<PAGE> 1
REGISTRATION NO. 333-25325
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACORN PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3423 22-3265462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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<TABLE>
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GAVRIL MIHALY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
500 DUBLIN AVENUE 500 DUBLIN AVENUE
COLUMBUS, OHIO 43216-1930 COLUMBUS, OHIO 43216-1930
(614) 222-4400 (614) 222-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT
PRINCIPAL EXECUTIVE OFFICES) FOR SERVICE)
WITH COPIES TO:
CONOR D. REILLY, ESQ. CHRISTOPHER M. KELLY, ESQ.
GIBSON, DUNN & CRUTCHER LLP JONES, DAY, REAVIS & POGUE
200 PARK AVENUE 901 LAKESIDE AVENUE
NEW YORK, NEW YORK 10166-0193 CLEVELAND, OHIO 44114
(212) 351-4000 (216) 586-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practical after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock, $.001 par value......... 3,737,500 $15.00 $56,062,500 $17,000
================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(2) A registration fee of $14,700 previously was paid in connection with the
initial filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 23, 1997
PROSPECTUS
3,250,000 SHARES
ACORN PRODUCTS, INC.
COMMON STOCK
------------------------
All of the shares of common stock, par value $.001 per share (the "Common
Stock"), of Acorn Products, Inc. ("Acorn") offered hereby (the "Offering"), are
being issued and sold by Acorn. Of the 3,250,000 shares being offered hereby,
812,500 shares have been reserved for sale to the OCM Principal Opportunities
Fund, L.P. (the "Oaktree Fund") and 66,500 shares have been reserved for sale to
officers, directors and employees of Acorn and its subsidiaries. See
"Underwriting".
Prior to this Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.
The Common Stock has been submitted for approval for quotation on the
Nasdaq National Market under the symbol "ACRN", subject to official notice of
issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT ACORN(1)
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Per share......................... $ $ $
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Total(2).......................... $ $ $
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(1) Before deducting expenses payable by Acorn, estimated at $1.5 million. Acorn
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
(2) Acorn has granted the Underwriters a 30-day option to purchase up to 487,500
additional shares of Common Stock at the Price to Public less the
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, and Proceeds to Acorn will be $ ,
$ and $ , respectively. See "Underwriting".
------------------------
The shares of Common Stock are offered by the Underwriters subject to
receipt and acceptance of the shares by them. The Underwriters reserve the right
to reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that delivery of shares of Common Stock
will be made on or about , 1997.
A.G. Edwards & Sons, Inc.
The date of this Prospectus is , 1997.
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[PHOTOGRAPHS OF THE COMPANY'S PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements (including the Notes thereto) appearing elsewhere in this Prospectus.
As used in this Prospectus and except as the context otherwise may require, the
"Company" means Acorn and its subsidiaries, other than McGuire-Nicholas Company,
Inc. ("McGuire-Nicholas") and VSI Fasteners, Inc. ("VSI"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Disposition of Lawn and Garden Business Operations and
"Description of McGuire-Nicholas". References to the Company's fiscal year mean
the fiscal year ended on the Friday closest to July 31 of the applicable year
(e.g., fiscal 1996 means the fiscal year ended August 2, 1996). Unless the
context otherwise requires, the information contained herein gives effect to a
1,446-for-1 split of the Common Stock effected on May 22, 1997 in the form of a
stock dividend to all stockholders of record on May 21, 1997. In addition,
unless the context otherwise requires, the information contained in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in such statements as a result of various factors,
including those set forth under the caption "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
Founded in 1890, the Company is a leading manufacturer and marketer of
non-powered lawn and garden tools in the U.S. The Company's principal products
include long handle tools (such as forks, hoes, rakes and shovels), snow tools,
posthole diggers, wheelbarrows, striking tools and cutting tools. The Company
sells its products under a variety of well-known brand names, including
Razor-Back, Union, Yard 'n Garden, Perfect Cut and, pursuant to a license
agreement, Scotts. In addition, the Company manufactures private label products
for a variety of retailers, including products sold under Sears' Craftsman and
Cotter & Company's True Value brand names. The Company's customers include mass
merchants such as Sears, Kmart and Fred Meyer, home centers such as Home Depot,
HomeBase, Builders Square and Payless Cashways, buying groups such as Cotter &
Company and Ace Hardware and farm and industrial distributors.
