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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INSTRON CORPORATION
(AND ITS SUBSIDIARIES IDENTIFIED ON THE FOLLOWING PAGE)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3829 042057203
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
100 ROYALL STREET
CANTON, MA 02021
(781) 828-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES M. MCCONNELL
INSTRON CORPORATION
100 ROYALL STREET
CANTON, MA 02021
(781) 828-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
CHRISTOPHER M. KELLY THOMAS N. LITTMAN
JONES, DAY, REAVIS & POGUE KIRTLAND CAPITAL PARTNERS III, L.P.
901 LAKESIDE AVENUE 2550 SOM CENTER ROAD, SUITE 105
CLEVELAND, OHIO 44114 WILLOUGHBY HILLS, OHIO 44094
216/586-3939 440/585-9010
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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13 1/4 Senior Subordinated Notes Due
2009................................ $60,000,000 100% $60,000,000 $15,840
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Subsidiary Guarantees of 13 1/4 Senior
Subordinated Notes Due 2009(2)...... N/A N/A N/A N/A
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Total............................... $60,000,000 100% $60,000,000 $15,840
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is required with respect to the Subsidiary Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
ADDRESS,
INCLUDING ZIP CODE,
STATE OR OTHER AND TELEPHONE
JURISDICTION NUMBER, INCLUDING
OF PRIMARY STANDARD AREA CODE, OF
INCORPORATION INDUSTRIAL IRS REGISTRANT'S
OR CLASSIFICATION EMPLOYER PRINCIPAL
NAME ORGANIZATION CODE NUMBER ID NO. EXECUTIVE OFFICES
---- -------------- ---------------- ---------- -------------------
Instron Realty Trust.......... Massachusetts 6519 04-8113049 **
IRT-II Trust.................. Massachusetts 6519 04-6879407 **
Instron Schenck Testing
Systems Corp................ Massachusetts 3829 04-3335122 **
Instron Japan Company, Ltd.... Massachusetts 3829 04-2383267 **
Instron Asia Limited.......... Massachusetts 3829 04-2697765 **
Instron/Lawrence
Corporation................. Pennsylvania 3829 23-1884645 **
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** 100 Royall Street, Canton, MA 02021; (781) 828-2500.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
INSTRON 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 INSTRON IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 28, 1999
PROSPECTUS
$60,000,000
OFFER TO EXCHANGE
ALL OUTSTANDING 13 1/4% SENIOR SUBORDINATED NOTES DUE
2009
FOR 13 1/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
INSTRON CORPORATION
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
CENTRAL STANDARD TIME, ON , 2000
LOGO
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THE REGISTERED NOTES
- The terms of the exchange notes to be issued are substantially identical
to the outstanding notes that Instron issued on September 29, 1999,
except for transfer restrictions and registration rights relating to the
outstanding notes that will not apply to the exchange notes.
- Interest on the notes accrues at the rate of 13 1/4% per year, payable in
cash every six months on March 15 and September 15, with the first
payment on March 15, 2000.
- The notes are not secured by any collateral.
- There is no existing market for the notes, and we do not intend to apply
for their listing on any securities exchange or to seek approval for
quotation through any automated quotation system.
MATERIAL TERMS OF THE EXCHANGE OFFER
- Expires at 5:00 p.m., Central Standard Time, on , 2000,
unless extended.
- The exchange offer is not subject to any condition other than that it
must not violate applicable law or any applicable interpretation of the
Staff of the Securities and Exchange Commission.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for equal principal amount of exchange notes which are
registered under the Securities Act of 1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- Instron will not receive any cash proceeds from the exchange offer.
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Please consider carefully the "Risk Factors" beginning on page 9 of this
prospectus.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE DISTRIBUTED IN THE EXCHANGE OFFER,
NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this prospectus is January , 2000
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TABLE OF CONTENTS
PAGE
Prospectus Summary.................... 1
Risk Factors.......................... 8
Special Note Regarding Forward-Looking
Statements.......................... 15
The Exchange Offer.................... 16
The Recapitalization.................. 24
Use of Proceeds....................... 24
Capitalization........................ 25
Unaudited Pro Forma Condensed
Consolidated Financial Data......... 26
Selected Historical Consolidated
Financial Data...................... 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 33
Business.............................. 42
PAGE
Management............................ 53
Executive Compensation................ 55
Security Ownership.................... 58
Certain Relationships and Related
Transactions........................ 60
Description of New Senior Credit
Facility............................ 63
Description of Notes.................. 64
Certain United States Federal Income
Tax Considerations.................. 100
Plan of Distribution.................. 106
Legal Matters......................... 106
Experts............................... 106
Available Information................. 106
Index to Financial Statements......... F-1
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PROSPECTUS SUMMARY
The following is a summary of the more detailed information appearing
elsewhere in this prospectus. This summary is not complete and does not contain
all the information you should consider. You should read the entire prospectus
carefully, including the "Risk Factors" and the financial statements and related
notes. Unless the context requires otherwise:
- "we," "us," "our" and "Instron" and similar terms include all of our
consolidated subsidiaries; and
- the pro forma information contained in this prospectus gives effect to
the recapitalization described below, our acquisition of Satec Systems,
Inc. and our acquisition of the remaining 49% of our Instron Schenck
Testing Systems ("IST") joint venture as if each occurred as of the
beginning of the period stated for income statement data, and at the date
stated for balance sheet data.
THE EXCHANGE OFFER
THE EXCHANGE OFFER......... We offer to exchange $60.0 million in principal
amount of our 13 1/4% Senior Subordinated Notes due
September 15, 2009, which have been registered
under the federal securities laws, for $60.0
million principal amount of our outstanding
unregistered 13 1/4% Senior Subordinated Notes due
September 15, 2009, which we issued on September
29, 1999 in a private offering. You have the right
to exchange your outstanding notes for exchange
notes with substantially identical terms.
We issued the outstanding notes on September 29,
1999 as part of a unit offering. Each unit
consisted of $1,000 principal amount of outstanding
notes and one warrant to purchase 0.5109 of a share
of our common stock. As of the date of this
prospectus, the units have separated into
outstanding notes and warrants. We are not
registering the warrants or our common stock as
part of this exchange offer or in a separate
offering at this time.
REGISTRATION RIGHTS
AGREEMENT.................. We issued the outstanding notes on September 29,
1999 to Donaldson, Lufkin & Jenrette Securities
Corporation. At that time, Instron signed a
registration rights agreement with Donaldson,
Lufkin & Jenrette, which requires us to conduct
this exchange offer.
This exchange offer is intended to satisfy those
rights set forth in the registration rights
agreement. After the exchange offer is complete,
you will no longer be entitled to registration
rights with respect to outstanding notes that you
do not exchange.
IF YOU FAIL TO EXCHANGE
YOUR OUTSTANDING NOTES..... If you do not exchange your outstanding notes for
exchange notes in the exchange offer, you will
continue to be subject to the restrictions on
transfer provided in the outstanding notes and the
indenture governing those notes. In general, you
may not offer or sell your outstanding notes unless
they are registered under the federal securities
law or are sold in a transaction exempt from or not
subject to the registration requirements of the
federal securities laws and applicable state
securities laws.
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m.,
Central Standard Time, on 2000,
unless we decide to extend the expiration date. See
"The Exchange Offer -- Expiration Date; Extensions;
Amendments."
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to conditions that we
may waive. The exchange offer is not conditioned
upon any minimum amount of outstand-
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ing notes being tendered for exchange. See "The
Exchange Offer -- Conditions."
We reserve the right, subject to applicable law, at
any time and from time to time:
- to extend the exchange offer or to terminate the
exchange offer if specified conditions have not
been satisfied; and
- to amend the terms of the exchange offer in any
manner consistent with the registration rights
agreement.
See "The Exchange Offer -- Expiration Date;
Extensions; Amendments."
PROCEDURES FOR TENDERING
OUTSTANDING NOTES........ If you wish to tender your outstanding notes for
exchange, you must:
- complete and sign the enclosed Letter of
Transmittal by following the related
instructions; and
- send the Letter of Transmittal, as directed in
the instructions, together with any other
required documents, to the exchange agent,
either:
(1) with the outstanding notes to be tendered; or
(2) in compliance with the specified procedures
for guaranteed delivery of the outstanding
notes.
Brokers, dealers, commercial banks, trust companies
and other nominees may also effect tenders by
book-entry transfer.
Please do not send your Letter of Transmittal or
certificates representing your outstanding notes to
us. Those documents should only be sent to the
exchange agent. Questions regarding how to tender
and requests for information should be directed to
the exchange agent. See "The Exchange
Offer -- Exchange Agent."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ If your outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee, we urge you to contact
that person promptly if you wish to tender your
outstanding notes in accordance with the exchange
offer. See "The Exchange Offer -Procedures for
Tendering."
WITHDRAWAL RIGHTS.......... You may withdraw the tender of your outstanding
notes at any time prior to the expiration date of
the exchange offer by delivering a written notice
of your withdrawal to the exchange agent. You must
also follow the withdrawal procedures as described
under the heading "The Exchange Offer -- Withdrawal
of Tenders."
RESALES OF EXCHANGE
NOTES...................... We believe that you will be able to offer for
resale, resell or otherwise transfer exchange notes
issued in the exchange offer without compliance
with the registration and prospectus delivery
provisions of the federal securities laws, provided
that:
- you are acquiring the exchange notes in the
ordinary course of business;
- you are not participating, and have no
arrangement or understanding with any person to
participate, in the distribution of the exchange
notes; and
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- you are not an affiliate of Instron, or if you
are an affiliate, you will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
As defined in Rule 405 of the Securities Act, an
affiliate of Instron is a person that "controls
or is controlled by or is under common control
with" Instron.
Our belief is based on interpretations by the
Commission, as set forth in no-action letters
issued to third parties unrelated to Instron. The
Staff has not considered this exchange offer in the
context of a no-action letter, and we cannot assure
you that the Staff would make a similar
determination with respect to this exchange offer.
If our belief is not accurate and you transfer an
exchange note without delivering a prospectus
meeting the requirements of the federal securities
laws or without an exemption from these laws, you
may incur liability under the federal securities
laws. We do not and will not assume or indemnify
you against this liability.
Each broker-dealer that receives exchange notes for
its own account in exchange for outstanding notes
that were acquired by that broker-dealer as a
result of market-making or other trading activities
must agree to deliver a prospectus meeting the
requirements of the federal securities laws in
connection with any resale of the exchange notes.
See "The Exchange Offer -- Resale of the Exchange
Notes."
EXCHANGE AGENT............. The exchange agent for the exchange offer is
Norwest Bank Minnesota, National Association. The
address, telephone number and facsimile number of
the exchange agent are set forth in "The Exchange
Offer -Exchange Agent" and in the Letter of
Transmittal.
USE OF PROCEEDS............ We will not receive any cash proceeds from the
exchange offer.
THE EXCHANGE NOTES
ISSUER..................... Instron Corporation
100 Royall Street
Canton, MA 02021
(781) 828-2500
EXCHANGE NOTES............. $60.0 million in aggregate principal amount of
13 1/4% Senior Subordinated Notes due 2009.
MATURITY DATE.............. September 15, 2009.
INTEREST RATE AND PAYMENT
DATES.................... Interest on the notes will accrue at the rate of
13 1/4% per annum, payable semiannually in cash in
arrears on March 15 and September 15 of each year,
commencing March 15, 2000.
OPTIONAL REDEMPTION........ On or after September 15, 2004, we may redeem some
or all of the notes at any time at the redemption
prices described in "Description of Notes --
Optional Redemption."
Before September 15, 2002, we may redeem up to 35%
of the notes with the proceeds of certain offerings
of our common equity at the price listed in
"Description of Notes -- Optional Redemption."
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MANDATORY REPURCHASE
OFFER...................... If we sell certain assets or we experience specific
kinds of changes in control, we must offer to
repurchase the notes at the prices listed in
"Description of Notes -- Repurchase at the Option
of Holders." See "Risk Factors -- Financing Change
of Control Offer."
SUBSIDIARY GUARANTEES...... The notes will be jointly and severally guaranteed
on an unsecured senior subordinated basis by our
existing and future domestic subsidiaries. Our
foreign subsidiaries will not guarantee payment on
the notes. For the nine months ended October 2,
1999, our foreign subsidiaries accounted for 234.0%
of our EBITDA.
RANKING.................... These notes and the subsidiary guarantees are
senior subordinated debts.
They rank behind all of our and the subsidiary
guarantors' current and future indebtedness, other
than indebtedness that expressly provides that it
is not senior to these notes and the subsidiary
guarantees.
As of October 2, 1999, the notes were subordinated
to approximately $46.5 million of senior debt.
In addition, the notes are subordinated to all
liabilities, including trade payables, of our
foreign subsidiaries, which are not guarantors. On
October 2, 1999, these notes were effectively
junior to $30.0 million of indebtedness and other
liabilities, including trade payables, of these
non-guarantor subsidiaries.
COVENANTS.................. We will issue the notes under an indenture with
Norwest Bank Minnesota, National Association, as
trustee. The indenture will contain covenants that
place limitations on our ability and the ability of
our subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other
companies.
For more details, see the section "Description of
Notes -- Certain Covenants."
THE COMPANY
We are a world leader in the manufacture, marketing and servicing of
materials and structural testing systems, software and accessories. Materials
testing focuses on the mechanical properties of materials, including tensile
strength, compressive strength, fracture properties and hardness. Structural
testing simulates the life cycle of components or complete products in order to
verify their design, durability and performance capabilities. Our products are
used by research scientists, design engineers and quality control personnel to
evaluate the mechanical properties and performance of various materials,
components and structures in the following applications:
- quality control and specification testing;
- research and development of new materials to enhance product performance;
and
- the search for new applications and markets for existing materials.
Our systems are used to test the strength, durability, hardness, impact
resistance and other characteristics of practically all materials intended for
industrial and consumer use by stretching, compressing, cycling or twisting
them. Our reach extends well beyond testing extremely complex materials used in
automobiles, airplanes,
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buildings or bridges. It includes testing food, clothing, sporting equipment,
children's toys and a wide range of other products. For example, our customers
use our systems to test:
- the strength and durability of exotic materials used for space
exploration;
- the exacting quality requirements of prosthetic limbs and other
orthopedic equipment;
- the strength and durability of seatbelts;
- the texture of fruit used in the production of ice cream; and
- the quality and formability of sheet metal.
As a result, we have a highly diverse base of end users of our systems,
including BASF A.G., Ben & Jerry's Homemade, Inc., British Aerospace plc,
DaimlerChrysler Corporation, E.I. du Pont de Nemours and Company, General
Electric Company, Honda Motor Co., Ltd., Massachusetts Institute of Technology,
Minnesota Mining and Manufacturing Company, National Aeronautics & Space
Administration, The Procter & Gamble Company and United States Surgical
Corporation, among many others. For the nine months ended October 2, 1999, we
had total revenue of $151.0 million and EBITDA of $2.3 million.
The market we serve for materials testing systems is estimated to be
approximately $450 million in 1998 revenue and is estimated to be growing at 4%
to 8% annually. Although no independent industry information is available, we
believe that the market we serve for structural testing systems is approximately
$750 million in 1998 revenue, which together with the materials testing segment
of the market we serve totals $1.2 billion, and is estimated to be growing at 8%
to 10% annually. We attribute this growth to, among other things:
- the search for new materials and new applications of existing materials
to create better products;
- ongoing total quality management initiatives by manufacturers, including
ISO 9000 certification;
- the increase in global manufacturing and transfer of materials and
products;
- manufacturers' need to reduce the cost of, and time required to develop,
new products, and increase the reliability of their products; and
- increasing regulatory, safety and environmental requirements.
THE RECAPITALIZATION
On September 29, 1999, we merged with a wholly owned subsidiary of Kirtland
in connection with a recapitalization of Instron. The recapitalization was
completed through the following transactions:
- Kirtland and its affiliates acquired approximately 88.3% of our common
stock for $54.2 million in cash;
- members of our management retained shares with an aggregate value of
approximately $3.6 million, or approximately 5.9% of our common stock,
and including retained options an aggregate value of approximately $6.4
million, or approximately 9.9% of our total equity;
- three other stockholders retained shares with an aggregate value of
approximately $3.5 million, or approximately 5.8% of our common stock;
- selling stockholders will receive approximately $153.5 million in cash in
connection with our redemption of their equity interests;
- we repaid approximately $17.4 million of our indebtedness;
- we incurred fees and expenses of approximately $10.2 million in
connection with the recapitalization;
- we completed an offering of 60,000 units comprised of $60.0 million of
the outstanding notes and 60,000 warrants to purchase 30,654 shares of
our common stock; and
- we entered into an $80.0 million new senior credit facility with National
City Bank, under which we borrowed $30.0 million in term loan borrowings
and approximately $16.5 million in revolving credit borrowings.
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See "Certain Relationships and Related Transactions."
THE EQUITY INVESTOR
Kirtland is a privately funded investment group with over $300 million in
committed equity capital. Kirtland and its predecessors have been buying and
building manufacturing and distribution businesses since 1978. Kirtland
currently has a controlling interest in Unifrax Corporation, a manufacturer of
ceramic fiber products, as well as controlling interests in a number of other
industrial manufacturing companies.
RISK FACTORS
YOU SHOULD REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN EXPLANATION
OF SOME RISKS OF INVESTING IN THE SECURITIES.
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(Dollars and shares in thousands)
The following table presents our summary historical and unaudited pro forma
financial data as of and for the periods shown below. The data, except for
bookings of new orders, backlog, and EBITDA, are derived from (1) our audited
consolidated financial statements, (2) our unaudited quarterly condensed
consolidated financial statements, and (3) our unaudited pro forma condensed
consolidated financial statements. Each of these financial statements is
contained elsewhere in this prospectus. The unaudited pro forma condensed
consolidated statement of income data for the nine-month period ended October 2,
1999 give effect to the recapitalization as if it had occurred on January 1,
1999. Because the information in this table is only a summary, you should read
our annual and quarterly financial statements and the related notes, the
unaudited pro forma consolidated financial data and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this prospectus.
ACTUAL
--------------------------------------------------------------- PRO FORMA
NINE MONTHS ENDED NINE MONTHS
YEARS ENDED DECEMBER 31, --------------------------- ENDED
-------------------------------- SEPTEMBER 26, OCTOBER 2, OCTOBER 2,
1996 1997 1998 1998 1999 1999
OPERATING RESULTS:
Total revenue........................ $153,113 $155,660 $183,029 $114,961 $150,953 $150,953
Income (loss) from operations(1)..... 9,145 12,571 9,646 3,686 (4,154) 8,640
Income (loss) before income
taxes(2)........................... 7,385 11,555 20,333 14,476 (4,547) (1,180)
Net income (loss).................... 4,582 7,164 11,459 7,828 (4,357) (790)
OTHER DATA:
EBITDA(3)............................ $ 15,329 $ 18,880 $ 27,671 $ 19,656 $ 2,266 $ 15,060
Depreciation and amortization........ 6,873 6,494 7,106 5,167 6,446 6,446
Capital expenditures(4).............. 4,473 4,176 5,841 5,182 4,116 4,116
Bookings of new orders............... 161,692 150,020 166,515 102,056 153,917 153,917
Backlog.............................. 34,361 28,748 74,477 31,870 72,967 72,967
Ratio of earnings to fixed
charges(5)(6)(7)................... 3.8x 5.6x 9.4x 8.3x -- --
AS OF OCTOBER 2, 1999
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BALANCE SHEET DATA:
Working capital............................................. $ 34,220
Total assets................................................ 168,639
Total long-term debt........................................ 90,000
Stockholders' deficit....................................... 13,831
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(1) In March 1996, we recorded a special items charge to operations to implement
a workforce reduction and consolidate some manufacturing operations. We took
a pre-tax charge of $1,812 ($1,123 net of taxes) to cover these actions.
Income from operations in 1998 and the nine months ended September 26, 1998
reflects a special items charge to operations to consolidate our European
operations and write-down the value of non-performing assets. We took a
pretax charge of $4,975 ($4,232 net of taxes) in the first quarter of 1998
to cover these actions. In September 1999, we recorded a non-recurring
compensation expense of $12,606 ($9,296 net of tax) directly attributable to
the recapitalization. Income from operations excludes foreign exchange gain
or loss.
(2) Income (loss) before income taxes in 1998 and the nine months ended
September 26, 1998 reflects a non-operating pre-tax gain of $11,076 ($6,867
net of taxes) recorded in the first quarter of 1998 in connection with our
sale of 42 acres of excess land in Canton, Massachusetts.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because we believe it is frequently used
by securities analysts, investors and other interested parties in the
evaluation of companies in our industry. However, other companies in our
industry may calculate EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities or as a measure of liquidity or as an alternative to
net income as indicators of our operating performance or any other measures
of performance derived in accordance with generally accepted accounting
principles. See the Statement of Cash Flow indicated in our financial
statements.
(4) Excludes capital expenditures of acquired businesses prior to the date of
acquisition.
(5) Earnings used in computing the ratio of earnings to fixed charges consist of
pre-tax earnings before losses from equity investments and fixed charges.
Fixed charges are defined as interest expense related to debt, amortization
expense related to deferred financing costs, accretion of debt discount and
a portion of rental charges representative of interest.
(6) Due to our loss in the nine months ended October 2, 1999, the ratio coverage
was less than 1:1. We must generate additional earnings of $187 to achieve a
coverage ratio of 1:1.
(7) Due to our pro forma loss in the nine month period ended October 2, 1999,
the ratio coverage was less than 1:1. We must generate additional pro forma
earnings of $871 to achieve a coverage ratio of 1:1.
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RISK FACTORS
Before you invest in the exchange notes, you should consider carefully the
following factors, in addition to the other information contained in this
prospectus.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE
NOTES.
We now have and, after this offering, we will continue to have a
significant amount of indebtedness. The following chart shows certain important
credit statistics and is presented assuming we had completed this offering as of
the date or at the beginning of the period specified below and applied the
proceeds as intended:
AT
OCTOBER 2, 1999
(DOLLARS IN THOUSANDS)
Total indebtedness.......................................... $109,644
Stockholders' deficit....................................... $ 13,831
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- adversely affect the value of the securities;
- place us at a competitive disadvantage compared to our competitors that
have less debt;
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us; and
- limit our ability to pursue and consummate strategic acquisitions.
See "Description of Notes -- Repurchase at the Option of Holders -- Change
of Control" and "Description of New Senior Credit Facility."
ADDITIONAL BORROWINGS AVAILABLE -- DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND
OUR SUBSIDIARIES MAY BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. Our new senior credit facility has unused
commitments of up to $31.9 million less outstanding letters of credit and demand
guarantees, after completion of this offering, and all of those borrowings would
be senior to the notes and the subsidiary guarantees. As part of our business
strategy, we intend to pursue strategic acquisitions in the future and we likely
will finance a substantial portion of any acquisitions with additional
indebtedness. If new debt is added to our and our subsidiaries' current debt
levels, the related risks that we and they now face could increase.
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of Notes -- Repurchase at the Option of Holders -- Change of
Control" and "Description of New Senior Credit Facility."
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness,
including the exchange notes, and to fund planned capital expenditures and
research and development efforts will depend on our ability to generate
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cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our new senior credit facility will be adequate
to meet our future liquidity needs for the foreseeable future.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our new senior credit facility or elsewhere in an amount
sufficient to enable us to pay our indebtedness, including these exchange notes,
or to fund our other liquidity needs. We may need to refinance all or a portion
of our indebtedness, including the exchange notes, on or before maturity. We
cannot assure you that we will be able to refinance any of our indebtedness,
including our new senior credit facility and these exchange notes, on
commercially reasonable terms or at all.
RESTRICTIVE DEBT COVENANTS -- OUR BUSINESS IS RESTRICTED BY THE DEBT COVENANTS
CONTAINED IN OUR NEW SENIOR CREDIT FACILITY AND THE INDENTURE GOVERNING THE
EXCHANGE NOTES.
The indenture governing the exchange notes will limit what we and our
restricted subsidiaries may do. The provisions of the indenture will limit our
ability to:
- incur more debt;
- pay dividends, make distributions or repurchase stock;
- make some investments;
- create liens;
- enter into transactions with affiliates;
- enter into sale and leaseback transactions;
- merge or consolidate; and
- transfer and sell assets.
There are a number of important exceptions to these covenants, which are
more fully described under "Description of Notes."
The new senior credit facility contains many similar and more stringent
limitations. In addition, it requires us to comply with certain financial ratios
and tests. If we breach any of these covenants we would default under the new
senior credit facility and, as a result, may be prohibited from making any
payments to you. In addition, under certain circumstances, all amounts borrowed
under the new senior credit facility, plus interest, may be declared to be due
and payable, which would be an event of default under the indenture. See
"Description of New Senior Credit Facility."
These restrictions in the indenture and the new senior credit facility, in
combination with our high level of debt, could limit our ability to respond to
market conditions or meet extraordinary capital needs, or could adversely affect
our ability to finance our future acquisitions, operations or capital needs, or
engage in other business activities that could be in our interest.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS JUNIOR
TO OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER,
THE GUARANTEES OF THE EXCHANGE NOTES ARE JUNIOR TO ALL OF OUR GUARANTORS'
EXISTING INDEBTEDNESS AND POSSIBLY TO ALL OF THEIR FUTURE BORROWINGS.
The exchange notes and the subsidiary guarantees rank behind all of our and
the subsidiary guarantors' existing indebtedness and all of our and their future
borrowings, except any indebtedness that expressly provides that it ranks equal
with, or subordinated in right of payment to, the exchange notes and the
guarantees. As a result, upon any distribution to our creditors or the creditors
of the guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors or our or their property, the
holders of senior
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debt of Instron and the guarantors will be entitled to be paid in full in cash
before any payment may be made with respect to these exchange notes or the
subsidiary guarantees.
In addition, all payments on the exchange notes and the subsidiary
guarantees will be blocked in the event of a payment default on senior debt and
may be blocked for up to 179 of 360 consecutive days in the event of certain
non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to Instron or the guarantors, holders of the exchange notes
will participate with trade creditors and all other holders of subordinated
indebtedness of Instron and the guarantors in the assets remaining after we and
the subsidiary guarantors have paid all of the senior debt. However, because the
indenture requires that amounts otherwise payable to holders of the exchange
notes in a bankruptcy or similar proceeding be paid to holders of senior debt
instead, holders of the exchange notes may receive less, ratably, than holders
of trade payables in any such proceeding. In any of these cases, we and the
subsidiary guarantors may not have sufficient funds to pay all of our creditors
and holders of exchange notes may receive less, ratably, than the holders of
senior debt.
On October 2, 1999, the outstanding notes and the subsidiary guarantees
were subordinated to $46.5 million of senior debt, and approximately $31.8
million, less outstanding letters of credit and demand guarantees, remained as
unborrowed commitments of senior debt under our new senior credit facility.
NOT ALL SUBSIDIARIES ARE GUARANTORS -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE
NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR SUBSIDIARIES
DECLARE BANKRUPTCY, LIQUIDATE, OR REORGANIZE.
Some but not all of our subsidiaries guarantee the outstanding notes and
will guarantee the exchange notes. In the event of a bankruptcy, liquidation or
reorganization of any of the non-guarantor subsidiaries, holders of their
indebtedness and their trade creditors will generally be entitled to payment of
their claims from the assets of those subsidiaries before any assets are made
available for distribution to us. On October 2, 1999, the notes were effectively
junior to $30.0 million of indebtedness and other liabilities, including trade
payables, of these non-guarantor subsidiaries. The non-guarantor subsidiaries
generated 234.0% of our EBITDA for the nine-month period ended October 2, 1999
and held 33.0% of our consolidated assets as of October 2, 1999.
SIGNIFICANT INTERNATIONAL OPERATIONS -- WE ARE SUBJECT TO RISKS RELATING TO OUR
FOREIGN OPERATIONS.
Foreign operations represent a significant portion of our business. For the
nine months ended October 2, 1999, approximately 44% of our total revenue was
derived from sales in the United States, approximately 38% from sales in Europe
and approximately 18% from sales to the rest of the world. Our reported revenue
outside the United States accounted for 54.7% of our total revenue in 1998,
59.4% in 1997 and 61.1% in 1996. Bookings from Asia declined by 30% in 1998
compared to 1997 due to the economic downturn in this region and devaluation of
Asian currencies. We expect revenue from foreign markets to continue to
represent a significant portion of our total revenue. We own manufacturing
facilities in England and lease manufacturing facilities in Germany. We also
sell domestically manufactured products to foreign customers. Our foreign
operations are subject to risks in addition to the risks of our domestic
operations. The risks that relate to our foreign operations include:
- political, economic and social conditions in the foreign countries where
we conduct operations;
- currency risks and exchange controls, including risks related to the
introduction of the euro;
- potential inflation in the applicable foreign economies;
- the impact of import duties on our costs and prices;
- foreign taxation of our earnings and payments received by us; and
- regulatory changes affecting our international operations.
These risks may adversely affect our business.
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CONCENTRATION OF STOCK OWNERSHIP -- KIRTLAND CONTROLS ALL MATTERS SUBMITTED TO
STOCKHOLDER VOTES AND THIS CONTROL MAY ADVERSELY AFFECT HOLDERS OF THE
SECURITIES.
As a result of the recapitalization, Kirtland controls approximately 88.3%
of the voting power of our outstanding common stock. Therefore, Kirtland is able
to control the vote on all matters submitted to a stockholder vote, including
the election of directors, amendments to our articles of organization and our
by-laws and approval of significant corporate mergers. See "Certain
Relationships and Related Transactions -- The Recapitalization." Some decisions
about our operations or financial structure may present conflicts of interests
between Kirtland and the holders of the exchange notes. For example, Kirtland
may be willing to approve acquisitions, divestitures or transactions undertaken
by us that it believes could increase the value of its equity investment in
Instron. These kinds of transactions, however, may increase the financial risk
to you.
ACQUISITION STRATEGY -- WE MAY EXPERIENCE DIFFICULTIES IN IDENTIFYING
ACQUISITION CANDIDATES AND INTEGRATING ACQUIRED BUSINESSES. IN ADDITION, OUR
ACQUISITION STRATEGY MAY INVOLVE THE INCURRENCE OF ADDITIONAL INDEBTEDNESS OR
ISSUANCES OF COMMON STOCK.
In 1998, we acquired Satec and purchased the remaining 49% interest in our
IST joint venture. As part of our business strategy, we intend to pursue
strategic acquisitions in the future. We cannot assure you that we will succeed
in identifying acquisition candidates or in consummating any acquisitions. If
any acquisitions are consummated, we cannot assure you that these acquisitions
will be successfully integrated or operated profitably. Acquisitions can present
significant challenges to management due to the increased time and resources
required to properly integrate management, employees, accounting controls,
personnel and administrative functions. In addition, identifying acquisition
candidates and integrating them upon consummation may divert management's
attention from the operation of our core business. We may encounter these or
other difficulties, and we may not be able to realize the benefits that we hope
to achieve from future strategic acquisitions.
When we acquired the remaining interest in IST, we assumed several
contracts for structural testing systems that resulted in substantially less
profit than we had expected and that have taken us longer to complete than we
had anticipated. We cannot assure you that we will achieve expected
profitability levels or anticipated delivery dates in our structural testing
business in the future due to the scale and technical risks involved in some of
our customer contracts.
In addition, as we pursue our acquisition strategy in the future, we may
incur additional indebtedness or issue additional equity. These future
incurrences of indebtedness or issuances of equity could have a material adverse
effect on your interests in the securities.
YEAR 2000 COMPLIANCE -- ANY COMPUTER-RELATED PROBLEMS RELATED TO THE YEAR 2000
MAY ADVERSELY AFFECT OUR BUSINESS.
Internal Business Systems
We are highly dependent on our computer software in operating our business.
Although the impact of Year 2000 issues on our future revenue is difficult to
assess, it is a risk that should be considered in evaluating our business. We
believe the current versions of our products and our internal information
systems are or will be Year 2000 compliant but we cannot make absolute
assurances that we have identified all the issues and can resolve them in a
timely manner, or that there will not be failures or disruptions to operations
that could result in a material adverse effect on our business. We do not expect
material liabilities or operational difficulties with respect to our operating
systems, although any material failure of these systems could have a material
adverse effect on our business. Material failures could result in:
- our inability to order components necessary for our products;
- the malfunctioning of our manufacturing or service processes;
- our inability to properly bill and collect payments from our customers;
and
- errors or omissions in accounting and financial data.
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Customers and Suppliers
We also depend on the proper functioning of the computer systems of third
parties, particularly our customers and suppliers. The failure of one of our
customers' or suppliers' systems to appropriately handle Year 2000 complications
could cause material adverse effects on our business.
For more information on our Year 2000 program, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000."
FLUCTUATIONS IN QUARTERLY RESULTS -- OUR QUARTERLY RESULTS HAVE FLUCTUATED
SIGNIFICANTLY IN THE PAST AND MAY FLUCTUATE SIGNIFICANTLY IN THE FUTURE.
Our quarterly operating results have varied significantly depending on a
number of factors. These factors include:
- timing of receipt of system orders from, and shipments to, major
customers;
- bookings and deliveries of our large structural testing system projects;
- variations in product mix and product margins;
- economic conditions prevailing within geographic markets;
- market acceptance of new products and services;
- timing and levels of operating expenditures; and
- exchange rate fluctuations.
Historically, our sales are highest in the fourth quarter of each year due
to the ordering pattern of our customers, which favors fourth quarter deliveries
before budget authorizations expire. Sales in the first quarter are usually low
as it takes time to rebuild in-process inventory levels after the heavy fourth
quarter delivery requirements have been satisfied. Also, third quarter sales are
generally low due to vacation patterns of both our production workers and
customer technical personnel needed for acceptance testing. We may be unable to
adjust costs in a timely manner to compensate for a material revenue shortfall
because a large portion of our costs is fixed and our expense levels are based
in part on our expectations of future revenue. The seasonal factors affecting
sales are usually reflected in quarterly operating income.
The structural testing systems business that we conduct through IST is
characterized by relatively larger contract sizes and longer delivery periods
than our materials testing systems business. Accordingly, we believe that the
acquisition of IST has increased the fluctuations we experience in our quarterly
results.
CYCLICALITY -- THE CYCLICAL NATURE OF THE INDUSTRIES WE CURRENTLY SERVE COULD
ADVERSELY AFFECT OUR BUSINESS AND ABILITY TO SATISFY OUR OBLIGATIONS UNDER THE
NOTES.
A substantial percentage of our revenue is derived from customers that are
in industries and businesses that are cyclical in nature and subject to changes
in general economic conditions, including the automotive and automotive supply
industry, which we believe accounted for approximately 20% of our pro forma
revenue for the nine months ended October 2, 1999. General economic or
industry-specific downturns in cyclical industries could have a material adverse
effect on our business.
SIGNIFICANT COMPETITION -- WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN OUR
INDUSTRY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND OUR ABILITY TO SATISFY
OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
We compete with a number of other manufacturers, some of which have greater
financial, technical and marketing resources than do we. The intensity of the
competition varies by product line and by geographic area. Competition in the
United States is the greatest in our industry because we have one major domestic
competitor, MTS Systems Corporation. Competition in foreign markets is greatest
in Germany and Japan, where there are major local manufacturers. The principal
competitive factors are:
- engineering excellence;
- the quality and technical capability of the equipment;
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- responsiveness to customer needs;
- quality of service; and
- price.
RELIANCE ON KEY PERSONNEL -- OUR FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL
COULD ADVERSELY AFFECT OUR BUSINESS.
Our future success is significantly dependent on our experienced senior
management. Although we have entered into agreements with a number of our senior
executives, which provide incentives for continuing employment, the loss of the
services of any one of these key executives could have a material adverse effect
on our business. Additionally, we are dependent on the continuing contributions
of our project managers, scientists, and other key professionals. Of particular
importance are our employees who maintain close relationships with our
customers.
TAX CONSIDERATIONS -- THE NOTES WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT.
The outstanding notes were issued with original issue discount (OID) for
United States federal income tax purposes in an amount equal to the excess of
the principal amount due at maturity on the notes over their "issue price,"
which is described in "Certain United States Federal Income Tax Considerations."
Each United States holder of a note will be required to include in taxable
income for any particular taxable year a portion of the OID in advance of
receiving cash to which the OID is attributable. For additional information
regarding the OID associated with the notes, as well as some other federal
income tax considerations relevant to the purchase, ownership and disposition of
the notes, warrants and shares of common stock issuable upon exercise of the
warrants, see "Certain United States Federal Income Tax Considerations."
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all of the exchange notes. However,
it is possible that we will not have sufficient funds at the time of the change
of control to make the required repurchase of exchange notes. In addition,
restrictions in our new senior credit facility currently prohibit us from making
such repurchases and any future credit agreement may contain a similar
restriction. Certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, might not
constitute a "Change of Control" under the indenture. See "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control."
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
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The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of the outstanding notes, is not insolvent, does not have unreasonably
small capital for the business in which it is engaged and has not incurred debts
beyond its ability to pay such debts as they mature. There can be no assurance,
however, as to what standard a court would apply in making such determinations
or that a court would agree with our conclusions in this regard. Each guarantee
also contains a provision intended to limit the liability of the guarantor to
the maximum amount of liability the guarantor could incur without causing the
incurrence of its obligations under the guarantee to be a fraudulent transfer.
We cannot assure you, however, that this provision will be effective.
NO PRIOR MARKET FOR THE SECURITIES -- YOU CANNOT BE SURE THAT ACTIVE TRADING
MARKETS WILL DEVELOP FOR THESE SECURITIES.
There is no established trading market for the outstanding notes or the
exchange notes. We have been informed by Donaldson, Lufkin & Jenrette that it
intends to make a market in these securities. However, it may cease its
market-making at any time. In addition, the liquidity of the trading markets in
these securities, and the market prices quoted for these securities, may be
adversely affected by changes in the overall market for high yield securities
and by changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, you cannot be sure that active
trading markets will develop for these securities.
