-----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, G/lUGKKwq8DwmWMEq85yas9sCEB6poxCiWY4xLjqQHBVr42hMcChEiqAZloKaQ5B cPhOKc6+DZ/XDtDU39ryKg== 0000950123-99-001815.txt : 19990304 0000950123-99-001815.hdr.sgml : 19990304 ACCESSION NUMBER: 0000950123-99-001815 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19990303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAC PORTABLE PRODUCTS INC CENTRAL INDEX KEY: 0001080892 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 134006887 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-73247 FILM NUMBER: 99555814 BUSINESS ADDRESS: STREET 1: 1 GENERAC WAY CITY: JEFFERSON STATE: WI ZIP: 53549 BUSINESS PHONE: 9206743750 MAIL ADDRESS: STREET 1: 1 GENERAC WAY CITY: JEFFERSON STATE: WI ZIP: 53549 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAC PORTABLE PRODUCTS LLC CENTRAL INDEX KEY: 0001080893 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 391932782 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-73247-01 FILM NUMBER: 99555815 BUSINESS ADDRESS: STREET 1: 1 GENERAC WAY CITY: JEFFERSON STATE: WI ZIP: 53549 BUSINESS PHONE: 9206743750 MAIL ADDRESS: STREET 1: 1 GENERAC WAY CITY: JEFFERSON STATE: WI ZIP: 53549 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GPPW INC CENTRAL INDEX KEY: 0001080894 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 134012695 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-73247-02 FILM NUMBER: 99555816 BUSINESS ADDRESS: STREET 1: 1 GENERAC WAY CITY: JEFFERSON STATE: WI ZIP: 53549 BUSINESS PHONE: 9206743750 MAIL ADDRESS: STREET 1: 1 GENERAC WAY CITY: JEFFERSON STATE: WI ZIP: 53549 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ GENERAC PORTABLE PRODUCTS, INC. GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. (EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS) ------------------------ DELAWARE 3621 13-4006887 DELAWARE (PRIMARY STANDARD INDUSTRIAL 39-1932782 WISCONSIN CLASSIFICATION 13-4012695 (STATE OR OTHER JURISDICTION OF CODE NUMBER) (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBERS)
------------------------ 1 GENERAC WAY JEFFERSON, WISCONSIN 53549 (920) 674-3750 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) DORRANCE J. NOONAN, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER GENERAC PORTABLE PRODUCTS, LLC 1 GENERAC WAY JEFFERSON, WISCONSIN 53549 (920) 674-3750 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) WITH A COPY TO: MARK ZVONKOVIC, ESQ. KING & SPALDING 1185 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10036 (212) 556-2100 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration number for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier, effective registration statement for the same offering. [ ] CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT TO AGGREGATE PRICE AGGREGATE AMOUNT OF TITLE OF CLASS OF SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- 11 1/4% Senior Subordinated Notes Due 2006... $110,000,000 100% $110,000,000 $30,580 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PROSPECTUS GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. ISSUERS ------------------------- OFFER TO EXCHANGE 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 FOR ALL OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 ------------------------- THE NEW NOTES -- - -- Identical in all material respects to the Old Notes, except for certain transfer restrictions, registration rights and additional interest provisions relating to the Old Notes - -- Interest accrues from the date of issuance at the rate of 11 1/4% per annum, payable semi-annually in arrears on each January 1 and July 1, commencing January 1, 1999 - -- Unsecured and subordinated to all existing and future Senior Debt - -- Rank without preference with all future senior subordinated indebtedness and as senior to all future subordinated indebtedness - -- Fully and unconditionally guaranteed by Generac Portable Products, Inc. THE EXCHANGE OFFER -- - -- For all of the Old Notes - -- Expires at 5:00 p.m., New York City time, on [ ], 1999 - -- Subject to customary conditions CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS. You should rely only on the information contained in this Prospectus or that we have referred you to. We have not authorized anyone to provide you with information that is different. We are not offering to sell or asking you to buy anything other than the New Notes. We are not offering to sell or asking you to buy anything in any jurisdiction where doing so would be against the law. Neither the Securities and Exchange Commission nor any state securities commission has approved the New Notes or determined if this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense. SUBJECT TO COMPLETION, DATED , 1999. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 (the "Registration Statement") under the Securities Act with respect to the 11 1/4% Senior Subordinated Notes due 2006 (the "New Notes"). As allowed by SEC rules, this Prospectus does not contain all of the information included in the Registration Statement. Our descriptions in this Prospectus concerning the contents of any contract, agreement or document are not necessarily complete. For those contracts, agreements or documents that we filed as exhibits to the Registration Statement, you should read the exhibit for a more complete understanding of the document or subject matter involved. As a result of the filing of the Registration Statement with the SEC, we will be required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC, including the Registration Statement, at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. You may also request copies of such documents, upon payment of a duplicating fee, by writing to the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such documents over the Internet at the SEC's website at http://www.sec.gov. FORWARD-LOOKING STATEMENTS The statements, other than statements of historical facts included in this Prospectus, including statements set forth under the "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business" regarding the Issuers' future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe" or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements will prove to have been correct, we can give no assurance that such expectations will prove to have been correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Prospectus. Except as required by law, we are not obligated to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this Prospectus or to reflect the occurrence of unanticipated events. Important factors that could cause actual results to differ materially from our expectations (the "Cautionary Statements") are disclosed under "Risk Factors" and elsewhere in this Prospectus including in conjunction with some of the forward-looking statements included in this Prospectus. All subsequent written and oral forward-looking statements attributable to the Issuers, or persons acting on their behalf, are expressly qualified in their entirety by the Cautionary Statements. i 4 SUMMARY This summary highlights some information from this Prospectus, but does not contain all material features of the Exchange Offer. Please read the detailed information and consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. Except as otherwise required by the context, references in this Prospectus to "we," "us" or the "Issuers" refer to Generac Portable Products, LLC and GPPW, Inc. References to the "Operating Company" means Generac Portable Products, LLC. References to "Holdings" means Generac Portable Products, Inc. Except as noted in the section "Description of the New Notes," references to the "Company" means Holdings and its subsidiaries, including the Issuers, on a consolidated basis and, as the context requires, the Company's predecessor. References to the "Predecessor" refers to the Portable Products Division of Generac Corporation. The term "Old Notes" refers to the 11 1/4% Senior Subordinated Notes due 2006 that were issued on July 9, 1998. The term "New Notes" refers to the 11 1/4% Senior Subordinated Notes due 2006 to be issued in the Exchange Offer. The term "Notes" refers to the Old Notes and the New Notes collectively. The term "you" refers to prospective investors in the New Notes. ABOUT THE COMPANY The Company designs, manufactures and markets engine-powered tools for use in both industrial and residential applications, with its two principal product lines being portable generators and pressure washers. In 1998, as measured by net sales, the Company believes it was the largest U.S. manufacturer of portable generator sets and the second largest U.S. manufacturer of consumer pressure washers, with a domestic market share in each category as follows:
ESTIMATED 1998 PRODUCT U.S. MARKET SHARE ------- ----------------- Portable generators........................... 29% Pressure washers.............................. 33%
The Company sells its portable generators, pressure washers and other products primarily to home center chains, mass merchants and warehouse clubs as well as to independent representatives. Since 1961, the Company has been the major supplier of portable generators to Sears, Roebuck and Co., and has been one of two suppliers of pressure washers to Sears, both marketed under the Craftsman(R) label. The Company is also a core supplier of portable generators and pressure washers, both marketed under the Generac(R) label, to The Home Depot, Inc., the largest and one of the fastest growing retail home center chains in North America. The Company's performance has benefited from strong growth in the engine-powered tools market as well as favorable demographic trends. Over the past three years, the Company's net sales have grown at a compound annual rate of approximately 38%, increasing from $104.8 million in 1995 to $276.4 million in 1998. The Company believes that its strength in each product category is the result of its strategic approach to engineering and manufacturing, its innovation in product development and its focus on product quality. In addition to the manufacture of portable generators and pressure washers, the Company manufactures some of the components for those products, such as alternators, pressure washer pumps and blow-molded gas tanks. The benefits of this "strategic" vertical integration for the Company are (1) significant cost advantages 1 5 over certain competitors who source components from third party suppliers and (2) improved operating profitability through the reconfiguration of production processes and the standardization of components. The Company also has long-standing customer relationships and a unique, nationwide service network to build and support its customer base. The Company believes that these strengths facilitate the Company's ability to serve its increasingly sophisticated and demanding retail customers. The Company has been designing, building and marketing portable generators since its founding in 1959. The principal executive offices of the Company are located at 1 Generac Way, Jefferson, Wisconsin 53549, telephone (920) 674-3750. THE EXCHANGE OFFER New Notes....................... The forms and terms of the New Notes are identical in all material respects to the terms of the Old Notes for which they may be exchanged pursuant to the Exchange Offer, except for certain transfer restrictions, registration rights and additional interest provisions relating to the Old Notes described elsewhere in this Prospectus under "Description of the Old Notes" and "Old Notes Registration Rights Agreement." The Exchange Offer.............. We are offering to exchange up to $110,000,000 aggregate principal amount of the New Notes for up to $110,000,000 aggregate principal amount of Old Notes. Old Notes may be exchanged only in integral multiples of $1,000. Expiration Date; Withdrawal of Tender........................ Unless we extend the Exchange Offer, it will expire at 5:00 p.m., New York City time, on [ ], 1999. We will not extend this term period to a date later than [ ], 1999. You may withdraw any Old Notes you tender pursuant to the Exchange Offer at any time prior to [ ], 1999. We will return, as promptly as practicable after the expiration or termination of the Exchange Offer, any Old Notes not accepted for exchange for any reason without expense to you. Certain Conditions to the Exchange Offer.................. The Exchange Offer is subject to customary conditions, which may be waived by us. These conditions are included in the Letter of Transmittal we have provided to you with this Prospectus. Procedures for Tendering Old Notes........................... If you wish to accept the Exchange Offer, you must complete, sign and date the Letter of Transmittal in accordance with the instructions and deliver the Letter of Transmittal, along with the 2 6 Old Notes and any other required documentation, to the Exchange Agent. By executing the Letter of Transmittal, you will represent to us that, among other things: - any New Notes you receive will be acquired in the ordinary course of your business, - you have no arrangement with any person to participate in the distribution of the New Notes, and - you are not an "affiliate," as defined in Rule 405 of the Securities Act of 1933, as amended, of the Issuers or, if you are an affiliate, you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If you hold your Old Notes through The Depository Trust Company ("DTC") and wish to participate in the Exchange Offer, you may do so through DTC's Automated Tender Offer Program ("ATOP"). By participating in the Exchange Offer, you will agree to be bound by the Letter of Transmittal as though you had executed such Letter of Transmittal. Interest on the New Notes....... Interest on the New Notes: - accrues from the date of issuance at the rate of 11 1/4% per annum, and - is payable semi-annually in arrears on each January 1 and July 1, commencing on January 1, 1999. Interest on the Old Notes accepted for exchange will stop accruing upon the issuance of the New Notes. Special Procedures for Beneficial Owners............... If you are a beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and wish to tender such Old Notes in the Exchange Offer, please contact the registered holder as soon as possible and instruct them to tender on your behalf and comply with our instructions set forth elsewhere in this Prospectus. Guaranteed Delivery Procedure... If you wish to tender your Old Notes, you may, in certain instances, do so according to the guaranteed delivery procedures set forth elsewhere in this Prospectus under "The Exchange Offer -- Proce- 3 7 dures for Tendering Old Notes -- Guaranteed Delivery." Registration Rights Agreement... We sold the Old Notes to the Initial Purchaser in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, on July 9, 1998. At that time, the Issuers and the Initial Purchaser entered into a Registration Rights Agreement which grants the holders of the Old Notes certain exchange and registration rights. This Exchange Offer satisfies those rights, which terminate upon consummation of the Exchange Offer. You will not be entitled to any exchange or registration rights with respect to the New Notes. Also, after consummation of the Exchange Offer no exchange or registration rights will exist with respect to any Old Notes that remain outstanding. Certain Federal Tax Considerations .. With respect to the exchange of the Old Notes for the New Notes: - the exchange will not constitute a taxable exchange for U.S. federal income tax purposes, - you will not recognize gain or loss upon receipt of the New Notes, - you must include interest in gross income to the same extent as the Old Notes, and - your holding period for the New Notes will include the holding period for the Old Notes. Use of Proceeds................. We will not receive any proceeds from the exchange of Notes pursuant to the Exchange Offer. Exchange Agent.................. We have appointed Bankers Trust Company as the Exchange Agent for the Exchange Offer. The telephone number of the Exchange Agent is (800) 735-7777. TERMS OF THE NOTES The form and terms of the New Notes are substantially the same as the form and terms of the Old Notes, except that the New Notes are registered under the Securities Act. As a result, the New Notes will not bear legends restricting their transfer and will not contain the registration rights and additional interest provisions contained in the Old Notes. Issuers......................... Generac Portable Products, LLC and GPPW, Inc. Securities Offered.............. $110,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2006. 4 8 Maturity........................ July 1, 2006 Interest Payment Dates.......... January 1 and July 1 of each year, commencing January 1, 1999. Sinking Fund.................... None. Optional Redemption............. Except as described below and under "Change of Control," we may not redeem the Notes prior to July 1, 2002. After July 1, 2002, we may redeem any amount of the Notes at any time at the respective redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to July 1, 2001, we may redeem up to 35% of the original aggregate principal amount of the Notes with the cash proceeds of one or more Public Equity Offerings (as defined) at a redemption price equal to 111.250% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, as long as at least 65% of the original aggregate principal amount of the Notes remain outstanding after such redemption. Holdings Guarantee.............. Holdings will issue a guarantee of the Notes under which Holdings, as primary obligor, will fully and unconditionally guarantee the payment of the Notes when due on a senior subordinated basis. Change of Control............... Upon the occurrence of a Change of Control (as defined), the holders of the Notes have the right to require us to repurchase the Notes at a price equal to 101% of the original aggregate principal amount, together with accrued and unpaid interest, if any, to the date of repurchase. Ranking......................... The Notes will be unsecured and will be subordinated to all existing and future Senior Debt of the Issuers. The Notes will rank without preference with all existing and future senior subordinated indebtedness of the Issuers and will rank senior to all existing and future subordinated indebtedness of the Issuers. Restrictive Covenants........... The Indenture under which the New Notes will be issued and the Old Notes were issued limits: - the incurrence of additional indebtedness by us and our subsidiaries, - the payment of dividends on, and redemption of, our capital stock and our subsidiaries' capital stock and the redemption of our and our subsidiaries' subordinated obligations, 5 9 - investments, - sales of assets and subsidiary stock, - transactions with affiliates, and - liens. In addition, the Indenture limits our ability to engage in consolidations, mergers and transfers of substantially all of our assets and also contains certain restrictions on distributions from our subsidiaries. All of these limitations and prohibitions are subject to a number of important qualifications and exceptions. Absence of a Public Market for the New Notes................... In general, you may freely transfer the New Notes. However, there are exceptions to this general statement described elsewhere in this Prospectus under the section "The Exchange Offer -- Resales of New Notes." Further, the New Notes will be new securities for which there will not initially be a market. As a result, the development or liquidity of any market for the New Notes may not occur. BT Alex. Brown Incorporated, the initial purchaser of the Old Notes, has advised us that it currently intends to make a market in the New Notes. However, you should be aware that the initial purchaser is not obligated to do so. In the event such a market may develop, the initial purchaser may discontinue it at any time without notice. We do not intend to apply for a listing of the New Notes on any securities exchange or on any automated dealer quotation system. For additional information regarding the New Notes, see "Description of the New Notes" and "Certain United States Federal Income Tax Consequences." 6 10 RISK FACTORS You should consider carefully the information set forth under the caption "Risk Factors" beginning on page 8 and all the other information set forth in this Prospectus before deciding whether to participate in the Exchange Offer. RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges for the Company and Predecessor is set forth below for the periods indicated.
PREDECESSOR COMPANY PRO FORMA(1) ------------------------------- ----------------- ----------------- YEAR ENDED DECEMBER 31, JANUARY 1, 1998 JULY 10, 1998 ------------- THROUGH THROUGH YEAR ENDED 1996 1997 JULY 9, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 ----- ----- --------------- ----------------- ----------------- Ratio of earnings to fixed charges....... 4.0x 9.3x 10.2x 1.6x 1.4x ==== ==== ===== ==== ====
- ------------------------- (1) To reflect the transactions described later in this Prospectus under the section "The Transaction." In computing the ratio of earnings to fixed charges, "earnings" represents income (loss) before income taxes plus fixed charges. "Fixed charges" consists of interest, amortization of debt issuance costs and a portion of rent, which is representative of the interest factor (approximately one-third of rent expense). 7 11 RISK FACTORS Holders tendering Old Notes in the Exchange Offer should carefully review the information contained elsewhere in this Prospectus and should particularly consider the matters set forth below. SIGNIFICANT LEVERAGE; ABILITY TO SERVICE DEBT Because of the July 9, 1998 acquisition of the Portable Products Division of Generac Corporation as described under the caption "The Transaction" later in this Prospectus, we have a significant amount of debt outstanding. You should be aware that this significant amount of debt could have important consequences to you as a holder of the Notes. Below we have identified for you many, but not all, of the consequences resulting from this significant amount of debt that we now owe. - We may be unable to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes. - A significant portion of our cash flow from operations must be dedicated to the repayment of the indebtedness, thereby reducing the amount of cash we have available for other purposes. - We may be disadvantaged as compared to our competitors as a result of the significant amount of debt we now owe. - Our ability to adjust to changing market conditions and our ability to withstand competition may be hampered by the amount of debt we now owe. It may also make us more vulnerable in a downturned market or a recession. You should be aware that our ability to repay or refinance our current debt depends on our successful financial and operating performance. Our ability to meet our payment obligations may depend on our ability to successfully implement our business strategy. Unfortunately, we cannot assure you that we will be successful in implementing our strategy or in realizing our anticipated financial results. You should also be aware that our financial and operational performance depends upon a number of factors, many of which are beyond our control. These factors include: - the current economic and competitive conditions in the engine-powered tools industry, - any operating difficulties, operating costs or pricing pressures we may experience, - the passage of legislation or other regulatory developments that affects us adversely, and - any delays in implementing any strategic projects we may have. Our inability to repay our current debt may result in a number of serious consequences, including (1) a reduction or delay of expansion, (2) a sale of some of our assets, or (3) a reorganization or recapitalization of the Company. Any one or more of these consequences could adversely affect your investment in the Notes. For more information about the Company's indebtedness or business strategy, you should read the information we have included under the captions "Description of the Senior Secured Credit Facility," "Description of the New Notes," and "Business -- Business Strategy" later in this Prospectus. 8 12 ABSENCE OF INDEPENDENT OPERATING HISTORY; DEPENDENCE ON GENERAC CORPORATION We have operated as an independent entity only since July 1998, when the Company acquired the Portable Products Division of Generac Corporation. The principal operations of the Company were established in 1959. In January, 1997, as part of a corporate reorganization, the Company's operations were placed in a separate division of Generac Corporation. The Company has historically been dependent on Generac Corporation for certain financial support and administrative systems and services. Our future results depend largely upon our ability to operate effectively as an independent company. We believe that we can accomplish this task. However, we cannot guarantee to you that we will. In addition, we have used the Generac-Nagano overhead valve industrial engine (the "GN OHVI engine") in certain of our products since 1992. At the time of the acquisition of the Portable Products Division of Generac Corporation, we entered into an engine supply agreement with Generac Corporation. This agreement provides that Generac Corporation will exclusively supply us with the GN OHVI engine for use on welders, pressure washers and consumer portable generators, and for other approved applications. The engine supply agreement obligates us to make minimum annual purchases of the GN OHVI engine over the next nine years and gives us the right to increase the amount of engines purchased based on its forecast requirements. Assuming that we make the minimum annual purchases, Generac Corporation may not sell the GN OHVI engine to other manufacturers or assemblers for use in pressure washers, consumer portable generators and welders. Although we believe the terms of the engine supply agreement are fair and reasonable, we cannot assure you that the engine supply agreement will adequately provide for the Company's future engine requirements. On the one hand, Generac Corporation may not be able to supply all the GN OHVI engines we may require, and on the other, the annual minimum purchase requirement may be for a greater number of engines than what we require in any given year. Our inability to obtain all of the engines we need or our obligation to buy more engines than we need could affect the Company's financial performance in a negative way. GOVERNMENT REGULATION As is the case with most businesses, we are subject to certain governmental regulations with respect to environmental and health and safety matters, many of which provide for substantial fines and criminal sanctions for violations. We believe that our operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. However, the operation of manufacturing plants entails risks in these areas. We cannot assure you that the Company will not incur costs related to such matters in the future that will negatively affect us. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws or regulations that may be adopted or imposed in the future. You should also read the section entitled "Business -- Environmental Matters" appearing later in this Prospectus for additional discussion related to this matter. DEPENDENCE UPON KEY PERSONNEL As a holder of Notes, you have no right to participate in the Company's management. The Company's continued success is highly dependent upon the personal efforts and abilities of our senior management, including Dorrance J. Noonan, Jr., our President and 9 13 Chief Executive Officer, Gary J. Lato, our Chief Financial Officer, and James H. Deneffe, our Senior Vice President of Sales and Marketing. We do not have employment contracts with any of these officers and the loss of any one of them could impact the Company in a negative way. Please also read the "Management" section later in this Prospectus for additional information. CONTROL BY PRINCIPAL STOCKHOLDER You should be aware that a total of approximately 55% of Generac Portable Products, Inc.'s voting stock is controlled by The Beacon Group III -- Focus Value Fund, L.P. ("Beacon"). Accordingly, Beacon indirectly owns a majority of the equity interest in the Issuers. As a result, it has the ability to exercise practical control over the outcome of actions requiring the approval of our equity holders, including potential acquisitions, elections of the Issuers' Boards of Directors and sales or changes in control of the Issuers. You should read the section entitled "Security Ownership" later in this Prospectus for additional information. YEAR 2000 Year 2000 issues exist when dates are recorded in computers using two digits (rather than four) and are then used for arithmetic operations, comparisons or sorting. A two-digit recording may recognize a date using "00" as 1900 rather than 2000, which could cause our computer systems to perform inaccurate computations. We have adopted a three phase approach of assessment, correction and testing. Although we have not yet completed our Year 2000 project, we currently estimate that our information technology systems will be Year 2000 compliant by September 1, 1999. You should be aware that Year 2000 issues relate not only to our systems, but also to those used by our suppliers. We anticipate that system replacements and modifications will resolve any Year 2000 issues that may exist with our suppliers or their suppliers. However, we cannot guarantee to you that such replacements or modifications will be completed successfully or on time and, as a result, any failure to complete such modification on time may materially affect our financial and operating results in a negative way. You should read the section "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Strategy" later in this Prospectus for additional information. RESTRICTIVE DEBT COVENANTS The Indenture and our Credit Facility (as defined below) impose significant operating and financial restrictions on us and our subsidiaries. These restrictions may significantly limit or prohibit us from engaging in certain transactions, including the following: - borrowing additional money, - paying dividends or other distributions to our stockholders, - making certain investments, - creating certain liens on our assets, - selling certain assets currently held by us, - entering into transactions with any of our affiliates, and - engaging in certain mergers or consolidations. 10 14 The senior subordinated credit facility we entered into in financing the acquisition of the Portable Products Division of Generac Corporation (the "Credit Facility") imposes significant restrictive covenants and requires Generac Portable Products, LLC to maintain specified financial ratios and satisfy certain financial tests. Our ability to meet these financial ratios and tests may be affected by events beyond our control and, as a result, we cannot guarantee to you that we will be able to meet such tests. In addition, the restrictions contained in the Credit Facility could limit our ability to obtain future financing, make needed capital expenditures, withstand a future downturn in our business or in the economy or otherwise conduct necessary corporate activities. Our failure to comply with the restrictions in the Indenture and the Credit Facility could lead to a default under the terms of those documents. In the event of such a default, the applicable lender could declare all amounts borrowed and all amounts due under other instruments that contain certain provisions of cross-acceleration or cross-default due and payable, including all interest that is accrued and unpaid. In addition, the lenders under such agreements could terminate their commitments to lend to us. If that does occur, we cannot assure you that we would be able to make the necessary payments to the lenders and we cannot give you any assurance that we would be able to find additional alternative financing. Even if we could obtain additional alternative financing, we cannot assure you that it would be on terms that are favorable or acceptable to us. You should also be aware that the existing indebtedness under the Credit Facility is secured by substantially all of our and our affiliates' assets. Should a default or acceleration of such indebtedness occur, the holders of such indebtedness could seize these assets securing the indebtedness and sell the assets to satisfy all or a part of what is owed. Please refer to the sections in this Prospectus entitled "Description of the New Notes -- Certain Covenants" and "Description of the Senior Secured Credit Facility" later in this Prospectus for additional information. HOLDINGS GUARANTEE Holdings will issue a guarantee of the Notes under which Holdings, as primary obligor, will fully and unconditionally guarantee the payment of the Notes when due on a senior subordinated basis. This guarantee will be subordinated in right of payment to all senior indebtedness of Holdings and effectively subordinated to all indebtedness and other liabilities (including trade payables) of Holdings' subsidiaries. Since Holdings is a holding company with no significant operations and no significant investments in businesses other than the Issuers, this guarantee by Holdings provides little, if any, additional credit support for the Notes. Investors should not rely on this guarantee in evaluating an investment in the Notes. COMPETITION We operate in a highly competitive industry. Competition is based primarily on price, availability, product differentiation, quality of products and breadth of product offerings. Several of our competitors have significantly greater financial and operating resources and name recognition than we have. As a result of these competitive conditions, we may not be able to sustain past levels of revenue or continue our recent revenue growth or profitability. Please refer to the section entitled "Business -- Competition" later in this Prospectus for additional information. 11 15 DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS Our three largest customers, Home Depot, Sears and Costco, accounted for approximately 74% of the Company's sales for each of 1998 and 1997. We do not have contractual agreements with any of these customers for the supply of products. The loss of any of these customers or a significant decrease in the volume of products supplied to any of these customers, particularly Home Depot or Sears, could affect our financial performance in a negative way. Please read the section entitled "Business -- Distribution and Marketing" later in this Prospectus for additional information. AVAILABILITY AND PRICING OF RAW MATERIALS AND COMPONENTS We obtain some raw materials and components (including, among others, steel and copper and small engines used in the Company's product lines) from third parties. We believe that we have developed reliable sources for these raw materials and components and that we could find qualified alternative sources to supply such materials and components. Our operating results could suffer if we are unable to obtain raw materials or components for a prolonged period of time. Increases in the prices of raw materials or components resulting from tight supplies could affect our financial performance in a negative way. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS We expect that international sales will continue to represent a significant percentage of our total sales. In addition, we have significant operations outside the United States, including a plant located in the United Kingdom. A number of factors could adversely effect our international sales and operations, including (1) periodic economic downturns, (2) fluctuations in interest and foreign currency exchange rates, (3) the imposition of government controls, (4) export license requirements, (5) political instability or nationalization of businesses, (6) trade restrictions and changes in tariffs and (7) difficulties in staffing and managing international operations. We cannot assure you that such risks will not affect our financial performance in a negative way in the future. As a result, we may need to modify our current business practices. RISKS ASSOCIATED WITH LIMITED MANUFACTURING FACILITIES The Company produces all of its United States products in its manufacturing facility located in Jefferson, Wisconsin. The Company produces all of the products required for its European operations at its manufacturing facility located in Cheshire, England. The Company's manufacturing processes are highly complex and require sophisticated and costly equipment. As a result, any prolonged interruption in the operations of either of the Company's manufacturing facilities could result in delays or cancellations of shipments. A number of factors could cause interruptions, including labor difficulties, equipment failures or destruction of or damage to a facility. We cannot assure you that alternative qualified capacity would be available on a timely basis or at all. Interruptions could result in a loss of customers and could affect our financial performance in a negative way. FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements concerning our operations, economic performances and financial condition. These statements are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control, and reflect future 12 16 business decisions which are subject to change. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect our results of operations. FRAUDULENT TRANSFER CONSIDERATIONS The incurrence of indebtedness by the Issuers, such as the Notes, may be subject to review under federal bankruptcy law or relevant state fraudulent conveyance or transfer laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of the Issuers. In such a case, if a court were to find under such laws that the Issuers had actual intent to defraud or did not receive fair consideration or reasonably equivalent value for incurring the debt represented by the Notes, and that, at the time the Issuers incurred indebtedness (including indebtedness under the Notes), the Issuers (1) were insolvent, (2) were rendered insolvent by reason of such incurrence, (3) were engaged in a business or transaction for which the assets remaining with the Issuers constituted unreasonably small capital, or (4) intended to incur, or believed that they would incur, debts beyond their ability to pay such debts as they matured, then such court could void or subordinate the amounts owing under the Notes to presently existing and future indebtedness of the Issuers and take other actions detrimental to the holders of the Notes. We believe that at the time we incurred the indebtedness constituting the Notes, we did not meet any of the criteria that would permit a court to void or subordinate the Notes. Our belief is based upon our analyses of internal cash flow projections and estimated values of our assets and liabilities. We cannot assure you, however, that a court would agree with us. ABSENCE OF PUBLIC MARKET Currently, there is no public market for the New Notes or the Old Notes. We do not intend to apply for listing of the Notes on any securities exchange or on any automated dealer quotation system. Although the Initial Purchaser has informed us that it intends to make a market in the Notes, it is not obligated to do so and may discontinue any such market at any time without notice. In addition, such market making activity may be limited during this Exchange Offer or the effectiveness of a shelf registration statement in lieu thereof. As a result, we can make no assurances to you as to the development or liquidity of any market for the Notes, your ability to sell the Notes, or the price at which you may be able to sell the Notes. Future trading prices of the Notes will depend on many factors, including among other things, prevailing interest rates, our operating results and the market for similar securities. Historically, the market for securities similar to the Notes, including non-investment grade debt, has been subject to disruptions that have caused substantial volatility in the prices of such securities. We cannot assure you that, if a market develops, it will not be subject to similar disruptions. PROCEDURES FOR TENDER OF OLD NOTES The New Notes will be issued in exchange for the Old Notes only after timely receipt by the Exchange Agent of certificates for Old Notes and a properly completed and duly executed Letter of Transmittal or a book-entry confirmation of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC, and all other required documentation. If you desire to tender your Old Notes in exchange for New Notes, you should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor we are under any duty to give you notification of defects or irregularities with respect to tenders of Old Notes for exchange. Old Notes that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be 13 17 subject to the existing transfer restrictions. In addition, if you tender the Old Notes in the Exchange Offer for the purpose of participating in a distribution of the New Notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. For additional information, please refer to the sections entitled "The Exchange Offer" and "Plan of Distribution" later in this Prospectus. CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES We did not register the sale of the Old Notes under the Securities Act. As a result, the Old Notes are subject to substantial transfer restrictions. Old Notes that are not tendered in exchange for New Notes or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing transfer restrictions. We do not currently anticipate that after the Exchange Offer we will register any additional resale of the Old Notes under the Securities Act. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected due to the limited amount, or "float," of the Old Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and, as a result, could result in lower prices for such security. For the same reason, to the extent that a large amount of Old Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market for the New Notes could be adversely affected. For additional information, please refer to the sections entitled "The Exchange Offer" and "Plan of Distribution" later in this Prospectus. THE ISSUERS Generac Portable Products, Inc., a Delaware corporation ("Holdings"), together with its subsidiaries, is a leader in the design, manufacture and sales of portable generators and pressure washers as described under "Business." Holdings was formed on April 29, 1998 as a Delaware corporation. The primary business activity of Holdings consists of its indirect ownership of 100% of the limited liability company interests in Generac Portable Products, LLC, a Delaware limited liability company (the "Operating Company"), through two wholly owned subsidiaries: GPPW, Inc., a Wisconsin corporation ("GPPW"), and GPPD, Inc., a Delaware corporation ("GPPD"). GPPW and GPPD hold, respectively, 5% and 95% limited liability company interests in the Operating Company. GPPW was incorporated in Wisconsin on May 28, 1998. GPPW does not conduct any operations. Accordingly, investors in the Notes should look only to the cash flow and assets of the Operating Company for payment of the Notes. The Operating Company was formed on June 1, 1998 as a Delaware limited liability company. On July 9, 1998, the Operating Company purchased substantially all of the assets, and assumed certain of the liabilities, of Generac Corporation's Portable Products Division, consisting of its production, marketing, sales, engineering, research and development (and in the U.K., Spain and Germany, importation) and administration operations located at its facilities in Wisconsin, England, Spain and Germany. The principal executive offices of the Issuers are located at 1 Generac Way, Jefferson, Wisconsin 53549, telephone (920) 674-3750. 14 18 THE TRANSACTION Holdings and Generac Corporation are parties to an Asset Purchase and Sale Agreement dated as of May 5, 1998 (the "Asset Purchase Agreement"), pursuant to which Holdings caused the Operating Company to purchase substantially all of the assets, and assume certain of the liabilities, of Generac Corporation's Portable Products Division (the "Division") for $305.5 million in cash after post closing adjustments estimated to total $1.0 million. In connection with the Transaction, Beacon, certain members of management of the Company and certain other investors (collectively, the "Equity Investors") purchased an aggregate of $110.0 million of common stock, par value $.01 per share, of Holdings (the "Holdings Common Stock"), constituting 100% of the outstanding Holdings Common Stock. The investments by the Equity Investors are collectively referred to herein as the "Equity Investment." The Operating Company entered into a new bank credit facility (the "Credit Facility") in connection with the Transaction that provided for (i) two senior secured term loan facilities in the aggregate amount of $85.0 million and (ii) a senior secured revolving credit facility of up to $30.0 million. At the closing of the Transaction, $85.0 million was borrowed under the term loans and borrowings of $11.6 million were made under the revolving credit facility to fund the Transaction. The balance of the funds available under the revolving credit facility are available to fund the Company's general corporate and additional working capital requirements. The Credit Facility has availability for letter of credit usage, is secured by substantially all the assets of the Operating Company, GPPW and, upon the occurrence of certain events, GPPD and is guaranteed by Holdings, GPPW and, upon the occurrence of certain events, GPPD. Additionally, the Operating Company entered into a capital lease arrangement with Generac Corporation for manufacturing equipment with a fair value of approximately $2.6 million (the "Capital Lease"). The acquisition of the Division by the Operating Company, the borrowings by the Operating Company of funds under the Credit Facility, the Equity Investment, the Capital Lease and the issuance of the Old Notes are referred to herein collectively as the "Transaction." The following table illustrates the sources and uses of funds in the Transaction (dollars in millions):
SOURCES USES - ------- ---- Credit Facility............... $ 94.2(1) Purchase Price................ $305.5 Transaction Fees and Old Notes..................... 110.0 Expenses...................... 8.7 ------ Equity Investment............. 110.0 ------ Total Sources............ $314.2 Total Uses.................... $314.2 ====== ======
- ------------------------- (1) Amount borrowed by the Operating Company under the Credit Facility at the closing of the Transaction was $96.6 million, which was subsequently reduced by $2.4 million on account of post closing adjustments and a refund of an overpayment of transaction expenses. 15 19 USE OF PROCEEDS OF THE NEW NOTES This Exchange Offer is intended to satisfy obligations of the Issuers under the Registration Rights Agreement dated as of July 2, 1998 (the "Registration Rights Agreement") by and among the Issuers and BT Alex. Brown Incorporated (the "Initial Purchaser"). The Issuers will not receive any proceeds from the issuance of the New Notes offered hereby. In consideration for issuing the New Notes in exchange for Old Notes as described in this Prospectus, the Issuers will receive Old Notes in like principal amount. The Old Notes surrendered in exchange for the New Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase in the outstanding debt of the Issuers. 16 20 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company at December 31, 1998 and July 9, 1998 after giving effect to the Transaction. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements of the Company and the notes thereto appearing elsewhere in this Prospectus.
AS OF AS OF DECEMBER 31, JULY 9, 1998 1998(4) ------------ -------- (DOLLARS IN THOUSANDS) LONG-TERM DEBT, INCLUDING CURRENT PORTION: Revolving credit facility(1)......................... $ 600 $ 11,608 Term loans(1)........................................ 84,800 85,000 Notes................................................ 110,000 110,000 Capital lease obligations(2)......................... 2,383 2,617 -------- -------- Total long-term debt.............................. 197,783 209,225 -------- -------- STOCKHOLDERS' EQUITY: Common stock and additional paid-in capital.......... 110,000 110,000 Retained earnings.................................... 4,202 -- Accumulated other comprehensive income............... 723 -- Excess of purchase price over book value of net assets acquired from entities partially under common control(3)................................. (11,658) (11,658) -------- -------- Total stockholders' equity........................ 103,267 98,342 -------- -------- Total capitalization.............................. $301,050 $307,567 ======== ========
- ------------------------- (1) The senior secured credit facility consists of a revolving credit facility providing for $30.0 million of borrowings and term loans aggregating $85.0 million. (2) Represents the lease of certain manufacturing equipment from Generac Corporation resulting in capital lease treatment for accounting purposes. (3) The Company has limited its accounting basis resulting from the Transaction as a result of certain stockholders which also owned an interest in Generac Corporation. The difference between the total consideration paid in connection with the Transaction and the accounting basis recognized is reported as a separate component of stockholders' equity. (4) Amounts presented give effect to the Transaction. 17 21 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER In connection with the sale of the Old Notes, the Issuers entered into the Registration Rights Agreement with the Initial Purchaser, pursuant to which the Issuers agreed to file and to use their reasonable best efforts to cause to become effective with the Commission a registration statement with respect to the exchange of the Old Notes for senior subordinated notes with terms identical in all material respects to the terms of the Old Notes. A copy of the Registration Rights Agreement has been filed as an Exhibit to the Registration Statement of which this Prospectus is a part. The Exchange Offer is being made to satisfy the contractual obligations of the Issuers under the Registration Rights Agreement. The forms and terms of the New Notes are identical in all material respect to the forms and terms of the Old Notes, except that the New Notes have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Old Notes and will not provide for any increase in the interest rate thereon. In that regard, the Old Notes provide, among other things, that if a registration statement relating to the Exchange Offer has not been filed on or by February 4, 1999 and declared effective on or by April 5, 1999 the interest rate borne by the Old Notes commencing on July 9, 1998 will increase by 0.50% per annum until the Exchange Offer is consummated. Upon consummation of the Exchange Offer, holders of Old Notes will not be entitled to any increase in the interest rate thereon or any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Risk Factors -- Consequences of a Failure to Exchange Old Notes" and "Description of the Old Notes." The Exchange Offer is not being made to, nor will the Issuers accept tenders for exchange from, holders of Old Notes in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Unless the context requires otherwise, the term "holder" with respect to the Exchange Offer means any person in whose name the Old Notes are registered on the books of the Issuers or any other person who has obtained a properly completed bond power from the registered holder, or any person who beneficially owns Old Notes which are held of record by DTC who desires to deliver such Old Notes by book-entry transfer into the Exchange Agent's account at DTC, or any person who beneficially owns Old Notes which are held of record by a nominee other than DTC (or its nominee). Pursuant to the Exchange Offer, the Issuers will exchange as soon as practicable after the date hereof, all of the Old Notes, of which $110,000,000 aggregate principal amount is outstanding, for a like aggregate principal amount of the New Notes. The issuance of the New Notes has been registered under the Securities Act. TERMS OF THE EXCHANGE OFFER The Issuers hereby offer, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, to exchange up to $110,000,000 aggregate principal amount of New Notes for a like aggregate principal amount of Old Notes properly tendered on or prior to the Expiration Date and not properly withdrawn in accordance with the procedures described below. The Issuers will issue, promptly after the Expiration Date, an aggregate principal amount of up to $110,000,000 of New Notes in 18 22 exchange for a like aggregate principal amount of outstanding Old Notes tendered and accepted in connection with the Exchange Offer. Holders may tender their Old Notes for exchange in whole or in part in any integral multiple of $1,000. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered. Holders of Old Notes do not have any appraisal or dissenters' rights in connection with the Exchange Offer. Old Notes which are not tendered for or are tendered but not accepted in connection with the Exchange Offer will remain outstanding and remain entitled to the benefits of the Indenture, but will not be entitled to any further registration rights under the Registration Rights Agreement, except under limited circumstances. See "Risk Factors -- Consequences of a Failure to Exchange Old Notes" and "Description of the Old Notes." If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof promptly after the Expiration Date. Holders who tender Old Notes in connection with the Exchange Offer will not be required to pay brokerage commissions or fees or transfer taxes with respect to the exchange of Old Notes in connection with the Exchange Offer, except under those circumstances described in the Letter of Transmittal. The Issuers will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "-- Fees and Expenses." THE BOARDS OF DIRECTORS OF THE ISSUERS MAKE NO RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" means 5:00 p.m., New York City time, on , 1999 unless the Exchange Offer is extended by the Issuers (in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended). The Issuers expressly reserve the right in their sole and absolute discretion, subject to applicable law, at any time and from time to time, (i) to delay the acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer (whether or not any Old Notes have been accepted for exchange) if the Issuers determine, in their sole and absolute discretion, that any of the conditions referred to under "-- Conditions to the Exchange Offer" has occurred or exist or has not been satisfied, (iii) to extend the Expiration Date and retain all Old Notes tendered pursuant to the Exchange Offer, subject, however, to the right of holders of Old Notes to withdraw their tendered Old Notes as described under "-- Withdrawal Rights," and (iv) to waive any condition or otherwise amend the terms of 19 23 the Exchange Offer in any respect. If the Exchange Offer is amended in a manner determined by the Issuers to constitute a material change, or if the Issuers waive a material condition of the Exchange Offer, the Issuers will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the Old Notes, and the Issuers will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. Any such delay in acceptance, extension, termination or amendment will be followed promptly by oral (promptly confirmed in writing) or written notice thereof to the Exchange Agent and by making a public announcement thereof, and such announcement in the case of an extension will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Issuers may choose to make any public announcement and subject to applicable law, the Issuers shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to an appropriate news agency. ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES Upon the terms and subject to the conditions of the Exchange Offer, the Issuers will exchange New Notes for Old Notes validly tendered and not withdrawn (pursuant to the withdrawal rights described under "-- Withdrawal Rights") promptly after the Expiration Date. Subject to the conditions set forth under "-- Conditions to the Exchange Offer," delivery of New Notes in exchange for Old Notes tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for Old Notes or a book-entry confirmation of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC, including an Agent's Message if the tendering holder does not deliver a Letter of Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal, and (iii) any other documents required by the Letter of Transmittal. Accordingly, the delivery of New Notes might not be made to all tendering holders at the same time, and will depend upon when certificates for Old Notes, book-entry confirmations with respect to Old Notes and other required documents are received by the Exchange Agent. The term "book-entry confirmation" means a timely confirmation of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC. See "-- Procedures for Tendering Old Notes -- Book-Entry Transfer." The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by the Letter of Transmittal and that the Issuers may enforce such Letter of Transmittal against such participant. Subject to the terms and conditions of the Exchange Offer, the Issuers will be deemed to have accepted for exchange, and thereby exchanged, Old Notes validly tendered and not withdrawn as, if and when the Issuers give oral (promptly confirmed in writing) or written notice to the Exchange Agent of the Issuers' acceptance of such Old Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent for the Issuers for the purpose of receiving tenders of Old Notes, Letters of Transmittal and 20 24 related documents, and as agent for tendering holders for the purpose of receiving Old Notes, Letters of Transmittal and related documents and transmitting New Notes which will not be held in global form by DTC or a nominee of DTC to validly tendering holders. Such exchange will be made promptly after the Expiration Date. If for any reason whatsoever, acceptance for exchange or the exchange of any Old Notes tendered pursuant to the Exchange Offer is delayed (whether before or after the Issuers' acceptance for exchange of Old Notes) or the Issuers extend the Exchange Offer or are unable to accept for exchange or exchange Old Notes tendered pursuant to the Exchange Offer, then, without prejudice to the Issuers' rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the Issuers and subject to Rule 14e-l(c) under the Exchange Act, retain tendered Old Notes and such Old Notes may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under "-- Withdrawal Rights." Pursuant to an Agent's Message or a Letter of Transmittal, a holder of Old Notes will represent, warrant and agree in the Agent's Message or Letter of Transmittal that it has full power and authority to tender, exchange, sell, assign and transfer Old Notes, that the Issuers will acquire good, marketable and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances, and the Old Notes tendered for exchange are not subject to any adverse claims or proxies. The holder also will warrant and agree that it will, upon request, execute and deliver any additional documents deemed by the Issuers or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment, and transfer of the Old Notes tendered pursuant to the Exchange Offer. PROCEDURES FOR TENDERING OLD NOTES VALID TENDER. Except as set forth below, in order for Old Notes to be validly tendered by book-entry transfer, an Agent's Message must be transmitted by DTC to the Exchange Agent or a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and in either case any other documents required by the Letter of Transmittal, must be delivered to the Exchange Agent by mail, facsimile, hand delivery or overnight carrier at one of the Exchange Agent's addresses set forth under "-- Exchange Agent" on or prior to the Expiration Date and either (i) such Old Notes must be tendered pursuant to the procedures for book-entry transfer set forth below or (ii) the guaranteed delivery procedures set forth below must be complied with. Except as set forth below, in order for Old Notes to be validly tendered by a means other than by book-entry transfer, a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal, must be delivered to the Exchange Agent by mail, facsimile, hand delivery or overnight carrier at one of the Exchange Agent's addresses set forth under "-- Exchange Agent" on or prior to the Expiration Date and either (i) such Old Notes must be delivered to the Exchange Agent on or prior to the Expiration Date or (ii) the guaranteed delivery procedures set forth below must be complied with. If less than all Old Notes are tendered, a tendering holder should fill in the amount of Old Notes being tendered in the appropriate box on the Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE 21 25 OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER. The Exchange Agent and DTC have confirmed that any participant in DTC's book-entry transfer facility system may utilize DTC's ATOP procedures to tender Old Notes. The Exchange Agent will establish an account with respect to the Old Notes at DTC for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any participant may make a book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's account at DTC in accordance with DTC's ATOP procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message or a completed and signed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other documents required by the Letter of Transmittal, must in any case be delivered to and received by the Exchange Agent at one of its addresses set forth under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure set forth below must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. SIGNATURE GUARANTEES. Certificates for Old Notes need not be endorsed and signature guarantees on a Letter of Transmittal are unnecessary unless (a) a certificate for the Old Notes is registered in a name other than that of the person surrendering the certificate or (b) such registered holder completes the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the Letter of Transmittal. In the case of (a) or (b) above, such certificates for Old Notes must be duly endorsed or accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the Letter of Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association (each, an "Eligible Institution"), unless surrendered on behalf of such Eligible Institution. See Instructions 2 and 6 to the Letter of Transmittal. GUARANTEED DELIVERY. If a holder desires to tender Old Notes pursuant to the Exchange Offer and the certificates for such Old Notes are not immediately available or time will not permit all required documents to reach the Exchange Agent on or before the Expiration Date, or the procedures for book-entry transfer cannot be completed on a timely 22 26 basis, such Old Notes may nevertheless be tendered, provided that all of the following guaranteed delivery procedures are complied with: (i) such tenders are made by or through an Eligible Institution; (ii) a completed and signed Notice of Guaranteed Delivery, substantially in the form accompanying the Letter of Transmittal, is delivered to the Exchange Agent, as provided below, on or prior to Expiration Date; and (iii) the certificates (or a book-entry confirmation) representing all tendered Old Notes, in proper form for transfer, together with a completed and signed Letter of Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal, with any required signature guarantees and any other documents required by the Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by facsimile or mail to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such notice. The Issuers' acceptance for exchange of Old Notes tendered pursuant to any of the procedures described above will constitute a binding agreement between the tendering holder and the Issuers upon the terms and subject to the conditions of the Exchange Offer. DETERMINATION OF VALIDITY. All questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tendered Old Notes will be determined by the Issuers, in their sole discretion, whose determination shall be final and binding on all parties. The Issuers reserve the absolute right, in their sole and absolute discretion, to reject any and all tenders determined by them not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Issuers, be unlawful. The Issuers also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer as set forth under "-- Conditions to the Exchange Offer" or any condition, defect or irregularity in any tender of Old Notes of any particular holder whether or not similar conditions, defects or irregularities are waived in the case of other holders. The Issuers' interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding on all parties. No tender of Old Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. Neither the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent nor any other person shall be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. If any Letter of Transmittal, endorsement, bond power, power of attorney or any other document required by the Letter of Transmittal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and, unless waived by the Issuers, proper evidence satisfactory to the Issuers, in their sole discretion, of such person's authority to so act must be submitted. A beneficial owner of Old Notes that are held by or registered in the name of a broker, dealer, commercial bank, trust companies or other nominee or custodian is urged to 23 27 contact such entity promptly if such beneficial holder wishes to participate in the Exchange Offer. RESALES OF NEW NOTES The Issuers are making the Exchange Offer for the Old Notes in reliance on the position of the SEC staff as set forth in certain interpretive letters addressed to third parties in other transactions. However, the Issuers have not sought their own interpretive letter and there can be no assurance that the SEC staff would make a similar determination with respect to the Exchange Offer as it has in such interpretive letters to third parties. Based on these interpretations by the SEC staff, and subject to the two immediately following sentences, the Issuers believe that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than a holder who is a broker-dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution (within the meaning of the Securities Act) of such New Notes. However, any holder of Old Notes who is an "affiliate" of the Issuers or who intends to participate in the Exchange Offer for the purpose of distributing New Notes, or any broker-dealer who purchased Old Notes from the Issuers to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (a) will not be able to rely on the interpretations of the SEC staff set forth in the above-mentioned interpretive letters, (b) will not be permitted or entitled to tender such Old Notes in the Exchange Offer and (c) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of such Old Notes unless such sale is made pursuant to an exemption from such requirements. In addition, as described below, if any broker-dealer holds Old Notes acquired for its own account as a result of market-making or other trading activities and exchanges such Old Notes for New Notes, then such broker-dealer must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of such New Notes. Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the Exchange Offer will be required to represent that (i) it is not an "affiliate" of the Issuers or Holdings, (ii) any New Notes to be received by it are being acquired in the ordinary course of its business, (iii) it has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such New Notes, and (iv) if such holder is not a broker-dealer, such holder is not engaged in, and does not intend to engage in, a distribution (within the meaning of the Securities Act) of such New Notes. The Letter of Transmittal contains the foregoing representations. In addition, the Issuers may require a holder, as a condition to such holder's eligibility to participate in the Exchange Offer, to furnish to the Issuers (or an agent thereof) in writing information as to the number of "beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the Notes to be exchanged in the Exchange Offer. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes for its own account as the result of market-making activities or other trading activities and must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be 24 28 deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the SEC staff in the interpretive letters referred to above, the Issuers believe that broker-dealers who acquired Old Notes for their own accounts as a result of market-making activities or other trading activities ("Participating Broker-Dealers") may fulfill their prospectus delivery requirements with respect to the New Notes received upon exchange of such Old Notes (other than Old Notes which represent an unsold allotment from the original sale of the Old Notes) with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an Exchange Offer so long as it contains a description of the plan of distribution with respect to the resale of such New Notes. Accordingly, this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer during the 90-day period referred to below in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making or other trading activities. Subject to certain provisions set forth in the Registration Rights Agreement and to the limitations described herein, the Issuers have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such New Notes for a period ending 90 days after the Expiration Date or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any person, including any Participating Broker-Dealer, who is an "affiliate" of the Issuers may not rely on such interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. In that regard, each Participating Broker-Dealer who surrenders Old Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution of the Letter of Transmittal or delivery of any Agent's Message in lieu thereof, that, upon receipt of notice from the Issuers of the occurrence of any event or the discovery of any fact which makes any statement contained in this Prospectus untrue in any material respect or which causes this Prospectus to omit to state a material fact necessary in order to make the statements contained herein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of New Notes pursuant to this Prospectus until the Issuers have amended or supplemented this Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Participating Broker-Dealer or the Issuers have given notice that the sale of the New Notes may be resumed, as the case may be. WITHDRAWAL RIGHTS As set forth below, tenders of Old Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective a written or facsimile transmission of such notice of withdrawal must be received by the Exchange Agent at one of its addresses set forth under "-- Exchange Agent" on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Old Notes to be withdrawn, the aggregate principal amount of Old Notes to be withdrawn, and (if certificates for such Old Notes have been tendered) the name of the registered holder of the Old Notes as set forth on the certificate for the Old Notes, if different from that of the person who tendered such Old Notes. If certificates for the Old Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such 25 29 certificates for the Old Notes, the tendering holder must submit the serial numbers shown on the particular certificates for the Old Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Old Notes tendered for the account of an Eligible Institution. If Old Notes have been tendered pursuant to the procedures for book-entry transfer set forth in "-- Procedures for Tendering Old Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes. Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described above under "-- Procedures for Tendering Old Notes." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Issuers, in their sole discretion, whose determination shall be final and binding on all parties. None of the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent or any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Old Notes which have been tendered but which are withdrawn will be returned to the holder thereof promptly after withdrawal. INTEREST ON NEW NOTES Each New Note will accrue interest from the most recent interest payment date on the Old Notes surrendered in exchange for such New Notes or, if no interest has been paid or provided for on such Old Notes, from July 9, 1998. As a result, holders of Old Notes that are accepted for exchange will not receive accrued and unpaid interest on such Old Notes for any period from and after the most recent interest payment date on such Old Notes or, if no interest has been paid or provided for on such Old Notes, from and after July 9, 1998, and such holders will be deemed to have waived the right to receive any interest on such Old Notes. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Issuers will not be required to accept any Old Notes for exchange or to exchange any New Notes for any Old Notes, and, as described below, may terminate the Exchange Offer (whether or not any Old Notes have been accepted for exchange) or may waive any conditions to or amend the Exchange Offer, if any of the following conditions have occurred or exists or have not been satisfied: (a) there shall occur a change in the current interpretation by the SEC staff which permits the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes to be offered for resale, resold and otherwise transferred by holders thereof (other than broker-dealers and any such holder which is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such New Notes; (b) any action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency or body with respect to the Exchange 26 30 Offer which, in the Issuers' judgment, would reasonably be expected to impair the ability of the Issuers to proceed with the Exchange Offer; (c) any law, statute, rule or regulation shall have been adopted or enacted which, in the Issuers' judgment, would reasonably be expected to impair the ability of the Issuers to proceed with the Exchange Offer; (d) trading on the New York Stock Exchange or generally in the United States over-the-counter market shall have been suspended by order of the SEC or any other governmental authority which, in the Issuers' judgment, would reasonably be expected to impair the ability of the Issuers to proceed with the Exchange Offer; (e) a stop order shall have been issued by the SEC or any state securities authority suspending the effectiveness of the Registration Statement or proceedings shall have been initiated or, to the knowledge of the Issuers, threatened for that purpose, or any governmental approval has not been obtained, which approval the Issuers shall, in their sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby; or (f) any change, or any development involving a prospective change, in the business or financial affairs of the Issuers or any of their subsidiaries has occurred which, in the sole judgment of the Issuers, might materially impair the ability of the Issuers to proceed with the Exchange Offer. If the Issuers determine in their sole and absolute discretion that any of the foregoing events or conditions has occurred or exists or has not been satisfied, the Issuers may, subject to applicable law, terminate the Exchange Offer (whether or not any Old Notes have theretofore been accepted for exchange) or may waive any such condition or otherwise amend the terms of the Exchange Offer in any respect. If such waiver or amendment constitutes a material change to the Exchange Offer, the Issuers will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of the Old Notes, and the Issuers will extend the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act. EXCHANGE AGENT Bankers Trust Company has been appointed as Exchange Agent for the Exchange Offer. Delivery of a Letter of Transmittal and any other documents required by the Letter of Transmittal, questions, requests for assistance, and requests for additional copies of this Prospectus or of a Letter of Transmittal should be directed to the Exchange Agent as follows: By Facsimile: By Overnight Mail or Courier: By Hand Delivery: BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company Reorganization Unit Corporate Trust & Agency Group Corporate Trust & Agency Group P.O. Box 292737 Reorganization Unit Attn: Reorganization Department Nashville, Tennessee 648 Grassmere Park Road Receipt & Delivery Window 372229-2737 Nashville, Tennessee 37211 123 Washington Street, 1st Floor New York, New York 10006 Facsimile Transmission Confirm by Telephone: Number: Information: (615) 835-3572 (615) 835-3701 (800) 735-7777
27 31 Delivery to other than the above addresses or facsimile number will not constitute a valid delivery. FEES AND EXPENSES The Issuers have agreed to pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Issuers will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and related documents to the beneficial owners of Old Notes, and in handling or tendering for their customers. Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Notes in connection with the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. The Issuers will not make any payment to brokers, dealers or others soliciting acceptances of the Exchange Offer. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following Unaudited Pro Forma Consolidated Financial Information of the Company for the year ended December 31, 1998 has been prepared to reflect (i) the July 2, 1998 Offer and Sale of the Old Notes (the "Offering") and (ii) the consummation of the Transaction as if it had occurred on January 1, 1998 using the purchase method of accounting. The Unaudited Pro Forma Consolidated Financial Information does not purport to be indicative of the operating results of the Company that would have actually been obtained if the Offering and the Transaction had been consummated as of and for the dates and periods presented or that may be obtained in the future. The pro forma adjustments as described in the Notes to Unaudited Pro Forma Consolidated Financial Information are based on available information and upon certain assumptions that management believes are reasonable. The Unaudited Pro Forma Consolidated Financial Information should be read in conjunction with the audited financial statements and the notes thereto appearing elsewhere in this Prospectus. 28 32 GENERAC PORTABLE PRODUCTS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
JULY 10 THROUGH JANUARY 1 YEAR ENDED DECEMBER 31, THROUGH JULY 9, DECEMBER 31, 1998 1998 1998 --------------- --------------- ------------ HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA --------------- --------------- ----------- ------------ (DOLLARS IN THOUSANDS) Net sales...................... $136,862 $139,551 $ -- $276,413 Cost of goods sold............. 98,245 104,537 (162)(a) 202,620 -------- -------- -------- -------- Gross profit................... 38,617 35,014 162 73,793 -------- -------- -------- -------- Operating expenses: Selling and service expense................... 16,935 16,624 -- 33,559 General and administrative expense................... 2,865 2,380 -- 5,245 Intangible asset amortization.............. 2,531 -- 2,813(b) 5,344 -------- -------- -------- -------- Total operating expenses..... 22,331 19,004 2,813 44,148 -------- -------- -------- -------- Income from operations......... 16,286 16,010 (2,651) 29,645 -------- -------- -------- -------- Other (income) expense: Interest expense............. 9,674 1,409 10,314(c) 19,988 (1,409)(d) Deferred financing cost amortization.............. 401 -- 424(e) 825 Other........................ (171) 108 -- (63) -------- -------- -------- -------- 9,904 1,517 9,329 20,750 -------- -------- -------- -------- Income before income taxes..... 6,382 14,493 (11,980) 8,895 Provision for income taxes..... 2,180 -- 880(f) 3,060 -------- -------- -------- -------- Net Income..................... $ 4,202 $ 14,493 $(12,860) $ 5,835 ======== ======== ======== ========
29 33 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The Transaction was accounted for under the purchase method of accounting. The unaudited pro forma consolidated results of operations were determined based on the fair value of the assets acquired and liabilities assumed and associated amortization of goodwill and other acquired intangibles. Prior to July 9, 1998, certain costs and expenses were allocated to the Company from Generac Corporation. Management believes that the allocation of these costs and expenses approximate the equivalent costs expected to be incurred on a stand alone basis. (a) Reflects the effect on cost of sales of the recognition of a capital lease obligation as part of the Transaction arising from certain equipment leases: Actual lease expense incurred.......................... $(336) Amortization of assets under capital lease obligations.......................................... 174 ----- $(162) =====
(b) Reflects the amortization of goodwill of $213,738 over a 40 year period and other intangible assets of $200 over a 10 year period. Goodwill was calculated as the purchase price of $306,865 (including acquisition costs of $1,385) less the fair value of net assets acquired and liabilities assumed of $81,469 and less the excess of purchase price over book value of net assets acquired from entities partially under common control of $11,658. Other intangible assets are comprised of patents, trademarks and a non-compete agreement with Generac Corporation which have a remaining life and/or contractual term of approximately 10 years. (c) Interest expense reflects the following: Senior Secured Credit Facility........................ $ 3,754 Senior Subordinated Notes at 11.25%................... 6,462 Interest on capitalized leases........................ 98 ------- $10,314 =======
Borrowings under the Senior Secured Credit Facility bear interest at the Eurodollar rate, plus an applicable percentage, as defined. For the purposes of the pro forma interest expense adjustment, the Eurodollar rate is estimated to be 5.76% for the period January 1 through July 9, 1998. The rate approximates the average Eurodollar rate during the period. A 1/8% variance in Eurodollar rates for the Senior Secured Credit Facility would change assumed interest expense by approximately $106. A commitment fee of .5% per annum is charged on the unused portion of the Senior Secured Credit Facility. (d) Reflects the elimination of historical interest expense allocated from Generac Corporation. (e) The deferred financing costs are amortized using the effective interest rate and straight line methods over the term of the associated debt as follows: Senior Secured Credit Facility.......................... $201 Senior Subordinated Notes............................... 223 ---- $424 ====
30 34 (f) Reflects adjustment for income tax expense to provide taxes at a pro forma effective tax rate of 35% for the respective period. Historically, the Company's taxable income was included in Generac Corporation's taxable income. Generac Corporation and its stockholders elected to be treated as an S Corporation for federal and certain state income tax purposes. Accordingly, no provision for income taxes is included in the historical financial statements prior to July 9, 1998. 31 35 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA The selected historical financial information of the Company for July 10, 1998 through December 31, 1998 has been derived from, and should be read in conjunction with, the audited historical financial statements of the Company (including the notes thereto) appearing elsewhere in this Prospectus. The selected historical financial information of the Predecessor from January 1, 1998 through July 9, 1998 and for each of the years in the two year period ended December 31, 1997 have been derived from, and should be read in conjunction with, the audited historical financial statements of Generac Corporation's Portable Products Division (including the notes thereto) appearing elsewhere in this Prospectus. The selected historical financial information for the years ended December 31, 1995 and 1994 have been derived from the Company's unaudited financial statements and include, in the opinion of the Company's management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the data for such periods. The pro forma financial information for the year ended December 31, 1998 has been derived from and should be read in conjunction with the "Unaudited Pro Forma Consolidated Financial Information" appearing elsewhere in this Prospectus. The following table should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
PREDECESSOR COMPANY PRO FORMA ---------------------------------------------------------- ------------- ------------ JANUARY 1, JULY 10, 1998 FOR THE YEAR FOR THE YEAR ENDED DECEMBER 31, 1998 THROUGH ENDED ------------------------------------------- THROUGH DECEMBER 31, DECEMBER 31, 1994(a) 1995(a) 1996 1997 JULY 9, 1998 1998 1998 ----------- ----------- ------ ------ ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Net sales........................ $72.3 $104.8 $122.6 $178.0 $139.6 $136.9 $276.4 Gross profit..................... N/A N/A 27.3 46.9 35.0 38.6 73.8 Selling and service expense...... N/A N/A 13.9 21.7 16.6 16.9 33.6 General and administrative expense........................ N/A N/A 4.4 4.2 2.4 2.9 5.3 Intangible asset amortization.... N/A N/A -- -- -- 2.5 5.3 Direct expenses.................. 69.1 98.5 ----- ------ ------ ------ ------ ------ ------ Income from operations........... N/A N/A 9.0 21.0 16.0 16.3 29.6 Interest expense................. N/A N/A 2.2 2.1 1.4 9.7 20.0 Deferred financing cost amortization................... N/A N/A -- -- -- 0.4 0.8 Other (income) expense........... N/A N/A -- 0.2 0.1 (0.2) (0.1) Income taxes(b).................. N/A N/A -- -- -- 2.2 3.1 Excess of revenues over direct expenses(c).................... $ 3.2 $ 6.3 ----- ------ ------ ------ ------ ------ ------ Net income....................... N/A N/A $ 6.8 $ 18.7 $ 14.5 $ 4.2 $ 5.8 ===== ====== ====== ====== ====== ====== ======
32 36
PREDECESSOR COMPANY PRO FORMA ---------------------------------------------------------- ------------- ------------ JANUARY 1, JULY 10, 1998 FOR THE YEAR FOR THE YEAR ENDED DECEMBER 31, 1998 THROUGH ENDED ------------------------------------------- THROUGH DECEMBER 31, DECEMBER 31, 1994(a) 1995(a) 1996 1997 JULY 9, 1998 1998 1998 ----------- ----------- ------ ------ ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) (DOLLARS IN MILLIONS) BALANCE SHEET DATA: Working capital.................. N/A N/A $ 29.3 $ 40.5 $ 68.5 $ 57.5 Total assets..................... N/A N/A 53.1 65.3 105.8 332.0 Divisional assets(d)............. N/A $ 57.4 Total debt, including current portion........................ N/A N/A -- -- -- 197.8 Stockholders' equity(e).......... N/A N/A 41.6 52.8 81.9 103.3 OTHER FINANCIAL DATA: EBITDA(f)........................ N/A N/A 10.5 22.3 16.7 20.0 37.0 Depreciation and amortization.... 0.9 1.0 1.5 1.5 0.8 3.9 8.1 Interest expense................. N/A N/A 2.2 2.1 1.4 9.7 20.0 Capital expenditures............. 5.9 4.0 2.3 1.4 1.6 3.8 5.4 Ratio of earnings to fixed charges(g)..................... N/A N/A 4.0x 9.3x 10.2x 1.6x 1.4x CASH FLOW DATA: Net cash provided by (used in) operating activities........... N/A N/A 17.3 8.2 (13.6) 16.2 Net cash provided by (used in) investing activities........... N/A N/A (2.3) (1.4) (1.6) (3.8) Net cash provided by (used in) financing activities........... N/A N/A (14.2) (6.8) 14.8 (11.5)
33 37 NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA (a) Beginning in 1997, the Company operated as a business unit of Generac Corporation with separate financial reporting. During 1995, a dedicated manufacturing facility was completed to accommodate the portable products business. In connection with its move to this new facility, the Company began to separately identify certain assets and liabilities as specific to the portable products business which enabled the preparation of carve out financial statements as of and for the year ended December 31, 1996, albeit on a basis that includes certain estimates and allocations that, in the opinion of management, are considered to be reasonable. Prior to 1996, all financial information of the Company was commingled with that of Generac Corporation and, therefore, the Company's summary data as of and for the years ended December 31, 1995 and 1994 is limited and certain historical financial data is not available. (b) Historically, the Company's taxable income was included in Generac Corporation's taxable income. Generac Corporation and its stockholders elected to be treated as an S Corporation for federal and certain state income tax purposes. Accordingly, no provision for income taxes is included in the Predecessor financial statements. The Company is subject to state and federal income taxes after July 9, 1998. (c) Direct expenses are those costs of goods sold, selling and service expenses and general and administrative expenses associated with the Division. (d) Divisional assets include property, plant and equipment, cash, accounts receivable and inventories. (e) Stockholders' equity represents business unit investment for all Predecessor periods shown and represents common stock, paid-in-capital, retained earnings, accumulated other comprehensive income and excess of purchase price over book value of net assets acquired from entities partially under common control for periods subsequent to the Transaction. (f) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is a widely recognized financial indicator of a company's ability to service or incur debt. EBITDA is not a measure of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income, net income, cash flows from operations, or other statement of operations or cash flow data prepared in conformity with generally accepted accounting principles, or as a measure of profitability or liquidity. In addition, EBITDA may not be comparable to similarly titled measures of other companies. EBITDA may not be indicative of the historical operating results of the Company or the Predecessor, nor is it meant to be predictive of future results of operations or cash flows. See also the statement of cash flows contained within the historical financial statements included elsewhere in this document. (g) In computing the ratio of earnings to fixed charges, "earnings" represents income (loss) before income taxes plus fixed charges. "Fixed charges" consists of interest, amortization of debt issuance costs and a portion of rent, which is representative of the interest factor (approximately one-third of rent expense). 34 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements of the Company, and the notes thereto, and the other financial information appearing elsewhere in this Prospectus. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Risk Factors." References to the "Company" means Generac Portable Products, Inc. and its subsidiaries, on a consolidated basis and, as the context requires, the Company's predecessor. The "Predecessor" refers to the Portable Products Division of Generac Corporation. GENERAL The Company has experienced strong growth, with net sales, operating income and EBITDA increasing at compounded annual growth rates of 50%, 81% and 88%, respectively, from 1996 through 1998 (pro forma). The Company's growth has been driven by product innovation, cost competitiveness, and proactive category management in the Company's main product lines of portable generators and pressure washers. The most important factors influencing demand for the Company's products are increased awareness of consumer utility, favorable demographic trends, broadened channels of distribution, and improved price performance. The expected continuing growth of the home center and warehouse club retail distribution channel should provide the Company with an opportunity to increase its market share. Moreover, the Company has long-standing core relationships with those retailers best positioned to take advantage of this channel's rapid growth. The table below sets forth the Company's results of operations for the periods indicated (dollars in millions).