The Company believes that the lawn and garden industry is the beneficiary
of several significant trends suggesting a growing demand for lawn and garden
tools, including (i) the continuing popularity of gardening (industry sources
estimate that approximately 80 million households in the U.S. participated in
some form of gardening in 1994), (ii) the movement of the "baby boomer"
generation into the 45 to 54 age group (estimated to increase by approximately
54% from 1998 to 2008), which industry sources estimate represents the largest
age group of lawn and garden enthusiasts and (iii) a general increase in housing
starts, representing a net addition of homeowners who are likely purchasers of
lawn and garden tools. In addition, due to the comparative affordability of lawn
and garden tools, the industry is relatively non-cyclical.
The Company's net sales increased from $56.2 million in fiscal 1991 to
$92.7 million in fiscal 1996, a compound annual growth rate ("CAGR") of 10.5%.
The Company's net sales were $78.0 million for the nine months ended May 2,
1997, an increase of 12.3% from the same period in fiscal 1996. In addition, net
sales of the Company's higher-margin, best-quality products increased to
approximately 36% of total net sales in fiscal 1996, while net sales of the
Company's lower-margin, opening-price-point products decreased to approximately
7% of total net sales in fiscal 1996. The Company generated approximately 92% of
its revenues in both fiscal 1996 and the nine months ended May 2, 1997 from
sales of long handle tools. The Company believes that it has gained the second
largest market share in the long handle tools segment of the industry (with an
estimated market share of approximately 28% in 1996) from the third largest
market share in the early 1990s.
BUSINESS STRATEGY
Over the past six years the Company has successfully implemented a business
strategy designed to transform it from a manufacturing-oriented industrial
company into a marketing-oriented consumer products
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<PAGE> 5
company. The central elements of the Company's approach include a market
segmentation strategy based primarily on brand management and a merchandising
strategy based on attractive and informative product displays and labeling.
- Market Segmentation Strategy. The Company has developed a family of
brands, each targeted to one or more specific consumer segments and
price-points. For example, shovels sold under the Company's
opening-price-point Yard 'n Garden brand retail from $3.99 to $5.99,
while shovels sold under the Company's best-quality Razor-Back brand
retail from $19.99 to $21.99. The Company's products and brands are
differentiated by price, features and warranty, as well as by the
materials and production processes used.
- Merchandising Strategy. The Company was the first in the long handle
tool segment of the non-powered lawn and garden industry to successfully
implement sophisticated merchandising and marketing programs. The
Company's merchandising programs are designed to (i) create brand
identification among goods historically treated as commodities and (ii)
increase retail sales while reducing the amount of sales support needed
from the retailer's employees. The Company uses innovative product
labeling and point-of-sale signage and racking to highlight the
comparative value and quality of products within and among the Company's
brands. Products within the Company's Union, Scotts and Perfect Cut lines
are merchandised using the Company's trademarked "Good/Better/Best"
format. Where adequate shelf-space is available, the Company also
merchandises its brands together, from the Company's opening price-point
Yard 'n Garden brand to its best-quality Razor-Back brand, using a
similar value positioning technique. The Company believes that its
merchandising strategy facilitates comparison shopping and encourages
consumers to purchase higher price-point products.
Over the past six years, the Company also has expanded its infrastructure
to support future growth by recruiting an experienced management team,
increasing manufacturing capacity and enhancing its management information
systems.