RESTRICTIONS ON TRANSFER OF OUTSTANDING NOTES -- IF YOU DO NOT EXCHANGE YOUR
OUTSTANDING NOTES YOU MAY HAVE DIFFICULTY IN TRANSFERRING THEM AT A LATER TIME.
We will issue exchange notes in exchange for the outstanding notes after
the exchange agent receives your outstanding notes, the letter of transmittal
and all related documents. You should allow adequate time for delivery if you
choose to tender your outstanding notes for exchange. Outstanding notes that are
not exchanged will remain subject to restrictions on transfer and will not have
any rights to registration.
If you do participate in the exchange offer for the purpose of
participating in the distribution of the exchange notes, you must comply with
the registration and prospectus delivery requirements of the Securities Act of
1933 for any resale transaction. Each broker-dealer who holds outstanding notes
for its own account due to market-making or other trading activities and who
receives exchange notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of the exchange notes. If any
outstanding notes are not tendered in the exchange or are tendered but not
accepted, the trading market for the outstanding notes could be negatively
affected due to the limited number of outstanding notes expected to remain
outstanding following the completion of the exchange offer.
TECHNOLOGICAL CHANGE -- OUR FAILURE TO MAINTAIN OUR POSITION AS A TECHNOLOGY
LEADER IN OUR INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We operate in a competitive industry characterized by technological change.
If we are not able to maintain our position as a technology leader in the
industries in which we compete, our business could be adversely affected. Our
ability to maintain our position as a technology leader depends upon many
factors, including:
- the ability of our competitors to develop new products that are
equivalent or superior to our products;
- advancements in the development of virtual testing methods using computer
modeling; and
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- the timely incorporation of technological advances into our existing
products and services and commercial acceptance of future products and
services.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS -- WE ARE SUBJECT TO RISKS FROM
INCREASED LEGISLATIVE AND REGULATORY AUTHORITY RELATING TO ENVIRONMENTAL ISSUES.
We are subject to a wide variety of federal, state, local, and foreign
environmental laws and regulations. These laws and regulations control our use,
handling, treatment, storage, discharge and disposal of hazardous wastes used or
generated in our business. Additionally, we are subject to federal, state,
local, and foreign laws and regulations regarding the following matters:
- employee health and safety; and
- permitting and licensing requirements.
If we fail to comply with present or future environmental laws or
regulations, we could be subject to future liabilities or our operations could
be interrupted. In addition, future environmental laws and regulations could
restrict our ability to expand our facilities or could require us to acquire
costly equipment or to incur other significant expenses in connection with our
business. Although compliance with these laws and regulations has not had any
material adverse effects on our business, you should be aware that other
problems identified in the future or future changes in environmental
requirements could have a material adverse effect on us.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
FORWARD LOOKING STATEMENTS -- OUR FORWARD LOOKING STATEMENTS ARE SUBJECT TO A
VARIETY OF FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
CURRENT BELIEFS.
A number of statements made in this prospectus are not historical or
current facts, but deal with potential future circumstances and developments.
Those statements are qualified by the inherent risks and uncertainties
surrounding future expectations generally, and also may materially differ from
our actual future experience involving any one or more of these matters and
subject areas. We have attempted to identify, in context, some of the factors
that we currently believe may cause actual future experience and results to
differ from our current expectations regarding the relevant matter or subject
area. The operation and results of our business also may be subject to the
effect of other risks and uncertainties in addition to the relevant qualifying
factors identified elsewhere in the foregoing "Risk Factors" section, including,
but not limited to:
- the impact of fluctuations in exchange rates and the uncertainties of
operating in a global economy including fluctuations in the economic
conditions of the foreign and domestic markets we serve, which can affect
the demand for our products and services;
- our ability to successfully manage and integrate the products and
operations of recently acquired companies;
- our ability to identify and successfully consummate strategic
acquisitions;
- the impact of year 2000 issues;
- the success of the automobile industry, which is the major purchaser of
some of our structural testing products; and
- general economic conditions.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On September 29, 1999, we issued and sold $60.0 million in principal amount
of the outstanding notes to Donaldson, Lufkin & Jenrette. The outstanding notes
were sold as part of a unit consisting of $1,000 principal amount of outstanding
notes and one warrant to purchase 0.5109 of a share of our common stock. As of
the date of this prospectus, the units have separated into outstanding notes and
warrants. We are not registering the warrants or our common stock as part of
this exchange offer or in a separate offering at this time. Donaldson, Lufkin &
Jenrette sold the outstanding notes to a limited number of "Qualified
Institutional Buyers," as defined under the Securities Act. In connection with
the sale of the outstanding notes, we entered into a registration rights
agreement, dated as of September 29, 1999 with Donaldson, Lufkin & Jenrette.
Under that agreement, we must, among other things, use our reasonable best
efforts to file with the Commission a registration statement under the
Securities Act covering the exchange offer and to cause that registration
statement to become and remain effective under the Securities Act. Upon the
effectiveness of that registration statement, we must also offer each holder of
the outstanding notes the opportunity to exchange its securities for an equal
principal amount of exchange notes. You are a holder with respect to the
exchange offer if you are a person in whose name any outstanding notes are
registered on our books or any other person who has obtained a properly
completed assignment of outstanding notes from the registered holder.
We are making the exchange offer to comply with our obligations under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to us,
among other things, that:
- the exchange notes being acquired in accordance with the exchange offer
are being obtained in the ordinary course of business of the person
receiving the exchange notes;
- neither you nor any other person with whom you have any arrangement or
understanding is engaging in or intends to engage in a distribution of
those exchange notes;
- you are not an affiliate of Instron. An affiliate is any person who
"controls or is controlled by or is under common control with" Instron;
- if you are an affiliate of Instron, you will comply with requirements of
the Securities Act applicable to affiliates; and
- you are not acting on behalf of any person who could not truthfully make
these representations.
RESALE OF THE EXCHANGE NOTES
Based on a previous interpretation by the Staff of the Commission set forth
in no-action letters issued to third parties, including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991),
Warnaco, Inc. (available October 11, 1991), and K-111 Communications Corp.
(available May 14, 1993), we believe that the exchange notes issued in the
exchange offer may be offered for resale, resold, and otherwise transferred by
you, except if you are an affiliate of Instron, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the representations set forth in " -- Purpose and Effect of the Exchange
Offer" apply to you. The Staff has not considered this exchange offer in the
context of a no-action letter, and we cannot assure you that the Staff would
make a similar determination with respect to the exchange offer.
If you tender in the exchange offer with the intention of participating in
a distribution of the exchange notes, you cannot rely on the interpretation by
the Staff of the Commission as set forth in no-action letters issued to third
parties unrelated to Instron and you must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. In the event that our belief regarding resale is
inaccurate, those who transfer exchange notes in violation of the prospectus
delivery
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provisions of the Securities Act and without an exemption from registration
under the federal securities laws may incur liability under these laws. We do
not and will not assume or indemnify you against this liability.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance of the exchange offer would not be in
compliance with the securities or blue sky laws of the particular jurisdiction.
Each broker-dealer that receives exchange notes for its own account in exchange
for outstanding notes, where the outstanding notes were acquired by that
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. In order to facilitate the disposition of
exchange notes by broker-dealers participating in the exchange offer, we have
agreed to make a reasonable number of copies of this prospectus, as it may be
amended or supplemented from time to time, available for delivery by those
broker-dealers to satisfy their prospectus delivery obligations under the
Securities Act.
Any holder that is a broker-dealer participating in the exchange offer must
comply with the procedures set forth for broker-dealers in the enclosed Letter
of Transmittal. Under the registration rights agreement, we are not required to
amend or supplement the prospectus for a period exceeding 180 days after the
expiration date of the exchange offer, except in limited circumstances where we
suspend use of the registration statement. We may suspend use of the
registration statement if:
- an order suspending the effectiveness of the registration statement or
preventing the use of any prospectus is entered, or any proceeding is
initiated to obtain this type of order;
- we receive notice that the qualification or exemption from qualification
of the registration statement or any of the exchange notes to be sold by
any broker-dealer for offer or sale in any jurisdiction has been
suspended, or any proceeding is initiated or threatened to obtain a
suspension;
- any information becomes known that makes any statement made in the
registration statement, prospectus or any document incorporated by
reference in either, untrue in any material respect, or that requires
changes in, or amendments to any of these documents to correct or clarify
the statement;
- we determine that a post-effective amendment to the registration
statement is appropriate.
We have not entered into any arrangement or understanding with any person to
distribute the exchange notes to be received in the exchange offer. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., Central Standard Time, on
the day the exchange offer expires.
As of the date of this prospectus, $60.0 million in principal amount of the
notes are outstanding. This prospectus, together with the Letter of Transmittal,
is being sent to all registered holders of the outstanding notes on this date.
There will be no fixed record date for determining registered holders of the
outstanding notes entitled to participate in the exchange offer, however,
holders of the outstanding notes must tender their certificates therefor or
cause their outstanding notes to be tendered by book-entry transfer prior to the
expiration date of the exchange offer to participate.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes except that the exchange notes will be registered
under the Securities Act and therefore will not bear legends restricting their
transfer. Following consummation of the exchange offer, all rights under the
registration rights agreement accorded to holders of outstanding notes,
including the right to receive additional incremental interest on the
outstanding notes, to the extent and in the circumstances specified in the
registration rights agreement, will terminate.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement and applicable federal securities laws.
Outstanding notes that are not tendered for exchange under the exchange offer
will remain outstanding and will be entitled to the rights under the related
indenture. Any
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outstanding notes not tendered for exchange will not retain any rights under the
registration rights agreement and will remain subject to transfer restrictions.
See " -- Consequences of Failure to Exchange."
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purposes of receiving the exchange notes from us. If any tendered outstanding
notes are not accepted for exchange because of an invalid tender, the occurrence
of other events set forth in this prospectus, or otherwise, certificates for any
unaccepted outstanding notes will be returned, or, in the case of outstanding
notes tendered by book-entry transfer, those unaccepted outstanding notes will
be credited to an account maintained with The Depository Trust Company, without
expense to the tendering holder of those outstanding notes as promptly as
practicable after the expiration date of the exchange offer. See " -- Procedures
for Tendering."
Those who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange in
accordance with the exchange offer. We will pay all charges and expenses, other
than applicable taxes described below, in connection with the exchange offer.
See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., Central Standard Time on
, 2000, unless we, in our sole discretion, extend the
exchange offer, in which case, the expiration date will be the latest date and
time to which the exchange offer is extended. We must use our best efforts to
consummate the exchange offer on or prior to the 30th day following the date the
registration statement is declared effective.
To extend the exchange offer, we must notify the exchange agent by oral or
written notice prior to 8:00 a.m., Central Standard Time, on the next business
day after the previously scheduled expiration date and make a public
announcement of the extension.
We reserve the right:
- to extend the exchange offer or to terminate the exchange offer if any of
the conditions set forth below under "-- Conditions" are not satisfied by
giving oral or written notice of the extension or termination to the
exchange agent; or
- to amend the terms of the exchange offer in any manner consistent with
the registration rights agreement.
Any delay in acceptances, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice of the delay to
the registered holders of the outstanding notes. If we amend the exchange offer
in a manner that constitutes a material change, we will promptly disclose the
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the outstanding notes, and we will extend the exchange
offer for a period of five to ten business days, depending upon the significance
of the amendment and the manner of disclosure to the registered holders of the
outstanding notes, if the exchange offer would otherwise expire during the five
to ten business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment, or termination of the exchange
offer, we will have no obligation to publish, advertise, or otherwise
communicate that public announcement, other than by making a timely release to
an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept, promptly after the expiration date of the exchange offer, all
outstanding notes properly tendered and will issue the exchange notes promptly
after acceptance of the outstanding notes. See " -- Conditions" below. For
purposes of the exchange offer, we will be deemed to have accepted properly
tendered outstanding notes for exchange when, as and if we have given oral or
written notice of our acceptance to the exchange agent.
In all cases, issuance of the exchange notes for outstanding notes that are
accepted for exchange in accordance with the exchange offer will be made only
after timely receipt by the exchange agent of certificates for those outstanding
notes or a timely confirmation of book-entry transfer of the outstanding notes
into the exchange agent's account at The Depository Trust Company, a properly
completed and duly executed Letter of
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Transmittal, and all other required documents; provided, however, that we
reserve the absolute right to waive any defects or irregularities in the tender
of outstanding notes or in the satisfaction of conditions of the exchange offer
by holders of the outstanding notes. If any tendered outstanding notes are not
accepted for any reason set forth in the terms and conditions of the exchange
offer, if the holder withdraws the previously tendered outstanding notes, or if
outstanding notes are submitted for a greater principal amount of outstanding
notes than the holder desires to exchange, then the unaccepted, withdrawn or
portion of non-exchanged outstanding notes, as appropriate, will be returned as
promptly as practicable after the expiration or termination of the exchange
offer, or, in the case of outstanding notes tendered by book-entry transfer,
those unaccepted, withdrawn or portion of non-exchanged outstanding notes, as
appropriate, will be credited to an account maintained with The Depository Trust
Company, without expense to the tendering holder of these outstanding notes.
CONDITIONS
Without regard to other terms of the exchange offer, we will not be
required to exchange any exchange notes for any outstanding notes and may
terminate the exchange offer before the acceptance of any outstanding notes for
exchange, if:
- the exchange offer is not registered under the Securities Act of 1933 on
the appropriate form; or
- the exchange offer fails to comply with all applicable rules and
regulations under the Exchange Act.
If we determine that any of these conditions are not satisfied, we may
refuse to accept any outstanding notes and return all tendered outstanding notes
to the tendering holders, or, in the case of outstanding notes tendered by
book-entry transfer, credit those outstanding notes to an account maintained
with The Depository Trust Company
PROCEDURES FOR TENDERING
To tender in the exchange offer, you must complete, sign and date an
original or facsimile Letter of Transmittal, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver the Letter of Transmittal to the exchange agent prior to the expiration
date of the exchange offer. In addition, either:
- certificates for the outstanding notes must be received by the exchange
agent, along with the Letter of Transmittal; or
- a timely confirmation of transfer by book-entry of those outstanding
notes, if the book-entry procedure is available, into the exchange
agent's account at The Depository Trust Company, as set forth in the
procedure for book-entry transfer described below, which the exchange
agent must receive prior to the expiration date of the exchange offer; or
- you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the exchange agent must receive the Letter of
Transmittal and other required documents at the address set forth below under
" -- Exchange Agent" prior to the expiration of the exchange offer.
If you tender your outstanding notes and do not withdraw them prior to the
expiration date of the exchange offer, you will be deemed to have an agreement
with us in accordance with the terms and subject to the conditions set forth in
this prospectus and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR RISK. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE OF
THE EXCHANGE OFFER. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT
TO US. YOU MAY REQUEST YOUR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender its outstanding notes should contact the
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registered holder promptly and instruct that registered holder to tender the
outstanding notes on the beneficial owner's behalf. If the beneficial owner
wishes to tender its outstanding notes on the owner's own behalf, that owner
must, prior to completing and executing the Letter of Transmittal and delivering
its outstanding notes, either make appropriate arrangements to register
ownership of the outstanding notes in that owner's name or obtain a properly
completed assignment from the registered holder. The transfer of registered
ownership of outstanding notes may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution, unless the
outstanding notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal; or
- for the account of an eligible institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, each of the
following is deemed an eligible institution:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- commercial bank;
- trust company having an office or correspondent in the United States; or
- eligible guarantor institution as provided by Rule 17Ad-15 of the
Exchange Act.
If the Letter of Transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as his, her or its name appears on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the Letter of Transmittal or any outstanding notes or bond power,
those persons should so indicate when signing, and unless we waive evidence
satisfactory to us of their authority to so act this evidence must be submitted
with the Letter of Transmittal.
We will determine all questions as to the validity, form, eligibility,
including time of receipt, acceptance of tendered outstanding notes, and
withdrawal of tendered outstanding notes, in our sole discretion. All of these
determinations by us will be final and binding. We reserve the absolute right to
reject any and all outstanding notes not properly tendered or any outstanding
notes our acceptance of which would, in the opinion of our counsel, be unlawful.
We also reserve the right to waive any defects, irregularities or conditions of
tender as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the Letter of
Transmittal will be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of outstanding notes must be cured
within the time we determine. Although we intend to notify holders of
outstanding notes of defects or irregularities with respect to tenders of
outstanding notes, neither we nor the exchange agent or any other person will
incur any liability for failure to give this notification. Tenders of
outstanding notes will not be deemed to have been made until defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders of outstanding notes, unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the expiration
date of the exchange offer.
In addition, we reserve the right, in our sole discretion, to purchase or
make offers for any outstanding notes that remain outstanding subsequent to the
expiration date of the exchange offer. We also reserve the right, as set forth
above under " -- Conditions," to terminate the exchange offer and, to the extent
permitted by applicable law and the terms of agreements relating to our
outstanding indebtedness, purchase outstanding notes in the open market, in
privately negotiated transactions or otherwise. The terms of any purchases or
offers could differ from the terms of the exchange offer.
If the holder of outstanding notes is a broker-dealer participating in the
exchange offer that will receive exchange notes for its own account in exchange
for outstanding notes that were acquired as a result of market-
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making activities or other trading activities, that broker-dealer will be
required to acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of the exchange notes and otherwise
agree to comply with the procedures described above under " -- Resale of the
Exchange Notes." That broker-dealer, however, by so acknowledging and delivering
a prospectus, will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
In all cases, issuance of exchange notes in accordance with the exchange
offer will be made only after timely receipt by the exchange agent of
certificates for the outstanding notes or a timely confirmation of book entry
transfer of outstanding notes into the exchange agent's account at The
Depository Trust Company, a properly completed and duty executed Letter of
Transmittal, and all other required documents. If any tendered outstanding notes
are not accepted for any reason set forth in the terms and conditions of the
exchange offer or if outstanding notes are submitted for a greater principal
amount of outstanding notes than the holder of outstanding notes desires to
exchange, the unaccepted or portion of non-exchanged outstanding notes will be
returned as promptly as practicable after the expiration or termination of the
exchange offer, or, in the case of outstanding notes tendered by book-entry
transfer into the exchange agent's account at The Depository Trust Company in
accordance with the book-entry transfer procedures described below, the
unaccepted or portion of non-exchanged outstanding notes will be credited to an
account maintained with The Depository Trust Company, without expense to the
tendering holder of outstanding notes.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at The Depository Trust Company for the purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in The Depository Trust Company's
systems may make book-entry delivery of outstanding notes by causing The
Depository Trust Company to transfer the outstanding notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer. However, although delivery
of outstanding notes may be effected through book-entry transfer at The
Depository Trust Company, the Letter of Transmittal or facsimile of the Letter
of Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent at the address set forth below under " -- Exchange Agent" on or prior to
the expiration date of the exchange offer, unless the holder complies with the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and (1) whose
outstanding notes are not immediately available or (2) who cannot deliver their
outstanding notes, the Letter of Transmittal, or any other required documents to
the exchange agent prior to the expiration date, may effect a tender if:
- The tender is made through an eligible institution;
- Prior to the expiration date of the exchange offer, the exchange agent
receives from that eligible institution a properly completed and duly
executed Notice of Guaranteed Delivery, by facsimile transmission, mail
or hand delivery, setting forth the name and address of the holder, the
certificate number(s) of the outstanding notes and the principal amount
of outstanding notes tendered and stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date of the exchange offer, the Letter
of Transmittal, together with the certificate(s) representing the
outstanding notes in proper form for transfer or a confirmation of
book-entry transfer, as the case may be, and any other documents required
by the Letter of Transmittal will be deposited by the eligible
institution with the exchange agent; and
- The exchange agent receives the properly completed and executed Letter of
Transmittal, as well as the certificate(s) representing all tendered
outstanding notes in proper form for transfer and other documents
required by the Letter of Transmittal within three New York Stock
Exchange trading days after the expiration date of the exchange offer.
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Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided, tenders of outstanding notes may be withdrawn
at any time prior to 5:00 p.m., Central Standard Time, on the expiration date of
the exchange offer.
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., Central Standard Time,
on the expiration date of the exchange offer. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn;
- be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which the outstanding notes were tendered or
be accompanied by documents of transfer sufficient to have the exchange
agent register the transfer of the outstanding notes in the name of the
person withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the person who deposited the outstanding notes to
be withdrawn.
We will determine all questions as to the validity, form, and eligibility
of the notices, and our determination will be final and binding on all parties.
Any outstanding notes so withdrawn will be deemed not to have been validly
tendered for purposes of the exchange offer, and no exchange notes will be
issued with respect to those outstanding notes unless the outstanding notes so
withdrawn are validly retendered.
Any outstanding notes that have been tendered but that are not accepted for
payment will be returned to the holder of those outstanding notes, or in the
case of outstanding notes tendered by book-entry transfer, will be credited to
an account maintained with The Depository Trust Company, without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described above under
" -- Procedures for Tendering" at any time prior to the expiration date of the
exchange offer.
TERMINATION OF CERTAIN RIGHTS
All rights given to holders of outstanding notes under the registration
rights agreement will terminate upon the consummation of the exchange offer
except with respect to our duty:
- to keep the registration statement effective until the closing of the
exchange offer and for a period not to exceed 180 days after the
expiration date of the exchange offer; and
- to provide a reasonable number of copies of the latest version of this
prospectus to any broker-dealer that requests copies of this prospectus
for use in connection with any resale by that broker-dealer of exchange
notes received for its own account in accordance with the exchange offer
in exchange for outstanding notes acquired for its own account as a
result of market-making or other trading activities, subject to the
conditions described above under " -- Resale of the Exchange Notes."
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed exchange
agent for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or the Letter of
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Transmittal, and requests for copies of the Notice of Guaranteed Delivery with
respect to the outstanding notes should be addressed to the exchange agent as
follows:
BY REGISTERED OR BY HAND DELIVERY OR
CERTIFIED MAIL: OVERNIGHT COURIER: IN PERSON:
Norwest Bank Minnesota, Norwest Bank Minnesota, Norwest Bank Minnesota,
National Association National Association National Association
Corporate Trust Operations Corporate Trust Operations Northstar East Bldg.
P.O. Box 1517 Norwest Center 608 2nd Ave. S.
Minneapolis, MN 55480-1517 Sixth and Marquette 12th Floor
Minneapolis, MN 55479-0113 Corporate Trust Services
Minneapolis, MN 55479-0113
BY FACSIMILE:
(612) 667-4927
CONFIRM BY TELEPHONE
(612) 667-9764
FEES AND EXPENSES
We will pay the expenses of soliciting tenders in connection with the
exchange offer. The principal solicitation is being made by mail; however,
additional solicitation may be made by telecopier, telephone, or in person by
officers and regular employees of ours or our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection with the exchange
offer.
We estimate that our cash expenses in connection with the exchange offer
will be approximately $ . These expenses include registration fees, fees and
expenses of the exchange agent, accounting and legal fees, and printing costs,
among others.
We will pay all transfer taxes, if any, applicable to the exchange of the
outstanding notes for exchange notes. The tendering holder of outstanding notes,
however, will pay applicable taxes if certificates representing outstanding
notes not tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered, or
- if tendered, the certificates representing outstanding notes are
registered in the name of any person other than the person signing the
Letter of Transmittal; or
- if a transfer tax is imposed for any reason other than the exchange of
the outstanding notes in the exchange offer.
If satisfactory evidence of payment of the transfer taxes or exemption from
payment of transfer taxes is not submitted with the Letter of Transmittal, the
amount of the transfer taxes will be billed directly to the tendering holder and
the exchange notes may not be delivered until the transfer taxes are paid.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Holders of the
outstanding notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
Outstanding notes that are not exchanged for the exchange notes in the
exchange offer will not have any rights under the registration rights agreement
and will remain restricted securities for purposes of the federal
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securities laws. Accordingly, the outstanding notes may not be offered, sold,
pledged, or otherwise transferred except in accordance with applicable
securities laws:
- to us or any of our subsidiaries;
- to a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A;
- in an offshore transaction complying with Rule 904 of Regulation S under
the Securities Act;
- in accordance with an exemption from registration under the Securities
Act provided by Rule 144 thereunder, if available;
- to "Institutional Accredited Investors" in a transaction exempt from the
registration requirements of the Securities Act; or
- in accordance with an effective registration statement under the
Securities Act.
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. The exchange notes will be recorded at the same carrying
value as the outstanding notes, as reflected in our accounting records on the
date of the exchange. The expenses of the exchange offer will be amortized over
the remaining term of the exchange notes.
THE RECAPITALIZATION
On September 29, 1999, we merged with a wholly owned subsidiary of Kirtland
in connection with a recapitalization of Instron. The recapitalization was
completed through the following transactions:
- Kirtland and its affiliates acquired approximately 88.3% of our common
stock for $54.2 million in cash;
- members of our management retained shares with an aggregate value of
approximately $3.6 million, or approximately 5.9% of our common stock,
and including retained options an aggregate value of approximately $6.4
million, or approximately 9.9% of our total equity;
- three other stockholders retained shares with an aggregate value of
approximately $3.5 million, or approximately 5.8% of our common stock;
- selling stockholders will receive approximately $153.5 million in cash in
connection with our redemption of their equity interests;
- we repaid approximately $17.4 million of our indebtedness;
- we incurred fees and expenses of approximately $10.2 million in
connection with the recapitalization;
- we completed an offering of 60,000 units comprised of $60.0 million of
the outstanding notes and 60,000 warrants to purchase 30,654 shares of
our common stock; and
- we entered into an $80.0 million new senior credit facility with National
City Bank, under which we borrowed $30.0 million in term loan borrowings
and approximately $16.5 million in revolving credit borrowings.
See "Certain Relationships and Related Transactions."
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. Because we are exchanging the exchange notes for the outstanding notes,
which have substantially identical terms, the issuance of the exchange notes
will not result in any increase in our indebtedness.
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CAPITALIZATION
The following table sets forth as of October 2, 1999 the actual
consolidated capitalization of Instron. You should read this table in
conjunction with the financial statements and related notes and the pro forma
financial statements and related notes appearing elsewhere in this prospectus.
See the Unaudited Pro Forma Condensed Consolidated Financial Data contained in
this prospectus and "Certain Relationships and Related Transactions."
AS OF
OCTOBER 2, 1999
---------------
(IN THOUSANDS)
Total debt, including current maturities:
Existing short term credit and borrowing facilities....... 3,144
New senior credit facility:
Revolving credit borrowings (1)........................ 16,500
Term loan borrowings................................... 30,000
13 1/4% Senior Subordinated Notes due 2009................ 60,000
-------
Total debt........................................ 109,644
-------
Stockholders' deficit:
Recapitalized common stock................................ 557
Additional paid in capital................................ 50,179
Accumulated deficit....................................... (58,408)
Accumulated other comprehensive loss...................... (6,159)
-------
Total stockholders' deficit....................... (13,831)
-------
Total capitalization...................................... $95,813
=======
- ---------------
(1) As of October 2, 1999, we had $31.8 million of undrawn commitments of senior
debt under our new senior credit facility, less approximately $10.2 million
of outstanding letters of credit and demand guarantees.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
We prepared the following unaudited pro forma condensed consolidated
financial data of Instron to give effect to the recapitalization. As a leveraged
recapitalization, the historical basis of our assets and liabilities was not
affected by the recapitalization. For a discussion of the recapitalization and
the related transactions, see "The Recapitalization."
The pro forma adjustments presented are based upon available information
and assumptions that we believe are reasonable under the circumstances. We
derived the historical condensed consolidated statement of income data for the
nine months ended October 2, 1999, from our unaudited condensed consolidated
financial statements included in this prospectus. We derived the historical
condensed consolidated statement of income data for the year ended December 31,
1998 from our audited consolidated financial statements included in this
prospectus.
The unaudited pro forma condensed consolidated statement of income data of
Instron for the periods presented give effect to the following transactions, as
if each transaction had occurred as of the beginning of the period presented:
(1) the recapitalization, (2) the acquisition of Satec, and (3) the acquisition
of the remaining interest in IST.
You should read the unaudited pro forma financial data in conjunction with
our historical consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial data included elsewhere in this prospectus,
as well as the information concerning the recapitalization contained in "The
Recapitalization."
We are providing the pro forma financial data and related notes to you for
informational purposes only. This data and the notes do not necessarily reflect
the results of operations or financial position that we would have actually
achieved had the events referred to above or in the notes to the unaudited pro
forma financial data been consummated as of the dates and for the periods
indicated and are not intended to project our financial position or results of
operations for any future period.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
FOR THE NINE MONTHS ENDED OCTOBER 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDED RECAPITALIZATION ENDED
OCTOBER 2, 1999 ADJUSTMENTS OCTOBER 2, 1999
Revenue:
Sales......................................... $125,431 $125,431
Service....................................... 25,522 25,522
-------- --------
Total Revenue......................... 150,953 150,953
-------- --------
Cost of Revenue:
Sales......................................... 75,117 75,117
Service....................................... 17,587 17,587
-------- --------
Total Cost of Revenue................. 92,704 92,704
-------- --------
Gross Profit.......................... 58,249 58,249
-------- --------
Operating expenses:
Selling and administrative.................... 41,558 $ 375(a) 41,370
(563)(b)
Research and development...................... 8,239 8,239
Recapitalization compensation expense......... 12,606 (12,606)(d) --
-------- -------- --------
Total operating (income) expenses............. 62,403 (12,794) 49,609
-------- -------- --------
Income (loss) from operations................. (4,154) 12,794 8,640
-------- -------- --------
Other (income) expense:
Interest Expense.............................. 1,097 9,427(c) 10,524
Interest Income............................... (730) (730)
Foreign exchange losses....................... 26 26
-------- -------- --------
Total other expenses.......................... 393 9,427 9,820
-------- -------- --------
Income (loss) before income taxes............... (4,547) 3,367 (1,180)
Provision (benefit) for income taxes............ (190) (3,510)(e) (390)
3,310(d)
-------- -------- --------
Net income (loss)............................... $ (4,357) $ 3,567 $ (790)
======== ======== ========
Weighted average number of basic common
shares........................................ 6,866 557
======== ========
Loss per share -- basic......................... $ (0.63) $ (1.42)(h)
======== ========
Weighted average number of diluted common
shares........................................ 6,866 557
======== ========
Loss per share -- diluted....................... $ (0.63) $ (1.42)(h)
======== ========
Dividends declared.............................. $ 0.04 --(g)
======== ========
27
32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
FOR THE YEAR FOR THE YEAR
ENDED PRO FORMA ENDED
DECEMBER 31, ACQUISITION INCLUDING RECAPITALIZATION DECEMBER 31,
1998 ADJUSTMENTS(f) ACQUISITIONS ADJUSTMENTS 1998
Revenue:
Sales..................... $152,879 $33,283 $186,162 $186,162
Service................... 30,150 3,436 33,586 33,586
-------- ------- -------- --------
Total Revenue.......... 183,029 36,719 219,748 219,748
-------- ------- -------- --------
Cost of Revenue:
Sales..................... 91,410 22,094 113,504 113,504
Service................... 19,644 2,369 22,013 22,013
-------- ------- -------- --------
Total Cost of
Revenue.............. 111,054 24,463 135,517 135,517
-------- ------- -------- --------
Gross Profit........... 71,975 12,256 84,231 84,231
-------- ------- -------- --------
Operating expenses:
Selling and
administrative............ 48,869 10,046 58,915 $ 500(a) 58,665
(750)(b)
Research and development.... 8,485 3,315 11,800 11,800
Special items charge........ 4,975 4,975 4,975
-------- ------- -------- --------- --------
Total operating
(income) expenses.... 62,329 13,361 75,690 (250) 75,440
-------- ------- -------- --------- --------
Income (loss) from
operations........... 9,646 (1,105) 8,541 250 8,791
-------- ------- -------- --------- --------
Other (income) expense
Gain on sale of land...... (11,076) (11,076) (11,076)
Interest expense.......... 1,175 740 1,915 12,116(c) 14,031
Interest income........... (943) (943) (943)
Foreign exchange losses... 157 37 194 194
-------- ------- -------- --------- --------
Total other (income)
expenses............... (10,687) 777 (9,910) 12,116 2,206
-------- ------- -------- --------- --------
Income (loss) before income
taxes....................... 20,333 (1,882) 18,451 (11,866) 6,585
Provision (benefit) for
income taxes................ 8,874 (715) 8,159 (4,510)(e) 3,649
-------- ------- -------- --------- --------
Net income (loss)........... $ 11,459 $(1,167) $ 10,292 $ (7,356) $ 2,936
======== ======= ======== ========= ========
Weighted average number of
basic common shares....... 6,668 557
======== ========
Earnings per
share -- basic............ $ 1.72 $ 5.27(h)
======== ========
Weighted average number of
diluted common shares..... 7,066 562
======== ========
Earnings per
share-diluted............. $ 1.62 $ 5.22(h)
======== ========
Dividends declared.......... $ 0.16 -- (g)
======== ========
28
33
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME DATA
(DOLLARS AND SHARES IN THOUSANDS)
PRO FORMA
----------------------------
TWELVE NINE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, OCTOBER 2,
1998 1999
------------ ------------
(a) Reflects the annual fee payable to Kirtland for
management and financial consulting services provided to
us...................................................... $ 500 $ 375
(b) Estimated cost savings, principally related to
directors' fees, legal costs and administrative support,
as a direct result of the recapitalization.............. $ (750) $ (563)
(c) Reflects the following:
1. Interest resulting from revolving loan borrowings of
$30,000 under the $80,000 new senior credit facility
at an assumed interest rate of LIBOR plus 3.0%
(8.4%)(Actual borrowings at October 2, 1999 were
approximately $19,600. The additional borrowings of
$11,400 represent the funding of working capital
requirements and recapitalization related fees.)...... $ 2,520 $1,890
2. Interest resulting from term loan borrowings of
$30,000 under the $80,000 new senior credit facility
at an assumed interest rate of LIBOR plus 3.0%
(8.4%)................................................ 2,520 1,890
3. Interest resulting from the issuance of the
outstanding notes with a face value of $60,000 at an
interest rate of 13 1/4%.............................. 7,950 5,963
4. Interest resulting from accretion of original issue
discount on the notes, related to the assumed value of
the warrants.......................................... 225 169
5. Amortization of debt issuance costs of $6,400
associated with the new senior credit facility and the
notes................................................. 816 612
6. Elimination of historical interest expense or interest
expense pro forma for acquisitions under existing
borrowings............................................ (1,915) (1,097)
-------- ------
Total.................................................. $ 12,116 $9,427
======== ======
Debt issuance costs have been apportioned between the notes, the revolving
loan portion of the new senior credit facility and the term loan portion of
the new senior credit facility. Cost allocated to the notes are amortized
over a ten year period and costs allocated to the revolving loan and term
loan portions under the new senior credit facility are amortized over five
and one half years.
(d) Upon consummation of the recapitalization on September 29, 1999, the Company
recorded a pre-tax non-recurring charge of $12,606 ($9,296 net of tax) for
compensation expense directly attributable to the recapitalization. The
October 2, 1999 unaudited Pro Forma Condensed Consolidated Statement of
Income Data has been adjusted to exclude this non-recurring charge and
related tax benefit.
PRO FORMA
----------------------------
TWELVE NINE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, OCTOBER 2,
1998 1999
(e) Reflects the tax effect of pro forma adjustments (a),
(b), and (c), assuming an effective tax rate of 38%..... $(4,510) $(3,510)
29
34
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME DATA -- CONTINUED
(DOLLARS AND SHARES IN THOUSANDS)
(f) Represents the pre-acquisition results for Satec for the period January 1, 1998 to
August 4, 1998 and the pre-acquisition results for the remaining interest in IST for the
period January 1, 1998 to September 27, 1998.
(g) Currently, Instron does not expect to declare dividends.
(h) Pro forma basic and diluted earnings per share have been calculated giving effect to the
new capital structure of Instron. Pro forma weighted average number of basic common
shares includes shares of our common stock outstanding, assuming the recapitalization
was consummated at the beginning of the period presented. Pro forma weighted average
number of diluted common shares includes shares of our common stock outstanding plus the
effect of any dilutive potential common shares that were outstanding during the period,
assuming the recapitalization was consummated at the beginning of the period presented.
Potential common shares include rollover options held by management and warrants issued
upon the recapitalization. The following is a reconciliation of the pro forma basic and
dilutive potential shares of our common stock outstanding.
NINE
MONTHS ENDED
YEAR ENDED OCTOBER 2,
DECEMBER 31, 1998 1999
Weighted average number of basic common shares
outstanding........................................... 557 557
Dilutive potential common shares...................... 5 --
---- ----
Weighted average number of dilutive common shares
outstanding......................................... 562 557
==== ====
The dilutive potential common shares have been excluded from the calculation of weighted
average number of diluted common shares outstanding for the nine months ended October 2,
1999, as their inclusion would have an antidilutive effect on loss per share.
30
35
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated historical, financial
and other data of Instron for the five years ended December 31, 1998, which have
been derived from, and should be read in conjunction with, the consolidated
financial statements of Instron included in this prospectus, including the Notes
to Consolidated Financial Statements and Management's Discussions and Analysis
of Financial Condition and Results of Operations.
The selected consolidated data for the nine months ended September 26, 1998
and October 2, 1999 have been derived from, and should be read in conjunction
with, Instron's unaudited condensed consolidated financial statements included
in this prospectus. Data for the nine months ended October 2, 1999 is not
necessarily indicative of the results to be expected for the full year.