PRO FORMA PREDECESSOR -------------------- ------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, % OF DECEMBER 31, % OF DECEMBER 31, % OF 1998 SALES 1997 SALES 1996 SALES ------------ ----- ------------ ----- ------------ ----- (UNAUDITED) Net sales Domestic............. $255.4 92.4% $164.0 92.1% $110.1 89.8% International........ 21.0 7.6% 14.0 7.9% 12.5 10.2% ------ ----- ------ ----- ------ ----- Total net sales........ 276.4 100.0% 178.0 100.0% 122.6 100.0% Gross profit........... 73.8 26.7% 46.9 26.3% 27.3 22.3% Operating expenses..... 44.2 16.0% 25.9 14.6% 18.3 14.9% Operating income....... 29.6 10.7% 21.0 11.8% 9.0 7.3% Net income............. 5.8 2.1% 18.7 10.5% 6.8 5.5% EBITDA................. 37.0 13.4% 22.3 12.5% 10.5 8.6%
35 39
COMPANY PRO FORMA PREDECESSOR ------------------------- ------------------------- ----------------------------------------------- JULY 10, 1998 SIX MONTHS JANUARY 1, 1998 SIX MONTHS THROUGH % OF ENDED % OF THROUGH % OF ENDED % OF DECEMBER 31, 1998 SALES DECEMBER 31, 1997 SALES JULY 9, 1998 SALES JUNE 30, 1997 SALES ----------------- ----- ----------------- ----- --------------- ----- ------------- ----- (UNAUDITED) (UNAUDITED) Net sales Domestic........... $126.8 92.6% $72.8 91.9% $128.6 92.1% $91.2 92.3% International...... 10.1 7.4% 6.4 8.1% 11.0 7.9% 7.6 7.7% ------ ----- ----- ----- ------ ----- ----- ----- Total net sales...... 136.9 100.0% 79.2 100.0% 139.6 100.0% 98.8 100.0% Gross profit......... 38.6 28.2% 22.6 28.5% 35.0 25.1% 24.4 24.7% Operating expenses... 22.3 16.3% 15.8 19.9% 19.0 13.6% 12.8 13.0% Operating income..... 16.3 11.9% 6.8 8.6% 16.0 11.5% 11.6 11.7% Net income........... 4.2 3.1% (2.4) (3.0%) 14.5 10.4% 10.4 10.5% EBITDA............... 20.0 14.6% 10.3 13.0% 16.7 12.0% 12.2 12.3%
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (PRO FORMA) COMPARED TO YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR BASIS) NET SALES. Net sales increased $98.4 million, or 55.3%, to $276.4 million for 1998 pro forma from $178.0 million for 1997. Domestic sales increased $91.4 million, or 55.7%, to $255.4 million for 1998 pro forma from $164.0 million for 1997. This increase was primarily due to strong overall consumer demand for generator and pressure washer product categories throughout 1998. The broad sales increase was further reflective of the store growth for existing customers, expanded pressure washer product offerings to Home Depot, and strong overall generator sales resulting from winter and summer storm activity. International sales increased $7.0 million, or 50.0%, to $21.0 million for 1998 pro forma from $14.0 million for 1997. This increase was primarily due to increased penetration into European home center accounts. GROSS PROFIT. Gross profit increased $26.9 million, or 57.4%, to $73.8 million for 1998 pro forma from $46.9 million for 1997. This increase was primarily due to increased sales volume as described above and improved gross margins. Gross profit margin increased to 26.7% in 1998 pro forma from 26.3% in 1997 as a result of the improved mix of higher margin generator sales versus lower margin pressure washer sales and improved gross margins for International sales. OPERATING EXPENSES. Operating expenses increased $18.3 million, or 70.7%, to $44.2 million for 1998 pro forma from $25.9 million for 1997. This increase was primarily a result of increased selling and distribution expenses related to the shift of domestic sales distribution into national home center markets, and increased sales distribution costs into German home centers. In addition, 1998 pro forma operating expenses include $5.3 million (1.9% as a percentage of sales) in amortization of goodwill and other intangible assets recorded in connection with the Transaction. As a percentage of sales, operating expenses increased to 16.0% in 1998 pro forma from 14.6% in 1997. NET INCOME. Net income decreased $12.9 million, or 69.0%, to $5.8 million for 1998 pro forma from $18.7 million for 1997. This decrease in net income was primarily due to increases in certain expenses resulting from effects of the Transaction including interest expense; amortization of goodwill, deferred financing costs and other intangibles assets; and 36 40 provision for income taxes. These expenses decreased 1998 pro forma net income by an additional $27.1 million (9.8% as a percentage of sales) as compared to 1997. As a percentage of sales, net income decreased to 2.1% in 1998 pro forma from 10.5% in 1997. EBITDA. EBITDA increased $14.7 million, or 65.9%, to $37.0 million in 1998 pro forma from $22.3 million for 1997. This increase was primarily due to increased sales volume and improved gross margins as described above. As a percentage of sales, EBITDA increased to 13.4% in 1998 pro forma from 12.5% in 1997. JULY 10, 1998 THROUGH DECEMBER 31, 1998 (NEW BASIS) COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1997 (PRO FORMA) NET SALES. Net sales increased $57.7 million, or 72.9%, to $136.9 million for the period July 10, 1998 through December 31, 1998 from $79.2 million for the pro forma six months ended December 31, 1997. Domestic sales increased $54.0 million, or 74.2%, to $126.8 million for the period July 10, 1998 through December 31, 1998 from $72.8 million for the pro forma six months ended December 31, 1997. This increase was primarily due to strong demand for generator products sold through existing customers resulting from summer storm activity and increased consumer awareness. International sales increased $3.7 million, or 57.8%, to $10.1 million for the period July 10, 1998 through December 31, 1998 from $6.4 million for the pro forma six months ended December 31, 1997. This increase was primarily due to increased penetration into European home center accounts. GROSS PROFIT. Gross profit increased $16.0 million, or 70.8%, to $38.6 million for the period July 10, 1998 through December 31, 1998 from $22.6 million for the pro forma six months ended December 31, 1997. This increase was primarily due to increased sales volume as described above. Gross profit margin decreased slightly to 28.2% for the period July 10, 1998 through December 31, 1998 from 28.5% for the pro forma six months ended December 31, 1997 as a result of reduced gross margins on international sales due to heavy promotional pricing into German home centers. OPERATING EXPENSES. Operating expenses increased $6.5 million, or 41.1%, to $22.3 million for the period July 10, 1998 through December 31, 1998 from $15.8 million for the pro forma six months ended December 31, 1997. This increase was attributable to increased sales volume as described above. As a percent of sales, operating expenses decreased to 16.3% for the period July 10, 1998 through December 31, 1998 from 19.9% for the pro forma six months ended December 31, 1997 due to the leveraging of fixed operating expenses, including goodwill amortization. NET INCOME. Net income increased $6.6 million for the period July 10, 1998 through December 31, 1998 to $4.2 million from a $2.4 million net loss for the pro forma six months ended December 31, 1997. This increase was primarily due to the availability of operating earnings from the increased sales volume to cover certain fixed charges including interest expense; amortization of goodwill, deferred financing costs, and other intangibles; and other operating expenses. As a percentage of sales, net income increased to 3.1% for the period July 10, 1998 through December 31, 1998 from a net loss of 3.0% for the pro forma six months ended December 31, 1997. EBITDA. EBITDA increased $9.7 million or 94.2% to $20.0 million for the period July 10, 1998 through December 31, 1998 from $10.3 million for the pro forma six months ended December 31, 1997. This increase was due to the increased sales volume and 37 41 improved coverage of fixed operating expenses as described above. As a percentage of sales, EBITDA increased to 14.6% for the period July 10, 1998 through December 31, 1998 from 13.0% for the pro forma six months ended December 31, 1997. JANUARY 1, 1998 THROUGH JULY 9, 1998 (PREDECESSOR BASIS) COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 (PREDECESSOR BASIS) NET SALES. Net sales increased $40.8 million, or 41.3%, to $139.6 million for the period January 1, 1998 through July 9, 1998 from $98.8 million for the six months ended June 30, 1997. Domestic sales increased $37.4 million, or 41.0%, to $128.6 million for the period January 1, 1998 through July 9, 1998, from $91.2 million for the six months ended June 30, 1997. This increase was primarily due to product placements into new home center accounts, strong sales of generators to customers located in the northeastern United States and Canada following the winter 1998 ice storm and subsequent prolonged power outages, and expansion of pressure washer offerings to Home Depot. International sales increased $3.4 million, or 44.7%, to $11.0 million for the period January 1, 1998 through July 9, 1998, from $7.6 million for the six months ended June 30, 1997. This increase was primarily due to increased penetration into German home center accounts. GROSS PROFIT. Gross profit increased $10.6 million, or 43.4%, to $35.0 million for the period January 1, 1998 through July 9, 1998, from $24.4 million for the six months ended June 30, 1997. This increase was primarily due to increased sales volume as described above and improved gross margins. Gross profit margin increased to 25.1% for the period January 1, 1998 through July 9, 1998, from 24.7% for the six months ended June 30, 1997, as a result of the improved mix of higher margin generator sales versus lower margin pressure washer sales. OPERATING EXPENSES. Operating expenses increased $6.2 million, or 48.4%, to $19.0 million for the period January 1, 1998 through July 9, 1998, from $12.8 million for the six months ended June 30, 1997. This increase was primarily a result of increased selling and distribution expenses related to the shift of sales distribution into national home center markets. As a percentage of sales, operating expenses increased to 13.6% for the period January 1, 1998 through July 9, 1998, from 13.0% for the six months ended June 30, 1997. NET INCOME. Net income increased $4.1 million, or 39.4%, to $14.5 million for the period January 1, 1998 through July 9, 1998, from $10.4 million for the six months ended June 30, 1997. This increase was primarily due to increased sales volume and improved gross margins, offset by increased operating expenses as described above. As a percentage of sales, net income decreased to 10.4% for the period January 1, 1998 through July 9, 1998, from 10.5% for the six months ended June 30, 1997. EBITDA. EBITDA increased $4.5 million, or 36.9%, to $16.7 million for the period January 1, 1998 through July 9, 1998, from $12.2 million for the six months ended June 30, 1997. This increase was primarily due to increased sales volume and improved gross margins, offset by increased operating expenses as described above. As a percentage of sales, EBITDA decreased to 12.0% for the period January 1, 1998 through July 9, 1998, from 12.3% for the six months ended June 30, 1997. 38 42 YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR BASIS) COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 (PREDECESSOR BASIS) NET SALES. Net sales increased $55.4 million, or 45.2%, to $178.0 million for 1997 from $122.6 million for 1996. Domestic sales increased $53.9 million, or 49.0%, to $164.0 million for 1997 from $110.1 million for 1996. This increase was primarily due to increased sales volume of overhead valve industrial engine driven generators to Home Depot, improved pressure washer sales to Sears and expansion of product offerings into other home center accounts. International sales increased $1.5 million, or 12.0%, to $14.0 million for 1997 from $12.5 million for 1996. This increase was primarily due to increased penetration into European home center accounts. GROSS PROFIT. Gross profit increased $19.6 million, or 71.8%, to $46.9 million for 1997 from $27.3 million for 1996. This increase was primarily due to increased sales volume as described above and improved gross margins. Gross profit margin increased to 26.3% in 1997 from 22.3% in 1996 as a result of the migration into higher margin portable generator products, improved mix of sales distribution, continued product cost reductions for both generator and pressure washer product lines, and overall product cost improvements due to diversification of worldwide supply arrangements. OPERATING EXPENSES. Operating expenses increased $7.6 million, or 41.5%, to $25.9 million for 1997 from $18.3 million for 1996. This increase was primarily a result of increased selling and distribution expenses related to the shift of sales distribution into national home center markets and incremental warranty costs of $2.8 million related to the launch of new pressure washer products. As a percentage of sales, operating expenses decreased to 14.6% in 1997 from 14.9% in 1996. NET INCOME. Net income increased $11.9 million, or 175.0%, to $18.7 million for 1997 from $6.8 million for 1996. This increase was primarily due to increased sales volume and improved gross margins as described above. As a percentage of sales, net income increased to 10.5% in 1997 from 5.5% in 1996. EBITDA. EBITDA increased $11.8 million, or 112.4%, to $22.3 million in 1997 from $10.5 million in 1996. This increase was primarily due to increased sales volume and improved gross margins as described above. As a percentage of sales, EBITDA increased to 12.5% in 1997 from 8.6% in 1996. LIQUIDITY AND CAPITAL RESOURCES Following the Transaction, the Company's principal sources of liquidity are cash flow generated from operations and borrowings under the $30 million revolving credit portion of the Credit Facility. See "Description of the Senior Secured Credit Facility" later in this Prospectus. The Company's principal uses of liquidity are to meet debt service requirements, finance the Company's capital expenditures and provide working capital. The Company expects that the ongoing uses of liquidity will be adequately funded by the principal sources of liquidity. The Company has incurred substantial indebtedness in connection with the Transaction. Following the Transaction, the Company had approximately $209.2 million of combined indebtedness outstanding. The Company's ability to make scheduled payments of principal of, or to pay the interest on its indebtedness, or to fund planned capital expenditures, will depend upon its future performance, which in turn, is subject to general 39 43 economic, financial, competitive and other factors that are beyond its control. Based upon the current level of operations and anticipated growth, the Company believes that future cash flow from operations, together with available borrowings under the Credit Facility, will be adequate to meet the Company's anticipated requirements for capital expenditures, working capital, interest payments and scheduled principal payments. There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow from operations in the future to service its debt and make necessary capital expenditures after satisfying certain liabilities arising in the ordinary course of business. If unable to generate sufficient cash flow, the Company may be required to delay necessary capital expenditures, refinance all or a portion of its existing debt, including the Notes, to sell assets or to obtain additional financing. There can be no assurance that any such refinancing would be available or that any such sales of assets or additional financing could be obtained. See "Risk Factors -- Significant Leverage; Ability to Service Debt." Prior to the Transaction, the Company historically met its working capital needs and capital expenditure requirements through a combination of operating cash flow and availability under a revolving credit agreement maintained by, and industrial revenue bonds supported by, Generac Corporation. Cash provided by operating activities totaled $16.2 million for the period July 10, 1998 through December 31, 1998 and cash used for operating activities totaled $13.6 million for the period January 1, 1998 through July 9, 1998. This increase in cash generated from operations during the second half of 1998 resulted primarily from seasonal factors related to sales of pressure washers in which the Company's level of receivables is typically highest during the second quarter of the year as compared to other quarters. Cash provided by operating activities totaled $8.2 million for the year ended December 31, 1997 as compared to $17.3 million for the year ended December 31, 1996. This decrease in cash generated from operating activities was primarily a result of reductions in inventory during 1996 and the subsequent build-up of inventory during 1997 to support increased sales activity. The Company's receivables are largely derived from large, well-established retailers. Three customers accounted for approximately 74% of net sales for both 1998 and 1997, and account for 59% of total accounts receivable as of both December 31, 1998 and 1997. CAPITAL EXPENDITURES The Company's capital expenditures were $5.4 million, $1.4 million and $2.3 million in 1998, 1997, and 1996, respectively. The 1998 capital expenditures related primarily to plant expansions at the Company's facilities, production machinery and equipment and software. In an economic downturn, the Company believes it will be able to adjust the amount spent on capital expenditures without compromising the base requirements of its operations. The Company expects to spend approximately $6.5 million in 1999 for various capital projects, including increased capacity through plant expansion, cost improvement and quality enhancement initiatives, and updating management information systems. The Company spent approximately $1.9 million, $1.7 million and $2.5 million in 1998, 1997, and 1996, respectively, on research and development. SEASONALITY, WORKING CAPITAL AND CYCLICALITY Sales of certain products of the Company are subject to seasonal variation. Due to seasonal and regional weather factors, sales of pressure washers and related working capital are typically higher during the second quarter than at other times of the year. The 40 44 residential and commercial construction markets are sensitive to cyclical changes in the economy. RAW MATERIAL COSTS AND INFLATION The rate of inflation over recent years has been relatively low and has not had a significant effect on the Company's results of operations. Approximately 44% of the Company's cost of goods sold relate to small gasoline engines which have not been subject to material price fluctuations. The Company purchases steel, copper, paperboard, and plastics from various suppliers. While all such materials are available from numerous independent suppliers, commodity raw materials are subject to price fluctuations. YEAR 2000 STRATEGY Many currently installed computer systems and software products use two digits rather than four to define the applicable year. For example, date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in systems failures or miscalculations causing disruptions of the Company's operations. The Company is continuing a process of making all necessary software changes to ensure that it does not experience any loss of critical business functionality due to the Year 2000 issue. The Company has adopted and is implementing a three phase approach of assessment, correction and testing. The scope of the project includes all internal software, hardware, operating systems, and assessment of risk to the business from vendors and other parties' Year 2000 issues. The Company believes that this formal assessment (including prioritization by business risk), correction (including conversions to new software), and testing of necessary changes will minimize the business risk of Year 2000 from internal systems. Although the Company has not yet fully completed its Year 2000 project, many of the Company's information sub-systems are currently Year 2000 ready. The balance of the Company's systems are currently being modified or replaced, with all significant systems targeted for Year 2000 readiness by September 1, 1999. The need for contingency plans will be evaluated as this target date approaches. In most instances, the Company has replaced, or is in the process of replacing, older software with new programs and systems, rather than modifying existing systems solely to become Year 2000 ready. Replacing these systems results in a significant upgrade in systems and capabilities, as well as providing the ability to properly interpret Year 2000 data. Although the timing of the system replacements is influenced by the Year 2000, in most instances these systems would have been replaced in the normal course of business. The Company is currently unable to predict the extent to which Year 2000 issues will affect vendors with which the Company does a material amount of business, or the extent to which the Company would be vulnerable to the failure of any of these vendors to convert their systems on a timely basis. The Company could face a material financial risk if its customers or suppliers are unable to complete critical Year 2000 readiness efforts in a timely manner. The Company is continuing to work with its customers and suppliers to evaluate their Year 2000 readiness, identify material risks, and develop solutions so that all critical processes needed to conduct its business are Year 2000 ready. In addition, the Company's exposure to these external risks is partially mitigated by the size and sophistication of its primary customers, as well as by the diversity of its suppliers and geographic locations. 41 45 The Company has spent approximately $0.9 million during 1998 to upgrade and replace its systems to ensure Year 2000 readiness. The Company estimates it will incur additional costs of approximately $1.8 million to upgrade and replace its systems, the majority of which will be incurred in fiscal 1999. The Company believes it continues to appropriately reduce the risks of not being Year 2000 ready through the identification and remediation process described above. During 1999, the Company will continue to evaluate the need for contingency planning as it relates to the readiness for each business related software and hardware item. EURO CONVERSION On January 1, 1999, member countries of the European Monetary Union (EMU) began a three-year transition from their national currencies to a new common currency, the "Euro". In the first phase, the permanent rates of exchange between the members' national currency and the Euro has been established and monetary, capital, foreign exchange, and interbank markets will be converted to the Euro. National currencies will continue to exist as legal tender and may continue to be used in commercial transactions. By January 2002, Euro currency will be issued and by July 2002, the respective national currencies will be withdrawn. The Company has operations in member countries of the EMU and, accordingly, has established action plans that are continuing to be implemented to address the Euro's impact on information systems, currency exchange rate risk, taxation, contracts, competition and pricing. Based on its current assessment, management believes that the costs of the Euro conversion will not have a material impact on the operations, cash flows or financial condition of the Company. FUTURE ACCOUNTING CHANGES The Financial Accounting Standards Board has issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which is effective for periods beginning after June 15, 1999. Due to the Company's current limited use of derivative instruments, the adoption of this statement is not expected to have a material effect on the Company's financial condition or results of operations. RISK MANAGEMENT The Company is exposed to market risk from changes in interest rates and, to a lesser extent, foreign exchange rates and commodities. To reduce such risks, the Company selectively uses financial instruments. All hedging transactions are authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for trading purposes. A discussion of the Company's accounting policies for derivative financial instruments is included in the summary of Significant Accounting Policies in Note 2 to the Consolidated Financial Statements included herein. The fair value of the Company's Notes is estimated as $110 million as of December 31, 1998 based upon the average yield of similar debt instruments as of that date. The Company estimates that this fair value would increase by approximately $6 million based upon an assumed 10% decrease in market interest rates and that the fair value would decrease by approximately $6 million based upon an assumed 10% increase in market interest rates, compared with the average yield on similar debt instruments on December 31, 1998. The Company uses interest rate swaps to modify the Company's exposure to interest rate movements. Net interest payments or receipts from interest rate swaps are recorded as 42 46 adjustments to interest expense in the consolidated statement of income on a current basis. The Company's earnings exposure related to adverse movements in interest rates is primarily derived from outstanding floating rate debt instruments that are indexed to Eurodollar money rates. A 10% increase/decrease in the average cost of the Company's debt under its bank credit facility would result in an increase/decrease in annual pre-tax interest expense of approximately $356,000 after giving effect to an outstanding interest rate swap. A 10% increase/decrease in Eurodollar rates would not have a material effect on the fair value of the interest rate swap as compared to its fair value at December 31, 1998. The Company has manufacturing, sales and distribution facilities throughout Europe and sources raw materials from around the world. Accordingly, the Company makes investments and enters into transactions denominated in various foreign currencies. The Company is primarily exposed to fluctuations in various European currencies. Due to the relative stability of these currencies, management has not deemed it necessary to currently pursue a foreign currency hedging strategy. This exposure is not material to the Company. The Company's exposure to commodity price changes relates to certain manufacturing operations that utilize raw commodities. The Company manages its exposure to changes in those prices primarily through its procurement and sales practices. This exposure is not material to the Company. 43 47 BUSINESS GENERAL The Company designs, manufacturers and markets engine-powered tools for use in both industrial and residential applications, with its two principal product lines being portable generators and pressure washers. Management estimates that in 1998, as measured by net sales, the Company was the largest U.S. manufacturer of portable generator sets, with an overall domestic market share of approximately 29%, and the second largest U.S. manufacturer of consumer pressure washers, with a domestic market share of approximately 33%. In both product categories, the Company offers one of the broadest lines of innovative products across all major price points. The Company sells its products through multiple channels of retail distribution, including the leading home center chains, mass merchants and warehouse clubs as well as independent representatives. Since 1961, the Company has been a major supplier of portable generators to Sears, and has been one of two suppliers to Sears of pressure washers, both marketed under the Craftsman(R) label. The Company is also a core supplier of portable generators and pressure washers, both marketed under the Generac(R) label, to Home Depot, the largest and one of the fastest growing retail home center chains in the U.S. The Company has benefited from strong growth in the engine-powered tools market as well as favorable demographic trends. The Company believes that its strength in each product category is the result of its strategic approach to engineering and manufacturing which emphasizes delivering superior customer value through innovation in product development and focus on product quality. The Company is a vertically integrated manufacturer. In addition to the manufacture of portable generators and pressure washers, the Company also manufactures components for those products, including alternators, pressure washer pumps and blow-molded gas tanks. As a vertically integrated manufacturer, the Company believes it enjoys significant cost advantages over its competitors who source many of their components from third party suppliers. In addition, the Company has been successful in improving operating profitability through the strategic integration of its manufacturing processes, the reconfiguration of production processes and the standardization of components. The Company has long-standing customer relationships and effectively utilizes its unique, nationwide service network to build and support its customer base. These strengths have enabled the Company to service the increasingly sophisticated and demanding customers in the retail channel. Over the past three years, the Company's net sales have grown at a compound annual rate of approximately 38%, increasing from $104.8 million in 1995 to $276.4 million in 1998. The Company, based in Jefferson, Wisconsin, has been designing, building and marketing portable generators since its founding in 1959. The Company has exclusive supply rights to the GN OHVI family of engines for use in consumer portable generators, pressure washers and welders. COMPETITIVE STRENGTHS The Company attributes its excellent performance, market leadership and significant opportunities for continued growth and increased profitability to the following competitive strengths: LEADING MARKET POSITIONS. The Company is a market leader in the U.S. engine-powered tools industry, with an overall domestic market share of approximately 29% in portable generators in 1998 (up from approximately 26% in 1997) and approximately 33% 44 48 in pressure washers in 1998 (up from approximately 31% in 1997). In 1997, as measured by net sales, the Company was the largest U.S. supplier of portable generators and the second largest U.S. supplier of pressure washers. In addition, the Company is a core supplier for many of the leading retail home centers and Do-it-Yourself ("DIY") retailers. The Company believes that its broad and innovative product offerings, its commitment to quality and its reputation for customer service have enabled it to achieve rapid revenue and earnings growth and its leading market positions. LEADING DESIGN AND ENGINEERING CAPABILITIES. The Company attributes much of its success to its innovative design and engineering expertise. The Company's portable generators and pressure washers are highly engineered, durable, precision manufactured products. The Company has capitalized on its design and engineering capabilities by strategically integrating certain manufacturing processes, such as the Company-designed alternator and the Company-designed and manufactured pressure washer pumps. As a strategically integrated manufacturer, the Company believes it is better able to control product quality and therefore offer a consistently superior finished product. In addition, the Company believes its vertical integration allows it to enjoy significant cost advantages and differentiates it from many of its competitors who source many of their components from third party suppliers. The Company believes such engineering and design expertise is readily extendible to new product categories, as well. STRENGTH IN MULTIPLE DISTRIBUTION CHANNELS. For over 35 years, the Company's portable generators have been sold under the Craftsman(R) label through Sears' mall-based stores and, more recently, through Sears' growing chain of freestanding hardware and dealer stores. Over the last five years, the Company has expanded the distribution of its products marketed under the Generac(R) name to include seven of the top ten "big box" retailers. Its products are also well represented in other mass merchants, warehouse clubs, home centers and hardware stores as well as through the Company's independent dealer network. The Company believes that its distribution strategy maximizes the Company's market penetration, as the Company can sell its products into the same geographic market under different brand names and through different distribution channels. In addition, since 1995, the Company has significantly increased its sales to Home Depot, the largest and one of the fastest growing home center chains in North America. The Company believes that its strong strategic relationships with leading DIY hardware vendors, such as Sears and Home Depot, will facilitate continued market share gains as these chains grow and as hardware channels of distribution continue to consolidate. LOW COST MANUFACTURING OPERATIONS AND STATE-OF-THE-ART FACILITIES. The Company believes that its low cost operations are attributable to its strategic integration and increased levels of standardization in its manufacturing processes resulting primarily from commonality of design. This commonality, along with the Company's efficient manufacturing processes, enable it to realize savings through reduced inventory levels, greater leverage with suppliers and improved production flexibility. In 1994, the Company built its current facility in Jefferson, Wisconsin, which was expanded in 1996. This facility incorporates state-of-the-art manufacturing technology and processes and was custom designed to manufacture both of the Company's major product lines. The Company is currently in the process of expanding capacity in its Jefferson facility which it expects to complete in the second quarter of 1999. The Company believes that it is one of the more vertically integrated manufacturers of portable generators and pressure washers in the U.S., and therefore is more cost-efficient and better able to respond to customer demands than its competitors. 45 49 SUPERIOR CUSTOMER SERVICE AND COMMITMENT TO QUALITY. The Company has developed strong relationships with several of the leading home center chains and DIY retailers, including Sears and Home Depot. These relationships are supported by its program sales approach, which includes innovative sales and marketing programs to educate end-users and increase retailers' effectiveness in selling the Company's full line of products. To this end, the Company has developed comprehensive category management services which include merchandising and providing informational materials, sales associate training and product support. To ensure after-sale support, the Company differentiates itself by maintaining a competitive independent dealer network, consisting of over 2,700 outdoor power equipment dealers. The Company believes that the independent dealer network serves as a strong incentive for retailers to allocate shelf space to the Company's products and minimizes customer returns. In addition, the Company maintains strict quality inspection procedures throughout the manufacturing process. These procedures, which include the testing of each unit prior to shipment, enable the Company to ensure consistent quality. As evidence of its strong position with its customers and its ability to provide reliable, high quality products, the Company has been selected as a core supplier of portable generators and pressure washers to Home Depot, and is the largest supplier of portable generators and pressure washers to Sears. ESTABLISHED BRAND NAME AND REPUTATION. The Generac brand name has a 35 year heritage in the engine-powered tools industry. The Company has established its leading brand name primarily by providing high-quality, innovative, reliable products as well as a high level of customer service. The Company is a key supplier to leading home center chains, including Sears, Home Depot, Lowe's and Costco Companies, Inc. ("Costco"), and has reinforced its reputation with these chains by tailoring its product offerings and product features to suit certain major customers' desires for differentiated product lines. EXPERIENCED AND COMMITTED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY INCENTIVE. The Company has assembled a strong management team with over 100 years of collective experience in the engine-powered tools industry. The management team has successfully demonstrated its ability to manage the Company's rapid revenue and earnings growth through maintenance of high quality standards, continuous product innovation and commitment to customer service. The Company's senior management team has a substantial financial interest in the Company's continued success through its direct investment in Holdings and participation in an incentive option program. BUSINESS STRATEGY The key elements of the Company's strategy include: STRATEGIC ALLIANCES WITH STRONG, FAST-GROWING CUSTOMERS IN THE DIY HOME CENTER CHANNELS. The Company believes that its strong strategic relationships with leading DIY hardware vendors such as Sears and Home Depot will enable it to gain market share as these chains grow and as hardware channels of distribution continue to consolidate. For example, Sears and Home Depot together plan to have approximately 3,800 stores by the year 2000, up from approximately 2,300 in 1997. In addition, these leading retailers are continuing to develop a variety of store formats to broaden their customer reach. These dominant retailers are actively expanding beyond the traditional DIY market and into the commercial contractor markets and the Company intends to develop products to support these retailers' commercial needs. The effectiveness of the Company's customer strategy is best illustrated by its relationship with Home Depot. In 1995, the Company sold three generator stock keeping units ("SKUs") in three of Home Depot's seven regions and no 46 50 pressure washer SKUs. Currently, the Company sells two pressure washer SKUs and six generator SKUs in all eight of Home Depot's regions. In addition, the Company will be implementing full point-of-purchase support to Home Depot. The Company believes that it has the potential to add important new DIY accounts and, upon the completion of the planned expansion of its Jefferson facility, will have the capacity to meet expected demand. WELL DEFINED AND STRATEGICALLY MANAGED PRODUCT LINES. The Company's strategy is to develop a continuous stream of innovative products which are regarded as delivering the highest quality and best overall value in the industry. A driving force behind the Company's growth in both product categories and in expanding its gross margins has been its proven ability to develop and deliver new products at entry-level price points and then to successfully migrate end-users to more sophisticated products with unique features, designed around the Company's proprietary components. This strategy has been a key attribute for leading retailers, such as Home Depot, who consider the Company a core supplier in both product categories. By offering the broadest selection of portable generators and pressure washers supported by comprehensive sales associate training, field merchandising support and informative point-of-purchase signage and packaging, the Company has become a preferred supplier to its key customers such as Home Depot and Sears. CONTINUED COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. The Company believes that it can maintain its position as a low cost, high-quality manufacturer by continuing to take advantage of further opportunities to strategically integrate and manufacture components. The Company's decision to manufacture certain core components, including pressure washer pumps, alternators and blow-molded gas tanks, enables it to lower costs, better control product quality, shorten supply lead times, maintain lower inventory levels and achieve greater overall manufacturing flexibility. The Company believes that it is one of the U.S. industry's more vertically integrated manufacturers and intends to continue to improve operating profitability and maintain a high standard of product quality by focusing on reducing costs and developing performance-enhancing product features. In addition, the Company intends to continue to improve productivity and profitability through focused industrial engineering efforts and the standardization of components. PRODUCT INNOVATION AND DIVERSIFICATION INTO NEW AND RELATED PRODUCTS. High level engineering capabilities and efficient manufacturing operations provide the Company with significant resources for continued product innovations as well as new product development. Its product development program for the portable generator product line includes: (i) computer controlled features; (ii) manual transfer switches for home and commercial use; (iii) a family of new home security packages; (iv) development of higher kilowatt ("KW") output units for commercial use; and (v) new vertical shaft units. Its product development program for the pressure washer product line includes: (i) a new commercial line of gasoline-powered pressure washers; (ii) development of an engine idle down system; (iii) an expanded line of accessories; and (iv) a pump family for products with higher pounds per square inch ("PSI") ratings. The Company also has new product categories under development. The Company's research and development group is developing and field testing various prototypes, which the Company expects to introduce as new products over the next 12 to 24 months. INTERNATIONAL MARKET OPPORTUNITIES. The Company offers its portable generators throughout Europe and has been successful in building long-term customer relationships with leading "big box" retailers in six markets: the U.K., Germany, Switzerland, Spain, Belgium and France. Management expects its European sales growth to accelerate over the 47 51 next five years as the Company leverages its product line breadth and brand equity to gain shelf space and placements in new and existing European markets. Management believes that, as the major U.S.-based DIY home center chains expand internationally, there will be a growing need for their relationship suppliers, such as the Company, to establish a direct presence overseas. The Company plans to use its U.K. manufacturing base to support its marketing efforts in Europe, thus realizing enhanced operating leverage at that facility. INDUSTRY The Company competes primarily in the portable generator and pressure washer product lines of the engine-powered tools industry. PORTABLE GENERATORS. The Company estimates that the U.S. portable generator market was $492 million in 1998, and has grown at a 16% compounded annual growth rate ("CAGR") from $230 million since 1993. The Company believes that this market will continue to grow at a 16% CAGR to reach approximately $900 million in 2002. In 1998, the U.S. portable generator market consisted of approximately ten manufacturers, ranging from small regional producers to large manufacturers with nationwide distribution capabilities. Sales of the six largest manufacturers accounted for approximately 85% of the total market in 1997. Growth in this market is driven by (i) increased consumer awareness of utility; (ii) favorable demographic trends; (iii) the momentum of home center retailers; and (iv) improving price performance. INCREASED CONSUMER AWARENESS OF UTILITY. Historically, applications for portable generators have included (i) running power tools and other appliances at residential as well as remote construction sites and (ii) providing electrical power in connection with the use of recreational vehicles and at camping sites. In recent years, growth in the portable generator market has increasingly been driven by the demand by homeowners for alternative, or stand-by, power sources. The Company believes that demand for stand-by power has increased in part by the trend toward utility deregulation, which has increased the threat of power supply interruptions, and by increasing requirements of homeowners for home security. Power generator sales are not highly seasonal, nor are sales significantly affected by storms or other natural disasters, as the Company's consumer research indicates that only approximately 4% of generator sales are attributable to an immediate need for electrical power. In 1998, the stand-by power product line represented approximately 75% of total portable generator sales, and the Company believes that the demand for stand-by power will continue to be a primary factor in the growth of the overall market. FAVORABLE DEMOGRAPHIC TRENDS. Recent industry data indicate that approximately 60% of portable generator purchasers are between 45 and 65 years old. According to U.S. census estimates, this segment of the population is expected to grow by approximately 25% over the next six years. In addition, the U.S. census projects that there will be over three million new homeowners over the next five years. BROADENING CHANNELS OF DISTRIBUTION. Channels of distribution for portable generators were historically independent dealers, commercial and industrial supply houses and lawn and garden outlets. These channels were fragmented, and retailers assumed many costs associated with these products, such as the costs of freight, inventory and handling and in-store product support. These costs were passed on to consumers in higher prices. In 48 52 recent years, the emergence of home center chains and warehouse clubs has enhanced the market and distribution infrastructure for engine powered tools, including portable generators. These retailers have also driven their suppliers to offer more competitively-priced products with higher perceived value, to offer continuous product innovation, and to assist in the development of marketing and merchandising efforts. As a result, these home center chains have been instrumental in driving the growth of products such as portable generators. IMPROVING PRICE PERFORMANCE. Improved price-performance has led to increased demand for portable generators. Improvements in customer value can be attributed to significant strides in the design, engineering and manufacturing cost of overhead valve industrial ("OHVI") engines, pressure washer pumps and, to a lesser degree, electric motors and lawn mower-type gasoline engines. The most significant enhancement to customer value has been the development of the OHVI engine, a highly engineered product that established new industry standards for the highest power-to-weight ratio, the lowest noise level and the longest operating life. In 1998, portable generators equipped with OHVI engines represented approximately 30% of the total portable generator market, up from less than approximately 6% of the market in 1993. By the year 2002, the Company believes that approximately 40% of the portable generators sold in the U.S. will be powered by OHVI engines. PRESSURE WASHERS. The Company estimates that the U.S. consumer pressure washer market was $300 million in 1998, and has grown at a 43% CAGR from $50 million since 1993. The Company believes that this market will grow at a 15% CAGR to reach approximately $527 million in 2002. In addition, the commercial pressure washer market was approximately $120 million in 1998. In 1998, the U.S. pressure washer market consisted of approximately ten manufacturers, ranging from small regional producers to large manufacturers with nationwide distribution capabilities. The market is consolidating, with sales of the four largest manufacturers accounting for an estimated 80% of the total market in 1998, which reflects the exit of a leading manufacturer of consumer pressure washers during that year. Growth in the market is driven by (i) increased awareness of consumer applications; (ii) broadening channels of distribution; and (iii) improved price-performance. INCREASED AWARENESS OF CONSUMER APPLICATIONS. Pressure washers have been used in commercial applications for over 50 years. In recent years, the consumer pressure washer market has evolved, driven by increasing awareness of utility and the ease of use of the products. Consumer applications include car washing, deck cleaning, and pre-treating exterior surfaces prior to painting. Common commercial applications include stripping paint, removing graffiti, farm and agricultural uses, automotive uses, and factory and warehouse applications. Consumer demand for pressure washers reflects the considerable increase in home ownership, real estate values, boat and recreational vehicle ownership and consumers' desire to preserve the value of, and enhance the appearance of, these investments. Pressure washers also have a strong appeal to homeowners faced with increasing demands on their time. BROADENING CHANNELS OF DISTRIBUTION. In 1993, Sears was the first retailer to offer an effectively merchandised and well-balanced assortment of pressure washers for consumer applications, including car washing, deck cleaning and paint surface preparation. Other leading home center chains began offering pressure washers shortly thereafter, and contributed to the rapid development of the consumer market. These home center chains 49 53 have required their suppliers to provide broader product lines and to continually improve quality, price and product performance. The Company believes that such pressure from the home center chains will lead to further industry consolidation to the detriment of the smaller participants. IMPROVING PRICE PERFORMANCE. Improved price-performance has led to increased consumer demand for gasoline powered pressure washers. These products offer a significant step up in cleaning power, durability, engine life and safety features at only a modest premium to the opening price point of a basic electric pressure washer. The axial cam pump, introduced in 1994, significantly lowered the manufacturing cost of a pressure washer in addition to improving quality and overall customer satisfaction. The shift to axial cam pumps from crank shaft pumps allowed the use of high-volume, low-cost vertical shaft engines. This innovation has not only reduced retail prices but has also made this product more convenient to use, adding to its continued growth in the consumer market. PRODUCTS The Company primarily produces portable generators and pressure washers built around (i) commercially available lawn mower-type engines and (ii) the GN OHVI engine. The GN OHVI engine, to which the Company has exclusive access for its portable generators, pressure washers and welders, offers several value-added features to home, recreational and commercial end-users. For example, a typical lawn mower-type engine is expected to provide a 400-700 hour operating life, while the GN OHVI engine has a life expectancy of up to 3,000 hours. Engines comparable to the GN OHVI which are available to the Company's competitors tend to sell at a premium relative to a comparable proprietary GN OHVI engine. This has enabled the Company to gain market share by offering a superior value to consumers and a differentiated product to retailers. PORTABLE GENERATORS The Company believes it manufactures and markets the broadest line of portable generator products in the industry. The Company's product offering ranges from premium-priced models, incorporating advanced operating features and performance characteristics built around the Company's proprietary GN OHVI engine, to value-priced products built around conventional commercially available lawn mower-type engines. The Company's generator line includes the most basic units without protective frames to complete units, and the simplest electrical outlet features to full control panels with related features that are attractive to the industrial and contractor markets. The Company's entire product line incorporates various value-added features such as low oil shutdown and reduced noise levels. The Company's competitive position in the portable generator category is the result of its state-of-the-art product design and engineering capabilities. Many of the Company's premium GN OHVI engine-powered generators are equipped with voltage regulators which provide superior voltage control and surge capacity for starting large electrical loads. The GN OHVI engine-powered units also feature lighter weight for portability, compact size, reduced maintenance and lower fuel consumption. Electric start is available on certain models and the contractor units incorporate a unique idle control device which further reduces noise, greatly extends engine operating life and additionally reduces fuel consumption. Oversized fuel tanks for longer operating times are standard with these units. 50 54 PRESSURE WASHERS The Company's engine-driven pressure washers incorporate unique value added features such as a thermal overload device, which prevents overheating and resulting failures, and an exclusive unloading circuit which makes starting easier. The Company's electric pressure washer product line offers reduced noise levels, a long operating life and an automatic start-stop feature which protects against damage from overheating or running dry. The Company's proprietary pump, based on different combinations of internally designed components and a low-cost aluminum pump head, promotes greater manufacturing flexibility and a faster response to evolving end-user needs. As with portable generators, end-users are offered a premium GN OHVI engine-powered product which features lower fuel consumption, longer life and lower noise levels, all of which the Company believes are of great value to the end-user. The Company believes it is the only U.S. manufacturer in this industry to have this level of integration in the manufacture of pressure washers. NEW AND RELATED PRODUCTS All of the Company's new product initiatives are based on the Company's core manufacturing and marketing philosophy. The Company's strategy to expand its presence in related product lines has three major components. In the power generator market, the Company plans to leverage its exclusive access to the GN OHVI engine to introduce high value models at competitive price points. For example, the Company's 4000XL model, as currently priced to the end-user, will offer technically advanced consumer benefits at half to 2/3 the retail price of a Honda product. Management anticipates that this compelling price performance ratio will significantly increase demand in the premium-priced line relative to low-end, lower-margin generator sets. In the pressure washer category, the Company plans to introduce its first product designed specifically for the commercial market in 1998. This commercial product has been designed around the same GN OHVI engine as used in portable generators, providing longer life for trouble-free power compared to competitive offerings. Management believes that as the large home center chains focus increasingly on the commercial contractor and home construction markets, the Company's established position in these channels, as well as in various catalogs directed at professionals, should enable the Company to penetrate this segment rapidly. The Company estimates that the market for these products was approximately $120 million in 1998. Finally, over the next 12 to 24 months, the Company plans to continue to competitively position its entry level vertical shaft gasoline pressure washer to encourage the present electric pressure washer owner to trade-up to a higher powered gasoline unit. The Company's product positioning is focused on providing significantly greater cleaning power, longer engine life and user-friendly accessories at a modest premium to competitive electric pressure washers. Superior design and engineering capabilities and low-cost manufacturing operations provide the Company with a significant resource for developing new product categories. The Company has identified several new product and business opportunities in which the Company can provide added value to end-users and attractive profit margins to retailers. The Company's research and development group is in the latter stages of developing and field testing these products. Management expects to introduce these products over the next 12 to 24 months. 51 55 DISTRIBUTION AND MARKETING The Company's three largest customers are Home Depot, Sears and Costco, which together accounted for approximately 74% of sales for the year ended December 31, 1998. The Company also sells to other consumer home centers and warehouse clubs, as well as outdoor power equipment dealers. In addition to traditional retail distribution, the Company offers its products through national catalog companies such as Northern Hydraulic, Sears Power Tool catalog and the Company's own "special-order" service. Since 1961, the Company has been the major supplier of portable generators to Sears, and one of two suppliers of pressure washers since Sears first introduced that product category in 1994. Sears and the Company have developed a longstanding partnership involving the development of exclusive product offerings under the Craftsman(R) label, high levels of in-store sales support, well-coordinated merchandising and promotional campaigns and access to Sears' nationwide service network. This partnership is considered to have been highly effective in building up both product categories for Sears. In both the portable generator and pressure washer categories, the Company has collaborated with Sears to create high-impact in-store displays that provide both an assortment of products and informative point-of-purchase materials to help guide end-users in their purchasing decision. The Company continues to increase its sales through Sears' expanding hardware distribution channels including its new local hardware stores, dealer stores and Orchard Supply. Over the past three years, the Company has expanded the distribution of its products, marketed under the Generac(R) name, to home centers and warehouse clubs. Borrowing from its experience at Sears, the Company offers to its customers a total category management approach, including value-added, in-store services such as merchandising, informational materials, sales associate training and product support. The Company believes that its ability to affect merchandise presentation at the point-of-purchase, particularly its visual merchandising and packaging, has had a strong impact on retailers' portable generator and pressure washer sales and profitability. Major U.S. retail customers now include Home Depot, Lowe's, Costco and Tru-Serve Incorporated. The Company is well-represented in seven of the top ten "big box" retailers in the U.S. The Company employs a two-tiered sales force to sell its products through mass merchants, home centers and independent dealer channels. Product Managers are responsible for developing sales programs tailored to retailer-specific needs in the home center and warehouse club channels. Territory Sales Managers ("TSMs") are responsible for establishing new independent dealers, training sales associates at a store level, and managing and reducing product returns. TSMs also serve as the primary interface between the Company's manufacturing operation and its independent dealer network. The Company has assembled a comprehensive after-sales service network in North America for generator sets and pressure washers comprised of: (i) 2,700 authorized independent dealers; (ii) 11 independently owned master parts distributors ("Master Generac Express Network" or "Master G.E.N."); and (iii) a Company-owned fleet of mobile service training vehicles. In today's retail environment, most independent dealers do not generate the traffic to be competitive with mass merchants, home centers or warehouse clubs. Nevertheless, the Company has made a strategic decision to maintain the viability of the independent dealer network for the express purpose of providing a service that supports the Company's product. The Company has positioned itself not only to respond to short-term warranty needs but to maintain service capability throughout the life of the 52 56 product as well. Many of the Master G.E.N.s have their own sales force, which effectively broadens the availability of the Company's products and spare parts. PRODUCT DEVELOPMENT; ENGINEERING The Company's ability to serve both retailers and end-users is effectively driven by the strength of its engineering and product development capabilities, particularly in alternator and pump design. In 1959, the Company was the first to exploit silicon-diode technology to completely redesign the alternator, thereby fundamentally improving the manufacturing economics and performance characteristics of portable generators. Similar performance improvements have been associated with the GN OHVI engine, the pressure washer pump and the computer-controlled generator. In recognition of its design and engineering competency, the Company was contracted by Briggs & Stratton ("B&S"), one of the world's largest commercial engine manufacturers, to design and set up manufacturing for B&S of its first V Twin Vanguard engine. The Company was instrumental in assisting in the establishment of the joint venture company of Dihatsu Briggs & Stratton in Japan, which is the manufacturer of the Vanguard engine. In the pressure washer category, the Company has leveraged its engineering-driven culture to turn areas of potential vulnerability into competitive strengths. For example, in response to the constrained supply chain for highly engineered pressure washer pumps from inflexible and often unpredictable overseas suppliers, the Company designed and now manufactures its own pressure washer pump. This pump is based on its axial cam technology, resulting in increased responsiveness to market demands and avoiding the costly air freight expenses incurred in the past. The Company's ability to successfully commercialize technical innovations is a core competency and is expected to continue to contribute to revenue and profit growth. Today's retail environment demands a continuous flow of new, value-enhanced offerings to maintain product placements and shelf space allocations. The majority of the Company's new product development initiatives are based on the portable generator and pressure washer markets. However, the Company's new product development group is in the latter stages of developing and field testing products outside of these core markets that the Company expects to introduce over the next 12 to 24 months. See "-- Products -- New and Related Products." INTERNATIONAL SALES AND DISTRIBUTION The Company has been successful in building long-term customer relationships with the leading "big box" retailers in six European markets: the U.K., Germany, Switzerland, Spain, Belgium and France. To support the Company's growing European power generator business, local sales offices have been established in Manchester, Cologne and Barcelona. To service its European customer base more effectively, the Company designs and assembles its European products in its Cheshire, England facility. This facility imports alternators, engines and pumps and other components, and assembles portable generators to meet local product requirements and quality assurance regulations. The Company's international operations have contributed approximately 8% of total net sales for calendar year 1998. The Company plans to focus on international expansion as a key part of its strategy. See "-- Business Strategy -- International Market Opportunities." 53 57 COMPETITION The U.S. engine powered tools industry has experienced significant consolidation over the last 10 to 15 years. The number of competitors in its product categories has decreased from approximately 20 in 1985 to approximately ten today, of which only four companies have national distribution capabilities. Although the Company experiences substantial competition from these competitors, the Company believes that it is a market leader in each of its core products. In the manufacture and sale of portable generators, the Company competes primarily with Coleman Powermate, a division of The Coleman Company, Inc. and Honda. In the manufacture and sale of pressure washers, the Company competes primarily with DeVilbiss Air Power Company, a subsidiary of Falcon Building Products, Inc., and, to a lesser extent, with Alfred Karcher GmbH & Co. and Campbell Hausfeld, a division of The Campbell Group. MANUFACTURING The Company believes that it is one of the more vertically-integrated manufacturers of portable generators and pressure washers in the U.S. Management believes that sustained levels of capital investment and a commitment to manufacturing and technological excellence are important to remain competitive from both a price and product offering perspective. The Company operates a state-of-the-art manufacturing facility in Jefferson, Wisconsin. Completed in January 1995, the original 120,000-square foot facility was expanded by 57,500 square feet in January 1997 to add capacity for the manufacturing of electric pressure washers and pressure washer pumps. The Company is currently in the process of further expanding capacity in this facility by approximately 72,000 square feet and expects to complete this expansion in the second quarter of 1999. The Jefferson plant incorporates facilities for blow molding of plastic tanks; robotic welding of cradles; powder coat painting of metal components; machining; a complete rotor and stator production line with an automated varnishing system representing the latest winding technology available; high-volume assembly lines for one to 12 KW portable generators and 1300 PSI to 3500 PSI pressure washers; and on-line testing, packaging and warehousing facilities. The Company also owns and operates a manufacturing facility in Cheshire, England, which was built in 1990 and recently expanded from approximately 18,000 square feet to approximately 45,000 square feet. Pursuant to the terms of the Engine Supply Agreement, the Company has the exclusive right to purchase certain models of Generac Corporation's GN OHVI engines for use in its pressure washers, consumer portable generators and welders. The initial term of the Engine Supply Agreement is for a period of nine years, with provision for three year renewals, subject to certain conditions. See "Risk Factors -- Absence of Independent Operating History; Dependence on Generac Corporation." EMPLOYEES As of December 31, 1998, the Company employed approximately 980 persons, the majority of whom were involved in production and distribution, with the balance engaged in technical, administration, sales and clerical work. Of these employees, 930 were employed in the United States and 50 in the U.K. Although all the Company's production employees are covered by a collective bargaining agreement, only up to ten of the 54 58 Company's employees have been unionized. The collective bargaining agreement expires in October 1999, which the Company expects to negotiate and renew when it expires. The Company believes that its relationship with its employees is good. ENVIRONMENTAL MATTERS The Company's operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to waters, the generation, handling, storage, transportation, treatment and disposal of waste and other materials and health and safety matters. The Company believes that its business, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. However, the operation of manufacturing plants entails risks in these areas, and there can be no assurance that the Company will not incur material costs or liabilities in the future. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future. LEGAL PROCEEDINGS The Company is involved from time to time in litigation arising out of its business operations. Most of such litigation involves claims for personal injury, property damage, breach of contract and claims involving employee relations and certain administrative proceedings. The Company believes such claims are either adequately covered by insurance or do not involve a risk of material loss to the Company. PROPERTIES The Company currently owns and operates an approximately 177,500 square foot manufacturing and warehouse facility in Jefferson, Wisconsin, which will be expanded by approximately 72,000 square feet by the second quarter of 1999, and an approximately 45,000 square foot manufacturing facility in Cheshire, England. The Company believes that its manufacturing plants are generally well-maintained, in good condition and, upon completion of the expansion, are adequate to meet its present needs. In addition, the Company has sales offices in Cologne, Germany and Barcelona, Spain, and warehousing facilities in Jefferson and Waukesha, Wisconsin, all of which are leased. The Company does not believe that it will have any difficulty renewing any real property lease or finding alternative sites. 55 59 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the name, age and position of each of the directors and executive officers of the Issuers and Holdings.