GROWTH STRATEGY
The Company believes that it can leverage the success of its business
strategy through the implementation of the following growth strategies:
- Increase Penetration in High Growth Distribution Channels. The Company
believes that certain distribution channels, such as home centers and
mass merchants, are growing more rapidly than the overall industry. The
Company believes that it can continue to increase its sales in these high
growth distribution channels through its unique combination of brand
names, innovative merchandising techniques and high quality products. For
example, in August 1996, after the Company demonstrated the effectiveness
of its market segmentation and merchandising strategies in a select
number of Home Depot stores, Home Depot selected the Company as the
supplier of long handle tools for all new Home Depot stores in new
markets and for 50 existing Home Depot stores. Home Depot has indicated
that it expects to open over 450 additional stores over the next five
years, primarily in new markets. In addition, the Company has been a
continuous supplier to Sears for over 80 years and the primary supplier
of long handle tools to Sears for over 50 years. In five of the last six
years the Company has received the prestigious "Partners in Progress"
trophy awarded to approximately 80 of Sears' 10,000 suppliers. Sears has
indicated that it expects to open or acquire over 500 additional non-mall
hardware stores over the next five years.
- Develop Product Line Extensions. The Company believes that product line
extensions allow the Company to increase sales with minimal incremental
expenditures. The Company recently expanded its cutting tool and striking
tool product lines with the introduction of Perfect Cut pruning shears
and loppers and Razor-Back mattocks, picks, axes, hammers and bars. The
Company also recently introduced the Lady Gardener line of tools, which
is ergonomically designed for female gardeners. The Company is actively
developing additional product line extension opportunities.
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- Complete Strategic Acquisitions. The Company intends to increase its
presence in certain segments of the lawn and garden industry through
selective acquisitions and to increase operating efficiencies through
vertical integration. Consistent with this strategy, in February 1997 the
Company acquired an injection molding facility from one of the Company's
largest suppliers of plastic parts. The Company's Credit Facility
contains a $35 million acquisition facility, approximately $28.7 million
of which will be available following consummation of the Offering and the
application of the net proceeds therefrom (as of May 2, 1997 and at an
assumed initial public offering price of $14.00, the mid-point of the
range of initial public offering prices set forth on the cover page of
this Prospectus). In addition, Oaktree Capital Management, LLC
("Oaktree"), the general partner of the Oaktree Fund, has indicated its
willingness to consider providing financing from the Oaktree Fund for
future acquisitions by the Company, however, there can be no assurance in
this regard.
The Company believes that continued application of its market segmentation and
merchandising strategies, together with the implementation of the foregoing
growth strategies, will enable the Company to continue its growth, increase its
profitability and enhance its market share.
The Company's executive offices are located at 500 Dublin Avenue, Columbus,
Ohio 43216-1930, and its telephone number is (614) 222-4400.
DISPOSITION OF NON-LAWN AND GARDEN BUSINESS OPERATIONS
In December 1996, the Company sold substantially all of the assets of VSI,
a distributor of packaged fasteners, for approximately $6.9 million, plus the
assumption of approximately $2.3 million of related liabilities. The Company
also intends to sell McGuire-Nicholas within the next 12 months.
McGuire-Nicholas is a manufacturer and distributor of leather, canvas and
synthetic fabric tool holders and work aprons. VSI's and McGuire-Nicholas'
results of operations are shown as "Loss from discontinued operations" in the
Summary Consolidated Financial Data, Selected Consolidated Financial Data and
the Consolidated Financial Statements appearing elsewhere in this Prospectus.
Net assets and net liabilities of the discontinued VSI and McGuire-Nicholas
operations are shown as "Net assets of discontinued operations" and "Net
liabilities of discontinued operations" in the Consolidated Financial Statements
appearing elsewhere in this Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Disposition of
Non-Lawn and Garden Business Operations" and "Description of McGuire-Nicholas".
Following the intended sale of McGuire-Nicholas, UnionTools, Inc. ("UnionTools")
will be the Company's only remaining operating subsidiary.
FUND TRANSACTIONS
Of the 3,250,000 shares being offered hereby, 812,500 shares have been
reserved for sale to the Oaktree Fund.
In December 1993 and in May 1994 Acorn issued certain subordinated
promissory notes in the aggregate principal amount of approximately $31.4
million (the "Subordinated Notes") to several investment funds and accounts (the
"TCW Funds") managed by affiliates of The TCW Group, Inc. (the "TCW Group"). In
August 1996 Acorn issued 100 shares of Series A Preferred Stock with an
aggregate stated value of approximately $8.6 million (the "Series A Preferred
Stock") to the TCW Funds as payment in full of accrued interest on the
Subordinated Notes for fiscal 1995 and fiscal 1996. As of May 2, 1997, the
aggregate principal balance of the Subordinated Notes and accrued interest
thereon was approximately $34.4 million and the aggregate liquidation value of
the Series A Preferred Stock was approximately $9.4 million. See "Certain
Transactions".