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, --------------------------
---------------------------------------------------- SEPTEMBER 26, OCTOBER 2,
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS:
Total revenue...................... $136,192 $150,571 $153,113 $155,660 $183,029 $114,961 $150,953
Research & development............. 8,062 8,782 8,616 6,959 8,485 5,191 8,239
Income (loss) from operations(1)... 8,082 8,921 9,145 12,571 9,646 3,686 (4,154)
Income (loss) before income
taxes(2)......................... 6,979 7,684 7,385 11,555 20,333 14,476 (4,547)
Net income......................... 4,537 4,995 4,582 7,164 11,459 7,828 (4,357)
OTHER DATA:
Depreciation and amortization...... $ 5,815 $ 6,784 $ 6,873 $ 6,494 $ 7,106 $ 5,167 $ 6,446
Bookings of new orders............. 138,947 155,092 161,692 150,020 166,515 102,056 153,917
Backlog............................ 32,687 36,136 34,361 28,748 74,477 31,870 72,967
EBITDA(4).......................... 13,855 15,891 15,329 18,880 27,671 19,656 2,266
Capital expenditures............... 4,286 4,510 4,473 4,176 5,841 5,182 4,116
Cash flow from operating
activities....................... 9,143 6,361 9,824 16,989 5,276 (4,641) 16,222
Cash flow from investing
activities....................... (5,029) (8,325) (12,163) (6,227) (6,764) (5,027) (5,409)
Cash flow from financing
activities....................... (5,278) 1,790 3,120 (10,619) 6,115 9,582 (8,889)
Ratio of earnings to fixed
charges(3)(5).................... 3.9x 3.8x 3.8x 5.6x 9.4x 8.3x --
FINANCIAL POSITION:
Working capital.................... $ 33,849 $ 38,259 $ 44,094 $ 41,942 $ 55,241 $ 43,476 $ 34,220
Total assets....................... 102,294 113,334 121,833 118,985 158,254 138,731 168,639
Total long-term debt............... 11,018 11,225 17,409 7,600 13,216 12,737 90,000
Stockholders' equity (deficit)..... 51,926 56,102 62,401 66,254 79,584 75,918 (13,831)
PER SHARE OF COMMON STOCK:
Net income per basic share......... $ .72 $ .79 $ .72 $ 1.11 $ 1.72 $ 1.19 $ (0.63)
Net income per diluted share....... .72 .78 .70 1.05 1.62 1.10 (0.63)
Dividends declared................. .12 .15 .16 .16 .16 .12 .04
Book value......................... 8.26 8.85 9.68 9.82 11.46 10.95 (24.83)
(footnotes on following page)
31
36
(1) In March 1996, we recorded a special items charge to operations to implement
a workforce reduction and consolidate some manufacturing operations. We took
a pre-tax charge of $1,812 ($1,123 net of taxes) to cover these actions.
Income from operations in 1998 reflects a special items charge to operations
to consolidate our European operations and write-down the value of
non-performing assets. We took a pretax charge of $4,975 ($4,232 net of
taxes) to cover these actions. In September 1999, we recorded a
non-recurring compensation expense of $12,606 ($9,296 net of tax) directly
attributable to the recapitalization. Income from operations excludes
foreign exchange gain or loss.
(2) Income before taxes in 1998 reflects non-operating pre-tax gain of $11,076
($6,867 net of taxes recorded) in connection with our sale of 42 acres of
excess land in Canton, Massachusetts.
(3) Earnings used in computing the ratio of earnings to fixed charges consist of
pre-tax earnings before losses from equity investments and fixed charges.
Fixed charges are defined as interest expense related to debt, amortization
expense related to deferred financing costs and a portion of rental charges
representative of interest.
(4) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because we believe it is frequently used
by securities analysts, investors and other interested parties in the
evaluation of companies in our industry. However, other companies in our
industry may calculate EBITDA differently than we do. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flow from
operating activities or as a measure of liquidity or as an alternative to
net income as indicators of our operating performance or any other measures
of performance derived in accordance with generally accepted accounting
principles. See the Statement of Cash Flow indicated in our financial
statements.
(5) Due to our loss in the nine months ended October 2, 1999, the ratio coverage
was less than 1:1. We must generate additional earnings of $187 to achieve a
coverage ratio of 1:1.
32
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a world leader in the manufacture, marketing and servicing of
materials and structural testing systems, software and accessories. Materials
testing focuses on the mechanical properties of material, including tensile
strength, compressive strength, fracture properties and hardness, in order to
qualify or determine the capabilities of the material. Structural testing
simulates the life cycle of components or complete products in order to verify
their design and performance capabilities. Our products are used by research
scientists, design engineers and quality control personnel to evaluate the
mechanical properties and performance of various materials, components and
structures in the following applications:
- quality control and specification testing;
- research and development of new materials to enhance product performance;
and
- the search for new applications and markets for existing materials.
We recognize revenue from product sales at the time of shipment. For
services, we recognize revenue at the time the service is performed and ratably
over the contract period for service maintenance contracts. Bookings for a
period recognize the receipt of a firm committed order from a customer that
includes a full detailed product specification and agreed to terms and
conditions. Backlog as of a specific date is the total of all outstanding
customer orders received and counted as bookings that have yet to be shipped and
recognized as sales. Prior to the acquisition of IST, we generally experienced a
close correlation between backlog at the end of a specific quarter and our
shipments for the subsequent quarter. IST's structures business is characterized
by relatively larger contract sizes and longer delivery periods, and because our
current backlog now includes IST, we believe that our total backlog at the end
of a quarter is no longer a predictable indicator of shipments for the next
quarter.
RECENT ACQUISITIONS
Satec. We acquired substantially all the assets of Satec in August 1998 for
approximately $12.6 million in cash. Satec is a manufacturer of a range of
materials testing equipment sold primarily in the United States with annual
revenue of approximately $18.0 million at time of acquisition. We accounted for
this acquisition under the purchase method of accounting. We have included
Satec's operating results in our consolidated results of operations from the
date of acquisition. Satec's reported revenue was approximately $8.8 million and
net income was $356,000 for the last five months of 1998.
IST. Prior to September 27, 1998, we were a 51% owner of IST, a joint
venture formed in November 1996 with another partner. We accounted for the joint
venture using the equity method of accounting. Our revenue from IST was
approximately $11.4 million for the first nine months of 1998, $6.9 million for
the twelve months of 1997 and $519,000 for the last two months of 1996, and our
net losses associated with IST for the same periods were $902,000, $876,000 and
$69,000. These revenues include the shipment of systems from Instron to IST
under the terms of a manufacturing and supply agreement at substantially reduced
gross margins compared to our normal margins, and commission income earned by
Instron for selling IST products. The losses include these low margin orders
contributed to the joint venture as well as the time and effort necessary to
consolidate the operations and technology of the two contributing partners. On
September 27, 1998, we exercised our option to purchase the remaining 49% of IST
for $2.7 million in cash. The full results of operations from the IST business
have been included in our consolidated results since that date. IST had revenue
of approximately $18.4 million and net income of $78,000 for the fourth quarter
of 1998.
We believe these acquisitions enhance our ability to compete effectively in
the materials and structural testing industry by broadening our product range
and application capability. In addition, we believe that we can improve some
aspects of the operating results of the above acquisitions by reducing
manufacturing costs and other administrative expenses.
33
38
Other. Financial comparisons of our results of fiscal 1997 and 1996 are
impacted by the sale of our Laboratory MicroSystems division to Axiom Systems in
April 1997. Laboratory MicroSystems' revenue was approximately $1.2 million in
the first quarter of 1997 and $5.6 million in 1996. Laboratory MicroSystems had
no significant impact on our net income in either year.
THE RECAPITALIZATION
On September 29, 1999 we completed a recapitalization of Instron. In the
recapitalization, Kirtland and its affiliates acquired approximately 88.3% of
our common stock. Members of our management retained approximately 5.9% of our
common stock and three other stockholders retained approximately 5.8% of our
common stock. We also entered into an $80.0 million new senior credit facility,
repaid approximately $17.4 million of existing debt and incurred approximately
$10.2 million in fees and expenses. See "The Recapitalization."
RESULTS OF OPERATIONS
The following table sets forth selected financial and operating data and
the percentage relationship of the listed items to our total revenue for the
periods indicated:
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, --------------------------------------
----------------------------------------------------------- SEPTEMBER 26, OCTOBER 2,
1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS)
Total revenue........ $153,113 100.0% $155,660 100.0% $183,029 100.0% $114,961 100.0% $150,953 100.0%
Total cost of
revenue............ 88,642 57.9 91,489 58.8 111,054 60.7 68,767 59.8 92,704 61.4
-------- -------- -------- -------- --------
Gross profit......... 64,471 42.1 64,171 41.2 71,975 39.3 46,194 40.2 58,249 38.6
Operating expenses:
Selling and
administrative... 44,898 29.3 44,641 28.7 48,869 26.7 32,342 28.1 41,558 27.5
Research and
development...... 8,616 5.6 6,959 4.5 8,485 4.6 5,191 4.5 8,239 5.5
Special items
charge........... 1,812 1.2 -- -- 4,975 2.7 4,975 4.3 --
Recapitalization
compensation
expense.......... -- -- -- -- -- -- -- -- 12,606 8.4
-------- -------- -------- -------- --------
Total operating
expenses........... 55,326 36.1 51,600 33.1 62,329 34.1 42,508 36.9 62,403 41.3
-------- -------- -------- -------- --------
Income (loss) from
operations......... 9,145 6.0 12,571 8.1 9,646 5.3 3,686 3.2 (4,154) (2.8)
-------- -------- -------- -------- --------
Other (income)
expenses:
Gain on sale of
land............. -- -- -- -- (11,076) (6.1) (11,076) (9.6) -- --
Interest expense... 1,548 1.0 1,465 0.9 1,175 0.6 819 0.7 1,097 .07
Interest income.... (477) (0.3) (634) (0.4) (943) (0.5) (806) (0.7) (730) 0.5
Foreign exchange
(gains) losses... 689 0.4 185 0.1 157 0.1 273 0.2 26 0.0
-------- -------- -------- -------- --------
Total other
expenses........... 1,760 1.1 1,016 0.7 (10,687) (5.8) (10,790) (9.4) 393 .3
Income before income
taxes.............. 7,385 4.8 11,555 7.4 20,333 11.1 14,476 12.6 (4,547) (3.0)
Provision for income
taxes.............. 2,803 1.8 4,391 2.8 8,874 4.8 6,648 5.8 (190) (0.1)
-------- -------- -------- -------- --------
Net income........... $ 4,582 3.0 $ 7,164 4.6 $ 11,459 6.3 $ 7,828 6.8 $ (4,357) (2.9)
======== ======== ======== ======== ========
EBITDA............... $ 15,329 10.01 $ 18,880 12.1 $ 27,671 15.12 $ 19,656 17.1 $ 2,266 1.5
======== ======== ======== ======== ========
34
39
NINE MONTHS ENDED OCTOBER 2, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 26,
1998
Total Revenue. Total revenue for the nine months ended October 2, 1999,
increased by 31.3% from the same period in 1998. This increase is due primarily
to the inclusion of Satec and IST products and services. If revenue attributable
to Satec and IST were excluded for both the first nine months of 1999 and the
first nine months of 1998, total revenue for the first nine months of 1999 would
have been $100.5 million compared to $100.6 million for the same period in 1998.
Foreign sales accounted for approximately 56% of the consolidated first nine
months revenue compared to 53% in 1998.
Bookings of New Orders. Bookings for the first nine months of 1999
increased by 50.8% from the corresponding period in 1998. The increase is due
primarily to the inclusion of Satec and IST in 1999 and higher activity in all
our major markets, including the Far East.
Backlog. The Company's order backlog was $73.0 million at October 2, 1999,
compared to $63.5 million at July 3, 1999 and compared to $74.5 million at
year-end 1998. Prior to the acquisition of IST, we generally experienced a close
correlation between backlog at the end of a specific quarter and our shipments
for the subsequent quarter. IST's structures business is characterized by
relatively larger contract values and longer delivery periods and because our
current backlog now includes IST, we believe that our total backlog at the end
of a quarter is no longer a predictable indicator of shipments for the next
quarter. If order backlog attributable to Satec and IST was excluded from both
the third and second quarters of 1999 and 1998, order backlog would have been
$29.1 million at the end of the third quarter of 1999, compared to $28.0 million
for the second quarter of 1999 and compared to $29.5 million at year-end 1998.
Gross Profit. Gross profit as a percentage of revenue decreased to 38.6%
compared with 40.2% in the first nine months of 1998. This decrease is primarily
due to lower than expected margins on IST shipments.
Selling and Administrative Expenses. Total selling and administrative
expenses, for the first nine months of 1999, increased by 28.4% compared to the
same period in 1998 due primarily to the inclusion of Satec and IST in 1999. As
a percentage of revenue, selling and administrative expenses were 27.5% compared
to 28.1% for the same period last year.
Research and Development Expenses. Research and development expenses, for
the first nine months of 1999, increased by 58.7% compared with the same period
in 1998. This increase is primarily due to the inclusion of Satec and IST in
1999. In addition, software development costs of $1.7 million were capitalized
during the first nine months of 1999 compared with $787,000 in the first nine
months of last year. This increase is due primarily to the capitalization of
costs associated with an integrated software suite for our Structures business.
On a pro forma basis, as if Satec and IST were wholly owned in 1998 and
development costs software were reported as period expenses, research and
development costs would have increased by 11.0%. This increase reflects our
current investment in upgrading our core product platforms.
Operating Expenses. Operating expenses in the first nine months of 1998
included a special items charge of $5.0 million, to reflect the cost of
consolidating European operations and to write down the value of certain non-
performing assets. The special items charge includes termination benefits, the
costs to shut down and exit a manufacturing facility, other asset impairments
and other related costs. We closed down a manufacturing plant in Germany,
relocated sales and service personnel to another location in Germany and moved
the manufacturing operation to the United Kingdom. During the first nine months
of 1999, we paid $1.9 million for termination benefits and related costs.
Operating Income (Loss). Losses from operations for the first three
quarters of 1999 include recapitalization compensation expense of $12.6 million
arising from the merger agreement between Instron and Kirtland. Without one-time
charges, income from operations for the first three quarters would have been
$8.5 million compared to $8.7 million for the same period last year. This
decline in income from operations is due primarily to losses from our structures
business.
Net Interest Expense. During the first nine months of 1999, we recorded net
interest expense of $367,000 compared with interest expense of $13,000 for the
same period in 1998. This net increase was due to an increase in interest
expense resulting from higher average borrowings (related to the purchase of
Satec and IST) and to lower interest income received on notes receivable.
35
40
Foreign Exchange Gains and Losses. Foreign exchange losses of $26,000 for
the first nine months of 1999 resulted primarily from movements of the British
pound against certain European currencies. In the first nine months of 1998, we
had foreign exchange losses of $273,000.
Other. A non-operating gain of $11.1 million was recorded in the first
quarter of 1998 on the sale of excess land in Canton, Massachusetts.
Income Taxes. The consolidated effective tax rate of 4.2% for the first
nine months of 1999 reflects the impact of the Recapitalization charge upon U.S.
based income and the likelihood that we will not be able to fully utilize
foreign tax credits in 1999. This compares to the consolidated effective tax
rate of 45.9% for the first nine months of 1998 which is higher than our normal
effective tax rate due to non-deductible expenses relating to the 1998 special
items charge.
Net Income (Loss). Net loss for the first nine months of 1999 was $4.4
million compared to net income of $7.8 million for the same period last year.
This decrease is due primarily to expenses related to the recapitalization.
EBITDA. EBITDA for the first nine months of 1999, after adjusting for the
one time recapitalization compensation expense of $12.6 million, was $14.9
million. This represents an increase of 9.7% when compared to EBITDA for the
first nine months of 1998 of $13.6 million, after being adjusted to exclude the
special items charge of $4.9 million and the gain on the sale of land of $11.1
million.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997; AND YEAR
ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total Revenue. Total revenue of approximately $183.0 million in fiscal 1998
increased by 17.6% from revenue of approximately $155.7 million in fiscal 1997
due primarily to the acquisitions of Satec and IST. Total revenue in fiscal 1997
increased by 1.7% from revenue of approximately $153.1 million in fiscal 1996.
If revenue attributable to IST, Satec and Laboratory MicroSystems were excluded
from both 1998 and 1997, total revenue for 1998 would have been $144.4 million
compared to $147.6 million in 1997, a decrease of 2.1%. This decrease is largely
due to the impact of the economic downturn in the Asian markets.
Bookings of New Orders. Bookings of new orders were approximately $166.5
million in fiscal 1998. Bookings on a pro forma basis, including the annual
bookings of IST and Satec, would have been approximately $212.7 million in 1998
compared to $220.1 million in 1997, a decrease of 3.4%. This decrease is due
largely to the impact of the economic downturn in the Asian markets.
Backlog. Our backlog of orders was approximately $74.5 million at December
31, 1998, an increase of 159.1% from the $28.7 million at December 31, 1997. The
increase was due primarily to the inclusion of the IST and Satec backlogs in
1998. The year end 1997 backlog decreased by 16.3% from 1996.
Gross Profit. The gross profit margins for the three years ended December
31, 1998 were 42.1%, 41.2% and 39.3% for 1996, 1997 and 1998, respectively. The
trend of decreasing margins is due principally to the impact of supplying IST
with structures systems at lower than normal profit margins. Gross margins
excluding IST; Satec and Laboratory MicroSystems were 42.8% in 1996, 42.7% in
1997 and 44.3% in 1998. This improvement in 1998 is due in part to improved
service margins and the benefit of actions previously taken to reduce
manufacturing costs.
Selling and Administrative Expenses. The 1998 selling and administrative
expenses of approximately $48.9 million increased by 9.5% from 1997 due
principally to the inclusion of expenses relating to Satec and IST. As a
percentage of revenue, selling and administrative expenses decreased to 26.7% in
1998, compared to 28.7% in 1997 and 29.3% in 1996.
Research and Development Expenses. Research and development expenses
increased by 21.9% in 1998 and decreased by 19.2% in 1997. The increase in 1998
is due primarily to the inclusion of the development efforts of Satec and IST.
The decrease in 1997 compared to 1996 resulted from certain Instron engineering
resources
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($2.0 million in 1997) being used to develop new products for IST in accordance
with the joint venture agreement, which were reimbursed by IST. During the three
years ended December 31, 1998, we capitalized certain software development
costs. (See Note 1 of Notes to 1998 Consolidated Financial Statements). If
research and development expenses were restated, for comparison purposes, by
including capitalized software development costs as period expenses, by
adjusting engineering expenses for the effect of Satec and IST and the
disposition of Laboratory MicroSystems as previously discussed, research and
development expenses of the ongoing business would have increased by 7.5% in
1998. As a percentage of total revenue, research and development expenditures,
on a comparable basis, represented 7.0% in 1998, 6.4% in 1997 and 6.4% in 1996.
Operating Income. Operating income decreased by 23.3% to approximately $9.6
million in 1998, compared to approximately $12.6 million in 1997 and
approximately $9.1 million in 1996. As a percentage of total revenue, operating
income represented 5.3% in 1998, 8.1% in 1997 and 6.8% in 1996. Operating income
for 1998 includes a special items charge of approximately $5.0 million for the
cost of consolidating European operations and to write down the value of
non-performing assets. We have closed down a manufacturing plant in Germany,
relocated sales and service personnel to another Instron location in Germany,
and moved the manufacturing operations to the United Kingdom. The majority of
these actions were completed in the fourth quarter, and substantially all cash
disbursements were made by the end of the first quarter of 1999. Before the
effect of the special items charge, operating income in 1998 was approximately
$14.6 million or 8.0% of total revenue and increased by 16.3% compared to 1997
due primarily to certain improved product and service margins and the positive
contribution of Satec and IST in the fourth quarter.
Net Interest Expense. Net interest expense decreased by 72.0% in 1998 and
by 22.0% in 1997. The net decrease in both 1998 and 1997 was due to reduced
interest expense resulting from lower average borrowings and was further reduced
by interest income received on notes receivable and temporary bank deposits.
Foreign exchange losses of $157,000 in 1998 resulted from the strengthening of
the British pound against certain European currencies. Foreign exchange losses
of $185,000 in 1997 resulted from the strengthening of the U.S. dollar against
certain Asian currencies.
Income Taxes. Income before taxes was 11.1% of total revenue in 1998,
compared to 7.4% in 1997 and 4.8% in 1996. Excluding the special items charge
and the non-operating gain on the sale of the land in 1998, as well as the
special items charge in 1996, income before taxes as a percentage of total
revenue was 7.8% in 1998, 7.4% in 1997 and 6.0% in 1996. The consolidated
effective tax rate was 43.6% in 1998 compared to 38.0% in 1997 and 1996. This
higher effective tax rate is due to certain non-deductible expenses relating to
the special items charge. A detailed reconciliation of our effective tax rate
and the United States statutory tax rate appears in Note 6 of Notes to
Consolidated Financial Statements.
Net Income. Instron reported net income of approximately $11.5 million, or
$1.62 per diluted share of common stock, for the year ended December 31, 1998,
compared with approximately $7.2 million, or $1.05 per diluted share, in 1997.
Net income in 1998 included a special items charge to operations of
approximately $5.0 million ($4.2 million net of taxes) and a non-operating gain
on the sale of land of approximately $11.1 million ($6.9 million net of taxes).
If these special items are excluded, net income in 1998 was approximately $8.8
million, or $1.25 per diluted share, an increase of 23.2% from 1997, due
primarily to improved product and service margins, the positive contribution of
Satec and IST in the fourth quarter, and a decline in net interest expense.
Net income in 1996 included a special items charge to operations of $1.8
million ($1.1 million net of taxes). Excluding the effect of the special items
charge in 1996, net income increased by 25.6% in 1997 due primarily to increased
revenue of the on-going business, a decline in interest expense and lower
foreign exchange losses.
EBITDA. EBITDA for the year ended December 31, 1998 of approximately $27.7
million increased from $18.9 million for the year ended December 31, 1997. The
increase was due primarily to high electromechanical shipments and the inclusion
of Satec and IST products and services. EBITDA increased to $18.9 million in
1997 from approximately $15.3 million for the year ended December 31, 1996.
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LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1999, we generated cash flows from operating
activities of $ 16.2 million, due primarily to a $5.0 million decrease in
accounts receivable and $6.4 million increase in accounts payable and accrued
expenses. These operating funds were primarily used to fund capital expenditures
of $4.1 million, software development costs of $1.7 million and partially pay
off, prior to the merger, existing lines of credit and borrowings.
In connection with the recapitalization, we entered into the new senior
credit facility consisting of a $30 million term loan facility and a $50 million
revolving credit facility. In addition, we incurred $60 million of debt through
the sale of the outstanding 13 1/4% senior subordinated notes.
Principal and interest under the Senior Credit Facility and interest
payments on the Senior Subordinated Notes represent significant liquidity
requirements for us. As of October 2, 1999, we had $31.9 million of available
credit under the $50 million Revolving Credit Facility. See "Description of New
Senior Credit Facility."
With respect to the $30 million borrowed under the term loan facility, we
are required to make scheduled repayments in twenty two quarterly installments
of principal with interest thereon on the first day of each January, April, July
and October commencing January 1, 2000. The senior subordinated notes will
mature in 2009, and bear interest at 13 1/4%. The revolving credit facility
matures in April 2005; with all amounts then outstanding becoming due.
As a result of the substantial indebtedness incurred in connection with the
recapitalization, it is expected that our interest expense will be significantly
higher and will have a greater proportionate impact on net income in comparison
to periods before the recapitalization.
Our operating activities generated cash of $5.3 million in 1998 and $17.0
million in 1997. Investing activities used $6.8 million in 1998 and $6.2 million
in 1997, while financing activities provided $6.1 million in 1998 and used $10.6
million in 1997. Our primary source of funds in 1998 and 1997 was net cash
generated by operations, supplemented in 1998 by the net proceeds of the sale of
42 acres of excess land in Canton, Massachusetts for $13.5 million in cash. The
net cash generated by operations in 1998 consisted primarily of net income, as
adjusted for the non-cash effect of depreciation and amortization expense, which
was partially offset by an increase in accounts receivable.
At December 31, 1998, accounts receivable were $65.8 million compared to
$48.2 million at year end 1997 which reflects higher fourth quarter revenue in
1998, and the consolidation of Satec and IST balance sheets. Inventories of
$36.1 million increased by $12.1 million due to the consolidation of Satec and
IST. The inventory turnover ratio increased to 2.97x from 2.87x at the end of
1997.
Our principal investment activities during 1998 included the purchase of
Satec for $12.6 million, the buyout of the remaining 49% of IST for $2.7
million, capital expenditures of $5.8 million, and the development of software
products for $1.5 million. We plan to make capital expenditures of approximately
$6.3 million in fiscal 1999, principally for manufacturing equipment and
information systems, and develop and enhance our software products.
Our total debt outstanding at year-end 1998 was $19.6 million compared to
$13.7 million at the end of 1997. The ratio of total debt to debt plus equity at
year-end 1998 increased to 19.8% from 17.1% in 1997. The increase in debt was
primarily due to funding acquisitions in 1998.
Our principal source of liquidity is cash flow generated from operations
and borrowings under the $50.0 million revolving portion of our new $80.0
million senior credit facility. See "Description of New Senior Credit Facility."
Our principal use of liquidity will be to meet debt service requirements,
finance our capital expenditures, implement our business strategy, including
potential acquisitions, fund research and development efforts and provide
working capital. We expect that capital expenditures in 1999 will be
approximately $6.3 million, of which approximately $3.5 million will be used for
maintenance purposes. The balance of the 1999 capital expenditures will be used
for equipment purchases development and enhancements of our software
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products. Our debt service obligations could have important consequences to you
as a holder of the notes. See "Risk Factors -- Substantial Leverage."
Our ability to make payments on and to refinance our indebtedness,
including these notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Given our present capital structure, we believe our present capital
resources and anticipated operating cash flows are sufficient to meet our cash
requirements to finance operations, fund interest payments, repay loan
installments and finance capital expenditures for the foreseeable future.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our new senior credit facility or elsewhere in an amount
sufficient to enable us to pay our indebtedness, including these notes, or to
fund our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including these notes, on or before maturity. We cannot assure you
that we will be able to refinance any of our indebtedness, including our new
senior credit facility or these notes, on commercially reasonable terms or at
all.
SEASONALITY
Historically, our sales are highest in the fourth quarter of each year due
to the ordering pattern of our customers, which favors fourth quarter deliveries
before budget authorizations expire. Our sales in the first quarter are usually
low as it takes time to rebuild in-process inventory levels after the heavy
fourth quarter delivery requirements have been satisfied. Also, third quarter
sales are generally low due to vacation patterns of both our production workers
and customer technical personnel needed for acceptance testing. The seasonal
factors affecting sales are usually reflected in quarterly net income.
EURO CURRENCY ISSUE
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing currencies
("legacy currencies") and one common currency -- the euro. The euro now trades
on currency exchanges and may be used in business transactions. Beginning in
January 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation. Our operating subsidiaries
affected by the euro conversion have established plans to address the systems
and business issues raised by the euro currency conversion.
These issues include, among others:
- the need to adapt computer and other business systems and equipment to
accommodate euro-denominated transactions; and
- the competitive impact of cross-border price transparency, which may make
it more difficult for businesses to charge different prices for the same
products on a country-by-country basis, particularly once the euro
currency is issued in 2002.
We anticipate that the euro conversion will not have a material adverse
impact on our financial condition or results of operations.
YEAR 2000
We support the exchange of information relating to the Year 2000 issue and
designate the information following below as the Year 2000 Readiness Disclosure
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Information set forth herein regarding the Year 2000 compliance of non-Instron
products and services are "republications" under the Year 2000 Information and
Readiness Disclosure Act and are based on information supplied by other
companies about the products and services they offer. We have not
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independently verified the contents of these republications and take no
responsibility for the accuracy or completeness of information contained in such
republications.
The term "Year 2000 issue" is a general term used to describe various
business-related problems that may result from the improper processing by
computer systems of dates after 1999. The Year 2000 issue affects virtually all
companies and all organizations. We have identified our Year 2000 non-compliance
risks in four categories:
- internal business systems;
- internal electronic equipment and embedded chip technology;
- external non-compliance by our suppliers; and
- software systems products supplied by us to our customers.
INTERNAL BUSINESS SYSTEMS
We have an active, ongoing program to insure that our business systems will
be Year 2000 compliant. We began this program to identify and correct Year 2000
issues in 1996. In accordance with this program, we are following a four-step
process to address the Year 2000 issue. The first stage consisted of auditing
our major business systems and telecommunication switches. This stage identified
a couple of minor issues but due to the installation of a new enterprise
resource planning system in 1996 at our two primary manufacturing sites, the
exposure was minimal and was corrected by August 1999. The second stage, begun
in September 1997, is an audit of all departmental systems and network operating
systems. This audit has been completed and formed the basis for the third stage
which identified the corrective actions required, and outlined the necessary
plan of action. The final stage, which is nearly complete, includes the
implementation and testing of all required modifications.
Accordingly, we are confident that our internal business systems will be
made Year 2000 compliant in a timely manner. We have made capital expenditures
of approximately $0.6 million in 1999 to upgrade computing, networking and
telecommunications systems as part of our plan to address the Year 2000 issue.
Although the costs associated with identifying and implementing the necessary
plan of action are not expected to be material to our financial position, there
can be no assurance to this effect.
We have initiated an audit of the business systems of our two recent
acquisitions, Satec and IST. So far, there has been no indication of any major
Year 2000 issue that cannot be resolved in a timely manner.
INTERNAL ELECTRONIC EQUIPMENT AND EMBEDDED CHIP TECHNOLOGY
The audit process has identified certain telecommunication equipment that
needs to be upgraded to address the Year 2000 issue. We plan to replace this
equipment in the third quarter of 1999, and are finalizing the review of office
and facilities equipment such as machine tools, photocopiers, security systems
and other systems which may be impacted by the Year 2000 issue. We estimate that
the total cost of completing any modifications, upgrades or replacements of this
equipment will not have a material adverse effect on our business. This estimate
is being monitored and will be revised as additional information becomes
available.
SUPPLIERS
We have nearly completed a communication program with key suppliers of
computers, equipment, parts and material used, operated and maintained by
Instron. This program is intended to identify and, to the extent possible,
resolve issues with suppliers involving the Year 2000 issue. However, we have
limited or no control over the actions of these third-party suppliers. Any
failure of these suppliers to resolve Year 2000 issues with their systems in a
timely manner could have a material adverse effect on our business.
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INSTRON SUPPLIED SYSTEMS AND SOFTWARE TO CUSTOMERS
We believe that we have substantially identified and resolved all potential
Year 2000 issues with all of the software products that we are currently
developing and marketing. Existing software on installed machines may not be
Year 2000 compliant and communication programs have been initiated to advise
customers on how to upgrade or replace their existing systems. Management
believes that it is not possible to determine with complete certainty that all
Year 2000 issues affecting our products have been identified due to the
complexity of these systems and the fact that these products interact with other
third-party vendor products and operate on computer systems which are not under
our control. Any such failures to identify or remediate Year 2000 issues
affecting our systems and software products could have a material adverse effect
on our business.
The information presented above sets forth the key steps taken by Instron
to address the Year 2000 issue. We cannot make absolute assurances that we have
identified all the issues, can resolve them in a timely manner, and that there
will be no failures or disruptions to operations which could result in a
material adverse effect on our business.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
We are exposed to market risk related to changes in foreign currency
exchange rates. We occasionally enter into foreign exchange contracts to manage
and reduce the impact of changes in foreign currency exchange rates. We do not
enter into derivatives or other financial instruments for trading or speculative
purposes. The exposures are associated with certain accounts receivable
denominated in local currencies and certain foreign revenue transactions.
At December 31, 1998, the face amount of our outstanding forward currency
contracts to buy and sell U.S. dollars, Japanese yen and certain European
currencies was $6.3 million. A 10% fluctuation in exchange rates for these
currencies would change the fair value by approximately $0.3 million. However,
any change in the fair value of the contracts would be offset by changes in the
underlying value of the transactions being hedged.
The hypothetical movement disclosed above was estimated by calculating the
fair value of the forward currency contracts at December 31, 1998, and comparing
that with those calculated using hypothetical forward currency exchange rates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The statement
is effective for fiscal years beginning after June 15, 1999. Management is
currently evaluating the effects of this change on its recording of derivatives
and hedging activities. We will adopt SFAS No. 133 for our fiscal year ending
December 31, 2000.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1 "Internal Use Software," which provides
guidance on the accounting for the costs of software developed or obtained for
internal use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management does not expect the statement to have a material impact on
our financial position or results of operations.
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BUSINESS
THE COMPANY
We are a world leader in the manufacture, marketing and servicing of
materials and structural testing systems, software and accessories. Materials
testing focuses on the mechanical properties of materials, including tensile
strength, compressive strength, fracture properties and hardness. Structural
testing simulates the life cycle of components or complete products in order to
verify their design, durability and performance capabilities. Our products are
used by research scientists, design engineers and quality control personnel to
evaluate the mechanical properties and performance of various materials,
components and structures in the following applications:
- quality control and specification testing;
- research and development of new materials to enhance product performance;
and
- the search for new applications and markets for existing materials.
Our systems are used to test the strength, durability, hardness, impact
resistance and other characteristics of practically all materials intended for
industrial and consumer use by stretching, compressing, cycling or twisting
them. Our reach extends well beyond testing extremely complex materials used in
automobiles, airplanes, buildings or bridges. It includes testing food,
clothing, sporting equipment, children's toys and a wide range of other
products. For example, our customers use our systems to test:
- the strength and durability of exotic materials used for space
exploration;
- the exacting quality requirements of prosthetic limbs and other
orthopedic equipment;
- the strength and durability of seatbelts;
- the texture of fruit used in the production of ice cream; and
- the quality and formability of sheet metal.
As a result, we have a highly diverse base of end users of our systems,
including BASF A.G., Ben & Jerry's Homemade, Inc., British Aerospace plc,
DaimlerChrysler Corporation, E.I. du Pont de Nemours and Company, General
Electric Company, Honda Motor Co., Ltd., Massachusetts Institute of Technology,
Minnesota Mining and Manufacturing Company, National Aeronautics & Space
Administration, The Procter & Gamble Company and United States Surgical
Corporation, among many others. For the nine months ended October 2, 1999, we
had total revenue of $151.0 million and EBITDA of $2.3 million.
The market we serve for materials testing systems is estimated to be
approximately $450 million in 1998 revenue and is estimated to be growing at 4%
to 8% annually. Although no independent industry information is available, we
believe that the market we serve for structural testing systems is approximately
$750 million in 1998 revenue, which together with the materials testing segment
of the market we serve totals $1.2 billion, and is estimated to be growing at 8%
to 10% annually. We attribute this growth to, among other things:
- the search for new materials and new applications of existing materials
to create better products;
- ongoing total quality management initiatives by manufacturers, including
ISO 9000 certification;
- the increase in global manufacturing and transfer of materials and
products;
- manufacturers' need to reduce the cost of, and time required to develop,
new products, and increase the reliability of their products; and
- increasing regulatory, safety and environmental requirements.
COMPETITIVE STRENGTHS
LEADING MARKET POSITION. In 1998, we believe we held the leading market
position in the worldwide materials testing market with an approximate one-third
market share as measured by revenue. We compete with
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numerous other manufacturers in the materials testing equipment market
worldwide. While we believe that three others each have materials testing annual
revenue in excess of $40 million, most of the other competitors are local
manufacturers with less than $10 million in annual revenue. We attribute our
leading worldwide position in materials testing to our advanced technology,
global service and distribution network, breadth of product offerings, name
recognition and strong reputation for providing solutions to testing needs, and
supporting the largest installed base in the industry. Although industry
information is limited, we believe we are one of the largest participants in the
worldwide structural testing market.
EXTENSIVE INSTALLED BASE. We believe we have the largest installed base of
materials testing equipment in the world, and, with the acquisition of IST, one
of the largest installed bases of structural testing equipment in the world. We
believe that the Instron name enjoys strong name recognition among our
customers. As a result, a substantial majority of our 1998 pro forma total
revenue was derived from sales to existing customers. In addition, approximately
30% of our total revenue for the nine months ended October 2, 1999 was derived
from the servicing of, and sale of accessories for, our installed equipment
base. By building upon our extensive installed base, we have developed strong
service capabilities to meet our customers' needs on a worldwide basis.
GLOBAL REACH. We have created a sales and service network that enables us
to support our customers globally. We have sales and service offices in 14
United States cities and 17 foreign countries, including Brazil, Canada, China,
France, Germany, Italy, Japan, Korea, Singapore, and the United Kingdom. We
offer our primary software and operating systems in six different languages
because we recognize the importance of serving a global market. Our global
presence is an important competitive factor for many reasons, including:
- we are able to provide our global customers uniform testing equipment and
related support services in order to ensure worldwide consistency in
their test results;
- our customers demand skilled, local support staff to assist them by
providing ongoing support and ensuring that our products meet their
specialized needs; and
- it allows us to market an application solution developed for one customer
to other customers around the world.
TECHNICAL EXPERTISE. Our ability to provide our customers with
comprehensive solutions to their physical testing needs is based upon more than
50 years of technical experience focused on materials testing, a reputation for
superior design, consistent quality, advanced technology and excellent customer
support. We employ over 100 highly trained engineers in sales positions and an
additional 240 product development and support staff who work closely with
customers to create new materials and structural testing solutions. We believe
our investment in engineering develops relationships with our customers that
result in a high degree of loyalty and significant repeat business. Our
experience over many decades has allowed us to develop a significant knowledge
base. In addition, we offer an extensive portfolio of accessories that enable us
to support a wide range of customer applications. We believe this provides a
significant competitive advantage because existing and potential competitors may
find it difficult to develop a comparable knowledge base and accessory
portfolio.
UNIVERSAL PRODUCT DESIGN. We have developed a modular approach to the
development and manufacturing of our products. This approach allows us to
configure standard mechanical components, electronic controllers, software and
accessories to meet the needs of the majority of our customers' requirements. As
a result, we have been able to address a diverse range of customer needs through
different configurations of our standard systems rather than through
customization. This approach provides benefits including:
- leveraging our research and development activities across virtually all
of our product lines;
- lowering manufacturing costs by generating a higher volume of standard
components; and
- reducing the variety of products that require support by our sales and
service force.