NAME AGE POSITION - ---- --- -------- OPERATING COMPANY: Dorrance J. Noonan, Jr............... 46 President, Chief Executive Officer and Director Gary J. Lato......................... 39 Chief Financial Officer and Secretary James H. Deneffe..................... 54 Senior Vice President -- Sales and Marketing Wesley C. Sodemann................... 55 Vice President of Engineering Jay C. Sugar......................... 38 Vice President of Operations J. David Bramhill.................... 43 Vice President of International Operations Robert M. Saeger..................... 53 Vice President of Planning Richard A. Aube...................... 30 Director GPPW: Faith Rosenfeld...................... 47 President Richard A. Aube...................... 30 Secretary, Treasurer and Director HOLDINGS: Eric R. Wilkinson(1)................. 43 President and Director Richard A. Aube...................... 30 Secretary and Treasurer R. Eugene Cartledge(1),(2)........... 69 Chairman of the Board Robert D. Kern(1),(2)................ 72 Director Thomas G. Mendell.................... 51 Director Dorrance J. Noonan, Jr............... 46 Director R. Ralph Parks(1),(2)................ 55 Director Richard A. Van Deuren(2)............. 69 Director
- ------------------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee DORRANCE J. NOONAN, JR., President, Chief Executive Officer and Director of the Operating Company and Director of Holdings, served in various management positions with Generac Corporation from 1990 to 1998, most recently as Chief Operating Officer from 1997 to 1998. Prior to joining Generac Corporation, Mr. Noonan was Manager of Sales and Marketing at Artcraft Industries from 1988 to 1990, a registered securities broker at Prudential-Bache Securities from 1985 to 1988, and Manager of International Sales and Marketing at the Perfex Division of McQuay-Perfex from 1981 to 1985. GARY J. LATO, Chief Financial Officer and Secretary of the Operating Company, joined Generac Corporation in 1991, serving as Director of Finance in 1991 and as Vice President -- Finance from 1992 to 1998. Prior to joining Generac Corporation, Mr. Lato held various positions, including Senior Audit Manager, at Price Waterhouse LLP from 1981 to 1991. 56 60 JAMES H. DENEFFE, Senior Vice President -- Sales and Marketing of the Operating Company, held that position at Generac Corporation from 1996 to 1998. Mr. Deneffe has been with Generac Corporation since 1978, serving as Vice President -- Consumer Products Sales and Marketing from 1982 to 1995 and as Group Sales Manager from 1978 to 1981. WESLEY C. SODEMANN, Vice President of Engineering of the Operating Company, held that position at Generac Corporation from 1996 to 1998. Mr. Sodemann also served as Chief Engineer of Generac Corporation from 1979 to 1996 and as Associate Engineer from 1965 to 1979. JAY C. SUGAR, Vice President of Operations of the Operating Company, held that position at Generac Corporation from 1996 to 1998. Mr. Sugar also served as Manufacturing Manager of Generac Corporation from 1993 to 1996 and as Manager of Production and Inventory Control in 1993. Prior to joining Generac Corporation, Mr. Sugar held various positions at Cadence Design Systems -- ASI Division (1990 to 1992), Data General Corporation (1987 to 1990) and General Dynamics (1982 to 1985). J. DAVID BRAMHILL, Vice President of International Operations, has held that position since 1997 and served as European Operations Manager for Generac Corporation from 1992 to 1996. Prior to joining the Company, Mr. Bramhill served in various management and engineering positions at Heulins Manufacturing, Crewe, Cheshire, England (1991 to 1992) and Rolls-Royce Motor Car Company, Ltd. and Rolls-Royce Aerospace, Crewe, Cheshire, England (1972 to 1991). ROBERT M. SAEGER, Vice President of Planning of the Operating Company, has held that position since 1998. From 1997 to 1998, Mr. Saeger served as Director of Accounting/Controller with Generac Corporation and also served as Director of Accounting and Financial Control from 1990 to 1996, as Accounting Manager from 1983 to 1990 and as Assistant Controller from 1976 to 1983. ERIC R. WILKINSON, President and Director of Holdings, has been a managing director of The Beacon Group, LLC (an affiliate of Beacon) since 1994. Prior to joining The Beacon Group, LLC, Mr. Wilkinson was a partner of Apax Partners & Cie SA, a European private equity firm, from 1989 to 1994 and a partner of Bain & Company, the strategy consulting firm, from 1983 to 1989. Mr. Wilkinson is a director of Doctors Health Systems, Intek Information Inc., Hollywood Theaters, Inc., The Identity Group, OnCare Inc., National Century Financial Enterprises, Inc. and International Components Corporation. RICHARD A. AUBE, Secretary and Treasurer of Holdings, Director of the Operating Company and Secretary, Treasurer and Director of GPPW, has been with The Beacon Group, LLC since 1993, most recently as Director. Prior to joining The Beacon Group, LLC, Mr. Aube was a financial analyst in the Natural Resources Group of Morgan Stanley & Co. Mr. Aube is a director of Vessels Energy, Inc. R. EUGENE CARTLEDGE, Chairman of the Board of Holdings, was Chairman of the Board and Chief Executive Officer of Union Camp Corp. from 1986 until his retirement in June 1994. Mr. Cartledge is a director of Blount, Inc., Chase Brass Industries, Inc., Delta Airlines Incorporated, Sunoco, Inc., Union Camp Corp. and UCAR International Inc. ROBERT D. KERN, Director of Holdings, has been Chairman and Chief Executive Officer of Generac Corporation since its founding in 1959. 57 61 THOMAS G. MENDELL, Director of Holdings, has been a managing director of The Beacon Group, LLC since 1994. Prior to joining The Beacon Group, LLC, Mr. Mendell was employed by Goldman, Sachs & Co. for nineteen years where he served as a member of the firm's Investment Committee and head of GS Capital. Mr. Mendell is a director of Doctors Health Systems, Hollywood Theaters, Inc., SmartMaps, International, Inc., The Identity Group and OnCare Inc. R. RALPH PARKS, Director of Holdings, has been a limited partner of The Beacon Group, LP (an affiliate of Beacon) since 1997. Prior to joining The Beacon Group, LP, Mr. Parks was a partner of Goldman, Sachs & Co. and head of its Investment Banking Services for Europe and Canada. RICHARD A. VAN DEUREN, Director of Holdings, has been a partner in the law firm of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c., Attorneys at Law. Mr. Van Deuren is a director of Allen Edmonds Corporation, Allrubber Products & Supply Co., Arandell Corporation, Ataco Steel Products Corporation, F.W. Busch Corp., Campbell, Newman, Pottinger & Associates, Inc., Construction Forms, Inc., Energy Ventures, Ltd., Foran Spice Company, Inc., Generac Corporation, Marshall W. Nelson & Associates, Inc., MSI General Corporation, UNICO, INC., Valuation Research Corporation and Waukee Engineering Company, Inc. FAITH ROSENFELD, President of GPPW, has been a managing director of The Beacon Group, LLC since its inception in 1993. Prior to joining The Beacon Group, LLC, Ms. Rosenfeld was employed by Goldman, Sachs & Co. for 14 years where she held various positions, including, most recently, Vice President, Investment Banking Division. Ms. Rosenfeld is a director of SBL, Inc. and Savia International, Ltd. Directors of each of the Issuers will hold office until his or her successor has been elected and qualified. Officers of each of the Issuers and Holdings will be elected by the respective Boards of Directors at the annual meeting of stockholders and will serve at the discretion of such Board of Directors. EXECUTIVE COMPENSATION The following table sets forth information regarding the compensation paid during the Company's last completed fiscal year to the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company as of December 31, 1998. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION -------------------- ------------ OTHER AWARDS ANNUAL SECURITIES ALL OTHER NAME AND COMPEN- UNDERLYING COMPEN- PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) OPTIONS(#) SATION($)(1) - ------------------ ---- --------- -------- --------- ------------ ------------ Dorrance J. Noonan, 1998 136,500 26,340 -- -- 5,287 Jr..................... Chief Executive Officer Gary J. Lato............. 1998 131,250 25,500 -- -- 3,127 Chief Financial Officer James H. Deneffe......... 1998 131,250 25,500 -- -- 11,737 Senior Vice President -- Sales and Marketing
58 62
LONG-TERM ANNUAL COMPENSATION COMPENSATION -------------------- ------------ OTHER AWARDS ANNUAL SECURITIES ALL OTHER NAME AND COMPEN- UNDERLYING COMPEN- PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) OPTIONS(#) SATION($)(1) - ------------------ ---- --------- -------- --------- ------------ ------------ Wesley C. Sodemann....... 1998 101,923 24,000 47,500 -- 8,758 Vice President of Engineering Jay C. Sugar............. 1998 101,923 19,000 47,500 -- 1,882 Vice President of Operations
- ------------------------- (1) All other compensation includes the value of deferred compensation agreements maintained with the officers of the Operating Company. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information with respect to the executive officers named in the Summary Compensation Table concerning the grants of options made under the Company's Stock Option Plan during fiscal 1998.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ----------------------------- VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES PERCENT OF TOTAL PRICE APPRECIATION UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(1) OPTION TO EMPLOYEES IN BASE PRICE EXPIRATION ----------------------- NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($) - ---- ---------- ---------------- ----------- ---------- ---------- ---------- Dorrance J. Noonan, Jr. .................... 252.976 23.8% $12,941.00 7/8/08 $2,062,090 $5,236,889 Gary J. Lato.............. 202.381 19.0% 12,941.00 7/8/08 1,649,672 4,189,511 James H. Deneffe.......... 101.190 9.5% 12,941.00 7/8/08 824,836 2,094,755 Wesley C. Sodemann........ 101.190 9.5% 12,941.00 7/8/08 824,836 2,094,755 Jay C. Sugar.............. 101.190 9.5% 12,941.00 7/8/08 824,836 2,094,755
- ------------------------- (1) These gains are based on arbitrary compounded rates of growth of stock prices mandated by the Securities and Exchange Commission of 5% and 10% per year from the date the option was granted over the full option term. These rates do not represent the Company's estimate or projection of future prices of Holdings Common Stock. There is no assurance that the values that may be realized by any executive officer upon exercise of his options will be at or near the value estimated in the foregoing table. 59 63 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to the executive officers named in the Summary Compensation Table concerning the options granted during fiscal 1998. To date, no such options have been exercised.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FY-END AT FY-END(1) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ------------ ------------ ----------- ------------- ----------- ------------- Dorrance J. Noonan, Jr. ................... -- -- -- 252.976 0 0 Gary J. Lato............. -- -- -- 202.381 0 0 James H. Deneffe......... -- -- -- 101.190 0 0 Wesley C. Sodemann....... -- -- -- 101.190 0 0 Jay C. Sugar............. -- -- -- 101.190 0 0
- ------------------------- (1) Assumes the fair market value of the shares underlying the options is the same as the exercise price ($12,941.00 per share) payable for such shares. DIRECTORS' COMPENSATION Directors of the Company do not receive director's fees or attendance fees. Directors are reimbursed for their reasonable expenses incurred in connection with attending meetings and performing their duties as directors. Outside directors are eligible to receive options to purchase Holdings Common Stock pursuant to the Stock Option Plan (as defined). See "-- Stock Option Plan." Options to purchase 101.19 shares of Holdings Common Stock were granted to certain directors during 1998. BENEFIT PLANS In connection with the Transaction, the Company established two non-contributory defined benefit plans covering substantially all employees: bargaining/hourly and non-bargaining/salaried groups. Participants begin vesting after three years of service and fully vest after seven years of service. The benefits paid under the salaried plan are based upon years of service and the participant's defined final monthly compensation. Benefits paid under the hourly plan are based on a unit amount at the date of termination multiplied by the participants' credited service. The plans provide for a continuation of participant's years of service credited with Generac Corporation. In connection with the Transaction, the Company also established 401(k) employee retirement savings plans for the benefit of its employees. The Company pays all administrative costs of the plans but makes no contributions. There are unfunded deferred compensation plans for certain key employees. STOCK OPTION PLAN In order to attract, retain and motivate selected employees, officers and directors, and to encourage such persons to devote their best efforts to the business and financial success of the Company, the Company has adopted the Generac Portable Products, Inc. Stock Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, stock options to acquire up to 1,619 shares, or approximately 16.0% on a fully diluted basis, of Holdings Common Stock, in the aggregate, may be granted under a time-vesting formula at an 60 64 exercise price equal to the fair market value of the Holdings Common Stock at the date of grant. On July 9, 1998, 1,063 options, or approximately 10.5% on a fully diluted basis (assuming the grant of all available options), were granted at an exercise price of $12,941.00 per share to certain members of management and the Company's board of directors. The Stock Option Plan is administered by Holding's Board of Directors (the "Board"). The Board will designate which employees of the Company shall be eligible to receive awards under the Stock Option Plan, and the amount, timing and other terms and conditions applicable to such awards. Approximately 5.5% of the outstanding shares of such stock will be reserved for future grants. Options are exercisable in accordance with the terms established by the Board. 61 65 SECURITY OWNERSHIP All of the common stock of GPPW is held by Holdings. All of the equity interest in the Operating Company is held indirectly by Holdings through two wholly owned subsidiaries: GPPD and GPPW. GPPD and GPPW hold 95% and 5% limited liability company interests, respectively, in the Operating Company. The following table sets forth certain information with respect to the beneficial ownership of Holdings Common Stock by (i) each person who beneficially owns more than 5% of such shares; (ii) certain directors of the Company; (iii) each of the executive officers named in the Summary Compensation Table; and (iv) all executive officers and directors of the Company as a group. Unless otherwise indicated, the address for each officer and director of the Company is c/o Generac Portable Products, Inc., 1 Generac Way, Jefferson, Wisconsin 53549.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS - ------------------------ ---------------- ---------------- 5% HOLDERS: The Beacon Group III -- Focus Value Fund, L.P.(1)....................................... 4,698.182 55.3% California Public Employees' Retirement System(2)..................................... 1,931.818 22.7% Capital d'Amerique CDPQ Inc.(3)................. 571.818 6.7% DIRECTORS: R. Eugene Cartledge............................. 46.364 * Robert D. Kern.................................. 77.273 * Thomas G. Mendell............................... 4,698.182(4) 55.3% Richard A. Van Deuren........................... 7.727 * Eric R. Wilkinson............................... 4,698.182(4) 55.3% OFFICERS: Dorrance J. Noonan, Jr.......................... 77.273 * Gary J. Lato.................................... 77.273 * James H. Deneffe................................ 77.273 * Wesley C. Sodemann.............................. 1.932 * Jay C. Sugar.................................... 1.159 * Faith Rosenfeld................................. 4,698.182(4) 55.3% All directors and executive officers as a group (15 individuals)(5)........................... 370.136 4.4%
- ------------------------- * Less than 1%. (1) The address of The Beacon Group III -- Focus Value Fund, L.P. ("Beacon") is 399 Park Avenue, New York, New York 10022. (2) The address of California Public Employees' Retirement System is Lincoln Plaza -- 400 P Street, P.O. Box 942707, Sacramento, California 94229. (3) The address of Capital d'Amerique CDPQ Inc. is 1981, Avenue McGill College, 9th Floor, Montreal, Quebec H3A3C7. (4) Messrs. Wilkinson and Mendell and Ms. Rosenfeld may be deemed to share beneficial ownership of shares of Holdings Common Stock owned of record by Beacon by virtue of their status as partners of The Beacon Group, an affiliate of the general partner of 62 66 Beacon. Messrs. Wilkinson and Mendell and Ms. Rosenfeld disclaim beneficial ownership of the shares of Holdings Common Stock owned by Beacon. The business address of Messrs. Wilkinson and Mendell and Ms. Rosenfeld is c/o The Beacon Group III -- Focus Value Fund, L.P., 399 Park Avenue, New York, New York 10022. (5) Does not include 4,698.182 shares as to which Messrs. Wilkinson and Mendell and Ms. Rosenfeld may be deemed to have beneficial ownership by virtue of their indirect control of Beacon. See "Management -- Directors and Executive Officers." 63 67 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS STOCKHOLDERS AGREEMENTS Beacon, the other stockholders of Holdings and Holdings are parties to a Stockholders' Agreement which includes certain transfer restrictions, voting agreements and registration rights. Employees who own stock of Holdings are also subject to agreements that restrict their right to transfer their stock and, under certain conditions, will require them to sell a pro rata portion of their stock in a transaction in which Beacon is selling its stock. DESCRIPTION OF THE SENIOR SECURED CREDIT FACILITY The Operating Company has entered into a senior secured credit facility with a group of lenders and Bankers Trust Company, as administrative agent and arranger, providing for up to $115.0 million of loans. The credit facility consists of (i) a $45.0 million senior secured term loan facility (the "A Term Loan Facility"), (ii) a $40.0 million senior secured term loan facility (the "B Term Loan Facility" and together with the A Term Loan Facility, the "Term Loan Facilities"), and (iii) a $30.0 million senior secured revolving credit facility. The revolving credit facility will have a letter of credit sublimit to be agreed upon. USE OF PROCEEDS; MATURITY. Proceeds of the Term Loan Facilities, together with the Equity Investment and the net proceeds of the issuance of the Old Notes, were used to fund the Operating Company's acquisition of the Portable Products Division of Generac Corporation and pay the fees and expenses related thereto. Proceeds of the revolving credit facility will be used for general corporate and working capital purposes. The A Term Loan Facility will mature 5 1/2 years from the closing date. The B Term Loan Facility will mature seven years from the closing date. The A Term Loan Facility will provide for amortization of $2.5 million in the first year, $6.25 million in the second year, $7.5 million in the third year, $10.0 million in the fourth year, $12.5 million in the fifth year and $6.25 million in the sixth year. The B Term Loan Facility will provide for nominal annual amortization in the first five years and amortization of $19 million in each of the sixth and seventh years. The revolving credit facility will mature 5 1/2 years from the closing date. PREPAYMENT; REDUCTION OF COMMITMENTS. Borrowings under the credit facility will be required to be prepaid, subject to certain exceptions, from (i) 100% of the net proceeds of asset sales by the Operating Company and its subsidiaries (subject to (a) exceptions for reinvestment of certain asset sale proceeds and (b) certain de minimis exceptions); (ii) 100% of the net proceeds from certain issuances of debt obligations by Holdings, the Operating Company or their subsidiaries; (iii) 100% of the first $50.0 million and 75% thereafter of net proceeds from issuances of equity by Holdings or the Operating Company; (iv) certain percentages of annual excess cash flow; and (v) 100% of the net proceeds from certain insurance recovery events of Holdings and its subsidiaries. Voluntary prepayments will be permitted, without premium or penalty, subject to reimbursement of lenders' costs in the case of voluntary prepayment of Eurodollar borrowings other than on the last day of the relevant interest period. Voluntary prepayments under the Term Loan Facilities will be allocated among those facilities on a pro rata basis, with the amounts so allocated to be applied to reduce future scheduled amortization payments on a pro rata basis. 64 68 INTEREST. The interest rates under the A Term Loan Facility and the revolving credit facility will be based, at the option of the Operating Company, on either a Eurodollar rate plus 2.25% per annum or a base rate plus 1.25% per annum, subject to a pricing grid that will provide for reductions in the applicable interest rate margins based on Holdings' consolidated debt to EBITDA ratio. The interest rate under the B Term Loan Facility is based, at the option of the Operating Company, on a Eurodollar rate plus 2.75% or a base rate plus 1.75%, subject to a pricing grid that will provide for reductions in the applicable interest rate margins based on Holdings' consolidated debt to EBITDA ratio. A commitment fee of 0.50% per annum will be charged on the unused portion of the Senior Secured Credit Facility, subject to a pricing grid that will provide for reductions in the applicable commitment fee margin based on Holdings' consolidated debt to EBITDA ratio. COLLATERAL AND GUARANTEES. The credit facility will be guaranteed by Holdings, GPPW, all of the Operating Company's existing and future domestic subsidiaries and, upon the occurrence of certain events, GPPD. The credit facility will be secured by a first priority lien on substantially all, subject to certain exceptions, of the properties and assets of Holdings, the Operating Company, each direct or indirect subsidiary of the Operating Company, GPPW and, upon the occurrence of certain events, GPPD. COVENANTS. The credit facility will contain covenants restricting the ability of the Operating Company and its subsidiaries to, among other, (i) incur additional debt; (ii) engage in mergers, acquisitions and asset sales; (iii) engage in sale-leaseback transactions; (iv) declare dividends and make other restricted payments; (v) prepay, redeem or purchase debt or amend existing debt agreements; (vi) engage in transactions with affiliates; (vii) make investments; (viii) incur liens; and (ix) make capital expenditures. The Company will also be required to comply with financial covenants with respect to (a) a maximum leverage ratio, (b) a minimum interest coverage ratio, and (c) a minimum EBITDA test. EVENTS OF DEFAULT. Events of default under the credit facility will include but are not limited to (i) the Operating Company's failure to pay principal when due or interest after a grace period; (ii) material breach of any covenant, representation or warranty contained in the loan documents; (iii) customary cross-default and cross-acceleration provisions; (iv) certain events of bankruptcy, insolvency or dissolution of Holdings or its subsidiaries; (v) certain judgments against Holdings and its subsidiaries or their assets; (vi) the actual or asserted invalidity of security documents or guarantees of Holdings, the Operating Company or the Operating Company's subsidiaries; and (vii) a Change in Control (as defined) of Holdings or the Operating Company. The preceding discussion of certain of the provisions of the credit facility is not intended to be exhaustive and is qualified in its entirety by reference to the provisions of the credit facility. 65 69 DESCRIPTION OF THE NEW NOTES The Old Notes were issued and the New Notes will be issued under an Indenture (the "Indenture"), dated as of July 1, 1998, by and among the Issuers and Marine Midland Bank, as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. A copy of the Indenture may be obtained from the Company or the Initial Purchaser. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this section, references to the "Company" mean the Operating Company and the terms "Company" and "Issuers" do not include their respective Subsidiaries or Holdings. The New Notes will be unsecured obligations of the Issuers, ranking subordinate in right of payment to all Senior Debt of the Issuers. The New Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, Bankers Trust Company will act as Paying Agent and Registrar for the New Notes. The New Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be Bankers Trust Company's corporate trust office. The Issuers may change any Paying Agent and Registrar without notice to holders of the New Notes (the "Holders"). The Issuers will pay principal (and premium, if any) on the New Notes at Bankers Trust Company's corporate office in New York, New York. At the Issuers' option, interest may be paid at Bankers Trust Company's corporate trust office or by check mailed to the registered address of Holders. Any Old Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture. PRINCIPAL, MATURITY AND INTEREST Under the Indenture, the New Notes will be limited in aggregate principal amount to $160.0 million, of which $110.0 million in aggregate principal amount has been issued, and all of which will mature on July 1, 2006. Additional Notes in an aggregate amount of up to $50.0 million may be issued from time to time, subject to the limitations set forth under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness." Interest on the New Notes will accrue at the rate of 11 1/4% per annum and will be payable semiannually in arrears in cash on each January 1 and July 1 commencing on January 1, 1999, to the persons who are registered Holders at the close of business on the December 15 and June 15 immediately preceding the applicable interest payment date. Interest on the New Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance. The New Notes will not be entitled to the benefit of any mandatory sinking fund. REDEMPTION OPTIONAL REDEMPTION. The New Notes will be redeemable, at the Issuers' option, in whole at any time or in part from time to time, on and after July 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period 66 70 commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE - ---- ---------- 2002........................................ 107.625% 2003........................................ 104.750% 2004........................................ 102.875% 2005 and thereafter......................... 100.000%
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time to time, on or prior to July 1, 2001, the Issuers may, at their option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem the New Notes at a redemption price equal to 111.25% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Issuers shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of Holdings or the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, other than an offering pursuant to Form S-8 (or any successor thereto); provided that, in the event of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price (plus accrued interest to the redemption date) of the New Notes to be redeemed pursuant to the preceding paragraph. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the New Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the New Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. 67 71 SUBORDINATION The payment of all Obligations on the New Notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt subject to the limitations described below. Upon any payment or distribution of assets of the Issuers of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Issuers or their property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the New Notes, or for the acquisition of any of the New Notes for cash or property or otherwise. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by acceleration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by or on behalf of the Issuers or any other Person on its or their behalf with respect to any Obligations on the New Notes or to acquire any of the New Notes for cash or property or otherwise (except that holders of the New Notes may receive payments from a trust described under "Legal Defeasance and Covenant Defeasance" below so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the New Notes without violating the subordination provisions described therein). In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Trustee (a "Payment Blockage Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Debt terminating the Payment Blockage Period (as defined below), during the 180 days after the delivery of such Payment Blockage Notice (the "Payment Blockage Period"), neither the Issuers nor any other Person on their behalf shall (x) make any payment of any kind or character with respect to any Obligations on the New Notes or (y) acquire any of the New Notes for cash or property or otherwise (except that holders of the New Notes may receive payments from a trust described under "Legal Defeasance and Covenant Defeasance" below so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the New Notes without violating the subordination provisions described therein). Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 180 days from the date the payment on the New Notes was due and only one such Payment Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Payment Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a 68 72 period commencing after the date of commencement of such Payment Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of either of the Issuers, creditors of either of the Issuers who are not holders of Senior Debt, including the Holders of the New Notes, may recover less, ratably, than holders of Senior Debt. At , 1999, the aggregate amount of Senior Debt was approximately $ million. HOLDINGS GUARANTEE The obligations of the Issuers under the Notes and the Indenture will be guaranteed (the "Holdings Guarantee") on a senior subordinated basis by Holdings. The Holdings Guarantee will be subordinated in right of payment to all Senior Debt of Holdings to the same extent that the Notes are subordinated to the Senior Debt of the Issuers. Since Holdings is a holding company with no significant operations, the Holdings Guarantee provides little, if any, additional credit support for the Notes, and investors should not rely on the Holdings Guarantee in evaluating an investment in the Notes. CHANGE OF CONTROL The Indenture provides that upon the occurrence of a Change of Control, each Holder will have the right to require that the Issuers purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest to the date of purchase. The Indenture provides that, prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Issuers covenant to (i) repay in full and terminate all commitments under Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the Credit Agreement and all other Senior Debt to permit the repurchase of the New Notes as provided below. The Issuers shall first comply with the covenant in the immediately preceding sentence before they shall be required to repurchase Notes pursuant to the provisions described below. The Issuers' failure to comply with the covenant described in the second preceding sentence shall constitute an Event of Default described in clause (iii) and not in clause (ii) under "Events of Default" below. Within 30 days following the date upon which the Change of Control occurred, the Issuers must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. 69 73 If a Change of Control Offer is made, there can be no assurance that the Issuers will have available funds sufficient to pay the Change of Control purchase price for all the New Notes that might be delivered by Holders seeking to accept the Change of Control Offer. In the event the Issuers are required to purchase outstanding Notes pursuant to a Change of Control Offer, the Issuers expect that they would seek third party financing to the extent they do not have available funds to meet their purchase obligations. However, there can be no assurance that the Issuers would be able to obtain such financing. None of the Board of Directors of either of the Issuers or the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Issuers and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on their property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of Holdings or the Issuers, whether favored or opposed by the management of Holdings or the Issuers. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the New Notes, and there can be no assurance that the Issuers or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Issuers or any of their respective Subsidiaries by the management of the Issuers. While such restrictions cover a wide variety of arrangements traditionally used to effect highly leveraged transactions, the Indenture may not afford the Holders of Notes protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under the "Change of Control" provisions of the Indenture by virtue thereof. CERTAIN COVENANTS The Indenture contains, among others, the following covenants: LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than (a) 2.0 to 1.0 if the date of such incurrence is on or prior to December 31, 1999, or (b) 2.25 to 1.0 if the date of such incurrence is after December 31, 1999. 70 74 LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions by the Company payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the New Notes or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing; or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the extent used to redeem the New Notes in compliance with the provisions set forth under "Redemption -- Optional Redemption Upon Public Equity Offerings"); plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments; (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the 71 75 Company; (3) the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the New Notes either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; (4) if no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Common Stock of the Company or Holdings from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees; provided that the aggregate amount of all such repurchases shall not exceed $3.0 million in any fiscal year and $10.0 million in aggregate; provided, further, that at the time of any such repurchase, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0; (5) the payment of any dividend or distribution to the extent necessary to permit direct or indirect beneficial owners of shares of Capital Stock of the Company, including Holdings, to pay federal, state or local income tax liabilities arising from income of the Company and attributable to them solely as a result of the Company (and any intermediate entity through which the Holder owns such shares) being a limited liability company, partnership or similar entity for federal income tax purposes ("Permitted Tax Distributions"); and (6) any dividend or distribution to Holdings in respect of overhead expenses, legal, accounting, SEC reporting and other professional fees and expenses of Holdings directly attributable to the operations of the Company and its Restricted Subsidiaries. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, amounts expended pursuant to clauses (1), (2) (ii) and (4) shall be included in such calculation. LIMITATION ON ASSET SALES. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors) and (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the New Notes or any guarantee thereof) that are assumed by the transferee of any such assets and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted within 180 days by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) shall be deemed to be cash for purposes of this provision. Upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 270 days of receipt thereof either (A) to prepay any Senior Debt and, in the case of any Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility; (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"); or (C) a combination of prepayment and investment permitted by the foregoing clauses (A) and (B). On the 271st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to 72 76 apply the Net Cash Proceeds relating to such Asset Sale as set forth in the preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds that is an integral multiple of $1,000 which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in the preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the New Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Merger, Consolidation and Sale of Assets," the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to deemed net cash proceeds from such deemed sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Notwithstanding the two immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (i) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for fair market value; provided that any consideration not constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the two preceding paragraphs. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. 73 77 The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) the Indenture; (3) the Credit Agreement; (4) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (5) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (6) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (7) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (3), (5) or (6) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (3), (5) or (6); or (8) any agreement or instrument governing Indebtedness (whether or not outstanding) of Foreign Restricted Subsidiaries incurred in reliance on clause (xiii) of the definition of Permitted Indebtedness. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company. LIMITATION ON LIENS. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the New Notes, the New Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the New Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Debt; (C) Liens securing the New Notes; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary of the 74 78 Company on assets of any Restricted Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness incurred to Refinance any Indebtedness incurred in accordance with the provisions of the Indenture and secured by a Lien permitted thereunder; provided, however, that such Liens (x) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (y) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted Liens. PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will not incur or suffer to exist Indebtedness that is both senior in right of payment to the New Notes and subordinate in right of payment to any other Indebtedness of the Company. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing entity or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation or a partnership or a limited liability company, in each case organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental Indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the New Notes and the performance of every covenant of the New Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed, provided that at any time the Company or its successor is a limited liability company, there shall be a co-issuer of the New Notes that is a corporation; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental Indenture is required in connection with such transaction, such supplemental Indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. Notwithstanding the foregoing clauses (ii) and (iii), (a) any Restricted Subsidiary may consolidate with, merge 75 79 into or transfer all or part of its properties and assets to the Company or to another Restricted Subsidiary and (b) the Company may merge with or transfer all of its properties and assets to an Affiliate incorporated or formed solely for the purpose of either reforming the Company in another State of the United States or changing the legal structure of the Company to a corporation so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby (it being understood that after the transfer of such property and assets for the purpose of changing its legal structure to a corporation, the Company may dissolve). For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The Indenture provides that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the New Notes with the same effect as if such surviving entity had been named as such. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $5.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management; (ii) transactions exclusively between or among the Company and any of its Wholly Owned Restricted 76 80 Subsidiaries or exclusively between or among such Wholly Owned Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by the Indenture; and (v) transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the Indenture and on terms fair to the Company and its Restricted Subsidiaries in the reasonable determination of the Board of Directors of the Company, or at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. LIMITATION OF GUARANTEES BY RESTRICTED SUBSIDIARIES. The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, by way of the pledge of any intercompany note or otherwise, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or any other Restricted Subsidiary of the Company (other than (A) Indebtedness and other obligations under the Credit Agreement; (B) Permitted Indebtedness of a Restricted Subsidiary of the Company; (C) Indebtedness under Currency Agreements in reliance on clause (v) of the definition of Permitted Indebtedness; or (D) Interest Swap Obligations incurred in reliance on clause (iv) of the definition of Permitted Indebtedness), unless, in any such case (a) such Restricted Subsidiary executes and delivers a supplemental indenture to the Indenture, providing a guarantee of payment of the New Notes by such Restricted Subsidiary (the "Guarantee") and (b) (x) if any such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Senior Debt, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such Senior Debt may be superior to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the New Notes than those contained in the Indenture and (y) if such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Indebtedness that is expressly subordinated to the New Notes, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such subordinated Indebtedness shall be subordinated to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the New Notes than those contained in the Indenture. Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the New Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon: (i) the unconditional release of such Restricted Subsidiary from its liability in respect of the Indebtedness in connection with which such Guarantee was executed and delivered pursuant to the preceding paragraph; or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary; provided that (a) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of the Indenture and (b) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Indebtedness so guaranteed. CONDUCT OF BUSINESS OF THE COMPANY AND THE CO-ISSUER. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or reasonably related to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. Co-Issuer will not own any operating assets or 77 81 conduct any business other than to own equity interests in the Company and serve as an issuer and an obligor on the New Notes. REPORTS TO HOLDERS. The Indenture provides that the Issuers will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Issuers are required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further provides that, notwithstanding that the Issuers may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuers will file with the Commission, to the extent permitted, and provide the Trustee and Holders with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Issuers will also comply with the other provisions of TIA sec. 314(a). EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer which has actually been made) (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 60 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the New Notes (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, aggregates $10.0 million or more at any time; (v) one or more judgments in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or (vi) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries. 78 82 If an Event of Default (other than an Event of Default specified in clause (vi) above with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued interest on all the New Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become immediately due and payable upon the first to occur of an acceleration under the Credit Agreement or 5 business days after receipt by the Company and the Representative under the Credit Agreement of such Acceleration Notice but only if such Event of Default is then continuing. If an Event of Default specified in clause (vi) above with respect to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Indenture provides that, at any time after a declaration of acceleration with respect to the New Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the New Notes may rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree; (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration; (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid but only if such Event of Default is then continuing; and (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the New Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. Holders of the New Notes may not enforce the Indenture or the New Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. Under the Indenture, the Company is required to provide to the Trustee annually, an officers' certificate as to such officers' knowledge of the Issuers' compliance with all conditions and covenants under the Indenture and promptly, upon any such officer obtaining knowledge of any Default or Event of Default that has occurred, an officers' certificate describing such Default or Event of Default and the status thereof. 79 83 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, STOCKHOLDERS AND MEMBERS No director, officer, employee, stockholder or member of the Issuers, as such, shall have any liability for any obligations of the Issuers under the New Notes, 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 New Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Issuers may, at their option and at any time, elect to have their obligations discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Issuers shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the New Notes when such payments are due; (ii) the Issuers' obligations with respect to the New Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments; (iii) the rights, powers, trust, duties and immunities of the Trustee and the Issuers' obligations in connection therewith; and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Issuers may, at their option and at any time, elect to have the obligations of the Issuers released with respect to certain covenants described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the New Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the New Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the New Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Issuers shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall 80 84 have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Issuers or any of their Subsidiaries is a party or by which the Issuers or any of their Subsidiaries is bound; (vi) each of the Issuers shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders over any other creditors of the Issuers or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Issuers or others; (vii) each of the Issuers shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) each of the Issuers shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel required by clause (ii) above with respect to a Legal Defeasance need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable or (y) will become due and payable on the maturity date within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the New Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the New Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuers and thereafter repaid to the Issuers or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Issuers have irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the New Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the New Notes to the date of deposit together with irrevocable instructions from the Issuers directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Issuers have paid all other sums payable under the Indenture by the Issuers; and (iii) each of the Issuers have delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. MODIFICATION OF THE INDENTURE From time to time, the Issuers and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the Trustee, 81 85 adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or reduce the redemption price therefor; (iv) make any Notes payable in money other than that stated in the New Notes; (v) make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (vi) after the Company's obligation to purchase Notes arises thereunder, amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or, after such Change of Control has occurred or such Asset Sale has been consummated, modify any of the provisions or definitions with respect thereto; or (vii) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the New Notes in a manner which adversely affects the Holders. GOVERNING LAW The Indenture provides that it and the New Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. 82 86 "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $1,000,000 or (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under "Merger, Consolidation and Sale of Assets." "Beacon" means The Beacon Group III -- Focus Value Fund, L.P., a limited partnership organized under the laws of the State of Delaware. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all 83 87 partnership, membership or other equity interests conferring to the holder thereof the right to receive a share of the profits, losses or distributions of assets of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit, time deposits, eurodollar time deposits or bankers' acceptances maturing within one year from the date of acquisition thereof and overnight bank deposits issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (iv) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company or Holdings to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Company or Holdings of any plan or proposal for the liquidation or dissolution of the Company or Holdings, as the case may be, (whether or not otherwise in compliance with the provisions of the Indenture); (iii) any Person or Group (other than the Permitted Holders) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company or Holdings; or (iv) the replacement of a majority of the Board of Directors of the Company or Holdings over a two-year period from the directors who constituted the Board of Directors of the Company or Holdings, as the case may be, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company or Holdings, as the case may be, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. 84 88 "Co-Issuer" means GPPW, Inc., a corporation incorporated under the laws of the State of Wisconsin. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Restricted Subsidiaries, or Permitted Tax Distributions made by such Person, paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business); (B) Consolidated Interest Expense and; (C) Consolidated Non-cash Charges less any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X of the Exchange Act) attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise 85 89 assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount and amortization or write-off deferred financing costs; (b) the net costs under Interest Swap Obligations; (c) all capitalized interest; and (d) the interest portion of any deferred payment obligation; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) the amount of Permitted Tax Distributions with respect to such period; (b) after-tax gains from Asset Sales or abandonments or reserves relating thereto; (c) after-tax items classified as extraordinary or nonrecurring gains; (d) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (e) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise; (f) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person; (g) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (h) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and (i) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. 86 90 "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Credit Agreement" means the Credit Agreement dated as of July 9, 1998, among the Company, Holdings, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Senior Subordinated Notes. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be 87 91 evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Foreign Restricted Subsidiary" means any Restricted Subsidiary of the Company that is not organized under the laws of the United States of America or any State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Guarantor" means each of the Company's Restricted Subsidiaries that in the future executes a supplemental Indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture. "Holdings" means Generac Portable Products, Inc., a corporation incorporated under the laws of the State of Delaware. "Indebtedness" means with respect to any Person, without duplication, (i) all Obligations of such Person for borrowed money; (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all Capitalized Lease Obligations of such Person; (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (vi) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below; (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured; (viii) all Obligations under currency agreements and interest swap agreements of such Person; and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial 88 92 interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date of original issuance of the Notes. "Issuers" means the Operating Company and Co-Issuer. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such 89 93 deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions); (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements; (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale; and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Operating Company" or "Company" means Generac Portable Products, LLC, a limited liability company organized under the laws of the State of Delaware. "Permitted Holder(s)" means Beacon and its Affiliates. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes issued in the Offering in an aggregate amount of $110.0 million; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate outstanding principal amount at any time outstanding not to exceed $115.0 million (A) less the amount of all mandatory principal payments actually made in respect of the term loans thereunder and (B) reduced by any required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder, in each case, actually effected in satisfaction of the Net Cash Proceeds requirement described under the covenant described under "Limitation on Asset Sales" (it being recognized that a reduction in any borrowing base thereunder in and of itself shall not be deemed a required permanent repayment); (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company covering Indebtedness of Holdings, the Company or any of its Restricted Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of the Company covering Indebtedness of such Restricted Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Senior Subordinated Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do 90 94 not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company or the lenders and collateral agent under the Credit Agreement; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company or the lenders and collateral agent under the Credit Agreement owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness unless such Indebtedness is otherwise permitted hereunder; (vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company or the lenders and collateral agent under the Credit Agreement, in each case subject to no Lien other than under the Credit Agreement; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Notes and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company unless such Indebtedness is otherwise permitted hereunder; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of incurrence; (ix) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $7.5 million at any one time outstanding; (xi) Refinancing Indebtedness; (xii) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding; and (xiii) Indebtedness of Foreign Restricted Subsidiaries not to exceed $10.0 million at any one time outstanding; provided that no Indebtedness may be incurred under 91 95 this clause (xiii) if after giving effect to such incurrence the sum of the Indebtedness outstanding under clause (ii) above and the Indebtedness outstanding under this clause (xiii) would exceed the maximum amount of Indebtedness permitted to be outstanding under clause (ii) above. "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and the Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $1.0 million at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with the Indenture; (vi) additional Investments not to exceed $7.5 million at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; and (viii) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with 92 96 the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (A) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired and (B) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture; (xii) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness permitted pursuant to clause (x) of the definition of "Permitted Indebtedness"; provided, however, that in the case of Purchase Money Indebtedness (A) the Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or constructed and (B) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction or, in the case of a refinancing of any Purchase Money Indebtedness, within 180 days of such refinancing; (xiii) Liens securing Indebtedness under Currency Agreements; and (xiv) Liens securing Acquired Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the lienholders than those securing the 93 97 Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company. "Permitted Tax Distributions" has the meaning given such term in the "Limitation on Restricted Payments" covenant. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Purchase Money Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant or permitted under the definition of "Permitted Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xii) or (xiii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Senior Subordinated Notes, then such Refinancing Indebtedness shall be subordinate to the Senior Subordinated Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. 94 98 "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities; (y) all Interest Swap Obligations; and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries; (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation); (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services; (iv) Indebtedness represented by Disqualified Capital Stock; (v) any liability for federal, state, local or other taxes owed or owing by the Company; (vi) Indebtedness incurred in violation of the Indenture provisions set forth under "Limitation on Incurrence of Additional Indebtedness" (but, as to any such Indebtedness, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such obligation or their representative shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness (or, in the case of revolving credit Indebtedness, that the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not violate such provisions of the Indenture); (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company; (viii) Indebtedness represented by Capitalized Lease Obligations existing on the Issue Date; and (ix) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Significant Subsidiary", with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the 95 99 election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Company certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. 96 100 DESCRIPTION OF THE OLD NOTES The form and terms of the Old Notes are identical in all material respects to the forms and terms of the New Notes, except that (i) the Old Notes have not been registered under the Securities Act, are subject to certain restrictions on transfer and are entitled to certain rights under the Registration Rights Agreement (which rights will terminate upon consummation of the Exchange Offer, except under limited circumstances) and (ii) the Old Notes will not provide for any increase in the interest rate thereon. The Old Notes provide that, in the event that if a registration statement relating to the Exchange Offer has not been filed on or by February 4, 1999 and declared effective by April 5, 1999, then interest will accrue (in addition to the stated interest rate on the Old Notes) at the rate of 0.50% per annum on the principal amount of the Notes for the period from the occurrence of such event until such time as the Exchange Offer is consummated or any required Shelf Registration Statement is effective. The New Notes are not, and upon consummation of the Exchange Offer the Old Notes will not be, entitled to any such additional interest. Accordingly, holders of Old Notes should review the information set forth under "Risk Factors -- Certain Consequences of a Failure to Exchange Old Notes" and "Description of the New Notes." 97 101 OLD NOTES REGISTRATION RIGHTS AGREEMENT The summary set forth below of certain provisions of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to all the provisions of the Registration Rights Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Issuers and the Initial Purchaser entered into a registration rights agreement (the "Registration Rights Agreement") on July 2, 1998 pursuant to which the Issuers agreed, for the benefit of holders of the Old Notes, that they would, at their expense, use their reasonable best efforts to (i) within 210 days after the Issue Date, file a registration statement on an appropriate registration form (the "Registration Statement") with the SEC with respect to the Exchange Offer to exchange the Old Notes for the New Notes and (ii) cause the Registration Statement to be declared effective under the Securities Act within 270 days after the Issue Date. Upon the Registration Statement being declared effective, the Issuers will offer to all holders of the Old Notes an opportunity to exchange their securities for a like principal amount of the New Notes. The Issuers will keep the Exchange Offer open for acceptance for not less than 20 business days (or longer if required by applicable law) after the date on which notice of the Exchange Offer is mailed to the holders. For each Old Note surrendered for exchange pursuant to the Exchange Offer, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Interest on each New Note will accrue (A) from the later of (i) the last interest payment date on which interest was paid on the Old Note surrendered in exchange therefor or (ii) if the Old Note is surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date of such interest payment date or (B) if no interest has been paid on such Old Note, from the Issue Date. Under existing interpretations of the SEC contained in several no-action letters to third parties, the New Notes will be freely transferable by holders thereof (other than affiliates of the Issuers) after the Exchange Offer without further registration under the Securities Act; provided, however, that each holder that wishes to exchange its Old Notes for New Notes will be required to represent (i) that any New Notes to be received by it will be acquired in the ordinary course of its business; (ii) that at the time of the commencement of the Exchange Offer, it has no arrangement or understanding with any person to participate in the distribution (within the meaning of Securities Act) of the New Notes in violation of the Securities Act; (iii) that it is not an "affiliate" (as defined in Rule 405 promulgated under the Securities Act) of the Issuers; (iv) if such holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of New Notes; and (v) if such holder is a broker-dealer (a "Participating Broker-Dealer") that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making or other trading activities, that it will deliver a prospectus in connection with any resale of such New Notes. The SEC has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the New Notes (other than a resale of an unsold allotment from the original sale of the Old Notes) with the prospectus contained in the Registration Statement. The Issuers will agree to make available, for a period of 180 days after the consummation of the Exchange Offer, a prospectus meeting the requirements of the Securities Act for use by Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements for use in connection with any resale of New Notes. 98 102 If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers are not permitted to effect an Exchange Offer; (ii) the Exchange Offer is not consummated within 300 days of the Issue Date; or (iii) in the case of any holder that participates in the Exchange Offer, such holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as an affiliate of the Issuers within the meaning of the Securities Act), then in each case, the Issuers will (x) promptly deliver to the holders and the applicable Trustee written notice thereof and (y) at their sole expense, (a) as promptly as practicable, file a shelf registration statement covering resales of the Old Notes (the "Shelf Registration Statement"); (b) use their reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act; and (c) use their reasonable best efforts to keep effective the Shelf Registration Statement until the earlier of two years after the Issue Date or such time as all of the applicable Old Notes have been sold thereunder. The Issuers will, in the event that a Shelf Registration Statement is filed, provide to each holder copies of the prospectus that is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement for the Old Notes has become effective and take certain other actions as are required to permit unrestricted resales of the Old Notes. A holder that sells Old Notes pursuant to the Shelf Registration Statement will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such holder (including certain indemnification rights and obligations). If the Issuers fail to comply with the above provisions or if the Registration Statement or the Shelf Registration Statement fails to become effective, then, as liquidated damages, additional interest (the "Additional Interest") shall become payable in respect of the Old Notes as follows: (i) if (A) the Registration Statement is not filed with the SEC within 210 days following the Issue Date or (B) notwithstanding that the Issuers have consummated or will consummate an Exchange Offer, the Issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement is not filed on or prior to the 60th day following the date on which the obligation to file such Shelf Registration Statement arises, then commencing on the day after either such required filing date, Additional Interest shall accrue on the principal amount of the Old Notes at a rate of .50% per annum for the first 90 days immediately following each such filing date, such Additional Interest rate increasing by an additional .50% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) the Registration Statement is not declared effective by the SEC within 270 days following the Issue Date or (B) notwithstanding that the Issuers have consummated or will consummate an Exchange Offer, the Issuers are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the SEC on or prior to the 270th day following the date on which the obligation to file such Shelf Registration Statement arises, then, commencing on the day after either such required effective date, Additional Interest shall accrue on the principal amount of the Old Notes at a rate of .50% per annum for the first 90 days immediately following such date, such Additional Interest rate increasing by an additional .50% per annum at the beginning of each subsequent 90-day period; or 99 103 (iii) if (A) the Issuers have not exchanged New Notes for all Old Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the later of the 45th day after the date on which the Registration Statement was declared effective or the 300th day after the Issue Date or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all Old Notes have been disposed of thereunder), then Additional Interest shall accrue on the principal amount of the Old Notes at a rate of .50% per annum for the first 90 days commencing on (x) the 46th or 301st, as the case may be, day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, such Additional Interest rate increasing by an additional .50% per annum at the beginning of each subsequent 90-day period; provided, however, that the Additional Interest rate on the Old Notes may not exceed in the aggregate 1.00% per annum; provided, further, however, that (1) upon the filing of the Registration Statement or a Shelf Registration Statement (in the case of clause (i) above); (2) upon the effectiveness of the Registration Statement or a Shelf Registration Statement (in the case of clause (ii) above); or (3) upon the exchange of New Notes for all Old Notes tendered (in the case of clause (iii) (A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii) (B) above), Additional Interest on the Old Notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) above will be payable in cash on the same original interest payment dates as provided in the terms of the Old Notes. BOOK-ENTRY; DELIVERY AND FORM The certificates representing the Notes will be issued in fully registered form without interest coupons. Except as set forth below, the New Notes will be represented by one or more permanent global Notes in fully registered form without interest coupons (each a "Global Note") and will be deposited with the Trustee as custodian for DTC and registered in the name of a nominee of such depositary. THE GLOBAL NOTES The Issuers expect that pursuant to procedures established by DTC (i) upon the issuance of the Global Notes, DTC or its custodian will credit, on its internal system, the principal amount at maturity of the individual beneficial interests represented by such Global Notes to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the Global Notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). So long as DTC, or its nominee, is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Notes for all purposes under the Indenture. No beneficial owner of an interest in the Global Notes will be able to transfer that interest 100 104 except in accordance with DTC's procedures, in addition to those provided for under the Indenture. Payments of the principal of, premium (if any), and interest on, the Global Notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Issuers, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Issuers expect that DTC or its nominee, upon receipt of any payment of principal, premium, if any, or interest on the Global Notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount at maturity of the Global Notes as shown on the records of DTC or its nominee. The Issuers also expect that payments by participants to owners of beneficial interests in the Global Notes held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same day funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states that require physical delivery of the Notes, or to pledge such securities, such holder must transfer its interest in the Global Notes, in accordance with the normal procedures of DTC and with the procedures set forth in the applicable Indenture. DTC has advised the Issuers that it will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose accounts the DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount at maturity of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Notes for Certificated Securities, which it will distribute to its participants. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC, it is under no obligation to perform such procedures and such procedures may be discontinued at any time. Neither the Issuers nor the Trustee for the Notes will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES Certificated Securities shall be issued in exchange for beneficial interests in the Global Notes (i) if requested by a holder of such interests or (ii) if DTC is at any time unwilling or unable to continue as a depositary for the Global Notes and a successor depositary is not appointed by the Issuers within 90 days. 101 105 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS King & Spalding, counsel to the Company, has advised the Company that the following discussion expresses its opinion as to certain United States federal income tax consequences of the exchange, holding and disposition of the New Notes. This discussion is based on the Internal Revenue Code, Treasury Regulations (including proposed regulations) promulgated thereunder, administrative pronouncements and judicial decisions each as now in effect, all of which are subject to change, possibly with retroactive effect. This discussion does not purport to deal with all aspects of United States federal income taxation that may be relevant to holders of New Notes in light of such holders' personal circumstances. This summary deals only with United States persons that will acquire New Notes pursuant to the terms of the Exchange Offer and will hold New Notes as capital assets and does not address tax considerations applicable to investors that may be subject to special tax rules, such as financial institutions, S corporations, tax-exempt organizations, insurance companies, dealers in securities or currencies, persons other than United States persons or persons that will hold New Notes as a position in a "straddle," as part of a hedging transaction for tax purposes, as part of a "synthetic debt instrument" or other integrated investment (including a "conversion transaction") or holders that have a "functional currency" other than the United States dollar. No ruling on any of the issues discussed below will be sought from the United States Internal Revenue Services (the "IRS"). EXCHANGE OF NEW NOTES The exchange of Old Notes for the New Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes, because the New Notes do not differ materially in kind or extent from the Old Notes. Rather, the New Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, no gain or loss will be recognized on the exchange of Old Notes for New Notes pursuant to the Exchange Offer. INTEREST ON NEW NOTES A holder of a New Note generally will be required to report as ordinary interest income for federal income tax purposes interest earned on the New Note in accordance with the holder's method of tax accounting. DISPOSITION OF NEW NOTES A holder's tax basis for a New Note will be the holder's tax basis for the Old Note immediately before the exchange. A holder's tax basis for the Old Note immediately before the exchange generally will equal the cost of the Old Note to the holder, reduced by any amortized bond premium (as described below) and any payments other than interest made on the Old Note and increased by any market discount (as described below) included in the holder's income. Upon the sale, exchange or retirement of a New Note, a holder generally will recognize gain or loss equal to the difference between the amount realized on the sale, exchange or retirement (less the amount attributable to any accrued but unpaid interest on the New Note, which amount will be taxable as interest if it has not been included in income under such holder's method of accounting) and the holder's tax basis in the New Note. Except as discussed below with respect to gain attributable to market discount, gain or loss will be long-term capital gain or loss if, on the date of the sale, a holder has a holding period for the New Note (which would include the holding 102 106 period of the Old Note) of more than one year. Otherwise, except as discussed below with respect to gain attributable to market discount, the gain or loss will be short-term capital gain or loss. AMORTIZABLE BOND PREMIUM AND MARKET DISCOUNT A Note acquired with an adjusted basis (for purposes of determining loss on a sale or exchange) in excess of the outstanding principal amount of the Note at the time of acquisition will be considered to have amortizable bond premium. A holder of a Note acquired with such premium generally may elect to amortize such premium as an offset to interest income, using a constant yield method, over the remaining term of the Note. Corresponding adjustments are made to such holder's basis in the Note. This election would apply to all taxable debt instruments held by such holder at the beginning of the taxable year in which the election applies and to all taxable debt instruments thereafter acquired. A Note acquired with an adjusted basis that is less than its outstanding principal amount at the time of acquisition by more than a de minimis amount will be considered to have "market discount" in the hands of the acquiring holder. Under the de minimis exception, there is no market discount if the excess of the outstanding principal amount of the Note over the holder's tax basis in the Note is less than .25% of the principal amount multiplied by the number of complete years after the acquisition date to the maturity date of the Note. Market discount generally accrues ratably during the period immediately after the date of acquisition up to (and including) the maturity date of the Note, unless the holder elects to accrue such discount on the basis of the constant interest method. The holder of a Note acquired at a market discount will be required to treat all or a portion of the gain, if any, realized upon the sale or other disposition of the Note as ordinary income to the extent of accrued market discount. If a holder's interest expense deductions for a taxable year attributable to indebtedness treated as incurred or continued to purchase or carry a Note acquired at a market discount exceed interest and market discount included in income with respect to the Note for such taxable year, a holder may be required to defer all or a portion of such excess. The rules described above with respect to the recharacterization of gain realized on a disposition of a Note and deferral of interest expense will not apply if the holder elects to include market discount in income currently as it accrues. Such election, if made, applies with respect to all market discount bonds acquired by the holder on or after the first day of the first taxable year to which the election applies and is irrevocable without the consent of the IRS. Holders who were subject to the bond premium and market discount provisions discussed above with respect to the Old Notes will continue to be subject to those provisions with respect to the New Notes received in exchange for Old Notes under the Exchange Offer. Holders should consult their own tax advisors regarding the specific application of those provisions to the Notes acquired at a premium or at a discount. BACKUP WITHHOLDING AND INFORMATION REPORTING A 31% "backup" withholding and information reporting requirements apply to certain holders with respect to certain payments of principal, interest and premium on a debt instrument and proceeds from the sale, redemption, or retirement of a debt instrument. A holder of a New Note may be subject to backup withholding at the rate of 31% with respect to interest paid on the New Note and proceeds from the sale, exchange, redemption or retirement of the New Note, unless such holder (a) is a corporation or 103 107 comes within certain other exempt categories and , when required, demonstrates that fact or (b) provides a correct taxpayer identification number, certifies as to exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder of a New Note who does not provide the Issuers with his correct taxpayer identification number may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the holder's federal income tax liability provided that the required information is furnished to the IRS. EACH HOLDER SHOULD BE AWARE THAT THE FOREGOING DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF SUCH HOLDER'S PARTICULAR CIRCUMSTANCES. EACH HOLDER SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES. PLAN OF DISTRIBUTION Each broker-deal that receives New Notes for its own account in connection with the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by Participating Broker-Dealers during the period referred to below in connection with resales of New Notes received in exchange for Old Notes if such Old Notes were acquired by such Participating Broker-Dealers for their own accounts as a result of market-making activities or other trading activities. The Issuers have agreed that this Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of such New Notes for a period ending 90 days (subject to extension under certain limited circumstances described herein) after the Expiration Date or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. However, a Participating Broker-Dealer who intends to use this Prospectus in connection with the resale of New Notes received in exchange for Old Notes pursuant to the Exchange Offer must notify the Issuers, or cause the Issuers to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided for that purpose in the Letter of Transmittal or may be delivered to the Exchange Agent at one of the addresses set forth herein under "The Exchange Offer -- Exchange Agent." See "The Exchange Offer -- Resales of New Notes." The Company will not receive any cash or other proceeds from the issuance of the New Notes offered hereby. New Notes received by broker-dealers for their own accounts in connection with the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account in connection with the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the 104 108 meaning of the Securities Act, and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EXPERTS The financial statements of Generac Portable Products, Inc. as of July 9, 1998 and December 31, 1998 and for the period July 10, 1998 through December 31, 1998 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of the Portable Products Division, a Business Unit of Generac Corporation, as of and for each of the two years in the period ended December 31, 1997 and for the period January 1, 1998 through July 9, 1998 included in this Prospectus and the related financial statement schedule included elsewhere in the Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. VALIDITY OF NOTES Certain matters of Delaware law relating to the validity of the New Notes and certain matters relating to United States federal income tax considerations will be passed upon for the Issuers by King & Spalding, New York, New York. 105 109 INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF GENERAC PORTABLE PRODUCTS, INC. PAGE ---- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets as of December 31, 1998 and July 9, 1998................................................... F-3 Consolidated Statement of Income for the period July 10, 1998 through December 31, 1998............................ F-4 Consolidated Statement of Changes in Stockholders' Equity for the period July 10, 1998 through December 31, 1998.... F-5 Consolidated Statement of Cash Flows for the period July 10, 1998 through December 31, 1998............................ F-6 Notes to Consolidated Financial Statements.................. F-7 FINANCIAL STATEMENTS OF THE PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION PAGE ---- Report of Independent Auditors.............................. F-19 Balance Sheets as of July 9, 1998, December 31, 1997 and 1996...................................................... F-20 Statements of Income for the Six Months and Nine Days Ended July 9, 1998 and the Years Ended December 31, 1997 and 1996...................................................... F-21 Statements of Cash Flows for the Six Months and Nine Days Ended July 9, 1998 and the Years Ended December 31, 1997 and 1996.................................................. F-22 Notes to Financial Statements............................... F-23
F-1 110 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Generac Portable Products, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Generac Portable Products, Inc. and its subsidiaries at December 31, 1998 and July 9, 1998, and the results of their operations and their cash flows for the period July 10, 1998 through December 31, 1998, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin February 22, 1999 F-2 111 GENERAC PORTABLE PRODUCTS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JULY 9, 1998 1998 ------------ -------- ($ IN 000'S) ASSETS Current Assets: Cash and cash equivalents................................. $ 1,528 $ 599 Accounts receivable (less allowances of $242 and $225, respectively).......................................... 44,695 51,028 Inventories............................................... 46,651 42,663 Deferred income taxes..................................... 139 -- Prepaid expenses and other current assets................. 898 429 -------- -------- Total current assets................................... 93,911 94,719 Property, plant and equipment, net.......................... 19,437 16,633 Intangible assets, net...................................... 211,407 213,938 Deferred financing costs.................................... 6,985 7,309 Other....................................................... 262 -- -------- -------- Total assets........................................... $332,002 $332,599 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt......................... $ 7,922 $ 3,372 Trade accounts payable.................................... 12,839 14,904 Accrued employee compensation, benefits and payroll withholdings........................................... 1,185 1,063 Other accrued liabilities................................. 14,424 8,070 -------- -------- Total current liabilities.............................. 36,370 27,409 Long-term debt obligations.................................. 189,861 205,853 Other long-term obligations................................. 999 995 Deferred income taxes....................................... 1,505 -- Commitments and contingencies (Note 13) STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 12,000 shares authorized; 8,500 shares issued and outstanding.................... 1 1 Additional paid-in capital................................ 109,999 109,999 Retained earnings......................................... 4,202 -- Accumulated other comprehensive income.................... 723 -- Excess of purchase price over book value of net assets acquired from entities partially under common control................................................ (11,658) (11,658) -------- -------- Total stockholders' equity............................. 103,267 98,342 -------- -------- Total liabilities and stockholders' equity............. $332,002 $332,599 ======== ========
The accompanying notes are an integral part of these financial statements. F-3 112 GENERAC PORTABLE PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD JULY 10, 1998 THROUGH DECEMBER 31, 1998 -------------- ($ IN 000'S) Net sales................................................... $136,862 Cost of sales............................................... 98,245 -------- Gross profit........................................... 38,617 Operating expenses: Selling and service....................................... 16,935 General and administrative................................ 2,865 Intangible asset amortization............................. 2,531 -------- Income from operations................................. 16,286 Other expense (income): Interest expense.......................................... 9,674 Deferred financing cost amortization...................... 401 Other income, net......................................... (171) -------- Income before income taxes............................. 6,382 Provision for income taxes.................................. 2,180 -------- Net income............................................. $ 4,202 ========
The accompanying notes are an integral part of these financial statements. F-4 113 GENERAC PORTABLE PRODUCTS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD JULY 10, 1998 THROUGH DECEMBER 31, 1998
ACCUMULATED COMMON STOCK ADDITIONAL OTHER --------------- PAID-IN RETAINED COMPREHENSIVE SHARES AMOUNT CAPITAL EARNINGS INCOME OTHER(A) TOTAL ------ ------ ---------- -------- ------------- -------- -------- ($ IN 000'S) Balance at July 9, 1998............... 8,500 $1 $109,999 $ -- $ -- $(11,658) $ 98,342 Comprehensive income: Net income......... -- -- -- 4,202 -- -- 4,202 Translation adjustments..... -- -- -- -- 723 -- 723 ----- -- -------- ------ ---- -------- -------- Total comprehensive income............. -- -- -- 4,202 723 -- 4,925 ----- -- -------- ------ ---- -------- -------- Balance at December 31, 1998............... 8,500 $1 $109,999 $4,202 $723 $(11,658) $103,267 ===== == ======== ====== ==== ======== ========
- ------------------------- (A) Amount represents the excess of the purchase price paid in connection with the Acquisition over the book value of net assets acquired not recognized as a result of certain continuing shareholder interests. The accompanying notes are an integral part of these financial statements. F-5 114 GENERAC PORTABLE PRODUCTS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JULY 10, 1998 THROUGH DECEMBER 31, 1998 -------------- ($ IN 000'S) Operating activities: Net income................................................ $ 4,202 Adjustments to reconcile net income to cash provided by operating activities: Depreciation........................................... 1,022 Amortization........................................... 2,932 Deferred income taxes.................................. 1,366 Increase (decrease) in cash due to changes in: Accounts receivable.................................. 6,696 Inventories.......................................... (3,627) Other assets......................................... (726) Trade accounts payable............................... (2,106) Accrued liabilities.................................. 6,454 -------- Net cash provided by operating activities............ 16,213 -------- Investing activities: Capital expenditures...................................... (3,814) Proceeds from sale of property, plant and equipment....... 34 -------- Net cash used for investing activities................. (3,780) -------- Financing activities: Net payments under revolving loan facility................ (11,008) Payments on other long-term debt obligations.............. (434) Payment of deferred financing costs....................... (77) -------- Net cash used for financing activities................. (11,519) -------- Effect of exchange rate changes on cash..................... 15 -------- Net increase in cash and cash equivalents................... 929 Cash and cash equivalents: Beginning of period....................................... 599 -------- End of period............................................. $ 1,528 ======== Supplemental cash flow information: Cash paid for interest.................................... $ 2,260 ========
The accompanying notes are an integral part of these financial statements. F-6 115 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED) 1. FORMATION OF THE COMPANY AND NATURE OF BUSINESS Generac Portable Products, Inc. (the "Company"), a Delaware corporation, was formed on April 29, 1998 by an investor group organized by The Beacon Group III -- Focus Value Fund L.P. ("Beacon") for the purpose of acquiring, through its indirect wholly-owned limited liability company, Generac Portable Products, L.L.C., net assets of the Portable Products Division of Generac Corporation. The primary business activity of the Company consists of its indirect ownership of 100% of the limited liability company interests in Generac Portable Products, L.L.C., a Delaware limited liability company (the "Operating Company"), through two wholly-owned subsidiaries: GPPW, Inc. a Wisconsin corporation ("GPPW"), and GPPD, Inc. a Delaware corporation ("GPPD"). GPPW and GPPD hold, respectively, 5% and 95% limited liability company interests in the Operating Company. The Company had no operations during the period April 29, 1998 through July 8, 1998; its only business activity involved the issuance of $110 million of common stock to finance a portion of the purchase price discussed below. On July 9, 1998, the Company caused the Operating Company to purchase substantially all of the assets, and assume certain of the liabilities, of the Portable Products Division (the "Predecessor") of Generac Corporation (the "Acquisition"). The aggregate consideration paid for the net assets of the Predecessor was approximately $330 million, which includes cash acquired of $.6 million, direct acquisition costs of $1.4 million and assumed liabilities of $23.9 million. The purchase price paid for the Predecessor was subject to a post-closing adjustment based on net working capital at July 9, 1998, as defined. The Company has recorded a receivable of $1.0 million at December 31, 1998 relating to this adjustment. The Acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to identifiable assets acquired and liabilities assumed based upon their estimated fair values, subject to certain limitations (see Note 2), with the excess purchase price recorded as goodwill. Goodwill of approximately $214 million has been recorded as a result of the Acquisition. The following table sets forth the pro forma information for the Company as if the Acquisition had occurred on January 1, 1998. This information is unaudited and does not purport to represent actual sales or net income had the Acquisition actually occurred on January 1, 1998.