The Company intends to use approximately $20.4 million of the estimated net
proceeds of $40.8 million from the Offering to redeem the Series A Preferred
Stock and pay accumulated dividends thereon and to repay a portion of the
Subordinated Notes and accrued interest thereon. Concurrent with the
consummation of the Offering, the TCW Funds will exchange the remainder of the
Subordinated Notes for a number of shares of Common Stock equal to the remaining
aggregate principal amount of the Subordinated Notes (approximately $23.4
million giving effect to the Offering at an assumed initial public offering
price of $14.00, the mid-point of the range of initial public offering prices
set forth on the cover page of this Prospectus, and the application of the net
proceeds therefrom as of May 2, 1997) divided by the per share Price to Public
set
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forth on the cover page of this Prospectus (the "Exchange"). As of May 2, 1997
and giving effect to the Offering at an assumed initial public offering price of
$14.00, the mid-point of the range of initial public offering prices set forth
on the cover page of this Prospectus, and the application of the net proceeds
therefrom, the TCW Funds would receive an aggregate of 1,674,116 shares of
Common Stock pursuant to the Exchange. See "Risk Factors -- Control by Principal
Stockholders", "Use of Proceeds" and "Certain Transactions".
THE OFFERING
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Common Stock offered......................... 3,250,000 shares
Common Stock outstanding after the 6,422,172 shares
Offering(1)................................
Use of Proceeds.............................. The Company intends to use substantially all
of the estimated net proceeds of $40.8 million
to (i) repay indebtedness outstanding under
the Company's senior credit facility (the
"Credit Facility") and accrued interest
thereon, (ii) redeem the Series A Preferred
Stock and pay accumulated dividends thereon
and (iii) repay indebtedness outstanding under
the Subordinated Notes and accrued interest
thereon. See "Use of Proceeds" and "Certain
Transactions".
Proposed Nasdaq National Market symbol....... ACRN
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(1) Based upon the number of shares of Common Stock outstanding on May 22, 1997,
as adjusted to give effect to the issuance of 1,674,116 shares of Common
Stock pursuant to the Exchange (giving effect to the Offering at an assumed
initial public offering price of $14.00, the mid-point of the range of
initial public offering prices set forth on the cover page of this
Prospectus, and the application of the net proceeds therefrom and giving
effect to the Exchange, each as of May 2, 1997). Excludes (i) 39,042 shares
of Common Stock issuable upon the exercise of outstanding stock options,
(ii) 730,000 shares of Common Stock reserved for issuance under Acorn's 1997
Stock Incentive Plan (the "Incentive Plan"), pursuant to which options to
purchase 308,800 shares of Common Stock will be outstanding upon
consummation of the Offering and (iii) 73,000 shares of Common Stock
reserved for issuance under Acorn's Deferred Equity Compensation Plan for
Directors (the "Director Stock Plan"). See "Management -- 1997 Stock
Incentive Plan", "Management -- Director Stock Plan" and Notes 10 and 13 to
Consolidated Financial Statements.
RISK FACTORS
See "Risk Factors" beginning on page 10 for a description of certain risks
relevant to an investment in the Common Stock.
------------------------
As used in this Prospectus, "Ace Hardware" refers to Ace Hardware Corp.,
"Agway" refers to Agway, Inc., "Builders Square" refers to Builders Square,
Inc., "Cotter & Company" refers to Cotter & Company, "Fred Meyer" refers to Fred
Meyer, Inc., "Frank's Nursery" refers to Frank's Nursery & Crafts Inc.,
"HomeBase" refers to HomeBase, Inc., "Kmart" refers to Kmart Corporation,
"Payless Cashways" refers to Payless Cashways, Inc., "Sears" refers to Sears,
Roebuck & Company, and "Home Depot" refers to The Home Depot, Inc.