DIVERSE CUSTOMER BASE. Our customer base is well diversified both
geographically and by end user application and industry. For the nine months
ended October 2, 1999, approximately 44% of our total revenue was derived from
sales in the United States, approximately 38% from sales in Europe and
approximately 18% from sales to the rest of the world. The end user markets we
serve include aerospace, automotive,
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biotechnology, consumer products, food production, metals, packaging, plastics,
textiles, and numerous others. As a result, no one customer accounted for more
than 5% of 1998 pro forma total revenue.
BUSINESS STRATEGY
Our goal is to enhance our position as a leading provider of materials and
structural testing systems. Our strategies to achieve this goal include:
STRENGTHEN OUR CORE BUSINESS. We will continue to introduce new products
and further develop existing product platforms by efficiently leveraging our
design and engineering capabilities. For example, we recently developed several
new products and upgraded others, including:
- a new generation controller and software platform that supports our
complex systems business;
- a major redesign of our hardness product line that has improved the
accuracy and consistency of hardness testing results; and
- a new product aimed at the emerging asphalt testing business.
GROW SERVICE BUSINESS. We intend to expand our service business by
continuing to leverage our installed base of equipment, our technical expertise,
our global reach and the market recognition of our brand names. Including
acquisitions, revenue from our service business has grown over the past five
years at a compound annual rate of 12%. Our strategy to continue to grow this
business includes:
- expanding our worldwide equipment calibration capability to support ISO
9000 and other quality requirements;
- developing new service products, including consulting and training
programs; and
- establishing direct marketing and sales support for our service business.
CONTINUE TO ENHANCE COST POSITION. We continually seek ways to further
enhance our cost position. We intend to continue to lower manufacturing costs
by, in part, efficiently incorporating the operations of acquired businesses
into our manufacturing capacity wherever possible. In addition, in 1997, we
started an initiative to rationalize and consolidate our manufacturing
operations. On October 17, 1998, we transferred manufacturing operations from
our Ludwigshafen plant in Germany to our lower-cost facilities in the United
Kingdom, for which we incurred a restructuring charge of $2.8 million and are
now achieving cost savings, which we expect will be approximately $1.0 million
annually.
MAKE STRATEGIC, SYNERGISTIC ACQUISITIONS. Since 1993, we have consummated
five acquisitions and a joint venture with an aggregate of $94 million of
revenue when acquired. Through these transactions we have strengthened and
broadened our expertise and product offerings in materials and structural
testing. We will continue to pursue strategic acquisitions and joint ventures
that:
- can be assimilated into our existing infrastructure;
- leverage our existing worldwide sales, service and application support
network;
- can be incorporated into our manufacturing capabilities;
- broaden our product and service offerings;
- enable us to upgrade acquired companies' products and installed bases
using our technology on an ongoing basis; and
- enable us to upgrade our installed base with the technology of companies
we acquire.
For example, in August 1998, we acquired Satec, a leading supplier of materials
testing equipment to the metals, aerospace and automotive industries, with
annual revenue of approximately $18 million. We are integrating Satec's domestic
sales and service organization and are utilizing our international sales network
to increase Satec's revenue. We are also incorporating our advanced controllers
and software into Satec's product offerings.
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PRINCIPAL MARKETS
Our principal markets are industries, academic institutions, and
governments -- organizations that seek to understand the characterization and
properties of materials and products.
INDUSTRY. Most manufacturing industries use either materials or structural
testing systems as a part of their research and development and quality-control
activities. Industrial research focuses upon developing new materials,
substitute materials, or new uses for existing materials that reduce
manufacturing or operating costs and improve product quality and durability. The
following examples show how some customers use our products in industries that
typically have high levels of materials and structural testing activity:
- Automotive Industry. Automotive companies use our catapult structural
testing systems built by IST to simulate real-life automobile crashes.
These simulated crashes are of vital importance in evaluating and
improving safety devices in vehicles. In addition, automotive companies
use our products extensively in designing virtually all of a vehicle's
materials, parts, sub-assemblies and assemblies, from steering
components, struts and shock absorbers to seatbelts, light switches and
door latches. These components are stretched, pulled, twisted, squeezed,
and vibrated using our products to ensure that high quality levels are
maintained.
- Sports and Recreation. Sports equipment manufacturers use our products to
test the hardness of golf balls and baseball bats, to measure the impact
resistance of bicycle helmets and elbow pads and to determine the
durability of mountain bike components. In addition, manufacturers of
snowboards use our impact testing systems to gain a better understanding
of how snowboards will behave on ski slopes. Specifically, these systems
simulate rock and ice impacts during a snowboarder's jumps and turns.
- Aerospace. Aerospace companies use our products to repeatedly deform and
break exotic metals, composites and ceramics to simulate in-use
conditions of these materials in stressful situations like rocket
launches and the re-entry of satellites and space shuttles into the
Earth's atmosphere.
- Civil Engineering. Engineers use our products to test the tensile
properties of iron, steel and other metals and to measure the fatigue and
crack resistance of these materials. The test results help engineers
determine how these metals will be used in real world structures like
bridges and buildings. Engineers also use our products to compress
asphalt and concrete at a variety of temperatures and humidity levels to
determine how these materials will endure years of use in roads and
highways.
- Biotechnology. The joining of engineers and medicine in biotechnology is
producing a stream of innovations that range from new implants and
orthopedic surgical techniques to replacements for human organs. Our high
quality test systems are helping to make these advances possible by
allowing our customers to comply with stringent FDA requirements.
ACADEMIC INSTITUTIONS. Academic institutions use our products for research
and instruction in materials science and other applications. For example,
researchers at universities use our products for a variety of research programs
from testing the bonding properties of dental materials to measuring the effects
of food texture on taste. We place particular emphasis on academic institutions
because we believe that scientists and engineers trained on Instron equipment
will then influence additional sales of our products later in their careers in
the public or private sector.
GOVERNMENTS. Government and governmental agency use of our products is
generally concentrated in the following areas:
- Defense, Space and Civil Engineering Programs. Research programs
sponsored by governments support the development of materials and
technology for such programs as advanced space stations, better armor on
fighting vehicles, safer bridges and longer lasting road surfaces.
- Determination and Enforcement of Safety Standards and Other Legal
Requirements. Our systems are used by worldwide agencies to, among other
things, monitor the quality and performance of safety belts, airbags,
welds in nuclear power stations and prosthetic devices.
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PRINCIPAL PRODUCTS
GENERAL
We offer a comprehensive range of general-purpose materials testing
systems, application software and accessories. Our products generally fall
within one of two basic categories of testing instruments. These categories are
referred to as "static" and "dynamic," and differ mainly in the means that they
use to apply force to a test specimen. For example, a static system testing a
cloth specimen may gradually apply more and more force to the cloth by pulling
on it from two sides until the cloth tears. The system would measure the precise
force applied to the cloth throughout the test. That same cloth may be tested by
one of the dynamic systems by repeatedly applying force to the cloth over and
over again by stretching it from two points to simulate the wear and tear that
the cloth would endure if used as a seat belt or as an article of clothing.
Many tests can be carried out equally well with either a static or dynamic
test machine. However, if the test requires extremely rapid rates of applying
force, or subjects the test material to rapidly fluctuating force, then a
dynamic test machine is appropriate. Our product offerings vary in:
- the force capacity of the machines, with smaller machines designed for
testing small samples at relatively low levels of force, to large
machines that can apply tons of force to samples;
- the complexity of the drive system that the instrument uses to apply
force to test samples; and
- the sophistication of the control electronics, the computer system, and
the software used to administer tests and analyze data.
Beyond the distinctions between static and dynamic testing machines, we
divide our testing products into five general product lines based on the market
segments served and the applications of the machines.
ELECTROMECHANICAL INSTRUMENTS
Electromechanical test instruments are static systems that typically
stretch or compress the material being tested. These instruments consist of a
frame, which supports the sample to be tested and the mechanical moving parts
that are used to apply force to the sample, and electronic components to control
the test and analyze the test data. The term "electromechanical" is derived from
this use of mechanical moving parts controlled by electronic components. These
systems continuously measure the precise force being applied to test materials
and the effect of this force on the material. They also analyze the results of
the test, and either print, graph or electronically display them. Often referred
to as universal testers, with applications in almost every industry, uses of our
electromechanical instruments include:
- testing the texture of food products;
- measuring the strength properties of ceramics at extremely high
temperatures;
- ensuring that building material can bear heavy snow loads or sustain high
winds; and
- ensuring that plastic components have the necessary strength to replace
metal.
Our electromechanical product offerings include the cost effective Series
4400 product line and the high-performance Series 5500 product line. The Series
5500 systems are usually used for research and development and are equipped with
sophisticated software and many accessories. Our electromechanical instruments
are also used for quality-control applications, which usually require fewer
accessories and less breadth of application capability than do research and
development applications. The prices of our electromechanical systems generally
range from $15,000 to $150,000. Static systems and related accessories accounted
for approximately 52.6% of our reported revenue in 1998.
SERVOHYDRAULIC SYSTEMS
Servohydraulic systems are dynamic testing instruments that allow repeated
deformation of the material being tested to simulate in-use conditions over an
extended period of time. The moving parts of these systems that apply force to
the test material are controlled using hydraulics. The term "servohydraulic"
derives from this
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control system. These instruments also contain electronic components that
control the test and analyze the test data.
Software, computer control, and data analysis are features routinely added
to basic servohydraulic systems. The computer may be used to command the
application of force to simulate real-life use conditions. It is also used to
store and analyze data and display parameters of performance and endurance for
test materials or test components.
We utilize our engineering expertise to customize our servohydraulic
systems to fit the needs of our customers' particular test applications.
Machines can be configured not only to stretch or compress the material being
tested, but also to simultaneously twist it or subject it to other forms of
complex testing. Our servohydraulic systems are used, among other things, to
ensure that:
- turbine blades meet their performance requirements;
- artificial knee joints can withstand the forces associated with walking
and jumping; and
- bullet proof vests are effective.
The prices of our servohydraulic systems generally range from $40,000 to
$500,000 with the exception of our structural testing systems discussed below.
Servohydraulic testing systems accounted for approximately 22.6% of our reported
revenue in 1998.
STRUCTURAL TESTING (SIMULATION)
Our IST division designs and builds dynamic testing systems that are used
to determine the integrity of complete structures, like automobiles. These
systems are used to simulate real-life conditions while testing a wide range of
automotive components, from suspension and steering systems to entire vehicles.
They typically consist of several components designed to push and pull the
structure at different points, and sensors that collect and transmit the
resulting data to a central processing unit. These testing instruments are
called "structural" or "simulation" systems because they often test complete
structures by simulating the conditions that the structure may be forced to
endure in real life. For example, engineers use our systems to:
- validate the ability of automobile steering systems to withstand axial
and radial forces; and
- simulate the effectiveness of seatbelts and other restraints.
The prices of our structural testing systems generally range from $400,000
to several million dollars. These systems accounted for approximately 15.8% of
our reported revenue in 1998.
HARDNESS SYSTEMS
A hardness testing instrument works by forcing an "indentor" into the test
material's surface. The depth of penetration or the size of the impression is
the measure of the material's hardness. For example, our hardness systems are
used to test the properties of metals that will be made into coins, railway
tracks, aircraft and automobiles. We are a leader in "Rockwell" testing, the
most widely used technique. Our high-end Series 2000 Rockwell testing machine
incorporates advanced control features from our electromechanical instruments
and we believe it is the most advanced testing machine in the hardness testing
market. Hardness machines are calibrated by using a block of material with a
predetermined hardness value. We also manufacture and sell these sample blocks
as part of our hardness testing business.
The prices of our hardness testing machines range from $2,000 to $20,000.
Hardness systems and related accessories accounted for approximately 7.0% of our
reported revenue in 1998.
IMPACT TESTING
Impact testing instruments measure fracture properties of test materials or
the energy absorbed by material after an impact event.
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Our "Wolpert" and "Satec" impact testing products are used primarily in
metals applications. Wolpert testers are high-end products that offer
sophisticated data acquisition electronics and software; Satec testers are
simpler and less costly. These systems test materials by applying precise force
and measuring the results using electronic instrumentation and software.
Our impact products also include much more sophisticated "Dynatup"
instrumented impact testers for determining fracture and energy absorbing
properties of polymers and components.
Among the uses of our impact products are:
- testing helmets to ensure they will meet the demands of actual use; and
- determining the "sweet spot" of golf clubs and tennis racquets.
The prices of our impact testing instruments range from $5,000 to $150,000.
Impact testing systems and related accessories accounted for approximately 2.0%
of our reported revenue in 1998.
SERVICE
We have approximately 239 field service engineers that offer a wide range
of services to our customers in support of our product lines. These service
offerings include calibration, extended warranties, software support, upgrade
contracts, training and telephone support. Among our business strategies for the
future is the expansion of our service business. See "-- Business
Strategy -- Grow Service Business."
Our service business accounted for approximately 16.0% of our reported
revenue in 1998. The service revenue is included in the percentage amounts for
our static and dynamic systems set forth above.
OTHER PRODUCTS AND ACCESSORIES
We manufacture and sell a wide range of other products and accessories. The
products include durometers, impact testers, and asphalt binder testers. Typical
accessories include:
- application software to control tests and record results;
- grips that are used to hold test specimens in place;
- optical/video extensometers that measure precisely the deformation of the
material being tested without actually contracting it;
- robotic devices that automatically feed test specimens to our systems;
and
- environmental control accessories that allow researchers to vary
temperature and humidity.
Accessories can be included with the initial purchase or subsequently
purchased in order to expand the capability of the original machine. We also
have license agreements with third parties for the exclusive sale of certain
products, including software, in the material and structural testing industry.
These other products and accessories for static and dynamic equipment purchased
separately from the original sale of equipment are included in the percentage
amounts for static and dynamic systems set forth above.
MANUFACTURING AND PROPERTIES
We have established a worldwide manufacturing "Center of Excellence" for
each major product line, while still maintaining customization capabilities and
sales support close to customers. This allows us to concentrate production
volumes in specific factories in order to optimize our customer response
capabilities while reducing inventories and costs.
Our manufacturing facilities focus on the final assembly and testing of
complete systems. We pursue a strategy of outsourcing sub-assembly processes
where feasible. We maintain two primary machine shops, which supply key
components for our product lines. In general, we have no critical proprietary
manufacturing processes. Annual capital expenditure supports the maintenance of
our current facilities, the replacement of machine tools and our cost reduction
programs.
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The table below provides summary information on each of our manufacturing
facilities.
SIZE
LOCATION OWNED/LEASED (SQ. FT.) PRINCIPAL USES
Canton, MA Owned 155,000 Corporate Headquarters, Research
& Development and Manufacturing
Binghamton, NY Leased 35,000 Manufacturing
Grove City, PA Owned 53,500 Manufacturing
Darmstadt, Germany Leased 70,000 Research & Development and
Manufacturing
High Wycombe, UK Owned 120,000 European Headquarters, Research &
Development and Manufacturing
Canton, MA. Our Canton, MA facility serves as our world headquarters, as
well as the worldwide "Center of Excellence" for electromechanical and most
hardness and impact equipment. It serves as the customization center for
servohydraulic testing instruments for North America and assembles structural
testing equipment for IST primarily for the Americas. Operations consist of
custom engineering, final assembly and testing, with a very small machine shop
supporting engineering and customization requirements. The facility operates
assembly lines for electromechanical, impact and hardness machines. The site is
located on 24 acres of land that we own with a 155,000 square foot facility,
approximately 47,000 square feet of which is dedicated to manufacturing.
Binghamton, NY. Our Binghamton, NY site is a leased 35,000 square foot
facility with all but 4,000 square feet focused on production. The operation is
dedicated to machining components as a satellite to the Canton operation. The
Binghamton facility has 15 major machine tools, as well as a standard complement
of small manual drills, lathes, etc. Our lease expires on August 31, 2006, and
we have the right to renew for an additional 5-year term.
Grove City, PA. Our Grove City, PA facility, which is located approximately
40 miles from Pittsburgh, served as Satec's headquarters before its acquisition.
The facility currently manufactures Satec products, including electromechanical,
servohydraulic and temperature chambers, through a vertically integrated
manufacturing process. The site includes machining, welding, sheet metal shear,
punch and bend, and electronic assembly, as well as final assembly and testing
capabilities. The 53,500 square foot facility is located on over 100 acres of
land that we own, with 18,000 square feet of office space.
Darmstadt, Germany. Located approximately 30 miles from Frankfurt, Germany,
our Darmstadt facility, which is the primary engineering, assembly, and test
facility for IST, is leased from Carl Schenck AG and is located in their large
central manufacturing compound. The lease, executed in April 1998, is for an
initial
5-year term, and gives us the right to renew for an additional 5-year term.
IST's manufacturing and office space consists of 70,000 square feet. This
facility is fully equipped for the system integration and testing of major
structural testing systems and provides most of its output to Europe and Asia.
High Wycombe, UK. Our High Wycombe, UK facility is located approximately 30
miles northwest of London's Heathrow Airport. It serves as our worldwide "Center
of Excellence" for servohydraulic equipment, pendulum impact machines and other
key components and accessories. It is also our European center for customization
of electromechanical and some hardness equipment. The facility primarily
performs final assembly and testing with a significant machine shop located on
site. The site consists of 7 acres of land that we own and an approximately
120,000 square foot facility.
In addition to the properties discussed above, we have 35 sales offices and
demonstration centers located throughout the United States and in 17 foreign
countries. We believe that all of our properties are adequate and suitable for
our present needs.
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RESEARCH AND DEVELOPMENT
We maintain major research-and-development staffs at our U.S. and U.K.
manufacturing facilities. These development staffs often work directly with
industrial and government researchers and the materials-science departments of
universities to create leading-edge solutions to materials-testing applications.
We are a pioneer in the development and application of
electronic-measurement and drive-systems techniques in materials testing
systems. We have continuously designed, developed, and marketed state-of-the-art
testing systems, software, and accessories, including digitally controlled
static and dynamic testing systems.
In 1998, we expensed approximately $8.5 million on research and development
activities, compared with $7.0 million in 1997, and $8.6 million in 1996. We
also capitalized software development costs of approximately $1.5 million in
1998, $637,000 in 1997 and $1.1 million in 1996. During these years, our
engineering resources have been utilized to develop new products for IST in
accordance with the joint venture agreement. The costs associated with these
development efforts were reimbursed by IST. If our research and development
expenses were restated, for comparison purposes, by including software
development costs as period expenses, and by adjusting engineering expenses for
the effect of IST and Satec and the disposition of Laboratory MicroSystems, our
research and development expenses of the ongoing business would have increased
by 7.5% in 1998. In recent years, we have focused our research-and-development
expenditures on:
- creating new product platforms for static and dynamic product lines;
- developing new hardness testing machines;
- developing new software and enhancements; and
- redesigning products to reduce manufacturing costs.
SALES AND MARKETING
We believe that our global distribution and service network is a key
competitive advantage in serving a diverse array of customers worldwide with a
broad range of applications. In order to achieve optimal focus on the needs of
our customers, we employ a variety of sales channels, including direct sales,
agents, distributors, telesales, and a developing Internet channel. We employ
over 100 highly trained engineers in sales positions who are typically
responsible for over 90% of our product revenue and pursue business on a
geographic basis. Materials testing has three sales divisions located in North
America, Europe, and Asia Pacific/Latin America. Each sales division is
responsible for recruiting, training, sales management, sales strategy, service
management, compensation, and determining best practices in that region. This
local management is of particular importance outside North America, where market
conditions, local suppliers, and regional differences tend to proliferate.
The purchasing cycle for a materials testing system in a typical laboratory
is several years with the laboratory manager the key decision maker in any
purchase decision. Given this relatively long sales cycle and our
well-diversified customer base, both geographically and by end user, we use
marketing mailings, seminars, advertisements, and trade shows to promote our
products. Direct sales professionals focus on the sales leads that are generated
in order to tailor systems to meet a potential customer's specific market need.
Over the course of over 50 years, we believe we have built the largest installed
base of materials testing equipment in the world, and, with the acquisition of
IST, one of the largest installed bases of structural testing equipment in the
world, as well as a wide array of accessories for a broad range of applications.
With this extensive base of application-specific knowledge, customers often
contact us for new purchases without any solicitation by our sales engineers. We
estimate that orders from existing customers represent approximately 80% of our
annual reported 1998 revenue in the United States and over 50% of our annual
reported 1998 revenue outside the United States.
COMPETITIVE CONDITIONS
We compete with a number of other manufacturers, some of whom have greater
financial, technical and marketing resources than we do. The intensity of the
competition varies by product line and by geographic area. Competition in the
United States is greatest in the dynamic line where we have one major domestic
competitor,
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MTS Systems Corporation. Competition in foreign markets is greatest in Germany
and Japan, where there are major local manufacturers. The principal competitive
factors are:
- engineering excellence;
- the quality and technical capability of the equipment;
- responsiveness to customer needs;
- quality of service; and
- price.
RAW MATERIALS
Although we are dependent upon a limited number of suppliers for certain
components, we have not experienced significant problems in procurement or
delivery of any essential materials, parts or components. Substantially all
purchasing is accomplished on a competitive basis while maintaining a level of
inventory sufficient to provide support of customer-servicing requirements and
meet scheduled delivery dates.
PATENTS AND TRADEMARKS
We have several patents in the United States and in foreign countries.
However, we rely principally on our engineering and technological capabilities
rather than on these patents to maintain our position in the industry. The
trademarks "Dynatup," "Shore," "Rockwell" and "Instron" and the device mark are
registered trademarks of Instron. Under current law, these trademarks may be
renewed indefinitely as long as they are maintained in use.
ENVIRONMENTAL CONSIDERATIONS
Compliance with federal, state, local and foreign laws and regulations
relating to protection of the environment has not had, and we do not expect it
to have, any material adverse effects on us.
NUMBER OF EMPLOYEES
At October 2, 1999 we employed 1,435 people worldwide.
FOREIGN OPERATIONS
Foreign operations represent a significant portion of our business. For the
nine months ended October 2, 1999, approximately 44% of our total revenue was
derived from sales in the United States, approximately 38% from sales in Europe
and approximately 18% from sales to the rest of the world. Our revenue outside
the United States accounted for 55% of our total revenue in 1998, 59% in 1997
and 61% in 1996. Bookings from Asia declined by 30% in 1998 compared to 1997 due
to the economic downturn in this region. In addition, because of the devaluation
of Asian currencies, our revenue from this region was substantially reduced in
1998. We expect revenue from foreign markets to continue to represent a
significant portion of our total revenue. We own manufacturing facilities in
England and lease manufacturing facilities in Germany. We also sell domestically
manufactured products to foreign customers. Our foreign operations are subject
to risks in addition to the risks of our domestic operations. The risks that
relate to our foreign operations include:
- political, economic and social conditions in the foreign countries where
we conduct operations;
- currency risks and exchange controls, including risks related to the
introduction of the euro;
- potential inflation in the applicable foreign economies;
- the impact of import duties on our costs and prices;
- foreign taxation of our earnings and payments received by us; and
- regulatory changes affecting our international operations.
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These risks may adversely affect our business. Financial information
concerning domestic and foreign operations appears in Notes 1 and 2 in the
"Notes to Consolidated Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included as part of
this prospectus.
LEGAL PROCEEDINGS
We are party to various litigation matters arising in the ordinary course
of business. We cannot estimate with certainty the ultimate legal and financial
liability with respect to this litigation, but we believe, based on our
examination of these matters, experience to date and discussions with counsel,
that any ultimate liability will not be material to our business or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to persons who are
currently members of the Board of Directors or executive officers of Instron.
YEARS OF
NAME AGE POSITION SERVICE
James M. McConnell................... 58 Director, President and Chief 9
Executive Officer
Linton A. Moulding................... 46 Chief Financial Officer and Vice 14
President
Joseph E. Amaral..................... 52 Vice President, General Manager, 21
North America Operations
John R. Barrett...................... 45 Treasurer and Vice President of 11
Corporate Development
Jonathan L. Burr..................... 51 Vice President, Corporate Director of 20
Human Resources
Yahya Gharagozlou.................... 43 Vice President, Corporate Technical 18
Director
Arthur D. Hindman.................... 56 Vice President, General Manager, Asia 20
Pacific / Latin America
William J. Milliken.................. 45 Vice President, Corporate Director of 2
Manufacturing
Norman L. A. Smith................... 53 Vice President and Managing Director 17
of Instron Limited
Raymond A. Lancaster................. 53 Director --
Thomas N. Littman.................... 36 Director --
Dennis J. Moore...................... 61 Director 5
John F. Turben....................... 64 Director --
James M. McConnell joined Instron in 1990 as President and Chief Executive
Officer. From 1987 to 1990, he was President and Chief Executive Officer of
Automatic Switch Company, and from 1986 to 1987, he was President of Rosemont,
Inc. (both are wholly owned subsidiaries of Emerson Electric Co.). He has been a
Director of Instron since April 1990. Mr. McConnell is also a director of ESCO
Electronics Corporation.
Linton A. Moulding joined Instron in 1985. He has held positions as
Corporate Controller, Director of U.S. Operations, Corporate Vice President of
Manufacturing and Vice President of Finance and Treasurer. In 1993, he was
elected Chief Financial Officer of Instron.
Joseph E. Amaral joined Instron in 1978. Since 1985, Mr. Amaral has held
positions as Corporate Technology Manager, Corporate Product Planning Manager,
and Vice President, Corporate Technical Director. In March 1995, he was elected
Vice President, General Manager of North America Operations.
John R. Barrett joined Instron in 1988 as Assistant Treasurer. From 1979 to
1988, he held various financial management positions with Computervision
Corporation. In 1993, he was elected Treasurer of Instron. In 1998, he was
elected Treasurer and Vice President of Corporate Development.
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Jonathan L. Burr joined Instron in 1979. He has held positions as Personnel
Administrator, Director of Personnel and Corporate Director of Human Resources.
In 1993 he was elected Vice President, Corporate Director of Human Resources.
Mr. Burr is the son of George S. Burr, who was Vice Chairman of the Board of
Directors before the recapitalization.
Yahya Gharagozlou joined Instron in 1981. He has held positions as
Corporate Product Manager for Software, Marketing Manager and Director of
Engineering. In 1996, he was elected Vice President, Corporate Technical
Director.
Arthur D. Hindman joined Instron in 1979. Since 1979, Mr. Hindman has held
positions as Manager, Marketing Administration, International Sales Manager, and
General Manager, Asia/Latin America. In 1993, he was elected Vice President and
General Manager, Asia Pacific/Latin America. Mr. Hindman is the son of Harold
Hindman, who was Chairman of the Board of Directors before the recapitalization.
William J. Milliken joined Instron in 1997 as Vice President, Corporate
Director of Manufacturing. From 1988 to 1997, he was Director of Manufacturing
for Otis Elevator Company's Asia division. From 1978 to 1988 he held various
financial and manufacturing management positions within General Motors
Corporation.
Norman L. A. Smith joined Instron Limited in 1982 as Marketing Director
Designate and assumed the position of Director in 1983. In January 1996, he was
promoted to Deputy Managing Director and was elected Vice President of Instron
and Managing Director of Instron Limited in November 1996.
Raymond A. Lancaster joined Instron in 1999 as a director in connection
with the recapitalization. Mr. Lancaster joined Kirtland as a Managing Partner
in 1995. Prior to joining Kirtland, Mr. Lancaster was a General Partner of Key
Equity Partners and was responsible for KeyCorp's Private Equity Group. Mr.
Lancaster is a member of Kirtland's Advisory Board and is a Director of
Fairmount Minerals, Ltd., Management Reports, Inc., PVC Container Corporation,
Shore Bridge Corp., STERIS Corporation and Stonebridge Industries, Inc.
Thomas N. Littman joined Instron in 1999 as a director in connection with
the recapitalization. Mr. Littman joined Kirtland as a Partner in 1995 after
working as an Associate with the law firm of Jones, Day, Reavis & Pogue. He
serves as Director of R Tape Corp. and Stonebridge Industries, Inc.
Dennis J. Moore joined Instron as a director in 1994. Mr. Moore is Chairman
and Chief Executive Officer of ESCO Electronics Corporation, a diversified
producer of defense systems and commercial products. From 1990 to 1992 he was
President and Chief Operating Officer of ESCO.
John F. Turben joined Instron in 1999 as a director in connection with the
recapitalization. Mr. Turben founded the predecessor to Kirtland Capital
Partners in 1977. He is a Managing Partner of Kirtland and serves as Chairman of
The Hickory Group, Ltd., PVC Container Corporation and Harrington and Richardson
1871, Inc. He is a Director of NACCO Industries, Inc., Unifrax Corporation,
TruSeal Technologies Inc., Stonebridge Industries, Inc. and a Manager and Vice
Chairman of Gries Financial LLC.
DIRECTOR COMPENSATION
Directors receive reasonable and customary compensation in connection with
their service on our Board of Directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation awarded to, earned by or paid
to our Chief Executive Officer and our other four most highly compensated
executive officers during each of the years ended December 31, 1998, 1997 and
1996. We have not granted stock appreciation rights to any of our executive
officers for these periods.
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------------
-------------------- SECURITIES
NAME AND PRINCIPAL ANNUAL RESTRICTED STOCK UNDERLYING ALL OTHER
POSITIONS YEAR SALARY BONUS AWARDS(1) OPTIONS(#) COMPENSATION(2)
James M. McConnell...... 1998 $325,769 $214,176 -- -- $4,800
President and Chief 1997 280,000 208,447 $612,500(3) -- 4,750
Executive Officer 1996 279,808 134,200 -- 50,000 4,500
Linton A. Moulding...... 1998 165,769 66,585 -- -- 4,777
Chief Financial
Officer 1997 149,346 67,165 306,250(3) -- 4,750
1996 132,808 32,560 -- 15,000 4,500
Joseph E. Amaral........ 1998 155,500 56,221 -- -- 4,800
Vice President and 1997 142,808 58,200 306,250(3) -- 4,750
General Manager North 1996 137,846 41,145 -- 15,000 4,500
America Operations
William J. Milliken..... 1998 155,769 53,544 -- -- 865
Vice President, 1997(4) 28,846 24,283 351,063(5) -- --
Corporate Director of
Manufacturing
Yahya Gharagozlou....... 1998 149,808 54,096 -- -- 4,800
Vice President, 1997 124,115 53,166 306,250(3) -- 4,545
Corporate Technical 1996 101,384 22,375 -- -- 3,334
Director
- ---------------
(1) Amounts shown represent dollar value of the restricted stock on the date of
grant.
(2) Amount shown represents matching contributions made under our 401(k) Plan.
(3) We awarded Mr. McConnell 50,000 shares and we awarded Messrs. Moulding,
Amaral and Gharagozlou 25,000 shares of common stock in the form of
restricted stock on May 14, 1997, valued at $12.25 per share based on the
closing stock price on the date of the grant. Based on the December 31, 1998
closing stock price of $17.25, Mr. McConnell's shares of restricted stock
had an aggregate value of $862,500 and Messrs. Moulding, Amaral and
Gharagozlou's shares of restricted stock had an aggregate value of $431,250.
As a result of the recapitalization, 25,340 shares of restricted stock will
be converted into restricted stock of the surviving corporation. As amended,
the restricted stock award agreements governing these shares will provide
for vesting of the restricted stock on May 14, 2004, or earlier depending on
our financial results. Prior to the recapitalization, dividends on the
restricted stock awards were paid at the same rate as paid to all
stockholders.
(4) Mr. Milliken joined Instron in October 1997, as Vice President, Corporate
Director of Manufacturing. Salary for 1997 in the table reflects a partial
year.
(5) We awarded Mr. Milliken 20,500 shares of common stock in the form of
restricted stock on October 29, 1997 valued at $17.125 per share based on
the closing stock price on the date of the grant. Based on the December 31,
1998 closing stock price of $17.25, Mr. Milliken's shares of restricted
stock had an aggregate value of $353,625. The restricted stock vests after
seven years, or sooner if certain financial targets are met, or upon a
change in control. Dividends on the restricted stock awards are paid at the
same rate as paid to all stockholders.
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SEVERANCE AND OTHER AGREEMENTS
During the past six years, we entered into Executive Severance Agreements
with ten of our current executive officers and five additional key employees.
The severance agreements, other than Mr. McConnell's, were amended in connection
with the recapitalization. Each agreement, other than Mr. McConnell's, provides
that the employee will receive severance benefits if he is terminated by Instron
(other than for cause or by reason of his death, disability or retirement), or
by the employee for "Good Reason" (as defined in the severance agreements)
within 24 months after a "Change in Control" (as defined in the severance
agreements). Mr. McConnell's severance agreement provides that he will receive
severance benefits if his employment is terminated for any reason within 24
months after a Change in Control. The severance agreements generally provide for
the following severance benefits:
- a lump-sum payment equal to 200% of the employee's "base amount" (as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended); and
- subject to specified limitations, the provision of a "gross-up" payment
to an executive officer if he becomes subject to an excise tax as a
result of receiving change-in-control severance benefits (including the
value of accelerated vesting of options and restricted stock).
PENSION PLANS
The following table sets forth a range of estimated annual retirement
benefits under Instron's U.S. Employees' Pension Plan for persons in the
compensation and years of service classification specified.
ESTIMATED ANNUAL BENEFIT
----------------------------------------------------------
AVERAGE ANNUAL 30 OR MORE
COMPENSATION(1) 10 YEARS 15 YEARS 20 YEARS 25 YEARS YEARS
$125,000............................... $ 20,833 $31,250 $41,667 $52,083 $ 62,500
150,000............................... 25,000 37,500 50,000 62,500 75,000
175,000............................... 29,167 43,750 58,333 72,917 87,500
200,000............................... 33,333 50,000 66,667 83,333 100,000
- ---------------
(1) Section 401(a)(17) of the Internal Revenue Code limits the compensation
taken into account in calculating an employee's retirement benefit. The
limit for compensation paid in 1998 was $160,000.
Our calculation of retirement benefits under our pension plan is based on
average annual compensation, which includes salary and performance compensation,
for the highest five full consecutive twelve-month periods out of the last ten
full consecutive twelve-month periods preceding retirement or termination of
employment. Under our pension plan, as of December 31, 1998, the employees
listed in the Summary Compensation Table were credited with the years of service
shown in the following chart:
Joseph E. Amaral............................................ 21 years
Yahya Gharagozlou........................................... 14 years
William J. Milliken......................................... 1 year
Linton A. Moulding.......................................... 14 years
James M. McConnell.......................................... 9 years
The estimated annual benefit for years of service in the table above is computed
on the basis of payment of a straight line life annuity at the normal retirement
age of 65. The amounts in the table do not reflect plan offsets for benefits
provided under Instron's former Employee' Profit Sharing Retirement Plan nor the
required Pension Plan offsets for social security payments.
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STOCK OPTION PLANS
The tables included in this offering memorandum reflect stock award
information with respect to executive officers. Upon the consummation of the
recapitalization, we will not grant any further stock awards and will grant
options rights to reflect the executive's future contributions to the business.
See "Certain Relationships and Related Transactions -- The Recapitalization --
Grant of New Options to Management."
The following table sets forth information regarding options exercised in
1998 and options held at December 31, 1998 by our executive officers named in
the Summary Compensation Table. During the fiscal year ended December 31, 1998,
no officer named in the Summary Compensation Table received any stock options.
AGGREGATE EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END (1)
SHARES ACQUIRED VALUE ------------------------------ ----------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
James M. McConnell... 193,422 1,740,798 124,500 37,500 $679,563 $160,938
Linton A. Moulding... 4,250 21,250 41,250 11,250 227,344 48,281
Joseph E. Amaral..... -- -- 44,069 11,250 245,974 48,281
William J.
Milliken........... -- -- -- -- -- --
Yahya Gharagozlou.... -- -- 19,500 11,000 94,125 47,344
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(1) Represents the total gain that would be realized if all options, for which
the December 31, 1998 stock price of $17.25 was greater than the exercise
price, were exercised.
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SECURITY OWNERSHIP
The following table sets forth information regarding the ownership of
Instron common stock by:
- the stockholders we know to be beneficial owners of more than five
percent (5%) of the outstanding shares of Instron common stock;
- each of our directors;
- each of our executive officers;
- all directors and executive officers of Instron as a group; and
- other persons as required.
The table shows the beneficial ownership interests of the parties listed
above as of the date of this prospectus. Unless otherwise indicated, we believe
that each of the stockholders listed has sole voting and investment power with
respect to their beneficially owned shares of common stock.
SHARES BENEFICIALLY OWNED
-------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT(2)
Kirtland Partners Ltd.(3)................................... 492,480 84.56%
2550 SOM Center Road Suite 105
Willoughby Hills, Ohio 44094
George S. Burr.............................................. 12,000 2.06
Helen L. Burr............................................... 4,000 *
The Harold Hindman Trust--1969(4)........................... 16,000 2.75
James M. McConnell(5)....................................... 19,585 3.36
Linton A. Moulding(6)....................................... 11,409 1.96
Joseph E. Amaral (7)........................................ 3,000 *
Kenneth L. Andersen(8)...................................... 3,567 *
John R. Barrett (9)......................................... 458 *
Jonathan L. Burr(10)........................................ 8,329 1.43
The Jonathan L. Burr Trust--1965(11)........................ 4,000 *
Yahya Gharagozlou(12)....................................... 1,062 *
Arthur D. Hindman(13)....................................... 2,552 *
William J. Milliken......................................... 2,189 *
Norman L. Smith............................................. 1,800 *
Raymond A. Lancaster(3)..................................... -- --
Thomas N. Littman........................................... -- --
Dennis J. Moore............................................. -- --
John F. Turben(3)........................................... -- --
All Directors and executive officers as a group (14
persons)(14).............................................. 58,042 9.97
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* Less than 1%.
(1) Unless otherwise set forth above, the address of the listed stockholders is
c/o Instron Corporation, 100 Royall Street, Canton, Massachusetts 02021.