PRO FORMA INFORMATION (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1998 ------------------------ Net sales................................ $276,413 Net income............................... 5,835
In addition to the issuance of common stock by the Company, the purchase price was financed through the issuance of senior subordinated notes of $110 million and borrowings of $96.6 million under a $115 million bank credit facility (see Note 7). The Company, with domestic operations located in Jefferson, Wisconsin and branch operations in the United Kingdom and Germany, is a leader in the design, manufacture F-7 116 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and sale of portable generators and pressure washers for use in both industrial and residential applications. 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES: The Company prepares its financial statements in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent 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. PRINCIPLES OF CONSOLIDATION: The Company's consolidated financial statements include the accounts of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. BASIS OF ACCOUNTING: Pursuant to the Financial Accounting Standards Board's Emerging Issues Task Force Issue No. 88-16, "Basis in Leveraged Buyout Transactions," the Company has limited its accounting basis resulting from the Acquisition as a result of certain shareholders which also owned an interest in the Predecessor. Such limitation was based upon the lesser of each continuing shareholder's interest in the Company or the Predecessor, and the Predecessor's historical book value at July 9, 1998. The difference between the continuing shareholders' basis in the Predecessor and their proportionate equity in the book value of the Predecessor was not material. The difference between the total consideration paid in connection with the Acquisition and the accounting basis recognized is reported as a separate component of stockholders' equity. CASH AND CASH EQUIVALENTS: The Company considers all investments with a maturity of three months or less at the date of purchase to be cash equivalents. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market (replacement cost or estimated net realizable value). RESEARCH AND DEVELOPMENT COSTS: The Company has an ongoing program of new product development and existing product enhancement through redesign of existing products and the addition of new models. Costs related to these programs are expensed as incurred and totaled $1,011 for the period ended December 31, 1998. Costs related to manufacturing start-up activities for new products are included in cost of sales as incurred. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at cost and includes equipment under leases which have been capitalized. Maintenance and repair costs are charged to expense as incurred. Gains and losses on disposition of property, plant and equipment are reflected in income. Depreciation of property, plant and equipment are F-8 117 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) recorded using principally the straight-line method for financial reporting purposes over the estimated useful lives of the assets or terms of related leases as follows:
YEARS ----- Land improvements..................................... 20 Buildings............................................. 40 Machinery and equipment............................... 7-10 Dies and tools........................................ 3-5 Office equipment...................................... 5-10 Vehicles.............................................. 3-4
INTANGIBLE ASSETS: Goodwill, representing the recognized portion of the cost of the Acquisition in excess of the fair values assigned to identifiable net assets acquired, is being amortized on a straight-line basis over 40 years. The non-compete agreement and patents and trademarks are being amortized on a straight-line basis over 10 years. The Company assesses the carrying value of goodwill and other intangibles at each balance sheet date. Consistent with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", such assessments include, as appropriate, a comparison of (a) the estimated future nondiscounted cash flows anticipated to be generated during the remaining amortization period to (b) the net carrying value of the asset. The Company recognizes diminution in value, if any, on a current basis. Impairment assessments of goodwill made in accordance with SFAS No. 121 are made in connection with an analysis of related long-lived assets acquired in the Acquisition. DEFERRED FINANCING COSTS: Expenses associated with the issuance of debt instruments are capitalized and are being amortized over the terms of the respective financing arrangement using the effective interest rate and straight-line methods over periods ranging from 5 to 8 years. INTEREST RATE SWAPS: To limit the effect of increases in interest rates, the Company has entered into an interest rate swap arrangement. The differential between the contract floating and fixed rates is accrued each period and recorded as an adjustment of interest expense. PRODUCT WARRANTIES: The Company provides that warranted products are merchantable and free of defects in workmanship and material generally for a period of one year. Warranty reserves are provided as charges to operations under selling and service expense for estimated normal warranty costs and, if applicable, for any significant problems known to exist on products sold. Warranty expense totaled $1,989 for the period ended December 31, 1998. INCOME TAXES: Deferred income tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities, as measured by enacted tax rates which will be in effect when these differences are expected to reverse. Deferred income tax expense is the result of changes in the deferred tax assets and liabilities. A valuation allowance is provided when it is considered more likely than not that some portion or all of recorded deferred income tax assets will not be realized. F-9 118 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings approximate fair value due to the short-term maturity of these financial instruments. The amounts reported for borrowings under the bank credit facility approximate fair value since the underlying instruments bear interest at a variable rate that reprices frequently. The fair value of the Company's senior subordinated notes at December 31, 1998 is estimated based upon the average yield on similar debt instruments as of such date. The fair value of the interest rate swap arrangement is the amount at which it could be settled, based on a quote obtained from the respective financial institution (see Note 7). REVENUE RECOGNITION: Net sales and costs of sales are recognized as the related products are shipped. Provisions for estimated sales returns and sales incentives are recorded in the period in which the sales are recognized. FOREIGN CURRENCY TRANSLATION: The translation of the assets and liabilities of the Company's international branch operations into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. The gains or (losses) resulting from such translation are reflected as translation adjustments in accumulated other comprehensive income. FUTURE ACCOUNTING CHANGES: The Financial Accounting Standards Board has issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" which is effective for periods beginning after June 15, 1999. Due to the Company's current limited use of derivative instruments, the adoption of this statement is not expected to have a material effect on the Company's financial condition or results of operations. 3. INVENTORIES Inventories consist of the following:
DECEMBER 31, JULY 9, 1998 1998 ------------ ------- Raw materials and sub-assemblies................ $27,721 $26,423 Finished goods.................................. 18,930 16,240 ------- ------- $46,651 $42,663 ======= =======
Work-in-process is not a significant separate component of inventories and is included in the raw materials and sub-assemblies component. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, JULY 9, 1998 1998 ------------ ------- Land and land improvements...................... $ 980 $ 972 Buildings....................................... 5,940 5,781
F-10 119 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, JULY 9, 1998 1998 ------------ ------- Machinery and equipment......................... 8,056 7,179 Dies and tools.................................. 2,742 2,266 Office equipment................................ 1,357 377 Vehicles........................................ 56 58 ------- ------- 19,131 16,633 Accumulated depreciation........................ (1,023) -- ------- ------- 18,108 16,633 Construction in progress........................ 1,329 -- ------- ------- $19,437 $16,633 ======= =======
5. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, JULY 9, 1998 1998 ------------ -------- Goodwill....................................... $213,738 $213,738 Trademarks and patents......................... 100 100 Noncompete agreement........................... 100 100 -------- -------- 213,938 213,938 Accumulated amortization....................... (2,531) -- -------- -------- $211,407 $213,938 ======== ========
6. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of the following:
DECEMBER 31, JULY 9, 1998 1998 ------------ ------- Sales incentives................................. $ 4,430 $6,236 Product warranty................................. 1,229 1,020 Accrued interest................................. 7,414 -- Other............................................ 1,351 814 ------- ------ $14,424 $8,070 ======= ======
F-11 120 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT OBLIGATIONS Long-term debt consists of the following:
DECEMBER 31, JULY 9, 1998 1998 ------------ -------- Bank credit facility........................... $ 85,400 $ 96,608 Senior subordinated notes...................... 110,000 110,000 Capital lease obligations...................... 2,383 2,617 -------- -------- 197,783 209,225 Less: current portion.......................... (7,922) (3,372) -------- -------- $189,861 $205,853 ======== ========
In connection with the Acquisition, the Company entered into a $115 million bank credit facility (the "Senior Secured Credit Facility"). The Senior Secured Credit Facility provides for maximum borrowings under two term loans of $45 million ("A Term Loan") and $40 million ("B Term Loan"), respectively, with balances outstanding at December 31, 1998 of $45 million and $39.8 million, respectively. The Senior Secured Credit Facility also provides for maximum borrowings of $30 million, less the amount outstanding under letters of credit, under revolving loan arrangements due December 31, 2003, with a balance outstanding at December 31, 1998 of $600. The A Term Loan Facility will mature 5 1/2 years from July 9, 1998. The B Term Loan Facility will mature seven years from July 9, 1998. The A Term Loan Facility will provide for amortization of $2.5 million in the first year, $6.25 million in the second year, $7.5 million in the third year, $10.0 million in the fourth year, $12.5 million in the fifth year and $6.25 million in the sixth year. The B Term Loan Facility will provide for nominal annual amortization in the first five years and amortization of $19 million in each of the sixth and seventh years. Additionally, the Company is also required to make an annual principal payment equal to its excess cash flow, as defined. The required excess cash flow payment for the period ended December 31, 1998 is approximately $2.1 million and will be applied to reduce the scheduled repayments under both the A and B Term Loan Facilities described above, on a pro rata basis. The interest rates under the A Term Loan Facility and the revolving loan portion of the facility will be based, at the option of the Operating Company, on either a Eurodollar rate plus 2.25% per annum or a base rate plus 1.25% per annum, subject to a pricing grid that will provide for reductions in the applicable interest rate margins based on the Company's consolidated debt to earnings before interest, income taxes, depreciation and amortization ("EBITDA") ratio. The interest rate under the B Term Loan Facility is based, at the option of the Operating Company, on a Eurodollar rate plus 2.75% or a base rate plus 1.75%, subject to a pricing grid that will provide for reductions in the applicable interest rate margins based on the Company's consolidated debt to EBITDA ratio. The weighted average interest rate for the term loans as of December 31, 1998 was 7.84%. Borrowings under the revolving loans bear interest at the Prime Rate plus 1.25% (9% at December 31, 1998). A commitment fee of 0.50% per annum will be charged on the unused revolving loan portion of the Senior Secured Credit Facility, subject to a pricing grid that will provide for reductions in the applicable commitment fee margin based on the F-12 121 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's consolidated debt to EBITDA ratio. Substantially all of the Company's assets are pledged as collateral under the Senior Secured Credit Facility. Effective October 15, 1998, the Company entered into an interest rate swap agreement with a major financial institution to reduce the impact of changes in interest rates on its floating rate long-term debt. The notional amount of this agreement was $40 million at December 31, 1998. Interest expense has been adjusted for the net amount payable under this agreement. The effect of this agreement on the Company's interest expense for the period ended December 31, 1998 was not significant. The fair value of the interest rate swap agreement was $903 at December 31, 1998, which is the amount the Company would have paid to settle the instrument at such date. The Company is exposed to credit loss in the event of non-performance by the financial institution, however, management does not anticipate such non-performance. Also on July 9, 1998, the Company issued $110 million of 11.25% Senior Subordinated Notes due June 30, 2006, (the "Notes") to BT Alex. Brown, Incorporated (the "Initial Purchaser"). The Initial Purchaser subsequently resold the Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Exchange Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. The estimated fair value of the Notes at December 31, 1998 approximates par. The Notes are redeemable, at the Company's option, in whole at any time or in part from time to time, on and after July 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE - ---- ---------- 2002........................................ 107.625% 2003........................................ 104.750% 2004........................................ 102.875% 2005 and thereafter......................... 100.000%
At any time, or from time to time, on or prior to July 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings, as defined, to redeem the Notes at a redemption price equal to 111.25% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. The Senior Secured Credit Facility and the indenture governing the Notes contain a number of covenants that, among other things, restrict the ability of the Company to dispose of assets, repay other indebtedness, incur additional indebtedness, pay dividends, prepay subordinated indebtedness (including, in the case of the Senior Secured Credit Facility, the Notes), incur liens, make capital expenditures and make certain investments or acquisitions, engage in mergers or consolidations, engage in certain transactions with F-13 122 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) affiliates and otherwise restrict the activities of the Company. In addition, under the Senior Secured Credit Facility, the Operating Company will be required to satisfy specified financial ratios and tests, including a minimum level of earnings before interest, income taxes, depreciation and amortization. Capital lease obligations relate to the Company's obligations on leases for industrial equipment. These obligations are due in monthly installments including principal and interest at a rate of 8.6% and mature November 30, 2002. The aggregate scheduled maturities of long-term debt and capital lease obligations in subsequent years are as follows: 1999......................................... $ 7,922 2000......................................... 8,228 2001......................................... 8,275 2002......................................... 13,358 2003......................................... 22,231 Thereafter................................... 137,769 -------- $197,783 ========
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS In connection with the Acquisition, the Company established noncontributory defined benefit pension plans (salaried and hourly) covering substantially all of its employees. The unfunded benefit obligation assumed as of the Acquisition date totaled $678. Benefits under the salaried plan are based upon years of service and the participants' defined final average monthly compensation. Benefits under the hourly plan are based on a unit amount at the date of termination multiplied by the participants' credited service. The plans provide for a continuation of participants' years of service as credited with Generac Corporation. The Company's funding policy is to contribute amounts that equal or exceed the minimum requirements of the Employee Retirement Income Security Act of 1974 (ERISA). As of December 31, 1998 and July 9, 1998, no assets have been contributed to the plans. Net pension expense for the period ended December 31, 1998 is comprised of the following components: Service cost............................................. $48 Interest cost on projected benefit obligation............ 24 --- $72 ===
F-14 123 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes those items comprising the change in the benefit obligation for the period ended December 31, 1998: Unfunded benefit obligation assumed as of July 9, 1998.................................................. $678 Service cost............................................ 48 Interest cost........................................... 24 ---- Benefit obligation as of December 31, 1998.............. $750 ====
The assumptions used in developing the pension information as of December 31, 1998 and July 9, 1998 were as follows: Discount rate............................................ 7.00% Return on plan assets.................................... 8.00% Rate of compensation increase............................ 4.50%
In connection with the Acquisition, the Company established deferred compensation plans for certain key employees and at December 31, 1998 and July 9, 1998, approximately $340 and $317, respectively, was included in other long-term obligations related to such plans. Deferred compensation expense charged to operations was $23 for the period ended December 31, 1998. In connection with the Acquisition, the Company established a qualified 401(k) profit sharing plan covering substantially all full-time employees. No contributions were made to the plan for the period ended December 31, 1998. 9. INCOME TAXES The provision for income taxes for the period ended December 31, 1998 consists of the following: Current: Federal.............................................. $ 781 State................................................ 33 ------ Total current..................................... 814 Deferred: Federal and state.................................... 1,366 ------ Total provision for income taxes.................. $2,180 ======
The following reconciles the U.S. federal statutory income tax rate with the Company's effective tax rate for the period ended December 31, 1998: U.S. federal statutory income tax rate................... 34.0% State income taxes, net of federal benefit............... 1.0 Nondeductible expenses and other......................... (.8) ---- 34.2% ====
F-15 124 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes reflected in the balance sheet consist of the following:
DECEMBER 31, 1998 ------------ Deferred tax assets: Inventories and receivables..................... $ 267 Accrued warranty................................ 76 ------- 343 ------- Deferred tax liabilities: Intangible assets............................... (1,512) Sales incentives................................ (161) Other........................................... (36) ------- (1,709) ------- Total net deferred tax liability.................. $(1,366) =======
10. STOCKHOLDERS' EQUITY In connection with the initial capitalization of the Company, The Beacon Group III -- Focus Value Fund, L.P. ("Beacon"), management of the Company and certain other investors purchased an aggregate of $110 million of common stock, par value of $.01 per share, constituting 100% of the Company's outstanding common stock. Upon consummation of the Acquisition, Beacon and the other stockholders of the Company, and the Company, entered into a Stockholders' Agreement which includes certain transfer restrictions, voting agreements and registration rights. Employees who own stock of the Company are also subject to agreements that restrict their right to transfer their stock and, under certain conditions, require them to sell a pro rata portion of their stock in a transaction in which Beacon is selling its stock. Effective July 9, 1998, the Company's board of directors approved the Generac Portable Products, Inc. Stock Option Plan which provides for the granting of stock options as an incentive to certain key employees. Under this Plan, stock options to acquire up to 1,619 shares of common stock, in the aggregate, may be granted under a time-vesting formula at an exercise price equal to the fair market value of the common stock at the date of grant. The options become exercisable in equal increments beginning on the first anniversary of the grant date over a five-year period and expire ten years subsequent to the grant date. On July 9, 1998, 1,063 options were granted at an exercise price of $12,941.00 per share to certain members of management and the Company's board of directors. The options have a remaining contractual life of 9.5 years. No options were granted or forfeited subsequent to the initial grant. The fair value of the options at the date of grant was $4,335.00 per option. The fair value was estimated using the minimum value method in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", assuming an expected option life of 7 years and a risk-free interest rate of 6%. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plan. Accordingly, no compensation F-16 125 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expense has been recognized in the statement of income. If compensation cost had been determined in accordance with SFAS No. 123, net income would have decreased approximately $283 during the period ended December 31, 1998. 11. LEASES The Company leases certain manufacturing equipment, computer equipment and vehicles under operating leases with lease terms ranging up to 3 years. Additionally, in connection with the Acquisition, the Company entered into a capital lease arrangement with Generac Corporation for certain manufacturing equipment. Property, plant and equipment at December 31, 1998 includes $2,451 for equipment under capital leases, which is net of $165 in accumulated depreciation. Following is a summary of future minimum payments under capitalized leases and operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 1998:
OPERATING CAPITAL LEASES LEASES --------- ------- 1999........................................ $348 $ 673 2000........................................ 208 673 2001........................................ 147 673 2002........................................ -- 830 ---- ------ $703 2,849 ==== Less amount representing interest........... (466) ------ Present value of minimum lease payments..... $2,383 ======
Total rent expense recognized by the Company for the period ended December 31, 1998 is $142. 12. SEGMENT INFORMATION The Company is a leader in the design, manufacture and sale of portable generators and pressure washers. Engineering, manufacturing, marketing and administrative resources are generally not product specific and the Company evaluates operating performance based upon the combined results of these product lines. Information regarding the Company's geographic areas is summarized below:
UNITED STATES EUROPE CONSOLIDATED -------- ------- ------------ Net sales to unaffiliated customers.......................... $126,740 $10,122 $136,862 Long-lived assets.................... 235,341 2,574 237,915
The Company sells primarily to large home center retailers. Three customers accounted for approximately 74% of net sales for the period ended December 31, 1998. All three customers individually comprise more than 10% of the Company's net sales. Included F-17 126 GENERAC PORTABLE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in accounts receivable at December 31, 1998 and July 9, 1998 are amounts due from these three customers aggregating $29,862 and $34,998, respectively. 13. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS In the normal course of business the Company is involved in certain legal actions and claims. It is the opinion of management that such litigation and claims are either covered by insurance or will be resolved without material adverse effect on the Company's financial position, results of operations or cash flows. In connection with the Acquisition, the Company entered into an OEM engine supply agreement with Generac Corporation, to supply it with the engine used in certain of the Company's pressure washers and consumer portable generators. The engine supply agreement allows for the Company to make minimum purchases of engines from Generac Corporation in each of the next nine years and gives the Company the right to increase the amount purchased based upon forecasted requirements. This agreement is an exclusive arrangement related to such products subject to the minimum purchase requirements. As the Company maintains relationships with other major engine suppliers, management believes that the minimum purchase quantities and unit prices under this agreement will not have an adverse effect on the Company. Management also considers the provisions of the engine supply agreement to reflect arms-length terms. For the period ended December 31, 1998, the Company purchased product approximating $14.4 million under this agreement. In addition, the Company also purchased other components from Generac Corporation approximating $6.5 million for the period ended December 31, 1998. Included in accounts payable are amounts due to Generac Corporation of approximately $4.7 million at December 31, 1998. 14. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR In connection with the Acquisition, the Operating Company and GPPW co-issued the Notes, and while the Operating Company and GPPW are jointly and severally liable for the obligations under the Notes, GPPW does not conduct any operations, or have any assets of any kind other than its investment in the Operating Company. The Company has provided a full and unconditional guarantee of the Notes. However, because the Company has no operating activities independent of the Operating Company, the Company's consolidated financial statements are essentially the same as those of the Operating Company. Accordingly, no separate financial information of the Company, or the co-issuers of the Notes is presented herein as management does not believe such information would be meaningful to investors. F-18 127 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Generac Corporation: We have audited the accompanying balance sheets of the Portable Products Division, a Business Unit ("Business Unit") of Generac Corporation ("Company"), as of July 9, 1998, December 31, 1997 and 1996, and the related statements of income and cash flows for the six months and nine days ended July 9, 1998 and the years ended December 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying financial statements have been prepared from the separate records maintained by the Business Unit and may not necessarily be indicative of the conditions that would have existed or the results of operations if the Business Unit had been operated as an unaffiliated company. Portions of certain income and expenses represent allocations made from Generac Corporation of items applicable to the Company as a whole. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Portable Products Division, a Business Unit of Generac Corporation, at July 9, 1998, December 31, 1997 and 1996, and the results of its operations and its cash flows for the six months and nine days ended July 9, 1998 and the years ended December 31, 1997 and 1996 in conformity with generally accepted accounting principles. January 29, 1999 F-19 128 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION BALANCE SHEETS
DECEMBER 31, JULY 9, ------------------ 1998 1997 1996 -------- ------- ------- ($ IN 000'S) ASSETS Current Assets: Cash and cash equivalents..................... $ 599 $ 1,065 $ 1,122 Accounts receivable........................... 48,528 18,766 14,263 Inventories................................... 42,839 33,023 24,707 Prepaid expenses.............................. 429 206 630 -------- ------- ------- Total current assets....................... 92,395 53,060 40,722 Property, Plant and Equipment: At cost: Land and land improvements................. 972 943 942 Building................................... 5,781 5,210 5,226 Machinery and equipment.................... 6,708 5,511 5,295 Dies and tools............................. 4,552 4,404 3,375 Vehicles................................... 265 227 215 Office equipment........................... 668 536 449 -------- ------- ------- 18,946 16,831 15,502 Less accumulated depreciation................... 5,577 4,591 3,145 -------- ------- ------- 13,369 12,240 12,357 -------- ------- ------- Total...................................... $105,764 $65,300 $53,079 ======== ======= ======= LIABILITIES AND BUSINESS UNIT INVESTMENT Current Liabilities: Trade accounts payable........................ $ 14,904 $ 6,998 $ 6,961 Accrued employee compensation, benefits and payroll withholdings....................... 1,245 1,020 427 Other accrued liabilities..................... 7,705 4,519 4,055 -------- ------- ------- Total current liabilities.................. 23,854 12,537 11,443 Commitments and contingencies (Notes 9 and 12) Business Unit Investment........................ 81,910 52,763 41,636 -------- ------- ------- Total...................................... $105,764 $65,300 $53,079 ======== ======= =======
See notes to financial statements. F-20 129 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION STATEMENTS OF INCOME
FOR THE YEAR ENDED FOR THE SIX MONTHS DECEMBER 31, AND NINE DAYS ENDED -------------------- JULY 9, 1998 1997 1996 ------------------- -------- -------- ($ IN 000'S) Net sales............................ $139,551 $178,014 $122,550 Cost of sales........................ 104,537 131,095 95,246 -------- -------- -------- Gross profit.................... 35,014 46,919 27,304 -------- -------- -------- Expenses Selling and service................ 16,624 21,729 13,860 General and administrative......... 2,380 4,161 4,435 -------- -------- -------- Total expenses.................. 19,004 25,890 18,295 -------- -------- -------- Income from operations............... 16,010 21,029 9,009 Other expenses Interest expense................... 1,409 2,100 2,237 Foreign currency................... 108 186 15 -------- -------- -------- Total other expense............. 1,517 2,286 2,252 -------- -------- -------- Net income........................... $ 14,493 $ 18,743 $ 6,757 ======== ======== ========
See notes to financial statements. F-21 130 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FOR THE SIX MONTHS DECEMBER 31, AND NINE DAYS ENDED ------------------- JULY 9, 1998 1997 1996 ------------------- ------- -------- ($ IN 000'S) Operating activities: Net income.......................... $ 14,493 $18,743 $ 6,757 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation........................ 796 1,466 1,498 (Increase) decrease in assets: Accounts receivable.............. (29,943) (4,753) (2,533) Inventories...................... (10,054) (8,696) 9,661 Prepaid expenses................. (224) 276 (533) Increase in liabilities: Accounts payable................. 7,936 95 866 Accrued liabilities.............. 3,428 1,084 1,581 -------- ------- -------- Net cash (used in) provided by operating activities........ (13,568) 8,215 17,297 Investing activities -- Capital expenditures........................ (1,553) (1,413) (2,272) Financing activities -- Increase (decrease) in business unit investment, net..................... 14,787 (6,784) (14,157) Effect of exchange rate changes on cash................................ (132) (75) 11 -------- ------- -------- Net increase (decrease) in cash and cash equivalents.................... (466) (57) 879 Cash and cash equivalents: Beginning of Period................. 1,065 1,122 243 -------- ------- -------- End of Period....................... $ 599 $ 1,065 $ 1,122 ======== ======= ========
See notes to financial statements. F-22 131 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION NOTES TO FINANCIAL STATEMENTS SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998 AND YEARS ENDED DECEMBER 31, 1997 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements include the accounts of the Portable Products Division located in Jefferson, Wisconsin and its branches in the United Kingdom and Germany, a Business Unit ("Business Unit") of Generac Corporation ("Generac"). The Business Unit designs and manufactures portable generator sets, pressure washers and other engine-powered tools for the world market. CASH EQUIVALENTS -- The Business Unit considers all investments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES -- Inventories are stated at the lower of cost (first-in, first-out method) or market (replacement cost or estimated net realizable value). REVENUE RECOGNITION -- Net sales and costs of sales are recognized as the related products are shipped. A provision for estimated sales returns is recorded in the period in which the sales are recognized. RESEARCH AND DEVELOPMENT COSTS -- The Business Unit has an ongoing program of new product development and existing product enhancement through redesign of existing products and the addition of new models. Costs related to these programs are expensed as incurred and totalled the following amounts for the respective periods shown:
($ IN 000'S) ------------ For the six months and nine days ended July 9, 1998........................................... $ 925 For the years ended December 31, 1997........................................... 1,743 1996........................................... 2,494
DEPRECIATION -- Costs of property, plant and equipment are depreciated using the straight-line method over the estimated useful lives of the assets as follows:
YEARS ------- Land improvements................................... 20 Buildings........................................... 40 Machinery and equipment............................. 10 Dies and tools...................................... 3 to 5 Vehicles............................................ 4 Office equipment.................................... 5 to 10
PRODUCT WARRANTIES -- The Business Unit provides that warranted products are merchantable and free of defects in workmanship and material generally for a period of one year. Warranty reserves are provided as charges to operations under selling and service expense for estimated normal warranty costs and, if applicable, for any significant problems F-23 132 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) known to exist on products sold. Warranty expense totalled the following amounts for the respective periods shown:
($ IN 000'S) ------------ For the six months and nine days ended July 9, 1998........................................... $1,848 For the years ended December 31, 1997........................................... 5,305 1996........................................... 1,941
FOREIGN CURRENCY TRANSLATION -- The translation of the branch accounts into U. S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. The gains or (losses) resulting from such translation are reflected as "cumulative translation adjustments" in business unit investment. Such adjustments amounted to $(703,000) through July 9, 1998. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Business Unit believes the carrying amount of its financial instruments (cash and cash equivalents, accounts receivable and accounts payable) is a reasonable estimate of the fair value of these instruments. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. INTERCOMPANY TRANSACTIONS The Business Unit is an operating unit of Generac. The Business Unit investment balance reflects opening net assets, accumulated earnings for the six months and nine days ended July 9, 1998 ("1998") and for the years ended December 31, 1997 ("1997") and 1996 ("1996"), and various activities between the Business Unit and Generac. Domestic cash management is centralized at Generac and, as such, the Business Unit's cash funding requirements are met by Generac. The financial statements for 1996 present the results of operations and cash flows of the carved out Portable Products operations of Generac. Receivables, inventories, property, plant and equipment, accounts payable, accrued liabilities, net sales, cost of sales, and selling expenses were specifically identified for each operation. Liabilities related to employee compensation were allocated to each operation based upon either employee head count or payroll. Other expenses relating to service, research and development, and general and administrative were allocated to each operation based upon either specific activities or sales levels. Management believes the allocations are reasonable. Beginning in 1997, the Business Unit operated as a division of Generac with separate financial reporting. The financial statements for 1998 and 1997 include allocations by Generac for certain operating and employee benefit costs incurred on behalf of the Business Unit. These costs F-24 133 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) are allocated based on estimates of time and services provided, specifically identifiable charges, or relevant criteria that establish the Business Unit's pro rata charge of costs common to all Generac operating units. Allocated support costs from Generac to the Business Unit during 1998 and 1997 included manufacturing support of $125,000 and $587,000, service support of $11,000 and $789,000, research and development support of $21,000 and $410,000, general and administrative support of $152,000 and $280,000, and human resource and employee benefits support of $76,000 and $228,000, respectively. Research and development expenses totaling $131,000, $246,000 and $235,000 were incurred by the Business Unit's United Kingdom branch during 1998, 1997 and 1996, respectively, on behalf of Generac and charged to Generac. The Business Unit and Generac supply each other with certain inventories. Total inventories transferred during 1998, 1997 and 1996 were $7,855,000, $9,541,000 and $11,374,000, respectively, from Generac to the Business Unit and $350,000, $1,330,000 and $0, respectively, from the Business Unit to Generac. Commencing February 1, 1998, certain production was transferred from the Business Unit to Generac. During the five months and nine days ended July 9, 1998, the Business Unit purchased $12,223,000 of inventories related to such transferred production. At July 9, 1998, such inventory represented approximately $2,673,000 including profit of approximately $508,000. All other inventory is transferred at cost. The Business Unit is also charged a portion of Generac's interest expense based upon levels of Business Unit investment. This interest charge aggregated $1,354,000, $1,999,000 and $2,237,000 during 1998, 1997 and 1996, respectively. Management believes the allocations and activities between the Business Unit and Generac are reasonable under the circumstances; however, they may not be indicative of amounts that would be required to be incurred if the Business Unit operated on a stand-alone basis. 3. S CORPORATION ELECTION Generac and its Stockholders have elected for federal and certain state income tax purposes to be treated as a S Corporation under provisions of the Internal Revenue Code. Accordingly, Generac's taxable income is includable in the individual tax returns of its Stockholders and no provision for income taxes is included in the accompanying financial statements. F-25 134 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. RECEIVABLES Accounts receivable consisted of the following at:
DECEMBER 31, JULY 9, ------------------ 1998 1997 1996 ------- ------- ------- (IN 000'S) Accounts receivable...................... $48,753 $18,938 $14,414 Allowance for doubtful accounts.......... (225) (172) (151) ------- ------- ------- $48,528 $18,766 $14,263 ======= ======= =======
There are no accounts receivable having a due date more than one year after the balance sheet date. The provision for doubtful accounts charged (credited) to operations was as follows:
($ IN 000'S) ------------ For the six months and nine days ended July 9, 1998...... $ 67 For the years ended December 31, 1997................................................... 21 1996................................................... (155)
5. INVENTORIES Inventories consisted of the following at:
DECEMBER 31, JULY 9, ------------------ 1998 1997 1996 ------- ------- ------- ($ IN 000'S) Raw materials and sub-assemblies......... $26,599 $20,490 $15,377 Finished goods........................... 16,240 12,533 9,330 ------- ------- ------- Total.................................... $42,839 $33,023 $24,707 ======= ======= =======
Work-in-process is not a significant separate component of inventories and is included in the raw materials and sub-assemblies component. 6. PROPERTY, PLANT AND EQUIPMENT In 1994, Generac entered into an Industrial Development Revenue Bond agreement with the City of Jefferson, Wisconsin. The proceeds from these Industrial Development Revenue Bonds, aggregating $7,200,000, were used to construct and equip the Business Unit's manufacturing facility in Jefferson. Property, plant and equipment with a net carrying amount of $8,762,000 and $8,644,000 at December 31, 1997 and 1996, respectively, were pledged as collateral under a related letter of credit agreement which was terminated in June 1998. F-26 135 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. OTHER ACCRUED LIABILITIES Other accrued liabilities consisted of the following at:
DECEMBER 31, JULY 9, ---------------- 1998 1997 1996 ------- ------ ------ ($ IN 000'S) Sales incentives............................ $5,936 $2,768 $2,843 Product warranty............................ 1,020 987 659 Other....................................... 749 764 553 ------ ------ ------ $7,705 $4,519 $4,055 ====== ====== ======
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS Generac has noncontributory pension plans (salaried and hourly) covering substantially all of its employees including the employees of the Business Unit. The benefits under the salaried plan are based upon years of service and the participants' defined final average monthly compensation. The benefits under the hourly plan are based on a unit amount at the date of termination multiplied by the participants' credited service. Generac's funding policy for these plans is to contribute amounts at least equal to the minimum annual amount required by applicable regulations. Total pension expense allocated to the Business Unit for the six months and nine days ended July 9, 1998 and the years ended December 31, 1997 and 1996 was $231,000, $293,000 and $255,000, respectively. Generac maintains deferred compensation plans for key employees of the Business Unit and at July 9, 1998, approximately $182,000 of deferred compensation was included in accrued employee benefits. Deferred compensation expense charged to operations was $18,000, $40,000 and $23,000, for the six months and nine days ended July 9, 1998 and for the years ended December 31, 1997 and 1996, respectively. 9. LEASE COMMITMENTS Generac leases certain manufacturing equipment, computer equipment and vehicles used in the Business Unit under operating leases for lease terms ranging up to five years. The aggregate minimum rental commitments at July 9, 1998 are as follows: Five months and 22 days ended December 31, 1998........................ $ 389,000 Years ended: 1999........................................... 746,000 2000........................................... 701,000 2001........................................... 674,000 2002........................................... 287,000 ---------- $2,797,000 ==========
F-27 136 PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Total rent expense for the six months and nine days ended July 9, 1998 and the years ended December 31, 1997 and 1996 was approximately $476,000, $462,000 and $100,000, respectively. Certain manufacturing equipment with an original cost of $3,178,000 is leased under a five-year master lease arrangement and accounts for $353,000 and $385,000 of total rental expense for the six months and nine days ended July 9, 1998 and for the year ended December 31, 1997, respectively; $673,000 of future annual commitments through 2001; and all of the year 2002 commitments. At the end of the lease term, Generac has the option to purchase the equipment at a purchase price equal to the then fair market value which shall not be less than 15% nor more than 25% of the original equipment cost. 10. MAJOR CUSTOMERS Two customers accounted for approximately 69% of net sales for the six months and nine days ended July 9, 1998, and included in accounts receivable at July 9, 1998 are amounts due from these two customers aggregating $34,998,000. Three customers accounted for approximately 74% of net sales for the year ended December 31, 1997, and included in accounts receivable at December 31, 1997 are amounts due from these three customers aggregating $11,076,000. Two customers accounted for approximately 56% of net sales for the year ended December 31, 1996, and included in accounts receivable at December 31, 1996 are amounts due from these two customers aggregating $6,608,000. 11. FOREIGN OPERATIONS The Business Unit's European operations accounted for approximately 19%, 18% and 20% of the total Business Unit's assets as of July 9, 1998, December 31, 1997 and December 31, 1996, respectively. Sales for these European operations accounted for approximately 8%, 8% and 10% of net sales for the six months and nine days ended July 9, 1998 and for the years ended December 31, 1997 and 1996, respectively. 12. CONTINGENCIES In the normal course of business the Business Unit is involved in certain legal actions and claims. It is the opinion of management that such litigation and claims are either covered by insurance or will be resolved without material effect on the Business Unit's financial position or results of operations. 13. SUBSEQUENT EVENT On July 9, 1998, Generac completed the sale of substantially all of the assets and the assumption of certain liabilities of the Business Unit to Generac Portable Products, LLC (a company formed by The Beacon Group III -- Focus Value Fund, L.P.) for a net purchase price of approximately $305 million. F-28 137 - --------------------------------------------------------- - --------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------- TABLE OF CONTENTS
PAGE ---- Where You Can Find More Information.... i Forward-Looking Statements............. i Summary................................ 1 Risk Factors........................... 8 The Issuers............................ 14 The Transaction........................ 15 Use of Proceeds of the New Notes....... 16 Capitalization......................... 17 The Exchange Offer..................... 18 Unaudited Pro Forma Consolidated Financial Information................ 28 Selected Historical Financial Data..... 32 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 35 Business............................... 44 Management............................. 56 Security Ownership..................... 62 Certain Relationships and Related Party Transactions......................... 64 Description of the Senior Secured Credit Facility...................... 64 Description of the New Notes........... 66 Description of the Old Notes........... Old Notes Registration Rights Agreement............................ 98 Book-Entry; Delivery and Form.......... 100 Certain United States Federal Income Tax Considerations................... 102 Plan of Distribution................... 104 Experts................................ 105 Validity of Notes...................... 105 Index to Financial Statements.......... F-1
- --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. LOGO OFFER TO EXCHANGE 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 FOR ALL OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 ------------------------- PROSPECTUS ------------------------- , 1998 - --------------------------------------------------------- - --------------------------------------------------------- 138 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. In general, the Wisconsin Business Corporation Law provides that a corporation shall indemnify directors and officers for all reasonable expenses incurred in connection with the successful defense of actions arising in connection with their service as directors and officers of the corporation. In other cases, the Wisconsin Business Corporation Law provides that the corporation shall indemnify a director or officer against liability unless the director or officer breached or failed to perform a duty owed to the corporation and such breach or failure meets certain specified criteria constituting, in general, some act of misconduct. In addition, the corporation may reimburse a director or officer for his expenses in defending against actions as they are incurred upon the director's or officer's written request accompanied by a written affirmation of his good faith belief that he has not breached or failed to perform his duties to the corporation and a written undertaking to repay amounts advanced if it is ultimately determined that indemnification is not required under the Wisconsin Business Corporation Law. A court of law may order that the corporation provide indemnification to a director or officer if it finds that the director or officer is entitled thereto under the applicable statutory provision or is fairly and reasonably entitled thereto in view of all the relevant circumstances, whether or not such indemnification is required under the applicable statutory provision. The Wisconsin Business Corporation Law specifies various procedures pursuant to which a director or officer may establish his right to indemnification. Provided that it is not determined by or on behalf of the corporation that the director or officer breached or failed to perform a duty owed to the corporation and such breach or failure meets certain specified criteria constituting, in general, some act of misconduct, a Wisconsin corporation may provide additional rights to indemnification under its articles of incorporation or by-laws, by vote, by agreement or by resolution. GPPW's Articles of Incorporation provide for indemnification and advancement of expenses of directors and officers to the fullest extent permitted by the Wisconsin Business Corporation Law. The indemnification provided by GPPW's Articles of Incorporation is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any by-law, vote of shareholders or disinterested directors or otherwise. Section 18-108 of the Delaware Limited Liability Company Act grants a Delaware limited liability company the power, subject to the standards and restrictions, if any, as are set forth in its limited liability company agreement, to indemnify any member or manager or other person from and against any and all claims and demands whatsoever. Pursuant to Article VIII of the Limited Liability Company Agreement of Generac Portable Products, LLC (the "LLC Agreement"), the Operating Company will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Operating Company) by reason of the fact that such person is or was a director or officer of the Operating Company, or is or was serving, at the Operating Company's request, in a similar capacity with another enterprise. The Operating Company will indemnify such officers and directors in an action by or in the right of the Operating Company to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if II-1 139 the officer or director is adjudged to be liable to the Operating Company. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the Operating Company must indemnify him or her against the expenses (including attorneys' fees) which he or she actually and reasonably incurred in connection therewith. The Operating Company will, in connection with his or her appearance as a witness or other participation in a proceeding, pay the expenses actually or reasonably incurred or anticipated by any officer or director participating in such proceeding, provided that the director or officer undertakes to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Operating Company as authorized by Article VIII of the LLC Agreement. The indemnification provided by the LLC Agreement is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any law, agreement, vote or otherwise. The Operating Company may grant indemnification rights to other employees or agents of, or other persons serving, the Operating Company. The Operating Company is also permitted to purchase directors' and officers' liability insurance. Article VIII of the LLC Agreement also provides that the Operating Company will indemnify its officers and directors to the fullest extent permitted by applicable law in effect from time to time. The foregoing statements are subject to the detailed provisions of Article VIII of the LLC Agreement. II-2 140 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 3.1 -- Certificate of Incorporation of GPPC, Inc. 3.2 -- Certificate of Amendment of Certificate of Incorporation Before Payment of Any Part of the Capital of GPPC, Inc. 3.3 -- Certificate of Amendment of Certificate of Incorporation Before Payment of Any Part of the Capital of Generac Portable Products, Inc. 3.4 -- By-Laws of Generac Portable Products, Inc. 3.5 -- Certificate of Formation of Generac Portable Products, LLC 3.6 -- Limited Liability Company Agreement of Generac Portable Products, LLC 3.7 -- Articles of Incorporation of GPPW, Inc. 3.8 -- By-laws of GPPW, Inc. 4.1 -- Indenture, dated as of July 1, 1998 among Generac Portable Products, LLC, GPPW, Inc. and Marine Midland Bank, as trustee. 4.2 -- Registration Rights Agreement, dated as of July 2, 1998 among Generac Portable Products, LLC, GPPW, Inc. and BT Alex. Brown Incorporated. 4.3 -- Form of Security for 11 1/4% Senior Subordinated Notes due 2006 originally issued by Generac Portable Products, LLC and GPPW, Inc. on July 9, 1998. 4.4 -- Form of Security for 11 1/4% Senior Subordinated Notes due 2006 to be issued by Generac Portable Products, LLC and GPPW, Inc. and registered under the Securities Act of 1933, as amended (including the form of Guarantee). 5.1 -- Opinion of King & Spalding (including the consent of such counsel). 12.1 -- Computation of the ratios of earnings to fixed charges. 23.1 -- Consent of Deloitte & Touche LLP. 23.2 -- Consent of PricewaterhouseCoopers LLP. 23.3 -- Consent of King & Spalding (included in Exhibit 5.1). 24.1 -- Powers of Attorney (included in the signature pages of this Registration Statement). 25.1 -- Statement of Eligibility of Trustee. 27.1 -- Financial Data Schedule. 99.1 -- Form of Letter of Transmittal. 99.2 -- Form of Notice of Guaranteed Delivery. 99.3 -- Form of Exchange Agent Agreement.
II-3 141 (b) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE NUMBER DESCRIPTION OF SCHEDULE - -------- ----------------------- -- Report of PricewaterhouseCoopers LLP on Financial Statement Schedule -- Report on Schedule of Deloitte & Touche LLP (included in Exhibit 23.1) I -- Generac Portable Products, Inc. Schedule of Combined Valuation Accounts. II -- Portable Products Division, a Business Unit of Generac Corporation Schedule of Combined Valuation Accounts.
ITEM 22. UNDERTAKINGS Each of the undersigned registrants (the "Registrants") hereby undertakes: (1) That, for purposes of determining any liability under the Securities Act of 1933, each filing of any Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by any Registrant of expenses incurred or paid by a director, officer or controlling person of such Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (3) To respond for requests for information that is incorporated by reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (4) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired or involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-4 142 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on March 1, 1999. GENERAC PORTABLE PRODUCTS, INC. By: /s/ ERIC R. WILKINSON ------------------------------------ Eric R. Wilkinson President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints ERIC R. WILKINSON, President of Generac Portable Products, Inc., and RICHARD A. AUBE, Secretary and Treasurer of Generac Portable Products, Inc., or either of them, and any agent for service named in this Registration Statement and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities with Generac Portable Products, LLC and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ERIC R. WILKINSON President and Director, Generac March 1, 1999 - --------------------------------------------- Portable Products, Inc. Eric R. Wilkinson /s/ RICHARD A. AUBE Secretary and Treasurer, Generac March 1, 1999 - --------------------------------------------- Portable Products, Inc. Richard A. Aube /s/ R. EUGENE CARTLEDGE Chairman of the Board, Generac March 1, 1999 - --------------------------------------------- Portable Products, Inc. R. Eugene Cartledge
II-5 143
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT D. KERN Director, Generac Portable March 1, 1999 - --------------------------------------------- Products, Inc. Robert D. Kern /s/ THOMAS G. MENDELL Director, Generac Portable March 1, 1999 - --------------------------------------------- Products, Inc. Thomas G. Mendell /s/ DORRANCE J. NOONAN, JR. Director, Generac Portable March 1, 1999 - --------------------------------------------- Products, Inc. Dorrance J. Noonan, Jr. /s/ R. RALPH PARKS Director, Generac Portable March 1, 1999 - --------------------------------------------- Products, Inc. R. Ralph Parks /s/ RICHARD A. VAN DEUREN Director, Generac Portable March 1, 1999 - --------------------------------------------- Products, Inc. Richard A. Van Deuren
II-6 144 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jefferson, State of Wisconsin, on March 1, 1999. GENERAC PORTABLE PRODUCTS, LLC By: /s/ DORRANCE J. NOONAN, JR. ------------------------------------ Dorrance J. Noonan, Jr. President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints DORRANCE J. NOONAN, JR., President and Chief Executive Officer of Generac Portable Products, LLC, and GARY J. LATO, Chief Financial Officer of Generac Portable Products, LLC, or either of them, and any agent for service named in this Registration Statement and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities with Generac Portable Products, LLC and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DORRANCE J. NOONAN, JR. President, Chief Executive Officer March 1, 1999 - --------------------------------------------- and Director, Generac Portable Dorrance J. Noonan, Jr. Products, LLC /s/ GARY J. LATO Chief Financial Officer, Generac March 1, 1999 - --------------------------------------------- Portable Gary J. Lato Products, LLC /s/ RICHARD A. AUBE Director, Generac Portable March 1, 1999 - --------------------------------------------- Products, LLC Richard A. Aube
II-7 145 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on March 1, 1999. GPPW, INC. By: /s/ FAITH ROSENFELD ------------------------------------ Faith Rosenfeld President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints RICHARD A. AUBE, Secretary and Treasurer of GPPW, Inc., and any agent for service named in this Registration Statement and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities with GPPW, Inc. and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FAITH ROSENFELD President, GPPW, Inc. March 1, 1999 - --------------------------------------------- Faith Rosenfeld /s/ RICHARD A. AUBE Secretary, Treasurer and March 1, 1999 - --------------------------------------------- Director of GPPW, Inc. Richard A. Aube
II-8 146 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Generac Portable Products, Inc. Our audit of the consolidated financial statements referred to in our report dated February 22, 1999 appearing in Part I of this Registration Statement on Form S-4 also included an audit of the accompanying Financial Statement Schedule of Generac Portable Products, Inc. included in Part II of this Registration Statement on Form S-4. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 22, 1999 S-1 147 SCHEDULE I GENERAC PORTABLE PRODUCTS, INC. SCHEDULE OF COMBINED VALUATION ACCOUNTS
BALANCE AT BEGINNING CHARGES TO BALANCE AT OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD ---------- ---------- ---------- ------------- ($ IN 000'S) ACCOUNTS RECEIVABLE: For the Period July 10, 1998 through December 31, 1998.................................... $225 $ 17 $ -- $242
BALANCE AT BEGINNING CHARGES TO BALANCE AT OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD ---------- ---------- ---------- ------------- ($ IN 000'S) INVENTORY: For the Period July 10, 1998 through December 31, 1998.................................... $500 $593 $319 $774
S-2 148 SCHEDULE II PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION SCHEDULE OF COMBINED VALUATION ACCOUNTS
BALANCE AT BEGINNING CHARGES TO BALANCE AT OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD ---------- ---------- ---------- ------------- ($ IN 000'S) ACCOUNTS RECEIVABLE: Year Ended: December 31, 1996........................... $444 $(155) $138 $151 December 31, 1997........................... 151 21 -- 172 Six Months and Nine Days Ended: July 9, 1998................................ 172 67 14 225
BALANCE AT BEGINNING CHARGES TO BALANCE AT OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD ---------- ---------- ---------- ------------- ($ IN 000'S) INVENTORY: Year Ended: December 31, 1996........................... $190 $331 $396 $125 December 31, 1997........................... 125 781 556 350 Six Months and Nine Days Ended: July 9, 1998................................ 350 412 262 500
S-3 149 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 3.1 -- Certificate of Incorporation of GPPC, Inc. 3.2 -- Certificate of Amendment of Certificate of Incorporation Before Payment of Any Part of the Capital of GPPC, Inc. 3.3 -- Certificate of Amendment of Certificate of Incorporation Before Payment of Any Part of the Capital of Generac Portable Products, Inc. 3.4 -- By-Laws of Generac Portable Products, Inc. 3.5 -- Certificate of Formation of Generac Portable Products, LLC 3.6 -- Limited Liability Company Agreement of Generac Portable Products, LLC 3.7 -- Articles of Incorporation of GPPW, Inc. 3.8 -- By-laws of GPPW, Inc. 4.1 -- Indenture, dated as of July 1, 1998 among Generac Portable Products, LLC, GPPW, Inc. and Marine Midland Bank, as trustee. 4.2 -- Registration Rights Agreement, dated as of July 2, 1998 among Generac Portable Products, LLC, GPPW, Inc. and BT Alex. Brown Incorporated. 4.3 -- Form of Security for 11 1/4% Senior Subordinated Notes due 2006 originally issued by Generac Portable Products, LLC and GPPW, Inc. on July 9, 1998. 4.4 -- Form of Security for 11 1/4% Senior Subordinated Notes due 2006 to be issued by Generac Portable Products, LLC and GPPW, Inc. and registered under the Securities Act of 1933, as amended (including the form of Guarantee). 5.1 -- Opinion of King & Spalding (including the consent of such counsel). 12.1 -- Computation of the ratios of earnings to fixed charges. 23.1 -- Consent of Deloitte & Touche LLP. 23.2 -- Consent of PricewaterhouseCoopers LLP. 23.3 -- Consent of King & Spalding (included in Exhibit 5.1). 24.1 -- Powers of Attorney (included in the signature pages of this Registration Statement). 25.1 -- Statement of Eligibility of Trustee. 27.1 -- Financial Data Schedule. 99.1 -- Form of Letter of Transmittal. 99.2 -- Form of Notice of Guaranteed Delivery. 99.3 -- Form of Exchange Agent Agreement.
EX-3.1 2 CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 CERTIFICATE OF INCORPORATION OF GPPC, INC. FIRST: NAME. The name of the corporation (the "CORPORATION") is GPPC, INC. SECOND: REGISTERED OFFICE AND AGENT. The address of the registered office of the Corporation in the State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805. The name of the registered agent at such address is Corporation Service Company. THIRD: PURPOSES. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware. FOURTH: CAPITALIZATION. The total number of shares of stock which the Corporation shall have authority to issue is One Thousand (1,000) shares of Common Stock, with a par value of $.01 per share. FIFTH: INCORPORATOR. The name and mailing address of the sole incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Andrew M. Metcalf King & Spalding 1185 Avenue of the Americas New York, New York 10036-4003 2 SIXTH: ADDITIONAL POWERS OF BOARD OF DIRECTORS. The Board of Directors shall have the power, without stockholder action, to make bylaws for the Corporation and to amend, alter or repeal the bylaws of the Corporation. SEVENTH: VOTING BY BALLOT. Elections of Directors need not be by ballot unless the bylaws of the Corporation provide otherwise. EIGHTH: STOCKHOLDERS MEETINGS. Any action required to be, or which may be, taken at a meeting of stockholders, may be taken without a meeting if written consent, setting forth the action so taken, shall be signed and dated by all stockholders then entitled to vote. Such consent shall have the same force and effect as an affirmative vote of the stockholders then entitled to vote and shall be filed with the minutes of the proceedings of the stockholders. NINTH: LIMITED LIABILITY OF DIRECTORS. The directors of the Corporation shall be entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the Delaware General Corporation Law. Without limiting the generality of the foregoing, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article NINTH shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. 2 3 IN WITNESS WHEREOF, the undersigned, being the sole incorporator named herein, for the purpose of forming a corporation pursuant to the Delaware General Corporation Law does make this certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly has hereunto set his hand this 29th day of April, 1998. /s/ Andrew M. Metcalf --------------------------- Andrew M. Metcalf Sole Incorporator S-1 EX-3.2 3 CERTIFICATE OF AMENDMENT 1 Exhibit 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION BEFORE PAYMENT OF ANY PART OF THE CAPITAL OF GPPC, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "CORPORATION") is GPPC, Inc. 2. The Corporation has not received any payment for any of its stock. 3. The certificate of incorporation of the Corporation is hereby amended by striking our Article FIRST thereof and by substituting in lieu of said Article the following new Article: "FIRST: Name. The name of the Corporation is Generac Portable Products, Inc." 4. The amendment of the certificate of incorporation of the Corporation herein certified was duly adopted, pursuant to the provisions of Section 241 of the General Corporation Law of the State of Delaware, by at least a majority of the directors who have been elected and qualified. Signed on this 19 day of May, 1998 /s/ Richard A. Aube ------------------------------- Name: Richard A. Aube Title: Vice President EX-3.3 4 CERTIFICATE OF AMENDMENT 1 Exhibit 3.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION BEFORE PAYMENT OF ANY PART OF THE CAPITAL OF GENERAC PORTABLE PRODUCTS, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "CORPORATION") is Generac Portable Products, Inc. 2. The Corporation has not received any payment for any of its stock. 3. The certificate of incorporation of the Corporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article: "FOURTH: CAPITALIZATION. The total number of shares of stock which the Corporation shall have authority to issue is Twelve Thousand (12,000) shares of Common Stock, with a par value of $.01 per share." 4. The amendment of the certificate of incorporation of the Corporation herein certified was duly adopted, pursuant to the provisions of Section 241 of the General Corporation Law of the State of Delaware, by at least a majority of the directors who have been elected and qualified. Signed on this 7th day of July, 1998 /s/ Richard A. Aube ------------------------------ Richard A. Aube Secretary and Treasurer EX-3.4 5 BY-LAWS 1 Exhibit 3.4 BY-LAWS OF GPPC, INC. ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held at such place, either within or without the State of Delaware, on such date and at such time as the Board of Directors may by resolution provide, or, if the Board of Directors fails to provide, then such meeting shall be held at the principal office of the Corporation at 10:00 a.m. on the second Tuesday in April of each year or, if such date is a legal holiday, on the next succeeding business day. The Board of Directors may specify by resolution prior to any special meeting of stockholders held within the year that such meeting shall be in lieu of the annual meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by any member of the Board of Directors, the President or upon written request of the holders of at least twenty-five percent (25%) of the outstanding shares of stockholders then entitled to vote. Such written request shall specify the time and purpose of the proposed meeting. Such meeting shall be held at such place, either within or without the State of Delaware, as is stated in the call and notice thereof. SECTION 3. NOTICE OF MEETINGS. Written notice of each meeting of stockholders, stating the time and place of the meeting, and the purpose of any special meeting, shall be mailed to each stockholder entitled to vote at or to notice of, such meeting at the address shown on the books of the Corporation not less than ten (10) nor more than sixty (60) days prior to such meeting unless such stockholder waives notice of the meeting. If an agreement of merger or consolidation or a sale, lease, exchange, or other disposition of all or substantially all of the property and assets of the Corporation is to be considered at any annual or special meeting, the written notice shall state the purpose of such meeting and shall be given to each stockholder, whether or not entitled to vote thereon, not less than twenty (20) days before such meeting. Any stockholder may execute a waiver of notice, in person or by proxy, either before or after any meeting, and shall be deemed to have waived notice if such stockholder is present at such meeting in person or by proxy. Neither the business transacted at, nor the purpose of, any meeting need be stated in the waiver of notice of such meeting. Notice of any meeting may be given by the President, the Secretary or the person or persons calling such meeting. No notice need be given of the time and place of reconvening of any adjourned meeting, if the time and place to which the meeting is adjourned are announced at the adjourned meeting, unless the adjournment is for more than thirty days. 2 2 SECTION 4. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are (i) the stockholders entitled to examine the stock ledger, (ii) the stockholders listed on the books of the Corporation or (iii) entitled to vote in person or by proxy at any meeting of the stockholders. SECTION 5. QUORUM; REQUIRED STOCKHOLDER VOTE. A quorum for the transaction of business at any annual or special meeting of stockholders shall exist when the holders of a majority of the outstanding shares entitled to vote are represented either in person or by proxy at such meeting. If a quorum is present, corporate action to be taken by stockholder vote, including the election of directors, shall be authorized in the manner specified in the Certificate of Incorporation of the Corporation, except as otherwise provided by law. When a quorum is once present to organize a meeting, the stockholders present may continue to do business at the meeting or at any adjournment thereof notwithstanding withdrawal of enough stockholders to leave less than a quorum. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time. SECTION 6. PROXIES. A stockholder may vote either in person or by a proxy which such stockholder has duly executed in writing. No proxy shall be valid after three years from the date of its execution unless a longer period is expressly provided in the proxy. SECTION 7. ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 8. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment 3 3 of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for any other lawful purpose, the Board of Directors of the Corporation may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date (i) in the case of the determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, (ii) in the case of the determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors and (iii) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (x) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, (y) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action and (z) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 9. NOTICE OF STOCKHOLDER BUSINESS. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty (60) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the 4 4 meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 9. The Chairman of the meeting shall, if the facts warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section 9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 10. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are nominated in accordance with the procedures set forth in this Section 10 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation then entitled to vote for the election of directors who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty (60) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "SECURITIES EXCHANGE ACT") (including, without limitation, a copy of such person's written consent to being named as a nominee and to serving as a director if elected) and (B) as to the stockholder giving the notice, (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the series, class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish 5 5 to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 10. The Chairman of the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedure prescribed by this Section 10, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Nothing in this Section 10 shall be construed to affect the requirements for proxy statements of the Corporation under Regulation 14A of the Securities Exchange Act. SECTION 11. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS The Corporation shall not be governed by Section 203 of the Delaware General Corporation Law. ARTICLE II DIRECTORS SECTION 1. DIRECTORS. The number of directors which shall constitute the whole Board shall be not less than one (1) nor more than seven (7). The first Board shall consist of six (6) directors. The directors need not be stockholders. The directors shall be elected at the annual meeting of the stockholders by a majority of the stockholders then entitled to vote, except as provided in Section 2 of this Article, and each director elected shall hold office until his or her successor is elected and qualified; provided, however, that unless otherwise restricted by the Certificate of Incorporation or by-law, any director or the entire Board of Directors may be removed, either with or without cause, from the Board of Directors at any meeting of stockholders by a majority of the stock represented and entitled to vote thereat. SECTION 2. VACANCIES. Vacancies on the Board of Directors by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. The directors so chosen shall hold office until the next annual election of directors and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by the Delaware General Corporation Law or any successor statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding then having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. 6 6 SECTION 3. MANAGEMENT. The property and business of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. SECTION 4. MEETINGS OF THE BOARD; NOTICE OF MEETINGS; WAIVER OF NOTICE. The annual meeting of the Board of Directors for the purpose of electing officers and transacting such other business as may be brought before the meeting shall be held each year immediately following the annual meeting of stockholders. The Board of Directors may by resolution provide for the time and place of other regular meetings and no notice of such regular meetings need be given. Special meetings of the Board of Directors may be called by the President or by any two directors, unless the Board consists of one director, in which case special meetings may be called by the sole director. Written notice of the time and place of such meetings shall be given to each director by first class mail or facsimile at least four (4) days before the meeting or by telephone, telegraph, cablegram or in person at least two (2) days before the meeting. Any director may execute a waiver of notice, either before or after any meeting, and shall be deemed to have waived notice if he is present at such meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be stated in the notice or waiver of notice of such meeting. Any meeting may be held at any place within or without the State of Delaware. SECTION 5. QUORUM; VOTE REQUIREMENT. A majority of the authorized number of directors shall constitute a quorum for the transaction of business at any meeting. When a quorum is present, the vote of a majority of the votes represented by directors present shall be the act of the Board of Directors, unless a greater vote is required by law, by the Certificate of Incorporation or by these By-Laws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. SECTION 6. ACTION OF BOARD WITHOUT MEETING. Any action required or permitted to be taken at a meeting of the Board of Directors or any committee thereof may be taken without a meeting if written consent, setting forth the action so taken, is signed by all the directors or committee members and filed with the minutes of proceedings of the Board of Directors or committee, as the case may be. Such consent shall have the same force and effect as a unanimous affirmative vote of the Board of Directors or committee, as the case may be. SECTION 7. TELEPHONE CONFERENCE MEETINGS. Unless the Certificate of Incorporation otherwise provides, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board or any committee by means of telephone 7 7 conference or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. SECTION 8. COMMITTEES. The Board of Directors, by resolution adopted by a majority of all of the directors, may designate such committees as it deems necessary or desirable, each such committee to consist of one or more of the directors of the Corporation. Vacancies in the membership of such committees shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. Any such committee may authorize the seal of the Corporation to be affixed to all papers which may require it and, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation; provided that no committee shall have the authority of the Board of Directors in reference to (i) an amendment to the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the Delaware General Corporation Law fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) the adoption of an agreement of merger or consolidation, (iii) the sale, lease or exchange or other disposition of all or substantially all of the property and assets of the Corporation, (iv) a voluntary dissolution of the Corporation or a revocation thereof or (v) an amendment to the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger. Each committee shall keep minutes of its proceedings and actions and shall report regularly to the Board of Directors. SECTION 9. COMPENSATION. Compensation for the directors shall be determined by the Board of Directors; provided, that no officer of the Corporation who is also a director shall receive any compensation which would otherwise be payable to such person as a director. All directors, including a director who is also an officer, shall be entitled to recover reasonable out-of-pocket expenses relating to such person's serving as a director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 8 8 ARTICLE III OFFICERS SECTION 1. OFFICERS. (a) The officers of the Corporation shall be chosen by the Board of Directors and shall include a President and a Secretary. The Corporation may also have at the discretion of the Board of Directors such other officers as are desired, including a Chairman of the Board, one or more Vice Presidents, a Treasurer, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of paragraph (c) of this Section 1. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President, or other similar or dissimilar title. At the time of the election of officers, the directors may by resolution determine the order of their rank. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. The office of Secretary and Treasurer may be occupied by the same person. (b) The Board of Directors, at its first meeting after each annual meeting of stockholders, shall choose the officers of the Corporation. (c) The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. (d) The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. (e) The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. 9 9 SECTION 3. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President of the Corporation shall, subject to the control of the Board of Directors, oversee the development of the Corporation's business, including, without limitation, strategic planning, technological application and product enhancements, and have control of the Corporation's business and manage the officers of the Corporation. The President shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. The President shall be an ex-officio member of all committees and shall have the general powers and duties of management usually vested in the office of President of corporations, and shall have such other powers and duties as may be prescribed by the Board of Directors or these By-Laws. SECTION 4. VICE PRESIDENTS. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other duties as from time to time may be prescribed for them, respectively, by the Board of Directors. SECTION 5. SECRETARY AND ASSISTANT SECRETARY. (a) The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required by the Board of Directors. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or these By-Laws. The Secretary shall keep in safe custody the seal of the Corporation, and when authorized by the Board, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by such officer's signature. (b) The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, or if there be no such determination, the Assistant Secretary designated by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 10 10 SECTION 6. TREASURER AND ASSISTANT TREASURER. (a) The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all of the Treasurer's transactions undertaken as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of the duties of such office and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the Treasurer's control belonging to the Corporation. (b) The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, or if there be no such determination, the Assistant Treasurer designated by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE IV STOCK SECTION 1. STOCK CERTIFICATES. The shares of stock of the Corporation shall be represented by certificates or shall be uncertificated. Certificates shall be in such form as may be approved by the Board of Directors, which certificates shall be issued to stockholders of the Corporation in numerical order from the stock book of the Corporation, and each of which shall bear the name of the stockholder, the number of shares represented, and the date of issue; and which shall be signed by the President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation; and which shall be sealed with the seal of the Corporation. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Section 151, 156, 202(a) or 218(a) of 11 11 the Delaware General Corporation Law or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. TRANSFER OF STOCK. Shares of stock of the Corporation shall be transferred only on the books of the Corporation upon surrender to the Corporation of the certificate or certificates representing the shares to be transferred accompanied by an assignment in writing of such shares properly executed by the stockholder of record or such stockholder's duly authorized attorney-in-fact and with all taxes on the transfer having been paid. The Corporation may refuse any requested transfer until furnished evidence satisfactory to it that such transfer is proper. Upon the surrender of a certificate for transfer of stock, such certificate shall at once be conspicuously marked on its face "CANCELED" and filed with the permanent stock records of the Corporation. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. The Board of Directors may make such additional rules concerning the issuance, transfer and registration of stock and requirements regarding the establishment of lost, destroyed or wrongfully taken stock certificates (including any requirement of an indemnity bond prior to issuance of any replacement certificate) as it deems appropriate. SECTION 3. REGISTERED STOCKHOLDERS. The Corporation may deem and treat the holder of record of any stock as the absolute owner for all purposes and shall not be required to take any notice of any right or claim of right of any other person. ARTICLE V DEPOSITORIES, SIGNATURES AND SEAL SECTION 1. DEPOSITORIES. All funds of the Corporation shall be deposited in the name of the Corporation in such bank, banks, or other financial institutions as the Board of Directors may from time to time designate and shall be drawn out on checks, drafts or other orders signed on behalf of the Corporation by such person or persons as the Board of Directors may from time to time designate. SECTION 2. CONTRACTS AND DEEDS. All contracts, deeds and other instruments shall be signed on behalf of the Corporation by the President or by such other officer, officers, agent or agents as the Board of Directors may from time to time by resolution provide. 12 12 SECTION 3. SEAL. The seal of the Corporation shall be in such form as the Board of Directors shall so prescribe: If the seal is affixed to a document, the signature of the Secretary or an Assistant Secretary shall attest the seal. The seal and its attestation may be lithographed or otherwise printed on any document and shall have, to the extent permitted by law, the same force and effect as if it had been affixed and attested manually. ARTICLE VI INDEMNIFICATION SECTION 1. POWER OF INDEMNIFICATION. The Corporation shall have the power to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), any person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "PROCEEDING"), by reason of the fact that he, or a person for whom he is the legal representative, is or was an officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as an officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred by such person in connection therewith and such indemnification may be continued as to a person who has ceased to be an officer, employee or agent of the Corporation (or other entity) and shall inure to the benefit of his heirs, executors and administrators. SECTION 2. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses incurred in defending any Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of the Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article VI or otherwise. 13 13 SECTION 3. PAYMENT OF INDEMNIFICATION. If a claim for indemnification or payment of expenses under this Article VI is not paid in full by the Corporation within ninety (90) days after a written claim therefor has been received by the Corporation, the claimant may at any time thereafter file suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. SECTION 4. INDEMNIFICATION NOT EXCLUSIVE. The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these By-laws, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 5. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director or officer of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECTION 6. OTHER INDEMNIFICATION. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. SECTION 7. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VII DIVIDENDS SECTION 1. PAYMENT OF DIVIDENDS. Subject to the provisions of the Certificate of Incorporation relating thereto, if any, dividends may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in shares of the capital stock or in the Corporation's bonds or its property, including the shares or bonds of other corporations subject to any provisions of law and of the certificate of incorporation. 14 14 SECTION 2. RESERVE FUND. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII AMENDMENT OF BY-LAWS The Board of Directors shall have the power to alter, amend or repeal the By-laws or adopt new by-laws, but any by-laws adopted by the Board of Directors may be altered, amended, or repealed and new by-laws adopted by the stockholders. The stockholders may prescribe that any bylaw or by-laws adopted by them shall not be altered, amended or repealed by the Board of Directors. EX-3.5 6 CERTIFICATE OF FORMATION 1 Exhibit 3.5 CERTIFICATE OF FORMATION OF GENERAC PORTABLE PRODUCTS, LLC This Certificate of Formation of GENERAC PORTABLE PRODUCTS, LLC (the "LLC"), dated as of the 1st day of June, 1998, is being duly executed and filed by Andrew M. Metcalf as an authorized person, to form a limited liability company under the Delaware Limited Liability Company Act (6 Del.C. Section 18-101, et seq.). I. The name of the limited liability company is Generac Products, LLC. II. The address of the registered office of the LCC in the State of Delaware is 1013 Centre Road, New Castle County, Wilmington, Delaware 19805. III. The name and address of the registered agent for service of process on the LLC in the State of Delaware is Corporation Service Company, 1013 Centre Road, New Castle County, Wilmington, Delaware 19805. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation as of the date first written above. /s/ Andrew M. Metcalf ------------------------------- Andrew M. Metcalf Authorized Person EX-3.6 7 LIMITED LIABILITY AGREEMENT 1 EXHIBIT 3.6 LIMITED LIABILITY COMPANY AGREEMENT OF GENERAC PORTABLE PRODUCTS, LLC EFFECTIVE AS OF JUNE 1, 1998 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS................................................. 1 ARTICLE II FORMATION OF THE COMPANY............................................ 8 2.1 Formation.............................................................................. 8 2.2 Name................................................................................... 8 2.3 Place of Business...................................................................... 8 2.4 Registered Office and Registered Agent................................................. 8 2.5 Term................................................................................... 8 2.6 Purpose of the Company................................................................. 8 ARTICLE III INITIAL MEMBERS............................................... 8 ARTICLE IV CAPITAL OF THE COMPANY........................................ 9 4.1 Capital Contributions; Member Interests; Capital Percentages........................... 9 4.2 Additional Contributions............................................................... 9 4.3 Record of Contributions................................................................ 10 4.4 Interest............................................................................... 10 4.5 Withdrawal or Reduction of Members' Capital Contributions.............................. 10 4.6 Loans to Company....................................................................... 10 4.7 Borrowing.............................................................................. 10 ARTICLE V RIGHTS AND OBLIGATIONS OF MEMBERS................................... 10 5.1 Limitation of Members' Responsibility, Liability....................................... 10 5.2 Return of Distributions................................................................ 11 5.3 Priority and Return of Capital......................................................... 11 5.4 Competition............................................................................ 11 5.5 Admission of Additional Members........................................................ 11 5.6 Resignation............................................................................ 11 5.7 Indemnification........................................................................ 11
- i - 3 ARTICLE VI MEETINGS OF MEMBERS............................................. 12 6.1 Meetings............................................................................... 12 6.2 Place of Meetings...................................................................... 12 6.3 Notice of Meetings..................................................................... 12 6.4 Meeting of All Members................................................................. 12 6.5 Action by Members Without a Meeting.................................................... 12 6.6 Waiver of Notice....................................................................... 12 6.7 Delegation to Board.................................................................... 12 ARTICLE VII RIGHTS AND DUTIES OF DIRECTORS AND OFFICERS.............................. 13 7.1 Management............................................................................. 13 7.2 Vacancies.............................................................................. 13 7.3 Regular Meetings....................................................................... 13 7.4 Special Meetings....................................................................... 13 7.5 Meetings by Conference Telephone....................................................... 14 7.6 Quorum: Vote Required for Action...................................................... 14 7.7 Organization........................................................................... 14 7.8 Actions of the Board by Consent in Lieu of Meeting..................................... 14 7.9 Committees............................................................................. 14 7.10 Compensation and Reimbursement of Expenses............................................. 15 7.11 Powers of Board of Directors........................................................... 15 7.12 Liability of Directors................................................................. 17 7.13 Officers............................................................................... 17 7.14 Member Contributions................................................................... 20 ARTICLE VIII INDEMNIFICATION.................................................. 20 8.1 Indemnification........................................................................ 20 8.2 Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Company....................................... 21 8.3 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Company.................................................. 21 8.4 Authorization of Indemnification....................................................... 21 8.5 Good Faith Defined..................................................................... 22 8.6 Indemnification by a Court............................................................. 22 8.7 Advancement or Reimbursement of Expenses............................................... 22 8.8 Nonexclusivity and Survival of Indemnification......................................... 23 8.9 Insurance.............................................................................. 23
- ii - 4 8.10 Terms...................................................................................... 23 ARTICLE IX ALLOCATIONS......................................................... 24 9.1 Profits.................................................................................... 24 9.2 Losses..................................................................................... 24 ARTICLE X NET CASH FLOW AND DISTRIBUTIONS........................................ 27 10.1 Free Cash Flow............................................................................. 27 10.2 Distributions of Free Cash Flow............................................................ 27 10.3 Limitation Upon Distributions.............................................................. 28 ARTICLE XI ACCOUNTING METHOD, PERIOD, RECORDS AND REPORTS.......................... 28 11.1 Accounting Method.......................................................................... 28 11.2 Accounting Period.......................................................................... 28 11.3 Records, Audits and Reports................................................................ 28 11.4 Inspection................................................................................. 28 11.5 Preparation of Financial Statements........................................................ 28 ARTICLE XII TAX MATTERS............................................................. 29 12.2 Tax Information............................................................................ 29 ARTICLE XIII RESTRICTIONS ON TRANSFERABILITY......................................... 29 13.1 Transfer Restrictions...................................................................... 29 ARTICLE XIV DISSOLUTION AND TERMINATION............................................. 29 14.1 Dissolution Events............................................................................ 30 14.2 Winding Up.................................................................................... 31 14.3 Compliance With Certain Requirements of Regulations; Deficit Capital Accounts................. 32 14.4 Deemed Distribution and Recontribution........................................................ 32 14.5 Rights of Members............................................................................. 32 14.6 Notice of Dissolution/Termination............................................................. 33
- iii - 5 14.7 Allocations During Period of Liquidation...................................................... 33 14.8 Character of Liquidating Distributions........................................................ 33 14.9 The Liquidator................................................................................ 33 14.10 Form of Liquidating Distributions............................................................ 34 ARTICLE XV MISCELLANEOUS PROVISIONS............................................. 34 15.1 Notices.................................................................................... 34 15.2 Application of Delaware Law................................................................ 34 15.3 Waiver of Action for Partition............................................................. 34 15.4 Execution of Additional Instruments........................................................ 35 15.5 Headings................................................................................... 35 15.6 Waivers.................................................................................... 35 15.7 Rights and Remedies Cumulative............................................................. 35 15.8 Severability............................................................................... 35 15.9 Heirs, Successors and Assigns.............................................................. 35 15.10 Beneficiaries.............................................................................. 35 15.11 Counterparts............................................................................... 35 15.12 Amendments................................................................................. 35 15.13 Waiver of Consequential and Punitive Damages............................................... 35 15.14 Other Terms................................................................................ 36