Lady Gardener(R), Perfect Cut(R), Pro Force(R), Razor-Back(R), Union(R),
Union Pro(R) and Yard'n Garden(R) are registered trademarks of the Company.
Agway(R) is a registered trademark of Agway. Green Thumb(R) and TrueValue(R) are
registered trademarks of Cotter & Company. Frank's(R) is a registered trademark
of Frank's Nursery. Craftsman(R) and Sears(R) are registered trademarks of
Sears. Scotts(R) is a registered trademark of The Scotts Company.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The Summary Consolidated Financial Data for fiscal 1992, fiscal 1993, the
four months ended December 2, 1993, the eight months ended July 29, 1994, fiscal
1995 and fiscal 1996 have been derived from the audited Consolidated Financial
Statements of the Company. The Summary Consolidated Financial Data for the nine
months ended April 26, 1996 and the nine months ended May 2, 1997 have been
derived from the unaudited Consolidated Financial Statements of the Company,
which reflect, in the opinion of management of the Company, all adjustments
(which include only normal recurring adjustments) necessary for the fair
presentation of financial data for such periods. The results of such interim
periods are not necessarily indicative of the results that will be reported for
the full fiscal year. The Summary Consolidated Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and Notes
thereto and the other financial information included elsewhere in this
Prospectus.
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SUCCESSOR COMPANY
PREDECESSOR COMPANY ---------------------------------------------------------------
----------------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED NINE MONTHS ENDED
------------------- ----------- -------- --------------------- ---------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1992 1993 1993(1) 1994 1995 1996 1996 1997
-------- -------- ----------- -------- -------- ---------- --------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 60,699 $ 70,051 $ 20,331 $ 72,370 $ 86,543 $ 92,652 $ 69,407 $ 77,967
Cost of goods sold......... 43,856 50,548 14,185 52,271 63,411 67,496 51,036 57,077
------- -------- -------- ------- ------- ------- ------- --------
Gross profit............... 16,843 19,503 6,146 20,099 23,132 25,156 18,371 20,890
Selling, general and
administrative expenses... 11,380 12,648 5,482 9,955 15,531 16,815 11,820 13,448
Interest expense........... 4,924 4,939 2,773 3,525 6,485 6,732 5,569 5,743
Amortization of
intangibles............... 2,525 2,520 124 601 1,061 1,173 603 703
Other expenses, net........ -- 34,409(2) -- 11 694 1,522(3) 546 1,123(4)
------- -------- -------- ------- ------- ------- ------- --------
Income (loss) from
continuing operations
before income taxes....... (1,986) (35,013) (2,233) 6,007 (639) (1,086) (167) (127)
Income taxes............... -- -- -- 290 -- 582 -- 52
------- -------- -------- ------- ------- ------- ------- --------
Net income (loss) from
continuing operations..... (1,986) (35,013) (2,233) 5,717 (639) (1,668) (167) (179)
------- -------- -------- ------- ------- ------- ------- --------
Loss from discontinued
operations(5)............. (5,684) (33,560)(2) (8,373) (614) (1,800) (6,480) (766) (9,575)
------- -------- -------- ------- ------- ------- ------- --------
Cumulative effect of change
in accounting for
post-retirement
benefits.................. -- -- -- -- -- 869 869 --
------- -------- -------- ------- ------- ------- ------- --------
Net income (loss).......... $ (7,670) $(68,573) $ (10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,754)
======= ======== ======== ======= ======= ======= ======= ========
Pro forma net income from
continuing
operations(6)............. $ 2,887 $ 4,012
Pro forma net income from
continuing operations per
share(6)(7)............... $ 0.45 $ 0.62
Pro forma weighted average
number of shares
outstanding(6)(7)......... 6,444,182 6,450,431
OTHER DATA:
Gross margin............... 27.7% 27.8% 30.2% 27.8% 26.7% 27.2% 26.5% 26.8%
EBIT(8).................... $ 2,938 $ 4,335 $ 540 $ 9,543 $ 6,540 $ 7,168 $ 5,945 $ 6,739
EBITDA(9).................. 6,466 8,343 1,168 11,148 9,570 10,760 8,384 9,141
</TABLE>
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PREDECESSOR COMPANY SUCCESSOR COMPANY