(2) These percentages are based on the number of outstanding shares of Instron
common stock upon the consummation of the recapitalization on a fully
diluted basis (assuming the exercise of all retained options and excluding
any effect of the warrants issued in connection with the outstanding
notes). The calculation
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of these percentages of a fully diluted basis results in some percentages
in this table varying from disclosures elsewhere in this prospectus.
(3) Kirtland Partners Ltd. is the general partner of Kirtland Capital Partners
III L.P. and the managing member of each of Kirtland Capital Company III
LLC and ISN Investments Ltd. As such, Kirtland Partners Ltd. will exercise
complete control over the shares of Instron common stock held by each
entity, including voting control and investment decisions with respect to
all the shares. Each of John F. Turben, Raymond A. Lancaster, John G.
Nestor and William R. Robertson is an executive officer, manager and member
of Kirtland Partners Ltd., and as a result of these positions, may be
deemed to have beneficial ownership of the shares of Instron common stock
held by these entities. Messrs. Turben, Lancaster, Nestor and Robinson
disclaim beneficial ownership of all shares of common stock held by
Kirtland.
(4) The Harold Hindman Trust -- 1969 is a trust of which Harold Hindman and
Robert N. Shapiro are the trustees and Harold Hindman is the sole
beneficiary, but with respect to which Harold Hindman has sole voting and
dispositive power over the shares.
(5) The number shown includes 2,400 shares of restricted common stock.
(6) The number shown includes 8,700 shares that Mr. Moulding has the right to
acquire upon the exercise of retained options and 2,709 shares owned as a
joint tenant with his wife, Jane Elizabeth Moulding.
(7) The number shown is the number of shares that Mr. Amaral has the right to
acquire upon the exercise of his retained options.
(8) The number shown includes (a) 268 shares of restricted common stock and (b)
3,300 shares that Mr. Andersen has the right to acquire upon the exercise
of his retained options.
(9) The number shown represents shares of restricted common stock.
(10) The number shown includes (a) 329 shares of restricted common stock and (b)
8,000 shares that Mr. Burr has the right to acquire upon the exercise of
his retained options.
(11) The Jonathan L. Burr Trust -- 1965 is a trust of which Preston Saunders,
Robert C. Pomeroy and Mary-Kathleen O'Connell are the trustees and Jonathan
L. Burr is the sole beneficiary, but with respect to which Jonathan L. Burr
has shared voting power (with Robert S. Burr, Susan Burr Carlo and Leslie
B. Barresi) and sole dispositive power over the shares.
(12) The number shown includes 1,062 shares of restricted common stock.
(13) The number shown includes (a) 552 shares of restricted common stock and (b)
2,000 shares that Mr. Hindman has the right to acquire upon the exercise of
his retained options.
(14) The number shown includes (a) 5,068 shares of restricted common stock and
(b) 25,000 shares that executive officers have the right to acquire upon
the exercise of retained options.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE RECAPITALIZATION
On May 6, 1999, we entered into a merger agreement with Kirtland and ISN
Acquisition Corporation to effect a recapitalization of Instron. The parties
amended the merger agreement on August 5, 1999 by Amendment No. 1 to, among
other things, permit the closing of the recapitalization to occur in September
rather than August. In the recapitalization, which was consummated on September
29, 1999, Kirtland and its affiliates acquired approximately 88.3% of our
outstanding common stock. Members of our management retained approximately 5.9%
of our outstanding common stock and three other stockholders retained an
approximate 5.8% equity interest in Instron. Kirtland and its affiliates
contributed approximately $54.2 million in cash to Instron in the
recapitalization.
Management. The members of management who participated in the
recapitalization agreed with Kirtland to exchange, in a series of transactions,
an aggregate of 165,210 shares of our common stock they owned prior to the
recapitalization (of which 25,340 shares were restricted) that resulted in their
ownership of 32,951 shares of our common stock after the recapitalization (of
which 5,068 shares are restricted). The shares of restricted stock are governed
by the Instron Corporation 1992 Stock Incentive Plan and amended restricted
stock award agreements. The amended restricted stock award agreements provide
for vesting of the restricted stock on May 14, 2004, or earlier depending on our
financial results, and amend the definitions of "cause" and "good reason."
In addition, options to purchase up to an aggregate of 125,000 shares of
our common stock held by members of management were converted into options to
purchase up to an aggregate of 25,000 shares of our common stock following the
recapitalization. Each of these retained options is fully vested and
exercisable. The retained options represented approximately 4.3% of our common
stock, assuming the exercise of all retained options.
Other Stockholders. Three other stockholders agreed with Kirtland to
exchange, in a series of transactions, an aggregate of 160,000 shares of our
common stock they owned prior to the recapitalization that resulted in their
ownership of 32,000 shares of our common stock after the recapitalization.
Cash payments to members of management and the other stockholders. Members
of management and the three other stockholders did not convert all the shares
and options to purchase shares of our common stock that they owned prior to the
recapitalization. In the recapitalization, members of management and the three
other stockholders were entitled to receive $22.00 per share in cash for their
unconverted shares of our common stock, including shares of restricted common
stock owned by some members of management. They were also entitled to receive
cash based on the number of shares of our common stock underlying their
unconverted options and the difference between the applicable per share exercise
price of the options and $22.00.
Members of management and three other stockholders received cash payments,
directly or indirectly, upon consummation of the recapitalization. The members
of management, James M. McConnell, Joseph E. Amaral, Kenneth L. Andersen, John
R. Barrett, Jonathan L. Burr, The Jonathan L. Burr Trust -- 1965, Yahya
Gharagozlou, Arthur D. Hindman, William J. Milliken, Linton A. Moulding and
Norman L. Smith, received an aggregate of approximately $14.9 million and
retained equity, including options and restricted stock, with a value of
approximately $6.4 million. The three other stockholders, George S. Burr, Helen
L. Burr, and The Harold Hindman Trust -- 1969 (includes cash for shares owned of
record by Harold Hindman, a trustee and the sole beneficiary of The Harold
Hindman Trust -- 1969), received an aggregate of $15.9 million and retained
equity with a value of approximately $3.5 million. The value of retained equity
is based upon a value of $22.00 per share adjusted for the reverse stock split
that took place upon consummation of the recapitalization. We believe that the
members of management used a substantial portion of the payments they received
to repay debt incurred in connection with prior exercises of options and to pay
tax obligations associated with the exercise of options and the vesting of
restricted stock.
Grant of New Options to Management. In the recapitalization, we adopted the
Instron Corporation 1999 Stock Option Plan and reserved for issuance under this
plan 10% of the aggregate number of shares of common stock outstanding on a
fully diluted basis immediately following the recapitalization. We granted to
members of
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management options to purchase, in the aggregate, 40% of the shares reserved
under the plan following the recapitalization. Each option is exercisable at the
fair market value per share determined in good faith by our Board of Directors.
Confidentiality and Noncompetition Agreements with Members of Management.
In order to induce Kirtland to enter into the recapitalization, at the effective
time of the recapitalization each of the members of management entered into a
confidentiality and noncompetition agreement with us. Under the agreement, each
member of management will maintain the confidentiality of business information
and will not engage in competition for so long as he is employed with us or any
of our subsidiaries and thereafter until the first anniversary of the date on
which he last worked for us.
Severance Agreements with Members of Management. Each member of management,
other than Mr. McConnell, amended his existing executive severance agreement
upon the closing of the recapitalization to modify the definition of "good
reason." As amended, the severance agreements provide that a termination
constitutes "good reason" if we fail to maintain the executive in a position
with responsibilities associated with a vice president level or higher, or if
the executive's title is reduced to below a vice president or, except for John
R. Barrett, the executive is no longer a member of our executive committee. The
amended severance agreements do not apply to any termination that occurs after
the second anniversary of the recapitalization, or to any change in control
after the recapitalization.
Deferred Compensation Agreement with James M. McConnell. At the effective
time of the recapitalization, we entered into a deferred compensation agreement
with Mr. McConnell to replace his existing executive severance agreement. Under
this agreement, we credited $1.2 million to a nonforfeitable deferred
compensation account. We will credit interest on the value of the account in
arrears on the last business day of each quarter at a rate of interest equal to
the composite "prime rate" as quoted for that day. The account will be paid in
five annual installments commencing on the fifth anniversary of the
recapitalization. Commencement of payments will be accelerated in the event of
Mr. McConnell's disability, death or termination without cause. Upon a change in
control, the account will be paid to Mr. McConnell in a lump sum.
In the event that any payment under the deferred compensation agreement
would be an "excess parachute payment" within the meaning of the Code, then we
may propose that the payments to be made under the agreement be reduced so that
no portion of the payment, if so reduced, constitutes an excess parachute
payment. If Mr. McConnell agrees to any such reduction, interest credited to the
account will be reduced so that no portion of the interest to be paid, as so
reduced, constitutes an excess parachute payment. If Mr. McConnell does not
agree to this reduction, then we may accelerate payments to Mr. McConnell so
that no payment to Mr. McConnell will constitute an excess parachute payment.
Mr. McConnell is entitled to receive an additional "gross-up payment" to the
extent necessary to offset any federal, state and local income tax, employment
tax and excise tax upon the excess parachute payment.
Voting Agreement. Under a voting agreement, dated as of May 6, 1999,
members of management, three other stockholders, and some of their affiliates
agreed with ISN Acquisition Corporation to vote all of the shares of our common
stock owned by them in favor of the recapitalization. These individuals also
agreed (1) not to dispose of any common stock, or deposit any common stock into
a voting trust or enter into a voting agreement or arrangement with respect to
voting any voting shares, (2) to waive their appraisal rights, and (3) at
Kirtland's request, to take further lawful actions as may be necessary or
desirable to consummate the recapitalization. The common stock subject to these
voting agreements represents approximately 22.4% of our outstanding common
stock. The voting agreement terminated upon the consummation of the
recapitalization.
Fees and Expenses. In connection with the recapitalization, we agreed to
pay for the reasonable fees and expenses of legal counsel for members of our
management up to an aggregate of $85,000. We also agreed to pay for the
reasonable fees and expenses of three other stockholders' legal counsel up to an
aggregate of $40,000.
Indemnification and Insurance. The merger agreement contains standard
indemnification provisions for our former or current directors, officers,
employees, fiduciaries or agents. In addition, before the recapitalization, we
purchased an extended reporting period endorsement under our then-existing
directors' and officers' liability insurance coverage for our directors and
officers.
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Special Committee. The members of the Special Committee of our Board of
Directors were treated in the recapitalization as public stockholders with
respect to their shares of our common stock. Upon consummation of the
recapitalization, Mr. Young received $550,000 as cash merger consideration and
Mr. Moore received $55,000 as cash merger consideration. The third member of the
Special Committee, Mr. Smith, did not own any shares of our common stock. None
of the members of the Special Committee held or now hold any options to purchase
our common stock.
STOCKHOLDERS AGREEMENT
Upon consummation of the recapitalization, all of our stockholders entered
into a stockholders agreement. The stockholders agreement provides that our
stockholders may not transfer their shares of common stock except under
specified circumstances. Under the stockholders agreement, we have a right of
first refusal in the event that any stockholder wishes to sell shares of our
common stock, or, in the event that we do not exercise our right of first
refusal, the nontransferring stockholders, other than any management stockholder
who is no longer an employee, will have the opportunity to purchase the shares.
The stockholders agreement also provides that the stockholders will have the
opportunity to participate in some sales of our common stock by Kirtland, and
Kirtland has the right to cause the other stockholders to participate in some of
these sales. In addition, the stockholders agreement provides for certain "puts"
and "calls" upon the termination of a management stockholder's employment with
Instron, and provides that if Kirtland purchases shares of our common stock
following the closing of the Recapitalization, the stockholders have the right
to purchase their pro rata share of the number of shares to be issued to
Kirtland.
REGISTRATION RIGHTS AGREEMENT
Upon consummation of the recapitalization, Kirtland and its affiliates,
members of our management and Instron entered into a registration rights
agreement. Under this registration rights agreement, the parties have the right
to participate, or "piggy-back," in equity offerings initiated by us that are
registered under the Securities Act, subject, in the case of members of our
management, to the approval of the underwriters involved with any equity
offering and other customary terms and conditions.
ADVISORY SERVICES AGREEMENT
At the closing of the recapitalization, Kirtland and Instron entered into
an advisory services agreement under which Kirtland will provide management
consulting and financial advisory services to Instron for an annual fee in the
amount of $500,000. The advisory services agreement includes customary
indemnification provisions in favor of Kirtland. Also at the closing of the
recapitalization, we paid Kirtland a financing fee of $750,000 and reimbursed
Kirtland for its out-of-pocket expenses as compensation for its services as
financial advisor.
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DESCRIPTION OF NEW SENIOR CREDIT FACILITY
General. As part of the recapitalization, we entered into a new senior
credit facility with National City Bank, as agent, providing for a revolving
credit facility of up to $50.0 million (subject to an available borrowing base)
and a term loan facility of $30.0 million, maturing in five and one-half years,
unless terminated sooner upon certain events of default. If terminated upon an
event of default, all outstanding advances under the new credit facility may be
required to be immediately repaid. The revolving portion of the new senior
credit facility can be used to complete permitted acquisitions or for working
capital and other general corporate purposes. Borrowings under the new senior
credit facility will bear interest, at our option, at either the higher of the
federal funds rate plus 0.5% and the prime rate, or a LIBOR rate, in each case
plus an applicable margin. Our ability to borrow under the new senior credit
facility will be subject to our compliance with the covenants described below.
Guarantees and Security. All of our obligations under the new senior credit
facility are and will be secured by a first priority lien on substantially all
of the properties and assets of Instron and our existing and future domestic
subsidiaries. In addition, our obligations under the new senior credit facility
are and will be secured by a first priority pledge of and security interest in
all of the outstanding capital stock of our existing domestic subsidiaries and
future domestic subsidiaries and a pledge of 65% of the outstanding capital
stock of some foreign subsidiaries. Certain of our foreign subsidiaries have
also granted a lien on substantially all of their properties and assets.
Financial Covenants. The new senior credit facility requires that we meet
and maintain certain financial ratios and tests, including:
- a minimum consolidated net worth and minimum consolidated EBITDA;
- a maximum consolidated leverage ratio (total debt to EBITDA) and senior
leverage ratio (senior debt to EBITDA);
- a minimum consolidated interest coverage ratio (EBITDA to interest
expense); and
- a minimum consolidated fixed charge coverage ratio (EBITDA to interest
expense plus other fixed charges).
Other Covenants. The new senior credit facility also contains covenants
that limit the ability of us and our operating subsidiaries to take various
actions, including:
- incurring additional indebtedness and liens and entering into some
leases;
- fundamentally changing corporate structure, including mergers,
consolidations and liquidations;
- acquiring and disposing of property;
- making principal payments on indebtedness (including these notes) prior
to maturity, dividends and capital stock purchases;
- making investments;
- making capital expenditures;
- making some modifications to organizational documents;
- changing fiscal periods;
- entering into sale and leaseback transactions;
- entering into affiliate transactions;
- entering into agreements restricting distributions;
- amending the acquisition documents;
- granting negative pledges; and
- making a material change in the nature of our business.
Events of Default. The new senior credit facility contains customary events
of default with respect to us and our operating subsidiaries, including defaults
with respect to other indebtedness.
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DESCRIPTION OF NOTES
THE UNITS
The outstanding notes were issued in connection with a unit offering on
September 29, 1999. Each unit consisted of one $1,000 principal amount note and
one warrant to purchase 0.5109 of a share of common stock, par value $0.01 per
share, of Instron. The outstanding notes and the warrants began to trade
separately when the registration statement with respect to the registered
exchange offer for the outstanding notes, of which this prospectus is a part,
was declared effective under the Securities Act.
THE EXCHANGE NOTES
You can find the definitions of some terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to Instron Corporation and not to any of its subsidiaries.
The Company will issue the Notes under an Indenture (the "Indenture") by
and among itself, the Guarantors and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). 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 "Trust Indenture Act").
The following description is a summary of the material provisions of the
Indenture and the Registration Rights Agreement. It does not restate those
agreements in their entirety. We urge you to read the Indenture because it, and
not this description, defines your rights as a holder of the Notes. Copies of
the Indenture are available as set forth below under "-- Additional
Information." Certain defined terms used in this description but not defined
below under "-- Certain Definitions" have the meanings assigned to them in the
Indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The Notes will be:
- general unsecured obligations of the Company;
- subordinated in right of payment to all existing and future Senior Debt
of the Company;
- pari passu in right of payment with any future senior subordinated
Indebtedness of the Company; and
- unconditionally guaranteed by the Guarantors.
THE GUARANTEES
The Notes will be guaranteed by all of the existing and future Domestic
Subsidiaries of the Company.
Each Guarantee of the Notes will be:
- a general unsecured obligation of the Guarantor;
- subordinated in right of payment to all existing and future Senior Debt
of the Guarantor; and
- pari passu in right of payment with any future senior subordinated
Indebtedness of the Guarantor.
Not all of our subsidiaries guarantee the Notes. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debts and their trade creditors before they will be able to distribute any of
their assets to us. The non-guarantor subsidiaries generated 234.0% of our
EBITDA for the nine-month period ended October 2, 1999 and held 33.0% of our
consolidated assets as of October 2, 1999. See note 8 to our Unaudited
Consolidated Financial Statements included at the back of this prospectus for
more detail about the division of our consolidated revenues and assets between
our guarantor and non-guarantor subsidiaries.
As of the date of this prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted
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Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the Indenture. Our Unrestricted Subsidiaries will not
guarantee the Notes.
PRINCIPAL, MATURITY AND INTEREST
The Indenture provides for the issuance by the Company of Notes with a
maximum aggregate principal amount of $150.0 million, of which $60.0 million was
issued on September 29, 1999. The Company may issue additional notes (the
"Additional Notes") from time to time after this offering. Any offering of
Additional Notes is subject to the covenant described below under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock." The Notes and any Additional Notes subsequently issued under the
Indenture would be treated as a single class for all purposes under the
Indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. The Company will issue Notes in denominations of $1,000 and
integral multiples of $1,000. Initially, the Notes will be issued in the form of
one or more global Notes. See "-- Book Entry, Delivery and Form." The Notes will
mature on September 15, 2009.
Interest on the Notes will accrue at the rate of 13 1/4% per annum and will
be payable semi-annually in arrears on March 15 and September 15, commencing on
March 15, 2000. The Company will make each interest payment to the Holders of
record on the immediately preceding March 1 and September 1.
Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Company, the
Company will pay all principal, interest and premium and Liquidated Damages, if
any, on that Holder's Notes in accordance with those instructions. All other
payments on Notes will be made at the office or agency of the Paying Agent and
Registrar within the City and State of New York unless the Company elects to
make interest payments by check mailed to the Holders at their addresses set
forth in the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee the Company's
obligations under the Notes. Each Subsidiary Guarantee will be subordinated to
the prior payment in full of all Senior Debt of that Guarantor. The obligations
of each Guarantor under its Subsidiary Guarantee will be limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors -- Fraudulent Conveyance Matters."
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A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not the
Guarantor is the surviving Person), another Person, other than the Company or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in a sale or disposition or the
Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor under the Indenture, its
Subsidiary Guarantee and the Registration Rights Agreement pursuant to a
supplemental indenture and appropriate Collateral Documents satisfactory
to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Asset Sale" provisions of the Indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with a sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to the transaction) a Subsidiary of the Company, if the
Guarantor applies the Net Proceeds of that sale or other disposition in
accordance with the "Asset Sale" provisions of the Indenture;
(2) in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving effect to
the transaction) a Subsidiary of the Company, if the Company applies the
Net Proceeds of that sale in accordance with the "Asset Sale" provisions of
the Indenture; or
(3) if the Company properly designates any Restricted Subsidiary that is
a Guarantor as an Unrestricted Subsidiary.
See "-- Repurchase at the Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
At any time prior to September 15, 2002, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes issued
under the Indenture at a redemption price of 113.250% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Qualified Equity
Offerings; provided that:
(1) at least 65% of the aggregate principal amount of Notes issued under
the Indenture remains outstanding immediately after the redemption
(excluding Notes held by the Company and its Subsidiaries); and
(2) the redemption must occur within 45 days of the date of the closing
of the Qualified Equity Offering.
Except pursuant to the preceding paragraph, the Notes will not be
redeemable at the Company's option prior to September 15, 2004.
On or after September 15, 2004, the Company may redeem all or, from time to
time, a part of the Notes upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the applicable redemption date, if redeemed during the twelve-month
period beginning on September 15 of the years indicated below:
YEAR PERCENTAGE
2004........................................................ 106.625%
2005........................................................ 104.417%
2006........................................................ 102.208%
2007 and thereafter......................................... 100.000%
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MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SUBORDINATION
The payment of principal, interest and premium and Liquidated Damages, if
any, on the Notes will be subordinated to the prior payment in full of all
Senior Debt of the Company, including Senior Debt incurred after the date of the
Indenture.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of Notes will be entitled to receive
any payment with respect to the Notes (except that Holders of Notes may receive
and retain Permitted Junior Securities and payments made from the trust
described under "-- Legal Defeasance and Covenant Defeasance"), in the event of
any distribution to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the Notes (except
in Permitted Junior Securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period ; or
(2) any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice of
that default (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
the nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and
Liquidated Damages, if any, on the Notes that have come due have been paid
in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless the default shall have
been cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the Notes receives a payment in respect of
the Notes (except in Permitted Junior Securities or from the trust described
under "-- Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the Trustee or the Holder has actual knowledge that the payment is
prohibited;
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the Trustee or the Holder, as the case may be, shall hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the Trustee or the Holder, as the case may be,
shall deliver the amounts in trust to the holders of Senior Debt or their proper
representative.
The Company must promptly notify holders of Senior Debt if payment of the
Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Company, Holders of Notes
may recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors -- Subordination."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of Notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's Notes pursuant to a Change of
Control Offer on the terms set forth in the Indenture. In the Change of Control
Offer, the Company will offer a Change of Control Payment in cash equal to 101%
of the aggregate principal amount of Notes repurchased plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, to the date of purchase.
Within ten days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes on the Change of Control
Payment Date specified in the notice, which date shall be no earlier than 30
days and no later than 60 days from the date the notice is mailed, pursuant to
the procedures required by the Indenture and described in the notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent the laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Change of Control provisions of the Indenture by virtue of such conflict.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for those Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each new Note will be in a principal amount
of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Notes required by this covenant. However, if the
Company is required to make a Change of Control Offer, the Company cannot assure
you that it will have the financial resources to repay its Senior Debt or that
it will be able to obtain the consent of the holders of Senior Debt. In
addition, the exercise by the holders of Notes of their right to require the
Company to repurchase the Notes upon a Change of Control could cause a default
under the Senior Debt, even if the Change of Control itself does not, due to the
financial effect of the repurchase on the Company, which could cause an
acceleration of the Senior Debt and a foreclosure with respect to any collateral
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securing it in the event the Senior Debt was not paid. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under the Change of
Control Offer.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of the Company and its Restricted Subsidiaries taken
as a whole to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act) other than a Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of the Company, measured by voting power rather than
number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of the Board of Directors on the date of the Indenture;
or
(2) was nominated for election or elected to the Board of Directors with
the approval of a majority of the Continuing Directors who were members of
the Board at the time of the nomination or election.
"Principals" means Kirtland Capital Partners III L.P. and its Affiliates,
George S. Burr, Helen L. Burr, the Harold Hindman Trust -- 1969, James M.
McConnell, Joseph E. Amaral, Kenneth L. Andersen, John R. Barrett, Jonathan L.
Burr, the Jonathan L. Burr Trust -- 1965, Yahya Gharagozlou, Arthur D. Hindman,
William J. Milliken, Linton A. Moulding, Jane Elizabeth Moulding, Norman L.
Smith and any other employee stockholder of the Company as of the date of the
Indenture.
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of any one or
more Principals and/or the other Persons referred to in the immediately
preceding clause (1).
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase any Notes as a result of a
sale, lease, transfer,
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conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) the fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) except in the case of an Asset Swap, at least 75% of the
consideration therefor received by the Company or its Restricted Subsidiary
is in the form of cash, Cash Equivalents or Productive Assets. For purposes
of this provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on the Company's or that 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 Subsidiary
Guarantee) that are expressly assumed by the transferee of any such
assets; and
(b) any securities, notes or other obligations received by the
Company or any Restricted Subsidiary from the transferee that are within
60 days after the consummation of the Asset Sale converted by the
Company or its Restricted Subsidiary into cash (to the extent of the
cash received in that conversion).
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
including any cash received in an Asset Swap, the Company may apply the Net
Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness, to correspondingly reduce commitments with respect
thereto;
(2) to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Permitted Business or to make a Permitted
Investment in a joint venture that is a Permitted Business;
(3) to purchase Notes in open market transactions; provided that the
Company shall be deemed to have applied Net Proceeds in satisfaction of the
requirements of this covenant pursuant to this clause (3) in an amount
equal to the lesser of:
(a) the purchase price in the open market transactions; and
(b) 100% of the principal amount of the Notes repurchased;
(4) to make a capital expenditure; or
(5) to acquire Productive Assets.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest Net Proceeds
in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will make
an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar to
those set forth in the Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
Notes and other pari passu Indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after
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consummation of an Asset Sale Offer, the Company may use the Excess Proceeds for
any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and other pari passu Indebtedness tendered into an
Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes and other pari passu Indebtedness to be purchased on a pro rata basis
based on the principal amount of Notes and other pari passu Indebtedness
tendered. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent the laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the Indenture by virtue of these
conflicts.
The agreements governing the Company's outstanding Senior Debt currently
prohibit the Company from purchasing any Notes, and also provides that some
change of control or asset sale events with respect to the Company would
constitute a default under these agreements. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control or Asset Sale occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its senior lenders to
the purchase of Notes or could attempt to refinance the borrowings that contain
the prohibition. If the Company does not obtain this consent or repay the
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture, which would, in turn, constitute a default under
this Senior Debt. In these circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
another method that the Trustee deems fair and appropriate.
No Notes of $1,000 or less may be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any
of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in (a)
Equity Interests
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(other than Disqualified Stock) of the Company or (b) to the Company or a
Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except (a) a
payment of interest or principal at the Stated Maturity thereof or (b) any
payment with respect to Indebtedness owed solely to the Company or a
Restricted Subsidiary of the Company; or
(4) make any Restricted Investment (all the payments and other actions
set forth in clauses (1) through (4) above being collectively referred to
as "Restricted Payments"),
The restrictions of the preceding paragraph will not apply if at the time
of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof; and
(2) the Company would, at the time of the Restricted Payment and after
giving pro forma effect thereto as if the Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness under the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (2), (3), (4), (5), (6) and (7) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of the Restricted Payment
(or, if the Consolidated Net Income for this period is a deficit, less
100% of the deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of the Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of convertible
or exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Company that have been converted into or exchanged for
the Equity Interests (other than Equity Interests (or Disqualified Stock
or debt securities) sold to a Subsidiary of the Company), plus
(c) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise liquidated or
repaid for cash, the cash proceeds with respect to the Restricted
Investment (less the cost of disposition, if any), plus
(d) 100% of any dividends received by the Company or a Restricted
Subsidiary after the date of the Indenture from an Unrestricted
Subsidiary of the Company, to the extent that the dividends were not
otherwise included in Consolidated Net Income of the Company for that
period, plus
(e) to the extent that any Unrestricted Subsidiary of the Company is
redesignated as a Restricted Subsidiary after the date of the Indenture,
the fair market value of the Company's Investment in that Subsidiary as
of the date of the redesignation.
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The preceding provisions will not prohibit, and these items will not be
considered Restricted Payments:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any
Restricted Subsidiary or of any Equity Interests of the Company in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of, Subordinated
Indebtedness or Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Company or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its Equity Interests on a pro rata basis;
(5) so long as no Default has occurred and is continuing or would be
caused thereby, (a) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any
Restricted Subsidiary of the Company held by any current or former
employee, officer, director or consultant of the Company (or any of its
Restricted Subsidiaries) under any management equity subscription
agreement, stock option agreement or other employee or management plan or
agreement or employment benefit plan, and (b) any payment made that is
related to or in respect of any Subordinated Management Notes; provided
that the aggregate price paid for all repurchased, redeemed, acquired or
retired Equity Interests, together with the aggregate amount of payments
made that are related to or in respect of Subordinated Management Notes,
shall not exceed $1.0 million in any calendar year (provided that in any
calendar year this amount shall be increased by the amount available for
use, but not used, under this clause (5) in the immediately preceding
year);
(6) repurchases of Capital Stock deemed to occur upon the exercise and
of stock options if the Capital Stock represents a portion of the exercise
price thereof; and
(7) so long as no Default has occurred and is continuing or would be
caused thereby, other Restricted Payments in an aggregate amount not to
exceed $2.0 million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by the Company or a Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds 5.0% of Total Assets. Not later than 30 days after the
date of making any Restricted Payment, the Company shall deliver to the Trustee
an Officers' Certificate stating that the Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this "Restricted
Payments" covenant were computed, together with a copy of any fairness opinion
or appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the
Company will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue
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Disqualified Stock, and the Company's Restricted Subsidiaries may incur
Indebtedness or issue preferred stock, if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which the
additional Indebtedness is incurred or the Disqualified Stock or preferred stock
is issued would have been at least 2.0 to 1.0 if the incurrence or issuance
occurs on or before the third anniversary of the date of the Indenture and at
least 2.25 to 1.0 if the incurrence or issuance occurs at any time thereafter,
in each case determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness had been
incurred or the preferred stock or Disqualified Stock had been issued, as the
case may be, at the beginning of the four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and any Restricted Subsidiary of
additional term or revolving credit Indebtedness and letters of credit
under Credit Facilities in an aggregate principal amount at any one time
outstanding under this clause (1) (with letters of credit being deemed to
have a principal amount equal to the face amount thereof) not to exceed
$80.0 million less the aggregate amount of all Net Proceeds of Asset Sales
applied by the Company or any of its Restricted Subsidiaries to repay any
Indebtedness under a Credit Facility and effect a corresponding commitment
reduction thereunder in the case of revolving credit Indebtedness pursuant
to the covenant described above under the caption "-- Repurchase at the
Option of Holders -- Asset Sales;"
(2) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the related Subsidiary Guarantees to be issued
on the date of the Indenture and the Exchange Notes and the related
Subsidiary Guarantees to be issued pursuant to the Registration Rights
Agreement;
(4) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or a Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (4), not to exceed 5.0% of Total Assets at any time outstanding;
provided, that the aggregate amount of Indebtedness at any one time
outstanding pursuant to this clause (4), clause (12) and clause (14) of
this paragraph shall not exceed $15.0 million;
(5) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(4), (5) or (14) of this paragraph;
(6) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that:
(a) if the Company or any Guarantor is the obligor on the
Indebtedness, the Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
Notes, in the case of the Company, or the Subsidiary Guarantee, in the
case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof; shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be, that was not permitted
by this clause (6);
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred solely (a) for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
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Indebtedness that is permitted by the terms of this Indenture to be
outstanding or (b) for the purpose of fixing or hedging the risks
associated with fluctuations in foreign currency exchange rates;
(8) the guarantee by the Company or any of its Restricted Subsidiaries
of Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment or accrual of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each case, that the amount thereof is included in
Fixed Charges of the Company as accrued;
(10) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt or issuance of preferred stock, provided, however, that
if any of the Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, this event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary of the Company that
was not permitted by this clause (10);
(11) the issuance by the Company or any of its Restricted Subsidiaries
of Subordinated Management Notes not to exceed $1.0 million in any calendar
year (provided that in any calendar year such amount shall be increased by
the amount available for issuance, but not issued, under this clause (11)
in any preceding calendar year);
(12) the incurrence by any Foreign Subsidiary of the Company of
Indebtedness for working capital purposes not to exceed $5.0 million;
(13) the incurrence of Indebtedness (including letters of credit) in
respect of workers' compensation claims, self-insurance obligations,
warranties, performance, surety, bid or similar advance payment bonds and
completion guarantees provided by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with past
practices; and
(14) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness or the issuance of Disqualified Stock in an
aggregate principal amount (or accreted value or liquidation preference, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred or Disqualified Stock issued pursuant to this clause (14), not to
exceed $7.5 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (14) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify the item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant. Indebtedness
under Credit Facilities outstanding on the date on which Notes are first issued
and authenticated under the Indenture shall be deemed to have been incurred on
such date in reliance on the exception provided by clause (1) of the definition
of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company and senior in any respect in right of
payment to the Notes. No Guarantor will incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to the Senior Debt of the Guarantor and senior in any respect
in right of payment to that Guarantor's Subsidiary Guarantee.
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LIENS
The Company will not and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind securing Indebtedness that is pari passu or
subordinated in right of payment to the Notes (other than Permitted Liens) upon
any of their property or assets, now owned or hereafter acquired, unless all
payments due under the Indenture and the Notes are secured on an equal and
ratable basis with the obligations so secured until the time that those
obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness and the Credit Agreement, each as in effect on
the date of the Indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
are no more restrictive, taken as a whole, with respect to such dividend
and other payment restrictions than those contained in such Existing
Indebtedness or the Credit Agreement, each as in effect on the date of the
Indenture;
(2) the Indenture, the Notes, the Exchange Notes and the Subsidiary
Guarantees;
(3) applicable law, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of the acquisition (except to the extent the Indebtedness was
incurred in connection with or in contemplation of the acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, the Indebtedness was permitted by the terms of the Indenture
to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing the Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to the Lien;
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(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, assets sale agreements,
stock sale agreements and other similar agreements;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) Indebtedness incurred after the date of the Indenture in accordance
with the terms of the Indenture; provided, that the restrictions contained
in the agreements governing this new Indebtedness are, in the good faith
judgment of the Board of Directors of the Company, not materially less
favorable, taken as a whole, to the holders of the Notes than those
contained in the agreements governing Indebtedness outstanding on the date
of the Indenture;
(13) customary provisions in agreements with respect to Permitted Joint
Ventures; and
(14) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (13) above; provided that the
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Board of Directors, no more restrictive, taken as a whole, with respect
to the dividend and other payment restrictions than those contained in the
dividend or other payment restrictions before the amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any consolidation or merger (if other than
the Company) or to which a sale, assignment, transfer, conveyance or other
disposition was made is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any consolidation or merger (if
other than the Company) or the Person to which a sale, assignment,
transfer, conveyance or other disposition was made assumes all the
obligations of the Company under the Notes, the Indenture and the
Registration Rights Agreement pursuant to agreements reasonably
satisfactory to the Trustee;
(3) immediately after the transaction no Default or Event of Default
exists; and
(4) the Company or the Person formed by or surviving any consolidation
or merger (if other than the Company), or to which the sale, assignment,
transfer, conveyance or other disposition was made will, on the date of the
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, (a) have a Fixed Charge Coverage Ratio at least equal
to 1.75 to 1.0 and equal to or greater than the Fixed Charge Coverage Ratio
of the Company immediately before the transaction or (b) be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its and its Restricted Subsidiaries' properties or assets,
in one or more related transactions, to any other Person. This "Merger,
Consolidation or Sale of Assets" covenant will not apply to a sale, assignment,
transfer, conveyance or other disposition of assets between or among the Company
and any of the Guarantors.
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TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or its
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that the Affiliate Transaction complies
with this covenant and that the Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors;
and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion issued by an accounting, appraisal or
investment banking firm of national standing that the Affiliate
Transaction complies with clause (1) of the first paragraph of this
covenant.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or its Restricted Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of the Company
solely because the Company owns an Equity Interest in that Person;
(4) payment of reasonable directors fees;
(5) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of the Company;
(6) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments";
(7) the Advisory Services Agreement between the Company and Kirtland
Partners Ltd. as in effect on the date of the Indenture;
(8) providing indemnity to current or former officers, directors,
employees or consultants of the Company or any of its Subsidiaries as
determined in good faith by the Board of Directors of the Company;
(9) performance of obligations of the Company or any of its Restricted
Subsidiaries under the terms of any agreement to which the Company or the
Restricted Subsidiary is a party as of the date of the Indenture of which
is described above under the caption "Certain Relationships and Related
Transactions" as in effect on the date of the Indenture;
(10) the grant of stock options, restricted stock or similar rights to
acquire common stock of the Company to the Company's or its Subsidiaries'
employees, officers, directors and consultants pursuant to plans approved
by the Board of Directors of the Company;
(11) loans or advances to the Company's or its Subsidiaries' employees
or consultants otherwise permitted by the Indenture and not to exceed an
aggregate of $1 million at any one time;
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(12) the payment of all fees and expenses related to the
Recapitalization as described above under the caption "The
Recapitalization"; and
(13) transactions with customers, joint venture partners, clients,
suppliers, or purchasers or sellers of goods or services, in each case in
the ordinary course of business and consistent with past practice in
compliance with the terms of the Indenture and which are fair to the
Company or its Restricted Subsidiaries, in the reasonable determination of
the Board of Directors of the Company.
ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the Indenture, then that newly
acquired or created Domestic Subsidiary must become a Guarantor and execute a
supplemental indenture and deliver an Opinion of Counsel to the Trustee within
10 Business Days of the date on which it was acquired or created; provided that
any Domestic Subsidiary that has been properly designated as Unrestricted
Subsidiary in accordance with the Indenture shall not be required to become
Guarantor for so long as it continues to constitute an Unrestricted Subsidiary.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "-- Restricted Payments" or reduce
the amount available for future Investments under one or more clauses of the
definition of Permitted Investments, as the Company shall determine. That
designation will only be permitted if the Investment would be permitted at that
time and if the Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Default.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to the extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes unless
the consideration is offered to be paid and is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to the consent, waiver or agreement.