- iv - 6 LIMITED LIABILITY COMPANY AGREEMENT This Limited Liability Company Agreement (this "Agreement") is made and entered into as of June 1, 1998, by GPPD, Inc., a Delaware corporation, and GPPW, Inc., a Wisconsin corporation (the "Initial Members"). WHEREAS, the Initial Members desire to form a limited liability company named General Portable Products, LLC (the "Company") pursuant to the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et. seq. as amended (the "Delaware Act"), to engage in any lawful act or activity for which limited liability companies may be organized under the Delaware Act (the "Business"); and WHEREAS, the Initial Members desire to provide for the orderly management of the affairs of the Company; NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements herein contained, the Initial Members and all subsequent parties hereto agree as follows: ARTICLE I DEFINITIONS The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided herein): "Adjusted Capital Account Deficit" shall mean, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Allocation Year, after giving effect to the following adjustments: (i) Credit to such Capital Account any amounts which such Member is deemed to be obligated to restore pursuant to the penultimate sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (ii) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "Agreement" shall mean this Agreement as originally executed and as it may be amended from time to time hereafter. 7 "Allocation Year" shall mean (i) the period commencing on the Effective Date and ending on December 31, 1998, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31 or (iii) any portion of the period described in clauses (i) or (ii) for which the Company is required to allocate Profits, Losses and other items of Company income, gain, loss or deduction pursuant to Section 9 hereof. "Bankruptcy" shall mean, with respect to any Person, a "Voluntary Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with respect to any Person (i) the inability of such Person generally to pay its debts as such debts become due, or an admission in writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the benefit of creditors, (ii) the filing of any petition or answer by such Person seeking to adjudicate itself as bankrupt or insolvent, or seeking for itself any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of such Person or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to, or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its Property or (iii) corporate action taken by such Person to authorize any of the actions set forth above. An "Involuntary Bankruptcy" means, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation, or the filing of any such petition against such Person which petition shall not be dismissed within ninety (90) days, or without the consent or acquiescence of such Person, the entering of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the Property of such Person which order shall not be dismissed within ninety (90) days. "Board of Directors" shall mean the board of directors of the Company. "Business" shall have the meaning specified in the preamble. "Business Day" shall mean any day except a Saturday, Sunday or other day on which commercial banking institutions in New York, New York are authorized by law or executive order to close. "Capital Account" shall mean, with respect to any Member, the Capital Account maintained for such Member in accordance with the following provisions: (i) To each Member's Capital Account there shall be credited (A) such Member's Capital Contributions, (B) such Member's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 9.3 or Section 9.4 hereof, and (C) the amount of any Company liabilities assumed by such Member or which are secured by any Property distributed to such Member. The principal amount of a promissory note which is not - 2 - 8 readily traded on an established securities market and which is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member until the Company makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2); (ii) To each Member's Capital Account there shall be debited (A) the amount of money and the Gross Asset Value of any Property distributed to such Member pursuant to any provision of this Agreement, (B) such Member's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 9.3 or Section 9.4 hereof, and (C) the amount of any liabilities of such Member assumed by the Company or which are secured by any Property contributed by such Member to the Company; (iii) In the event Member Interests are transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Member Interests; and (iv) In determining the amount of any liability for purposes of subparagraphs (i) and (ii) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Board of Directors shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or any Members, are computed in order to comply with such Regulations, the Board of Directors may make such modification, provided that it is not likely to have a material effect on the amounts distributed to any Person pursuant to Article XIV hereof upon the dissolution of the Company. The Board of Directors also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). "Capital Contribution" shall mean any contribution to the capital of the Company in cash or property by a Member whenever made. "Capital Percentage" shall mean a Member's percentage ownership interest in the Company, which initially shall be as set forth in Section 4.1. - 3 - 9 "Certificate of Formation" shall mean the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware pursuant to the Delaware Act to form the Company, as originally executed and amended, modified, supplemented or restated from time to time, as the context requires. "Code" shall mean the United States Internal Revenue Code of 1986, as amended, from time to time. "Company Minimum Gain" has the meaning given the term "partnership minimum gain"in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. "Debt" shall mean (i) any indebtedness for borrowed money or the deferred purchase price of property as evidenced by a note, bonds, or other instruments, (ii) obligations as lessee under capital leases, (iii) obligations secured by any mortgage, pledge, security interest, encumbrance, lien or charge of any kind existing on any asset owned or held by the Company whether or not the Company has assumed or become liable for the obligations secured thereby, (iv) any obligation under any interest rate swap agreement, (v) accounts payable and (vi) obligations under direct or indirect guarantees of (including obligations (contingent or otherwise) to assure a creditor against loss in respect of) indebtedness or obligations of the kinds referred to in clauses (i), (ii), (iii), (iv) and (v) above, provided that Debt shall not include obligations in respect of any accounts payable that are incurred in the ordinary course of the Company's business and are not delinquent or are being contested in good faith by appropriate proceedings. "Delaware Act" shall have the meaning specified in the preamble. "Delaware Law" shall mean the laws of the State of Delaware, including without limitation, the Delaware Act and the Delaware General Corporation Law. "Depreciation" shall mean, for each Allocation Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Allocation Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Allocation Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Allocation Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Allocation Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board of Directors. "Director" shall mean any Person appointed or elected to serve as a director of the Company under this Agreement. As used herein, the term "Director" shall mean a "manager" of the Company, as such term is defined in Section 18-101 of the Delaware Act. - 4 - 10 "Dissolution Event" has the meaning set forth in Section 14.1(a) of this Agreement. "Entity" shall mean any foreign or domestic general partnership, limited partnership, limited liability company, corporation, joint enterprise, trust, business trust, employee benefit plan, cooperative or association. "Fiscal Year" shall mean the Company's fiscal year, which shall be a calendar year unless otherwise determined by the Board of Directors in accordance with Section 706(b) of the Code. "Gross Asset Value" shall mean with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset (other than cash) contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Board of Directors; (ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account) as determined by the Board of Directors as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and (B) of this paragraph shall be made only if the Board of Directors reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Members in the Company; (iii) The Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution as determined by the Board of Directors; and (iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of "Profits" and "Losses" or Section 9.3(c) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). - 5 - 11 If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses. "Initial Capital Contribution" shall mean the initial Capital Contribution by a Member pursuant to Section 4.1 of this Agreement. "Issuance Items" has the meaning set forth in Section 9.3(h) hereof. "Member" shall mean each Initial Member and each Person who at any time executes a counterpart of this Agreement as a member of the Company pursuant to the terms of this Agreement and who has not ceased to be a Member. "Member Interest" shall mean a Member's ownership interest in the Company, including such Member's share of the profits and losses of the Company, such Member's right to receive distributions of the Company's assets and such Member's other rights as a Member. "Member Nonrecourse Debt" has the same meaning as the term "Member nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations. "Member Nonrecourse Debt Minimum Gain" shall mean an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. "Member Nonrecourse Deductions" has the same meaning as the term "Member nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. "Net Cash Flow" means the gross cash proceeds of the Company less the portion thereof used to pay or establish reserves for all Company expenses, debt payments, capital improvements, replacements, and contingencies, all as determined by the Board of Directors. "Net Cash Flow" shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established pursuant to the first sentence of this definition. "Nonrecourse Deductions" has the meaning set forth in Section 1.704-2(b)(1) of the Regulations. "Nonrecourse Liability" has the meaning set forth in Section 1.704-2(b)(3) of the Regulations. "Person" shall mean any individual or Entity, and any heir, executor, administrator, legal representative, successor or assign thereof where the context so admits. - 6 - 12 "Profits" and "Losses" mean, for each Allocation Year, an amount equal to the Company's taxable income or loss for such Allocation Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments (without duplication): (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of "Profits" and "Losses" shall be added to such taxable income or loss; (ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of "Profits" and "Losses" shall be subtracted from such taxable income or loss; (iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; (iv) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Year, computed in accordance with the definition of Depreciation; (vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required, pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and (vii) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 9.3 or Section 9.4 hereof shall not be taken into account in computing Profits or Losses. - 7 - 13 The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 9.3 and 9.4 hereof shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vi) above. "Property" shall mean all real and personal property acquired by the Company, including cash, and any improvements thereto, and shall include both tangible and intangible property. "Regulations" shall mean the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations are amended from time to time. "Regulatory Allocations" has the meaning set forth in Section 9.4 hereof. "Tax Matters Member" has the meaning set forth in Section 12.1 hereof. In addition to the foregoing defined terms, certain additional terms are defined in the text hereof. ARTICLE II FORMATION OF THE COMPANY 2.1 Formation. The Certificate of Formation of the Company has been filed or will be filed with the Secretary of State of the State of Delaware pursuant to the Delaware Act. 2.2 Name. The name of the Company is General Portable Products, LLC. If the Company shall conduct business in any jurisdiction other than the State of Delaware, it shall register the Company or its trade name with the appropriate authorities in such state in order to have the legal existence of the Company recognized. 2.3 Place of Business. The Company may locate its places of business and registered office at any place or places as the Board of Directors of the Company may from time to time deem advisable. 2.4 Registered Office and Registered Agent. The Company's registered office shall be at the office of its registered agent at 1013 Centre Road, Wilmington, Delaware 19805, and the name of its initial registered agent at such address shall be Corporation Service Company. 2.5 Term. The term of the Company commenced on the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware pursuant to the Delaware Act and the term of the Company and this Agreement shall not be perpetual, but shall continue until the winding up and dissolution of the Company and its business is completed following a dissolution, as provided in Article XIV. - 8 - 14 2.6 Purpose of the Company. The purpose of the Company shall be to conduct the Business and to engage in any and all activities related or incidental to the foregoing. The Company shall have any and all powers necessary or desirable to carry out such purpose and the Business to the extent the same may be legally exercised by limited liability companies under the Delaware Act. The Company shall carry out the foregoing activities pursuant to the Certificate of Formation and this Agreement. ARTICLE III INITIAL MEMBERS The name and place of business or mailing address of each of the Initial Members is as follows: GPPD, Inc. c/o The Beacon Group 399 Park Avenue, 17th Floor New York, New York 10022 GPPW, Inc. c/o The Beacon Group 399 Park Avenue, 17th Floor New York, NY 10022 ARTICLE IV CAPITAL OF THE COMPANY 4.1 Capital Contributions; Member Interests; Capital Percentages. Simultaneously with the execution and delivery of this Agreement, each Initial Member is acquiring a Member Interest, which interest shall be expressed as a Capital Percentage, in exchange for a Capital Contribution in cash as follows: - 9 - 15
Initial Capital Initial Capital Member Contribution Percentage ------ ------------ ---------- GPPD, Inc. $95.00 95% GPPW, Inc. $ 5.00 5%
4.2 Additional Contributions. Except as expressly provided for in Section 4.1 or the next sentence of this Section 4.2, no Member shall have any obligation to provide funds to the Company, whether by Capital Contributions, loans, return of monies received pursuant to the terms of this Agreement or otherwise. Each Member shall be required to make additional Capital Contributions at such times and in such amounts as may be approved by the Members unanimously. The existence of liabilities of the Company in excess of the amount of assets available to discharge such liabilities shall not, in the absence of a call by the Members for further contributions, create a liability on the part of any Member for additional Capital Contributions to meet such deficit. The obligations of Members to make additional Capital Contributions and their liability to the Company and other Members with respect thereto shall not confer any rights on any third parties. Unless otherwise determined by the Members unanimously, all additional Capital Contributions shall be made in proportion to the relative Capital Percentages of the Members. 4.3 Record of Contributions. The books and records of the Company shall reflect the amount of cash, cash equivalents and the fair value of any other property contributed by each Member to the Company. 4.4 Interest. No interest shall be paid by the Company on Capital Contributions. 4.5 Withdrawal or Reduction of Members' Capital Contributions. (a) A Member shall not be entitled to withdraw any part of its Capital Contribution or to receive any distribution from the Company, except as otherwise provided in this Agreement. (b) A Member shall not receive out of the Company's property any part of its Capital Contributions until all liabilities of the Company, except liabilities to Members on account of their Capital Contributions, have been paid or there remains property of the Company sufficient to pay them. (c) A Member, irrespective of the nature of its Capital Contribution, shall have no right to receive anything other than cash upon any return of its Capital Contribution provided for by this Agreement. - 10 - 16 4.6 Loans to Company. Nothing in this Agreement shall prevent any Member from making secured or unsecured loans to the Company by agreement with the Company. Loans by a Member to the Company shall not be considered Capital Contributions. 4.7 Borrowing. In the event that the Company, in order to discharge costs, expenses or indebtedness, requires funds in excess of the funds provided by Capital Contributions of the Members and by revenues, the Board of Directors shall be authorized, at any time and from time to time, but subject to the other provisions of this Agreement, to cause the Company to borrow additional funds, as shall in the judgment of the Board of Directors be sufficient for such purposes and upon such terms as the Board of Directors may deem advisable. ARTICLE V RIGHTS AND OBLIGATIONS OF MEMBERS 5.1 Limitation of Members' Responsibility, Liability. The Members shall not perform any act on behalf of the Company, incur any expense, obligation or indebtedness of any nature on behalf of the Company, or in any manner participate in the management of the Company, except as specifically contemplated hereunder. No Member shall be liable under a judgment, decree or order of a court, or in any other manner, except as agreed to by any such Member, for the indebtedness or any other obligations or liabilities of the Company or liable, responsible or accountable in damages to the Company or its Members for breach of fiduciary duty as a Member, for any acts performed within the scope of the authority conferred on it by this Agreement, or for its failure or refusal to perform any acts except those expressly required by or pursuant to the terms of this Agreement, or for any debt or loss in connection with the affairs of the Company, except as required by the Delaware Act. 5.2 Return of Distributions. In accordance with Section 18-607 of the Delaware Act, a Member will be obligated to return any distribution from the Company only as provided by applicable law. 5.3 Priority and Return of Capital. Except as may be provided in this Agreement, no Member shall have priority over any other Member, either as to the return of Capital Contributions or as to profits, losses or distributions; provided that this Section shall not apply to loans (as distinguished from Capital Contributions) that a Member has made to the Company. 5.4 Competition. Except as otherwise expressly provided in this Agreement, each Member may engage in or possess an interest in any other business venture or ventures, including any activity that is competitive with the Company without offering any such opportunity to the Company, and neither the Company nor the other Member shall have any rights in or to such venture or ventures or activity or the income or profits derived therefrom. - 11 - 17 5.5 Admission of Additional Members. The Company shall not admit additional Members without the prior written consent of all of the Members. 5.6 Resignation. Without the prior approval of all other Members, no Member may resign from the Company. 5.7 Indemnification. To the extent permitted by law, the Company shall (to the extent of the assets of the Company) indemnify, defend and hold harmless each Member and each officer, employee and director of such Member from and against all losses, expenses, claims or liabilities, including reasonable attorneys' fees and disbursements, arising out of or in connection with the indebtedness or any other obligation or liabilities of the Company, other than losses, expenses, claims or liabilities of such indemnified Member which result from a violation in any material respect of any of the provisions of this Agreement or fraud, willful misconduct, gross negligence or misappropriation of funds. The foregoing indemnity expressly includes an indemnity with respect to the negligence (excluding the gross negligence) of a Member. ARTICLE VI MEETINGS OF MEMBERS 6.1 Meetings. Meetings of the Members, for any purpose or purposes, unless otherwise prescribed by law, may be called by the Chairman of the Board of Directors or the President of the Company or by any Member. The chairperson at any meeting shall be designated by the Chairman of the Board of Directors or the President of the Company. 6.2 Place of Meetings. Meetings of the Members shall be held at the principal place of business of the Company or at such other place as may be designated by the Chairman of the Board of Directors or the President of the Company. 6.3 Notice of Meetings. Except as provided in Section 6.4, written notice stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called shall be sent not less than five (5) days before the date of the meeting, either personally, by facsimile or by mail, by or at the direction of the person calling the meeting, to each Member. 6.4 Meeting of All Members. If all of the Members shall meet at any time and place and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any lawful action may be taken. 6.5 Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by all Members and - 12 - 18 delivered to the Secretary or any Assistant Secretary of the Company for inclusion in the minutes or for filing with the Company records. Action taken under this Section is effective when all Members have signed the consent, unless the consent specifies a different effective date. 6.6 Waiver of Notice. When any notice is required to be given to any Member, a waiver thereof in writing signed by the Person entitled to such notice, whether before, at or after the time stated therein, shall be equivalent to the giving of such notice. 6.7 Delegation to Board. Except as may be otherwise specifically provided in this Agreement or the Delaware Act, the Members agree that they shall act solely through the mechanisms provided herein relating to the appointment and authority of the Board of Directors. ARTICLE VII RIGHTS AND DUTIES OF DIRECTORS AND OFFICERS 7.1 Management. Subject to any powers reserved to the Members under this Agreement, the powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed by, a Board of Directors consisting of at least one Director, which shall be responsible for the management and operations of the Company and shall have all powers necessary to manage and control the Company, to conduct its business, and to implement any decision of the Members adopted pursuant to this Agreement. In managing the business and affairs of the Company and exercising its powers, the Board of Directors may delegate power and authority to one or more officers of the Company, who shall exercise such powers and perform such duties as are specified in Section 7.13. The number of Directors constituting the initial Board of Directors shall be [___]. The number of Directors constituting the Board of Directors may be increased or decreased from time to time by resolution of the Members. Except as provided in Section 7.2 hereof, Directors shall be elected by the Members holding a plurality of the Member Interests, and each Director so elected shall hold office for the full term to which he shall have been elected and until his successor is duly elected and qualified, or until his earlier death, resignation or removal. Any Director may resign at any time upon notice to the Company. A Director need not be a Member of the Company or a resident of the State of Delaware. 7.2 Vacancies. Any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by an affirmative vote of a majority of the remaining Directors then in office, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office for the remainder of the full term in which the new directorship was created or the vacancy occurred and until such Director's successor is duly elected and qualified, or until his earlier death, resignation or removal. - 13 - 19 7.3 Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined, notices thereof need not be given. 7.4 Special Meetings. Special meetings of the Board of Directors may be held at any time, whenever called by the Chairman of the Board of Directors, the President of the Company or a majority of Directors then in office, at such place or places within or without the State of Delaware as may be stated in the notice of the meeting. Notice of the time and place of a special meeting must be given by the person or persons calling such meeting at least twenty-four (24) hours, before the special meeting. The attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the sole purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 7.5 Meetings by Conference Telephone. Unless otherwise restricted by this Agreement or the Delaware Act, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all Persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7.5 shall constitute presence in person at such meeting. 7.6 Quorum: Vote Required for Action. Except as may be otherwise specifically provided by law or this Agreement, at all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. The vote of a majority of the Directors present at any meeting of the Board of Directors at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 7.7 Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board of Directors, or, in his absence, by the President of the Company. The Secretary of the Company shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any Person to act as secretary of the meeting. 7.8 Actions of the Board by Consent in Lieu of Meeting. Unless otherwise restricted by this Agreement or the Delaware Act, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without - 14 - 20 a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. 7.9 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the Directors of the Company. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any absent or disqualified member. Any committee, to the extent provided in the resolution of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law, nor shall such committee function where action of the Board of Directors is required under applicable law. The Board of Directors shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the members of any such committee shall constitute a quorum. Each such committee may elect a chairman and appoint such subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors, meetings of any committee shall be conducted in the same manner as the Board of Directors conducts its business pursuant to this Agreement, as the same shall from time to time be amended. Any member of any such committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of a member of a committee shall not of itself create contract rights. 7.10 Compensation and Reimbursement of Expenses. The Directors shall receive such compensation for their services as shall be determined by the Board of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors as a stated salary as Director. No such reimbursement shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. - 15 - 21 Members of special or standing committees may be allowed like reimbursement for attending committee meetings. 7.11 Powers of Board of Directors. Without limiting the generality of Section 7.1, the Board of Directors shall have power and authority to cause the Company to take any of the following actions: (a) To construct, operate, maintain, improve, expand, buy, acquire, own, hold, sell, convey, assign, mortgage, finance, refinance, rent or lease real or personal property, foreign or domestic, in the name of the Company; (b) To incur debt or liabilities, secured or unsecured, on behalf of the Company and to secure the same by mortgaging, assigning for security purposes, pledging, or otherwise hypothecating, all or any part of the property and assets of the Company (and in connection therewith to place record title to any such property or assets in the name or names of a nominee or nominees); (c) To purchase liability and other insurance to protect the Company's property and business; (d) To invest any Company funds temporarily (by way of example but not limitation) in time deposits, short-term governmental obligations, commercial paper or other investments, and to pay and otherwise perform the Company's debts, liabilities and other obligations; (e) To sell or otherwise dispose of the assets of the Company; (f) To execute on behalf of the Company instruments and other documents, including, without limitation, checks, drafts, notes and other negotiable instruments, mortgages or deeds of trust, security agreements, financing statements, documents providing for the acquisition, mortgage or disposition of the Company's property, assignments, bills of sale, leases, partnership agreements, and other instruments or documents necessary or appropriate to the business of the Company (including any agreement between the Company and one or more Members and any agreements between the Company and the Directors or officers including indemnification agreements providing for the advancement of expenses, among other things); (g) To employ accountants, legal counsel, managing agents or other experts to perform services for the Company; (h) To execute, deliver, enter into, perform and carry out any and all other agreements and contracts on behalf of the Company, with any other Person for any purpose, in such forms as the Board of Directors may approve; - 16 - 22 (i) To bring, defend and settle actions and suits at law, in equity or otherwise and to pursue appeals thereof; (j) To adopt policies and guidelines for the Company consistent with this Agreement; (k) To issue Member Interests or other equity securities; and (l) To do and perform all other acts as may be necessary or appropriate to the conduct of the Company's business. Unless authorized to do so by this Agreement (reference being made specifically to the authority conferred upon officers pursuant to Section 7.13) or by the Board of Directors, no Member, agent or employee of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose. 7.12 Liability of Directors. No Director shall be liable under any judgment, decree or order of a court, or in any other manner, for any debt, obligation or liability of the Company by reason of his acting as a Director of the Company. A Director of the Company shall not be personally liable to the Company or its Members for monetary damages for breach of fiduciary duty as a Director, except for (i) liability for any acts or omissions which involve intentional misconduct, fraud or a knowing violation of law or (ii) for a distribution, redemption or purchase of or with respect to Member Interests in violation of Delaware Law. If the laws of the State of Delaware are amended after the date of this Agreement to authorize action further eliminating or limiting the personal liability of a Director, then the liability of a Director of the Company, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended laws of the State of Delaware. Any repeal or modification of this Section 7.12 shall be prospective only, and shall not adversely affect any limitation on the personal liability of a Director of the Company existing at the time of such repeal or modification or thereafter arising as a result of acts or omissions prior to the time of such repeal or modification. 7.13 Officers. (a) General. The officers of the Company shall be appointed by the Board of Directors and shall be a President, a Secretary and a Treasurer. Additionally, the Board of Directors, in its discretion, may appoint a Chairman of the Board of Directors (who must be a Director), a Chief Executive Officer, and one or more Vice Presidents (including any Executive Vice President or Assistant Vice President), Assistant Secretaries, Assistant Treasurers and such other officers as the Board of Directors may from time to time designate. Any number of offices may be held by the same person. The salaries of all officers of the Company shall be fixed by the Board of Directors and may be altered by the Board of Directors from time to time except as otherwise provided by contract. All officers shall be - 17 - 23 entitled to be paid or reimbursed for all costs and expenditures incurred on behalf of the Company. (b) Election; Vacancies; Removal. The officers of the Company shall hold their offices for such terms and shall exercise such powers and perform such duties as described in this Agreement and as shall be determined from time to time by the Board of Directors; and all officers of the Company shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Whenever any vacancies shall occur in any office by death, resignation, removal, increase in the number of officers of the Company, or otherwise, the same shall be filled by the Board of Directors, and the officer so appointed shall hold office until his successor is chosen and qualified. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors. Such removal may be with or without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. (c) Chairman of the Board of Directors. The Chairman of the Board of Directors, if any, shall preside, if present, at all meetings of the Board of Directors and shall perform such additional functions and duties as the Board of Directors may prescribe from time to time. (d) Chief Executive Officer. The Chief Executive Officer, who may be the Chairman or Vice Chairman of the Board of Directors and/or the President, shall have general and active management of the business of the Company and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer may sign deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by this Agreement to some other officer or agent of the Company, or shall be required by law to be otherwise signed and executed. The Chief Executive Officer shall also perform all duties incident to the office of Chief Executive Officer and such other duties and may exercise such other powers as may be assigned by this Agreement or prescribed by the Board of Directors from time to time. (e) President. The President shall, subject to the control of the Board of Directors and the Chief Executive Officer, in general, supervise and control all of the business and affairs of the Company. The President shall preside at all meetings of the Members. The President may sign any deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by this Agreement to some other officer or agent of the Company, or shall be required by law to be otherwise signed and executed. The President shall also perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. - 18 - 24 (f) Vice Presidents. Any Vice President, in the order of seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President. They shall also perform the usual and customary duties that pertain to such office and generally assist the President by executing contracts and agreements and exercising such other powers and performing such other duties as are delegated to them by the President and as the Board of Directors may further prescribe. (g) Secretary. The Secretary shall attend, to the extent possible, all meetings of Members and record all the proceedings thereat in a book or books to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the Members, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of meetings of the Members, and if there is no Assistant Secretary, then the Board of Directors or President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Company and the Secretary shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by the signature of the Secretary. The Board of Directors or President may give general authority to any other officer to affix the seal of the Company and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. The duties of the Secretary may be performed by any Assistant Secretary. (h) Treasurer. The Treasurer shall have custody of the funds of the Company as may be entrusted to his or her keeping and account for the same. The Treasurer shall be prepared at all times to give information as to the condition of the Company and shall make an annual report of the entire business and financial condition of the Company. The Treasurer shall also perform, under the direction and subject to the control of the Board of Directors, such other duties as may be assigned to him or her. The duties of the Treasurer may also be performed by any Assistant Treasurer. (i) Assistant Vice Presidents. The Assistant Vice President(s) shall generally assist the President and Vice President(s) and exercise such other powers and perform such other duties as may be prescribed by the Board of Directors from time to time. (j) Assistant Secretaries. Except as may be otherwise provided in this Agreement, any Assistant Secretary shall perform such duties and have such powers as from time to time may be assigned to him or her by the Board of Directors, the President or the Secretary and, in the absence of the Secretary, or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. - 19 - 25 (k) Assistant Treasurers. Except as may be otherwise provided in this Agreement, any Assistant Treasurer shall perform such duties and have such powers as from time to time may be assigned to him or her by the Board of Directors, the President or the Treasurer, if there is one, and, in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. (l) Other Officers. Such other officers as the Board of Directors may appoint shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Company the power to choose such other officers and to prescribe their respective duties and powers. (m) Delegation of Authority. In the case of any absence of any officer of the Company or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate some or all of the powers or duties of such officer to any other officer or to any Director, employee, Member, unitholder or agent for whatever period of time seems desirable. (n) Voting Securities Owned by the Company. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Company may be executed in the name and on behalf of the Company by the Chief Executive Officer, the President or any Vice President, and any such officer may, in the name of and on behalf of the Company, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any entity in which the Company may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Company might have exercised and possessed if present. The Board of Directors may confer like powers upon any other person or persons. 7.14 Member Contributions. The directors and officers of the Company shall not have any personal liability for the repayment of any Capital Contributions of any Member. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. Each person who at any time shall be, or shall have been, Director, officer, employee or agent of the Company, or any person who, while a Director, officer, employee or agent of the Company, is or was serving at the request of the Company as a director, member, manager, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another Entity, shall be entitled to indemnification as and to the fullest extent permitted by the provisions of Delaware Law or any successor statutory - 20 - 26 provisions, as from time to time amended. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which one to be indemnified may be entitled as a matter of law or under this Agreement, any other agreement, by vote of the Members or determination of the Board of Directors or otherwise, both as to any action in an official capacity and as to action in another capacity while holding such office. Any repeal of this Section 8.1 shall be prospective only, and shall not adversely affect any right of indemnification existing at the time of such repeal or modification or thereafter arising as a result of acts or omissions prior to the time of such repeal or modification. 8.2 Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Company. Without limiting the provisions of Section 8.1, subject to Section 8.4 the Company shall indemnify, to the full extent not prohibited by law, any person who was or is a party or is threatened to be made a party (including a witness) to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, member, manager, officer, employee or agent of another Entity, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 8.3 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Company. Without limiting the provisions of Section 8.1, subject to Section 8.4, the Company shall, to the full extent not prohibited by law, indemnify any person who was or is a party or is threatened to be made a party (including a witness) to any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, member, manager, officer, employee or agent of another Entity against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but - 21 - 27 in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. 8.4 Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Company as permitted by Delaware Law or as authorized in the specific case upon a determination that indemnification is proper in the circumstances because it is permitted under Delaware Law or the applicable standards of conduct set forth in Section 8.2 or Section 8.3, as the case may be, have been met. Such determination shall be made, in the case of any Director or officer, (i) by a vote of the disinterested Directors, (ii) if a majority of Directors are not disinterested by independent legal counsel in a written opinion or (iii) by the Members. Such determination shall be made, in the case of an employee or agent of the Company who is not a Director or officer of the Company, as specified in the preceding sentence or by the President or any officer authorized by the President. To the extent, however, that the Director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. 8.5 Good Faith Defined. For purposes of any determination under this Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any of the other Directors, Members, officers, employees or committees of the Company or by any other person as to matters the person seeking indemnification reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of assets, liabilities, profits or losses of the Company or any other facts pertinent to the existence and amount of assets from which distributions to the Members might properly be paid. The provisions of this Section 8.5 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standards of conduct set forth in the provisions of Delaware Law, or in Section 8.2 or Section 8.3, as the case may be. 8.6 Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 8.4, and notwithstanding the absence of any determination thereunder, any Director, officer, employee or agent may apply to any court of competent jurisdiction for indemnification to the extent otherwise permissible under Delaware Law or this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the Director, officer, employee or agent is proper in the circumstances because it is permitted under the provisions of the Delaware Law, or the - 22 - 28 Director, officer, employee or agent has met the applicable standards of conduct set forth in Section 8.2 or Section 8.3, as the case may be. Notice of any application for indemnification pursuant to this Section 8.6 shall be given to the Company promptly upon the filing of such application. 8.7 Advancement or Reimbursement of Expenses. The Company shall pay in advance or reimburse expenses actually or reasonably incurred or anticipated by such Director or officer in connection with his appearance as a witness or other participation in a proceeding whether or not such Director or officer is a named defendant or a respondent in the proceeding. To obtain indemnification or an expense advance, the person requesting indemnification shall submit to the Company a written request with such information as is reasonably available to him. If the expense advance is to be paid prior to final disposition of the proceeding, there shall be included a written statement of such person's good faith belief that he has met the necessary standard of conduct under the Delaware Law and an undertaking to repay any amount paid if it is ultimately determined that those conduct requirements were not met. If, within sixty days of the Company's receipt of the request, the request for payment is not acted on or the Company refuses to indemnify or advance expenses as required by this Article VIII, such person shall have the right to an adjudication in any court of competent jurisdiction of such person's entitlement to such indemnification or expense advance. 8.8 Nonexclusivity and Survival of Indemnification. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VIII shall not be deemed exclusive of any other rights to which one seeking indemnification and advancement of expenses may be entitled under this Agreement, any other agreement, by vote of Members or determination of the Board of Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Company that indemnification of any person specified in this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in this Article VIII but whom the Company has the power or obligation to indemnify under the provisions of the Delaware Act or otherwise. 8.9 Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a Member, Director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a member, manager, director, officer, employee or agent of an Entity against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII. 8.10 Terms. For purposes of this Article VIII, references to "the Company" shall include, in addition to the resulting limited liability company, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, which, if - 23 - 29 its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent entity, or is or was serving at the request of such constituent entity as a director, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Article VIII in respect of the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. ARTICLE IX ALLOCATIONS 9.1 Profits. For After giving effect to the special allocations set forth in Sections 9.3 and 9.4, Profits for any Allocation Year shall be allocated to the Members in proportion to their Capital Percentages. 9.2 Losses. After giving effect to the special allocations set forth in Sections 9.3 and 9.4 and subject to Section 9.5, Losses for any Allocation Year shall be allocated to the Members in proportion to their Capital Percentages. 9.3 Special Allocations. The following special allocations shall be made in the following order: (a) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 9, if there is a net decrease in Company Minimum Gain during any Allocation Year, each Member shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, subsequent Allocation Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(f)(6) and 1.704-2(j) (2) of the Regulations. This Section 9.3(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith. (b) Member Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 9, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such Allocation Year (and, if necessary, - 24 - 30 subsequent Allocation Years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704- 2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 9.3(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith. (c) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of the Member as quickly as possible, provided that an allocation pursuant to this Section 9.3(c) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 9 have been tentatively made as if this Section 9.3(c) were not in the Agreement. (d) Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any Allocation Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 9.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 9 have been made as if Section 9.3(c) and this Section 9.3(d) were not in the Agreement. (e) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Members in proportion to their respective Capital Percentages. (f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Allocation Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1). (g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member's interest in the Company, the amount of - 25 - 31 such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. (h) Allocations Relating to Taxable Issuance of Member Interests. Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of Member Interests by the Company to a Member (the "Issuance Items") shall be allocated among the Members so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Member shall be equal to the net amount that would have been allocated to each such Member if the Issuance Items had not been realized. 9.4 Curative Allocations. The allocations set forth in Sections 9.3(a), 9.3(b), 9.3(c), 9.3(d), 9.3(e), 9.3(f), 9.3(g) and 9.5 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 9.4. Therefore, notwithstanding any other provision of this Section 9 (other than the Regulatory Allocations), the Board of Directors shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 9.1, 9.2, and 9.3(h). 9.5 Loss Limitation. Losses allocated pursuant to Section 9.2 hereof shall not exceed the maximum amount of Losses that can be allocated without causing any Member to have an Adjusted Capital Account Deficit at the end of any Allocation Year. In the event some but not all of the Members would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 9.2 hereof, the limitation set forth in this Section 9.5 shall be applied on a Member by Member basis and Losses not allocable to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Member's Capital Accounts so as to allocate the maximum permissible Losses to each Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations. 9.6 Other Allocation Rules. (a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by Board of Directors using any permissible method under Code Section 706 and the Regulations thereunder. - 26 - 32 (b) The Members are aware of the income tax consequences of the allocations made by this Section 9 and hereby agree to be bound by the provisions of this Section 9 in reporting their shares of Company income and loss for income tax purposes. (c) Solely for purposes of determining a Member's proportionate share of the "excess nonrecourse liabilities" of the Company within the meaning of Regulations Section 1.752-3(a)(3), the Members' interests in Company profits are in proportion to their Capital Percentages. To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Board of Directors shall endeavor to treat distributions of Net Cash Flow as having been made from the proceeds of a Nonrecourse Liability or a Member Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Member. 9.7 Tax Allocations: Code Section 704(c). In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition of Gross Asset Value). In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Board of Directors in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 9.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. ARTICLE X NET CASH FLOW AND DISTRIBUTIONS 10.1 Free Cash Flow. "Free Cash Flow" shall mean all income and revenues of the Company less (i) all expenses and costs, (ii) all accrued and unpaid or unfunded costs and expenses, (iii) all principal and interest paid or payable on indebtedness and (iv) all - 27 - 33 reasonable reserves established by the Board of Directors for working capital requirements, to pay costs or expenses, for debt service or to provide funds for other contingencies. 10.2 Distributions of Free Cash Flow. The Board of Directors shall determine the availability of Free Cash Flow for distribution, and shall distribute such available Free Cash Flow at such reasonable intervals as it may select. To the extent Free Cash Flow is distributed, such distributions shall be made to the Members in accordance with their respective Capital Percentages. 10.3 Limitation Upon Distributions. No distribution shall be declared and paid unless, after the distribution is made, the fair value of the assets of the Company are in excess of the fair value of all liabilities of the Company, except liabilities to Members on account of their Capital Contributions and liabilities for which the recourse of creditors is limited to a specified property of the Company. ARTICLE XI ACCOUNTING METHOD, PERIOD, RECORDS AND REPORTS 11.1 Accounting Method. The books and records of account of the Company shall be maintained in accordance with the accrual method of accounting. 11.2 Accounting Period. The Company's accounting period shall be the Fiscal Year. 11.3 Records, Audits and Reports. At the expense of the Company, the Board of Directors shall maintain books and records of account of all operations and expenditures of the Company. 11.4 Inspection. The books and records of account of the Company shall be maintained at the principal place of business of the Company or such other location as shall be determined by the Board of Directors and shall be open to inspection by the Members at all reasonable times during any business day. 11.5 Preparation of Financial Statements. The Board of Directors shall cause to be prepared from the books of the Company and sent to the Members quarterly (a) a balance sheet as at the end of such period, (b) statements of net profit or loss and cash flow of the Company for such period and (c) statements of the aggregate amounts distributed to the Members pursuant to this Agreement for such period and the Members' respective shares thereof for such period. - 28 - 34 ARTICLE XII TAX MATTERS 12.1 Tax Elections. The Board of Directors shall, without any further consent of the Members being required (except as specifically required herein), make any and all elections for federal, state, local, and foreign tax purposes including, without limitation, any election, if permitted by applicable law: (i) to adjust the basis of Property pursuant to Code Sections 754, 734(b) and 743(b), or comparable provisions of state, local or foreign law, in connection with transfers of Member Interests and Company distributions; (ii) with the consent of all of the Members, to extend the statute of limitations for assessment of tax deficiencies against the Members with respect to adjustments to the Company's federal, state, local or foreign tax returns; and (iii) to the extent provided in Code Sections 6221 through 6231 and similar provisions of federal, state, local, or foreign law, to represent the Company and the Members before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Members in their capacities as Members, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Members with respect to such tax matters or otherwise affect the rights of the Company and the Members. [___] is specifically authorized to act as the "Tax Matters Member" under the Code and in any similar capacity under state or local law. 12.2 Tax Information. Necessary tax information shall be delivered to each Member as soon as practicable after the end of each Fiscal Year of the Company but not later than five (5) months after the end of each Fiscal Year. ARTICLE XIII RESTRICTIONS ON TRANSFERABILITY 13.1 Transfer Restrictions. Except as otherwise provided herein, no Member shall be permitted to sell, assign, transfer or otherwise dispose of, or mortgage, hypothecate or otherwise encumber, or permit or suffer any encumbrance of, all or any portion of its Member Interest without the prior written consent of all other Members (which consent may be withheld in the sole discretion of such Members). - 29 - 35 ARTICLE XIV DISSOLUTION AND TERMINATION 14.1 Dissolution Events. (a) Dissolution. The Company shall dissolve and shall commence winding up and liquidating upon the first to occur of any of the following (each a "Dissolution Event"): (i) The unanimous vote of the Members to dissolve, wind up, and liquidate the Company; (ii) A judicial determination that an event has occurred that makes it unlawful, impossible or impractical to carry on the Business; or (iii) The Bankruptcy, dissolution, retirement, resignation or expulsion of any Member; provided, that any such event will not be deemed a Dissolution Event in the event that there are at least two remaining Members and each remaining Member agrees to continue the business of the Company within ninety (90) days after the occurrence of such an event. The Members hereby agree that, notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Dissolution Event. (b) Reconstitution. If it is determined, by a court of competent jurisdiction, that the Company has dissolved prior to the occurrence of a Dissolution Event, then within an additional ninety (90) days after such determination (the "Reconstitution Period"), all of the Members may elect to reconstitute the Company and continue its business on the same terms and conditions set forth in this Agreement by forming a new limited liability company on terms identical to those set forth in this Agreement. Unless such an election is made within the Reconstitution Period, the Company shall liquidate and wind up its affairs in accordance with Section 14.2 hereof. If such an election is made within the Reconstitution Period, then: (i) The reconstituted limited liability company shall continue until the occurrence of a Dissolution Event as provided in Section 14.1(a); (ii) Unless otherwise agreed to by a majority of the Members, the Certificate of Formation and this Agreement shall automatically constitute the Certificate of Formation and Agreement of such new Company. All of the assets and liabilities of the dissolved Company shall be deemed to have been automatically assigned, assumed, conveyed and transferred to the new Company. No bond, collateral, assumption or release of any Member's or the Company's liabilities shall be required; - 30 - 36 provided that the right of the Members to select successor managers and to reconstitute and continue the Business shall not exist and may not be exercised unless the Company has received an opinion of counsel that the exercise of the right would not result in the loss of limited liability of any Member and neither the Company nor the reconstituted limited liability company would cease to be treated as a partnership for federal income tax purposes upon the exercise of such right to continue. 14.2 Winding Up. Upon the occurrence of (i) a Dissolution Event or (ii) the determination by a court of competent jurisdiction that the Company has dissolved prior to the occurrence of a Dissolution Event (unless the Company is reconstituted pursuant to Section 14.1(b) hereof), the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members, and no Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company's business and affairs, provided that all covenants contained in this Agreement and obligations provided for in this Agreement shall continue to be fully binding upon the Members until such time as the Property has been distributed pursuant to this Section 14.2 and the Certificate of Formation has been canceled pursuant to the Delaware Act. The Liquidator shall be responsible for overseeing the winding up and dissolution of the Company, which winding up and dissolution shall be completed within ninety (90) days of the occurrence of the Dissolution Event and within ninety (90) days after the last day on which the Company may be reconstituted pursuant to Section 14.1(b) hereof. The Liquidator shall take full account of the Company's liabilities and Property and shall cause the Property or the proceeds from the sale thereof (as determined pursuant to Section 14.10 hereof), to the extent sufficient therefor, to be applied and distributed, to the maximum extent permitted by law, in the following order: (a) First, to creditors (including Members who are creditors, to the extent otherwise permitted by law) in satisfaction of all of the Company's Debts and other liabilities (whether by payment or the making of reasonable provision for payment thereof), other than liabilities for which reasonable provision for payment has been made and liabilities for distribution to Members under Section 18-601 or 18-604 of the Delaware Act; (b) Second, except as provided in this Agreement, to Members and former Members of the Company in satisfaction of liabilities for distribution under Sections 18-601 or 18-604 of the Delaware Act; and (c) The balance, if any, to the Members in accordance with the positive balance in their Capital Accounts, after giving effect to all contributions, distributions and allocations for all periods. No Member shall receive additional compensation for any services performed pursuant to this Article XIV. - 31 - 37 14.3 Compliance With Certain Requirements of Regulations; Deficit Capital Accounts. In the event the Company is "liquidated" within the meaning of Regulations Section 1.704- 1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XIV to the Members who have positive Capital Accounts in compliance with Regulations Section 1.704- 1(b)(2)(ii)(b)(2). If any Member has a deficit balance in his Capital Account (after giving effect to all contributions, distributions and allocations for all Allocation Years, including the Allocation Year during which such liquidation occurs), such Member shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Members pursuant to this Article XIV may be: (a) Distributed to a trust established for the benefit of the Members for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company. The assets of any such trust shall be distributed to the Members from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Members pursuant to Section 14.2 hereof; or (b) Withheld to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld amounts shall be distributed to the Members as soon as practicable. 14.4 Deemed Distribution and Recontribution. Notwithstanding any other provision of this Article XIV, in the event the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has occurred, the Property shall not be liquidated, the Company's Debts and other liabilities shall not be paid or discharged, and the Company's affairs shall not be wound up. Instead, solely for federal income tax purposes, the Company shall be deemed to have contributed all of its Property and liabilities to a new limited liability company in exchange for an interest in such new company and, immediately thereafter, the Company will be deemed to liquidate by distributing interests in the new company to the Members. 14.5 Rights of Members. Except as otherwise provided in this Agreement, each Member shall look solely to the Property of the Company for the return of its Capital Contribution and has no right or power to demand or receive Property other than cash from the Company. If the assets of the Company remaining after payment or discharge of the debts or liabilities of the Company are insufficient to return such Capital Contribution, the Members shall have no recourse against the Company or any other Member. - 32 - 38 14.6 Notice of Dissolution/Termination. (a) In the event a Dissolution Event occurs or an event occurs that would, but for provisions of Section 14.1, result in a dissolution of the Company, the Board of Directors shall, within thirty (30) days thereafter, provide written notice thereof to each of the Members and to all other parties with whom the Company regularly conducts business (as determined in the discretion of the Board of Directors) and shall publish notice thereof in a newspaper of general circulation in each place in which the Company regularly conducts business (as determined in the discretion of the Board of Directors). (b) Upon completion of the distribution of the Company's Property as provided in this Article XIV, the Company shall be terminated, and the Liquidator shall cause the filing of the certificate of cancellation pursuant to Section 18-203 of the Delaware Act and shall take all such other actions as may be necessary to terminate the Company. 14.7 Allocations During Period of Liquidation. During the period commencing on the first day of the Fiscal Year during which a Dissolution Event occurs and ending on the date on which all of the assets of the Company have been distributed to the Members pursuant to Section 14.2 hereof (the "Liquidation Period"), the Members shall continue to share Profits, Losses, gain, loss and other items of Company income, gain, loss or deduction in the manner provided in Section 9 hereof. 14.8 Character of Liquidating Distributions. All payments made in liquidation of the interest of a Member in the Company shall be made in exchange for the interest of such Member in Property pursuant to Section 736(b)(1) of the Code, including the interest of such Member in Company goodwill. 14.9 The Liquidator. (a) Definition. The "Liquidator" shall mean a Person appointed by the Board of Directors to oversee the liquidation of the Company. (b) Fees. The Company is authorized to pay a reasonable fee to the Liquidator for its services performed pursuant to this Article XIV and to reimburse the Liquidator for its reasonable costs and expenses incurred in performing those services. (c) Indemnification. The Company shall indemnify, save harmless, and pay all judgments and claims against such Liquidator or any officers, directors, agents or employees of the Liquidator relating to any liability or damage incurred by reason of any act performed or omitted to be performed by the Liquidator, or any officers, directors, agents or employees of the Liquidator in connection with the liquidation of the Company, including reasonable attorneys' fees incurred by the Liquidator, officer, director, agent or employee in connection with the defense of any action based on any such act or omission, which attorneys' fees may - 33 - 39 be paid as incurred, except to the extent such liability or damage is caused by the fraud or intentional misconduct of, or a knowing violation of the laws by, the Liquidator which was material to the cause of action. 14.10 Form of Liquidating Distributions. For purposes of making distributions required by Section 14.2 hereof, the Liquidator may determine whether to distribute all or any portion of the Property in-kind or to sell all or any portion of the Property and distribute the proceeds therefrom. ARTICLE XV MISCELLANEOUS PROVISIONS 15.1 Notices. Any notice, demand or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered in writing personally to the party or to an executive officer of the party to whom the same is directed or if sent by recognized overnight courier or registered or certified mail, postage and charges prepaid, addressed to the Member's and/or Company's address, as appropriate, which is set forth in this Agreement. If mailed, any such written notice shall be deemed to be delivered two calendar days after being deposited in the United States mail with postage thereon prepaid, addressed and sent as aforesaid. If sent by recognized overnight courier, any such written notice shall be deemed to be delivered the date such overnight delivery is delivered or its delivery is attempted. 15.2 Application of Delaware Law. This Agreement, and the application of interpretation hereof, shall be governed exclusively by its terms and by the laws of the State of Delaware, and specifically the Delaware Act. 15.3 Waiver of Action for Partition. Each Member hereby irrevocably waives, during the term of the Company, any right that such Member may have to maintain any action for partition with respect to the property of the Company. 15.4 Execution of Additional Instruments. Each Member hereby agrees to execute such other and further statements of interest and holdings, designations, powers of attorney and other instruments necessary to comply with any laws, rules or regulations. 15.5 Headings. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 15.6 Waivers. No waiver of any right under this Agreement shall be effective unless evidenced in writing and executed by the Person entitled to the benefits thereof. The - 34 - 40 failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent another act or omission, which would have originally constituted a violation, from having the effect of an original violation. 15.7 Rights and Remedies Cumulative. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive the right to use any or all other rights or remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. 15.8 Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law. 15.9 Heirs, Successors and Assigns. Each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns. 15.10 Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any Person other than the parties hereto. 15.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 15.12 Amendments. This Agreement may not be amended except by an instrument in writing signed by all of the Members. 15.13 Waiver of Consequential and Punitive Damages. No party to this Agreement shall be liable to any other party for indirect, consequential or punitive damages resulting from or arising out of this Agreement, including, but not limited to, loss of use of property, loss of profits, loss of products or business interruption. 15.14 Other Terms. Unless the context shall require otherwise: (a) Words importing the singular number or plural number shall include the plural number and singular number respectively; (b) Words importing the masculine gender shall include the feminine and neuter genders and vice versa; - 35 - 41 (c) Reference to "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation;" (d) Reference in this Agreement to "herein," "hereby" or "hereunder", or any similar formulation, shall be deemed to refer to this Agreement as a whole, including the Exhibits; and (e) Reference to "or" shall be deemed to mean "and/or." - 36 - 42 EXECUTED as of this ____th day of ______, 1998. GPPW, INC. By: /s/ Faith Rosenfeld ----------------------- Name: Faith Rosenfeld Title: President GPPD, INC. By: /s/ Faith Rosenfeld ----------------------- Name: Faith Rosenfeld Title: President SIGNATURE PAGE TO LIMITED LIABILITY COMPANY AGREEMENT OF GENERAL PORTABLE PRODUCTS, LLC EX-3.7 8 ARTICLES OF INCORPORATION 1 EXHIBIT 3.7 ARTICLES OF INCORPORATION OF GPPW, INC. The undersigned, an individual, does hereby act as incorporator in adopting the following Articles of Incorporation for the purpose of organizing a business corporation (hereinafter called the "CORPORATION") pursuant to the provisions of the Wisconsin Business Corporation Law. FIRST: The Corporation is incorporated under the Wisconsin Business Corporation Law. SECOND: The corporate name of the Corporation is GPPW, Inc. THIRD: The number of shares that the Corporation is authorized to issue is 1,000, all of which are of par value of $.01 dollars each and are of the same class and are to be Common shares. FOURTH: The street address of the initial registered office of the Corporation in the State of Wisconsin is 25 West Main Street, Madison, Wisconsin 53703. The name of the initial registered agent of the Corporation at the said registered office is CSC-Lawyers Incorporating Service Company. FIFTH: The name and the address of the incorporator is: NAME ADDRESS Andrew Metcalf c/o King & Spalding 1185 Avenue of the Americas New York, New York 10036 SIXTH: The purposes for which the Corporation is organized, which shall include the authority of the Corporation to engage in any lawful business as provided in Section 180.0301 of the Wisconsin Business Corporation Law, are as follows: To have all of the general powers granted to corporations organized under the Wisconsin Business Corporation Law, whether granted by specific statutory authority or by construction of law. 2 2 SEVENTH: Except as may otherwise be provided by Section 180.0704 of the Wisconsin Business Corporation Law, and subject to the applicable requirements of that Section, action required or permitted by the Wisconsin Business Corporation Law to be taken at a shareholders' meeting may be taken without a meeting by shareholders who would be entitled to vote at a meeting those shares with voting power to cast not less than the minimum number or, in the case of voting by voting groups, the minimum numbers of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. EIGHTH: The Corporation shall, to the fullest extent permitted by the provisions of the Wisconsin Business Corporation Law, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said provisions from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said provisions, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, vote of shareholders or disinterested directors, or otherwise, both as to action in the indemnified person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent. 3 3 NINTH: The duration of the Corporation shall be perpetual. Signed on May 21, 1998. /s/ Andrew M. Metcalf ---------------------------- Andrew Metcalf, Incorporator This document was drafted by Andrew Metcalf c/o CSC-Lawyers Incorporation Service Company Address: 25 West Main Street Madison, Wisconsin 53703 EX-3.8 9 BY-LAWS 1 EXHIBIT 3.8 BY-LAWS OF GPPW, INC. (A WISCONSIN CORPORATION) 2 BY-LAWS OF GPPW, INC. (A WISCONSIN CORPORATION) Introduction - Variable References 0.01 Date of annual shareholders' meeting (See Section 2.01): 10:00 a.m. second Tuesday April each year (HOUR) (DAY) (MONTH) (FIRST YEAR) 0.02 Required notice of shareholders' meeting (See Section 2.04): not less than ten (10) days. 0.03 Authorized number of Directors (See Section 3.01): one (1). 0.04 Required notice of Directors' meeting (See Section 3.05): not less than one (1) hour, but not less than two (2) days if given by mail. 3 TABLE OF CONTENTS ARTICLE I. OFFICES 1.01 Principal and Business Offices................................................................ 1 1.02 Registered Office............................................................................. 1 ARTICLE II. SHAREHOLDERS 2.01 Annual Meeting................................................................................ 1 2.02 Special Meeting............................................................................... 1 2.03 Place of Meeting.............................................................................. 1 2.04 Notice of Meeting............................................................................. 2 2.05 Fixing of Record Date......................................................................... 2 2.06 Voting Record................................................................................. 3 2.07 Quorum and Voting Requirements; Postponements; Adjournments.................................................................................. 3 2.08 Conduct of Meetings........................................................................... 5 2.09 Proxies....................................................................................... 5 2.10 Voting of Shares.............................................................................. 5 2.11 Voting of Shares by Certain Holders........................................................... 5 (a) Other Corporations................................................................... 5 (b) Legal Representatives and Fiduciaries................................................ 5 (c) Pledgees............................................................................. 6 (d) Treasury Stock and Subsidiaries...................................................... 6 (e) Minors............................................................................... 6 (f) Incompetents and Spendthrifts........................................................ 6 (g) Joint Tenants........................................................................ 7 2.12 Waiver of Notice by Shareholders.............................................................. 7 2.13 Unanimous Consent Without Meeting............................................................. 7 2.13 Majority Consent Without Meeting.............................................................. 7 ARTICLE III. BOARD OF DIRECTORS 3.01 General Powers and Number..................................................................... 8 3.02 Tenure and Qualifications..................................................................... 8 3.03 Regular Meetings.............................................................................. 8 3.04 Special Meetings.............................................................................. 8 3.05 Notice; Waiver................................................................................ 9 3.06 Quorum........................................................................................ 9 3.07 Manner of Acting.............................................................................. 10 3.08 Conduct of Meetings........................................................................... 10 3.09 Vacancies..................................................................................... 10 3.10 Compensation.................................................................................. 10 3.11 Presumption of Assent......................................................................... 10 3.12 Committees.................................................................................... 11 3.13 Unanimous Consent Without Meeting............................................................. 11
(i) 4 3.14 Meetings By Telephone Or By Other Communication Technology.................................................................................... 11 ARTICLE IV. OFFICERS 4.01 Number........................................................................................ 12 4.02 Election and Term of Office................................................................... 12 4.03 Removal....................................................................................... 12 4.04 Vacancies..................................................................................... 12 4.05 Chairman of the Board......................................................................... 12 4.06 President..................................................................................... 12 4.07 The Executive Vice President.................................................................. 13 4.08 The Vice Presidents........................................................................... 13 4.09 The Secretary................................................................................. 13 4.10 The Treasurer................................................................................. 14 4.11 Assistant Secretaries and Assistant Treasurers................................................ 14 4.12 Other Assistants and Acting Officers.......................................................... 14 4.13 Salaries...................................................................................... 14 ARTICLE V. CONFLICT OF INTEREST TRANSACTIONS, CONTRACTS, LOANS, CHECKS AND DEPOSITS: SPECIAL CORPORATE ACTS 5.01 Conflict of Interest Transactions............................................................. 15 5.02 Contracts..................................................................................... 15 5.03 Loans......................................................................................... 15 5.04 Checks, Drafts, etc........................................................................... 15 5.05 Deposits...................................................................................... 15 5.06 Voting of Securities Owned by this Corporation................................................ 15 ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.01 Certificates for Shares....................................................................... 16 6.02 Facsimile Signatures.......................................................................... 16 6.03 Signature by Former Officers.................................................................. 16 6.04 Transfer of Shares............................................................................ 16 6.05 Restrictions on Transfer...................................................................... 17 6.06 Lost, Destroyed or Stolen Certificates........................................................ 17 6.07 Consideration for Shares...................................................................... 17 6.08 Stock Regulations............................................................................. 17 ARTICLE VII. INDEMNIFICATION 7.01 Indemnification for Successful Defense........................................................ 18 7.02 Other Indemnification......................................................................... 18 7.03 Allowance of Expenses......................................................................... 18
ARTICLE VIII. SEAL ARTICLE IX. AMENDMENTS (ii) 5 9.01 By Shareholders............................................................................... 19 9.02 By Directors.................................................................................. 19 9.03 Implied Amendments............................................................................ 19
(iii) 6 ARTICLE I. OFFICES 1.01 PRINCIPAL AND BUSINESS OFFICES. The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. 1.02 REGISTERED OFFICE. The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II. SHAREHOLDERS 2.01 ANNUAL MEETING. The annual meeting of the shareholders shall be held at the date and hour in each year set forth in Section 0.01, or at such other time and date within 30 days before or after said date as may be fixed by or under the authority of the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Wisconsin, such meeting shall be held on the next succeeding business day. If the election of Directors shall not be held on the day designated herein, or fixed as herein provided, for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. 2.02 SPECIAL MEETING. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by the Wisconsin Business Corporation Law, may be called by the Chairman of the Board of Directors (if one is designated), the President, the Board of Directors, or the holders of at least twenty-five percent (25%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting who sign, date and deliver to the Corporation one or more written demands for the meeting describing one or more purposes for which it is to be held. The record date for determining shareholders 1 7 entitled to demand a special meeting shall be the date that the first shareholder signs the demand. If duly called, the Corporation shall communicate notice of a special meeting as set forth in Section 2.04. 2.03 PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place of meeting for any annual or special meeting. If no designation is made, the place of meeting shall be the principal business office of the Corporation in the State of Wisconsin or such other suitable place in the county of such principal office as may be designated by the person calling such meeting, but any meeting may be adjourned to reconvene at any place designated by vote of a majority of the shares represented thereat. 2.04 NOTICE OF MEETING. Notice may be communicated in person, by telephone, telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier, and, if these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television or other form of public broadcast communication. Such notice stating the place, day and hour of the meeting and, in case of a special meeting, a description of each purpose for which the meeting is called, shall be communicated or sent not less than the number of days set forth in Section 0.02 (unless a longer period is required by the Wisconsin Business Corporation Law or the Articles of Incorporation) nor more than 60 days before the date of the meeting, by or at the direction of the Chairman of the Board (if one is designated), the President, the Secretary, or other Officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Written notice is effective at the earliest of the following: (i) when received; (ii) on deposit in the U.S. mail, if mailed postpaid and correctly addressed; or (iii) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. 2 8 Written notice to a shareholder shall be deemed correctly addressed if it is addressed to the shareholder's address shown in the Corporation's current record of shareholders. Oral notice is effective when communicated and the Corporation shall maintain a record setting forth the date, time, manner and recipient of the notice. 2.05 FIXING OF RECORD DATE. A "shareholder" of the Corporation shall mean the person in whose name shares are registered in the stock transfer books of the Corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with the Corporation. Such nominee certificates, if any, shall be reflected in the stock transfer books of the Corporation. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the Board of Directors shall fix a future date not less than ten days and not more than 70 days prior to the date of any meeting of shareholders for the determination of the shareholders entitled to notice of, or to vote at, such meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the notice of the meeting is mailed shall be the record date for such determination of shareholders. The Board of Directors also may fix a future date as the record date for the purpose of determining shareholders entitled to take any other action or determining shareholders for any other purpose, which record date shall not be more than 70 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall be applied to any adjournment thereof unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The record date for determining shareholders entitled to a distribution or a share dividend shall be the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. 2.06 VOTING RECORD. The Officer or agent having charge of the stock transfer books for shares of the Corporation shall, before each meeting of shareholders, make a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, with the address of and the number of shares held by each. 3 9 The Corporation shall make the shareholders' list available for inspection by any shareholder beginning two business days after the notice of meeting is given for which the list was prepared and continuing to the date of the meeting, at the Corporation's principal office. Such record also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes of the meeting. A shareholder or his or her agent or attorney may, on written demand, inspect and copy the list subject to the requirements set forth in Sections 180.1602 and 180.0720 of the Wisconsin Business Corporation Law. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of shareholders. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at such meeting. 2.07 QUORUM AND VOTING REQUIREMENTS; POSTPONEMENTS; ADJOURNMENTS. Shares entitled to vote as a separate voting group as defined in the Wisconsin Business Corporation Law may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles of Incorporation or the Wisconsin Business Corporation Law provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists, for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the Articles of Incorporation of the Corporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. "Plurality" means that the individuals with the largest number of votes are 4 10 elected as directors up to the maximum number of directors to be chosen at the election. "Voting group" means any of the following: (i) All shares of one or more classes or series that under the Articles of Incorporation or the Wisconsin Business Corporation Law are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. (ii) All shares that under the Articles of Incorporation or the Wisconsin Business Corporation Law are entitled to vote generally on a matter. The Board of Directors acting by resolution may postpone and reschedule any previously scheduled meeting, provided, however, that a special meeting called by at least 10% of the shareholders may not be postponed beyond the 30th day following the originally scheduled meeting. Any meeting may be adjourned from time to time, whether or not there is a quorum: (i) at any time, upon a resolution of shareholders if the votes cast in favor of such resolution by the holders of shares of each voting group entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group; or (ii) at any time prior to the transaction of any business at a meeting which was not called by at least 10% of the shareholders, by the Chairman of the Board (if one is designated), the President or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the Wisconsin Business Corporation Law. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. 2.08 CONDUCT OF MEETINGS. The Chairman of the Board (if one is designated), or in the Chairman's absence, the President, or in the President's absence, the Executive Vice President (if one is designated), or in the Executive Vice President's absence, a Vice President in the order provided under Section 4.08, and in their 5 11 absence, any person chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairman of the meeting, and the Secretary of the Corporation shall act as Secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding Officer may appoint any other person to act as Secretary of the meeting. 2.09 PROXIES. At all meetings of shareholders, a shareholder entitled to vote may vote in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his or her attorney-in-fact. Such proxy appointment is effective when received by the Secretary of the Corporation before or at the time of the meeting. Unless otherwise provided in the appointment form of proxy, a proxy appointment may be revoked at any time before it is voted, either by written notice filed with the Secretary or the acting Secretary of the meeting or by oral notice given by the shareholder to the presiding Officer during the meeting. The presence of a shareholder who has filed his or her proxy appointment shall not of itself constitute a revocation. No proxy appointment shall be valid after eleven months from the date of its execution, unless otherwise provided in the appointment form of proxy. In addition to the presumptions set forth in Section 2.11 below, the Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxy appointments. 2.10 VOTING OF SHARES. Each outstanding share shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any voting group or groups are enlarged, limited or denied by the Articles of Incorporation. 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. (a) Other Corporations. Shares standing in the name of another corporation may be voted either in person or by proxy, by the president of such corporation or any other officer appointed by such president. An appointment form of proxy executed by any principal officer of such other corporation or assistant thereto shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, or the designation of some other person 6 12 by the board of directors or by the by-laws of such other corporation. (b) Legal Representatives and Fiduciaries. Shares held by an administrator, executor, guardian, conservator, trustee in bankruptcy, receiver or assignee for creditors may be voted by him, either in person or by proxy, without a transfer of such shares into his or her name, provided there is filed with the Secretary before or at the time of meeting proper evidence of his or her incumbency and the number of shares held by him or her. Shares standing in the name of a fiduciary may be voted by him or her, either in person or by proxy. An appointment form of proxy executed by a fiduciary shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, that such manner of voting is expressly prohibited or otherwise directed by the document creating the fiduciary relationship. (c) Pledgees. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred; provided, however, a pledgee shall be entitled to vote shares held of record by the pledgor if the Corporation receives acceptable evidence of the pledgee's authority to sign. (d) Treasury Stock and Subsidiaries. Neither treasury shares, nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation is held by this Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares entitled to vote, but shares of its own issue held by this Corporation in a fiduciary capacity, or held by such other corporation in a fiduciary capacity, may be voted and shall be counted in determining the total number of outstanding shares entitled to vote. (e) Minors. Shares held by a minor may be voted by such minor in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the Corporation has received written notice or has actual knowledge that such shareholder is a 7 13 minor. Shares held by a minor may be voted by a personal representative, administrator, executor, guardian or conservator representing the minor if evidence of such fiduciary status is presented and acceptable to the Corporation. (f) Incompetents and Spendthrifts. Shares held by an incompetent or spendthrift may be voted by such incompetent or spendthrift in person or by proxy and no such vote shall be subject to disaffirmance or avoidance, unless prior to such vote the Secretary of the Corporation has actual knowledge that such shareholder has been adjudicated an incompetent or spendthrift or actual knowledge of filing of judicial proceedings for appointment of a guardian. Shares held by an incompetent or spendthrift may be voted by a personal representative, administrator, executor, guardian or conservator representing the minor if evidence of such fiduciary status is presented and acceptable to the Corporation. (g) Joint Tenants. Shares registered in the names of two or more individuals who are named in the registration as joint tenants may be voted in person or by proxy signed by any one or more of such individuals if either (i) no other such individual or his or her legal representative is present and claims the right to participate in the voting of such shares or prior to the vote files with the Secretary of the Corporation a contrary written voting authorization or direction or written denial or authority of the individual present or signing the appointment form of proxy proposed to be voted or (ii) all such other individuals are deceased and the Secretary of the Corporation has no actual knowledge that the survivor has been adjudicated not to be the successor to the interests of those deceased. 2.12 WAIVER OF NOTICE BY SHAREHOLDERS. Whenever any notice whatsoever is required to be given to any shareholder of the Corporation under the Articles of Incorporation or By-laws or any provision of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the shareholder entitled to such notice, shall be deemed equivalent to the giving of such notice and the Corporation shall include copies of such waivers in its corporate records; provided that such waiver in respect to any matter of which notice is required under any provision of the Wisconsin Business Corporation Law, shall contain 8 14 the same information as would have been required to be included in such notice, except the time and place of meeting. A shareholder's attendance at a meeting, in person or by proxy, waives objection to the following: (i) lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (ii) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 2.13 UNANIMOUS CONSENT WITHOUT MEETING. Any action required or permitted by the Articles of Incorporation or By-laws or any provision of law to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. 2.14 MAJORITY CONSENT WITHOUT MEETING. As provided in the Articles of Incorporation of this Corporation, any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by shareholders who would be entitled to vote at a meeting those shares with voting power to cast no less than the minimum number or, in the case of voting by voting groups, numbers of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. Any action so taken must be evidenced by one or more written consents describing the action taken, signed by the number of shareholders necessary to take the action and delivered to the Corporation for inclusion in the corporate records. ARTICLE III. BOARD OF DIRECTORS 3.01 GENERAL POWERS AND NUMBER. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, the Board of Directors, subject to any limitation set forth in the Articles of Incorporation. The number of Directors of the 9 15 Corporation shall be as provided in Section 0.03. The number of Directors may be increased or decreased from time to time by amendment to this Section adopted by the shareholders or the Board of Directors but no decrease shall have the effect of shortening the term of an incumbent director. 3.02 TENURE AND QUALIFICATIONS. Each Director shall hold office until the next annual meeting of shareholders and until his or her successor shall have been elected, or until his or her prior death, resignation or removal. A Director may be removed from office by the shareholders if, at a meeting of shareholders called for that purpose, the number of votes cast to remove the Director exceeds the number of votes cast not to remove him or her; provided, however, if a Director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that Director. A Director may resign at any time by filing his or her written resignation with the Secretary of the Corporation. Directors need not be residents of the State of Wisconsin or shareholders of the Corporation. 3.03 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without other notice than this by-law immediately after the annual meeting of shareholders, and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be announced at such meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without other notice than such resolution. 3.04 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board (if one is designated), President, Secretary or any two Directors. The Chairman of the Board (if one is designated), President, Secretary or Directors calling any special meeting of the Board of Directors may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors called by them, and if no other place is fixed, the place of meeting shall be the principal business office of the Corporation in the State of Wisconsin. 3.05 NOTICE; WAIVER. Notice may be communicated in person, by telephone, telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier, 10 16 and, if these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television or other form of public broadcast communication. Notice of each meeting of the Board of Directors (unless otherwise provided in or pursuant to Section 3.03) shall be communicated to each Director at his or her business address or telephone number or at such other address or telephone number as such Director shall have designated in writing filed with the Secretary, in each case not less than that number of hours prior thereto as set forth in Section 0.04. Written notice is effective at the earliest of the following: (i) when received; (ii) on deposit in the U.S. Mail, if mailed postpaid and correctly addressed; or (iii) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Oral notice is effective when communicated and the Corporation shall maintain a record setting forth the date, time, manner and recipient of the notice. Whenever any notice whatsoever is required to be given to any Director of the Corporation under the Articles of Incorporation or By-laws or any provision of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the Director entitled to such notice, shall be deemed equivalent to the giving of such notice, and the Corporation shall retain copies of such waivers in its corporate records. A Director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the Director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assert to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 3.06 QUORUM. Except as otherwise provided by the Wisconsin Business Corporation Law or by the Articles of Incorporation or the By-laws, a majority of the number of Directors 11 17 as provided in Section 0.03 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a majority of the Directors present or participating (though less than such quorum) may adjourn the meeting from time to time without further notice. 3.07 MANNER OF ACTING. If a quorum is present or participating when a vote is taken, the affirmative vote of a majority of Directors present or participating is the act of the Board of Directors or a committee of the Board of Directors, unless the Wisconsin Business Corporation Law or the Articles of Incorporation or the By-laws require the vote of a greater number of Directors. 3.08 CONDUCT OF MEETINGS. The Chairman of the Board (if one is designated), or in the Chairman's absence, the President, or in the President's absence, the Executive Vice President (if one is designated), or in the Executive Vice President's absence, a Vice President in the order provided under Section 4.08, and in their absence, any Director chosen by the Directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the Corporation shall act as Secretary of all meetings of the Board of Directors, but in the absence of the Secretary, the presiding Officer may appoint any Assistant Secretary or any Director or other person present or participating to act as Secretary of the meeting. 3.09 VACANCIES. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of Directors, may be filled until the next succeeding annual election by the affirmative vote of a majority of the Directors then in office, though less than a quorum of the Board of Directors, or by the shareholders; provided, that in case of a vacancy created by the removal of a Director by vote of the shareholders, the shareholders shall have the right to fill such vacancy at the same meeting or any adjournment thereof. 3.10 COMPENSATION. The Board of Directors, by affirmative vote of a majority of the Directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation of all Directors for services to the Corporation as Directors, Officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or to delegate authority to an appropriate committee to provide for reasonable 12 18 pensions, disability or death benefits, and other benefits of payments, to Directors, Officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such Directors, Officers and employees to the Corporation. 3.11 PRESUMPTION OF ASSENT. A Director of the Corporation who is present at or participates in a meeting of the Board of Directors or a committee thereof of which he or she is a member, at which action on any corporate matter is taken, shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. 