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JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, MAY 2, 1997
1992 1993 1993 1994 1995 1996 ACTUAL AS ADJUSTED(10)
-------- -------- ----------- -------- -------- ---------- --------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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BALANCE SHEET DATA:
Working capital........... $(20,250) $(17,255) $ (17,902) $ 21,081 $ 5,989 $ 8,543 $ 21,771 $ 27,828
Total assets.............. 141,404 68,154 79,439 101,833 112,280 98,895 113,224 113,224
Total debt................ 132,382 127,458 137,437 58,854 72,104 61,891 78,641 27,287
Stockholders' equity...... 269 (68,304) (126,528) 19,422 17,323 18,530 8,984 63,803
</TABLE>
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(1) Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The
following purchase accounting adjustments impacted the Company's net income
(loss) from continuing operations: (i) the basis of certain manufacturing
equipment was increased by an aggregate of approximately $4.5 million; and
(ii) goodwill was restated to approximately $40.0 million. The increased
basis of the equipment resulted in an annual increase in depreciation
expense of approximately $747,000, which is reflected in cost of goods sold.
The restatement of goodwill resulted in an annual increase in amortization
of intangibles of approximately $430,000. On a pro forma basis, giving
effect to the purchase accounting adjustments described above, cost of goods
sold and amortization of intangibles for the four months ended December 2,
1993 would have increased by approximately $249,000 and $77,000,
respectively. See Note 1 to Consolidated Financial Statements.
(2) In fiscal 1993 the Company reduced goodwill from continuing operations by
$35,826 and goodwill from discontinued operations by $29,659.
(3) In fiscal 1996 the Company recognized other expense of $563,000 in
connection with the resignation of Acorn's previous Chairman of the Board
and other expense of $750,000 in connection with self-insured life insurance
accruals related to the death of a former director of the Company.
(4) In the nine months ended May 2, 1997 the Company recognized other expense of
$950,000 from the write-off of certain capitalized bank fees incurred in
connection with the Company's previous bank credit facility.
(5) Represents the loss from the discontinued VSI and McGuire-Nicholas
operations, as well as (i) a loss of $1,015,000 incurred upon the sale of
substantially all of the assets of VSI, reflecting a loss of $665,000
recorded in fiscal 1996 and a loss of $101,000 recorded in the nine months
ended May 2, 1997 and (ii) a loss of $8.8 million in the nine months ended
May 2, 1997 incurred in connection with the intended disposition of
McGuire-Nicholas. See Note 3 to Consolidated Financial Statements. In
addition, the four months ended December 2, 1993 include restructuring costs
of approximately $7.6 million.
(6) Gives effect to (i) the Offering (at an assumed initial public offering
price of $14.00, the midpoint of the range of initial public offering prices
set forth on the cover page of this Prospectus) and the application of the
net proceeds therefrom to repay indebtedness outstanding under the Credit
Facility (reducing interest expense by approximately $1.2 million and $1.1
million in fiscal 1996 and the nine months ended May 2, 1997, respectively)
and repay indebtedness outstanding under the Subordinated Notes and accrued
interest thereon (reducing interest expense by approximately $1.1 million
and $1.0 million in fiscal 1996 and the nine months ended May 2, 1997,
respectively) and (ii) the Exchange (reducing interest expense on the
Subordinated Notes by approximately $2.3 million and $2.1 million in fiscal
1996 and the nine months ended May 2, 1997, respectively). The proposed
redemption of the Series A Preferred Stock has no affect on the Company's
pro forma net income from continuing operations. Pro forma net income from
continuing operations in the nine months ended May 2, 1997 includes a
$950,000 write-off of certain capitalized bank fees incurred in connection
with the Company's previous bank credit facility.
