as of the day and year first above written. THERMADYNE MFG. LLC By: /s/ JAMES H. TATE ----------------------------- Title: Senior Vice President & Chief Financial Officer COMWELD GROUP PTY. LTD. By: /s/ JAMES H. TATE ----------------------------- Title: GENSET S.P.A. By: /s/ JAMES H. TATE ----------------------------- Title: THERMADYNE WELDING PRODUCTS CANADA LIMITED By: /s/ JAMES H. TATE ----------------------------- Title: 16 DLJ CAPITAL FUNDING, INC., as the Syndication Agent and as a Lender By: /s/ DANA F. KLIEN ----------------------------- Title: Vice President ABN AMRO BANK N.V., as the Administrative Agent and as a Lender By: /s/ TOM COMFORT ----------------------------- Title: Group Vice President By: /s/ MARY HONDA ----------------------------- Title: Vice President SOCIETE GENERALE, as the Documentation Agent and as a Lender By: /s/ CYNTHIA A. JAY ----------------------------- Title: Managing Director 17 Schedule I: Existing Capitalized Leases
Lessor Lessee Effective Date - --------------------------------- --------------------- -------------- National Warehouse Investment Co. Tweco Products, Inc. June 6, 1988 (Amended and restated on August 11, 1988)
18 EXHIBIT A JUNIOR SUBORDINATED DEBT [see Exhibit 4.15] 19 EXHIBIT B NEW WARRANTS [see Exhibit 4.14] EX-21.1 6 SUBSIDIARIES OF THERMADYNE HOLDING CORP 1 EXHIBIT 21.1 SUBSIDIARIES OF THERMADYNE HOLDINGS CORPORATION
JURISDICTION OF NAME ORGANIZATION ---- -------------------- Arcair Stoody Europe S.A. .................................. Belgium BBM Srl..................................................... Italy C&G Systems Holding, Inc. .................................. Delaware C&G Systems, Inc. .......................................... Illinois Canadian Cylinder Company................................... Canada Comet Property Holdings, Inc. .............................. Philippines Comweld Group Pty. Ltd. .................................... Australia Comweld Philippines Inc. ................................... Philippines Comweld Malaysia SDN BHD.................................... Malaysia Coyne Natural Gas Systems, Inc. ............................ Missouri Duxtech Pty. Ltd. .......................................... Australia GenSet SpA.................................................. Italy Marison Cylinder Company.................................... Delaware MECO Holding Company........................................ Delaware MetalService S.A. .......................................... Chile Modern Engineering Company, Inc. ........................... Missouri OCIM Srl.................................................... Italy Palco Trading Company....................................... United Arab Emirates Philippine Welding Equipment Inc. .......................... Philippines PT Comweld Indonesia........................................ Indonesia PT Thermadyne Utama Indonesia................................ Indonesia Quetack Pty. Ltd. .......................................... Australia Quetala Pty. Ltd. .......................................... Australia Quetala Unit Trust.......................................... Australia Soltec S.A. ................................................ Chile Stoody Company.............................................. Delaware TAG Realty, Inc. ........................................... Texas Tecmo Srl................................................... Italy Tec. Mo. Cut Srl............................................ Italy Tec. Mo. Control Srl........................................ Italy THC Italia Srl.............................................. Italy Thermadyne Asia/Pacific Pte. Ltd. .......................... Singapore Thermadyne Asia SDN BHD..................................... Malaysia Thermadyne Australia Pty. Ltd. ............................. Australia Thermadyne Brazil Holdings, Ltd. ........................... Cayman Islands Thermadyne Capital Corp. ................................... Delaware Thermadyne Chile Holdings, Ltd. ............................ Cayman Islands Thermadyne Cylinder Company................................. California Thermadyne do Brasil Ltda. ................................. Brazil Thermadyne de Mexico S.A. de C.V. .......................... Mexico Thermadyne Foreign Sales Corporation........................ Barbados Thermadyne Hong Kong Limited................................ Hong Kong Thermadyne Industries, Inc. ................................ Delaware Thermadyne Industries Limited............................... United Kingdom Thermadyne International Corp. ............................. Delaware Thermadyne Italia Srl ...................................... Italy Thermadyne Japan K.K. ...................................... Japan Thermadyne Korea, Ltd. ..................................... Korea Thermadyne Mfg. LLC......................................... Delaware Thermadyne Receivables, Inc. ............................... Delaware Thermadyne South America Holdings, Ltd. .................... Cayman Islands Thermadyne Thailand Co. Ltd. ............................... Thailand Thermadyne Victor Ltda. .................................... Brazil
2
JURISDICTION OF NAME ORGANIZATION ---- -------------------- Thermadyne Welding Products Canada, Ltd. ................... Canada Thermal Arc, Inc. .......................................... Delaware Thermal Arc Philippines Inc. ............................... Philippines Thermal Dynamics Corp. ..................................... Delaware Tweco Products, Inc. ....................................... Delaware Tweco de Mexico S.A. de C.V. ............................... Mexico Victor Coyne International, Inc. ........................... Delaware Victor Equipment Company.................................... Delaware Victor Equipment de Mexico S.A. de C.V. .................... Mexico Victor Gas Systems, Inc. ................................... Delaware Wichita Warehouse Corporation............................... Kansas
EX-23.1 7 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-69181) pertaining to the 1998 Management Incentive Plan and the 1998 Non-Employee Directors Stock Option Plan and in the Registration Statement (Form S-3 No. 333-57455) pertaining to the 12 1/2% Senior Discount Debentures due 2008 of our reports dated February 11, 2000, with respect to the consolidated financial statements and schedule of Thermadyne Holdings Corporation and to the incorporation by reference in the Registration Statement (Form S-3 No. 333-57457) pertaining to the 9 7/8% Senior Subordinated Notes due 2008 of our report dated February 11, 2000, with respect to the consolidated financial statements of Thermadyne Mfg. LLC included in the Annual Report (Form 10-K) for the year ended December 31, 1999. St. Louis, Missouri March 27, 2000 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT 1,000 0000850660 THERMADYNE HOLDINGS CORP YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 13,321 0 94,731 3,275 100,831 214,837 93,811 0 400,396 93,560 729,402 61,430 0 36 (534,124) 400,396 521,115 521,115 342,250 342,250 128,859 0 72,439 (25,492) 8,807 (34,299) 0 0 0 (34,299) (11.68) (11.68)
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