REPORTS
Whether or not required by the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes, on or before the
fifth day following the date the report would be due under the Commission's
rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by the Company's certified independent
accountants; and
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(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the Commission,
the Company will file a copy of all of the information and reports referred to
in clauses (1) and (2) above with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and the Subsidiary Guarantors have agreed that, for so long as any Notes
remain outstanding, they will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes, whether or not prohibited by
the subordination provisions of the Indenture;
(2) default in payment when due of the principal of, or premium, if any,
on the Notes, whether or not prohibited by the subordination provisions of
the Indenture;
(3) failure by the Company or any of its Subsidiaries to comply with
the provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets;"
(4) failure by the Company or any of its Subsidiaries for 60 days after
written notice from the Trustee or Holders of at least 25% of the
outstanding principal balance of the Notes to comply with any of the other
agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether the Indebtedness or guarantee now
exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on the Indebtedness before the expiration of the grace
period provided in the Indebtedness on the date of the default (a
"Payment Default"); or
(b) results in the acceleration of the Indebtedness before its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or
more;
(6) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days; and
(7) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and
(8) specified events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries.
In the case of an Event of Default arising from events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable
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immediately without further action or notice. If any other Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately; provided, however, that so long as any Indebtedness
permitted to be incurred under the Indenture as part of the Credit Facilities is
outstanding, no acceleration shall be effective until the earlier of (1) five
business days after the giving of written notice to the Company and the
administrative agent under the Credit Facilities of the acceleration or (2)
acceleration of any Indebtedness under the Credit Facilities.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest or Liquidated
Damages) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES AND
STOCKHOLDERS
No director, officer, employee, Affiliate, incorporator or stockholder of
the Company or any Guarantor, solely by reason of this status, shall have any
liability for any obligations of the Company or the Guarantors under the Notes,
the Indenture, the Subsidiary Guarantees 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 this liability. The waiver and release
are part of the consideration for issuance of the Notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Liquidated Damages,
if any, on the Notes when the payments are due from the trust referred to
below;
(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's and the Guarantor's obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient (through the payment of principal, interest and Liquidated
Damages, if any), to pay the principal of, or interest and premium and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity
or on the applicable redemption date, as the case may be, and the Company
must specify whether the Notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon the Opinion
of Counsel shall confirm that, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of the 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 the Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of the
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 the Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) 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;
(5) the Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an Opinion of Counsel
to the effect that, assuming no intervening bankruptcy of the Company or
any Guarantor between the date of deposit and the 91st day following the
deposit and assuming that no Holder is an "insider" of the Company under
applicable bankruptcy law, 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;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(8) the Company must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture
or the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, or Liquidated Damages, if any, on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, or interest or premium or Liquidated Damages, if
any, on the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture, except in accordance with the terms
of the Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
Indenture relating to subordination that adversely affects the rights of the
Holders of the Notes will require the consent of the Holders of at least 66% in
aggregate principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of the Company's obligations to
Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the Company) have been delivered to the Trustee for
cancellation; or
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(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust solely
for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in amounts as will be
sufficient without consideration of any reinvestment of interest, to pay
and discharge the entire indebtedness on the Notes not delivered to the
Trustee for cancellation for principal, premium and Liquidated Damages,
if any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default 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 instrument to which the Company or any Guarantor
is a party or by which the Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be paid all sums
payable by it under the Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee
under the Indenture to apply the deposited money toward the payment of the
Notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an
Opinion of Counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate the conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless the Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all of these terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time the other
Person is merged with or into or became a Subsidiary of the specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, the other Person merging with or into, or becoming a
Subsidiary of, the specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the Person, whether through the ownership of voting
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securities, by agreement or otherwise; provided that beneficial ownership of 10%
or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and "under
common control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-- Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under
the caption "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of the Company's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries (other than the issuance of director qualifying shares or
similar required issuances).
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $2.0 million;
(2) a transfer of assets between or among the Company and its Restricted
Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments"; and
(7) the licensing or sublicensing of intellectual property or other
general intangibles and licenses, leases or subleases of other property in
the ordinary course of business and which do not materially interfere with
the business of the Company and its Subsidiaries.
"Asset Swap" means an exchange of assets by the Company or a Restricted
Subsidiary of the Company for:
(1) one or more Permitted Businesses;
(2) a controlling equity interest in any Person whose assets consist
primarily of one or more Permitted Businesses;
(3) cash; and/or
(4) Productive Assets.
"Beneficial Owner" has the meaning assigned to the term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether the right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
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(3) with respect to any other Person, the board or committee of the
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than one year from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each
case, with any lender party to the Credit Agreement or with any domestic
commercial bank having capital and surplus in excess of $500.0 million and
a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Commission" means the United States Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of that Person for that period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
by that Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent those losses were deducted in computing
Consolidated Net Income; plus
(2) provision for taxes based on income or profits of that Person and
its Restricted Subsidiaries for that period, to the extent that the
provision for taxes was deducted in computing Consolidated Net Income; plus
(3) consolidated interest expense of that Person and its Restricted
Subsidiaries for that period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing Consolidated Net Income;
plus
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(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of that Person and its
Restricted Subsidiaries for that period to the extent that the
depreciation, amortization and other non-cash expenses were deducted in
computing Consolidated Net Income; minus
(5) non-cash items increasing Consolidated Net Income for that period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash expenses
of, a Restricted Subsidiary of the Company shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of the Company only to the extent that
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by that Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of that Person and its Restricted
Subsidiaries for that period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) any nonrecurring fees, expenses and costs relating to the
Recapitalization incurred on or prior to date of this Indenture, including,
without limitation, any fees and expenses incurred in connection with the
Credit Agreement, any compensation expense incurred in connection with the
cancellation, retirement or acceleration of vesting of stock options or
restricted stock, modifications of existing employment agreements and
expenses related to early extinguishments of debt, shall be excluded; and
(6) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the specified Person or one of its
Subsidiaries.
"Credit Agreement" means that certain Credit Agreement, dated as of
September 29, 1999, by and among the Company, certain of its Subsidiaries and
National City Bank, as agent, providing for up to $50.0 million of revolving
credit borrowings and $30.0 million of term loan borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement), commercial paper facilities or indentures, in
each case with banks or other lenders (or trustees therefor) providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables),
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letters of credit or debt securities, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) after payment in full of all Obligations under the Credit Agreement,
any other Senior Debt permitted under the Indenture the principal amount of
which is $15.0 million or more and that has been designated by the Company
as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, (1) any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase the Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of the Capital Stock provide that the
Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments"
and (2) shares of common stock of the Company beneficially owned by any member
of the Company's management or any immediate family member thereof shall not
constitute Disqualified Stock.
"Domestic Subsidiary" means any Subsidiary that guarantees or otherwise
provides direct credit support for any Indebtedness of the Company; provided
that a person organized and existing outside the United States shall not be
considered a Domestic Subsidiary solely by virtue of direct borrowing
obligations under Credit Facilities guaranteed by the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid and commitments are
permanently reduced.
"Fixed Charges" means, with respect to any specified Person and its
Restricted Subsidiaries for any period, the sum, without duplication, of:
(1) the consolidated interest expense of that Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of original issue discount (other than original
issue discount solely attributable to the Notes in connection with the
issuance of the Warrants), non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and the net effect of all
payments made or received pursuant to Hedging Obligations except expenses
incurred with respect to fixing or hedging the risks associated with
fluctuations in foreign currency exchange rates, but excluding amortization
of debt issuance costs; plus
(2) the consolidated interest of that Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by that Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of that Person or one of its Restricted Subsidiaries,
whether or not the Guarantee or Lien is called upon; plus
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(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of that Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined effective
federal, state and local statutory tax rate of that Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
and its Restricted Subsidiaries for any period, the ratio of the Consolidated
Cash Flow of that Person and its Restricted Subsidiaries for such period to the
Fixed Charges of that Person and its Restricted Subsidiaries for such period. In
the event that the specified Person or any of its Restricted Subsidiaries
incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness
(other than ordinary working capital borrowings) or issues, repurchases or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated and on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the proceeds
therefrom as if the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions and dispositions that have been made by the specified
Person or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to the reference period and on
or prior to the Calculation Date shall be given pro forma effect as if they
had occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities Act
(giving effect to any Pro Forma Cost Savings), but without giving effect to
clause (3) of the proviso set forth in the definition of Consolidated Net
Income;
(2) if since the beginning of the reference period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of that period)
shall have made any acquisitions and dispositions including through mergers
or consolidations and including any related financing transactions that
would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect thereto
(as described in paragraph (1) above) for the reference period as if the
acquisition or disposition had occurred at the beginning of the applicable
four-quarter period;
(3) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(4) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Subsidiaries following
the Calculation Date.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not a Domestic Subsidiary or that is engaged in trade or business outside of the
United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"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, by way of a pledge of
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assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) Instron Asia Limited; Instron Japan Company, Ltd.; Instron/Lawrence
Corporation; Instron Realty Trust; Instron Schenck Testing Systems Corp.;
and IRT-II Trust; and
(2) any other subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of that Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) other agreements or arrangements designed solely to protect that
Person against fluctuations in interest rates; and
(3) agreements entered into solely for the purpose of fixing or hedging
the risks associated with fluctuations in foreign currency exchange rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of that Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not the Indebtedness is assumed by the
specified Person) and, to the extent not otherwise included, the Guarantee by
the specified Person of any indebtedness of any other Person if and to the
extent such Indebtedness would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. The term "Indebtedness" shall
not include amounts owing to any insurance company in connection with the
financing of insurance premiums permitted by the insurance company in the
ordinary course of business.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by that Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, that Person is
no longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition
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equal to the fair market value of the Equity Interests of that Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." The acquisition by the Company or any
Subsidiary of the Company of a Person that holds an Investment in a third Person
shall be deemed to be an Investment by the Company or that Subsidiary in the
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in the third Person in an amount determined as provided
in the final paragraph of the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments."
"Kirtland" means Kirtland Capital Partners III L.P. and its Affiliates.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidated Damages" has the meaning set forth under the caption
"-- Registration Rights; Liquidated Damages."
"Net Income" means, with respect to any specified Person, the net income
(loss) of that Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on
the gain or loss, realized in connection with: (a) any Asset Sale; or (b)
the disposition of any securities by that Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of that Person or
any of its Restricted Subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision
for taxes on the extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of all costs relating to
that Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets
that were the subject of the Asset Sale and any reserve for adjustment in
respect of the sale price of the asset or assets or for any indemnification
obligations assumed in connection with the Asset Sale, established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender, provided, however, that the Company or any of its
Restricted Subsidiaries may act as a guarantor with respect to any Non-
Recourse Debt, provided that such Guarantee (i) shall be deemed an
incurrence of Indebtedness not otherwise permitted by clause (10) of the
covenant described above under "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" and (ii) is a Restricted
Investment that must be permitted by the covenant described above under
"-- Certain Covenants -- Restricted Payments";
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
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(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Notes" means the exchange notes offered by this prospectus,
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the business conducted by the Company and its
Subsidiaries on the date of this offering memorandum and businesses reasonably
related thereto or supportive thereof.
"Permitted Investments" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of the Investment:
(a) the Person becomes a Restricted Subsidiary of the Company or a
Permitted Joint Venture of the Company that is engaged in a Permitted
Business; or
(b) the Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company
or a Permitted Joint Venture of the Company that is engaged in a
Permitted Business;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets to the extent acquired in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the
Company;
(6) Hedging Obligations;
(7) Investments existing on the date of the Indenture and any amendment,
modification, restatement, extension, renewal, refunding, replacement,
refinancing, in whole or in part, thereof;
(8) extensions of trade credit or advances to customers on commercially
reasonable terms, each in the ordinary course of business;
(9) loans or advances to employees, officers, directors or consultants
otherwise permitted by the Indenture and in the ordinary course of business
not to exceed an aggregate of $1.0 million at any one time; and
(10) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (10) that are at any time
outstanding not to exceed the greater of $10.0 million and 10.0% of Total
Assets as of the date of such Investment.
In the event that an item meets the criteria of more than one of the
categories of Permitted Investments described in clauses (1) through (10)
above, the Company may, in its sole discretion, classify or reclassify that
item in any manner that complies with the Indenture and that item will be
treated as having been made pursuant to only one of such clauses.
"Permitted Joint Venture" means, with respect to any Person:
(1) any corporation, association, or other business entity engaged in a
Permitted Business of which 50% of the Voting Stock is at the time of
determination owned or controlled, directly or indirectly, by that Person
or one or more of the Restricted Subsidiaries of that Person or a
combination thereof (collectively, a "Group"), or
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(2) any corporation, association or other business entity engaged in a
Permitted Business as to which the Group, at the time of initial
Investment, has a contractual right to acquire 50% of the Voting Stock,
provided that the Investment shall cease to be a Permitted Joint Venture if
the Group fails to acquire 50% of the Voting Stock within six months of the
initial Investment.
"Permitted Junior Securities" means:
(1) Equity Interests in the Company or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the Notes and the Subsidiary
Guarantees are subordinated to Senior Debt under the Indenture.
"Permitted Liens" means:
(1) Liens in favor of the Company or the Guarantors;
(2) Liens on property of a Person existing at the time the Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that the Liens were in existence prior
to the contemplation of the merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
the Company or the Restricted Subsidiary;
(3) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, provided that the
Liens were in existence prior to the contemplation of the acquisition;
(4) Liens existing on the date of the Indenture;
(5) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(6) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made thereunder; and
(8) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that
do not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of the
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith);
(2) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, the
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(3) the Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Pro Forma Cost Savings" means the reduction in costs that occurred during
the four-quarter reference period or subsequent to the reference period and on
or prior to the Calculation Date that were (1) directly attributable to an
acquisition and calculated on a basis that is consistent with Article 11 of
Regulation S-X under the Securities Act as in effect on the date of the
Indenture or (2) that have actually been implemented as of the applicable
Calculation Date by the business that was the subject of any acquisition within
six months of the date of the acquisition, that are supportable and quantifiable
by the underlying accounting records of the business, and are described, as
provided below, in an Officer's Certificate, as if, in the case of each of
clause (1) and (2), all the reductions in costs had been effected as of the
beginning of the period. Pro Forma Cost Savings described in clause (2) above
shall be set forth in reasonable specificity in a certificate delivered to the
Trustee from the Company's Chief Financial Officer and, in the case of Pro Forma
Cost Savings in excess of $5.0 million per four-quarter period, this certificate
shall be accompanied by a supporting opinion from an accounting firm of national
standing.
"Productive Assets" means any long term assets that are used or useful in a
Permitted Business.
"Qualified Equity Offering" means a primary offering of Capital Stock, or
rights, warrants or options to acquire Capital Stock of the Company (other than
Disqualified Stock) to Persons who are not Affiliates of the Company for net
proceeds to the Company of at least $15.0 million.
"Recapitalization" means the transactions described under the caption "The
Recapitalization" or related thereto.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of the Company or any Guarantor outstanding under
Credit Facilities and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of the Company or any Guarantor permitted to
be incurred under the terms of the Indenture, unless the instrument under
which the Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes or any
Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by the Company;
(2) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as the Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing the Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any of the interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Management Notes" means notes evidencing subordinated
obligations of the Company or any of its Restricted Subsidiaries issued to
current or former employees, directors, officers or consultants of the
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Company or any of its Restricted Subsidiaries in lieu of cash payments for any
Equity Interest of the Company being repurchased from such persons that:
(1) provide that for so long as a Default under the Notes has occurred
and is continuing, no payment shall be made with respect to any Obligations
under such Subordinated Management Notes; and
(2) are subordinated in full to the prior payment in cash of all amounts
due in respect of the Notes.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is that Person or a Subsidiary of that Person or (b) the
only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).
"Total Assets" means the total assets of the Company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of the Company
and its Restricted Subsidiaries.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or its Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
that Person's financial condition or to cause that Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to the designation and an
Officers' Certificate certifying that the designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of the Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date and, if the Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of that covenant. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that the designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of the Unrestricted Subsidiary and the designation shall only be
permitted if (1) the Indebtedness is permitted under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if the
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following the
designation.
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"Voting Stock" of any Person as of any date means the Capital Stock of that
Person that is at the time entitled to vote in the election of the Board of
Directors of that Person.
"Warrants" means the warrants to purchase 30,654 shares of the Company's
common stock issued with the Notes on September 29, 1999 as part of a units
offering.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between the date and the making of the
payment; by
(2) the then outstanding principal amount of the Indebtedness.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture
without charge by writing to Instron Corporation, 100 Royall Street, Canton,
Massachusetts 02021, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, Notes will be issued in registered, global form
in minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof. The Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (the "Global Notes"). The
Global Notes will be deposited upon issuance with the Trustee as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Notes in certificated
form.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
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DTC has also advised the Company that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Cedel) which are Participants in those
systems. All interests in a Global Note, including those held through Euroclear
or Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems. The laws of some states require that certain
Persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
these Persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants, the
ability of a Person having beneficial interests in a Global Note to pledge these
interests to Persons that do not participate in the DTC system, or otherwise
take actions in respect of these interests, may be affected by the lack of a
physical certificate evidencing these interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company, and the
Trustee will treat the Persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither the Company, the
Trustee, nor any agent of the Company or the Trustee has or will have any
responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee, or the Company. None of the Company,
or the Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Notes, and the Company and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
Subject to compliance with any transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, these cross-market transactions
will require delivery of instructions to Euroclear
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or Cedel, as the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established deadlines (Brussels
time) of such system. Euroclear or Cedel, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the Global Note in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of the portion of the aggregate principal amount of the Notes as to
which the Participant or Participants has or have given such direction. However,
if there is an Event of Default under the Notes, DTC reserves the right to
exchange the Global Notes for Notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform these procedures, and may discontinue these procedures at any time.
None of the Company, the Trustee, or any of their respective agents will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes and the Company fails to
appoint a successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act;
(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee, as
applicable, by or on behalf of DTC in accordance with the Indenture. In all
cases, Certificated Notes delivered in exchange for any Global Note or
beneficial interests in Global Notes will be registered in the names, and issued
in any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear the applicable
restrictive legend referred to in "Notice to Investors," unless that legend is
not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that the
transfer will comply with the appropriate transfer restrictions applicable to
the Notes
SAME DAY SETTLEMENT AND PAYMENT
The Company will make, or cause to be made, payments in respect of the
Notes represented by the Global Notes (including principal, premium, if any,
interest and Liquidated Damages, if any) by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. The Company
will make all payments of principal, interest and premium and Liquidated
Damages, if any, with respect to Certificated Notes by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Notes represented by the Global Notes are expected to be
eligible to trade in the PORTAL market and to trade in DTC's Same-Day Funds
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Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by DTC to be settled in immediately available
funds. The Company expects that secondary trading in any Certificated Securities
will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Security from a Participant
in DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax
consequences of the ownership and disposition of units to you if you are initial
purchasers of the units who purchase the units at their issue price, which is
generally the first price at which a substantial amount of units is sold to
persons other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. This
discussion is based on the Internal Revenue Code, U.S. Treasury Department
regulations promulgated thereunder, administrative pronouncements, judicial
decisions, and interpretations of the foregoing, changes to any of which
subsequent to the date of this offering memorandum may affect the tax
consequences described herein, possibly with retroactive effect.
The following discusses only units held as capital assets within the
meaning of Section 1221 of the Code. It does not discuss all of the tax
consequences that may be relevant to you in light of your particular
circumstances or if you are subject to special rules, including, without
limitation, certain financial institutions, insurance companies, tax-exempt
entities, dealers in securities or currencies, traders in securities electing to
mark to market, or if you have acquired units as part of a straddle, hedge,
conversion transaction or other integrated investment. You should consult your
tax advisors with regard to the application of U.S. federal tax laws to your
particular situation, including the information reporting and backup withholding
rules discussed below, as well as any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction.
As used herein, the term non-U.S. holder means a beneficial owner of a unit
that is not a U.S. holder for U.S. federal income tax purposes. A U.S. holder
is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions of
the trust; or (ii) the trust was in existence on August 20, 1996, was
treated as a United States Person within the meaning of the Code (a "U.S.
Person") prior to that date, and elected to continue to be treated as a
United States Person.
ALLOCATION OF THE ISSUE PRICE BETWEEN THE NOTE AND THE WARRANT
Each unit is comprised of a note and a warrant. Consequently, the issue
price of a unit for U.S. federal income tax purposes must be allocated between
the note and the warrant based on their respective fair market values at the
time of issuance and a holder's basis in each of the note and the warrant will
be equal to the amount allocated to such note and such warrant. Based on our
estimate of the fair market value of a warrant, we intend to treat approximately
$962.5 of the issue price of a unit as allocable to the note (which amount we
will therefore treat as the issue price of the note for U.S. federal income tax
purposes) and approximately $37.5 as allocable to the warrant. We intend to file
or cause to be filed information returns with the IRS based on such allocation.
Our allocation of the issue price is binding on you for U.S. federal income
tax purposes unless you disclose the use of a different allocation on your U.S.
federal income tax return for the year in which the unit was acquired. However,
our allocation is not binding on the IRS, and there can be no assurance that the
IRS will not challenge such allocation. The remainder of this discussion assumes
that our allocation will be respected for tax purposes.
TAX CONSEQUENCES TO U.S. HOLDERS
ORIGINAL ISSUE DISCOUNT ON THE NOTES. A debt obligation that has an issue
price that is less than its stated redemption price at maturity ("SRPM") by more
than a de minimis amount will be treated as issued with original issue discount
("OID") for U.S. federal income tax purposes. The SRPM of a note is the sum of
all
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payments to be made on the note that are not "qualified stated interest"
payments. "Qualified stated interest" generally means stated interest that is
unconditionally payable at least annually at a single fixed rate (or at certain
qualifying variable rates). The semi-annual interest payments on the notes
should constitute qualified stated interest. Accordingly, the SRPM of the notes
should equal their principal amount.
The issue price of a note is less than its SRPM by more than a de minimis
amount if the difference between the SRPM of the note and its issue price is at
least 0.25 percent of the SRPM multiplied by the number of complete years to
maturity.
If the notes are issued with OID in excess of a de minimis amount, U.S.
holders must generally include OID in gross income (as interest) for U.S.
federal income tax purposes on an annual basis under a constant yield method
without regard to the holder's method of accounting for tax purposes. As a
result, U.S. holders generally will be required to include OID in income in
advance of the receipt of some or all of the related cash payments. The amount
of OID includible in income by a U.S. holder of a note is the sum of the "daily
portions" of OID with respect to the note for each day during the holder's
taxable year on which it held such note. The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The accrual period for a note may be of any
length and may vary in length over the term of the note, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs on the first day or the final day of an accrual
period.
In general, the amount of OID allocable to an accrual period is an amount
equal to the excess (if any) of (a) the product of the note's "adjusted issue
price" at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period) over (b) the sum of any
qualified stated interest allocable to the accrual period. The following rules
apply to determine OID allocable to an accrual period:
- if an interval between payments of qualified stated interest contains
more than one accrual period, the amount of qualified stated interest
payable at the end of the interval is allocated on a pro rata basis to
each accrual period in the interval and the adjusted issue price at
the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior
to the beginning of the first day of the accrual period but is not
payable until the end of the interval;
- if the accrual period is the final accrual period, the amount of OID
allocable to the final accrual period is the difference between the
amount payable at maturity (other than a payment of qualified stated
interest) and the adjusted issue price of the note at the beginning of
the final accrual period; and
- if all accrual periods are of equal length, except for an initial
short accrual period, the amount of OID allocable to the initial short
accrual period may be computed under any reasonable method.
The adjusted issue price of a note at the beginning of any accrual period
is equal to its issue price increased by the accrued OID for each prior accrual
period and reduced by any prior payments made on such note that were not
qualified stated interest payments. Under these rules, U.S. holders of notes
with OID will be required to include in income increasingly greater amounts of
OID in successive accrual periods.
OPTIONAL REDEMPTION OF THE NOTES. The notes are redeemable at our option in
whole or in part and subject to certain conditions. For purposes of computing
the notes' yield to maturity, we will be deemed to exercise our option to redeem
the notes if such deemed exercise could produce (utilizing the redemption price
on any date on which the option could be exercised as the SRPM) a lower yield on
the notes than the stated yield to maturity. Our option to redeem the notes
prior to their stated maturity date should not affect the computation of the
amount of OID on the notes.
SALE, EXCHANGE OR DISPOSITION OF THE NOTES. Upon the sale, exchange or
other disposition of a note, you generally will recognize capital gain or loss
equal to the difference between the amount of cash and the fair market value of
property received by you (except to the extent attributable to accrued interest,
which will be treated as interest) and your adjusted tax basis in the note
(i.e., its adjusted issue price). Such capital gain or loss
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generally will be long-term capital gain or loss if the U.S. holder has held the
note for more than one year at the time of the sale, exchange or other
disposition.
EXCHANGE NOTES. The exchange of the notes for exchange notes as described
herein will not constitute a "significant modification" of the notes for U.S.
federal income tax purposes and, accordingly, the exchange notes received will
be treated as a continuation of the original notes in the hands of the U.S.
holder. As a result, there will be no U.S. federal income tax consequences to a
U.S. holder on the exchange of a note for an exchange note.
WARRANTS. Although the matter is not free from doubt, and the form of the
warrants may be respected for United States federal income tax purposes, it is
possible that the warrants will be treated for United States federal income tax
purposes as warrant shares due to, among other things, their nominal exercise
price and lack of any meaningful contingency. Although it is unclear whether the
warrants will be treated as warrants or stock for United States federal income
tax purposes, the following discussion, except as otherwise indicated, assumes
that the warrants would be characterized as warrants.
A U.S. holder will generally not recognize any gain or loss upon exercise
of any warrants (except with respect to any cash received in lieu of a
fractional warrant share). A U.S. holder will have an initial tax basis in the
warrant shares received on exercise of the warrants equal to the sum of its tax
basis in the warrants and the aggregate cash exercise price, if any, paid in
respect of such exercise. Generally, the holding period of shares received upon
the exercise of warrants commences on the day after the warrants are exercised,
although it is possible that, in a cashless exercise of a warrant, the holding
period of such shares would include the holding period of the warrant.
If a warrant expires without being exercised, then a U.S. holder will
recognize a capital loss in an amount equal to its tax basis in the warrant.
Upon the sale or exchange of a warrant, a U.S. holder will generally recognize a
capital gain or loss equal to the difference, if any, between the amount
realized on such sale or exchange and the U.S. holder's tax basis in such
warrant. Such capital gain or loss will be long-term capital gain or loss if, at
the time of such sale or exchange, the warrant has been held for more than one
year.
Under Section 305 of the Internal Revenue Code, a U.S. holder of a warrant
may be deemed to have received a constructive distribution from Instron, which
may result in the inclusion of ordinary dividend income, in the event of certain
adjustments to the number of warrant shares to be issued on exercise of a
warrant.
Because the exercise price of the warrants may constitute a nominal amount,
the IRS may consider a warrant to be constructively exercised for United States
federal income tax purposes on the day on which the warrant first becomes
exercisable or possibly on the day of issuance. In that event, (i) no gain or
loss will be recognized to a U.S. holder upon either such deemed exercise or
actual exercise of the warrant; (ii) the adjusted tax basis of the warrant
shares deemed received will be equal to the adjusted tax basis of the warrant
until the warrant is actually exercised at which time the adjusted tax basis of
warrant shares would be increased by the exercise price paid; (iii) the holding
period of the warrant shares deemed received will begin on the day after the day
of constructive exercise; and (iv) the United States federal income tax
consequences of the ownership and disposition of the warrant shares deemed
received will be the same as if the warrant deemed exercised actually was
warrant shares.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Backup withholding of U.S.
federal income tax at a rate of 31% may apply to payments made in respect of a
note (including OID), payments of the proceeds from the sale of a note,
dividends received with respect to warrant shares and payments of the proceeds
from the sale of warrant shares, to a U.S. holder who is not an exempt recipient
and who fails to provide a correct taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend or interest income. Generally, individuals are not exempt recipients,
whereas corporations and certain other entities are exempt recipients. In
general, information reporting requirements will apply to certain payments made
in respect of the note or a warrant share of a U.S. holder, unless the holder is
an exempt recipient or otherwise establishes an exemption.
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Any amounts withheld from a payment to a U.S. holder under the backup
withholding rules generally will be allowed as a credit against that holder's
federal income tax liability and may entitle that holder to a refund, provided
that the required information is furnished in a timely manner to the IRS.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
PAYMENTS OF INTEREST ON THE NOTES. Subject to the discussion below
concerning backup withholding, payments of interest on the notes by us or our
paying agent to any non-U.S. holder will not be subject to U.S. federal
withholding tax, provided that:
- the interest is not effectively connected with the conduct by that holder
of a trade or business in the United States;
- the holder does not own, actually or constructively, 10% or more of the
total combined voting power of all classes of our stock entitled to vote;
- the holder is not a "controlled foreign corporation" with respect to
which we are a "related person" (in each case within the meaning of the
Code); and
- the certification requirement, as described below, has been fulfilled
with respect to the beneficial owner.
The certification requirement referred to above will be fulfilled if the
beneficial owner of a note certifies on IRS Form W-8, Form W-8 BEN or other
appropriate successor form, under penalties of perjury, that it is not a U.S.
Person and provides its name and address, and (i) that beneficial owner files
the Form W-8, Form W-8 BEN or other appropriate successor form with the
withholding agent or (ii), in the case of a note held by a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and is holding the
note on behalf of the beneficial owner, that financial institution files with
the withholding agent a statement that it has received the Form W-8, Form W-8
BEN or other appropriate successor form from the non-U.S. holder and furnishes
the withholding agent with a copy thereof. With respect to notes held by a
foreign partnership, under current law, the Form W-8 may be provided by the
foreign partnership. However, unless a foreign partnership has entered into a
withholding agreement with the IRS, for interest paid with respect to a note
after December 31, 2000, the foreign partnership will generally be required (and
may be permitted earlier), in addition to providing an intermediary Form W-8
(Form W-8IMY), to attach an appropriate certification by each partner.
Prospective investors, including foreign partnerships and their partners, should
consult their tax advisors regarding possible additional reporting requirements.
The gross amount of payments of interest that do not qualify for the
exception from withholding described above and that are not effectively
connected with the conduct of a U.S. trade or business will be subject to U.S.
withholding tax at a rate of 30% unless a treaty applies to reduce or eliminate
withholding and the non-U.S. holder properly certifies to its entitlement to the
treaty benefits on IRS Form 1001, Form W-8BEN or other appropriate successor
form.
DIVIDENDS ON WARRANT SHARES. Dividends paid to a non-U.S. holder of warrant
shares generally will be subject to withholding tax at a rate of 30% or such
lower rate as may be specified by an applicable income tax treaty. Currently,
for purposes of determining whether tax is to be withheld at a rate of 30% or at
a reduced treaty rate, we ordinarily will presume that dividends paid on or
before December 31, 2000 to an address in a foreign country are paid to a
resident of such country absent knowledge that such presumption is not
warranted. After December 31, 2000, a non-U.S. holder will be required to
properly certify its entitlement to the treaty benefits on IRS Form W-8BEN or
other appropriate successor form.
EFFECTIVELY CONNECTED INTEREST OR DIVIDEND INCOME. Interest on a note or
dividends with respect to the warrant shares that are effectively connected with
the conduct of a trade or business in the United States by a non-U.S. holder,
although exempt from withholding tax, may be subject to the U.S. income tax at
graduated rates as if such interest or dividends were earned by a U.S. holder.
The non-U.S. holder will be exempt from withholding tax if it properly certifies
on IRS Form 4224, Form W-8ECI or other appropriate successor form that the
income is effectively connected with the conduct of a U.S. trade or business.
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SALE, EXCHANGE OR DISPOSITION OF THE NOTES, WARRANTS OR WARRANT
SHARES. Subject to the discussion below concerning backup withholding, a
non-U.S. holder of a note, warrant or warrant shares will not be subject to U.S.
federal income tax on gain realized on the sale, exchange or other disposition
of that note, warrant or warrant shares unless:
- that holder is an individual who is present in the United States for 183
days or more in the taxable year of disposition, and some other
conditions are met;
- that gain is effectively connected with the conduct by the holder of a
trade or business in the United States;
- the holder is subject to the special rules applicable to some former
citizens and residents of the United States; or
- in the case of the sale, exchange or other disposition of a warrant or
warrant share, the warrant or warrant share was a United States real
property interest as defined in Section 897(c)(1) of the Internal Revenue
Code ("USRPI") at any time during the five year period prior to the sale,
exchange or other disposition or at any time during the time that the
non-U.S. holder held such warrant or warrant share, whichever time was
shorter.
A warrant or warrant share would be a USRPI only if, during the time period
specified above, our company had been a United States real property holding
corporation as defined in Section 897(c)(2) of the Internal Revenue Code
("USRPHC"). We believe that our company is not, has not been and will not become
a USRPHC for U.S. federal income tax purposes. If, at the time of the
disposition of a warrant or warrant shares, the Common Stock is considered to be
regularly traded on an established securities market, these USRPI rules would
only apply to a non-U.S. holder who directly or constructively had owned more
than 5% of such series of common stock during the relevant time period.
EXCHANGE NOTES. The exchange of notes for exchange notes as described
herein will not constitute a "significant modification" of the notes for U.S.
federal income tax purposes and, accordingly, the exchange notes received will
be treated as a continuation of the original notes in the hands of the non-U.S.
holder. As a result, there will be no U.S. federal income tax consequences to a
non-U.S. holder on the exchange of a note for an exchange note.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Where required, we will
report annually to the IRS and to a non-U.S. holder the amount of any interest
or dividends paid to the non-U.S. holder and any tax withheld with respect to
that interest or dividends.
Under current U.S. federal income tax law, backup withholding at a rate of
31% will not apply to payments of interest to a non-U.S. holder by us or our
paying agent on a note if the certifications described above under "Non-U.S.
Holders--Payment of Interest" are received, provided that we or the paying
agent, as the case may be, does not have actual knowledge that the payee is a
U.S. Person. Backup withholding generally will not apply to dividends paid on or
before December 31, 2000 to a non-U.S. holder at an address outside the United
States, provided we or our paying agent does not have actual knowledge that the
payee is a U.S. Person. After December 31, 2000, however, a non-U.S. holder will
be subject to backup withholding unless the applicable certification
requirements are met.
Under current Treasury regulations, payments on the sale, exchange or other
disposition of a note, warrant or warrant share made to or through a foreign
office of a broker generally will not be subject to backup withholding or
information reporting. However, if that broker is for U.S. federal income tax
purposes a U.S. person, a controlled foreign corporation, a foreign person that
derives 50% or more of its gross income from the conduct of a U.S. trade or
business for a specified three-year period or (generally in the case of payments
made after December 31, 2000) a foreign partnership with some connections to the
United States, then information reporting will be required unless the broker has
in its records documentary evidence that the beneficial owner is not a U.S.
Person and some other conditions are met or the beneficial owner otherwise
establishes an exemption. Backup withholding may apply to any payment that the
broker is required to report if the broker has actual knowledge that the payee
is a U.S. Person. Payments to or through the U.S. office of a broker will be
subject to
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backup withholding and information reporting unless the beneficial owner
certifies, under penalties of perjury, that it is not a U.S. Person or otherwise
establishes an exemption.
New Treasury regulations which are generally effective for payments after
December 31, 2000 provide presumptions under which a non-U.S. holder will be
subject to backup withholding and information reporting unless the holder
certifies as to its non-U.S. status or otherwise establishes an exemption. In
addition, the new Treasury regulations change some procedural requirements
relating to establishing a holder's non-U.S. status.
Any amounts withheld from a payment to a non-U.S. holder under the backup
withholding rules generally will be allowed as a credit against that holder's
U.S. federal income tax liability and may entitle that holder to a refund,
provided that the required information is furnished in a timely manner to the
IRS.
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PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
exchange offer in connection with a distribution of the exchange notes. Each
broker-dealer that receives exchange notes for its own account in accordance
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received for its own account in
exchange for outstanding notes where those outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that for a period of 90 days after the expiration date of the exchange offer, we
will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in accordance 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 exchange notes or a combination of those
methods or resale, at market prices prevailing at the time of resale, at prices
related to the prevailing market prices, or negotiated prices. Any resale may be
made directly to purchasers or through brokers or dealers who may receive
compensation in the form of commission or concessions from any broker-dealer
and/or to the purchasers of any exchange notes. Any broker or dealer that
participates in a distribution of the exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933, and any profit
on the resale of exchange notes and any commissions or concessions received by
those 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.
We have agreed to pay all expenses incident to the exchange offer other
than commissions or concessions of any brokers or dealers and expenses of
counsel for the holders of the exchange notes and will indemnify the holders of
the exchange notes, including any broker-dealers, against some liabilities,
including some liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for Instron by
Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended 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.
AVAILABLE INFORMATION
We have filed with the Commission a registration statement on Form S-4
pursuant to the Securities Act and the rules and regulations promulgated under
the securities laws covering the exchange offer contemplated by this prospectus.
This prospectus does not contain all the information set forth in the
registration statement. For further information with respect to us and the
exchange offer, see the registration statement.
We are not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. We have agreed that, whether or
not it is required to do so by the rules and regulations of the Commission, for
so long as any of the notes remain outstanding, we will furnish to the holders
of the notes and file with the Commission, copies of the financial and other
information that would be contained in the annual reports and quarterly reports
that we would be required to file with the Commission if we were subject to the
requirements of the Exchange Act. We will also make these reports available to
prospective purchasers of the exchange notes, and to securities analysts and
broker-dealers upon their request.