3.12 COMMITTEES. The Board of Directors, by resolution adopted by the affirmative vote of a majority of the number of Directors as provided in Section 0.03, may designate one or more committees, each committee to consist of two or more Directors elected by the Board of Directors, which to the extent provided in said resolution as initially adopted, and as thereafter supplemented or amended by further resolution adopted by a like vote, shall have and may exercise, when the Board of Directors is not in session, the powers of the Board of Directors in the management of the business and affairs of the Corporation, except that a committee may not do any of the following: (i) authorize distributions; (ii) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires be approved by shareholders; (iii) fill vacancies on the Board of Directors or on any of its committees, unless the Board of Directors provides by resolution that any vacancies on a committee shall be filled by the affirmative vote of a majority of the remaining committee members; (iv) amend the Articles of Incorporation under Section 180.1002 of the Wisconsin Business Corporation Law; (v) adopt, amend or repeal the By-laws; (vi) approve a plan of merger not requiring shareholder approval; (vii) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (viii) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize 13 19 a committee or a senior executive officer of the Corporation to do so within limits prescribed by the Board of Directors. The Board of Directors may elect one or more of its members as alternate members of any such committee who may take the place of any absent member or members at any meeting of such committee, upon request by the President or upon request by the chairman of such meeting. Each such committee shall fix its own rules governing the conduct of its activities and shall make such reports to the Board of Directors of its activities as the Board of Directors may request. 3.13 UNANIMOUS CONSENT WITHOUT MEETING. Any action required or permitted by the Articles of Incorporation or the By-laws or any provision of law to be taken by the Board of Directors at a meeting or by resolution may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors then in office. 3.14 MEETINGS BY TELEPHONE OR BY OTHER COMMUNICATION TECHNOLOGY. Meetings of the Board of Directors or committees may be conducted by telephone or by other communication technology in accordance with Section 180.0820 of the Wisconsin Business Corporation Law (or any successor statutory provision). ARTICLE IV. OFFICERS 4.01 NUMBER. The principal Officers of the Corporation shall be a President, the number of Vice Presidents as may be determined by the Board of Directors, a Secretary, and a Treasurer, each of whom the Board of Directors shall from time to time determine. Such other Officers and Assistant Officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may authorize a duly appointed Officer to appoint one or more Officers or Assistant Officers. The same natural person may simultaneously hold more than one office in the Corporation. 4.02 ELECTION AND TERM OF OFFICE. The Officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of Officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each Officer shall hold office until his or 14 20 her successor shall have been duly elected or until his or her prior death, resignation or removal. 4.03 REMOVAL. Any Officer or agent may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. 4.04 VACANCIES. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. 4.05 CHAIRMAN OF THE BOARD. The Board of Directors may at their discretion elect a Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and Board of Directors, and shall carry out such other duties and have such responsibilities as may be specified by the Board of Directors. 4.06 PRESIDENT. The President shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. In the absence of the Chairman of the Board, or if one is not designated, he or she shall preside at all meetings of the shareholders and of the Board of Directors. He or she shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. He or she shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he or she may authorize any Vice President or other Officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general, he or she shall perform all duties incident to the office of chief executive officer and such 15 21 other duties as may be prescribed by the Board of Directors from time to time. 4.07 THE EXECUTIVE VICE PRESIDENT. The Executive Vice President, if one is designated, shall assist the President in the discharge of supervisory, managerial and executive duties and functions. In the absence of the President or in the event of his or her death, inability or refusal to act, the Executive Vice President shall perform the duties of the President and when so acting shall have all the powers and duties of the President. He or she shall perform such other duties as from time to time may be assigned to him or her by the Board of Directors or the President. 4.08 THE VICE PRESIDENTS. In the absence of the President and the Executive Vice President or in the event of their death, inability or refusal to act, or in the event for any reason it shall be impracticable for them to act personally, the Vice President (or in the event there is more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the President, the Executive Vice President or by the Board of Directors. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the President. 4.09 THE SECRETARY. The Secretary shall: (i) keep the minutes of the meetings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of the By-laws or as required by law; (iii) be custodian of the corporate records; (iv) keep or arrange for the keeping of a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (v) have general charge of the stock transfer books of the Corporation; and (vi) in general, perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. 16 22 4.10 THE TREASURER. The Treasurer shall: (i) have charge and custody of and be responsible for all funds and securities of the Corporation; (ii) receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 5.05 hereof; and (iii) in general, perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. 4.11 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time authorize. The Assistant Treasurers shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 4.12 OTHER ASSISTANTS AND ACTING OFFICERS. The Board of Directors shall have the power to appoint any person to act as assistant to any Officer, or as agent for the Corporation in his or her stead, or to perform the duties of such Officer whenever, for any reason, it is impracticable for such Officer to act personally and such assistant or acting Officer or other agent so appointed by the Board of Directors shall have the power to perform all the duties of the office to which he or she is so appointed to be assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors. 4.13 SALARIES. The salaries of the principal Officers shall be fixed from time to time by the Board of Directors or by a duly authorized committee thereof, and no Officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the Corporation. 17 23 ARTICLE V. CONFLICT OF INTEREST TRANSACTIONS, CONTRACTS, LOANS, CHECKS AND DEPOSITS: SPECIAL CORPORATE ACTS 5.01 CONFLICT OF INTEREST TRANSACTIONS. A "conflict of interest" transaction means a transaction with the Corporation in which a Director of the Corporation has a direct or indirect interest. The circumstances in which a Director of the Corporation has an indirect interest in a transaction include but are not limited to a transaction under any of the following circumstances: (i) another entity in which the Director has a material financial interest or in which the Director is a general partner is a party to the transaction; or (ii) another entity of which the Director is a director, officer or trustee is a party to the transaction and the transaction is or, because of its significance to the Corporation should be, considered by the Board of Directors of the Corporation. A conflict of interest transaction is not voidable by the Corporation solely because of the Director's interest in the transaction if any of the circumstances set forth in Section 180.0831 of the Wisconsin Business Corporation Law (or any successor statutory provision) are true or occur. 5.02 CONTRACTS. The Board of Directors may authorize any Officer or Officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. 5.03 LOANS. No indebtedness for borrowed money shall be contracted on behalf of the Corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.04 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such Officer or Officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 5.05 DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other 18 24 depositories as may be selected by or under the authority of a resolution of the Board of Directors. 5.06 VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to the specific directions of the Board of Directors, (i) any shares or other securities issued by any other corporation and owned or controlled by this Corporation may be voted at any meeting of security holders of such other corporation by the President of this Corporation if he or she is present, or in the President's absence by the Executive Vice President (if one is designated), or in the Executive Vice President's absence, by any Vice President of this Corporation who may be present, and (ii) whenever, in the judgment of the President, or in his absence, of the Executive Vice President (if one is designated), or in the Executive Vice President's absence, of any Vice President, it is desirable for this Corporation to execute an appointment of proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this Corporation, such proxy appointment or consent shall be executed in the name of this Corporation by the President, Executive Vice President or one of the Vice Presidents of this Corporation in the order as provided in clause (i) of this Section, without necessity of any authorization by the Board of Directors or countersignature or attestation by another Officer. Any person or persons designated in the manner above stated as the proxy or proxies of this Corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this Corporation the same as such shares or other securities might be voted by this Corporation. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 6.01 CERTIFICATES FOR SHARES. Certificates representing shares of the Corporation shall be in such form, consistent with law, as shall be determined by the Board of Directors. Such certificates shall be signed by the President or by another Officer designated by the President or the Board of Directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate 19 25 shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except as provided in Section 6.06 hereof. 6.02 FACSIMILE SIGNATURES. The signature of the President or other authorized Officer upon a certificate may be a facsimile if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the Corporation itself or an employee of the Corporation. 6.03 SIGNATURE BY FORMER OFFICERS. In case any Officer, who has signed or whose facsimile signature has been placed upon, any certificate for shares, shall have ceased to be such Officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such Officer at the date of its issue. 6.04 TRANSFER OF SHARES. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat the shareholder of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and powers of an owner. Where a certificate for shares is presented to the Corporation with a request to register for transfer, the Corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (i) there were on or with the certificate the necessary endorsements, and (ii) the Corporation had no duty to inquire into adverse claims or has discharged any such duty. The Corporation may require reasonable assurance that said endorsements are genuine and effective and in compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors. 6.05 RESTRICTIONS ON TRANSFER. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the Corporation upon the transfer of such shares. 6.06 LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims that his or her certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (i) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, and (ii) files with the Corporation a sufficient indemnity bond, and (iii) satisfies such other reasonable 20 26 requirements as may be prescribed by or under the authority of the Board of Directors. 6.07 CONSIDERATION FOR SHARES. The shares of the Corporation may be issued for such consideration as shall be fixed from time to time by the Board of Directors, provided that any shares having a par value shall not be issued for a consideration less than the par value thereof. The consideration to be received for shares may consist of any tangible or intangible property or benefit to the Corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the Corporation. When the Corporation receives the consideration for which the Board of Directors authorized the issuance of shares, the shares issued for that consideration are fully paid and nonassessable, except as provided by Section 180.0622 of the Wisconsin Business Corporation Law (or any successor statutory provision) which may require further assessment for unpaid wages to employees under certain circumstances. The Corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits are received or the note is paid. If the services are not performed, the benefits are not received or the note is not paid, the Corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. 6.08 STOCK REGULATIONS. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the statutes of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. ARTICLE VII. INDEMNIFICATION 7.01 INDEMNIFICATION FOR SUCCESSFUL DEFENSE. As required by the Wisconsin Business Corporation Law, the Corporation shall indemnify a Director, Officer or Employee to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the Director, Officer or Employee was a party because he or she is a Director, Officer or Employee of the Corporation. 21 27 7.02 OTHER INDEMNIFICATION. In cases not included under Section 7.01 hereof, and as provided by Section 180.0851(2) of the Wisconsin Business Corporation Law (or any successor statutory provision), the Corporation shall indemnify a Director or Officer against liability incurred by the Director or Officer in a proceeding to which the Director or Officer was a party because he or she is a Director or Officer of the Corporation, unless liability was incurred because the Director or Officer breached or failed to perform a duty that he or she owes to the Corporation and the breach or failure to perform constitutes any of the following: (i) A wilful failure to deal fairly with the Corporation or its shareholders in connection with a matter in which the Director or Officer has a material conflict of interest; (ii) A violation of the criminal law, unless the Director or Officer has reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (iii) A transaction from which the Director or Officer derived an improper personal profit; or (iv) Wilful misconduct. 7.03 ALLOWANCE OF EXPENSES. Within ten days after receipt of a written request by a Director or Officer who is a party to a proceeding, the Corporation shall pay or reimburse his or her reasonable expenses as incurred if the Director or Officer provides the Corporation with all of the following: (i) A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the Corporation; and (ii) A written undertaking, executed personally or on his or her behalf, to repay the allowance (together with reasonable interest thereon) to the extent that it is ultimately determined under Sections 7.01 and 7.02 hereof and pursuant to Section 180.0855 of the Wisconsin Business Corporation Law (or any successor statutory provision) that 22 28 indemnification is not required, will not be provided, or is not so ordered by a court under Section 180.0854 of the Wisconsin Business Corporation Law (or any successor statutory provision). The undertaking under this subsection shall be an unlimited general obligation of the Director or Officer, and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured as determined by the Board of Directors. ARTICLE VIII. SEAL There shall be no corporate seal. ARTICLE IX. AMENDMENTS 9.01 BY SHAREHOLDERS. The By-laws may be altered, amended or repealed and new By-laws may be adopted by the shareholders by the affirmative vote specified in Section 2.07 of these By-laws. 9.02 BY DIRECTORS. The By-laws may also be altered, amended or repealed and new By-laws may be adopted by the Board of Directors by affirmative vote of a majority of the number of Directors present at or participating in any meeting at which a quorum is in attendance; but no By-law adopted by the shareholders shall be amended or repealed by the Board of Directors if the By-law so adopted so provides. 9.03 IMPLIED AMENDMENTS. Any action taken or authorized by the shareholders or by the Board of Directors, which would be inconsistent with the By-laws then in effect but is taken or authorized by affirmative vote of not less than the number of shares or the number of Directors required to amend the By-laws so that the By-laws would be consistent with such action, shall be given the same effect as though the By-laws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. 23 EX-4.1 10 INDENTURE 1 Exhibit 4.1 INDENTURE DATED AS OF JULY 1, 1998 AMONG GENERAC PORTABLE PRODUCTS, LLC AND GPPW, INC., AS ISSUERS, AND MARINE MIDLAND BANK, AS TRUSTEE ------------------ UP TO $160,000,000 AGGREGATE PRINCIPAL AMOUNT OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 2 CROSS-REFERENCE TABLE
TRUST INDENTURE INDENTURE ACT SECTION SECTION ----------- ------- Section 310(a)(1)............................................. 7.10 (a)(2).................................................. 7.10 (a)(3).................................................. N.A. (a)(4).................................................. N.A. (a)(5).................................................. 7.08, 7.10. (b)..................................................... 7.08; 7.10; 13.02 (c)..................................................... N.A. Section 311(a)................................................ 7.11 (b)..................................................... 7.11 (c)..................................................... N.A. Section 312(a)................................................ 2.05 (b)..................................................... 13.03 (c)..................................................... 13.03 Section 313(a)................................................ 7.06 (b)(1).................................................. 7.06 (b)(2).................................................. 7.06 (c)..................................................... 7.06; 13.02 (d)..................................................... 7.06 Section 314(a)................................................ 4.11; 4.12; 13.02 (b)..................................................... N.A. (c)(1).................................................. 13.04 (c)(2).................................................. 13.04 (c)(3).................................................. N.A. (d)..................................................... N.A. (e)..................................................... 13.05 (f)..................................................... N.A. Section 315(a)................................................ 7.01(b) (b)..................................................... 7.05; 13.02 (c)..................................................... 7.01(a) (d)..................................................... 7.01(c) (e)..................................................... 6.11 Section 316(a)(last sentence)................................. 2.09 (a)(1)(A)............................................... 6.05 (a)(1)(B)............................................... 6.04 (a)(2).................................................. N.A. (b)..................................................... 6.07 (c)..................................................... 10.04 Section 317(a)(1)............................................. 6.08 (a)(2).................................................. 6.09 (b)..................................................... 2.04 Section 318(a)................................................ 13.01
- ---------------- N.A. means Not Applicable. NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
PAGE ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions.....................................................................................1 SECTION 1.02. Incorporation by Reference of Trust Indenture Act..............................................18 SECTION 1.03. Rules of Construction..........................................................................18 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating................................................................................19 SECTION 2.02. Execution and Authentication...................................................................19 SECTION 2.03. Registrar and Paying Agent.....................................................................20 SECTION 2.04. Paying Agent To Hold Assets in Trust...........................................................21 SECTION 2.05. Holder Lists...................................................................................21 SECTION 2.06. Transfer and Exchange..........................................................................21 SECTION 2.07. Replacement Notes..............................................................................22 SECTION 2.08. Outstanding Notes..............................................................................22 SECTION 2.09. Treasury Notes.................................................................................23 SECTION 2.10. Temporary Notes................................................................................23 SECTION 2.11. Cancellation...................................................................................23 SECTION 2.12. Defaulted Interest.............................................................................24 SECTION 2.13. CUSIP Number...................................................................................24 SECTION 2.14. Deposit of Moneys..............................................................................24 SECTION 2.15. Book-Entry Provisions for Global Notes.........................................................24 SECTION 2.16. Registration of Transfers and Exchanges........................................................25 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee.............................................................................29 SECTION 3.02. Selection of Notes To Be Redeemed..............................................................29 SECTION 3.03. Notice of Redemption...........................................................................29 SECTION 3.04. Effect of Notice of Redemption.................................................................30 SECTION 3.05. Deposit of Redemption Price....................................................................30 SECTION 3.06. Notes Redeemed in Part.........................................................................31
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PAGE ---- ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes...............................................................................31 SECTION 4.02. Maintenance of Office or Agency................................................................31 SECTION 4.03. Limitations on Transactions with Affiliates....................................................31 SECTION 4.04. Limitation on Incurrence of Additional Indebtedness............................................32 SECTION 4.05. Limitation on Asset Sales......................................................................32 SECTION 4.06. Limitation on Restricted Payments..............................................................35 SECTION 4.07. Compliance with Laws...........................................................................36 SECTION 4.08. Payment of Taxes and Other Claims..............................................................36 SECTION 4.09. Notice of Defaults.............................................................................37 SECTION 4.10. Maintenance of Properties and Insurance........................................................37 SECTION 4.11. Compliance Certificate.........................................................................37 SECTION 4.12. Reports to Holders.............................................................................38 SECTION 4.13. Waiver of Stay, Extension or Usury Laws........................................................38 SECTION 4.14. Change of Control..............................................................................38 SECTION 4.15. Prohibition on Incurrence of Senior Subordinated Debt..........................................40 SECTION 4.16. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries...................40 SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.......................................40 SECTION 4.18. Limitation on Liens............................................................................40 SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries............................................41 SECTION 4.20. Conduct of Business of the Company and the Co-Issuer...........................................41 ARTICLE FIVE MERGERS; SUCCESSORS SECTION 5.01. Merger, Consolidation and Sale of Assets.......................................................42 SECTION 5.02. Successor Substituted..........................................................................43 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default..............................................................................43 SECTION 6.02. Acceleration...................................................................................44 SECTION 6.03. Other Remedies.................................................................................45 SECTION 6.04. Waiver of Past Default.........................................................................45 SECTION 6.05. Control by Majority............................................................................45 SECTION 6.06. Limitation on Suits............................................................................45 SECTION 6.07. Rights of Holders To Receive Payment...........................................................46 SECTION 6.08. Collection Suit by Trustee.....................................................................46 SECTION 6.09. Trustee May File Proofs of Claim...............................................................46 SECTION 6.10. Priorities.....................................................................................47
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PAGE ---- SECTION 6.11. Undertaking for Costs..........................................................................47 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee..............................................................................47 SECTION 7.02. Rights of Trustee and Agents...................................................................48 SECTION 7.03. Individual Rights of Trustee...................................................................49 SECTION 7.04. Trustee's Disclaimer...........................................................................49 SECTION 7.05. Notice of Defaults.............................................................................50 SECTION 7.06. Reports by Trustee to Holders..................................................................50 SECTION 7.07. Compensation and Indemnity.....................................................................50 SECTION 7.08. Replacement of Trustee.........................................................................51 SECTION 7.09. Successor Trustee by Merger, etc...............................................................52 SECTION 7.10. Eligibility; Disqualification..................................................................52 SECTION 7.11. Preferential Collection of Claims Against Issuers..............................................52 ARTICLE EIGHT SUBORDINATION OF NOTES SECTION 8.01. Notes Subordinated to Senior Debt..............................................................53 SECTION 8.02. No Payment on Notes in Certain Circumstances...................................................53 SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.................................................54 SECTION 8.04. Subrogation....................................................................................55 SECTION 8.05. Obligations of Issuers Unconditional...........................................................55 SECTION 8.06. Notice to Trustee and Paying Agent.............................................................55 SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.................................56 SECTION 8.08. Trustee's Relation to Senior Debt..............................................................56 SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the Issuers or Holders of Senior Debt........................................................................57 SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of Notes.................................57 SECTION 8.11. This Article Not To Prevent Events of Default..................................................57 SECTION 8.12. Trustee's Compensation Not Prejudiced..........................................................57 SECTION 8.13. No Waiver of Subordination Provisions..........................................................57 SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust for Holders.....................58 ARTICLE NINE DISCHARGE OF INDENTURE; DEFEASANCE SECTION 9.01. Termination of the Issuers' Obligations........................................................58 SECTION 9.02. Legal Defeasance and Covenant Defeasance.......................................................59 SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance..........................................60 SECTION 9.04. Application of Trust Money.....................................................................61 SECTION 9.05. Repayment to Issuers...........................................................................62
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PAGE ---- SECTION 9.06. Reinstatement..................................................................................62 ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. Without Consent of Holders....................................................................62 SECTION 10.02. With Consent of Holders.......................................................................63 SECTION 10.03. Compliance with Trust Indenture Act...........................................................64 SECTION 10.04. Revocation and Effect of Consents.............................................................64 SECTION 10.05. Notation on or Exchange of Notes..............................................................65 SECTION 10.06. Trustee To Sign Amendments, etc...............................................................65 ARTICLE ELEVEN GUARANTEE SECTION 11.01. Unconditional Guarantee.......................................................................65 SECTION 11.02. Severability..................................................................................66 SECTION 11.03. Limitation of Guarantor's Liability...........................................................66 SECTION 11.04. Execution of Guarantee........................................................................66 SECTION 11.05. Subordination of Subrogation and Other Rights.................................................67 ARTICLE TWELVE SUBORDINATION OF GUARANTEE SECTION 12.01. Guarantee Obligations Subordinated to Senior Debt.............................................67 SECTION 12.02. No Payment in Certain Circumstances; Payment Over of Proceeds upon Dissolution, etc...........67 SECTION 12.03. Subrogation...................................................................................69 SECTION 12.04. Obligations of Guarantors Unconditional.......................................................69 SECTION 12.05. Notice to Trustee and Paying Agent............................................................70 SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent................................70 SECTION 12.07. Trustee's Relation to Senior Debt of a Guarantor..............................................70 SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of Holders of Senior Debt.............71 SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee............................71 SECTION 12.10. This Article Not To Prevent Events of Default.................................................71 SECTION 12.11. Trustee's Compensation Not Prejudiced.........................................................71 SECTION 12.12. No Waiver of Guarantee Subordination Provisions...............................................71
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PAGE ---- ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. Trust Indenture Act Controls..................................................................72 SECTION 13.02. Notices.......................................................................................72 SECTION 13.03. Communications by Holders with Other Holders..................................................74 SECTION 13.04. Certificate and Opinion as to Conditions Precedent............................................74 SECTION 13.05. Statements Required in Certificate or Opinion.................................................74 SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.....................................................75 SECTION 13.07. Governing Law.................................................................................75 SECTION 13.08. No Recourse Against Others....................................................................75 SECTION 13.09. Successors....................................................................................75 SECTION 13.10. Counterpart Originals.........................................................................75 SECTION 13.11. Severability..................................................................................75 SECTION 13.12. No Adverse Interpretation of Other Agreements.................................................75 SECTION 13.13. Legal Holidays................................................................................75 SIGNATURES..................................................................................................S-1 EXHIBIT A Form of Series A Note.....................................................................A-1 EXHIBIT B Form of Series B Note.....................................................................B-1 EXHIBIT C Form of Legend for Global Notes...........................................................C-1 EXHIBIT D Form of Transfer Certificate..............................................................D-1 EXHIBIT E Form of Transfer Certificate for Institutional Accredited Investors.......................E-1
- ----------------- NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part of the Indenture. -v- 8 INDENTURE dated as of July 1, 1998, among GENERAC PORTABLE PRODUCTS, LLC, a Delaware limited liability company (the "Company"), GPPW, INC., a Wisconsin corporation ("Co-Issuer" and together with the Company the "Issuers"), as issuers, and MARINE MIDLAND BANK, a New York banking corporation and trust company, as trustee (the "Trustee"). Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Notes: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Additional Interest" has the meaning provided in the Registration Rights Agreement. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Affiliate Transaction" see Section 4.03. "Agent" means any Registrar, Paying Agent, Authenticating Agent or co-Registrar. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales 9 -2- shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $1,000,000 or (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under Section 5.01. "Authenticating Agent" means the Agent appointed to authenticate the Notes pursuant to Section 2.02. "Bankruptcy Law" see Section 6.01. "Beacon" means The Beacon Group III--Focus Value Fund, L.P., a limited partnership organized under the laws of the State of Delaware. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in New York, New York are not required to be open. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests conferring to the holder thereof the right to receive a share of the profits, losses or distributions of assets of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit, time deposits, eurodollar time deposits or bankers' acceptances maturing within one year from the date of acquisition thereof and overnight bank deposits issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (iv) above entered into with any bank meeting the 10 -3- qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company or Holdings to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Company or Holdings of any plan or proposal for the liquidation or dissolution of the Company or Holdings, as the case may be, (whether or not otherwise in compliance with the provisions of this Indenture); (iii) any Person or Group (other than the Permitted Holders) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company or Holdings; or (iv) the replacement of a majority of the Board of Directors of the Company or Holdings over a two-year period from the directors who constituted the Board of Directors of the Company or Holdings, as the case may be, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company or Holdings, as the case may be, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "Change of Control Payment Date" see Section 4.14(c). "Co-Issuer" means GPPW, Inc., a corporation incorporated under the laws of the State of Wisconsin. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Restricted Subsidiaries, or Permitted Tax Distributions made by such Person, paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business); (B) Consolidated Interest Expense; and (C) Consolidated Non-cash Charges less any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" 11 -4- and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X of the Exchange Act) attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount and amortization or write-off of deferred financing costs; (b) the net costs under Interest Swap Obligations, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) the amount of Permitted 12 -5- Tax Distributions with respect to such period; (b) after-tax gains from Asset Sales or abandonments or reserves relating thereto; (c) after-tax items classified as extraordinary or nonrecurring gains; (d) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (e) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise; (f) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person; (g) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; (h) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and (i) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 13.02 or such other address as the Trustee may give notice to the Company. "Credit Agreement" means the Credit Agreement dated as of July 9, 1998, among the Company, Holdings, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by Section 4.04 hereunder) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Custodian" see Section 6.01. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. 13 -6- "Defeasance Trust Payment" see Section 8.01. "Depositary" means, with respect to the Notes issued in the form of one or more Global Notes, DTC or another Person designated as Depositary by the Company, which must be a clearing agency registered under the Exchange Act. "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company in an Officers' Certificate executed by the principal Executive Officer and principal Financial Officer of the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes. "DTC" means The Depository Trust Company. "Event of Default" see Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Exchange Notes" means the 11 1/4% Senior Subordinated Notes due 2006, Series B, to be issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Final Maturity Date" means July 1, 2006. "Foreign Restricted Subsidiary" means any Restricted Subsidiary of the Company that is not organized under the laws of the United States of America or any State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Global Notes" means one or more IAI Global Notes, Reg. S Global Notes and 144A Global Notes. 14 -7- "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations. "Guarantee" has the meaning given such term in Section 4.19. "Guarantor" means each of the Company's Restricted Subsidiaries that in the future executes a supplemental Indenture in which such Restricted Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of this Indenture. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) currency exchange or interest rate swap agreements, currency exchange or interest rate cap agreements and currency exchange or interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange or interest rates or commodity prices. "Holder" means the registered holder of any Note. "Holdings" means Generac Portable Products, Inc., a corporation incorporated under the laws of the State of Delaware. "IAI Global Note" means a permanent global note in registered form representing the aggregate principal amount of Notes sold to Institutional Accredited Investors. "incur" see Section 4.04. "Indebtedness" means with respect to any Person, without duplication, (i) all Obligations of such Person for borrowed money; (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all Capitalized Lease Obligations of such Person; (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (vi) guarantees and other contingent obligations in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below; (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured; (viii) all Obligations under currency agreements and interest swap agreements of such Person; and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such 15 -8- fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Indenture" means this Indenture, as amended or supplemented from time to time. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Initial Notes" means the 11 1/4% Senior Subordinated Notes due 2006, Series A, of the Issuers. "Initial Purchaser" means BT Alex. Brown Incorporated. "Insolvency or Liquidation Proceeding" means, with respect to any Person, any liquidation, dissolution or winding up of such Person, or any bankruptcy, reorganization, insolvency, receivership or similar proceeding with respect to such Person, whether voluntary or involuntary. "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" means, with respect to any Notes, the sum of any cash interest and any Additional Interest on such Notes. "Interest Payment Date" means each semiannual interest payment date on January 1 and July 1 of each year, commencing January 1, 1999. "Interest Record Date" for the interest payable on any Interest Payment Date (except a date for payment of defaulted interest) means the June 15 or December 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of Section 4.06, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair 16 -9- market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means July 9, 1998. "Issuers" means the Company and Co-Issuer. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Proceeds Offer" see Section 4.05. "Net Proceeds Offer Amount" see Section 4.05. "Net Proceeds Offer Payment Date" see Section 4.05. "Net Proceeds Offer Trigger Date" see Section 4.05. "Notes" means, collectively, the Initial Notes, the Private Exchange Notes and the Unrestricted Notes treated as a single class of Notes, as amended or supplemented from time to time in accordance with the terms of this Indenture. 17 -10- "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnification, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offer and sale of the $110,000,000 aggregate principal amount of Initial Notes to the Initial Purchaser on the Issue Date. "Officer" of any Person means the Chairman of the Board, the President, any Executive Vice President, Senior Vice President or Vice President (whether or not such title is preceded or followed by one or more words or phrases), the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of such Person. "Officers' Certificate" of any Person means a certificate signed on behalf of such Person or the general partner, in the case of a limited partnership, or member, in the case of a limited liability company, of such Person by the Chairman of the Board, the President, any Executive Vice President, Senior Vice President or Vice President (whether or not such title is preceded or followed by one or more words or phrases) and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of such Person, that meets the requirements set forth in Sections 13.04 and 13.05 of this Indenture. "144A Global Note" means a permanent global note in registered form representing the aggregate principal amount of Notes sold in reliance on Rule 144A. "Operating Company" or "Company" means Generac Portable Products, LLC, a limited liability company organized under the laws of the State of Delaware. "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 Issuers or the Trustee. "Pari Passu Indebtedness" means with respect to the Notes or a Guarantee, Indebtedness which ranks pari passu in right of payment to the Notes or such Guarantee, as the case may be. "Participant" has the meaning set forth in Section 2.15. "Paying Agent" has the meaning provided in Section 2.03. "Payment Blockage Notice" see Section 8.02. "Payment Blockage Period" see Section 8.02. "Permitted Holder(s)" means Beacon and its Affiliates. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes issued in the Offering in an aggregate amount of $110.0 million; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate outstanding principal amount at any time outstanding not to exceed $115.0 million (A) less the amount of all mandatory principal payments actually made in respect of the term loans thereunder and (B) reduced by any 18 -11- required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder, in each case, actually effected in satisfaction of the Net Cash Proceeds requirement of Section 4.05 (it being recognized that a reduction in any borrowing base thereunder in and of itself shall not be deemed a required permanent repayment); (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company covering Indebtedness of Holdings, the Company or any of its Restricted Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of the Company covering Indebtedness of such Restricted Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company or the lenders and collateral agent under the Credit Agreement; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company or the lenders and collateral agent under the Credit Agreement owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness unless such Indebtedness is otherwise permitted hereunder; (vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company or the lenders and collateral agent under the Credit Agreement, in each case subject to no Lien other than under the Credit Agreement; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Notes and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company unless such Indebtedness is otherwise permitted hereunder; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of incurrence; (ix) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order 19 -12- to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $7.5 million at any one time outstanding; (xi) Refinancing Indebtedness; (xii) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding; and (xiii) Indebtedness of Foreign Restricted Subsidiaries not to exceed $10.0 million at any one time outstanding; provided that no Indebtedness may be incurred under this clause (xiii) if after giving effect to such incurrence the sum of the Indebtedness outstanding under clause (ii) above and the Indebtedness outstanding under this clause (xiii) would exceed the maximum amount of Indebtedness permitted to be outstanding under clause (ii) above. "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and this Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $1.0 million at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with this Indenture; (vi) additional Investments not to exceed $7.5 million at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; and (viii) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.05. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); 20 -13- (iv) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (A) the related Purchase Money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired and (B) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under this Indenture; (xii) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness permitted pursuant to clause (x) of the definition of "Permitted Indebtedness"; provided, however, that in the case of Purchase Money Indebtedness (A) the Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or constructed and (B) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction or, in the case of a refinancing of any Purchase Money Indebtedness, within 180 days of such refinancing; (xiii) Liens securing Indebtedness under Currency Agreements; and (xiv) Liens securing Acquired Indebtedness incurred in accordance with Section 4.04; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the 21 -14- lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company. "Permitted Tax Distributions" see Section 4.06. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Physical Notes" means one or more certificated Notes in registered form. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "principal" of a debt note means the principal of the note, plus, when appropriate, the premium, if any, on the note. "Private Exchange Notes" means the Private Exchange Notes as defined in the Registration Rights Agreement. "Private Placement Legend" means the legend initially set forth on the Initial Notes in the form set forth on Exhibit A hereto. "Proceeds Purchase Date" see Section 4.05(b). "Purchase Money Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. "Purchase Agreement" means the Purchase Agreement dated as of July 2, 1998 by and among the Issuers and the Initial Purchaser. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Institutional Buyer" or "QIB" means a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture. "redemption price," when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture as set forth in the form of Note annexed hereto as Exhibit A. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of Indebtedness incurred in accordance with Section 4.04 or permitted under the defini- 22 -15- tion of "Permitted Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xii) or (xiii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Reg. S Global Note" means a global note in registered form representing the aggregate principal amount of Notes sold pursuant to Regulation S under the Securities Act. "Registrar" see Section 2.03. "Registration" means a registered exchange offer for the Notes by the Issuers or other registration of the Notes under the Securities Act pursuant to and in accordance with the terms of the Registration Rights Agreement. "Registration Rights Agreement" means the Registration Rights Agreement dated as of July 2, 1998 by and among the Issuers and the Initial Purchaser. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Payments" see Section 4.06. "Restricted Note" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the note of such Property. "SEC" or "Commission" means the Securities and Exchange Commission. 23 -16- "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of Section 4.04 (but, as to any such Indebtedness, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such obligation or their representative shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness (or, in the case of revolving credit Indebtedness, that the entire committed amount thereof at the date on which the initial borrowing thereunder is made) would not violate such provisions of this Indenture; (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company; (viii) Indebtedness represented by Capitalized Lease Obligations existing on the Issue Date: and (ix) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Significant Subsidiary", with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "TIA" means the Trust Indenture Act of 1939, as amended, as in effect on the date of this Indenture (except as provided in Section 10.03) until such time as this Indenture is qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA. "Trustee" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. 24 -17- "Trust Officer" means any officer within the corporate trust department (or any successor group of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such trust matter is referred because of his knowledge of and familiarity with the particular subject. "United States Government Obligations" means direct non-callable obligations of the United States for the payment of which the full faith and credit of the United States is pledged. "United States Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Unrestricted Notes" means one or more Notes that do not and are not required to bear the Private Placement Legend in the form set forth in Exhibit A hereto, including, without limitation, the Exchange Notes and any Notes registered under the Securities Act pursuant to and in accordance with the Registration Rights Agreement. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Company certifies to the Trustee that such designation complies with Section 4.06 and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.04 and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a Foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. 25 -18- SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the Notes means the Company, a Guarantor, if any, or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect from time to time, and any other reference in this Indenture to "generally accepted accounting principles" refers to GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Initial Notes and the Trustee's certificate of authentication thereof shall be substantially in the form of Exhibit A hereto, with such appropriate insertions, substitutions and other variations as are required 26 -19- or permitted by this Indenture which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Notes and the Trustee's certificate of authentication thereof shall be substantially in the form of Exhibit B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by this Indenture, law, stock exchange rule, dispository rule, agreements to which the issuers are subject or usage. The Issuers shall approve the forms of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. Global Notes shall bear the legend set forth in Exhibit C hereto. The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of Bankers Trust Company, as Registrar, as custodian for the Depositary, as hereinafter provided. SECTION 2.02. Execution and Authentication. Two Officers, including no more than one signing solely as Assistant Secretary, shall sign, or one Officer (other than as an Assistant Secretary) shall sign and the Secretary or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Officer's signature, the Notes for each of the Issuers by manual or facsimile signature. If an Officer whose signature is on a Note was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for original issue in an aggregate principal amount not to exceed $160,000,000 in one or more series; provided that the aggregate principal amount of Initial Notes on the Issue Date shall not exceed $110,000,000, (ii) Private Exchange Notes from time to time only in exchange for a like principal amount of the same type of Initial Notes and (iii) Unrestricted Notes from time to time (A) in exchange for a like principal amount of the same type of Initial Notes or a like principal amount of the same type of Private Exchange Notes or (B) as the Issuers may determine in accordance with this Indenture, in each case upon a written order of each of the Issuers in the form of an Officers' Certificate. Each such written order shall specify the amount of and the type of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes or Unrestricted Notes and whether the Notes are to be issued as Physical Notes or Global Notes and such other information as the Trustee may reasonably request. The aggregate principal amount of Notes outstanding at any time may not exceed $160,000,000, except as provided in Sections 2.07 and 2.08. In the event that the Issuers shall issue and the Trustee shall authenticate any Notes issued under this Indenture subsequent to the Issue Date pursuant to clauses (i) and (iii) of the first sentence of the immediately preceding paragraph, the Issuers shall use their best efforts to obtain the same "CUSIP" number for such Notes as is printed on the Notes outstanding at such time; provided, however, that if any series of Notes issued under this Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Issuers in a form reasonably satisfactory to the Trustee to be a different class of security than the Notes outstanding at such time for federal income tax purposes, the Issuers may obtain a "CUSIP" number for such Notes that is different than the "CUSIP" number printed on the Notes then outstanding. 27 -20- Notwithstanding the foregoing, all Notes issued under this Indenture shall vote and consent together on all matters (as to which any of such Notes may vote or consent) as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an authenticating agent reasonably acceptable to the Issuers to authenticate Notes. Unless otherwise provided in the appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent shall have the same rights as an Agent to deal with the Issuers and Affiliates of the Issuers. The Trustee hereby appoints Bankers Trust Company to be the authenticating agent on the Issue Date. The Notes shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar and Paying Agent. The Issuers shall maintain an office or agency in the Borough of Manhattan, The City of New York, where (a) Notes may be presented or surrendered for registration of transfer or for exchange (the "Registrar"), (b) Notes may be presented or surrendered for payment (the "Paying Agent") and (c) notices and demands in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Issuers, upon notice to the Trustee, may appoint one or more co-Registrars and one or more additional Paying Agents. The term "Paying Agent" includes any additional Paying Agent and the term "Registrar" includes any co-registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. Except as provided herein, the Company or any Guarantor may act as Paying Agent, Registrar or co-Registrar. The Issuers shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Issuers shall notify the Trustee of the name and address of any such Agent. If the Issuers fail to maintain a Registrar or Paying Agent, or fail to give the foregoing notice, the Trustee shall act as such and shall be entitled to appropriate compensation in accordance with Section 7.07. The Issuers initially appoint Bankers Trust Company as Registrar, Paying Agent and agent for service of demands and notices in connection with the Notes until such time as Bankers Trust Company has resigned or a successor has been appointed. The Issuers initially appoint The Depository Trust Company (DTC) to act as Depositary with respect to the Global Notes. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Issuers shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes, and shall notify the Trustee of any Default by the Issuers in making any such payment. The Issuers at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Issuers to the Paying Agent (if other than an Issuer), the Paying Agent shall have no further liability for such assets. If an Issuer, any Guarantor or any of their respective Affiliates acts as 28 -21- Paying Agent, it shall, on or before each due date of the principal of or interest on the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. SECTION 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Issuers shall furnish to the Trustee at least five days before each Interest Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. Subject to the provisions of Sections 2.15 and 2.16, when Notes are presented to the Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations of the same series, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Issuers and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Issuers shall execute and the Trustee shall authenticate Notes at the Registrar's written request. No service charge shall be made for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith payable by the transferor of such Notes (other than any such transfer taxes or other governmental charge payable upon exchanges or transfers pursuant to Section 2.10, 3.06, 4.05, 4.14, or 10.05). Neither the Issuers nor the Registrar shall be required to register the transfer or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three hereof, except the unredeemed portion of any Note being redeemed in part. None of the Issuers or the Trustee or the Registrar shall be liable for any delay by the Depositary in identifying the beneficial owners of the Notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from the Depositary for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of any Notes to be issued). Members of, or participants in, the Depositary shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary or the Registrar, or under the Global Note, and the Depositary may be treated by the Issuers, the Trustee and any agent of the Issuers or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall (x) prevent the Issuers, the Trustee or any agent of the Issuers or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (y) impair, as between the Depositary and members of, or participants in, the Depositary, the operation of customary practices governing the exercise of the rights of a Holder of any Note. Prior to the registration of any transfer by a Holder as provided herein, the Issuers, the Trustee and any Agent shall treat the person in whose name the Note is registered as the owner thereof for all purposes 29 -22- whether or not the Note shall be overdue, and neither the Issuers, the Trustee nor any Agent shall be affected by notice to the contrary. Any Holder of a beneficial interest in a Global Note shall, by acceptance of such beneficial interest in a Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depositary (or its agent), and that ownership of a beneficial interest in a Global Note shall be required to be reflected in a book entry. SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Issuers and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Issuers shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements for replacement of Notes are met. If required by the Issuers or the Trustee, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Issuers and the Trustee, to protect the Issuers, the Trustee and any Agent from any loss which any of them may suffer if a Note is replaced. The Issuers and the Trustee may charge such Holder for its reasonable out-of-pocket expenses in replacing a Note, including reasonable fees and expenses of counsel. If after the delivery of such new Note, a bona fide purchaser of the original Note in lieu of which such new Note was issued presents for payment such original Note, the Issuers and the Trustee shall be entitled to recover such new Note from the person to whom it was delivered or any transferee thereof, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuers or the Trustee in connection therewith. Every replacement Note is an additional obligation of the Issuers. SECTION 2.08. Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. Subject to Section 2.09, a Note does not cease to be outstanding because an Issuer or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If on a Redemption Date, Purchase Date or the Final Maturity Date the Paying Agent holds money sufficient to pay all of the principal and interest due on the Notes payable on that date (or the portion thereof to be redeemed or maturing, as the case may be), and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by an Issuer, a Guarantor or any of their respective Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trust Officer of the Trustee actually knows are so owned shall be disregarded. 30 -23- The Issuers shall notify the Trustee, in writing, when an Issuer, a Guarantor or any of their respective Affiliates repurchases or otherwise acquires Notes and of the aggregate principal amount of such Notes so repurchased or otherwise acquired. SECTION 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Issuers may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Issuers in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Issuers consider appropriate for temporary Notes. Without unreasonable delay, the Issuers shall prepare and the Trustee shall authenticate upon receipt of a written order of the Issuers pursuant to Section 2.02 definitive Notes in exchange for temporary Notes. SECTION 2.11. Cancellation. The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel, and at the written direction of the Issuers, dispose of and deliver evidence of such disposal of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Issuers may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If an Issuer or any Guarantor shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. The Issuers shall pay interest on overdue principal from time to time on demand at the applicable rate of interest then borne by the Notes. The Issuers shall, to the extent lawful, pay interest on overdue installments of interest (without regard to any applicable grace periods) at the rate of interest then borne by the Notes. If the Issuers default in a payment of interest on the Notes, they shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day preceding the date fixed by the Issuers for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Issuers shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.01(i) shall be paid to Holders as of the Interest Record Date for the Interest Payment Date for which interest has not been paid. 31 -24- SECTION 2.13. CUSIP Number. The Issuers in issuing the Notes will use a "CUSIP" number and the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided , however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Issuers shall promptly notify the Trustee of any changes in CUSIP numbers. SECTION 2.14. Deposit of Moneys. Prior to 10:00 a.m. New York Time on each Interest Payment Date, Redemption Date, Purchase Date and the Final Maturity Date, the Issuers shall deposit with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case may be. SECTION 2.15. Book-Entry Provisions for Global Notes. (a) The Global Notes initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to Bankers Trust Company as custodian for such Depositary and (iii) bear legends as set forth in Exhibit C. Members of, or participants in, the Depositary ("Participants") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary, or Bankers Trust Company as its custodian, or under the Global Note, and the Depositary may be treated by the Issuers, the Trustee and any agent of the Issuers or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (b) Transfers of Global Notes shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depositary and the provisions of Section 2.16; provided, however, that Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Depositary notifies the Issuers that it is unwilling or unable to continue as Depositary for any Global Note and a successor Depositary is not appointed by the Issuers within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depositary to issue Physical Notes. (c) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15, the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Issuers shall execute, and the Trustee shall upon written instructions from the Issuers authenticate and deliver or mail, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Physical Notes of authorized denominations. 32 -25- (d) Any Physical Note constituting a Restricted Note delivered in exchange for an interest in a Global Note pursuant to paragraph (b) of this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the Private Placement Legend. (e) The Holder of any Global Note may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Notes. SECTION 2.16. Registration of Transfers and Exchanges. (a) Transfer and Exchange of Physical Notes. When Physical Notes are presented to the Registrar with a request: (i) to register the transfer of the Physical Notes; or (ii) to exchange such Physical Notes for an equal principal amount of Physical Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if the requirements under this Indenture as set forth in this Section 2.16 for such transactions are met; provided, however, that the Physical Notes presented or surrendered for Registration of transfer or exchange: (I) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (II) in the case of Physical Notes the offer and sale of which have not been registered under the Securities Act, such Physical Notes shall be accompanied, in the sole discretion of the Issuers, by the following additional information and documents, as applicable: (A) if such Physical Note is being delivered to the Registrar by a Holder for Registration in the name of such Holder, without transfer, a certification from such Holder to that effect (substantially in the form of Exhibit D hereto); or (B) if such Physical Note is being transferred to a QIB in accordance with Rule 144A, a certification to that effect (substantially in the form of Exhibit D hereto); or (C) if such Physical Note is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (substantially in the form of Exhibit D hereto) and a transferee letter of representation substantially in the form of Exhibit E hereto and, at the option of the Issuers, an Opinion of Counsel reasonably satisfactory to the Issuers to the effect that such transfer is in compliance with the Securities Act; or (D) if such Physical Note is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of Exhibit D hereto) and, at the option of the Issuers, an Opinion of Counsel reasonably satisfactory to the Issuers to the effect that such transfer is in compliance with the Securities Act; or 33 -26- (E) if such Physical Note is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of Exhibit D hereto) and, at the option of the Issuers, an Opinion of Counsel reasonably acceptable to the Issuers to the effect that such transfer is in compliance with the Securities Act. (b) Restrictions on Transfer of a Physical Note for a Beneficial Interest in a Global Note. A Physical Note the offer and sale of which has not been registered under the Securities Act may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar of a Physical Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar, together with: (A) certification, substantially in the form of Exhibit D hereto, that such Physical Note is being transferred (I) to a QIB or (II) to an Accredited Investor and, with respect to (II), at the option of the Issuers, an Opinion of Counsel reasonably acceptable to the Issuers to the effect that such transfer is in compliance with the Securities Act; and (B) written instructions directing the Registrar to make, or to direct the Depositary to make, an endorsement on the applicable Global Note to reflect an increase in the aggregate amount of the Notes represented by the Global Note, then the Registrar shall cancel such Physical Note in accordance with Section 2.11 hereof and cause, or direct the Depositary to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the principal amount of Notes represented by the applicable Global Note to be increased accordingly. If no Global Note is then outstanding, the Issuers shall, unless either of the events in the proviso to Section 2.15(b) have occurred and are continuing, issue and the Trustee shall, upon written instructions from the Issuers in accordance with Section 2.02, authenticate such a Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depositary in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. Upon receipt by the Registrar or Co-Registrar of written instructions, or such other instruction as is customary for the Depositary, from the Depositary or its nominee, requesting the Registration of transfer of an interest in a Global Note to another type of Global Note, together with the applicable Global Notes (or, if the applicable type of Global Note required to represent the interest as requested to be transferred is not then outstanding, only the Global Note representing the interest being transferred), the Registrar or Co-Registrar shall cancel such Global Notes (or Global Note) and the Issuers shall issue and the Trustee shall, upon written instructions from the Issuers in accordance with Section 2.02, authenticate new Global Notes of the types so cancelled (or the type so cancelled and applicable type required to represent the interest as requested to be transferred) reflecting the applicable increase and decrease of the principal amount of Notes represented by such types of Global Notes, giving effect to such transfer. If the applicable type of Global Note required to represent the interest as requested to be transferred is not outstanding at the time of such request, the Issuers shall issue and the Trustee shall, upon written instructions from the Issuers in accordance with Section 2.02, authenticate a new Global Note of such type in principal amount equal to the principal amount of the interest requested to be transferred. 34 -27- (d) Transfer of a Beneficial Interest in a Global Note for a Physical Note. (i) Any Person having a beneficial interest in a Global Note may upon request exchange such beneficial interest for a Physical Note; provided, however, that prior to the Registration, a transferee that is a QIB or Institutional Accredited Investor may not exchange a beneficial interest in Global Note for a Physical Note. Upon receipt by the Registrar of written instructions, or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person (subject to the previous sentence) having a beneficial interest in a Global Note and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depositary or the Person designated by the Depositary as having such a beneficial interest containing registration instructions and, in the case of any such transfer or exchange of a beneficial interest in Notes the offer and sale of which have not been registered under the Securities Act, the following additional information and documents: (A) if such beneficial interest is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of Exhibit D hereto) and, at the option of the Issuers, an Opinion of Counsel reasonably satisfactory to the Issuers to the effect that such transfer is in compliance with the Securities Act; or (B) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of Exhibit D hereto) and, at the option of the Issuers, an Opinion of Counsel reasonably satisfactory to the Issuers to the effect that such transfer is in compliance with the Securities Act, then the Registrar will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Registrar, the aggregate principal amount of the applicable Global Note to be reduced and, following such reduction, the Issuers will execute and, upon receipt of an authentication order in the form of an Officers' Certificate in accordance with Section 2.02, the Trustee will authenticate and deliver or mail to the transferee a Physical Note in the appropriate principal amount. (ii) Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.16(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar in writing. The Registrar shall deliver such Physical Notes to the Persons in whose names such Physical Notes are so registered. (e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provisions of this Indenture (other than the provisions set forth in subsection 2.15(b)), a Global Note may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (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, and the Registrar is hereby authorized to deliver Notes without the Private Placement Legend if, (i) there is delivered to the Registrar an Opinion 35 -28- of Counsel reasonably satisfactory to the Issuers and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act; (ii) such Note has been sold pursuant to an effective registration statement under the Securities Act (including pursuant to a Registration); or (iii) the date of such transfer, exchange or replacement is two years after the later of (x) the Issue Date and (y) the last date that an Issuer or any affiliate (as defined in Rule 144 under the Securities Act) of an Issuer was the owner of such Notes (or any predecessor thereto). (g) 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. Neither the Trustee nor the Registrar shall have any obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Participants or beneficial owners of interest in any Global Note) other than the Registrar, to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.15 or this Section 2.16. The Issuers shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Issuers want to redeem Notes pursuant to paragraph 6 or 7 of the Notes at the applicable redemption price set forth thereon, they shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed. The Issuers shall give such notice to the Trustee at least 60 days before the Redemption Date (unless a shorter notice shall be agreed to by the Trustee in writing), together with an Officers' Certificate stating that such redemption will comply with the conditions contained herein. SECTION 3.02. Selection of Notes To Be Redeemed. If less than all of the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not so listed, on a pro rata basis, by lot or in such other manner as the Trustee shall deem fair and appropriate. The Trustee may select for redemption portions of the principal amount of Notes that have denominations equal to or larger than $1,000 principal amount. Notes and portions of them the Trustee so selects 36 -29- shall be in amounts of $1,000 principal amount or integral multiples thereof. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Issuers shall mail a notice of redemption by first-class mail to each Holder whose Notes are to be redeemed at such Holder's registered address. Each notice of redemption shall identify the Notes to be redeemed (including the CUSIP number thereon) and shall state: (1) the paragraph of the Notes pursuant to which the Notes are being redeemed; (2) the Redemption Date; (3) the redemption price; (4) the name and address of the Paying Agent to which the Notes are to be surrendered for redemption; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Issuers default in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the redemption price upon surrender to the Paying Agent; (7) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued; and (8) the CUSIP number, if any, pursuant to Section 2.13. At the Issuers' request, the Trustee shall give the notice of redemption on behalf of the Issuers, in the Issuers' name and at the Issuers' expense. SECTION 3.04. Effect of Notice of Redemption. Once a notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the redemption price. Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price, plus accrued interest thereon, if any, to the Redemption Date, but interest installments whose maturity is on or prior to such Redemption Date shall be payable to the Holders of record at the close of business on the relevant Interest Record Date. 37 -30- SECTION 3.05. Deposit of Redemption Price. On or before 10:00 a.m., New York Time, on the Redemption Date, the Issuers shall deposit with the Paying Agent (or if an Issuer is Paying Agent, shall, on or before the Redemption Date, segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest, if any, on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date which have been delivered by the Issuers to the Trustee for cancellation. The Trustee or the Paying Agent shall return to the Issuers any money deposited with the Trustee or Paying Agent by the Issuers in excess of the amount necessary to pay the redemption price of and accrued interest, if any, on all Notes to be redeemed. If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an Interest Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the person in whose name such Note was registered at the close of business on such record date. Upon surrender of a Note for redemption in accordance with the notice given pursuant to Section 3.03 hereof, such Note shall be purchased by the Issuers at the redemption price, together with accrued and unpaid interest to the redemption date. If any Note surrendered for redemption in the manner provided in the Notes shall not be so paid on the Redemption Date due to the failure of the Issuers to deposit with the Paying Agent money sufficient to pay the redemption price thereof, the principal and accrued and unpaid interest, if any, thereon shall, until paid or duly provided for, bear interest as provided in Sections 2.12 and 4.01 with respect to any payment default. SECTION 3.06. Notes Redeemed in Part. Upon surrender and cancellation of a Note that is redeemed in part, the Issuers shall issue and the Trustee shall authenticate for the Holder a new Note equal in principal amount to the unredeemed portion of the Note surrendered and cancelled. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. The Company shall pay the principal of and interest on the Notes in the manner provided in the Notes and the Registration Rights Agreement. An installment of principal or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than an Issuer, a Guarantor or any of their respective Affiliates) holds on that date money designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders of the Notes pursuant to the terms of this Indenture. The Issuers shall pay cash interest on overdue principal at the same rate per annum borne by the applicable Notes. The Issuers shall pay cash interest on overdue installments of interest at the same rate per annum borne by the applicable Notes, to the extent lawful, as provided in Section 2.12. 38 -31- SECTION 4.02. Maintenance of Office or Agency. The Issuers shall maintain in the Borough of Manhattan, The City of New York, the office or agency required under Section 2.03. The Issuers shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13. The Issuers hereby initially designate Bankers Trust Company at its address set forth in Section 13.02 as their office or agency in The Borough of Manhattan, The City of New York, for such purposes. SECTION 4.03. Limitations on Transactions with Affiliates (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each, an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $5.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management; (ii) transactions exclusively between or among the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned Restricted Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by Section 4.06 of this Indenture; and (v) transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with this Indenture and on terms fair to the Company and its Restricted Subsidiaries in the reasonable determination of the Board of Directors of the Company, or at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. 39 -32- SECTION 4.04. Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than (a) 2.0 to 1.0 if the date of such incurrence is on or prior to December 31, 1999, or (b) 2.25 to 1.0 if the date of such incurrence is after December 31, 1999. SECTION 4.05. Limitation on Asset Sales. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors) and (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted within 180 days by the Company or such Restricted Subsidiary into cash (to the extent of the cash received) shall be deemed to be cash for purposes of this provision. Upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 270 days of receipt thereof either (A) to prepay any Senior Debt and, in the case of any Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility, (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (A) and (B). On the 271st day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in the preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds that is an integral multiple of $1,000 which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in the preceding sentence (each, a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of the Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this 40 -33- covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to deemed net cash proceeds from such deemed sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Notwithstanding the two immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (i) at least 75% of the consideration for such Asset Sale constitutes Replacement Assets and (ii) such Asset Sale is for fair market value; provided that any consideration not constituting Replacement Assets received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the two preceding paragraphs. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth herein. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. (b) Subject to the deferral of the Net Proceeds Offer Trigger Date contained in the first paragraph of subsection (a) above, each notice of a Net Proceeds Offer pursuant to this Section 4.05 shall be mailed or caused to be mailed, by first class mail, by the Company not more than 25 days after the Net Proceeds Offer Trigger Date to all Holders at their last registered addresses as of a date within 15 days of the mailing of such notice, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.05 and that all Notes tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Notes tendered in a Net Proceeds Offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Notes to be purchased on a pro rata basis based on the amounts tendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be at least 20 and not more than 30 Business Days from the date of mailing of notice of such Net Proceeds Offer, or such longer period as required by law) (the "Proceeds Purchase Date"); (3) that any Note not tendered will continue to accrue interest; 41 -34- (4) that, unless the Issuers default in making payment therefor, any Note accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Note purchased pursuant to a Net Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; and (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; On or before 10:00 a.m. New York Time, on the Proceeds Purchase Date, the Issuers shall (i) accept for payment Notes or portions thereof validly tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent United States Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Issuers. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any. Any amounts remaining after the purchase of Notes pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.05, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.05 by virtue thereof. SECTION 4.06. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions by the Company payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the 42 -35- Notes or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing; or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.04 or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the extent used to redeem the Notes in compliance with the provisions set forth under paragraph 8 of the Note); plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments; (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; (4) if no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Common Stock of the Company or Holdings from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees; provided that the aggregate amount of all such repurchases shall not exceed $3.0 million in any fiscal year and $10.0 million in aggregate; provided, further, that at the time of any such repurchase, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0; (5) the payment of any dividend or distribution to the extent necessary to permit direct or indirect beneficial owners of shares of Capital Stock of the Company, including Holdings, to pay federal, state or local income tax liabilities arising from income of the Company and attributable to them solely as a result of the Company (and any intermediate entity through which the Holder owns such shares) being a limited liability company, partnership or similar entity for federal income tax purposes ("Permitted Tax Distributions"); and (6) any dividend or distribution to Holdings in respect of overhead expenses, legal, accounting, SEC reporting and other professional fees and expenses of Holdings directly attributable to the operations of the Company and its Restricted Subsidiaries. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in 43 -36- accordance with clause (iii) of the immediately preceding paragraph, amounts expended pursuant to clauses (1), (2) (ii) and (4) shall be included in such calculation. SECTION 4.07. Compliance with Laws. The Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 4.08. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Restricted Subsidiary or upon the income, profits or property of the Company or any Restricted Subsidiary and (2) all lawful claims for labor, materials and supplies which, in each case, if unpaid, might by law become a material liability, or Lien upon the property, of the Company or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate provision has been made. SECTION 4.09. Notice of Defaults. (a) In the event that any Indebtedness of the Company or any of its Subsidiaries is declared due and payable before its maturity because of the occurrence of any default (or any event which, with notice or lapse of time, or both, would constitute such a default) under such Indebtedness, the Company shall promptly give written notice to the Trustee of such declaration, the status of such default or event and what action the Company is taking or proposes to take with respect thereto. (b) Upon becoming aware of any Default or Event of Default, the Company shall promptly deliver an Officers' Certificate to the Trustee specifying the Default or Event of Default. SECTION 4.10. Maintenance of Properties and Insurance. (a) Subject to Article Five, the Company shall cause all material properties owned by or leased to it or any Restricted Subsidiary and used or useful in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in normal condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 4.10 shall prevent the Company or any Restricted Subsidiary from discontinuing the use, operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors of the Company or the Restricted Subsidiary concerned, or of an Officer (or other agent employed by the Company or of any Restricted Subsidiary) of the Company or such 44 -37- Restricted Subsidiary having managerial responsibility for any such property, desirable in the conduct of the business of the Company or any Restricted Subsidiary as, in the judgment of the Company, may be necessary. (b) The Company shall maintain, and shall cause the Restricted Subsidiaries to maintain, insurance with responsible carriers against such risks and in such amounts, and with such deductibles, retentions, self-insured amounts and co-insurance provisions as, in the judgment of the Company, may be necessary. SECTION 4.11. Compliance Certificate. The Company shall deliver to the Trustee within 45 days after the end of each of the first three fiscal quarters of the Company and within 90 days after the close of each fiscal year a certificate signed by the principal executive officer, principal financial officer or principal accounting officer stating that a review of the activities of the Issuers has been made under the supervision of the signing officers with a view to determining whether a Default or Event of Default has occurred and whether or not the signers know of any Default or Event of Default by the Issuers that occurred during such fiscal quarter or fiscal year. If they do know of such a Default or Event of Default, the certificate shall describe all such Defaults or Events of Default, their status and the action the Company is taking or proposes to take with respect thereto. The first certificate to be delivered by the Company pursuant to this Section 4.11 shall be for the period commencing July 1, 1998 and ending September 30, 1998. SECTION 4.12. Reports to Holders. The Issuers will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Issuers are required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Issuers may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuers will file with the Commission, to the extent permitted, and provide the Trustee and Holders with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Issuers will also comply with the other provisions of TIA Section 314(a). SECTION 4.13. Waiver of Stay, Extension or Usury Laws. Each of the Issuers and the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Issuers or such Guarantor from paying all or any portion of the principal of and/or interest, if any, on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Issuers and each Guarantor hereby expressly waive all benefit or advantage of any such law, and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.14. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder will have the right to require that the Issuers purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest to the date of purchase. 45 -38- (b) Prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Issuers covenant to (i) repay in full and terminate all commitments under Indebtedness under the Credit Agreement and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Credit Agreement and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the Credit Agreement and all other Senior Debt to permit the repurchase of the Notes as provided below. The Issuers shall first comply with this Section 4.14(b) before they shall be required to repurchase Notes pursuant to Section 4.14(c). The Issuers' failure to comply with this Section 4.14(b) shall constitute an Event of Default described in clause (iii) and not in clause (ii) under Section 6.01. (c) Within 30 days following the date upon which the Change of Control occurred, the Issuers must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) the circumstances and relevant facts regarding such Change of Control. On or before 10:00 a.m., New York Time, on the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof validly tendered pursuant to the Change of Control 46 -39- Offer, (ii) deposit with the Paying Agent United States Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Notes so tendered and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Notes surrendered. Any Notes not so accepted shall be promptly mailed by the Company to the Holder thereof. Any amounts remaining after the purchase of Notes pursuant to a Change of Control Offer shall be returned by the Trustee to the Company. The Issuers shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with this Section 4.14, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.14 by virtue thereof. Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. SECTION 4.15. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not incur or suffer to exist Indebtedness that is both senior in right of payment to the Notes and subordinate in right of payment to any other Indebtedness of the Company. SECTION 4.16. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) this Indenture; (3) the Credit Agreement; (4) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (5) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (6) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (7) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (3), (5) or (6) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (3), (5) or (6); or (8) any agreement or instrument governing Indebtedness (whether or not outstanding) of Foreign Restricted Subsidiaries incurred in reliance on clause (xiii) of the definition of Permitted Indebtedness. 47 -40- SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company. SECTION 4.18. Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing Senior Debt; (C) Liens securing the Notes; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness incurred to Refinance any Indebtedness incurred in accordance with the provisions of this Indenture and secured by a Lien permitted thereunder; provided, however, that such Liens (x) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (y) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted Liens. SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, by way of the pledge of any intercompany note or otherwise, to assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or any other Restricted Subsidiary of the Company (other than (A) Indebtedness and other obligations under the Credit Agreement, (B) Permitted Indebtedness of a Restricted Subsidiary of the Company, (C) Indebtedness under Currency Agreements in reliance on clause (v) of the definition of Permitted Indebtedness, or (D) Interest Swap Obligations incurred in reliance on clause (iv) of the definition of Permitted Indebtedness), unless, in any such case (a) such Restricted Subsidiary executes and delivers a supplemental indenture to this Indenture, providing a Guarantee of payment of the Notes by such Restricted Subsidiary (each a "Guarantee") and (b) (x) if any such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Senior Debt, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such Senior Debt may be superior to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the Notes than those contained in this Indenture and (y) if such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Indebtedness that is expressly subordinated to the Notes, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such subordinated Indebtedness shall be subordinated to such Guarantee pursuant to subordination provisions no less favorable to the Holders of the Notes than those contained in this Indenture. Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon: (i) the unconditional release of such Re- 48 -41- stricted Subsidiary from its liability in respect of the Indebtedness in connection with which such Guarantee was executed and delivered pursuant to the preceding paragraph; or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary; provided that (a) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of this Indenture and (b) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Indebtedness so guaranteed. SECTION 4.20. Conduct of Business of the Company and the Co-Issuer. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or reasonably related to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. Co-Issuer will not own any operating assets or conduct any business other than to own equity interests in the Company and serve as an issuer and an obligor on the Notes. ARTICLE FIVE MERGERS; SUCCESSORS SECTION 5.01. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing entity or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation or a partnership or a limited liability company, in each case organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental Indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed, provided that at any time the Company or its successor is a limited liability company, there shall be a co-issuer of the Notes that is a corporation; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.04; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, 49 -42- merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental Indenture is required in connection with such transaction, such supplemental Indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. Notwithstanding the foregoing clauses (ii) and (iii), (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company or to another Restricted Subsidiary and (b) the Company may merge with or transfer all of its properties and assets to an Affiliate incorporated or formed solely for the purpose of either reforming the Company in another State of the United States or changing the legal structure of the Company to a corporation so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby (it being understood that after the transfer of such property and assets for the purpose of changing its legal structure to a corporation, the Company may dissolve). For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 5.02. Successor Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with Section 5.01, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such surviving entity had been named as such herein. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. Each of the following shall be an "Event of Default" for purposes of this Indenture: (i) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of this Indenture); (ii) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer which has actually been made) (whether or not such payment shall be prohibited by the subordination provisions of this Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in this Indenture which default continues for a period of 60 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or 50 -43- the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to Section 5.01, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, aggregates $10.0 million or more at any time; (v) one or more judgments in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; (vi) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) admits in writing its inability to pay its debts generally as they become due; (b) commences a voluntary case or proceeding; (c) consents to the entry of an order for relief against it in an involuntary case or proceeding; (d) consents or acquiesces in the institution of a bankruptcy or insolvency proceeding against it; (e) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (f) makes a general assignment for the benefit of its creditors, or any of them takes any action to authorize or effect any of the foregoing; or (vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary in an involuntary case or proceeding; (b) appoints a Custodian of the Company or any Significant Subsidiary for all or substantially all of its property; or (c) orders the liquidation of the Company or any Significant Subsidiary; and in each case the order or decree remains unstayed and in effect for 60 days; provided, however, that if the entry of such order or decree is appealed and dismissed on appeal, then the Event of Default hereunder by reason of the entry of such order or decree shall be deemed to have been cured. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become immediately due and payable upon the first to occur of an acceleration under the Credit Agreement or 5 business days after receipt by the Company and the Representative under the Credit Agreement of such Acceleration Notice but only if such Event of Default is then continuing. If an Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect to the Company occurs and is continuing, then all unpaid principal of, and premium, if 51 -44- any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the then outstanding Notes may rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid but only if such Event of Default is then continuing, and (iv) if the Issuers have paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy maturing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Default. Subject to Sections 2.09, 6.07 and 10.02, the Holders of not less than a majority in aggregate principal amount of the outstanding Notes by written notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a continuing Default in the payment of the principal of or interest on any Notes. The Issuers shall deliver to the Trustee an Officers' Certificate stating that the requisite percentage of Holders have consented to such waiver and attaching copies of such consents. In case of any such waiver, the Issuers, the Trustee and the Holders shall be restored to their former positions and rights hereunder and under the Notes, respectively. This paragraph of this Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred for every purpose of this Indenture and the Notes, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the then 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 it. However, the Trustee may refuse to follow any direc- 52 -45- tion that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. In the event the Trustee takes any action or follows any direction pursuant to this Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against any loss or expense caused by taking such action or following such direction. This Section 6.05 shall be in lieu of Section 316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 6.06. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Notes unless: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of the outstanding Notes make a written request to the Trustee to pursue a remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and premium, if any, or interest on a 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 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in Section 6.01(i) or (ii) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuers or any other obligor on the Notes for the whole amount of principal and accrued interest remaining unpaid, together with interest overdue on principal and to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Notes and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. 53 -46- SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Issuers (or any other obligor upon the Notes), their respective creditors or their respective property and shall be entitled and empowered to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matter and to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each 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 agent and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any 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 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money or property in the following order: First: to the Trustee for amounts due under Section 7.07; Second: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Third: to the Issuers. The Trustee, upon prior written notice to the Issuers, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by a Holder or group of Holders of more than 10% in aggregate principal amount of the outstanding Notes, or to any suit instituted by any Holder for the enforcement or the payment of the principal or interest on any Notes on or after the respective due dates expressed in the Note. 54 -47- ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default actually known to the Trustee: (1) The Trustee and the Agents shall not be liable except for the performance of such duties as are specifically set forth in the TIA or herein; and (2) In the absence of bad faith on its part, the Trustee or any Agent 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 conforming to the requirements of this Indenture; however, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee or any Agent, the Trustee or such Agent shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee shall not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01; (2) Neither the Trustee nor any Agent shall be liable for any error of judgment made in good faith by a Trust Officer or officer of the Agent, unless it is proved that the Trustee or such Agent was negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) No provision of this Indenture shall require the Trustee or any Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or take any action at the request or direction of Holders if it shall have reasonable grounds for believing that repayment of such funds is not assured to it or it does not receive from such Holders an indemnity satisfactory to it in its sole discretion against such risk, liability, loss, fee or expense which might be incurred by it in compliance with such request or direction. (e) Whether or not herein expressly so provided every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) Neither the Trustee nor any Agent shall be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers. Money held in trust by the Trustee or any Agent need not be segregated from other funds except to the extent required by law. 55 -48- SECTION 7.02. Rights of Trustee and Agents. Subject to Section 7.01: (a) The Trustee and each Agent may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. Neither the Trustee nor any Agent need investigate any fact or matter stated in the document. (b) Before the Trustee or any Agent acts or refrains from acting, it may require an Officers' Certificate and/or an Opinion of Counsel, which shall conform to the provisions of Section 13.05. Neither the Trustee nor any Agent shall be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee and any Agent may act through attorneys and agents of its selection and shall not be responsible for the misconduct or negligence of any agent or attorney (other than an agent who is an employee of the Trustee) appointed with due care. (d) Neither the Trustee nor any Agent shall be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) The Trustee and any Agent may consult with counsel of its selection and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) Any request or direction of the Issuers mentioned herein shall be sufficiently evidenced by an Officers' Certificate and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution. (g) 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 the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (h) 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, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers, personally or by agent or attorney. (i) The Trustee shall not be deemed to have notice of any Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless the Trustee shall have received written notice thereof at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. 56 -49- SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. Neither the Trustee nor any Agent shall be responsible for and makes any 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, and it shall not be responsible for any statement of the Issuers or the Company in this Indenture or any document issued in connection with the sale of Notes or any statement in the Notes other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default or an Event of Default occurs and is continuing and the Trustee knows of such Defaults or Events of Default, the Trustee shall mail to each Holder notice of the Default or Event of Default within 30 days after the occurrence thereof. Except in the case of a Default or an Event of Default in payment of principal of or interest on any Note or a Default or Event of Default in complying with Section 5.01, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interest of Holders. This Section 7.05 shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso to Section 315(b) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 7.06. Reports by Trustee to Holders. If required by TIA Section 313(a), within 60 days after each July 1 beginning with the July 1 following the date of this Indenture, the Trustee shall mail to each Holder a report dated as of such July 1 that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b), (c) and (d). A copy of each such report at the time of its mailing to Holders shall be filed with the SEC and each stock exchange, if any, on which the Notes are listed. The Issuers shall promptly notify the Trustee in writing if the Notes become listed on any stock exchange or of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Issuers shall pay to the Trustee and any Agent as such from time to time such compensation as the Issuers and the Trustee or such Agent shall from time to time agree in writing for its services. The Trustee's and the Agent's compensation shall not be limited by any law on compensation of a trustee of an express trust. Except as otherwise provided herein, the Issuers shall reimburse the Trustee and any Agent upon request for all reasonable disbursements, expenses and advances (including fees, disbursements and expenses of its agents and counsel) incurred or made by them in addition to the compensation for their services except any 57 -50- such disbursements, expenses and advances as may be attributable to the Trustee's negligence or bad faith. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's and Agent's accountants, experts and counsel (a) in connection with the preparation, execution and delivery of this Indenture, any waiver or consent hereunder, any modification or termination hereof, or any Event of Default or alleged Event of Default; (b) if an Event of Default occurs in connection with such Event of Default and collection, bankruptcy, insolvency or other enforcement proceedings relating thereto; (c) in connection with the administration of the Trustee's rights pursuant hereto; or (d) in connection with any removal of the Trustee pursuant to Section 7.08 hereof and any taxes or other expenses incurred by a trust created pursuant to Section 9.01 hereof. The Issuers shall indemnify the Trustee and the Agents for, and hold them harmless against any and all loss, damage, claims, liability or expense, including taxes (other than franchise taxes imposed on the Trustee and taxes based upon, measured by or determined by the income of the Trustee), arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the 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 Trustee and the Agents shall notify the Issuers promptly of any claim asserted against the Trustee or any agent for which they may seek indemnity. However, the failure by the Trustee or any agent to so notify the Issuers shall not relieve the Issuers of their obligations hereunder. The Issuers shall defend the claim and the Trustee and the Agents shall cooperate in the defense (and may employ its own counsel) at the Issuers' expense; provided, however, that the Issuers' reimbursement obligation with respect to counsel employed by the Trustee and the Agents will be limited to the reasonable fees and expenses of such counsel. The Issuers need not pay for any settlement made without their written consent, which consent shall not be unreasonably withheld or delayed. The Issuers need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or any agent as a result of the violation of this Indenture by the Trustee or any agent. To secure the Issuers' payment obligations in this Section 7.07, the Trustee and the Agents shall have a Lien prior to the Notes against all money or property held or collected by the Trustee and the Agents, in their capacity as Trustee or Agent, except money or property held in trust to pay principal of or interest on particular Notes. When the Trustee or an agent incurs expenses or renders services after an Event of Default specified in Section 6.01(vi) or (vii) occurs, the expenses (including the reasonable fees and expenses of its agents and counsel) and the compensation for the services shall be preferred over the status of the Holders in a proceeding under any Bankruptcy Law and are intended to constitute expenses of administration under any Bankruptcy Law. The Issuers' obligations under this Section 7.07 and any claim arising hereunder shall survive the resignation or removal of any Trustee or any agent, the discharge of the Issuers' obligations pursuant to Article Nine and any rejection or termination under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Issuers in writing. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in writing and may appoint a successor Trustee with the Issuers' consent. The Issuers may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; 58 -51- (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuers shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. As promptly as practicable after that, the retiring Trustee shall transfer, after payment of all sums then owing to the Trustee pursuant to Section 7.07, all property held by it as Trustee to the successor Trustee, subject to the Lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the Holders of at least 10% in principal amount of the then outstanding Notes may petition, at the expense of the Issuers, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers' obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or banking corporation, the resulting, surviving or transferee corporation or banking corporation without any further act shall be the successor Trustee, provided that such successor is otherwise eligible hereunder. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee which shall be eligible to act as Trustee under TIA Sections 310(a)(1) and 310(a)(2). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. If the Trustee has or shall acquire any "conflicting interest" within the meaning of TIA Section 310(b), the Trustee and the Issuers shall comply with the provisions of TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other Notes or certificates of interest or participation in other Notes of the Issuers are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. If at any time 59 -52- the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.10, the Trustee shall resign immediately in the manner and with the effect hereinbefore specified in this Article Seven. SECTION 7.11. Preferential Collection of Claims Against Issuers. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE EIGHT SUBORDINATION OF NOTES SECTION 8.01. Notes Subordinated to Senior Debt. The Issuers covenant and agree, and the Trustee and each Holder of the Notes by his acceptance thereof likewise covenant and agree, that all Notes shall be issued subject to the provisions of this Article Eight; and each person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that all payments of the principal of and interest on the Notes by the Issuers shall, to the extent and in the manner set forth in this Article Eight, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all amounts payable under Senior Debt of the Issuers. SECTION 8.02. No Payment on Notes in Certain Circumstances. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by acceleration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by or on behalf of either of the Issuers or any other Person on either of their behalf with respect to any Obligations on the Notes or to acquire any of the Notes for cash or property or otherwise (except that holders of the Notes may receive payments from a trust described under Article Nine so long as, on the date or dates the respective amounts were paid into the trust, such payments were made with respect to the Notes without violating the provisions of Article Eight or Article Twelve of this Indenture (a "Defeasance Trust Payment")). In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Trustee (a "Payment Blockage Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Debt terminating the Payment Blockage Period, during the 180 days after the delivery of such Payment Blockage Notice (the "Payment Blockage Period"), neither of the Issuers nor any other Person on either of their behalf shall (x) make any payment of any kind or character with respect to any Obligations on the Notes or (y) acquire any of the Notes for cash or property or otherwise (except that holders of the Notes may receive Defeasance Trust Payments). 60 -53- Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 180 days from the date the payment on the Notes was due and only one such Payment Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Payment Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Payment Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc. (a) Upon any payment or distribution of assets of either of the Issuers of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of either of the Issuers or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to either of the Issuers or their respective property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise (except that holders of the Notes may receive Defeasance Trust Payments). Before any payment may be made by, or on behalf of, such Issuers of the principal of, premium, if any, or interest on the Notes upon any such dissolution or winding-up or total liquidation or reorganization, any payment or distribution of assets or securities of such Issuers of any kind or character, whether in cash, property or securities (excluding any Defeasance Trust Payment), to which the Holders of the Notes or the Trustee on their behalf would be entitled, but for the subordination provisions of this Indenture, shall be made by such Issuers or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Debt of such Issuers (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their representatives or to the trustee or trustees or agent or agents under any agreement or indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Debt in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (b) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of the Issuers of any kind or character, whether in cash, property or securities (excluding any Defeasance Trust Payment), shall be received by the Trustee or any Holder of Notes at a time when such payment or distribution is prohibited by Section 8.03(a) and before all obligations in respect of Senior Debt of such Issuers are paid in full in cash or Cash Equivalents, such payment or distribution shall be received and held for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt of such Issuers (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective representatives, or to the trustee or trustees or agent or agents under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of such Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. 61 -54- The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Five shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 8.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. SECTION 8.04. Subrogation. Upon the payment in full in cash or Cash Equivalents of all Senior Debt of the Issuers, or provision for payment, the Holders of the Notes shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of the Issuers made on such Senior Debt until the principal of and interest on the Notes shall be paid in full in cash or Cash Equivalents; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of the Issuers of any cash, property or securities to which the Holders of the Notes or the Trustee on their behalf would be entitled except for the provisions of this Article Eight, and no payment over pursuant to the provisions of this Article Eight to the holders of Senior Debt of the Issuers by Holders of the Notes or the Trustee on their behalf shall, as between an Issuer, its creditors other than holders of Senior Debt of such Issuer, and the Holders of the Notes, be deemed to be a payment by such Issuers to or on account of the Senior Debt of such Issuers. It is understood that the provisions of this Article Eight are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Debt of the Issuers, on the other hand. If any payment or distribution to which the Holders of the Notes would otherwise have been entitled but for the provisions of this Article Eight shall have been applied, pursuant to the provisions of this Article Eight, to the payment of all amounts payable under Senior Debt, then and in such case, the Holders of the Notes shall be entitled to receive from the holders of such Senior Debt any payments or distributions received by such holders of Senior Debt in excess of the amount required to make payment in full in cash of such Senior Debt. SECTION 8.05. Obligations of Issuers Unconditional. Nothing contained in this Article Eight or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Issuers and the Holders, the obligation of the Issuers, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Issuers other than the holders of the Senior Debt of the Issuers, nor shall anything herein or therein prevent any Holder or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default or Event of Default, subject to the rights, if any, under this Article Eight of the holders of the Senior Debt of the Issuers in respect of cash, property or securities of the Issuers received upon the exercise of any such remedy. Without limiting the generality of the foregoing, nothing contained in this Article Eight shall restrict the right of the Trustee or the Holders to take any action to declare the Notes to be due and payable prior to their stated maturity pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided, however, that all Senior Debt of the Issuers then due and payable shall first be paid in full in cash or Cash Equivalents before the Holders or the Trustee are entitled to receive any direct or indirect payment from the Issuers of principal of or interest on the Notes. 62 -55- SECTION 8.06. Notice to Trustee and Paying Agent. The Issuers shall give prompt written notice to the Trustee and the Paying Agent of any fact known to the Issuers which would prohibit the making of any payment to or by the Trustee or the Paying Agent in respect of the Notes pursuant to the provisions of this Article Eight. Neither the Trustee nor the Paying Agent shall be charged with knowledge of the existence of any event of default with respect to any Senior Debt of the Issuers or of any other facts which would prohibit the making of any payment to or by the Trustee or the Paying Agent unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of an Issuer, or by a holder of Senior Debt or trustee or agent therefor; and prior to the receipt of any such written notice, the Trustee and the Paying Agent shall, subject to Article Seven, be entitled to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 8.06 at least two Business Days prior to the date upon which by the terms of this Indenture any moneys shall become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Note), then, regardless of anything herein to the contrary, the Trustee and the Paying Agent shall have full power and authority to receive any moneys from the Issuers and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Nothing contained in this Section 8.06 shall limit the right of the holders of Senior Debt of the Issuers to recover payments as contemplated by Section 8.03. Each of the Trustee and the Paying Agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Debt of the Issuers (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee or representative on behalf of any such holder. In the event that either the Trustee or the Paying Agent determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt of the Issuers to participate in any payment or distribution pursuant to this Article Eight, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee or the Paying Agent, as the case may be, as to the amount of Senior Debt of the Issuers 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 Eight, and if such evidence is not furnished, the Trustee and the Paying Agent may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities referred to in this Article Eight, the Trustee and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Notes for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt of the Issuers and other indebtedness of a Issuers, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eight. SECTION 8.08. Trustee's Relation to Senior Debt. The Trustee, the Agents and any other Agent shall be entitled to all the rights set forth in this Article Eight with respect to any Senior Debt of the Issuers which may at any time be held by it in its individual 63 -56- or any other capacity to the same extent as any other holder of Senior Debt of an Issuer, and nothing in this Indenture shall deprive the Trustee, the Agents or any other Agent of any of its rights as such holder. With respect to the holders of Senior Debt of an Issuer, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Eight, and no implied covenants or obligations with respect to the holders of Senior Debt of the Issuers shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of the Issuers. The Trustee shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Notes or to the Issuers or to any other person cash, property or securities to which any holders of Senior Debt of the Issuers shall be entitled by virtue of this Article Eight or otherwise. SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the Issuers or Holders of Senior Debt. No right of any present or future holders of any Senior Debt of the Issuers to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Issuers or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Issuers with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The provisions of this Article Eight are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt of the Issuers. SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of Notes. Each Holder of Notes by his acceptance of such Notes authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Eight, and appoints the Trustee his attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, total liquidation or reorganization of the Issuers (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Issuers, the filing of a claim for the unpaid balance of its or his Notes in the form required in those proceedings. SECTION 8.11. This Article Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Eight shall not be construed as preventing the occurrence of an Event of Default specified in clauses (a), (b) or (c) of Section 6.01. SECTION 8.12. Trustee's Compensation Not Prejudiced. Nothing in this Article Eight shall apply to amounts due to the Trustee or the Agents pursuant to other sections in this Indenture. SECTION 8.13. No Waiver of Subordination Provisions. Without in any way limiting the generality of Section 8.09, the holders of Senior Debt of the Issuers may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in 64 -57- this Article Eight or the obligations hereunder of the Holders to the holders of Senior Debt of an Issuer, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (c) release any Person liable in any manner for the collection of such Senior Debt; and (d) exercise or refrain from exercising any rights against the Issuers and any other Person. SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust for Holders. All money and United States Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Article Nine shall be for the sole benefit of the Holders and shall not be subject to this Article Eight. ARTICLE NINE DISCHARGE OF INDENTURE; DEFEASANCE SECTION 9.01. Termination of the Issuers' Obligations. The Issuers may terminate their obligations under the Notes and this Indenture, except those obligations referred to in the penultimate paragraph of this Section 9.01, if all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes which have been replaced or paid or Notes for whose payment United States Legal Tender or non-callable United States Government Obligations, or a combination thereof, has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Issuers and thereafter repaid to the Issuers, as provided in Section 9.05) have been delivered to the Trustee for cancellation and the Issuers have paid all sums payable by it hereunder, or if: (a) either (i) pursuant to Article Three, the Issuers shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Notes under arrangements satisfactory to the Trustee for the giving of such notice or (ii) all Notes have otherwise become due and payable hereunder; (b) the Issuers shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, United States Legal Tender or non-callable United States Government Obligations, or a combination thereof, in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal and interest on the outstanding Notes to maturity or redemption, as well as the Trustee's fees and expenses; provided that the Trustee shall have been irrevocably instructed to apply such United States Legal Tender to the payment of said principal and interest with respect to the Notes; provided, further, that no deposits made pursuant to this Section 9.01(b) shall cause the Trustee to have a conflicting interest as defined in and for the purposes of the TIA; provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Debt pursuant to the provisions of Article Eight and provided, further, that, as confirmed by an Opinion of 65 -58- Counsel, no such deposit shall result in the Company, the Trustee or the trust becoming or being deemed to be an "investment company" under the Investment Company Act of 1940; (c) no Default or Event of Default with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which either of the Issuers is a party or by which it is bound (other than a Default or Event of Default resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Notes concurrently with such incurrence); (d) the Issuers shall have paid all other sums payable by it hereunder; and (e) each of the Issuers shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for or relating to the termination of such Issuer's obligations under the Notes and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under any agreement or instrument then known to such counsel that binds or affects either of the Issuers. Notwithstanding the foregoing paragraph, the Issuers' obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 9.05 and 9.06 shall survive until the Notes are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Notes are no longer outstanding, the Issuers' obligations in Sections 7.07, 9.05 and 9.06 shall survive. After such delivery or irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Issuers' obligations under the Notes and this Indenture except for those surviving obligations specified above. SECTION 9.02. Legal Defeasance and Covenant Defeasance. (a) The Issuers may, at their option by Board Resolution of the Board of Directors of each such Issuer, at any time, elect to have either paragraph (b) or (c) below be applied to all outstanding Notes upon compliance with the conditions set forth in Section 9.03. (b) Upon exercise under paragraph (a) hereof of the option applicable to this paragraph (b), each Issuer shall, subject to the satisfaction of the conditions set forth in Section 9.03, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that each Issuer 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 9.04 hereof and the other Sections of this Indenture referred to in (i) and (ii) below, 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 Issuers, shall execute proper instruments acknowledging the same), and Holders of the Notes and any amounts deposited under Section 9.03 hereof shall cease to be subject to any obligations to, or the rights of, any holder of Senior Debt under Article Eight or otherwise, except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: 66 -59- (i) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 9.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of and interest on such Notes when such payments are due; (ii) the Issuers' obligations with respect to such Notes under Article Two and Section 4.02 hereof; (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers' obligations in connection therewith; and (iv) this Article Nine. Subject to compliance with this Article Nine, the Issuers may exercise their option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Issuers' exercise under paragraph (a) hereof of the option applicable to this paragraph (c), each Issuer shall, subject to the satisfaction of the conditions set forth in Section 9.03 hereof, be released from its obligations under the covenants contained in Sections 4.10 through 4.20 and Article Five hereof with respect to the outstanding Notes on and after the date 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 (it being understood that such Notes shall not be deemed outstanding for accounting purposes) and Holders of the Notes and any amounts deposited under Section 8.03 hereof shall cease to be subject to any obligations to, or the rights of, any holder of Senior Debt under Article Eight or otherwise. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Notes, the Issuers may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event or Default under Section 6.01(iii) hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Issuers' exercise under paragraph (a) hereof of the option applicable to this paragraph (c), subject to the satisfaction of the conditions set forth in Section 9.03 hereof, Sections 6.01(iii), 6.01(iv) and 6.01(v) shall not constitute Events of Default. SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance. The following shall be the conditions to the application of either Section 9.02(b) or 9.02(c) hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Issuers must irrevocably deposit or cause to be deposited with the Trustee, in trust, for the benefit of the Holders cash in United States Legal Tender, non-callable United States Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of Legal Defeasance, the Issuers shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Issuers 67 -60- have received from, or here has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Sections 6.01(vi) and (vii) are concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under this Indenture or any other material agreement or instrument to which the Issuers or any of their Restricted Subsidiaries is a party or by which the Issuers or any of their Restricted Subsidiaries is bound; (f) each of the Issuers shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders over any other creditors of the Issuers or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Issuers or others; (g) each of the Issuers shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (h) each of the Issuers shall have delivered to the Trustee an Opinion of Counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under this Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. Notwithstanding the foregoing, the Opinion of Counsel required by clause (b) above with respect to a Legal Defeasance need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable or (y) will become due and payable on the maturity date within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense of, the Issuers. SECTION 9.04. Application of Trust Money. The Trustee or Paying Agent shall hold in trust United States Legal Tender or United States Government Obligations deposited with it pursuant to Article Eight, and shall apply the deposited United States Legal Tender and the money from United States Government Obligations in accordance with this Indenture to 68 -61- the payment of principal of and interest on the Notes. The Trustee shall be under no obligation to invest said United States Legal Tender or United States Government Obligations except as it may agree with the Company. The Issuers shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the United States Legal Tender or United States Government Obligations deposited pursuant to Section 9.03 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Nine to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuers from time to time upon the Issuers' request any United States Legal Tender or United States Government Obligations held by it as provided in Section 9.03 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 9.03(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 9.05. Repayment to Issuers. Subject to this Article Nine, the Trustee and the Paying Agent shall promptly pay to the Issuers upon request any excess United States Legal Tender or United States Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Issuers upon request any money held by them for the payment of principal or interest that remains unclaimed for two years. After payment to the Issuers, Holders entitled to such money must look to the Issuers for payment as general creditors unless an applicable law designates another Person. SECTION 9.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States Legal Tender or United States Government Obligations in accordance with this Article Nine by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers' obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article Nine until such time as the Trustee or Paying Agent is permitted to apply all such United States Legal Tender or United States Government Obligations in accordance with Article Nine; provided that if the Issuers have made any payment of interest on or principal of any Notes because of the reinstatement of their obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the United States Legal Tender or United States Government Obligations held by the Trustee or Paying Agent. ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. Without Consent of Holders. The Issuers and each Guarantor, if any, when authorized by a resolution of their respective Boards of Directors, and the Trustee may amend or supplement this Indenture or the Notes without notice to or consent of any Holder: 69 -62- (a) to cure any ambiguity, defect or inconsistency; (b) to effect the assumption by a successor Person of all obligations of the Company under the Notes and this Indenture in connection with any transaction complying with Article Five of this Indenture; (c) to provide for uncertificated Notes in addition to or in place of certificated Notes; (d) to comply with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (e) to make any change that would provide any additional benefit or rights to the Holders; (f) to make any other change that does not adversely affect the rights of any Holder under this Indenture; (g) to add to the covenants of the Company or any Guarantor, for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or any Guarantor; (h) to secure the Notes pursuant to the requirements of Section 4.18 or otherwise; or (i) to add a Guarantor pursuant to the requirements of Section 4.19; provided, however, that the Issuers deliver to the Trustee an Opinion of Counsel stating that such amendment or supplement does not adversely affect the rights of any Holder and otherwise complies with the provisions of this Section 10.01. SECTION 10.02. With Consent of Holders. Subject to Section 6.07, the Issuers and each Guarantor, if any, when authorized by a resolution of their respective Boards of Directors, and the Trustee may amend or supplement this Indenture or the Notes, or waive compliance with any provision hereof or thereof, with the written consent of the Holders of at least a majority in principal amount of the outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). However, without the consent of each Holder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (a) reduce the amount of Notes whose Holders must consent to an amendment; (b) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (c) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or reduce the redemption price therefor; (d) make any Notes payable in money other than that stated in the Notes; 70 -63- (e) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (f) after the Company's obligation to purchase Notes arises hereunder, amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or, after such Change of Control has occurred or such Asset Sale has been consummated, modify any of the provisions or definitions with respect thereto; or (g) modify or change any provision of this Indenture or the related definitions affecting the subordination or ranking of the Notes in a manner which adversely affects the Holders. It shall not be necessary for the consent of the Holders under this Section 10.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 10.02 becomes effective, the Issuers shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuers to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. SECTION 10.03. Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 10.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of that Note or portion of that Note that evidences 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, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Trustee or the Issuers received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Issuers 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. If a record date is fixed, then, notwithstanding the last sentence of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. 71 -64- After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (a) through (g) of Section 10.02. 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 a Note or portion of a Note that evidences the same debt as the consenting Holder's Note. SECTION 10.05. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Issuers or the Trustee so determine, the Issuers 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. SECTION 10.06. Trustee To Sign Amendments, etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Ten is authorized or permitted by this Indenture and that such amendment, supplement or waiver constitutes the legal, valid and binding obligation of the Issuers and each Guarantor, if any, enforceable in accordance with its terms (subject to customary exceptions). The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. In signing any amendment, supplement or waiver, the Trustee shall be entitled to receive an indemnity reasonably satisfactory to it and to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Ten is authorized or permitted by this Indenture and that such amendment or supplement is the legal, valid and binding obligation of the Issuer enforceable against it in accordance with its terms, subject to customary exceptions, and complies with the provision hereof (including Section 10.04). Such Opinion of Counsel shall not be an expense of the Trustee. ARTICLE ELEVEN GUARANTEE SECTION 11.01. Unconditional Guarantee. Each Guarantor, if any, hereby unconditionally guarantees to each Holder of a Note authenticated by the Trustee and to the Trustee and its successors and assigns that: the principal of and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and interest on any overdue interest on the Notes and all other obligations of the Issuers to the Holders or the Trustee hereunder or under the Notes will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; subject, however, to the limitations set forth in Section 11.03. Any Guarantee set forth in this Section 11.01 is a guarantee of payment and not of collection. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or 72 -65- thereof, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of such Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuers, any right to require a proceeding first against an Issuer, protest, notice and all demands whatsoever. Each Guarantor covenants that the applicable Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. Notwithstanding the foregoing sentence, any Guarantor shall be released from all the obligations under its Guarantee under this Article Eleven concurrently with the defeasance of the Notes under Section 9.02(b) or the Covenant Defeasance of the Notes under Section 9.02(c). If any Holder or the Trustee is required by any court or otherwise to return to the Issuers or any Guarantor or any custodian, trustee, liquidator or other similar official acting in relation to the Issuers or a Guarantor, any amount paid by the Issuers or a Guarantor to the Trustee or such Holder, the applicable Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purpose of the applicable Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall become due and payable by such Guarantor for the purpose of the applicable Guarantee. SECTION 11.02. Severability. In case any provision of this Article Eleven shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.03. Limitation of Guarantor's Liability. Each Guarantor, if any, and by its acceptance hereof each Holder and the Trustee, hereby confirm that it is the intention of all such parties that the applicable Guarantee does not constitute a fraudulent transfer or conveyance for purposes of title 11 of the United States Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar U.S. Federal or state or other applicable law. To effectuate the foregoing intention, each Holder and each Guarantor hereby irrevocably agree that the obligations of a Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor, and after giving effect to any collections from or payments made by or on behalf of such Guarantor in respect of the obligations of such Guarantor pursuant to Section 11.04, result in the obligations of such Guarantor not constituting such a fraudulent transfer or conveyance. SECTION 11.04. Execution of Guarantee. To further evidence a Guarantee to the Holders, each Guarantor, if any, hereby agrees to execute a guarantee to be endorsed on and made a part of each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that its guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a guarantee. Each such guarantee shall be signed on behalf of each Guarantor by its Chairman of the Board, its President or one of its Vice Presidents prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such guarantee on behalf of such Guarantor. Such signature upon the guarantee may be a manual or facsimile signature of such officer and may be imprinted 73 -66- or otherwise reproduced on the guarantee, and in case such officer who shall have signed the guarantee shall cease to be such officer before the Note on which such guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Issuers, such Note nevertheless may be authenticated and delivered or disposed of as though the Person who signed the guarantee had not ceased to be such officer of such Guarantor. SECTION 11.05. Subordination of Subrogation and Other Rights. Each Guarantor, if any, hereby agrees that any claim against the Issuers that arises from the payment, performance or enforcement of such Guarantor's obligations under the applicable Guarantee or this Indenture, including, without limitation, any right of subrogation, shall be subject and subordinate to, and no payment with respect to any such claim of such Guarantor shall be made before, the payment in full in cash of all outstanding Notes in accordance with the provisions provided therefor in this Indenture. ARTICLE TWELVE SUBORDINATION OF GUARANTEE SECTION 12.01. Guarantee Obligations Subordinated to Senior Debt. Each Guarantor, if any, covenants and agrees, and the Trustee and each Holder of the Notes by its acceptance thereof likewise covenant and agrees, that the Guarantee shall be issued subject to the provisions of this Article Twelve; and each person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that all payments of the principal of and interest on the Notes pursuant to the Guarantee made by or on behalf of the Guarantor shall, to the extent and in the manner set forth in this Article Twelve, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all amounts payable under Senior Debt of such Guarantor. SECTION 12.02. No Payment in Certain Circumstances; Payment Over of Proceeds upon Dissolution, etc. (a) Upon any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to such Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made by or on behalf of such Guarantor on account of any Obligations on the Guarantee or for the acquisition of any of the Notes for cash or property or otherwise (except that holders of the Notes may receive Defeasance Trust Payments). Before any payment may be made by, or on behalf of, any Guarantor of the principal of, premium, if any, or interest on the Notes upon any such dissolution or winding-up or total liquidation or reorganization, any payment or distribution of assets or securities of such Guarantor of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee on their behalf would be entitled, but for the subordination provisions of this Indenture, shall be made by the Guarantor or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Debt of such Guarantor 74 -67- (pro rata to such holders on the basis of the respective amounts of such Senior Debt held by such holders) or their representatives or to the trustee or trustees or agent or agents under any agreement or indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Debt in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (b) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of any Guarantor of any kind or character, whether in cash, property or securities, shall be received by the Trustee or any Holder of Notes at a time when such payment or distribution is prohibited by Section 12.02(a) and before all obligations in respect of the Senior Debt of such Guarantor are paid in full in cash or Cash Equivalents, such payment or distribution shall be received and held for the benefit of, and shall be paid over or delivered to, the holders of such Senior Debt (pro rata to such holders on the basis of the respective amounts of such Senior Debt held by such holders) or their respective representatives, or to the trustee or trustees or agent or agents under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of such Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. The consolidation of any Guarantor with, or the merger of any Guarantor with or into, another corporation or the liquidation or dissolution of any Guarantor following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Five shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 12.02 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by acceleration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by or on behalf of any Guarantor or any other Person on its behalf with respect to any Obligations on the applicable Guarantee or to acquire any of the Notes for cash or property or otherwise (except that holders of the Notes may receive Defeasance Trust Payments). In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives a Payment Blockage Notice to the Trustee, then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Debt terminating the Payment Blockage Period, during the Payment Blockage Period, no Guarantor or any other Person on such Guarantor's behalf, shall (x) make any payment of any kind or character with respect to any Obligations on the applicable Guarantee or (y) acquire any of the Notes for cash or property or otherwise (except that holders of the Notes may receive Defeasance Trust Payments). Notwithstanding anything herein to the contrary, in no event will a Payment Blockage Period extend beyond 180 days from the date the Payment Blockage Notice is delivered and only one such Payment Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Desig- 75 -68- nated Senior Debt shall be, or be made, the basis for commencement of a second Payment Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Payment Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). SECTION 12.03. Subrogation. Upon the payment in full in cash or Cash Equivalents of all Senior Debt of a Guarantor, or provision for payment, the Holders of the Notes shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of such Guarantor made on such Senior Debt until the principal of and interest on the Notes shall be paid in full in cash or Cash Equivalents; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Debt of any cash, property or securities to which the Holders of the Notes or the Trustee on their behalf would be entitled except for the provisions of this Article Twelve, and no payment over pursuant to the provisions of this Article Twelve to the holders of such Senior Debt by Holders of the Notes or the Trustee on their behalf shall, as between such Guarantor, its creditors other than holders of such Senior Debt, and the Holders of the Notes, be deemed to be a payment by such Guarantor to or on account of such Senior Debt. It is understood that the provisions of this Article Twelve are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of Senior Debt of any such Guarantor on the other hand. If any payment or distribution to which the Holders of the Notes would otherwise have been entitled but for the provisions of this Article Twelve shall have been applied, pursuant to the provisions of this Article Twelve, to the payment of all amounts payable under Senior Debt of the Guarantors, then and in such case, the Holders of the Notes shall be entitled to receive from the holders of such Senior Debt any payments or distributions received by such holders of Senior Debt in excess of the amount required to make payment in full in cash of such Senior Debt. SECTION 12.04. Obligations of Guarantors Unconditional. Subject to Sections 11.03 and 8.02, nothing contained in this Article Twelve or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among any Guarantor and the Holders of the Notes, the obligation of such Guarantor, which is absolute and unconditional, to pay to the Holders of the Notes the principal of and interest on the Notes as and when the same shall become due and payable in accordance with the terms of the Guarantee, or is intended to or shall affect the relative rights of the such Guarantor of the Notes and creditors of any Guarantor other than the holders of Senior Debt of such Guarantor, as the case may be, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve of the holders of Senior Debt in respect of cash, property or securities of such Guarantor received upon the exercise of any such remedy. Without limiting the generality of the foregoing, nothing contained in this Article Twelve shall restrict the right of the Trustee or the Holders of Notes to take any action to declare the Notes to be due and payable prior to their stated maturity pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided, however, that all Senior Debt of each Guarantor then due and payable shall first be paid in full in cash or 76 -69- Cash Equivalents before the Holders of the Notes or the Trustee are entitled to receive any direct or indirect payment from such Guarantor of principal of or interest on the Notes pursuant to the Guarantee. SECTION 12.05. Notice to Trustee and Paying Agent. The Issuers shall give prompt written notice to the Trustee and the Paying Agent of any fact known to them which would prohibit the making of any payment to or by the Trustee or the Paying Agent in respect of the Notes pursuant to the provisions of this Article Twelve. Neither the Trustee nor the Paying Agent shall be charged with knowledge of the existence of any event of default with respect to any Senior Debt of a Guarantor or of any other facts which would prohibit the making of any payment to or by the Trustee or the Paying Agent unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of either of the Issuers, or by a holder of Senior Debt of a Guarantor or trustee or agent therefor; and prior to the receipt of any such written notice, the Trustee shall, subject to Article Seven, be entitled to assume that no such facts exist. Nothing contained in this Section 12.05 shall limit the right of the holders of Senior Debt of a Guarantor to recover payments as contemplated by Section 12.03. The Trustee and the Paying Agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Debt of a Guarantor (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee or representative on behalf of any such holder. In the event that either the Trustee or the Paying Agent determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt of a Guarantor to participate in any payment or distribution pursuant to this Article Twelve, the Trustee or the Paying Agent may request such Person to furnish evidence to the reasonable satisfaction of the Trustee or the Paying Agent, as the case may be, as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Twelve, and if such evidence is not furnished, the Trustee and the Paying Agent may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities of a Guarantor referred to in this Article Twelve, the Trustee and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Notes for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Debt of such Guarantor and other indebtedness of such Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve. SECTION 12.07. Trustee's Relation to Senior Debt of a Guarantor. The Trustee, the Agents and any other Agent of the Issuers shall be entitled to all the rights set forth in this Article Twelve with respect to any Senior Debt of a Guarantor which may at any time be held by them in their individual or any other capacity to the same extent as any other holder of Senior Debt of such Guarantor, and nothing in this Indenture shall deprive the Trustee, the Agents or any other Agent of the Issuers of any of its rights as such holder. 77 -70- With respect to the holders of Senior Debt of any Guarantor, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of such Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of any Guarantor. The Trustee shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Notes or to the Issuers or to any other person cash, property or securities to which any holders of Senior Debt of a Guarantor shall be entitled by virtue of this Article Twelve or otherwise. SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of Holders of Senior Debt. No right of any present or future holders of any Senior Debt of a Guarantor to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of such Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by such Guarantor with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The provisions of this Article Twelve are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt of any Guarantor. SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee. Each Holder of Notes by his acceptance of such Notes authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Twelve, and appoints the Trustee his attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, total liquidation or reorganization of any Guarantor (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of any Guarantor, the filing of a claim for the unpaid balance of its or his Notes in the form required in those proceedings. SECTION 12.10. This Article Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Twelve shall not be construed as preventing the occurrence of an Event of Default. SECTION 12.11. Trustee's Compensation Not Prejudiced. Nothing in this Article Twelve shall apply to amounts due to the Trustee or the Agents pursuant to other sections in this Indenture. SECTION 12.12. No Waiver of Guarantee Subordination Provisions. Without in any way limiting the generality of Section 12.08, the holders of Senior Debt of any Guarantor, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Notes to the holders of such Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding or secured; (b) sell, exchange, release or 78 -71- otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (c) release any Person liable in any manner for the collection of such Senior Debt; and (d) exercise or refrain from exercising any rights against the Guarantor and any other Person. ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.01. Trust Indenture Act Controls. This Indenture is subject to the provisions of the TIA that are required to be a part of any indenture subject to the TIA. If any provision of this Indenture modifies any TIA provision that may be so modified, such TIA provision shall be deemed to apply to this Indenture as so modified. If any provision of this Indenture excludes any TIA provision that may be so excluded, such TIA provision shall be excluded from this Indenture. The provisions of TIA Sections 310 through 317 that impose duties on any Person (including the provisions automatically deemed included unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. SECTION 13.02. Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person, by facsimile and confirmed by overnight courier, or mailed by first-class mail addressed as follows: if to the Issuers: 1 Generac Way P.O. Box 239 Jefferson, WI 53549 Attention: Chief Financial Officer Facsimile: (920) 674-5663 Telephone: (920) 674-1760 with copies to: The Beacon Group LLC 399 Park Avenue New York, New York 10022 Attention: Richard A. Aube Facsimile: (212) 339-9109 Telephone: (212) 339-9100 79 -72- King & Spalding 1185 Avenue of the Americas New York, New York 10036-4003 Attention: Mark Zvonkovic, Esq. Facsimile: (212) 556-2222 Telephone: (212) 556-2100 or (212) 556-2250 if to the Trustee: Marine Midland Bank 140 Broadway New York, New York 10005 Attention: Corporate Trust Services/Generac Facsimile: (212) 658-6433 Telephone: (212) 658-6425 if to the Registrar: Bankers Trust Company 4 Albany Street 7th floor New York, New York 10006 Attention: Corporate Trust and Agency Services Each party by notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed, first-class, postage prepaid, to a Holder, including any notice delivered in connection with TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed to such Holder at the address as set forth on the list maintained pursuant to Section 2.05 and shall be sufficiently given to him if so mailed within the time prescribed. To the extent required by the TIA, any notice or communication shall also be mailed to any Person described in TIA Section 313(c). Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 13.03. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c). 80 -73- SECTION 13.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuers to the Trustee to take or refrain from taking any action under this Indenture after the date hereof, the Issuers shall furnish to the Trustee at the request of the Trustee: (1) an Officers' Certificate in form and substance satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with; except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. SECTION 13.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 13.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 13.07. Governing Law. This Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 81 -74- SECTION 13.08. No Recourse Against Others. No director, officer, employee, stockholder or member as such of the Issuers, or any Guarantor, shall have any liability for any obligations of the Issuers or any Guarantor under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. SECTION 13.09. Successors. All agreements of a party to this Indenture contained in this Indenture shall bind such party's successors. SECTION 13.10. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 13.11. Severability. 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, and a Holder shall have no claim therefor against any party hereto. SECTION 13.12. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.13. Legal Holidays. If a payment date is a not a Business Day at a place of payment, payment may be made at that place on the next succeeding Business Day, and no interest shall accrue for the intervening period. [Signature Pages Follow] 82 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. ISSUERS: GENERAC PORTABLE PRODUCTS, LLC By: /s/ [Illegible] --------------------------------------- Name: Title: GPPW, INC. By: /s/ Faith Rosenfeld --------------------------------------- Name: Title: TRUSTEE: MARINE MIDLAND BANK By: /s/ Frank J. Godino --------------------------------------- Name: Frank J. Godino Title: Vice President 83 EXHIBIT A [FORM OF SERIES A NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO AN ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE NOTES OF $250,000 FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS' AND THE REGISTRAR'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. A-1 84 GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series A CUSIP No.:[ ] No. [ ] $[ ] GENERAC PORTABLE PRODUCTS, LLC, a limited liability company (the "Company", which term includes any successor), and GPPW, INC., a Wisconsin corporation ("GPPW", which term includes any successor, and, together with the Company, the "Issuers"), for value received jointly and severally promise to pay to [ ] or registered assigns, the principal sum of [ ] Dollars, on July 1, 2006. Interest Payment Dates: January 1 and July 1, commencing on January 1, 1999. Interest Record Dates: December 15 and June 15. Reference is made to the further provisions of this Note contained herein and the Indenture (as defined), which will for all purposes have the same effect as if set forth at this place. A-2 85 IN WITNESS WHEREOF, each of the Issuers has caused this Note to be signed manually or by facsimile by its duly authorized officers. GENERAC PORTABLE PRODUCTS, LLC By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: GPPW, INC. By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: Dated: [ ] A-3 86 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the 11 1/4% Senior Subordinated Notes due 2006, Series A, described in the within-mentioned Indenture. Dated: [ ] MARINE MIDLAND BANK, as Trustee By:______________________________________ Authorized Signatory or MARINE MIDLAND BANK, as Trustee By Bankers Trust Company, as Authenticating Agent By:______________________________________ Authorized Signatory A-4 87 (REVERSE OF NOTE) GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series A 1. Interest. The Issuers jointly and severally promise to pay interest on the principal amount of this Note at the rate per annum shown above. Cash interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 9, 1998. The Issuers will pay interest semi-annually in arrears on each Interest Payment Date, commencing January 1, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. In addition, the Issuers shall pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful from time to time on demand, in each case at the rate borne by this Note. The Notes are not entitled to the benefit of any mandatory sinking fund. 2. Method of Payment. The Issuers shall pay interest on the Notes (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuers shall pay principal and interest in United States Legal Tender (as defined in the Indenture referred to below). However, the Issuers may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such United States Legal Tender. The Issuers may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bankers Trust Company will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders. The Issuers may, subject to certain exceptions, act as Registrar. A-5 88 4. Indenture. The Issuers issued the Notes under an Indenture, dated as of July 1, 1998 (the "Indenture"), by and among the Issuers and Marine Midland Bank, as Trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. This Note is one of a duly authorized issue of Notes of the Issuers designated as their 11-1/4% Senior Subordinated Notes due 2006 issued under the Indenture. The aggregate principal amount of Notes which may be issued under the Indenture is limited (except as otherwise provided in the Indenture) to $160,000,000. 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, as amended (the "TIA"), as in effect on the date of the Indenture (except as otherwise indicated in the Indenture) until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the TIA for a statement of them. 5. Subordination. The Notes are unsecured obligations of the Issuers and are subordinated in right of payment to all Senior Debt of the Issuers to the extent and in the manner provided in the Indenture. Each Holder of a Note, by accepting a Note, agrees to such subordination, authorizes the Trustee to give effect to such subordination and appoints the Trustee as attorney-in-fact for such purpose. The Notes will rank pari passu in right of payment with any future senior subordinated indebtedness of the Issuers and will rank senior in right of payment to any other subordinated obligations of the Issuers. 6. Optional Redemption. The Notes will be redeemable, at the Issuers' option, in whole at any time or in part from time to time, on and after July 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 2002......................................................... 107.625% 2003......................................................... 104.750% 2004......................................................... 102.875% 2005 and thereafter.......................................... 100.000%
7. Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to July 1, 2001, the Issuers may, at their option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem the Notes at a redemption price equal to 111.25% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Issuers shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. A-6 89 As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of Holdings or the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, other than an offering pursuant to Form S-8 (or any successor thereto); provided that, in the event of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price (plus accrued interest to the redemption date) of the Notes to be redeemed pursuant to the preceding paragraph. 8. Selection and Notice of Redemption. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. 9. Change of Control Offer. Following the occurrence of a Change of Control, the Issuers shall, within 30 days, make a Change of Control Offer for all Notes then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). 10. Limitation on Disposition of Assets. The Issuers are, subject to certain conditions, obligated to make a Net Proceeds Offer for Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Net Proceeds Offer Payment Date (subject to the right of Holders of record on the Interest Relevant Record Date to receive interest due on the relevant Interest Payment Date) with the excess proceeds of certain asset dispositions. 11. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as A-7 90 permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption, except the unredeemed portion of any Note being redeemed in part. 12. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 13. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Issuers at their written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 14. Legal Defeasance and Covenant Defeasance. The Issuers may be discharged from their obligations under the Indenture and the Notes, except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Indenture and the Notes, in each case upon satisfaction of certain conditions specified in the Indenture. 15. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Note. 16. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur indebtedness, to create liens, to sell assets, to permit restrictions on dividends and other payments by Restricted Subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets or to engage in transactions with affiliates or certain other related persons. The limitations are subject to a number of important qualifications and exceptions. The Issuers must report quarterly to the Trustee on compliance with such limitations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations A-8 91 therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. 18. 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 otherwise deal with the Issuers or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No director, officer, employee, stockholder or member of the Issuers, as such, shall have any liability for any obligation of the Issuers 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 a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent signs the certificate of authentication on this Note. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note 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). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Registration Rights. Pursuant to the Registration Rights Agreement, the Issuers will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for an 11 1/4% Senior Subordinated Note due 2006, Series B, of the Issuers which has been registered under the Securities Act, in like principal amount and having terms identical in all material respects to the Initial Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. A-9 92 24. Governing Law. The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. A-10 93 [FORM OF GUARANTEE] SENIOR SUBORDINATED GUARANTEE The Guarantor (capitalized terms used herein have the meanings given such terms in the Indenture referred to in the Note upon which this notation is endorsed) hereby unconditionally guarantees on a senior subordinated basis (such guaranty being referred to herein as the "Guarantee") the due and punctual payment of the principal of, and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal, premium and interest on the Notes, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee, all in accordance with the terms set forth in Article Eleven of the Indenture. The obligations of the Guarantor to the Holders of Notes and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth, and are expressly subordinated and subject in right of payment to the prior payment in full of all Senior Debt of the Guarantor, to the extent and in the manner provided in Article Eleven and Article Twelve of the Indenture. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture or the Authenticating Agent by the manual signature of one of its authorized officers. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law. This Guarantee is subject to release upon the terms set forth in the Indenture. [ ] By:______________________________________ Name: Title: 94 ASSIGNMENT FORM I or we assign and transfer this Note to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) ________________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint_________________________________________________________ agent to transfer this Note on the books of the Issuers. The agent may substitute another to act for him. Dated:___________________ Signed: ______________________________ (Signed exactly as name appears on the other side of this Note) Signature Guarantee:______________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Registrar) 95 EXHIBIT B [FORM OF SERIES B NOTE] GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series B CUSIP No.:[ ] No. [ ] $[ ] GENERAC PORTABLE PRODUCTS, LLC, a limited liability company (the "Company", which term includes any successor), and GPPW, INC., a Wisconsin corporation ("GPPW", which term includes any successor and, together with the Company, the "Issuers"), for value received jointly and severally promise to pay to [ ] or registered assigns, the principal sum of [ ] Dollars, on July 1, 2006. Interest Payment Dates: January 1 and July 1, commencing on January 1, 1999. Interest Record Dates: December 15 and June 15. Reference is made to the further provisions of this Note contained herein and the Indenture (as defined), which will for all purposes have the same effect as if set forth at this place. B-1 96 IN WITNESS WHEREOF, each of the Issuers has caused this Note to be signed manually or by facsimile by its duly authorized officers. GENERAC PORTABLE PRODUCTS, LLC By:______________________________________ Name: Title: By:______________________________________ Name: Title: GPPW, INC. By:______________________________________ Name: Title: By:______________________________________ Name: Title: Dated: [ ] B-2 97 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 11 1/4% Senior Subordinated Notes due 2006, Series B, described in the within-mentioned Indenture. Dated: [ ] MARINE MIDLAND BANK, as Trustee By:______________________________________ Authorized Signatory or MARINE MIDLAND BANK, as Trustee By Bankers Trust Company, as Authenticating Agent By:______________________________________ Authorized Signatory B-3 98 (REVERSE OF NOTE) GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series B 1. Interest. The Issuers jointly and severally promise to pay interest on the principal amount of this Note at the rate per annum shown above. Cash interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 9, 1998. The Issuers will pay interest semi-annually in arrears on each Interest Payment Date, commencing January 1, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. In addition, the Issuers shall pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful from time to time on demand, in each case at the rate borne by this Note. The Notes are not entitled to the benefit of any mandatory sinking fund. 2. Method of Payment. The Issuers shall pay interest on the Notes (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuers shall pay principal and interest in United States Legal Tender (as defined in the Indenture referred to below). However, the Issuers may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such United States Legal Tender. The Issuers may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bankers Trust Company will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders. The Issuers may, subject to certain exceptions, act as Registrar. 4. Indenture. The Issuers issued the Notes under an Indenture, dated as of July 1, 1998 (the "Indenture"), by and among the Issuers and Marine Midland Bank, as Trustee (the "Trustee"). Capitalized terms herein are used B-4 99 as defined in the Indenture unless otherwise defined herein. This Note is one of a duly authorized issue of Notes of the Issuers designated as their 11 1/4% Senior Subordinated Notes due 2006, Series B, under the Indenture. The aggregate principal amount of Notes which may be issued under the Indenture is limited (except as provided in the Indenture) to $160,000,000. 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, as amended (the "TIA"), as in effect on the date of the Indenture (except as otherwise indicated in the Indenture) until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the TIA for a statement of them. 5. Subordination. The Notes are unsecured obligations of the Issuers and are subordinated in right of payment to all Senior Debt of the Issuers to the extent and in the manner provided in the Indenture. Each Holder of a Note, by accepting a Note, agrees to such subordination, authorizes the Trustee to give effect to such subordination and appoints the Trustee as attorney-in-fact for such purpose. The Notes will rank pari passu in right of payment with any future senior subordinated indebtedness of the Issuers and will rank senior in right of payment to any other subordinated obligations of the Issuers. 6. Optional Redemption. The Notes will be redeemable, at the Issuers' option, in whole at any time or in part from time to time, on and after July 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 2002.................................................. 107.625% 2003.................................................. 104.750% 2004.................................................. 102.875% 2005 and thereafter................................... 100.000%
7. Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to July 1, 2001, the Issuers may, at their option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem the Notes at a redemption price equal to 111.25% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Issuers shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of Holdings or the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, other than an offering pursuant to Form S-8 (or any successor thereto); provided that, in the event of a Public Equity Offering by Holdings, Holdings contributes to the B-5 100 capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price (plus accrued interest to the redemption date) of the Notes to be redeemed pursuant to the preceding paragraph. 8. Selection and Notice of Redemption. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. 9. Change of Control Offer. Following the occurrence of a Change of Control, the Issuers shall, within 30 days, make a Change of Control Offer for all Notes then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). 10. Limitation on Disposition of Assets. The Issuers are, subject to certain conditions, obligated to make a Net Proceeds Offer for Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Net Proceeds Offer Payment Date (subject to the right of Holders of record on the Interest Relevant Record Date to receive interest due on the relevant Interest Payment Date) with the excess proceeds of certain Asset Sales. 11. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption, except the unredeemed portion of any Note being redeemed in part. B-6 101 12. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 13. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Issuers at their written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 14. Legal Defeasance and Covenant Defeasance. The Issuers may be discharged from their obligations under the Indenture and the Notes, except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Indenture and the Notes, in each case upon satisfaction of certain conditions specified in the Indenture. 15. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Note. 16. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur indebtedness, to create liens, to sell assets, to permit restrictions on dividends and other payments by Restricted Subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets or to engage in transactions with affiliates or certain other related persons. The limitations are subject to a number of important qualifications and exceptions. The Issuers must report quarterly to the Trustee on compliance with such limitations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. B-7 102 18. 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 otherwise deal with the Issuers or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No director, officer, employee, stockholder or member of the Issuers, as such, shall have any liability for any obligation of the Issuers 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 a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent signs the certificate of authentication on this Note. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note 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). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Governing Law. The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect of applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. B-8 103 [FORM OF GUARANTEE] SENIOR SUBORDINATED GUARANTEE The Guarantor (capitalized terms used herein have the meanings given such terms in the Indenture referred to in the Note upon which this notation is endorsed) hereby unconditionally guarantees on a senior subordinated basis (such guaranty being referred to herein as the "Guarantee") the due and punctual payment of the principal of, and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal, premium and interest on the Notes, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee, all in accordance with the terms set forth in Article Eleven of the Indenture. The obligations of the Guarantor to the Holders of Notes and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth, and are expressly subordinated and subject in right of payment to the prior payment in full of all Senior Debt of the Guarantor, to the extent and in the manner provided in Article Eleven and Article Twelve of the Indenture. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture or the Authenticating Agent by the manual signature of one of its authorized officers. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law. This Guarantee is subject to release upon the terms set forth in the Indenture. [ ] By:______________________________________ Name: Title: 104 ASSIGNMENT FORM I or we assign and transfer this Note to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) ________________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint_________________________________________________________ agent to transfer this Note on the books of the Issuers. The agent may substitute another to act for him. Dated:___________________ Signed: ________________________________ (Signed exactly as name appears on the other side of this Note) Signature Guarantee: __________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Registrar) 105 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate box: Section 4.05 [ ] Section 4.14 [ ] If you want to elect to have only part of this Note purchased by the Issuers pursuant to Section 4.05 or Section 4.14 of the Indenture, state the amount: $_____________ Dated:___________________ Your Signature:_____________________ (Signed exactly as name appears on the other side of this Note) Signature Guarantee: _________________________ 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. 106 EXHIBIT C FORM OF LEGEND FOR GLOBAL NOTES Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Note) in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE. C-1 107 EXHIBIT D CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re: 11-1/4% Senior Subordinated Notes due 2006 (the "Notes") Generac Portable Products, LLC and GPPW, Inc. This Certificate relates to $_______ principal amount of Notes held in the form of* ___ a beneficial interest in a Global Note or* _______ Physical Notes by ______ (the "Transferor"). The Transferor:* / / has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Physical Note or Physical Notes in definitive, registered form of authorized denominations and an aggregate number equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or / / has requested by written order that the Registrar exchange or register the transfer of a Physical Note or Physical Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Notes and the restrictions on transfers thereof as provided in Section 2.16 of such Indenture, and that the transfer of the Notes does not require Registration under the Securities Act of 1933, as amended (the "Act"), because*: / / Such Note is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 2.16 of the Indenture). / / Such Note is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A. / / Such Note is being transferred to an institutional "accredited investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Act) which delivers a certificate to the Trustee in the form of Exhibit E to the Indenture. / / Such Note is being transferred in reliance on Rule 144 under the Act. / / Such Note is being transferred in reliance on and in compliance with an exemption from the Registration requirements of the Act other than Rule 144A or Rule 144 under the Act to a person other than an institutional "accredited investor." [An Opinion of Counsel to the effect that such transfer does not require Registration under the Securities Act accompanies this certification.] ________________________________ [INSERT NAME OF TRANSFEROR] By: ____________________________ [Authorized Signatory] Date:________________________ *Check applicable box. D-1 108 EXHIBIT E Form of Transferee Letter of Representation Bankers Trust Company 4 Albany Street New York, NY 10006 Attention: Corporate Trust and Agency Services Dear Sirs: This certificate is delivered to request a transfer of $________ principal amount of the 11 1/4% Senior Subordinated Notes due 2006 of Generac Portable Products, LLC and GPPW, Inc. (the "Issuers") and any guarantee thereof (the "Notes"). Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name:______________________________ Address:___________________________ Taxpayer ID Number:________________ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities Act")) purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Notes and we invest in or purchase securities similar to the Notes in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Issuers or any affiliate of the Issuers was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to an Issuer, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act, that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Notes of $250,000 or (e) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (d) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Issuers and the Registrar, which shall provide, among other things, E-1 109 that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. The Issuers and the Registrar reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clause (d) or (e) above to require the delivery of an opinion of counsel, certificates and/or other information satisfactory to the Issuers and the Registrar. Dated: ______________________ TRANSFEREE: By: ________________________________ E-2 EX-4.2 11 REGISTRATION RIGHTS AGREEMENT 1 Exhibit 4.2 - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of July 2, 1998 Among GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. as Issuers, and BT ALEX. BROWN INCORPORATED, as Initial Purchaser 11 1/4% Senior Subordinated Notes due 2006 - -------------------------------------------------------------------------------- 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is dated as of July 2, 1998, among GENERAC PORTABLE PRODUCTS, LLC, a Delaware limited liability company (the "Operating Company"), and GPPW, INC., a Wisconsin corporation (the "Co-Issuer," and together with the Operating Company, the "Issuers"), as issuers, and BT ALEX. BROWN INCORPORATED, as initial purchaser (the "Initial Purchaser"). This Agreement is entered into in connection with the Purchase Agreement, dated as of July 2, 1998, among the Issuers and the Initial Purchaser (the "Purchase Agreement"), which provides for, among other things, the sale by the Issuers to the Initial Purchaser of $110,000,000 aggregate principal amount of the Issuers' 11 1/4% Senior Subordinated Notes due 2006 (the "Notes"). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchaser and any subsequent holder or holders of the Notes. The execution and delivery of this Agreement is a condition to the Initial Purchaser's obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4 hereof. Advice: See the last paragraph of Section 5 hereof. Agreement: See the introductory paragraphs hereto. Applicable Period: See Section 2 hereof. Effectiveness Date: The 270th day after the Issue Date; provided, however, that with respect to any Shelf Registration, the Effectiveness Date shall be the 210th day after the Filing Date with respect thereto. Effectiveness Period: See Section 3 hereof. Event Date: See Section 4 hereof. 3 -2- Exchange Act: The Notes Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2 hereof. Exchange Offer: See Section 2 hereof. Exchange Offer Registration Statement: See Section 2 hereof. Filing Date: (A) If no Exchange Offer Registration Statement has been filed by the Issuers pursuant to this Agreement, the 210th day after the Issue Date; and (B) with respect to a Shelf Registration Statement, the 60th day after the delivery of a Shelf Notice as required pursuant to Section 2(c) hereof. Holder: Any holder of a Registrable Note or Registrable Notes. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Indenture: The Indenture, dated as of July 1, 1998, by and among the Issuers and Marine Midland Bank, as trustee, pursuant to which the Notes are being issued, as the same may be amended or supplemented from time to time in accordance with the terms thereof. Initial Purchaser: See the introductory paragraphs hereto. Initial Shelf Registration: See Section 3(a) hereof. Inspectors: See Section 5(m) hereof. Issue Date: July 9, 1998, the date of original issuance of the Notes. Issuers: See the introductory paragraphs hereto. NASD: See Section 5(r) hereof. Notes: See the introductory paragraphs hereto. Offering Memorandum: The final offering memorandum of the Company dated July 2, 1998, in respect of the offering of the Notes. Participant: See Section 7(a) hereof. 4 -3- Participating Broker-Dealer: See Section 2 hereof. Person: An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2 hereof. Private Exchange Notes: See Section 2 hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the introductory paragraphs hereof. Records: See Section 5(m) hereof. Registrable Notes: Each Security upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect only to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold without restriction under state and federal securities laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, may be resold without restriction pursuant to Rule 144 (or any similar provision then in force) under the Securities Act. Registration Statement: Any registration statement of the Issuers that covers any of the Notes, the Exchange Notes or the Private Exchange Notes filed with the SEC under 5 -4- the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of the issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Notes and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2 hereof. Shelf Registration: See Section 3(b) hereof. Subsequent Shelf Registration: See Section 3(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and the trustee (if any) under any indenture governing the Exchange Notes and Private Exchange Notes. Underwritten registration or underwritten offering: A registration in which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) To the extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Issuers shall file with the SEC, no later than the Filing Date, a Registration Statement (the "Exchange Offer Registration Statement") on an appropri- 6 -5- ate registration form with respect to a registered offer (the "Exchange Offer") to exchange any and all of the Registrable Notes for a like aggregate principal amount of notes of the Company, that are identical in all material respects to the Notes (the "Exchange Notes"), except that (i) the Exchange Notes shall contain no restrictive legend thereon and (ii) interest thereon shall accrue from the last date on which interest was paid on the Notes or, if no such interest has been paid, from the Issue Date, and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable law. The Issuers shall use their reasonable best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the later of (i) the 45th day following the date on which the Exchange Offer Registration Statement is declared effective by the SEC or (ii) the 300th day after the Issue Date. If, after the Exchange Offer Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, the Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement during the period of such interference, until the Exchange Offer may legally resume. Each Holder that participates in the Exchange Offer will be required, as a condition to its participation in the Exchange Offer, to represent to the Issuers in writing (which may be contained in the applicable letter of transmittal) that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act, and that such Holder is not an affiliate of the Company within the meaning of the Securities Act. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating Broker-Dealers (as defined), and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. 7 -6- No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement. (b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchaser, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such "Plan of Distribution" section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act. The Issuers shall use their best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes covered thereby, provided, however, that such period shall not be required to exceed 180 days, or such longer period if extended pursuant to the last sentence of Section 5 (the "Applicable Period"). If, prior to consummation of the Exchange Offer, the Initial Purchaser holds any Notes acquired by it that have the status of an unsold allotment in the initial distribution, the Issuers upon the request of the Initial Purchaser shall simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchaser, in exchange (the "Private Exchange") for such Notes held by the Initial Purchaser, a like principal amount of notes (the "Private Exchange Notes") of the Issuers, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes. In connection with the Exchange Offer, the Issuers shall: (1) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Of- 8 -7- fer Registration Statement, together with an appropriate letter of transmittal and related documents; (2) use their best efforts to keep the Exchange Offer open for not less than 20 days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law); (3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (4) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (5) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Issuers shall: (1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange, if any; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or the Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuers to proceed with the Exchange Offer or the Private Exchange, (iii) all governmental approvals shall have been obtained, which approvals the Issuers deem necessary for the consummation of the Exchange Offer or the Private Exchange, (iv) there has not been any material change, or development involving a prospective material change, in the business or financial affairs of the Issuers which, in the reasonable judgment of the Issuers, would materially impair the Issuers' ability to consummate the Exchange Offer or the Private Exchange Offer, and (v) there has not been proposed, adopted or enacted any law, statute, rule or regulation which, in the reasonable 9 -8- judgment of the Issuers, would materially impair the Issuers' ability to consummate the Exchange Offer or the Private Exchange Offer or have a material adverse effect on the Issuers if the Exchange Offer or the Private Exchange Offer was consummated. In the event that the Issuers are unable to consummate the Exchange Offer or the Private Exchange Offer due to any event listed in clauses (i) through (v) above, the Issuers shall not be deemed to have breached any covenant under this Section 2. Each Holder of Registrable Notes who wishes to exchange such Registrable Notes for Exchange Notes in the Exchange Offer will be required to make certain customary representations in connection therewith, including representations that such Holder is not an affiliate of the Issuers within the meaning of Rule 405 under the Securities Act, that any Exchange Notes to be received by it will be acquired in the ordinary course of business and that at the time of commencement of the Exchange Offer it had no arrangement with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and will be required to make such other representations as may be necessary under applicable SEC rules, regulations or interpretations to render available the use of Form S-4 or any other appropriate form under the Securities Act. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. (c) If (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 300 days of the Issue Date, (iii) the holder of Private Exchange Notes so requests in writing to the Issuers within 60 days after the consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of one of the Issuers within the meaning of the Securities Act), then in the case of each of clauses (i) to and including (iv) of this sentence, the Issuers shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3 hereof. 10 -9- 3. Shelf Registration If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Issuers shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is applicable (the "Initial Shelf Registration"). The Issuers shall use their reasonable best efforts to file with the SEC the Initial Shelf Registration on or before the applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). No Holder of Registrable Notes may include any of its Registrable Notes in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Issuers in writing, within 5 days after receipt of a request therefor, such information the Issuers may reasonably request for inclusion in any Shelf Registration Statement or prospectus or preliminary prospectus included therein. No Holder of Registrable Notes shall be entitled to Additional Interest pursuant to Section 4 hereof unless and until such Holder shall have provided all such information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers additional information required to be disclosed in the applicable Shelf Registration Statement by the rules and regulations of the SEC in order to make the information previously furnished to the Issuers by such Holder not materially misleading. The Issuers shall, subject to applicable law or applicable interpretation of the staff of the SEC, use their reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the Issue Date or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or cease to be outstanding or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has been declared effective under the Securities Act (the "Effectiveness Period"), provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent re- 11 -10- quired to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Issuers shall use their reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 60 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Issuers shall use their reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Issuers shall use their reasonable best efforts to promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. 