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Operations for the nine months
ended October 2, 1999 and September 26, 1998........... F-2
Consolidated Balance Sheets as of October 2, 1999 and
December 31, 1998...................................... F-3
Consolidated Statements of Cash Flows for the nine months
ended October 2, 1999 and September 26, 1998........... F-4
Consolidated Statements of Comprehensive Income for the
nine months ended October 2, 1999 and September 26,
1998................................................... F-6
Notes to Consolidated Financial Statements................ F-7
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants......................... F-12
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-13
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-14
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-15
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998........... F-16
Notes to Consolidated Financial Statements................ F-17
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants......................... F-28
Consolidated Valuation Accounts for the years ended
December 31, 1998, 1997 and 1996....................... F-29
F-1
112
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
--------------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
------------ ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
REVENUE:
Sales..................................................... $125,431 $ 94,552
Service................................................... 25,522 20,409
-------- --------
Total revenue..................................... 150,953 114,961
-------- --------
Cost of revenue:
Sales..................................................... 75,117 55,145
Service................................................... 17,587 13,622
-------- --------
Total cost of revenue............................. 92,704 68,767
-------- --------
Gross profit...................................... 58,249 46,194
-------- --------
Operating expenses:
Selling and administrative................................ 41,558 32,342
Research and development.................................. 8,239 5,191
Special items charge...................................... -- 4,975
Recapitalization compensation expense..................... 12,606 --
-------- --------
Total operating expenses.......................... 62,403 42,508
-------- --------
Income (loss) from operations..................... (4,154) 3,686
-------- --------
Other (income) expense:
Interest (income) expense................................. 367 13
Foreign exchange losses................................... 26 273
Gain on sale of land...................................... -- (11,076)
-------- --------
Total other (income) expenses..................... 393 (10,790)
-------- --------
Income (loss) before income taxes........................... (4,547) 14,476
Provision (benefit) for income taxes........................ (190) 6,648
-------- --------
Net income (loss)........................................... $ (4,357) $ 7,828
======== ========
Weighted average number of basic common shares.............. 6,866 6,589
======== ========
Earnings (loss) per share -- basic.......................... $ (0.63) $ 1.19
======== ========
Weighted average number of diluted common shares............ 6,866 7,087
======== ========
Earnings (loss) per share -- diluted........................ $ (0.63) $ 1.10
======== ========
See accompanying Notes to Consolidated Financial Statements
F-2
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INSTRON CORPORATION
CONSOLIDATED BALANCE SHEETS
OCTOBER 2, 1999 DECEMBER 31,1998
--------------- ----------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,118 $ 7,209
Accounts receivable (net of allowance for doubtful
accounts of $726 in 1999 and $800 in 1998)............. 60,683 65,766
Inventories............................................... 37,865 36,121
Accrued and deferred income taxes......................... 6,744 3,060
Prepaid expenses and other current assets................. 3,045 2,223
-------- --------
Total current assets.............................. 117,455 114,379
-------- --------
Property, plant and equipment, net.......................... 24,073 24,001
Goodwill.................................................... 11,258 12,384
Deferred income taxes....................................... 1,866 904
Other assets................................................ 5,345 6,586
Deferred financing costs.................................... 8,642 --
-------- --------
Total assets...................................... $168,639 $158,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term borrowings..................................... $ 19,644 $ 6,416
Accounts payable.......................................... 13,007 15,807
Accrued liabilities....................................... 33,413 23,051
Accrued employee compensation and benefits................ 5,648 6,798
Advance payments received on contracts.................... 11,523 7,066
-------- --------
Total current liabilities......................... 83,235 59,138
Long-term debt:
Senior term loan.......................................... 30,000 --
13 1/4% Senior subordinated notes due 2009................ 60,000 --
Other long term debt...................................... -- 13,216
-------- --------
90,000 13,216
Pension and other long-term liabilities..................... 9,235 6,316
-------- --------
Total liabilities................................. 182,470 78,670
Commitments and Contingencies............................... -- --
Stockholders' equity (deficit):
Common stock, $1.00 par value, 10,000,000 shares
authorized; 0 and 7,051,968 shares issued,
respectively........................................... -- 7,052
Recapitalized common stock, $0.01 par value; 1,000,000
shares authorized; 557,431 and 0 shares issued,
respectively........................................... 557 --
Additional paid in capital................................ 50,179 8,727
Deferred compensation..................................... -- (2,662)
Retained earnings (accumulated deficit)................... (58,408) 72,496
Accumulated other comprehensive loss...................... (6,159) (4,699)
-------- --------
(13,831) 80,914
Less: Treasury stock...................................... -- 1,330
-------- --------
Total stockholders' equity (deficit).............. (13,831) 79,584
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $168,639 $158,254
======== ========
See Accompanying Notes to Consolidated Financial Statements
F-3
114
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
-----------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
(UNAUDITED)
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)......................................... $ (4,357) $ 7,828
Adjustments to reconcile net income to net cash provided
by operating activities:
(Gain) on the sale of property, plant and equipment.... -- (6,868)
Depreciation and amortization.......................... 6,446 5,167
Non-cash recapitalization related costs................ 3,874 --
Provision for losses on accounts receivable............ 103 23
Deferred taxes......................................... (962) (138)
Changes in assets and liabilities, excluding the effects
from purchase of business:
Income tax receivable................................ (3,684) --
(Increase) decrease in accounts receivable........... 5,015 (477)
(Increase) decrease in inventories................... (1,739) (4,887)
(Increase) decrease in prepaid expenses and other
current assets...................................... (799) 1,504
Increase (decrease) in accounts payable and accrued
expenses............................................ 6,412 (7,904)
Increase in other long-term liabilities.............. 1,719 1,015
Other, net........................................... 4,194 96
-------- -------
Net cash provided (used) by operating activities..... 16,222 (4,641)
Cash flows from investing activities:
Proceeds from the sale of property, plant and equipment... 131 13,566
Capital expenditures...................................... (4,116) (5,182)
Purchase of business...................................... -- (12,628)
Capitalized software costs................................ (1,698) (787)
Other, net................................................ 274 4
-------- -------
Net cash used by investing activities.................. (5,409) (5,027)
-------- -------
Cash flows from financing activities:
Net borrowings (payments) of lines of credit and borrowing
arrangements prior to recapitalization................. (16,488) 9,070
Borrowings under new revolving line of credit............. 16,500 --
Issuance of senior subordinated notes..................... 60,000 --
Issuance of senior term loan.............................. 30,000 --
Net borrowings, Revolver line of credit................... -- --
Debt financing fees....................................... (6,391) --
Recapitalization related fees............................. (3,761) --
Issuance of recapitalized common stock.................... 54,173 --
Cash dividends paid....................................... (268) (794)
Proceeds from exercise of stock options................... 387 1,922
Purchase of treasury stock, common stock and options
outstanding............................................ (143,041) (616)
-------- -------
Net cash provided (used) in financing activities....... (8,889) 9,582
-------- -------
F-4
115
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
NINE MONTHS ENDED
-----------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
(UNAUDITED)
(IN THOUSANDS)
Effect of exchange rate changes on cash..................... $ (15) $ (7)
-------- -------
Net increase (decrease) in cash and cash equivalents........ 1,909 (93)
Cash and cash equivalents at beginning of year.............. 7,209 2,566
-------- -------
Cash and cash equivalents at end of period.................. $ 9,118 $ 2,473
======== =======
Supplemental disclosures of cash flow information: Cash paid
during the year for:
Interest (net of amount capitalized)................... $ 778 $ 1,009
Income taxes........................................... 3,024 6,196
Conversion of common stock to preferred stock............... 325 --
Conversion of preferred stock to common stock............... 325 --
Issuance of common stock warrants........................... 2,250 --
Retirement of treasury stock................................ 1,330 --
Supplemental disclosures of non-cash investing and financing
activities:
Liabilities incurred or assumed in business
acquisitions........................................... $ 1,878
See Accompanying Notes to Consolidated Financial Statements
F-5
116
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED
---------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
(UNAUDITED)
(IN THOUSANDS)
Net income (loss)........................................... $(4,357) $7,828
Other comprehensive income (loss):
Foreign currency translation adjustments.................. (1,460) 628
------- ------
Comprehensive income (loss)............................ $(5,817) $8,456
======= ======
See Accompanying Notes to Consolidated Financial Statements
F-6
117
INSTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain reclassifications were made to the
prior year amounts to conform with the 1999 presentation. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended December
31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from those
estimates.
The consolidated results for the third quarter and the first nine months of
1999 include the results of Satec, which was acquired in August 1998, the
results of IST due to Instron acquiring the remaining 49% of IST in the fourth
quarter of 1998 and the execution of the Recapitalization and Merger with
Kirtland Capital Partners III, L.P.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended October 2, 1999, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
2. EARNINGS PER SHARE
Basic earnings per share is computed by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares,
plus the dilutive effect of any potential common shares outstanding using the
"treasury stock method." The dilutive potential common shares have been excluded
from the calculation of weighted average number of dilutive common shares
outstanding for the three months and nine months ended October 2, 1999, as their
inclusion would have an antidilutive effect on loss per share.
The following is a reconciliation of the basic and diluted EPS
calculations:
FOR THE NINE MONTHS ENDED
-------------------------------------
OCTOBER 2, 1999 SEPTEMBER 26, 1998
--------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income........................................... $(4,357) $7,828
======= ======
Weighted average number of basic common shares
outstanding................................... 6,866 6,589
Dilutive potential common shares (a)............ -- 498
------- ------
Weighted average of common and dilutive
shares........................................ 6,866 7,087
======= ======
Basic earnings per share............................. $ (0.63) $ 1.19
======= ======
Diluted earnings per share........................... $ (0.63) $ 1.10
======= ======
F-7
118
INSTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 2, 1999
(UNAUDITED)
- ---------------
(a) As of October 2, 1999, the Company had options outstanding to purchase
50,860 shares of recapitalized common stock and warrants outstanding to
purchase 30,654 shares of recapitalized common stock. These potential common
shares have been excluded from the diluted earnings per share computation as
their inclusion would have an antidilutive effect on loss per share.
3. INVENTORIES
OCTOBER 2, 1999 DECEMBER 31, 1998
--------------- -----------------
(IN THOUSANDS)
Raw Materials........................................ $13,573 $13,257
Work-in-process...................................... 16,154 16,560
Finished goods....................................... 8,138 6,304
------- -------
$37,865 $36,121
======= =======
Inventories are valued at the lower of cost or market (net realizable
value). The last-in, first-out (LIFO) method of determining cost is principally
used for inventories in the United States and the Asian branches. The Company
uses the first-in, first-out (FIFO) method for all other inventories.
Inventories valued at LIFO amounted to $7,497,000 and $9,056,000 at October 2,
1999 and December 31, 1998, respectively. The excess of current cost over stated
LIFO value was $5,637,000 at October 2, 1999 and $5,205,000 at December 31,
1998.
4. SPECIAL ITEMS CHARGE
During the first quarter of 1998 the Company recorded a special items
charge to operations to undertake a consolidation of its European operations and
write-down the value of certain non-performing assets. A pre-tax charge of $5.0
million was taken in the quarter ended March 28, 1998 to cover these actions.
The special items charge includes termination benefits, the costs to exit a
manufacturing facility, other asset impairments and other related costs. The
Company closed down a manufacturing plant in Germany, relocated sales and
service support personnel to another location in Germany and moved the
manufacturing operation to the United Kingdom. During fiscal year 1998 and the
first nine months of 1999, the Company has paid $1.4 million for termination
benefits and related costs and $1.9 million for the costs of this action. In
addition, the Company wrote-off $1.0 million of non-performing assets in 1998
primarily relating to its interest in Lightspeed Simulation Systems. The
remaining balance of liability related to the special items charge at October 2,
1999 totaled approximately $.7 million and relates to the Company's obligation
under a long-term lease agreement in Germany, partially offset by estimated
income under a sub-lease arrangement.
5. SALE OF LAND
On March 27, 1998, the Company completed the sale of 42 acres of its
66-acre site off Route 128 in Canton, Massachusetts for $13.5 million. As a
result of this transaction, a non-operating pre-tax gain of $11.1 million was
recorded in the first quarter of 1998.
6. RECAPITALIZATION
On May 6, 1999, Instron Corporation (the "Company") entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Kirtland Capital
Partners III L.P. ("Kirtland") and ISN Acquisition Corporation, a corporation
newly formed by Kirtland ("MergerCo"), pursuant to which Kirtland and certain
affiliates, together with members of the Company's management and certain
members of the Company's Board of Directors who are also stockholders
(collectively, the "Rollover Stockholders"), have acquired the Company.
F-8
119
INSTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 2, 1999
(UNAUDITED)
On September 3, 1999, the Company's stockholders approved the Agreement and
Plan of Merger dated as of May 6, 1999, as amended. The Company completed its
merger by and among Instron Corporation, ISN Acquisition Corporation and
Kirtland Capital Partners III L.P. on September 29, 1999. The merger and related
transactions were treated as a Recapitalization (the "Recapitalization") for
financial reporting purposes. Accordingly, the historical basis of the Company's
assets and liabilities was not affected by these transactions.
Under the Merger Agreement, the MergerCo merged with and into the Company
with the Company continuing as the surviving corporation (the "Merger").
Pursuant to the Merger, each outstanding share of the Company's common stock
(except for shares held by the Company, its subsidiaries and MergerCo), have
been converted into the right to receive a cash payment of $22.00, without
interest. Certain shares of the Company's common stock held by the Rollover
Stockholders have been converted into shares of stock of the surviving
corporation.
As of October 2, 1999, the Company has incurred compensation expenses of
$12.6 million related to the Recapitalization. In addition, the Company incurred
costs of $12.4 million which relate to the Merger Agreement and the
Recapitalization. Of these costs, $3.8 million was attributable to the cost of
equity, $6.3 million, including the value of warrants issued, was attributable
to the placement of the 13 1/4% Senior Subordinated Notes and $2.3 million was
attributable to the Senior Credit Facility. The costs associated with the Senior
Subordinated Notes and Senior Credit Facility will be amortized over a period of
ten (10) years and five and one-half (5 1/2) years, respectively.
The following is a summary of financing fees related to the
Recapitalization:
$60 MILLION $80 MILLION
13 1/4 SUBORDINATED SENIOR CREDIT
NOTES FACILITY EQUITY
------------------- ------------- ------
Financing fees........................ $4,046 $2,347 $3,761
Value of warrants issued.............. 2,250 -- --
-------- -------- ------
Total costs........................... $6,296 $2,347 $3,761
Amortization period................... 10 years 5 1/2 years
F-9
120
INSTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 2, 1999
(UNAUDITED)
The following is a summary of changes in stockholders' equity (deficit):
RETAINED ACCUMULATED
RECAPITALIZED ADDITIONAL EARNINGS OTHER
PREFERRED COMMON COMMON PAID IN DEFERRED (ACCUMULATED COMPENSATION
SERIES B STOCK STOCK CAPITAL COMPENSATION DEFICIT) LOSS
--------- ------- ------------- ---------- ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998.... $ 7,052 $ 8,728 $(2,662) $ 72,496 $(4,699)
Net income.................... 1,593
Other comprehensive income
(loss)...................... (1,813)
Comprehensive income (loss).....
Cash dividends declared ($.04
per share).................... (268)
13,132 shares issued under
employee stock option plans... 13 127
Compensation expense recognized
under the 1992 Stock Incentive
Plan.......................... 122
----- ------- ---- -------- ------- --------- -------
BALANCE AT APRIL 3, 1999........ 7,065 8,855 (2,540) 73,822 (6,512)
Net income.................... 1,863
Other comprehensive (loss).... (730)
Comprehensive income............
21,610 shares issued under
employee stock option plans... 22 225
Compensation expense recognized
under the 1992 Stock Incentive
Plan.......................... 122
----- ------- ---- -------- ------- --------- -------
BALANCE AT JULY 3, 1999......... 7,087 9,080 (2,419) 75,685 (7,242)
Net Income.................... (7,813)
Other comprehensive income
(loss)...................... 1,083
Comprehensive income (loss).....
Compensation expense recognized
under 1992 Stock Incentive
Plan.......................... 122
RECAPITALIZATION RELATED
TRANSACTIONS:
Retirement of treasury
stock....................... (108) (1,222)
Recognition of unearned
compensation................ 2,297
Conversion of common stock to
preferred stock............. $ 325 (325)
Repurchase of common stock.... (6,654) (10,108) (126,279)
Conversion of preferred stock
to recapitalized common
stock....................... (325) $ 65 260
Purchase of recapitalized
common stock................ 492 53,680
Issuance of detachable
warrants.................... 2,250
Fees related to
recapitalization............ (3,761)
----- ------- ---- -------- ------- --------- -------
BALANCE AT OCTOBER 2, 1999...... -- -- $557 $ 50,179 -- $ (58,408) $(6,159)
===== ======= ==== ======== ======= ========= =======
TOTAL
TREASURY EQUITY
STOCK (DEFICIT)
-------- ---------
BALANCE AT DECEMBER 31, 1998.... $(1,330) $ 79,584
Net income.................... 1,593
Other comprehensive income
(loss)...................... (1,813)
---------
Comprehensive income (loss)..... (220)
Cash dividends declared ($.04
per share).................... (268)
13,132 shares issued under
employee stock option plans... 140
Compensation expense recognized
under the 1992 Stock Incentive
Plan.......................... 122
------- ---------
BALANCE AT APRIL 3, 1999........ (1,330) 79,358
Net income.................... 1,863
Other comprehensive (loss).... (730)
---------
Comprehensive income............ 1,133
21,610 shares issued under
employee stock option plans... 247
Compensation expense recognized
under the 1992 Stock Incentive
Plan.......................... 122
------- ---------
BALANCE AT JULY 3, 1999......... (1,330) 80,860
Net Income.................... (7,813)
Other comprehensive income
(loss)...................... 1,083
---------
Comprehensive income (loss)..... (6,730)
Compensation expense recognized
under 1992 Stock Incentive
Plan.......................... 122
RECAPITALIZATION RELATED
TRANSACTIONS:
Retirement of treasury
stock....................... 1,330
Recognition of unearned
compensation................ 2,297
Conversion of common stock to
preferred stock.............
Repurchase of common stock.... (143,041)
Conversion of preferred stock
to recapitalized common
stock.......................
Purchase of recapitalized
common stock................ 54,172
Issuance of detachable
warrants.................... 2,250
Fees related to
recapitalization............ (3,761)
------- ---------
BALANCE AT OCTOBER 2, 1999...... -- $ (13,831)
======= =========
F-10
121
INSTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
October 2, 1999
(Unaudited)
7. DEBT
In connection with the Merger, the Company entered into a Credit and
Security Agreement (the "Senior Credit Facility") consisting of a $30 million
term loan facility (the "Term Loan Facility") and a $50 million revolving credit
facility, (the "Revolving Credit Facility").
The Senior Credit Facility contains customary covenants that limit our
ability to take various actions and require that we meet and maintain certain
financial ratios and tests, including:
(a) a minimum consolidated net worth and minimum consolidated EBITDA;
(b) a maximum consolidated leverage ratio (total debt to EBITDA) and senior
leverage ratio (senior debt to EBITDA);
(c) a minimum consolidated interest coverage ratio (EBITA to interest
expense); and
(d) a minimum consolidated fixed charge coverage ratio (EBITDA to interest
expense plus other fixed charges).
In addition, the Company incurred $60 million of debt through the sale of
its 13 1/4% Senior Subordinated Notes and Warrants (the "Senior Subordinated
Notes"). The Warrants, when exercised, will entitle the holder thereof to
receive 0.5109 of a fully paid and non-assessable share of common stock, par
value $0.01 per share at an exercise price of $0.01 per share, subject to
adjustment. As of the date of closing, September 29, 1999, the holders of the
Warrants were entitled to purchase 30,654 fully paid and nonassessable shares of
common stock or approximately 5.0% of the Company's common stock on a fully
diluted basis. The Warrants are exercisable on or prior to September 15, 2009.
The value of the Warrants on the date of the Recapitalization was $2.3 million
and this value will be amortized to interest expense over 10 years.
Principal and interest under the Senior Credit Facility and interest
payments on the Senior Subordinated Notes represent significant liquidity
requirements for the Company. As of October 2, 1999, the Company had $31.9
million of available credit under the $50 million Revolving Credit Facility.
With respect to the $30 million borrowed under the Term Loan Facility, the
company is required to make scheduled repayments in twenty two (22) quarterly
installments of principal with interest thereon on the first day of each
January, April, July and October commencing January 1, 2000. The Senior
Subordinated Notes will mature in 2009, and bear interest at 13 1/4%. The
Revolving Credit Facility matures in April 2005; with all amounts then
outstanding becoming due.
F-11
122
INSTRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
October 2, 1999
(Unaudited)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION
Some of our wholly owned subsidiaries will not be guarantors of our senior
subordinated notes. Summarized below is selected financial information for the
guarantor subsidiaries and the non-guarantor subsidiaries as of October 2, 1999
and for the nine-month period then ended:
COMBINED COMPANY COMBINED
AND GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES TOTAL
---------------- ------------- --------
(IN THOUSANDS)
Balance Sheet Data as of October 2,
1999:
Current Assets........................ $ 73,595 $43,860 $117,455
Total Assets.......................... 112,918 55,721 168,639
Total Liabilities..................... 152,455 30,015 182,470
Stockholders' Equity (deficit)........ (39,442) 25,611 (13,831)
Statement of Income Data for the nine
months ended October 2, 1999:
Total Revenue......................... 90,148 60,805 150,953
Other Data for the nine months ended
October 2, 1999:
EBITDA................................ (3,037) 5,303 2,266
F-12
123
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INSTRON CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Instron Corporation and its subsidiaries (the "Company") at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended 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 audits. We conducted our
audits 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
audits provide a reasonable basis for the opinion expressed above.
By: /s/ PRICEWATERHOUSECOOPERS LLP
------------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
F-13
124
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
REVENUE:
Sales............................................... $ 152,879 $ 129,679 $ 128,804
Service............................................. 30,150 25,981 24,309
---------- ---------- ----------
Total revenue............................... 183,029 155,660 153,113
---------- ---------- ----------
COST OF REVENUE:
Sales............................................... 91,410 74,126 72,556
Service............................................. 19,644 17,363 16,086
---------- ---------- ----------
Total cost of revenue....................... 111,054 91,489 88,642
---------- ---------- ----------
Gross profit..................................... 71,975 64,171 64,471
---------- ---------- ----------
OPERATING EXPENSES:
Selling and administrative.......................... 48,869 44,641 44,898
Research and development............................ 8,485 6,959 8,616
Special items charge................................ 4,975 0 1,812
---------- ---------- ----------
Total operating expenses.................... 62,329 51,600 55,326
Income from operations........................... 9,646 12,571 9,145
---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Gain on sale of land................................ (11,076) 0 0
Interest expense.................................... 1,175 1,465 1,548
Interest income..................................... (943) (634) (477)
Foreign exchange losses............................. 157 185 689
---------- ---------- ----------
Total other expenses........................ (10,687) 1,016 1,760
---------- ---------- ----------
Income before income taxes............................ 20,333 11,555 7,385
Provision for income taxes............................ 8,874 4,391 2,803
---------- ---------- ----------
Net income............................................ $ 11,459 $ 7,164 $ 4,582
========== ========== ==========
Weighted average number of basic common shares........ 6,667,914 6,455,527 6,396,202
Earnings per share -- basic........................... $ 1.72 $ 1.11 $ .72
========== ========== ==========
Weighted average number of diluted common shares...... 7,066,257 6,791,801 6,524,467
Earnings per share -- diluted......................... $ 1.62 $ 1.05 $ .70
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-14
125
INSTRON CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
1998 1997
---------- ----------
IN THOUSANDS, EXCEPT PER
SHARE DATA
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,209 $ 2,566
Accounts receivable, net of allowance for doubtful
accounts of $800 in 1998 and $1,071 in 1997............ 65,766 48,226
Inventories............................................... 36,121 24,024
Deferred income taxes..................................... 3,060 3,314
Prepaid expenses and other current assets................. 2,223 3,767
-------- --------
Total current assets.............................. 114,379 81,897
Property, plant and equipment:
Land and buildings........................................ 21,254 21,796
Machinery and equipment................................... 45,217 39,627
Accumulated depreciation.................................. (42,470) (40,216)
-------- --------
Property, plant and equipment, net........................ 24,001 21,207
Goodwill.................................................. 12,384 6,423
Deferred income taxes..................................... 904 806
Other assets.............................................. 6,586 8,652
-------- --------
Total assets...................................... $158,254 $118,985
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... $ 6,416 $ 6,059
Accounts payable.......................................... 15,807 11,095
Accrued liabilities....................................... 22,958 14,083
Accrued employee compensation and benefits................ 6,798 6,220
Accrued income taxes...................................... 93 957
Advance payments received on contracts.................... 7,066 1,541
-------- --------
Total current liabilities......................... 59,138 39,955
Long-term debt.............................................. 13,216 7,600
Pension and other long-term liabilities..................... 6,316 5,176
-------- --------
Total liabilities................................. 78,670 52,731
-------- --------
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $1 par value; 1,000,000 shares
authorized; none issued................................ -- --
Common stock, $1 par value; 10,000,000 shares authorized;
7,051,968 and 6,823,698 shares issued, respectively.... 7,052 6,824
Additional paid in capital................................ 8,727 6,972
Deferred compensation..................................... (2,662) (3,235)
Retained earnings......................................... 72,496 62,097
Accumulated other comprehensive income (loss)............. (4,699) (5,690)
-------- --------
80,914 66,968
Less: Treasury stock at cost; 108,262 and 74,952 shares,
respectively........................................... 1,330 714
-------- --------
Total stockholders' equity........................ 79,584 66,254
-------- --------
Total liabilities and stockholders' equity........ $158,254 $118,985
======== ========
See accompanying notes to consolidated financial statements.
F-15
126
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 11,459 $ 7,164 $ 4,582
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on the sale of property, plant and equipment,
net.................................................. (11,076) (88) (5)
Depreciation and amortization.......................... 7,106 6,494 6,873
Provision for losses on accounts receivable............ 73 27 358
Deferred income taxes.................................. (580) 306 299
Changes in assets and liabilities, excluding the
effects from purchase of businesses:
(Increase) decrease in accounts receivable........... (6,312) (1,335) 1,297
(Increase) decrease in inventories................... 165 2,563 (521)
(Increase) decrease in prepaid expenses and other
current assets.................................... 2,055 (2,028) 151
Increase (decrease) in accounts payable and accrued
expenses.......................................... 3,097 3,477 (3,894)
Other................................................ (711) 409 684
-------- -------- --------
Net cash provided by operating activities............ 5,276 16,989 9,824
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (5,841) (4,176) (4,473)
Joint venture investment.................................... 0 0 (6,926)
Purchase of businesses, net of cash acquired................ (13,086) (2,010) 0
Proceeds from the sale of property, plant and equipment..... 13,684 376 224
Capitalized software costs.................................. (1,490) (637) (1,144)
Other....................................................... (31) 220 156
-------- -------- --------
Net cash used by investing activities................ (6,764) (6,227) (12,163)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit and term loan
facility.................................................. 5,609 (9,730) 6,068
Net short-term borrowings................................... 199 (173) (2,785)
Cash dividends paid......................................... (1,060) (1,064) (1,024)
Proceeds from stock option exercises........................ 1,983 348 861
Treasury stock purchases.................................... (616) 0 0
-------- -------- --------
Net cash provided (used) by financing activities..... 6,115 (10,619) 3,120
-------- -------- --------
Effect of exchange rate changes on cash..................... 16 (118) 116
-------- -------- --------
Net increase in cash and cash equivalents................... 4,643 25 897
Cash and cash equivalents at beginning of year.............. 2,566 2,541 1,644
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 7,209 $ 2,566 $ 2,541
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................... $ 1,430 $ 1,671 $ 1,730
Income taxes........................................... 9,145 3,041 2,286
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Fair value of assets acquired............................... $ 28,229 $ 2,649 $ 0
Cash paid................................................... 15,312 2,010 0
Liabilities incurred or assumed in business acquisitions.... 12,917 $ 639 $ 0
======== ======== ========
Note receivable on sale of business......................... $ 0 $ 3,000 $ 0
======== ======== ========
See accompanying notes to consolidated financial statements.
F-16
127
INSTRON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED TOTAL
ADDITIONAL OTHER STOCK-
COMMON PAID IN DEFERRED RETAINED COMPREHENSIVE TREASURY HOLDERS'
STOCK CAPITAL COMPENSATION EARNINGS INCOME (LOSS) STOCK EQUITY
------ ---------- ------------ -------- ------------- -------- --------
IN THOUSANDS, EXCEPT SHARE DATA
BALANCE AT DECEMBER 31, 1995....... $6,415 $ 2,538 $ 0 $ 52,439 $(4,576) $ (714) $56,102
Net income....................... 4,582 4,582
Other comprehensive income
(loss)......................... 1,660 1,660
-------
Comprehensive income............... 6,242
Cash dividends declared ($.16 per
share)........................... (1,024) (1,024)
104,366 shares issued under
employee stock option plans...... 105 976 1,081
------ ------- ------- -------- ------- ------- -------
BALANCE AT DECEMBER 31, 1996....... 6,520 3,514 0 55,997 (2,916) (714) 62,401
Net income....................... 7,164 7,164
Other comprehensive income
(loss)......................... (2,774) (2,774)
-------
Comprehensive income............... 4,390
Cash dividends declared ($.16 per
share)........................... (1,064) (1,064)
33,511 shares issued under employee
stock option plans............... 34 314 348
Restricted stock grants issued
during the year.................. 270 3,144 (3,414) 0
Compensation expense recognized
under the 1992 Stock Incentive
Plan............................. 179 179
------ ------- ------- -------- ------- ------- -------
BALANCE AT DECEMBER 31, 1997....... 6,824 6,972 (3,235) 62,097 (5,690) (714) 66,254
Net income....................... 11,459 11,459
Other comprehensive income
(loss)......................... 991 991
-------
Comprehensive income............... 12,450
Cash dividends declared ($.16 per
share)........................... (1,060) (1,060)
228,270 shares issued, net, under
employee stock option plans...... 228 1,755 1,983
Purchase of 33,310 treasury
shares........................... (616) (616)
Compensation expense recognized
under the 1992 Stock Incentive
Plan............................. 573 573
------ ------- ------- -------- ------- ------- -------
BALANCE AT DECEMBER 31, 1998....... $7,052 $ 8,727 $(2,662) $ 72,496 $(4,699) $(1,330) $79,584
====== ======= ======= ======== ======= ======= =======
See accompanying notes to consolidated financial statements.
F-17
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of all domestic and foreign subsidiaries. Significant intercompany
transactions and balances are eliminated. Certain reclassifications were made to
prior years' amounts to conform with the 1998 presentation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that effect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of the Company's
principal foreign operations are translated at exchange rates prevailing at the
end of the period. Income statement items are translated using average quarterly
exchange rates. Translation adjustments are recorded directly in stockholders'
equity and are included in income only if the underlying foreign investment is
sold or liquidated.
FOREIGN EXCHANGE RISK MANAGEMENT. The Company regularly enters into
forward contracts primarily denominated in Japanese yen and certain European
currencies to hedge firm sales and purchase commitments. Forward currency
contracts have maturities of less than one year. These contracts are used to
reduce the Company's risk associated with exchange rate movements, as gains and
losses on these contracts are intended to offset exchange losses and gains on
underlying exposures. The Company does not engage in currency speculation. The
Company's policy is to defer gains and losses on these contracts until the
corresponding losses and gains are recognized on the items being hedged. Both
the contract gains and losses and the gains and losses on the items being hedged
are included in selling and administrative expenses. The unrealized losses were
not material in 1998 and 1997 as the fair value of these contracts were
approximately equal to the fair value of the underlying exposures.
At December 31, 1998, the face amount of outstanding forward currency
contracts to sell U.S. dollars for non U.S. currencies was $3.2 million,
Japanese yen for German deutschemarks was $1.9 million and French francs for
British pounds was $0.7 million. At December 31, 1998, the face amount of
outstanding forward currency contracts to buy German deutschemarks for U.S.
dollars was $2.4 million, German deutschemarks for Japanese yen $1.9 million,
Great British pounds for U.S. dollars was $0.9 million, British pounds for
French francs was $0.7 million and British pounds for German deutschemarks was
$0.4 million.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK. Financial instruments which potentially
subject the Company to a concentration of credit risk principally consist of
cash, cash equivalents and trade receivables. The Company places its temporary
cash investments with major banks throughout the world, in high quality, liquid
instruments. The Company sells to a broad range of customers throughout the
world and performs ongoing credit evaluations to minimize the risk of loss. The
Company makes use of various devices such as letters of credit to protect its
interests, principally on sales to foreign customers. In addition, the Company
has certain receivables, payables, borrowings and other assets and liabilities
denominated in foreign currencies, which are not hedged and therefore are
subject to exchange rate fluctuations.
INVENTORIES. Inventories are valued at the lower of cost or market (net
realizable value). The last-in, first-out (LIFO) method of determining cost is
used for certain inventories in the United States and Asian branches. The
Company uses the first-in, first-out (FIFO) method for all other locations.
GOODWILL AND INTANGIBLE ASSETS. Intangible assets are stated at cost and
amortized using the straight-line method over the assets estimated useful lives
which range from 8 to 10 years. The Company evaluates the possible impairment of
long-lived assets, including intangible assets, whenever events or circumstances
indicate
F-18
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the carrying value of the assets may not be recoverable. Impairment of purchased
technology amounts and goodwill is measured on the basis of whether anticipated
future undiscounted operating cash flows expected from the acquired business
will recover the recorded respective, intangible asset balances over the
remaining amortization period. At December 31, 1998, no amounts have been
determined impaired. Amortization of goodwill and other intangibles was
$2,295,000, $1,974,000 and $2,254,000 in 1998, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT. Depreciation is computed principally using
the straight-line method over the estimated useful lives of 10 to 25 years for
land improvements, 10 to 40 years for buildings and improvements and 3 to 15
years for machinery and equipment. Maintenance and repairs are expensed as
incurred. Depreciation expense was $4,239,000, $4,341,000 and $4,619,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. Upon retirement or
disposition, the cost and related accumulated depreciation of the assets
disposed of are removed from the accounts, with any resulting gain or loss
included in operations. On March 27, 1998, the Company sold 42 acres of excess
land in Canton, Massachusetts for $13.5 million.
SOFTWARE DEVELOPMENT COSTS. Certain software development costs are
capitalized and then amortized over future periods. Amortization of capitalized
software costs is computed on a product-by-product basis over the estimated
economic life of the product, generally three years. Unamortized software costs
included in other assets were $2,272,000, $1,574,000 and $2,473,000 at December
31, 1998, 1997 and 1996, respectively. Software development costs of $1,490,000,
$637,000 and $1,144,000 were capitalized during 1998, 1997 and 1996,
respectively. The amounts amortized and charged to expense in 1998, 1997 and
1996 were $792,000, $725,000, and $1,350,000, respectively.
REVENUE RECOGNITION. Revenue from product sales are recognized at time of
shipment. Revenue from services are recognized as services are performed and
ratably over the contract period for service maintenance contracts.
INCOME TAXES. Deferred income taxes are provided using the liability
method, which estimates future tax effects of differences between financial
statement carrying amounts and the tax basis of existing assets and liabilities.
Tax credits are recorded as a reduction in income taxes.
Provisions are made for the U.S. income tax liability on earnings of
foreign subsidiaries, except for locations where the Company has designated
earnings to be permanently invested. Such earnings amounted to approximately
$22,803,000 at year-end 1998.
EARNINGS PER SHARE. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares plus the dilutive effect of common
share equivalents outstanding using the "treasury stock method."
The following is a reconciliation of the basic and diluted EPS
calculations:
1998 1997 1996
---------- --------- ---------
IN THOUSANDS, EXCEPT PER SHARE DATA
Net Income.............................................. $11,459 $7,164 $4,582
======= ====== ======
Weighted average number of common shares
outstanding -- basic............................. 6,668 6,456 6,396
Dilutive effect of stock options outstanding....... 398 336 128
------- ------ ------
Weighted average of common and dilutive
shares -- diluted................................ 7,066 6,792 6,524
======= ====== ======
BASIC EARNINGS PER SHARE........................... $ 1.72 $ 1.11 $ 0.72
======= ====== ======
DILUTED EARNINGS PER SHARE......................... $ 1.62 $ 1.05 0.70
======= ====== ======
F-19
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 1998, 4,500 Options were not included in the calculation of
diluted earnings per share as they were antidilutive.
FAIR VALUE. The Company's financial instruments consist primarily of cash
and cash equivalents, trade receivables, trade payables and debt. The carrying
amounts of these instruments approximates fair value.
COMPREHENSIVE INCOME (LOSS). In June 1997, the Financial Accounting
Standards Board issued SFAS 130, "Reporting Comprehensive Income," which is
effective for periods beginning after December 15, 1997. The statement
establishes standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. The statement requires that all components
of comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company has adopted
SFAS 130 in the accompanying financial statements.
PENSION PLAN. In February 1998, the Financial Accounting Standards Board
issued SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which is effective for periods beginning after December 15, 1997. The
statement standardizes employer disclosure requirements about pension and other
postretirement benefit plans by requiring additional information on changes in
the benefit obligations and fair values of plan assets and eliminating certain
disclosures that are no longer useful. It does not change the measurement or
recognition of those plans. The Company has adopted SFAS 132 in the accompanying
financial statements.
2. INDUSTRY SEGMENT AND FOREIGN OPERATIONS
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements of public business enterprises. It also
establishes standards for related disclosures about products and service,
geographic areas, and major customers. The Company evaluated its business
activities that are regularly reviewed by the Chief Executive Officer for which
discrete financial information is available. As a results of this evaluation,
the Company determined that it has two operating segments: Materials Testing and
Structural Testing.
Instron's materials testing business manufactures and markets material
testing instruments (electromechanical, servohydraulic, hardness and impact),
software and accessories. The structural testing business manufactures and
markets systems for simulating real-life testing of components and products. The
economic characteristics, production processes, core technology, types and
classes of customers, method of distribution and regulatory environments are
similar for both of these operating segments which operate within the material
testing industry. As a result of these similarities, both segments have been
aggregated into one reporting segment for financial statement purposes.