4. Additional Interest (a) The Issuers and the Initial Purchaser agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Issuers agree to pay, as liquidated damages, additional interest on the Notes ("Additional Interest") under the circumstances and to the extent set forth below (each of which shall be given independent effect): (i) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed on or prior to the applicable Filing Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Reg- 12 -11- istration is not filed on or prior to the Filing Date applicable thereto, then, commencing on the day after any such Filing Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following each such Filing Date, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the relevant Effectiveness Date or (B) notwithstanding that the Issuers have consummated or will consummate the Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date in respect of such Shelf Registration, then, commencing on the day after such Effectiveness Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following the day after such Effectiveness Date, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Issuers have not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the later of the 45th day after the date on which the Exchange Offer Registration Statement relating thereto was declared effective or the 300th day after the Issue Date or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days commencing on the (x) 46th or 301st day, as the case may be, after such effective date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each such subsequent 90-day period; provided, however, that the Additional Interest rate on the Notes may not exceed at any one time in the aggregate 1.00% per annum; provided, further, however, that (1) upon the filing of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration as required hereunder (in the case of clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of the applicable Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), Additional In- 13 -12- terest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Issuers shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semiannually on each January 1 and July 1 (to the holders of record on the December 15 and June 15 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Registrable Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder each of the Issuers shall: (a) Prepare and file with the SEC prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use their reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers, if requested, shall furnish to and afford the Holders of the Registrable Notes included in such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five days prior to such filing, or such later date as is reasonable under the circumstances). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes included in such Registration Statement, or any such Participating 14 -13- Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object on a timely basis. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to each of them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their reasonable best efforts to keep a Registration Statement effective during the Effectiveness Period or the Applicable Period, as the case may be, relating thereto if any Issuer voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law or permitted by this Agreement. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom the Company Issuers have received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within one day), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the repre- 15 -14- sentations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 5(l) hereof cease to be true and correct in all material respects, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible time. (e) If a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after an Issuer has received notification of the matters to be incorporated in such prospectus supplement or 16 -15- post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes who so requests and to counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto, provided that such use complies with all applicable laws and regulations. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that no Issuer shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any ac- 17 -16- tion that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and cause such Registrable Notes to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the managing underwriter or underwriters, if any, or Selling Holders may request. (j) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(iv) or 5(c)(v) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Issuers shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, in the event that, and for a period not to exceed an aggregate of 60 days in any calendar year if, (i) an event occurs and is continuing as a result of which the Shelf Registration would, in the Issuers' good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) (a) the Issuers determine in their good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Issuers or (b) the disclosure otherwise relates to a pending material business transaction that has not yet been publicly disclosed. (k) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a 18 -17- form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (l) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes in form and substance reasonably satisfactory to the Issuers and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Issuers and the subsidiaries of the Issuers (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested in form and substance reasonably satisfactory to the Issuers; (ii) obtain the written opinions of counsel to the Issuers and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) use its best efforts to obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent public accountants of the Issuers (and, if necessary, any other independent public accountants of the Issuers, any subsidiary of the Issuers or of any business acquired by the Issuers for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (m) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer 19 -18- who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Issuers and subsidiaries of the Issuers (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Issuers and any of their subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will keep the Records confidential and that it will not disclose any of the Records that the Issuers determine, in good faith, to be confidential and notify the Inspectors in writing are confidential unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to an effective subpoena or other order from a court of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public other than as a result of a breach of confidentiality or secrecy to the Issuers; provided, however, that prior notice shall be provided as soon as practicable to the Issuers of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Issuers to obtain a protective order (or waive the provisions of this paragraph (m)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. (n) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (o) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earnings statement satisfying the provisions of Section 11(a) of the Securities 20 -19- Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 60 days after the end of any fiscal quarter (or 120 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Issuers after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes, as the case may be, and the related indenture constitute legal, valid and binding obligations of the Issuers, enforceable against them in accordance with their respective terms, subject to customary exceptions and qualifications. (q) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being canceled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (r) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (s) Use their reasonable best efforts to take all other steps reasonably necessary to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby. The Issuers may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the proposed distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from such registration the Registrable Notes of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. 21 -20- If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Issuers, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Issuers, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Issuers of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "Advice") by the Issuers that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Issuers shall give any such notice, the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) the Advice. 6. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers (other than any underwriting discounts or commissions) shall be borne by the Issuers whether or not the Exchange Offer Registration Statement or any Shelf Registration is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) reasonable fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such 22 -21- jurisdictions (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or in respect of Registrable Notes or Exchange Notes to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Issuers and, in connection with any Shelf Registration Statement, the reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Notes who shall be King & Spalding, unless another firm shall be chosen by the Holders of a majority in principal amount of the Registrable Notes for whose benefit such Shelf Registration Statement is being prepared (exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Issuers desire such insurance, (vii) fees and expenses of all other Persons retained by the Issuers, (viii) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees of the Issuers performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. 7. Indemnification (a) Each of the Issuers, jointly and severally, agrees to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the affiliates, officers, directors, representatives, employees and agents of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages, judgments, liabilities and expenses (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment 23 -22- thereto) or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Issuers in writing by such Participant expressly for use therein and with respect to any preliminary Prospectus, to the extent that any such loss, claim, damage or liability arises solely from the fact that any Participant sold Notes to a person to whom there was not sent or given a copy of the Prospectus (as amended or supplemented) at or prior to the written confirmation of such sale if the Issuers shall have previously furnished copies thereof to the Participant in accordance herewith and the Prospectus (as amended or supplemented) would have corrected any such untrue statement or omission. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective affiliates, officers, directors, representatives, employees and agents of each Issuer and each Person who controls each Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent (but on a several, and not joint, basis) as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant furnished to the Issuers in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Persons against whom such indemnity may be sought (the "Indemnifying Persons") in writing, and the Indemnifying Persons, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person in such proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Persons (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the Indemnifying Person of substantial rights and defenses and (ii) will not, in any event, relieve the Indemnifying Person from any obligations to any Indemnified Person which it may have other than on account of this indemnity agreement. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel and partici- 24 -23- pate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed to assume the defense thereof or within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Persons shall not, in connection with such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes and Exchange Notes sold by all such Participants and shall be reasonably acceptable to the Issuers, and any such separate firm for the Issuers, their affiliates, officers, directors, representatives, employees and agents and such control Persons of such Issuer shall be designated in writing by such Issuer and shall be reasonably acceptable to the Holders. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, each Indemnifying Person agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the 25 -24- amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties 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 Issuers on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, judgments, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, pursuant to a Registration Statement exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the Indemnifying Person to the Indemnified Person as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Holder or any person who controls a Holder, the Issuers, their directors, officers, employees or agents or any person controlling an Issuer, and (ii) any termination of this Agreement. 26 -25- (g) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A Each of the Issuers covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, for so long as any Registrable Notes remain outstanding, if such Issuer is not required to file such reports, such Issuer will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. Each of the Issuers further covenants and agrees, for so long as any Registrable Notes remain outstanding, that it will take such further action as any Holder of Registrable Notes may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and shall be reasonably acceptable to the Issuers. No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) No Inconsistent Agreements. The Issuers have not, as of the date hereof, and the Issuers shall not, after the date of this Agreement, enter into any agreement with respect to any of their securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The 27 -26- 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 Issuers' other issued and outstanding securities under any such agreements. The Issuers will not enter into any agreement with respect to any of their securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. (b) Adjustments Affecting Registrable Notes. The Issuers shall not, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Issuers and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being sold pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: (i) if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture. 28 -27- (ii) if to the Issuers, at the address as follows: c/o Generac Portable Products, Inc. 1 Generac Way P.O. Box 239 Jefferson, WI 53549 Facsimile No.: (920) 674-5663 Attention: Chief Financial Officer with copies to: King & Spalding 1185 Avenue of the Americas New York, NY 10036 Facsimile No.: (212) 556-2222 Attention: Mark Zvonkovic All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when transmission is confirmed, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Notes in violation of the terms of the Purchase Agreement or the Indenture. (f) 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. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 29 -28- (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Notes Held by the Issuers or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by the Issuers or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third-Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 30 S-1 WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. THE ISSUERS: GENERAC PORTABLE PRODUCTS, LLC By: /s/ [illegible] ---------------------------------------- Name: Title: GPPW, INC. By: /s/ Faith Rosenfeld ---------------------------------------- Name: Title: The foregoing Agreement is hereby con- firmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED as Initial Purchaser By: /s/ Alok Singh --------------------------- Name: Alok Singh Title: Managing Director EX-4.3 12 FORM OF SECURITY 1 EXHIBIT 4.3 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO AN ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE NOTES OF $250,000 FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS' AND THE REGISTRAR'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. 2 GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series A CUSIP No.:36873PAA0 No. 1 $110,000,000 GENERAC PORTABLE PRODUCTS, LLC, a limited liability company (the "Company", which term includes any successor), and GPPW, INC., a Wisconsin corporation ("GPPW", which term includes any successor, and, together with the Company, the "Issuers"), for value received jointly and severally promise to pay to CEDE &CO. or registered assigns, the principal sum of ONE HUNDRED TEN MILLION Dollars, on July 1, 2006. Interest Payment Dates: January 1 and July 1, commencing on January 1, 1999. Interest Record Dates: December 15 and June 15. Reference is made to the further provisions of this Note contained herein and the Indenture (as defined), which will for all purposes have the same effect as if set forth at this place. 3 IN WITNESS WHEREOF, each of the Issuers has caused this Note to be signed manually or by facsimile by its duly authorized officers. GENERAC PORTABLE PRODUCTS, LLC By: /s/ Dorrance J. Noonan, Jr. ----------------------------------------------- Name: Dorrance J. Noonan, Jr. Title: President and Chief Executive Officer By: /s/ Gary J. Lato ----------------------------------------------- Name: Gary J. Lato Title: CFO GPPW, INC. By: /s/ Faith Rosenfeld ----------------------------------------------- Name: Faith Rosenfeld Title: President By: /s/ Richard A. Aube ----------------------------------------------- Name: Richard A. Aube Title: Secretary and Treasurer Dated: July 9, 1998 4 This is one of the 11 1/4% Senior Subordinated Notes due 2006, Series A, described in the within-mentioned Indenture. Dated: July 9, 1998 MARINE MIDLAND BANK, as Trustee By: ----------------------------------- Authorized Signatory or MARINE MIDLAND BANK, as Trustee By Bankers Trust Company, as Authenticating Agent By: /s/ [Illegible] ---------------------------------- Authorized Signatory 5 (REVERSE OF NOTE) GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series A 1. Interest. The Issuers jointly and severally promise to pay interest on the principal amount of this Note at the rate per annum shown above. Cash interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 9, 1998. The Issuers will pay interest semi-annually in arrears on each Interest Payment Date, commencing January 1, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. In addition, the Issuers shall pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful from time to time on demand, in each case at the rate borne by this Note. The Notes are not entitled to the benefit of any mandatory sinking fund. 2. Method of Payment. The Issuers shall pay interest on the Notes (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuers shall pay principal and interest in United States Legal Tender (as defined in the Indenture referred to below). However, the Issuers may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such United States Legal Tender. The Issuers may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bankers Trust Company will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders. The Issuers may, subject to certain exceptions, act as Registrar. 4. Indenture. The Issuers issued the Notes under an Indenture, dated as of July 1, 1998 (the "Indenture"), by and among the Issuers and Marine Midland Bank, as Trustee (the "Trustee"). Capitalized terms herein are used 6 as defined in the Indenture unless otherwise defined herein. This Note is one of a duly authorized issue of Notes of the Issuers designated as their 11-1/4% Senior Subordinated Notes due 2006 issued under the Indenture. The aggregate principal amount of Notes which may be issued under the Indenture is limited (except as otherwise provided in the Indenture) to $160,000,000. 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, as amended (the "TIA"), as in effect on the date of the Indenture (except as otherwise indicated in the Indenture) until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the TIA for a statement of them. 5. Subordination. The Notes are unsecured obligations of the Issuers and are subordinated in right of payment to all Senior Debt of the Issuers to the extent and in the manner provided in the Indenture. Each Holder of a Note, by accepting a Note, agrees to such subordination, authorizes the Trustee to give effect to such subordination and appoints the Trustee as attorney-in-fact for such purpose. The Notes will rank pari passu in right of payment with any future senior subordinated indebtedness of the Issuers and will rank senior in right of payment to any other subordinated obligations of the Issuers. 6. Optional Redemption. The Notes will be redeemable, at the Issuers' option, in whole at any time or in part from time to time, on and after July 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 2002........................................................................... 107.625% 2003........................................................................... 104.750% 2004........................................................................... 102.875% 2005 and thereafter............................................................ 100.000%
7. Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to July 1, 2001, the Issuers may, at their option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem the Notes at a redemption price equal to 111.25% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Issuers shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of Holdings or the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, other than an offering pursuant to Form S-8 (or any successor thereto); provided that, in the event of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay 7 the aggregate redemption price (plus accrued interest to the redemption date) of the Notes to be redeemed pursuant to the preceding paragraph. 8. Selection and Notice of Redemption. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. 9. Change of Control Offer. Following the occurrence of a Change of Control, the Issuers shall, within 30 days, make a Change of Control Offer for all Notes then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). 10. Limitation on Disposition of Assets. The Issuers are, subject to certain conditions, obligated to make a Net Proceeds Offer for Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Net Proceeds Offer Payment Date (subject to the right of Holders of record on the Interest Relevant Record Date to receive interest due on the relevant Interest Payment Date) with the excess proceeds of certain asset dispositions. 11. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption, except the unredeemed portion of any Note being redeemed in part. 12. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 8 13. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Issuers at their written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 14. Legal Defeasance and Covenant Defeasance. The Issuers may be discharged from their obligations under the Indenture and the Notes, except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Indenture and the Notes, in each case upon satisfaction of certain conditions specified in the Indenture. 15. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Note. 16. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur indebtedness, to create liens, to sell assets, to permit restrictions on dividends and other payments by Restricted Subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets or to engage in transactions with affiliates or certain other related persons. The limitations are subject to a number of important qualifications and exceptions. The Issuers must report quarterly to the Trustee on compliance with such limitations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. 9 18. 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 otherwise deal with the Issuers or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No director, officer, employee, stockholder or member of the Issuers, as such, shall have any liability for any obligation of the Issuers 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 a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent signs the certificate of authentication on this Note. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note 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). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Registration Rights. Pursuant to the Registration Rights Agreement, the Issuers will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for an 11 1/4% Senior Subordinated Note due 2006, Series B, of the Issuers which has been registered under the Securities Act, in like principal amount and having terms identical in all material respects to the Initial Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 24. Governing Law. The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby 10 ASSIGNMENT FORM I or we assign and transfer this Note to _______________________________________________________________________________ _______________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) _______________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint _______________________________________________________ agent to transfer this Note on the books of the Issuers. The agent may substitute another to act for him. Dated:___________________ Signed: ______________________________ (Signed exactly as name appears on the other side of this Note) Signature Guarantee: ___________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Registrar) 11 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate box: Section 4.05 [ ] Section 4.14 [ ] If you want to elect to have only part of this Note purchased by the Issuers pursuant to Section 4.05 or Section 4.14 of the Indenture, state the amount: $_____________ Dated:___________________ Your Signature: Signed exactly as name appears on the other side of this Note) Signature Guarantee: __________________________ 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. EX-4.4 13 FORM OF SECURITY 1 EXHIBIT 4.4 GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series B CUSIP No.:36873PAC6 No. [ ] $[ ] GENERAC PORTABLE PRODUCTS, LLC, a limited liability company (the "Company", which term includes any successor), and GPPW, INC., a Wisconsin corporation ("GPPW", which term includes any successor and, together with the Company, the "Issuers"), for value received jointly and severally promise to pay to [ ] or registered assigns, the principal sum of [ ] Dollars, on July 1, 2006. Interest Payment Dates: January 1 and July 1, commencing on January 1, 1999. Interest Record Dates: December 15 and June 15. Reference is made to the further provisions of this Note contained herein and the Indenture (as defined), which will for all purposes have the same effect as if set forth at this place. 2 IN WITNESS WHEREOF, each of the Issuers has caused this Note to be signed manually or by facsimile by its duly authorized officers. GENERAC PORTABLE PRODUCTS, LLC By: ________________________________ Name: Title: By: ________________________________ Name: Title: GPPW, INC. By: ________________________________ Name: Title: By: ________________________________ Name: Title: Dated: [ ] 3 This is one of the 11 1/4% Senior Subordinated Notes due 2006, Series B, described in the within-mentioned Indenture. Dated: [ ] MARINE MIDLAND BANK, as Trustee By: ________________________________ Authorized Signatory or MARINE MIDLAND BANK, as Trustee By Bankers Trust Company, as Authenticating Agent By: _______________________________ Authorized Signatory 4 (REVERSE OF NOTE) GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. 11 1/4% Senior Subordinated Note due 2006, Series B 1. Interest. The Issuers jointly and severally promise to pay interest on the principal amount of this Note at the rate per annum shown above. Cash interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from July 9, 1998. The Issuers will pay interest semi-annually in arrears on each Interest Payment Date, commencing January 1, 1999. Interest will be computed on the basis of a 360-day year of twelve 30-day months. In addition, the Issuers shall pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful from time to time on demand, in each case at the rate borne by this Note. The Notes are not entitled to the benefit of any mandatory sinking fund. 2. Method of Payment. The Issuers shall pay interest on the Notes (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuers shall pay principal and interest in United States Legal Tender (as defined in the Indenture referred to below). However, the Issuers may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such United States Legal Tender. The Issuers may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bankers Trust Company will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to the Holders. The Issuers may, subject to certain exceptions, act as Registrar. 4. Indenture. The Issuers issued the Notes under an Indenture, dated as of July 1, 1998 (the "Indenture"), by and among the Issuers and Marine Midland Bank, as Trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. This Note is one of a duly authorized issue of Notes of the Issuers designated as their 11 1/4% Senior Subordinated Notes due 2006, Series B, under the Indenture. 5 The aggregate principal amount of Notes which may be issued under the Indenture is limited (except as provided in the Indenture) to $160,000,000. 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, as amended (the "TIA"), as in effect on the date of the Indenture (except as otherwise indicated in the Indenture) until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the TIA for a statement of them. 5. Subordination. The Notes are unsecured obligations of the Issuers and are subordinated in right of payment to all Senior Debt of the Issuers to the extent and in the manner provided in the Indenture. Each Holder of a Note, by accepting a Note, agrees to such subordination, authorizes the Trustee to give effect to such subordination and appoints the Trustee as attorney-in-fact for such purpose. The Notes will rank pari passu in right of payment with any future senior subordinated indebtedness of the Issuers and will rank senior in right of payment to any other subordinated obligations of the Issuers. 6. Optional Redemption. The Notes will be redeemable, at the Issuers' option, in whole at any time or in part from time to time, on and after July 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on July 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 2002....................................................................... 107.625% 2003....................................................................... 104.750% 2004....................................................................... 102.875% 2005 and thereafter........................................................ 100.000%
7. Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to July 1, 2001, the Issuers may, at their option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem the Notes at a redemption price equal to 111.25% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Issuers shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of Holdings or the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, other than an offering pursuant to Form S-8 (or any successor thereto); provided that, in the event of a Public Equity Offering by Holdings, Holdings contributes to the capital of the Company the portion of the net cash proceeds of such Public Equity Offering necessary to pay the aggregate redemption price (plus accrued interest to the redemption date) of the Notes to be redeemed pursuant to the preceding paragraph. 6 8. Selection and Notice of Redemption. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. 9. Change of Control Offer. Following the occurrence of a Change of Control, the Issuers shall, within 30 days, make a Change of Control Offer for all Notes then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). 10. Limitation on Disposition of Assets. The Issuers are, subject to certain conditions, obligated to make a Net Proceeds Offer for Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Net Proceeds Offer Payment Date (subject to the right of Holders of record on the Interest Relevant Record Date to receive interest due on the relevant Interest Payment Date) with the excess proceeds of certain Asset Sales. 11. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption, except the unredeemed portion of any Note being redeemed in part. 12. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 7 13. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Issuers at their written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 14. Legal Defeasance and Covenant Defeasance. The Issuers may be discharged from their obligations under the Indenture and the Notes, except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Indenture and the Notes, in each case upon satisfaction of certain conditions specified in the Indenture. 15. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture and the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Note. 16. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur indebtedness, to create liens, to sell assets, to permit restrictions on dividends and other payments by Restricted Subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets or to engage in transactions with affiliates or certain other related persons. The limitations are subject to a number of important qualifications and exceptions. The Issuers must report quarterly to the Trustee on compliance with such limitations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. 8 18. 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 otherwise deal with the Issuers or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No director, officer, employee, stockholder or member of the Issuers, as such, shall have any liability for any obligation of the Issuers 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 a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent signs the certificate of authentication on this Note. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note 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). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Governing Law. The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect of applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 9 ASSIGNMENT FORM I or we assign and transfer this Note to _______________________________________________________________________________ _______________________________________________________________________________ (Print or type name, address and zip code of assignee or transferee) _______________________________________________________________________________ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint _______________________________________________________ agent to transfer this Note on the books of the Issuers. The agent may substitute another to act for him. Dated:___________________ Signed: ______________________________ (Signed exactly as name appears on the other side of this Note) Signature Guarantee: _______________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Registrar) 10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate box: Section 4.05 [ ] Section 4.14 [ ] If you want to elect to have only part of this Note purchased by the Issuers pursuant to Section 4.05 or Section 4.14 of the Indenture, state the amount: $_____________ Dated:___________________ Your Signature: _______________________ (Signed exactly as name appears on the other side of this Note) Signature Guarantee: _____________________________ 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. 11 [FORM OF GUARANTEE] SENIOR SUBORDINATED GUARANTEE The Guarantor (capitalized terms used herein have the meanings given such terms in the Indenture referred to in the Note upon which this notation is endorsed) hereby unconditionally guarantees on a senior subordinated basis (such guaranty being referred to herein as the "Guarantee") the due and punctual payment of the principal of, and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal, premium and interest on the Notes, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee, all in accordance with the terms set forth in Article Eleven of the Indenture. The obligations of the Guarantor to the Holders of Notes and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth, and are expressly subordinated and subject in right of payment to the prior payment in full of all Senior Debt of the Guarantor, to the extent and in the manner provided in Article Eleven and Article Twelve of the Indenture. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication of the Notes upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture or the Authenticating Agent by the manual signature of one of its authorized officers. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law. This Guarantee is subject to release upon the terms set forth in the Indenture. [ ] ----------------------------- By: --------------------------- Name: Title: EX-5.1 14 OPINION OF KING AND SPALDING 1 EXHIBIT 5.1 [Letterhead of King & Spalding] March 1, 1999 Generac Portable Products, Inc. Generac Portable Products, LLC GPPW, Inc. 1 Generac Way Jefferson, Wisconsin 53549 Ladies and Gentlemen: We have acted as counsel to Generac Portable Products, Inc., a Delaware corporation ("Holdings"), Generac Portable Products, LLC, a Delaware limited liability company (the "Company"), and GPPW, Inc., a Wisconsin corporation ("GPPW" and, together with Holdings and the Company, the "Registrants"), in connection with the registration, pursuant to a Registration Statement on Form S-4 (the "Registration Statement") filed today by the Registrants under the Securities Act of 1933, as amended (the "Securities Act"), of (i) the offer to exchange the 11 1/4% Senior Subordinated Notes due 2006 (the "New Notes" ) of the Company and GPPW for all outstanding 11 1/4% Senior Subordinated Notes due 2006 (the "Old Notes" and, together with the New Notes, the "Notes") of the Company and GPPW that were issued on July 2, 1998 in a transaction exempt from the registration requirements of the Securities Act, and (ii) issuance of the irrevocable and unconditional guarantee on a senior subordinated basis by Holdings of the obligations of the Company and GPPW under the New Notes (the "Guarantee"). In our capacity as such counsel, we have reviewed (i) the Registration Statement, (ii) the Indenture (the "Indenture") dated as of July 1, 1998 between the Company, GPPW and Marine Midland Bank, as trustee, relating to the Notes and filed as an exhibit to the Registration Statement and (iii) the Guarantee, filed as an exhibit to the Registration Statement. We have also reviewed such matters of law and examined original, certified, conformed or photographic copies of such other documents, records, agreements and certificates as we have deemed necessary as a basis for the opinions hereinafter expressed. In such review, we have assumed the genuineness of signatures on all documents submitted to us as originals, the conformity to original documents of all copies submitted to us as certified, conformed or photographic copies. We have assumed that the execution and delivery of, and the performance of all obligations under, the Indenture and the Guarantee have been duly authorized by all requisite action by each party thereto, and that such documents have been duly executed and delivered by the parties thereto, and are valid and binding agreements of the parties thereto (other than the Registrants) enforceable against the parties thereto (other than the Registrants) in accordance with their respective terms. 2 Generac Portable Products, Inc. March 1, 1999 Page 2 This opinion is limited in all respects to the laws of the State of New York, and no opinion is expressed with respect to the laws of any other jurisdiction or any effect that such laws may have on the opinions expressed herein. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based upon and subject to the foregoing, we are of the opinion that: 1. The Notes issued under the Indenture constitute valid and binding obligations of the Company and GPPW, enforceable against each of the Company and GPPW in accordance with their terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. 2. The Guarantee constitutes a valid and binding obligation of Holdings, enforceable against Holdings in accordance with its terms, subject to the enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally, general equitable principles and the discretion of courts in granting equitable remedies. . This opinion is given as of the date hereof, and we assume no obligation to update this opinion to reflect any fact or circumstance that may hereafter come to our attention or any change in any law or regulation that may hereafter occur. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to us under the caption "Validity of Notes" in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Very truly yours, /s/ King & Spalding EX-12.1 15 COMPUTATION OF RATIOS 1 EXHIBIT 12.1 RATIO OF EARNINGS TO FIXED CHARGES
PREDECESSOR COMPANY PRO FORMA ---------------------------------- ------------- ------------ YEAR ENDED JULY 10, 1998 DECEMBER 31, JANUARY 1, 1998 THROUGH YEAR ENDED ---------------- THROUGH DECEMBER 31, DECEMBER 31, 1996 1997 JULY 9, 1998 1998 1998 ------ ------- --------------- ------------- ------------ (UNAUDITED) Earnings: Income before income taxes............... $6,757 $18,743 $14,493 $ 6,382 $ 8,895 Add fixed charges: Interest expense.... 2,237 2,100 1,409 9,674 19,988 Deferred financing cost amortization...... -- -- -- 401 825 Portion of rents representative of the interest factor............ 33 154 159 47 94 ------ ------- ------- ------- ------- Earnings as adjusted..... $9,027 $20,997 $16,061 $16,504 $29,802 ====== ======= ======= ======= ======= Fixed charges: Interest expense....... $2,237 $ 2,100 $ 1,409 $ 9,674 $19,988 Deferred financing cost amortization........ -- -- -- 401 825 Portion of rents representative of the interest factor (approximately one-third of rent expense)............ 33 154 159 47 94 ------ ------- ------- ------- ------- Total fixed charges...... $2,270 $ 2,254 $ 1,568 $10,122 $20,907 ====== ======= ======= ======= ======= Ratio of earnings to fixed charges.......... 4.0 9.3 10.2 1.6 1.4 ====== ======= ======= ======= =======
EX-23.1 16 CONSENT OF DELOITTE AND TOUCHE 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULE We consent to the use in this Registration Statement of Generac Portable Products, Inc. on Form S-4 of our report dated January 29, 1999 (relating to the financial statements of the Portable Products Division, a Business Unit of Generac Corporation) appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. Our audits also included the financial statement schedule of the Portable Products Division, a Business Unit of Generac Corporation listed in Item 21. This financial statement schedule is the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin March 2, 1999 EX-23.2 17 CONSENT OF PRICEWATERHOUSECOOPERS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of Generac Portable Products, Inc., Generac Portable Products, LLC and GPPW, Inc. of our report dated February 22, 1999 relating to the financial statements of Generac Portable Products, Inc., which appears in such Prospectus. We also consent to the use of our report on the Financial Statement Schedule included in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. PricewaterhouseCoopers LLP Milwaukee, Wisconsin February 26, 1999 EX-25.1 18 STATEMENT OF ELIGIBILITY 1 Exhibit 25 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ----------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ----------- MARINE MIDLAND BANK (Exact name of trustee as specified in its charter) New York 16-1057879 (Jurisdiction of incorporation (I.R.S. Employer or organization if not a U.S. Identification No.) national bank) 140 Broadway, New York, NY 10005-1180 (212) 658-1000 (Zip Code) (Address of principal executive offices) Warren L. Tischler Senior Vice President Marine Midland Bank 140 Broadway New York, New York 10005-1180 Tel: (212) 658-5167 (Name, address and telephone number of agent for service) GENERAC PORTABLE PRODUCTS, INC. GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. (Exact name of obligor as specified in its charter) Delaware 13-4006887 Delaware 39-1932782 Wisconsin 3621 13-4012695 (State or other jurisdiction (Primary Standard Industrial Classification (I.R.S. Employer of incorporation or organization) Code Number) Identification Number)
2 1 Generac Way Jefferson, Wisconsin, 53549 (920) 674-3750 (Address,including zip code, and telephone number, including area code, of registrant's of principal executive offices) Dorrance J. Noonan, Jr. President and Chief Executive Officer Generac Portable Products, LLC 1 Generac Way Jefferson, Wisconsin 53549 (920) 674-3750 (Name, address, including zip code, and telephone number, Including area code, of agent for service) 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 (Title of Indenture Securities) 3 General Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. State of New York Banking Department. Federal Deposit Insurance Corporation, Washington, D.C. Board of Governors of the Federal Reserve System, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None 4 Item 16. List of Exhibits. Exhibit T1A(i) * - Copy of the Organization Certificate of Marine Midland Bank. T1A(ii) * - Certificate of the State of New York Banking Department dated December 31, 1993 as to the authority of Marine Midland Bank to commence business. T1A(iii) - Not applicable. T1A(iv) * - Copy of the existing By-Laws of Marine Midland Bank as adopted on January 20, 1994. T1A(v) - Not applicable. T1A(vi) * - Consent of Marine Midland Bank required by Section 321(b) of the Trust Indenture Act of 1939. T1A(vii) - Copy of the latest report of condition of the trustee (September 30, 1998), published pursuant to law or the requirement of its supervisory or examining authority. T1A(viii) - Not applicable. T1A(ix) - Not applicable. * Exhibits previously filed with the Securities and Exchange Commission with Registration No. 33-53693 and incorporated herein by reference thereto. 5 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, Marine Midland Bank, a banking corporation and trust company organized under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York on the 17th day of February, 1999. MARINE MIDLAND BANK By: /s/ Anthony R. Bufinsky ----------------------- Anthony R. Bufinsky Corporate Trust Officer 6 EXHIBIT T1A (vii) Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 2000 - ----------------------------------------------------------------------------------------------------- 1 Please refer to page i, Table of Contents, for the required disclosure of estimated burden. - -----------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031 REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1998 (19980930) (RCRI 9999) This report is required by law; 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks). NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National Banks. I, Gerald A. Ronning, Executive VP & Controller - ----------------------------------------------- Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and believe. /s/ Gerald A. Ronning - ---------------------------------------------- Signature of Officer Authorized to Sign Report 10/26/98 - ---------------------------------------------- Date of Signature This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ Bernard J. Kennedy - ---------------------------------------------- Director (Trustee) /s/ Sal H. Alfiero - ---------------------------------------------- Director (Trustee) /s/ Malcolm Burnett - ---------------------------------------------- Director (Trustee) SUBMISSION OF REPORTS Each Bank must prepare its Reports of Condition and Income either: (a) in automated formand then file the computer data file directly with the banking agencies' collection agent, Electronic Data System Corporation (EDS), by modem or computer diskette; or (b) in hard-copy (paper) form and arrange for another party to convert the paper report to automated for. That party (if other than EDS) must transmit the bank's computer data file to EDS To fulfill the signature and attestation requirement for the Reports of Condition and Income for this report date, attach this signature page to the hard-copy f the completed report that the bank places in its files. FDIC Certificate Number 0 0 5 8 9 --- --- --- --- --- (RCRI 9030) 7
REPORT OF CONDITION Consolidating domestic and foreign subsidiaries of the Marine Midland Bank of Buffalo Name of Bank City in the state of New York, at the close of business September 30, 1998 ASSETS Thousands of dollars Cash and balances due from depository institutions: Noninterest-bearing balances currency and coin.................................... $937,647 Interest-bearing balances ........................... 3,764,738 Held-to-maturity securities.......................... 0 Available-for-sale securities........................ 3,998,450 Federal funds sold and securities purchased under agreements to resell........................... 1,634,540 Loans and lease financing receivables: Loans and leases net of unearned income............................... 21,024,990 LESS: Allowance for loan and lease losses............................... 400,676 LESS: Allocated transfer risk reserve 0 Loans and lease, net of unearned income, allowance, and reserve........................ 20,624,314 Trading assets........................................ 894,111 Premises and fixed assets (including capitalized leases)................................... 207,944 Other real estate owned.................................. 13,083 Investments in unconsolidated subsidiaries and associated companies.................... 0 Customers' liability to this bank on acceptances outstanding.................................. 57,309 Intangible assets........................................ 469,741 Other assets............................................. 572,948 Total assets............................................. 33,174,825
8 LIABILITIES Deposits: In domestic offices................................... 20,579,926 Noninterest-bearing................................... 3,726,544 Interest-bearing...................................... 16,853,382 In foreign offices, Edge, and Agreement subsidiaries, and IBFs................................... 5,954,449 Noninterest-bearing................................... 0 Interest-bearing...................................... 5,954,449 Federal funds purchased and securities sold under agreements to repurchase........................ 1,025,621 Demand notes issued to the U.S. Treasury 86,890 Trading Liabilities...................................... 172,910 Other borrowed money: With a remaining maturity of one year or less............................................... 1,340,056 With a remaining maturity of more than one year through three years.......................... 84,661 With a remaining maturity of more than three years........................................... 38,489 Bank's liability on acceptances executed and outstanding................................. 57,309 Subordinated notes and debentures........................ 697,963 Other liabilities........................................ 805,684 Total liabilities........................................ 30,843,958 EQUITY CAPITAL Perpetual preferred stock and related surplus.................................................. 0 Common Stock............................................. 205,000 Surplus.................................................. 1,985,665 Undivided profits and capital reserves................... 78,723 Net unrealized holding gains (losses) on available-for-sale securities......................... 61,479 Cumulative foreign currency translation adjustments.............................................. 0 Total equity capital..................................... 2,330,867 Total liabilities, limited-life preferred stock, and equity capital...................... 33,174,825
EX-27.1 19 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information (in $000's) extracted from the Generac Portable Products, Inc. and the Generac Portable Products Division (A Business Unit of Generac Corporation) financial statements and is qualified in its entirety by reference to such financial statements. 0001080892 GENERAC PORTABLE PRODUCTS, INC. 6-MOS 6-MOS YEAR YEAR JUL-10-1998 JAN-01-1998 DEC-31-1997 DEC-31-1996 DEC-31-1998 JUL-09-1998 DEC-31-1997 DEC-31-1996 1,528 599 1,065 1,122 0 0 0 0 44,937 48,753 18,938 14,414 242 225 172 151 46,651 42,839 33,023 24,707 93,911 92,395 53,060 40,722 20,460 18,946 16,831 15,502 1,023 5,577 4,591 3,145 332,002 105,764 65,300 53,079 36,370 23,854 12,537 11,443 110,000 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 103,266 81,910 52,763 41,636 332,002 105,764 65,300 53,079 136,862 139,551 178,014 122,550 136,862 139,551 178,014 122,550 98,245 104,537 131,095 95,246 120,559 123,474 156,964 113,696 230 108 186 15 17 67 21 (155) 9,674 1,409 2,100 2,237 6,382 14,493 18,743 6,757 2,180 0 0 0 4,202 14,493 18,743 6,757 0 0 0 0 0 0 0 0 0 0 0 0 4,202 14,493 18,743 6,757 0 0 0 0 0 0 0 0
EX-99.1 20 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL GENERAC PORTABLE PRODUCTS, LLC GPPW, INC. OFFER TO EXCHANGE $110,000,000 PRINCIPAL AMOUNT OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL $110,000,000 PRINCIPAL AMOUNT OF 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _______, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed, and submitted to Bankers Trust Company, as the Exchange Agent:
By Facsimile: By Overnight Mail or Courier: By Hand Delivery: BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company Reorganization Unit Corporate Trust & Agency Group Corporate Trust & Agency Group P.O. Box 292737 Reorganization Unit Attn: Reorganization Department Nashville, Tennessee 648 Grassmere Park Road Receipt & Delivery Window 37229-2737 Nashville, Tennessee 37211 123 Washington Street, 1st Floor New York, New York 10006 Facsimile Transmission Number: Confirm By Telephone: Information: (615) 835-3701 (615) 835-3572 (800) 735-7777
Delivery of this Letter of Transmittal to an address other than as set forth above or transmission of this Letter of Transmittal via facsimile to a number other than as set forth above does not constitute a valid delivery. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. 2 Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of Old Notes (as defined below) either if Old Notes are to be forwarded herewith or if tenders of Old Notes are to be made by book-entry transfer to an account maintained by Bankers Trust Company (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus unless an Agent's Message is transmitted in lieu hereof. Holders of Old Notes whose certificates (the "Certificates") for such Old Notes are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus unless an Agent's Message is transmitted in lieu thereof. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY ALL TENDERING HOLDERS COMPLETE THIS BOX: BOX 1 DESCRIPTION OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------------------- OLD NOTES TENDERED (ATTACH ADDITIONAL LIST IF NECESSARY) AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF OLD IF BLANK, PLEASE PRINT NAME AND ADDRESS OF CERTIFICATE AMOUNT OF NOTES TENDERED REGISTERED HOLDER. NUMBER(S)* OLD NOTES (IF LESS THAN ALL)** ------------------ ---------- --------- -------------------- TOTAL - --------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. ** Old Notes may be tendered in whole or in part in any integral multiple of $1,000. All Old Notes held shall be deemed tendered unless a lesser number is specified in this column. 2 3 (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) / / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution________________________________________ DTC Account Number___________________________________________________ Transaction Code Number______________________________________________ / / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder(s)_________________________________________ Window Ticket Number (if any)________________________________________ Date of Execution of Notice of Guaranteed Delivery___________________ Name of Institution which Guaranteed Delivery________________________ If Guaranteed Delivery is to be made By Book-Entry Transfer: Name of Tendering Institution________________________________________ DTC Account Number___________________________________________________ Transaction Code Number______________________________________________ / / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. / / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name_________________________________________________________________ Address______________________________________________________________ 3 4 Ladies and Gentlemen: The undersigned hereby tenders to Generac Portable Products, LLC, a Delaware limited liability company (the "Company"), and GPPW, Inc., a Wisconsin corporation ("GPPW" and, together with the Company, the "Issuers"), the above described aggregate principal amount of the Issuers' 11 1/4% Senior Subordinated Notes due 2006 (the "Old Notes") in exchange for a like aggregate principal amount of the Issuers' 11 1/4% Senior Subordinated Notes due 2006 (the "New Notes") which have been registered under the Securities Act of 1933 (the "Securities Act"), upon the terms and subject to the conditions set forth in the Prospectus dated______ __, 1999 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitutes the "Exchange Offer"). Subject to and effective upon the acceptance for exchange of all or any portion of the Old Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Issuers all right, title and interest in and to such Old Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Issuers in connection with the Exchange Offer) with respect to the tendered Old Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Old Notes to the Issuers together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuers, upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes to be issued in exchange for such Old Notes, (ii) present Certificates for such Old Notes for transfer, and to transfer the Old Notes on the books of the Issuers, and (iii) receive for the account of the Issuers all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE ISSUERS WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE ISSUERS OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name(s) and address(es) of the registered holder(s) of the Old Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Old Notes. The Certificate number(s) and the Old Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Old Notes than are tendered or accepted for exchange, Certificates for such nonexchanged 4 5 or nontendered Old Notes will be returned (or, in the case of Old Notes tendered by book-entry transfer, such Old Notes will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Old Notes pursuant to any one of the procedures described in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus and in the instruction will, upon the Issuers' acceptance for exchange of such tendered Old Notes, constitute a binding agreement between the undersigned and the Issuers upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Issuers may not be required to accept for exchange any of the Old Notes tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the New Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Old Notes, that such New Notes be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing Old Notes not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Old Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver New Notes to the undersigned at the address shown below the undersigned's signature. BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE ISSUERS OR GENERAC PORTABLE PRODUCTS, INC., (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER- DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). THE ISSUERS HAVE AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR 5 6 A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AND AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE ISSUERS OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE ISSUERS HAVE AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE ISSUERS HAVE GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE ISSUERS GIVE SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND INCLUDING THE DATE ON WHICH THE ISSUERS HAVE GIVEN NOTICE THAT THE SALE OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. As a result, a Participating Broker-Dealer who intends to use the Prospectus in connection with resales of New Notes received in exchange for Old Notes pursuant to the Exchange Offer must notify the Issuers, or cause the Issuers to be notified, on or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such notice may be given in the space provided above or may be delivered to the Exchange Agent at the address set forth in the Prospectus under "The Exchange Offer--Exchange Agent." Holders of Old Notes whose Old Notes are accepted for exchange will not receive interest on such Old Notes and the undersigned waives the right to receive any interest on such Old Notes accumulated from and after July 9, 1998. Accordingly, holders of New Notes as of the record date for the payment of interest on January 1, 1999 will be entitled to interest accumulated from and after July 9, 1998. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. 6 7 HOLDER(S) SIGN HERE (See Instructions 2, 5 and 6) (Please Complete Substitute Form W-9 Below) (Note: Signature(s) must be guaranteed if required by Instruction 2) This Letter of Transmittal must be signed by registered holder(s) exactly as name(s) appear(s) on Certificates(s) for the Old Notes hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certificates and other information as may be required by the Issuers or the Trustee for the Old Notes to comply with the restrictions on transfer applicable to the Old Notes). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer's full title. See Instruction 5. (SIGNATURE(S) OF HOLDER(S)) X___________________________________________ Date:_________________________ X___________________________________________ Date:_________________________ Name(s)________________________________________________________________________ (PLEASE PRINT) Address(es)____________________________________________________________________ (INCLUDING ZIP CODE) Area Code(s) and Telephone Number(s)___________________________________________ _______________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) GUARANTEE OF SIGNATURE(S) (See Instructions 2 and 5) Authorized Signature___________________________________________________________ Name___________________________________________________________________________ (PLEASE PRINT) Capacity or Title______________________________________________________________ Name of Firm___________________________________________________________________ Address________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number_________________________________________________ Date___________________________________________________________________________ 7 8 SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 1, 5 and 6) To be completed ONLY if New Notes are to be issued in the name of someone other than the registered holder of the Old Notes whose name(s) appear(s) above. Issue: / / New Notes to: / / Old Notes not tendered to: Name___________________________________________________________________________ (PLEASE PRINT) Address________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (INCLUDE ZIP CODE) _______________________________________________________________________________ (Taxpayer Identification or Social Security No.) SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5 and 6) To be completed ONLY if New Notes are to be sent to someone other than the registered holder of the Old Notes whose name(s) appear(s) above, or to the registered holder(s) at an address other than that shown above. Mail: / / New Notes to: / / Old Notes not tendered to: Name___________________________________________________________________________ (PLEASE PRINT) Address________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (INCLUDE ZIP CODE) _______________________________________________________________________________ (Taxpayer Identification or Social Security No.) 8 9 INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus unless an Agent's Message is transmitted in lieu hereof or (b) Certificates are to be forwarded herewith. Timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC, or Certificates as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message in lieu hereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its addresses set forth herein on or prior to the Expiration Date. Old Notes may be tendered in whole or in part in any integral multiple of $1,000. Holders who wish to tender their Old Notes and (i) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Old Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus or (ii who cannot deliver their Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date or (ii whose Old Notes are not immediately available must use a Notice of Guaranteed Delivery and follow the related procedures. Pursuant to such procedures: (a) such tender must be made by or through an Eligible Institution (as defined below); (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Issuers, must be received by the Exchange Agent on or prior to the Expiration Date; and (c) the Certificates (or a book-entry confirmation (as defined in the Prospectus)) representing tendered Old Notes, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message in lieu hereof and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Old Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. 9 10 The Issuers will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of the Old Notes) of Old Notes tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or (ii) such Old Notes are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Old Notes" is inadequate, the Certificate number(s) and/or the principal amount of Old Notes and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be accepted in any integral multiple of $1,000. If less than all the Old Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Old Notes which are to be tendered in the box entitled "Principal Amount of Old Notes Tendered." In such case, new Certificate(s) for the remainder of the Old Notes that were evidenced by your Old Certificate(s) will only be sent to the holder of the Old Note, promptly after the Expiration Date. All Old Notes represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective on or prior to that time, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth above or in the Prospectus on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Old Notes to be withdrawn, the aggregate principal amount of Old Notes to be withdrawn, and (if Certificates for Old Notes have been tendered) the name of the registered holder of the Old Notes as set forth on the Certificate for the Old Notes, if different from that of the person who tendered such Old Notes. If Certificates for the Old Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Certificates for the Old Notes, the tendering holder must submit the serial numbers shown on the particular Certificates for the Old Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Old Notes tendered for the account of an Eligible Institution. If Old Notes have been tendered pursuant to the procedures for book-entry transfer set forth in "The Exchange Offer--Procedures for Tendering Old Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Issuers, in their sole discretion, whose determination shall be final and binding on all parties. 10 11 None of the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent or any other person shall be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Old Notes which have been tendered but which are withdrawn will be returned to the holder thereof without cost to such holder promptly after withdrawal. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and must submit proper evidence satisfactory to the Issuers, in their sole discretion, of such persons' authority to so act. When this Letter of Transmittal is signed by the registered owner(s) of the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless New Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Old Notes listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Issuers or the Trustee for the Old Notes may require in accordance with the restrictions on transfer applicable to the Old Notes. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Old Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Issuers will determine, in their sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Old Notes which determination shall be final and binding on all parties. The Issuers reserve the absolute right, in their sole and absolute discretion, to reject any and all tenders determined by either of them not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Issuers, be unlawful. The Issuers also reserve the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer" or any conditions or irregularity in any tender of Old Notes of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Issuers' interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Old Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or 11 12 waived. None of the Issuers, any affiliates or assigns of the Issuers, the Exchange Agent, or any other person shall be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification. 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax law, a holder whose tendered Old Notes are accepted for exchange is required to provide the Exchange Agent with such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or other payee to a $50 penalty. In addition, payments to such holders or other payees with respect to Old Notes exchanged pursuant to the Exchange Offer may be subject to 31% backup withholding. The box in Part 2 of the Substitute Form W-9 may be checked if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Old Notes or of the last transferee appearing on the transfers attached to, or endorsed on, the Old Notes. If the Old Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain holders (including, among others, corporations, financial institutions and certain foreign persons) may not be subject to these backup withholding and reporting requirements. Such holders should nevertheless complete the attached Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W- 8, signed under penalties of perjury, attesting to that holder's exempt status. Please consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which holders are exempt from backup withholding. Backup withholding is not an additional U.S. Federal income tax. Rather, the U.S. Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Old Notes have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as 12 13 to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed. 11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Notes in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. 13 14 TO BE COMPLETED BY ALL TENDERING NOTE HOLDERS (SEE INSTRUCTION 9) - ------------------------------------------------------------------------------- PAYERS' NAME: GENERAC PORTABLE PRODUCTS, LLC AND GPPW, INC. - ------------------------------------------------------------------------------- SUBSTITUTE Form W-9 DEPARTMENT OF TREASURY INTERNAL REVENUE SERVICE PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFICATION Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. - ------------------------------------------------------------------------------- - ------------------------------ Social Security Number or - ------------------------------ Employer Identification Number - ------------------------------------------------------------------------------- CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), (2) I am not subject to backup withholding either because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding, and (3) any other information provided on this form is true and correct. Certification Instructions -- You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. - ------------------------------------------------------------------------------- Signature -------------------- Date ------------------------ - ------------------------------------------------------------------------------- Part 2 -- Awaiting TIN [ ] - -------------------------------------------------------------------------------- NOTE: IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBERS I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me on account of the New Notes shall be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. Signature Date -------------------------- ------------------- EX-99.2 21 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR 11 1/4% SENIOR SUBORDINATED NOTES DUE 2006 OF GENERAC PORTABLE PRODUCTS, LLC GPPW,INC. As set forth in the Prospectus dated , 1999 (the "Prospectus") of Generac Portable Products, LLC, a Delaware limited liability company (the "Company"), and GPPW, Inc., a Wisconsin corporation ("GPPW" and, together with the Company, the "Issuers"), and in the accompanying Letter of Transmittal and instructions thereto (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Issuers' offer to exchange (the "Exchange Offer") new 11 1/4% Senior Subordinated Notes due 2006 (the "New Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for all of their outstanding 11 1/4% Senior Subordinated Notes due 2006 (the "Old Notes") if the Letter of Transmittal or any other documents required thereby cannot be delivered to the Exchange Agent, or certificates for Old Notes cannot be delivered or the procedure for book-entry transfer cannot be completed, prior to 5:00 p.m., New York City time, on the Expiration Date (as defined in the Prospectus). This form may be delivered by an Eligible Institution by hand or transmitted by facsimile transmission, overnight courier or mail to the Exchange Agent as set forth below. Capitalized terms not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS TO: BANKERS TRUST COMPANY, AS EXCHANGE AGENT By Facsimile: By Overnight Mail or Courier: By Hand Delivery: BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company Reorganization Unit Corporate Trust & Agency Group Corporate Trust & Agency Group P.O. Box 292737 Reorganization Unit Attn: Reorganization Department Nashville, Tennessee 648 Grassmere Park Road Receipt & Delivery Window 37229-2737 Nashville, Tennessee 37211 123 Washington Street, 1st Floor New York, New York 10006 Facsimile Transmission Number: Confirm by Telephone: Information: (615) 835-3701 (615) 835-3572 (800) 735-7777
Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of instructions via a facsimile number other than that set forth above will not constitute a valid delivery. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal to be used to tender Old Notes is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to the Issuers, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the principal amount of Old Notes specified below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 1 of the Letter of Transmittal. The undersigned understands that tenders of Old Notes pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the Expiration Date. Tenders of Old Notes may also be withdrawn if the Exchange Offer is terminated without any such Old Notes being purchased thereunder or as otherwise provided in the Prospectus. All authority thereto conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. The undersigned hereby tenders the Old Notes listed below:
- -------------------------------------------------------------------------------------------------------------------------- AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES PRINCIPAL AMOUNT OF OLD NOTES TENDERED - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW SIGN HERE Name(s) of Holder(s): - -------------------------------------------------------------------------------- Address(es): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone Number: - -------------------------------------------------------------------------------- Signature(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Date: - -------------------------------------------------------------------------------- DTC Account Number (if applicable): - ----------------------------------------------------------------------------- This Notice of Guaranteed Delivery must be signed by (i) the Holder(s) of Old Notes exactly as its/their name(s) appear on certificate for Old Notes, (ii) the Holder(s) of Old Notes exactly as its/their name(s) appear on a security position listing maintained by DTC as the owner of Old Notes or (iii) by person(s) authorized to become Holder(s) by documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, 2 3 guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: PLEASE PRINT NAME(S) AND ADDRESS(ES) OF PERSON SIGNING ABOVE Name(s): - -------------------------------------------------------------------------------- ------------------------------------------------------------------------ Capacity: - -------------------------------------------------------------------------------- Address(es): - -------------------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents that the above named person(s) "own(s)" the Old Notes tendered hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents that such tender of Old Notes complies with Rule 14e-4 under the Exchange Act and (c) guarantees that delivery to the Exchange Agent of the Letter of Transmittal (or facsimile thereof), either certificates for Old Notes in proper form for transfer or a confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at DTC, pursuant to the procedures for book-entry transfer set forth in the Prospectus, and delivery of either a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signatures and any other documents required by the Letter of Transmittal or an Agent's Message, will be received by the Exchange Agent by 5:00 p.m., New York City time, within three New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL OR AGENT'S MESSAGE AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED. SIGN HERE Name of firm: - -------------------------------------------------------------------------------- Authorized Signature: - -------------------------------------------------------------------------------- Name (please print): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone Number: - -------------------------------------------------------------------------------- Date: - -------------------------------------------------------------------------------- DO NOT SEND ANY CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 3 4 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedure, see Instruction 1 of the Letter of Transmittal. 2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Old Notes to be tendered (in the case of Certificates representing Old Notes), the signature must correspond with the name(s) as written on the face of such Old Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by the DTC participant whose name appears on a security position maintained by DTC (in the case of book-entry confirmation), the signature must correspond exactly with such participant's name as it appears on a security position maintained by DTC listing such participant as the owner of the Old Notes, without any change whatsoever. If any of the Old Notes to be tendered are owned of record by two or more joint owners, all such owners must sign this Notice of Guaranteed Delivery. If any Old Notes to be tendered are held in different names on several Old Notes, it will be necessary to complete, sign, and submit as many separate copies of the Notice of Guaranteed Delivery documents as there are names in which Old Notes to be tendered are held. If this Notice of Guaranteed Delivery or any Old Notes are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Issuers, evidence satisfactory to the Issuers of their authority to so act must be submitted with this Notice of Guaranteed Delivery. 3. REQUESTS FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders also may contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 4 EX-99.3 22 FORM OF EXCHANGE AGREEMENT 1 Exhibit 99.3 BANKERS TRUST COMPANY EXCHANGE AGENT AGREEMENT _________ __, 1999 Bankers Trust Company Corporate Trust and Agency Group Four Albany Street, 4th Floor New York, NY 10006 Attention: Corporate Market Services Ladies and Gentlemen: Generac Portable Products, LLC, a Delaware limited liability company (the "COMPANY"), and GPPW, Inc., a Wisconsin corporation ("GPPW" and, together with the Company, the "ISSUERS"), are offering to exchange (the "EXCHANGE OFFER") their 11 1/4% Senior Subordinated Notes due 2006 (the "New Notes") for an equal principal amount of their 11 1/4% Senior Subordinated Notes due 2006 (the "OLD NOTES" and, together with the New Notes, the "NOTES"), pursuant to a prospectus (the "PROSPECTUS") included in the Issuers' Registration Statement on Form S-4 (File No. __________) as amended (the "REGISTRATION STATEMENT"), filed with the Securities and Exchange Commission (the "SEC") and attached hereto as Exhibit A. The Term "EXPIRATION DATE" shall mean 5:00 p.m., New York City time, on _________ __, 1999, unless the Exchange Offer is extended as provided in the Prospectus, in which case the term "EXPIRATION DATE" shall mean the latest date and time to which the Exchange Offer is extended. Upon execution of this Agreement, Bankers Trust Company will act as the Exchange Agent for the Exchange Offer (the "EXCHANGE AGENT"). Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Prospectus. A copy of each of the form of letter of transmittal (the "LETTER OF TRANSMITTAL"), the form of the notice of guaranteed delivery (the "NOTICE OF GUARANTEED DELIVERY"), the form of letter to brokers and the form of letter to clients (collectively, the "TENDER DOCUMENTS") to be used by Holders of Old Notes in order to receive New Notes pursuant to the Exchange Offer are attached hereto as Exhibit B. The Issuers hereby appoint you to act as Exchange Agent in connection with the Exchange Offer. In carrying out your duties as Exchange Agent, you are to act in accordance with the following provisions of this Agreement: 1. You are to mail the Prospectus and the Tender Documents to all of the Holders and participants on the day that you are notified by the Company that the Registration Statement has become effective under the Securities Act of 1933, as amended, or as soon as practicable thereafter, and to make subsequent mailings thereof the date thereof and to any persons who become Holders prior to the Expiration Date and to any persons as may from time to time be 2 2 requested by the Company. All mailings pursuant to this Section 1 shall be by first class mail, postage prepaid, unless otherwise specified by the Company. You shall also accept and comply with telephone requests for information relating to the Exchange Offer provided that such information shall relate only to the procedures for tendering Old Notes in (or withdrawing tenders of Old Notes from) the Exchange Offer. All other requests for information relating to the Exchange Offer shall be directed to the Company, Attention: Dorrance J. Noonan, Jr., President and Chief Executive Officer. 2. You are to examine Letters of Transmittal and the Old Notes and other documents delivered or mailed to you, by or for the Holders, prior to the Expiration Date, to ascertain whether (i) the Letters of Transmittal are properly executed and completed in accordance with the instructions set forth therein, (ii) the Old Notes are in proper form for transfer and (iii) all other documents submitted to you are in proper form. In each case where a Letter of Transmittal or other document has been improperly executed or completed or, for any other reason, is not in proper form, or some other irregularity exists, you are authorized to endeavor to take such action as you consider appropriate to notify the tendering Holder of such irregularity and as to the appropriate means of resolving the same. Determination of questions as to the proper completion or execution of the Letters of Transmittal, or as to the proper form for transfer of the Old Notes or as to any other irregularity in connection with the submission of Letters of Transmittal and/or Old Notes and other documents in connection with the Exchange Offer, shall be made by the officers of, or counsel for, the Company at their written instructions or oral direction confirmed by facsimile. Any determination made by the Company on such questions shall be final and binding. 3. At the written request of the Company or its counsel, King & Spalding, you shall notify tendering Holders of Old Notes in the event of any termination, recision or modification of the Exchange Offer. In the event of any such termination, recision or modification, you will return all tendered Old Notes to the persons entitled thereto, at the request of the Company or its counsel, King & Spalding, and at the expense of the Issuers. 4. Tender of the Old Notes may be made only as set forth in the Letter of Transmittal. Notwithstanding the foregoing, tenders which the Company shall approve in writing as having been properly delivered shall be considered to be properly tendered. Letters of Transmittal and Notices of Guaranteed Delivery shall be recorded by you as to the date and time of receipt and shall be preserved and retained by you at the Issuers' expense for one year. New Notes are to be issued in exchange for Old Notes pursuant to the Exchange Offer only (i) against deposit with you prior to the Expiration Date or, in the case of a tender in accordance with the guaranteed delivery procedures outlined in Instruction __ of the Letter of Transmittal, within three New York Stock Exchange trading days after the Expiration Date of the Exchange Offer, together with executed Letters of Transmittal and other documents required by the Exchange Offer or (ii) in the event that the Holder is a participant in The Depository Trust Company ("DTC") system, by the utilization of DTC's Automated Tender Offer Program ("ATOP") and any evidence required by the Exchange Offer. 3 3 You are hereby directed to establish an account with respect to the Notes at The Depositary Trust Company (the "BOOK ENTRY TRANSFER FACILITY") within two days after the date hereof in accordance with SEC Regulation 240.17 Ad-14. Any financial institution that is a participant in the Book Entry Transfer Facility system may, until the Expiration Date, make book-entry delivery of the Notes by causing the Book Entry Facility to transfer such Notes into your account in accordance with the procedure for such transfer established by the Book Entry Transfer Facility. In every case, however, a Letter of Transmittal (or a manually executed facsimile thereof), or an Agent's Message, properly completed and duly executed, with any required signature guarantees and any other required documents must be transmitted to and received by you prior to the Expiration Date or the guaranteed delivery procedures described in the Letter of Transmittal must be complied with. 5. Upon oral or written request of the Company (with written confirmation of any such oral request thereafter), you will transmit by telephone, and promptly thereafter confirm in writing to Dorrance J. Noonan, Jr., President and Chief Executive Officer (telecopier number (920) 674-5663), with a copy to King & Spalding, Attention: Kathleen Minniti (telecopier number (212) 556-2222), or such other persons as the Company may reasonably request, the aggregate number and principal amount of Old Notes tendered to you and the number and principal amount of Old Notes properly tendered that day. In addition, you will also inform the aforementioned persons, upon oral request made from time to time (with written confirmation of such request thereafter) prior to the Expiration Date, of such information as they or any of them may reasonable request. 6. Upon the terms and subject to the conditions of the Exchange Offer, delivery of New Notes will be made by you promptly after acceptance of the tendered Old Notes. You will be hold all items which are deposited for tender with you after 5:00 p.m. New York City time, on the Expiration Date pending further instructions from an officer of the Company. 7. If any Holder shall report to you that his or her failure to surrender Old Notes registered in his or her name is due to the loss or destruction of a certificate or certificates, you shall request such Holder (i) to furnish to you an affidavit of loss and, if required by the Company, a bond of indemnity in an amount and evidenced by such certificate or certificates of a surety, as may be satisfactory to you and the Company, and (ii) to execute and deliver an agreement to indemnify the Company, the Trustee and you in such form as is acceptable to you and the Company. The obligees to be named in each such indemnity bond shall include the Company, the Trustee and you. You shall report to the Company the names of all Holders who claim that their Old Notes have been lost or destroyed and the principal amount of such Old Notes. 8. As soon as practicable after the Expiration Date, you shall mail or deliver via the Book Entry Transfer Facility's applicable procedures, the New Notes that such Holders may be entitled to receive and you shall arrange for cancellation of the Old Notes submitted to you or returned by DTC in connection with ATOP. Such Old Notes shall be forwarded to Dorrance J. Noonan, Jr. for cancellation and retirement as you are instructed by the Company (or a representative designated by the Company) in writing. 4 4 9. For your services as the Exchange Agent hereunder, the Company shall pay you in accordance with the schedule of fees attached hereto as Exhibit C. The Company also will reimburse you for your reasonable out-of-pocket expenses (including, but not limited to, reasonable attorneys' fees not previously paid to you as set forth in Exhibit C) in connection with your services promptly after submission to the Company of itemized statements. 10. You are not authorized to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other person or to engage or utilize any person to solicit tenders. 11. As the Exchange Agent hereunder you: (a) shall have no duties or obligations other than those specifically set forth herein or in the Exhibits attached hereto or as may be subsequently requested in writing of you by the Company and agreed to by you in writing with respect to the Exchange Offer; (b) will be regarded as making no representations and having no responsibilities as to the validity, accuracy, sufficiency, value or genuineness of any Old Notes deposited with you hereunder, any New Notes, and Tender Documents or other documents prepared by the Issuers in connection with the Exchange Offer; (c) shall not be obligated to take any legal action hereunder which might in your judgment involve any expense or liability unless you shall have been furnished with an indemnity reasonably satisfactory to you; (d) may rely on, and shall be fully protected and indemnified as provided in Section 12 hereof in acting upon, the written or oral instructions with respect to any matter relating to your acting as Exchange Agent specifically covered by this Agreement or supplementing or qualifying any such action of any officer or agent of such other person or persons as may be designated or whom you reasonably believe have been designated by the Company; (e) may consult with counsel satisfactory to you, including counsel for the Company, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by you in good faith and in accordance with such advice of such counsel; (f) shall not at any time advise any person as to the wisdom of the Exchange Offer or as to the market value or decline or appreciation in market value of any Old Notes or New Notes; and (g) shall not be liable for any action which you may do or refrain from doing in connection with this Agreement except for your gross negligence, willful misconduct or bad faith. 5 5 12. The Issuers covenant and agree to indemnify and hold harmless Bankers Trust Company and its officers, directors, employees, agents and affiliates (collectively, the "INDEMNIFIED PARTIES" and each an "INDEMNIFIED PARTY") against any loss, liability or reasonable expense of any nature (including reasonable attorneys' and other fees and expenses) incurred in connection with the administration of the duties of the Indemnified Parties hereunder in accordance with this Agreement; provided, however, that no such Indemnified Party shall be indemnified against any such loss, liability or expense arising out of such Indemnified Party's gross negligence, willful misconduct or bad faith. In no case shall the Issuers be liable under this indemnity with respect to any claim against any Indemnified Party unless the Issuers shall be notified by such Indemnified Party by letter, or by cable, telex or telecopier confirmed by letter, of the written assertion of a claim against such Indemnified Party, or of any action commenced against such Indemnified Party, promptly after but in any event within 10 days of the date such Indemnified Party shall have received any such written assertion of a claim or shall have been served with a summons, or other legal process, giving information as to the nature and basis of the claim; provided, however, that failure to so notify the Issuers shall not relieve the Issuers of any liability which they may otherwise have hereunder except such liability that is a direct result of such Indemnified Party's failure to so notify the Issuers. The Issuers shall be entitled to participate at their own expense in the defense of any such claim or legal action and if the Issuers so elect or if the Indemnified Party in such notice to the Issuers so directs, the Issuers shall assume the defense of any suit brought to enforce any such claim. In the event the Issuers assume the defense, the Indemnified Party shall be entitled to retain separate counsel, provided that the Issuers shall be liable for the necessary and appropriate fees and expenses thereafter incurred by such counsel only in the event of the need to have separate representation because of a conflict of interest between such Indemnified Party and the Issuers. You shall not enter into a settlement or other compromise with respect to any indemnified loss, liability or expense without the prior written consent of the Company, which shall not be unreasonably withheld or delayed if not adverse to the Issuers' interests. 13. This Agreement and your appointment as the Exchange Agent shall be construed and enforced in accordance with the laws of the State of New York and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of the parties hereto. No other person shall acquire or have any rights under or by virtue of this Agreement. 14. The parties hereto hereby irrevocably submit to the venue and jurisdiction of any New York State or federal court sitting in the Borough of Manhattan in New York City in any action or proceeding arising out of or relating to this Agreement, and the parties hereby irrevocably agree that all claims in respect of such action or proceeding arising out of or relating to this Agreement, shall be heard and determined in such a New York State or federal court. The parties hereby consent to and grant to any such court jurisdiction over the persons of such parties and over the subject matter of any such dispute and agree that delivery or mailing of any process or other papers in the manner provided herein, or in such other manner as may be permitted by law, shall be valid and sufficient service thereof. 6 6 15. This Agreement may not be modified, amended or supplemented without an express written agreement executed by the parties hereto. Any inconsistency between this Agreement and the Tender Documents, as they may from time to time be supplemented or amended, shall be resolved in favor of the latter, except with respect to the duties, liabilities and indemnification of you as Exchange Agent. 16. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 17. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 18. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, Sections 9 and 12 shall survive the termination of this Agreement. Upon any termination of this Agreement, you shall promptly deliver to the Trustee any certificates for Old Notes or New Notes, funds or property then held by you as Exchange Agent under this Agreement. 19. All notices and communications hereunder shall be in writing and shall be deemed to be duly given if delivered or mailed first class certified or registered mail, postage prepaid, or telecopied as follows: If to the Issuers: Generac Portable Products, LLC P.O. Box 239 1 Generac Way Jefferson, Wisconsin 53549 Telecopier No: (920) 674-5663 Attn: Dorrance J. Noonan, Jr., President and Chief Executive Officer and a copy to: King & Spalding 1185 Avenue of the Americas New York, New York 10036 Telecopier No: (212) 556-2222 Attn: Kathleen Minniti If to you: Bankers Trust Company Corporate Trust and Agency Group Four Albany Street - 4th Floor New York, NY 10006 Attn.: 7 7 Telephone: (212) 250- Telecopier: (212) 250-6392/6961 and a copy to: or such other address or telecopy number as any of the above may have furnished to the other parties in writing for such purposes. 20. This Agreement and all of the obligations hereunder shall be assumed by any and all successors and assigns of the Issuers. If the foregoing is in accordance with your understanding, would you please indicate your agreement by signing and returning the enclosed copy of this Agreement to the Issuers. Very truly yours, GENERAC PORTABLE PRODUCTS, LLC By: _______________________________ Name: Dorrance J. Noonan, Jr. Title: President and Chief Executive Officer GPPW, INC. By: _______________________________ Name: Faith Rosenfeld Title: President Agreed to this _____ day of ______, 1999 BANKERS TRUST COMPANY, as Exchange Agent By: _______________________________ Name: Title: 8 EXHIBIT C BANKERS TRUST COMPANY CORPORATE TRUST AND AGENCY GROUP SCHEDULE OF FEES I. Exchange Agent $5,000.00 Covers review of the Exchange Agent Agreement, the Letter of Transmittal and other related documentation; establishment of accounts and systems link with depositories; operational and administrative charges and time spent in connection with the review, receipt and processing of Letters of Transmittal, and Agent's Messages. Note: The fees set forth in this schedule are subject to review of documentation. The fees are also subject to change should circumstances warrant. Out-of-pocket expenses and disbursements, including counsel fees, incurred in the performance of our duties will be added to the billed fees. Fees for any services not covered in this or related schedules will be based upon our appraisal of the services rendered. We may place orders to buy/sell financial instruments with outside broker-dealers that we select, as well as with BT or its affiliates. These transactions(for which normal and customary spreads or other compensation may be earned by such broker-dealers, including BT or its affiliates, in addition to the charges quoted above) will be executed on a riskless principal basis solely for your account(s) and without recourse to us or our affiliates. If you choose to invest in any mutual fund, BT and/or our affiliates may earn investment management fees and other service fees/expenses associated with these funds as disclosed in the mutual fund prospectus provided to you, in addition to the charges quoted above. Likewise, BT has entered into agreements with certain mutual funds or their agents to provide shareholder services to those funds. For providing these shareholder services, BT is paid a fee by these mutual funds that calculated on an annual basis does not exceed 25 basis points of the amount of your investment in these mutual funds. In addition, if you choose to use other services provided by BT or its affiliates, Corporate Trust or other BT affiliates may be allocated a portion of the fees earned. We will provide periodic account statements describing transactions executed for your account(s). Trade confirms will be available upon your request at no additional charge. If a transaction should fail to close for reasons beyond our control, we reserve the right to charge our acceptance fee plus reimbursement for legal fees incurred. C-1 9 Shares of mutual funds are not deposits or obligations of, or guaranteed by, Bankers Trust Company or any of its affiliates and are not insured by the Federal Deposit Insurance Corporation or any other agency of the U.S. Government. Investments in the mutual funds involve the possible loss of principal. Please read the prospectus carefully before investing. C-2 -----END PRIVACY-ENHANCED MESSAGE-----