F-20
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes the Company's operations by significant
geographic location for the years ended December 31:
1998 1997 1996
-------- -------- --------
IN THOUSANDS
REVENUE, INCLUDING INTERAREA SALES
United States.................................... $102,860 $ 76,314 $ 70,924
Germany.......................................... 26,293 14,484 15,619
Other Europe..................................... 54,395 52,393 49,294
Asia/Latin America............................... 31,335 40,004 39,077
Other international.............................. 3,552 3,868 3,404
Eliminations..................................... (35,406) (31,403) (25,205)
-------- -------- --------
Total revenue............................ $183,029 $155,660 $153,113
======== ======== ========
IDENTIFIABLE ASSETS AT YEAR-END
United States.................................... $ 64,903 $ 38,384 $ 38,654
Germany.......................................... 22,983 6,771 8,180
Other Europe..................................... 38,546 35,903 37,091
Asia/Latin America............................... 18,232 18,645 19,149
Other international.............................. 1,965 2,072 2,499
Corporate........................................ 13,335 18,066 16,938
Eliminations..................................... (1,710) (856) (678)
-------- -------- --------
Total assets............................. $158,254 $118,985 $121,833
======== ======== ========
Total assets in the United Kingdom in 1998, 1997 and 1996 were $24,227,000,
$24,883,000 and $24,475,000, respectively.
Sales between geographic areas in 1998, 1997 and 1996, respectively,
consisted primarily of $20,023,000, $13,091,000 and $11,337,000 from the United
States and $15,204,000, $18,168,000 and $13,706,000 from European operations.
Transfers between geographic areas are at manufacturing cost plus a markup
factor.
3. INVENTORIES
Inventories at December 31 were as follows:
1998 1997
------- -------
IN THOUSANDS
Raw materials............................................... $13,257 $12,742
Work in process............................................. 16,560 5,156
Finished goods.............................................. 6,304 6,126
------- -------
Total inventory................................... $36,121 $24,024
======= =======
Inventories valued at LIFO amounted to $9,056,000 and $9,395,000 at
December 31, 1998 and 1997, respectively. The excess of current cost over stated
LIFO value was $5,205,000 at December 31, 1998 and $5,247,000 at December 31,
1997.
4. BORROWING ARRANGEMENTS
The Company maintains a multicurrency revolving credit and term loan
facility that provides for borrowings of up to $35,000,000 through April 2000.
Borrowings outstanding as of April 2000 convert to a term loan payable in
sixteen equal quarterly installments. Interest on borrowings under the agreement
is based upon either base rates, money market rates, or other short-term
borrowing rates. Facility fees under this agreement are 1/4 of
F-21
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1% per annum. The Company has met the various covenants in the agreement, the
most restrictive of which requires a minimum level of tangible net worth. At
December 31, 1998 and 1997, respectively, outstanding domestic borrowings of
$8,375,000 and $7,600,000 with a weighted average interest rate of 6.10% and
6.61%, and outstanding European borrowings of $4,841,000 in 1998 with a weighted
average interest rate of 4.75%, were classified as long-term debt. Long-term
debt maturing under the credit agreement in each of the five years subsequent to
December 31, 1998, assuming outstanding borrowings at December 31, 1998 are
unchanged at April 2000, is $2,478,000 in 2000, $3,304,000 in 2001, 2002 and
2003.
The Company's subsidiaries have other overdraft and borrowing facilities
allowing advances up to approximately $32,000,000. At December 31, 1998, the
outstanding portion of these facilities was $6,416,000, due currently. Bank
guarantees outstanding at December 31, 1998, for which the Company is
contingently liable, amounted to $10,976,000 and relate principally to
performance contracts.
5. OPERATING LEASE COMMITMENTS
Rental expense amounted to $3,998,000, $3,697,000 and $3,348,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. As of December 31,
1998, minimum annual commitments under noncancellable operating leases with
terms of more than one year are:
LATER
1999 2000 2001 2002 2003 YEARS
------ ------ ------ ------ ---- ------
IN THOUSANDS
$3,842 $3,094 $2,483 $1,245 $601 $1,033
6. INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities at December 31, are as follows:
1998 1997
------ ------
IN THOUSANDS
Employee benefits........................................... $4,634 $3,986
Inventories................................................. 3,280 2,734
Accrued expenses............................................ 1,305 632
------ ------
Total deferred assets............................. 9,219 7,352
------ ------
Accrued expenses............................................ (246) (360)
Fixed assets................................................ (1,517) (1,400)
Capitalized software costs and intangibles.................. (3,002) (982)
------ ------
Total deferred liabilities........................ (4,765) (2,742)
------ ------
Valuation reserve........................................... (490) (490)
------ ------
Total net deferred assets......................... $3,964 $4,120
====== ======
A valuation reserve has been established where, based upon available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. The valuation allowance relates primarily to foreign tax
benefits.
F-22
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The components of income before income taxes consisted of the following:
1998 1997 1996
------- ------- ------
IN THOUSANDS
Domestic............................................... $17,775 $ 5,664 $2,996
Foreign................................................ 2,558 5,891 4,389
------- ------- ------
Total........................................ $20,333 $11,555 $7,385
======= ======= ======
Income tax provisions (credits) were as follows:
1998 1997 1996
------ ------ ------
IN THOUSANDS
Currently payable:
Federal................................................ $6,441 $1,701 $ 609
Foreign................................................ 1,896 2,090 1,486
State.................................................. 381 172 314
------ ------ ------
8,718 3,963 2,409
------ ------ ------
Deferred, net:
Federal & State........................................ 139 518 215
Foreign................................................ 17 (90) 179
------ ------ ------
156 428 394
------ ------ ------
Total provision for income taxes............... $8,874 $4,391 $2,803
====== ====== ======
The provisions for income taxes varied from the United States statutory
rate of 35% for 1998 and 34% for 1997 and 1996 principally because of the tax
effect of the following:
1998 1997 1996
------ ------ ------
IN THOUSANDS
Tax provision at United States statutory rate............ $7,117 $3,929 $2,511
Effect of earnings of foreign operations subject to
different tax rates.................................... 1,019 (2) 199
State taxes, net of federal income tax benefit........... 247 114 208
Benefit of Foreign Sales Corporation..................... (76) (68) (195)
Goodwill and amortization................................ -- 356 97
All other, net........................................... 567 62 (17)
------ ------ ------
Total tax provision............................ $8,874 $4,391 $2,803
====== ====== ======
7. EMPLOYEE PENSION AND RETIREMENT PLANS
The Company maintains qualified noncontributory defined benefit pension
plans covering United States employees and employees of Instron's United Kingdom
subsidiary. The benefits are based on years of service and final average
compensation at the date of retirement. The Company's general policy is to fund
the pension plans to the extent such contributions are deductible under
standards established by the Internal Revenue Service in the U.S. and the Inland
Revenue in the U.K. Plan assets in the U.S. consist of mutual funds which invest
primarily in common stocks, corporate bonds, U.S. government notes and temporary
cash investments. In the U.K., plan assets are invested in funds whose assets
consist primarily of common stocks, bonds and other securities. Employees of the
Japan subsidiary receive lump sum payments as a multiple of annual salary at
retirement or termination, based on years of service. These Japanese benefits
are unfunded.
F-23
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Net periodic pension costs include the following components:
1998 1997 1996
----------------------- ------------------------ ------------------------
U.S. U.K. JAPAN U.S. U.K. JAPAN U.S. U.K. JAPAN
------ ------ ----- ------- ------ ----- ------- ------ -----
IN THOUSANDS
Service cost........................... $1,122 $1,749 $222 $ 961 $1,357 $231 $ 936 $1,158 $257
Interest cost.......................... 1,911 2,278 171 1,799 1,990 201 1,648 1,690 206
Expected return on plan assets......... (2,077) (2,971) 0 (1,914) (2,742) 0 (1,682) (2,576) 0
Amortization of transition asset
(liability).......................... (9) (76) 18 (9) (75) 19 (9) ( 72) 21
Amortization of prior service cost..... 44 (73) 0 44 (89) 0 44 (91) 0
Amortization of unrecognized (gain)
loss................................. 2 0 0 1 (59) 0 1 130 0
Settlement gain........................ 0 0 (118) 0 0 0 0 0 0
------ ------ ---- ------- ------ ---- ------- ------ ----
Net periodic pension cost.......... $ 993 $ 907 $293 $ 882 $ 382 $451 $ 938 $ 239 $484
====== ====== ==== ======= ====== ==== ======= ====== ====
Assumptions used in the accounting for the Company's U.S., U.K., and Japan
plans at December 31 were:
1998 1997 1996
-------------------------- -------------------------- --------------------------
U.S. U.K. JAPAN U.S. U.K. JAPAN U.S. U.K. JAPAN
------- ------- ------ ------- ------- ------ ------- ------- ------
Weighted average discount
rate......................... 6.75% 5.5% 4.0% 7.0% 6.5% 5.0% 7.5% 8.0% 6.0%
Rates of increase in
compensation levels........ 4.25 4.0 3.0 4.5 4.75 4.0 5.0 5.5 5.0
Expected long-term rate of
return on assets........... 9.0 7.25 0.0 9.0 8.75 0.0 9.0 9.5 0.0
The following is a reconciliation of the Projected Benefit Obligation as of
December 31:
1998 1997 1996
-------------------------- -------------------------- --------------------------
U.S. U.K. JAPAN U.S. U.K. JAPAN U.S. U.K. JAPAN
------- ------- ------ ------- ------- ------ ------- ------- ------
IN THOUSANDS
Projected benefit obligation
at prior year end............ $26,209 $33,222 $3,221 $23,246 $24,681 $3,404 $21,134 $20,167 $3,327
Service cost................. 1,122 1,749 222 961 1,357 231 936 1,159 257
Interest cost................ 1,911 2,278 171 1,799 1,990 201 1,648 1,690 206
Actuarial (gain) loss........ 1,170 1,160 (102) 989 7,019 (205) 201 287 4
Benefits paid................ (871) (1,437) 0 (786) (1,288) (10) (673) (1,246) (4)
Plan amendments.............. 0 262 0 0 287 0 0 94 0
Settlement................... 0 0 (872) 0 0 0 0 244 0
Foreign currency gain
(loss)..................... 0 180 400 0 (824) (400) 0 2,286 (386)
------- ------- ------ ------- ------- ------ ------- ------- ------
Projected Benefit Obligation
at year end................ $29,541 $37,414 $3,040 $26,209 $33,222 $3,221 $23,246 $24,681 $3,404
======= ======= ====== ======= ======= ====== ======= ======= ======
The following is a reconciliation of the beginning and ending balances of
the fair value of Plan assets at December 31:
1998 1997 1996
-------------------------- -------------------------- --------------------------
U.S. U.K. JAPAN U.S. U.K. JAPAN U.S. U.K. JAPAN
------- ------- ------ ------- ------- ------ ------- ------- ------
IN THOUSANDS
Fair value of plan assets at
prior year end............... $26,650 $33,522 $ 0 $24,865 $29,748 $ 0 $21,556 $24,466 $ 0
Actual return on plan
assets..................... 3,667 5,475 0 2,546 4,812 0 2,655 2,576 0
Employer contributions....... 24 1,334 551 25 1,288 10 1,327 1,195 4
Benefits paid................ (871) (1,437) (551) (786) (1,288) (10) (673) (1,246) (4)
Foreign currency gain
(loss)..................... 0 184 0 0 (1,038) 0 2,757 0
------- ------- ------ ------- ------- ------ ------- ------- ------
Fair value of plan assets at
year end................... $29,470 $39,078 $ 0 $26,650 $33,522 $ 0 $24,865 $29,748 $ 0
======= ======= ====== ======= ======= ====== ======= ======= ======
F-24
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The funded status of the Company's U.S., U.K. and Japan plans and amounts
recognized in the Consolidated Balance Sheet at December 31 were:
1998 1997 1996
-------------------------- -------------------------- --------------------------
U.S. U.K. JAPAN U.S. U.K. JAPAN U.S. U.K. JAPAN
------- ------- ------ ------- ------- ------ ------- ------- ------
IN THOUSANDS
Projected benefit obligation
in excess of (less than) plan
assets....................... $ 71 $(1,664) $3,040 $ (441) $ (300) $3,221 $(1,619) $(5,067) $3,404
Unrecognized asset
(liability) at
transition................. 48 465 (243) 57 538 (229) 66 637 (278)
Unrecognized prior service
cost....................... (461) 737 (505) 1,066 0 (549) 1,498 0
Unrecognized gain (loss)..... 4,104 163 648 3,683 (1,177) 259 4,038 4,011 77
------- ------- ------ ------- ------- ------ ------- ------- ------
Pension liability included
assets in Consolidated
Balance Sheet.............. $ 3,762 $ (299) $3,445 $ 2,794 $ 127 $3,251 $ 1,936 $ 1,079 $3,203
======= ======= ====== ======= ======= ====== ======= ======= ======
The expense of all pension plans for 1998, 1997 and 1996 was $2,193,000,
$1,715,000, and $1,661,000, respectively. The Company also sponsors a Savings
and Security Plan for all U.S. employees. The plan (in accordance with section
401(k) of the Internal Revenue Code) offers participating employees a program of
regular savings and investment, funded by their own contributions and those of
the Company. The amount charged to operating expense for this plan was $582,000,
$530,000 and $523,000 in 1998, 1997 and 1996, respectively.
8. STOCK OPTION PLANS
The Company accounts for stock-based compensation using the intrinsic value
method. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
The Company has two stock options plans currently in effect under which
future grants may be issued: the 1992 Stock Incentive Plan and the 1979
Non-Qualified Plan. A total of 1,391,500 shares has been authorized by the
Company for grants of options or shares. Stock Options granted during 1998, 1997
and 1996 generally have a maximum term of eight years and vest equally over four
years.
A summary of the Company's stock option activity for the years ended
December 31 follows:
WEIGHTED
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICES
---------- ---------------
Outstanding at December 31, 1995............................ 881,450 $10.80
Granted, 1996............................................... 225,750 13.51
Exercised, 1996............................................. (112,726) 9.91
Terminated, 1996............................................ (15,750) 12.59
--------
Outstanding at December 31, 1996............................ 978,724 11.49
Granted, 1997............................................... 5,000 12.25
Exercised, 1997............................................. (37,385) 11.02
Terminated, 1997............................................ (13,000) 12.43
--------
Outstanding at December 31, 1997............................ 933,339 11.51
Granted, 1998............................................... 77,250 16.71
Exercised, 1998............................................. (260,848) 9.92
Terminated, 1998............................................ (24,937) 13.90
--------
Outstanding at December 31, 1998............................ 724,804 $12.55
========
F-25
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 1998, 1997 and 1996, respectively, there were 502,735,
656,902 and 526,045 options exercisable with a weighted average exercise price
of $11.84, $10.94 and $10.58. Exercise prices for options outstanding as of
December 31, 1998, ranged from $10.00 to $19.625. The weighted average remaining
contractual life of those options is 4.3 years.
The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $7.39, $5.04 and $5.79 per option, respectively. The
fair value of these options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions for 1998,
1997 and 1996, respectively: risk-free interest rates of 5.07%, 5.70% and 6.50%;
dividend yields of 0.97%, 1.31% and 1.19%; volatility factors of the expected
market price of the Company's common stock of .35, .31 and .30; and a weighted
average expected life of the options of 7.9, 8.0 and 7.8 years.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1998, 1997 and 1996, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
1998 1997 1996
------- ------ ------
Net income -- pro forma................................. $10,871 $6,691 $4,105
Earnings per share -- basic............................. $ 1.63 $ 1.04 $ .64
Earnings per share -- diluted........................... $ 1.54 $ .99 $ .63
The pro forma effect on net income for 1997 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
On May 14, 1997 and October 29, 1997, respectively, the Company issued
250,000 and 20,500 shares of restricted stock to key employees, which resulted
in $3,414,000 of non-cash deferred compensation to be recognized as operating
expense over a seven year period. Vesting is accelerated upon change in control
or if certain performance criteria are met.
9. ACQUISITIONS
On August 4, 1998, the Company acquired substantially all the assets of
Satec Systems, Inc. of Grove City, Pennsylvania, for approximately $12.6 million
in cash. Satec is a manufacturer of a range of materials testing equipment sold
primarily in the United States with annual sales of approximately $18.0 million.
This acquisition has been accounted for under the purchase method of accounting
and, accordingly, the acquired assets and liabilities have been recorded at
their estimated fair values at the date of acquisition. In conjunction with this
acquisition the Company recorded $7.2 million of goodwill which is being
amortized over ten years. The operating results of Satec have been included in
the Company's consolidated results of operations from the date of acquisition.
On September 27, 1998, the Company acquired the remaining 49% interest in
Instron Schenck Testing Systems ("IST") from Carl Schenck A.G. of Darmstadt,
Germany for $2.7 million in cash. The book value of net assets acquired were
equal to the consideration paid. IST has become a world-class structures testing
business with sales of more than $55 million in 1998. This additional investment
has been accounted for under the purchase method of accounting and, accordingly,
the acquired assets and liabilities have been recorded at their estimated fair
values at the date of acquisition. The operations of IST for the fourth quarter
of 1998 have been consolidated into the Company's results of operations from the
date of acquisition. Prior to this acquisition the Company accounted for its 51%
interest in IST under the equity method of accounting.
10. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair
F-26
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The statement is effective for fiscal years beginning
after June 15, 1999. Management is currently evaluating the effects of this
change on its recording of derivatives and hedging activities. The Company will
adopt SFAS No. 133 for its fiscal year ending December 31, 2000.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Internal Use Software," which provides
guidance on the accounting for the costs of software developed or obtained for
internal use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. This statement does not have a material impact on the Company's
financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which is effective for periods beginning after
December 15, 1997. The statement establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. The statement
requires that all components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted SFAS 130 in the accompanying financial
statements.
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
is effective for periods beginning after December 15, 1997. The statement
standardizes employer disclosure requirements about pension and other
postretirement benefit plans by requiring additional information on changes in
the benefit obligations and fair values of plan assets and eliminating certain
disclosures that are no longer useful. It does not change the measurement or
recognition of those plans. The Company has adopted SFAS 132 in the accompanying
financial statements.
11. SPECIAL ITEMS CHARGES
During the first quarter of 1998, the Company recorded a special items
charge to operations to undertake a consolidation of its European operations and
write-down the value of certain non-performing assets. A pre-tax charge of $5.0
million was taken in the quarter ended March 28, 1998 to cover these actions.
The special items charge includes termination benefits, the costs to exit a
manufacturing facility, other asset impairments and other related costs. The
Company has closed down a manufacturing plant in Germany, relocated sales and
service support personnel to another Instron location in Germany and has moved
the manufacturing operation to the United Kingdom. During 1998 the Company paid
$1.4 million for termination benefits and related costs and $1.6 million for the
costs to shutdown and exit a manufacturing facility in Germany. In addition, the
Company wrote-off $1.0 million of non-performing assets in 1998, primarily
relating to its interest in Lightspeed Simulation Systems. The balance of the
Special Items reserve relates primarily to the Company's obligation under a
long-term lease agreement in Germany, partially offset by estimated income under
a sub-lease arrangement.
In March 1996, the Company recognized a $1,812,000 special items charge to
implement a work force reduction and consolidate certain manufacturing
operations.
F-27
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
(QUARTERLY DATA UNAUDITED)
QUARTER QUARTER QUARTER QUARTER
1 2 3 4 YEAR
------- ------- ------- ------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
1998:
Total revenue................................. $33,869 $37,761 $43,331 $68,068 $183,029
Gross profit.................................. 13,742 15,734 16,718 25,781 71,975
Income before income taxes.................... 8,159 2,914 3,403 5,857 20,333
Net income.................................... 3,911 1,807 2,110 3,631 11,459
Earnings per share -- basic*.................. 0.60 0.27 0.32 0.54 1.72
Earnings per share -- diluted................. 0.55 0.25 0.30 0.52 1.62
------- ------- ------- ------- --------
1997:
Total revenue................................. $36,023 $37,124 $35,996 $46,517 $155,660
Gross profit.................................. 14,706 15,127 15,008 19,330 64,171
Income before income taxes.................... 1,482 2,376 2,966 4,731 11,555
Net income.................................... 919 1,470 1,842 2,933 7,164
Earnings per share -- basic................... 0.14 0.23 0.29 0.45 1.11
Earnings per share -- diluted*................ 0.14 0.22 0.26 0.42 1.05
------- ------- ------- ------- --------
* The sum of the quarterly earnings per share does not equal the amount
reported for the year, as per share amounts are calculated independently
and are based on the weighted average common shares outstanding for each
period.
F-28
139
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENTS SCHEDULE
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF INSTRON CORPORATION:
Our audits of the consolidated financial statements referred to in our
report dated February 18, 1999 included in this Registration Statement on Form
S-4 also included an audit of the financial statements schedule Consolidated
Valuation Accounts which appears in this Registration Statement on Form S-4. In
our opinion, this financial statements schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
--------------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
F-29
140
INSTRON CORPORATION
CONSOLIDATED VALUATION ACCOUNTS
(A) EFFECT OF
BALANCE AT ADDITION FOREIGN
BEGINNING CHARGED TO CURRENCY (B) BALANCE AT
DESCRIPTION OF YEAR OPERATIONS TRANSLATION DEDUCTIONS END OF YEAR
----------- ---------- ---------- ------------ ---------- -----------
Allowance for doubtful accounts:
Year ended December 31, 1998 $1,071,000 $146,000 $(43,000) $374,000 $ 800,000
---------- -------- -------- -------- ----------
Year ended December 31, 1997 $1,107,000 $ 27,000 $(56,000) $ 7,000 $1,071,000
---------- -------- -------- -------- ----------
Year ended December 31, 1996 $1,040,000 $358,000 $ 27,000 $318,000 $1,107,000
- ---------------
(A) Included in "Additions Charged to Operations" for the year ended December
31, 1998, is 73,000 for allowance for doubtful accounts recorded in
conjunction with the acquisitions of Satec and IST.
(B) Uncollected receivables written off, net of recoveries an deduction due to
the disposal of LMS in 1997.
F-30
141
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JANUARY , 2000
LOGO
$60,000,000
INSTRON CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
13 1/4% SENIOR SUBORDINATED NOTES DUE 2009
FOR 13 1/4% SENIOR SUBORDINATED NOTES DUE 2009
------------------------------------------
PROSPECTUS
------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Instron have
not changed since the date hereof.
- --------------------------------------------------------------------------------
142
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts General Laws provides that
indemnification of directors and officers of a Massachusetts corporation may be
provided to the extent specified or authorized by its articles of organization
or a by-law provision adopted by the stockholders.
Under Article 6(a) of the Restated Articles of Organization of the
Registrant, the Registrant shall, except as limited by law or as provided in
Article 6(a), indemnify any director or officer who was or is threatened to be
made party to, or is involved in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Registrant, or is or was serving at the request of the Registrant as a director,
officer, employee or agent of another organization or who serves at the
Registrant's request in any capacity with respect to any employee benefit plan
(an "Indemnified Party"). Except as limited by law or as provided in Article
6(a), indemnification shall be provided whether the basis of such Proceeding is
alleged action in an official capacity as an Indemnified Party or in any other
capacity while serving as an Indemnified Party, against all expense, liability,
and loss (including attorneys' fees, judgments, fines, excise taxes or penalties
and amounts paid or to be paid in settlement with respect to the Proceeding)
actually and reasonably incurred or suffered by such person in connection
therewith. Any such indemnification shall be provided although the Indemnified
Party is no longer an officer, director, employee or agent of the Registrant or
of such other organization or no longer serves with respect to any such employee
benefit plan. No indemnification shall be provided under Article 6(a) for any
person with respect to any matter as to which he or she shall have been
adjudicated in any Proceeding not to have acted in good faith in the reasonable
belief that his or her action was in the best interest of the Registrant or to
the extent that such matter relates to service with respect to an employee
benefit plan, in the best interest of the participants or beneficiaries of such
employee benefit plan. If authorized by the board of directors or the
stockholders, the Registrant may pay indemnification in advance of final
disposition of a Proceeding upon receipt of an undertaking by such Indemnified
Party to repay such payment if he or she shall be adjudicated to be not entitled
to indemnification, which undertaking may be accepted without reference to the
financial ability of such Indemnified Party to make repayment.
Article 6(a) also permits the Registrant to indemnify any employees or
other agents of the Registrant to an extent greater than that required by law
only if and to the extent the board of directors may, in their discretion, so
determine. The indemnification and advancement of expenses provided under
Article 6(a) are not exclusive of any other rights to which any such indemnified
person may be entitled under any law. Nothing in Article 6(a) affects any rights
to indemnification to which corporate personnel other than the persons
designated in Article 6(a) may be entitled by contract, by vote of the board of
directors, or otherwise under law.
ITEM 21. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of May 6, 1999, among
Kirtland Capital Partners III L.P., ISN Acquisition
Corporation and Instron Corporation (incorporated herein by
reference to Appendix A of the Definitive Proxy Statement on
Schedule 14A of Instron Corporation, filed on July 22,
1999).
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated
as of August 5, 1999, among Kirtland Capital Partners III
L.P., ISN Acquisition Corporation and Instron Corporation
(incorporated herein by reference to Appendix B of the
Revised Letter to Shareholders, filed as Definitive
Additional Materials on Schedule 14A of Instron Corporation
on August 6, 1999).
*3.1(i) Restated Articles of Organization of Instron Corporation.
*3.1(ii) Amended and Restated By-Laws of Instron Corporation.
II-1
143
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*4.1 Indenture, dated as of September 29, 1999, between Instron
Corporation and Norwest Bank Minnesota, National Association
as Trustee.
*4.2 Debt Registration Rights Agreement, dated as of September
29, 1999, by and among Instron Corporation, the Subsidiary
Guarantors and Donaldson, Lufkin & Jenrette Securities
Corporation.
*4.3 Warrant Registration Rights Agreement, dated as of September
29, 1999, by and between Instron Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation.
*4.4 Warrant Agreement, dated as of September 29, 1999, between
Instron Corporation and Norwest Bank Minnesota, National
Association as Warrant Agent.
*4.5 Form of Exchange Note (included in Exhibit 4.1).
*4.6 Form of Warrant (included in Exhibit 4.6).
+5.1 Opinion of Jones, Day, Reavis & Pogue regarding validity of
the exchange notes.
*10.1 Credit and Security Agreement, dated as of September 29,
1999, among Instron Corporation, Instron, Ltd., Instron
Schenck Testing Systems, GMBH and Instron Wolpert GMBH as
Borrowers and the Banks which are Signatories and National
City Bank as Administrative Agent.
10.2 Letter Agreement dated as of May 6, 1999 by and among
Kirtland and the Management Investors (incorporated herein
by reference to Exhibit (c)(2) to Schedule 13E-3 of Instron
Corporation, filed on May 26, 1999).
10.3 Letter Agreement dated as of May 6, 1999 by and among
Kirtland, Instron Corporation and the Other Investors
(incorporated herein by reference to Exhibit (c)(3) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.4 Voting Agreement dated as of May 6, 1999 by and among
Kirtland, MergerCo, the Management Investors and certain of
their affiliates, and the Other Investors and certain of
their affiliates (incorporated herein by reference to
Exhibit (c)(4) to Schedule 13E-3 of Instron Corporation,
filed on May 26, 1999).
10.5 Form of Stockholders Agreement by and among Instron
Corporation and all of its stockholders (incorporated herein
by reference to Exhibit (c)(5) to Schedule 13E-3 of Instron
Corporation, filed on May 26, 1999).
10.6 Form of Amendment to Restricted Stock Award Agreement
(incorporated herein by reference to Exhibit (c)(6) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.7 Form of Instron Corporation 1999 Stock Option Plan
(incorporated herein by reference to Exhibit (c)(7) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.8 Form of Incentive Stock Option Agreement (incorporated
herein by reference to Exhibit (c)(8) to Schedule 13E-3 of
Instron Corporation, filed on May 26, 1999).
10.9 Form of Nonqualified Stock Option Agreement (incorporated
herein by reference to Exhibit (c)(9) to Schedule 13E-3 on
Instron Corporation, filed on May 26, 1999).
10.10 Form of Amendment to Instron Corporation 1992 Stock
Incentive Plan (incorporated herein by reference to Exhibit
(c)(10) to Schedule 13E-3 of Instron Corporation, filed on
May 26, 1999).
10.11 Form of Amendment to Nonqualified Stock Option Agreement
(incorporated herein by reference to Exhibit (c)(11) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.12 Form of Amendment to Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit (c)(12) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
*12 Statement regarding computation of earnings to fixed
charges.
*21 Subsidiaries of Instron Corporation (incorporated herein by
reference to Exhibit 21 to the Annual Report on Form 10-K of
Instron Corporation, filed on April 9, 1999).
+23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
II-2
144
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*23.2 Consent of PricewaterhouseCoopers LLP.
*24 Powers of Attorney.
*25 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1.
*27 Financial Data Schedule.
*99.1 Letter of Transmittal.
*99.2 Notice of Guaranteed Delivery.
- ---------------
* filed herewith.
+ to be filed by amendment.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(x) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(y) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(z) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(d) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form; and
(e) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the
II-3
145
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(4) The undersigned hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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 date of the registration statement through the date of
responding to the request.
(5) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
INSTRON CORPORATION
By: /s/ LINTON A. MOULDING
------------------------------------
Linton A. Moulding
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
* Director, President and Chief Executive
- ------------------------------------------ Officer (Principal Executive Officer)
James M. McConnell
/s/ LINTON A. MOULDING Chief Financial Officer and Vice President
- ------------------------------------------ (Principal Financial and Accounting
Linton A. Moulding Officer)
* Director
- ------------------------------------------
Raymond A. Lancaster
* Director
- ------------------------------------------
James M. McConnell
* Director
- ------------------------------------------
Thomas N. Littman
Director
- ------------------------------------------
John F. Turben
* Director
- ------------------------------------------
Dennis J. Moore
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the company and which have been filed
with the Securities and exchange Commission on behalf of such officers and
directors.
By: /s/ LINTON A. MOULDING December 28, 1999
--------------------------------------
Linton A. Moulding, Attorney-in-Fact
for the Officers and Directors signing
in the capacities indicated
II-5
147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
INSTRON SCHENCK TESTING SYSTEMS CORP.
By: /s/ YAYHA GHARAGOZLOU
------------------------------------
Yayha Gharagozlou
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
/s/ YAYHA GHARAGOZOLOU Director
- ------------------------------------------ (Principal Executive Officer and Principal
Yayha Gharagozolou Financial and Accounting Officer)
II-6
148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
INSTRON/LAWRENCE CORPORATION
By: /s/ LINTON A. MOULDING
------------------------------------
Linton A. Moulding
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
* Director
- ------------------------------------------ (Principal Executive Officer)
James M. McConnell
/s/ LINTON A. MOULDING Director
- ------------------------------------------ (Principal Financial and Accounting
Linton A. Moulding Officer)
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the company and which have been filed
with the Securities and exchange Commission on behalf of such officers and
directors.
By: /s/ LINTON A. MOULDING December 28, 1999
--------------------------------------
Linton A. Moulding, Attorney-in-Fact
for the Officers and Directors signing
in the capacities indicated
II-7
149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
INSTRON REALTY TRUST
By: /s/ LINTON A. MOULDING
------------------------------------
Linton A. Moulding
Trustee
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
* Trustee
- ------------------------------------------ (Principal Executive Officer)
James M. McConnell
/s/ LINTON A. MOULDING Trustee
- ------------------------------------------ (Principal Financial and Accounting
Linton A. Moulding Officer)
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Power of Attorney executed by the
above-named Trustee of the registrant and which has been filed with the
Securities and exchange Commission on behalf of such Trustee.
By: /s/ LINTON A. MOULDING December 28, 1999
--------------------------------------
Linton A. Moulding, Attorney-in-Fact
for the Trustee signing in the
capacities indicated
II-8
150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
IRT-II TRUST
By: /s/ LINTON A. MOULDING
------------------------------------
Linton A. Moulding
Trustee
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
* Trustee
- ------------------------------------------ (Principal Executive Officer)
James M. McConnell
/s/ LINTON A. MOULDING Trustee
- ------------------------------------------ (Principal Financial and Accounting
Linton A. Moulding Officer)
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Power of Attorney executed by the
above-named Trustee of the registrant and which has been filed with the
Securities and exchange Commission on behalf of such Trustee.
By: /s/ LINTON A. MOULDING December 28, 1999
--------------------------------------
Linton A. Moulding, Attorney-in-Fact
for the Trustee signing in the
capacities indicated
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151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
INSTRON JAPAN COMPANY, LTD.
By: /s/ JAMES M. MCCONNELL
------------------------------------
James M. McConnell
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
/s/ JAMES M. MCCONNELL Director
- ------------------------------------------ (Principal Executive Officer)
James M. McConnell
* Director
- ------------------------------------------ (Principal Financial and Accounting
Sjomua Izumi Officer)
* Director
- ------------------------------------------
Arthur D. Hindman
* Director
- ------------------------------------------
Yasuhisa Okamoto
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the company and which have been filed
with the Securities and exchange Commission on behalf of such officers and
directors.
By: /s/ LINTON A. MOULDING December 28, 1999
--------------------------------------
Linton A. Moulding, Attorney-in-Fact
for the Officers and Directors signing
in the capacities indicated
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152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this resignation statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Canton, Commonwealth of
Massachusetts on December 28, 1999.
INSTRON ASIA LIMITED
By: /s/ ARTHUR D. HINDMAN
------------------------------------
Arthur D. Hindman
Director and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 28, 1999.
SIGNATURES TITLE
---------- -----
* Director and President (Principal Executive Officer)
- --------------------------------------------
Arthur D. Hindman
* Director (Principal Financial and Accounting Officer)
- --------------------------------------------
Robert C. Marini
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the company and which have been filed
with the Securities and exchange Commission on behalf of such officers and
directors.
By: /s/ LINTON A. MOULDING December 28, 1999
--------------------------------------
Linton A. Moulding, Attorney-in-Fact
for the Officers and Directors signing
in the capacities indicated
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153
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of May 6, 1999, among
Kirtland Capital Partners III L.P., ISN Acquisition
Corporation and Instron Corporation (incorporated herein by
reference to Appendix A of the Definitive Proxy Statement on
Schedule 14A of Instron Corporation, filed on July 22,
1999).
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated
as of August 5, 1999, among Kirtland Capital Partners III
L.P., ISN Acquisition Corporation and Instron Corporation
(incorporated herein by reference to Appendix B of the
Revised Letter to Shareholders, filed as Definitive
Additional Materials on Schedule 14A of Instron Corporation
on August 6, 1999).
*3.1(i) Restated Articles of Organization of Instron Corporation.
*3.1(ii) Amended and Restated By-Laws of Instron Corporation.
*4.1 Indenture, dated as of September 29, 1999, between Instron
Corporation and Norwest Bank Minnesota, National Association
as Trustee.
*4.2 Debt Registration Rights Agreement, dated as of September
29, 1999, by and among Instron Corporation, the Subsidiary
Guarantors and Donaldson, Lufkin & Jenrette Securities
Corporation.
*4.3 Warrant Registration Rights Agreement, dated as of September
29, 1999, by and between Instron Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation.
*4.4 Warrant Agreement, dated as of September 29, 1999, between
Instron Corporation and Norwest Bank Minnesota, National
Association as Warrant Agent.
*4.5 Form of Exchange Note (included in Exhibit 4.1).
*4.6 Form of Warrant (included in Exhibit 4.4).
+5.1 Opinion of Jones, Day, Reavis & Pogue regarding validity of
the exchange notes.
*10.1 Credit and Security Agreement, dated as of September 29,
1999, among Instron Corporation, Instron, Ltd., Instron
Schenck Testing Systems, GMBH and Instron Wolpert GMBH as
Borrowers and the Banks which are Signatories and National
City Bank as Administrative Agent.
10.2 Letter Agreement dated as of May 6, 1999 by and among
Kirtland and the Management Investors (incorporated herein
by reference to Exhibit (c)(2) to Schedule 13E-3 of Instron
Corporation, filed on May 26, 1999).
10.3 Letter Agreement dated as of May 6, 1999 by and among
Kirtland, Instron Corporation and the Other Investors
(incorporated herein by reference to Exhibit (c)(3) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.4 Voting Agreement dated as of May 6, 1999 by and among
Kirtland, MergerCo, the Management Investors and certain of
their affiliates, and the Other Investors and certain of
their affiliates (incorporated herein by reference to
Exhibit (c)(4) to Schedule 13E-3 of Instron Corporation,
filed on May 26, 1999).
10.5 Form of Stockholders Agreement by and among Instron
Corporation and all of its stockholders (incorporated herein
by reference to Exhibit (c)(5) to Schedule 13E-3 of Instron
Corporation, filed on May 26, 1999).
10.6 Form of Amendment to Restricted Stock Award Agreement
(incorporated herein by reference to Exhibit (c)(6) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.7 Form of Instron Corporation 1999 Stock Option Plan
(incorporated herein by reference to Exhibit (c)(7) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.8 Form of Incentive Stock Option Agreement (incorporated
herein by reference to Exhibit (c)(8) to Schedule 13E-3 of
Instron Corporation, filed on May 26, 1999).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.9 Form of Nonqualified Stock Option Agreement (incorporated
herein by reference to Exhibit (c)(9) to Schedule 13E-3 on
Instron Corporation, filed on May 26, 1999).
10.10 Form of Amendment to Instron Corporation 1992 Stock
Incentive Plan (incorporated herein by reference to Exhibit
(c)(10) to Schedule 13E-3 of Instron Corporation, filed on
May 26, 1999).
10.11 Form of Amendment to Nonqualified Stock Option Agreement
(incorporated herein by reference to Exhibit (c)(11) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
10.12 Form of Amendment to Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit (c)(12) to
Schedule 13E-3 of Instron Corporation, filed on May 26,
1999).
*12 Statement regarding computation of earnings to fixed
charges.
*21 Subsidiaries of Instron Corporation (incorporated herein by
reference to Exhibit 21 to the Annual Report on Form 10-K of
Instron Corporation, filed on April 9, 1999).
+23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
*23.2 Consent of PricewaterhouseCoopers LLP.
*24 Powers of Attorney.
*25 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1.
*27 Financial Data Schedule.
*99.1 Letter of Transmittal.
*99.2 Notice of Guaranteed Delivery.
- ---------------
* filed herewith.
+ to be filed by amendment.
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