(7) Based upon the number of shares of Common Stock outstanding on August 2,
1996 and May 2, 1997, as adjusted to give effect to (i) the issuance of
3,250,000 shares of Common Stock pursuant to the Offering, (ii) the issuance
of 1,674,116 shares of Common Stock pursuant to the Exchange (giving effect
to the Offering at an assumed initial public offering price of $14.00, the
mid-point of the range of initial public offering prices set forth on the
cover page of this Prospectus, and the application of the net proceeds
therefrom and giving effect to the Exchange as of May 2, 1997) and (iii) the
issuance of 29,240 and 28,259 shares of Common Stock at August 2, 1996 and
May 2, 1997, respectively, upon the exercise of outstanding stock options
pursuant to the treasury stock method.
(8) EBIT represents earnings from continuing operations before interest expense,
income taxes and other expenses. EBIT is presented because it is a financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBIT is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
8
<PAGE> 10
(9) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation, amortization and other expenses. EBITDA
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(10) Gives effect to (i) the Offering (at an assumed initial public offering
price of $14.00, the mid-point of the range of initial public offering
prices set forth on the cover page of this Prospectus) and the application
of the net proceeds therefrom to repay indebtedness outstanding under the
Credit Facility and accrued interest thereon, redeem the Series A Preferred
Stock and pay accumulated dividends thereon and repay indebtedness
outstanding under the Subordinated Notes and accrued interest thereon and
(ii) the Exchange.
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<PAGE> 11
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
following risk factors relating to the Offering and the business of the Company,
together with the information and financial data set forth elsewhere in this
Prospectus, prior to making an investment decision.
IMPACT OF WEATHER ON RESULTS OF OPERATIONS
Weather is the most significant factor in determining market demand for the
Company's products and is inherently unpredictable. Inclement weather during the
spring gardening season and lack of snow during the winter may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonal and Quarterly Fluctuations; Impact of
Weather".
SEASONALITY
The lawn and garden industry is seasonal in nature, with a high proportion
of sales and operating income generated in January through May. Accordingly, the
Company's sales tend to be greater during its third and fourth fiscal quarters.
As a result, the Company's operating results depend significantly on the spring
selling season. To support this sales peak, the Company must anticipate demand
and build inventories of finished goods throughout the fall and winter.
Accordingly, the Company's levels of raw materials and finished goods
inventories tend to be at their highest, relative to sales, during the Company's
first and second fiscal quarters. These factors increase variations in the
Company's quarterly results of operations and potentially expose the Company to
greater adverse effects of changes in economic and industry trends. Moreover,
actual demand for the Company's products may vary substantially from the
anticipated demand, leaving the Company with either excess inventory or
insufficient inventory to satisfy customer orders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Seasonal and
Quarterly Fluctuations; Impact of Weather".
RECENT LOSSES
The Company incurred net losses of $7.7 million, $68.6 million, $5.5
million, $2.4 million and $7.3 million, respectively, in fiscal 1992, fiscal
1993, the twelve months ended July 29, 1994, fiscal 1995 and fiscal 1996 and a
net loss of $9.8 million during the nine months ended May 2, 1997. The Company
also incurred net losses from continuing operations of $2.0 million, $35.0
million, $639,000, $1.7 million and 179,000, respectively, in fiscal 1992,
fiscal 1993, fiscal 1995, fiscal 1996 and the nine months ended May 2, 1997. As
a result of a high degree of financial leverage incurred in buyout transactions
effectuated in 1986 and 1989, the Company restructured certain of its debt
obligations in December 1993. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and Note 1 to
Consolidated Financial Statements. There can be no assurance that the Company
will attain profitability or achieve continued growth in operating performance.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company's largest customer, Sears, accounted for 8.9%, 12.5% and 11.5%
of gross sales in fiscal 1995, fiscal 1996 and the nine months ended May 2,
1997, respectively. There can be no assurance that the Company's sales to Sears
will continue at existing levels. A substantial reduction or cessation of sales
to Sears or other major customers could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Customers".
A key element of the Company's growth strategy is to increase sales in
certain distribution channels, such as home centers and mass merchants through
retailers such as Home Depot and Sears. Although Home Depot has indicated that
it expects to open approximately 450 additional stores over the next five years
and Sears has indicated that it expects to open or acquire over 500 additional
non-mall hardware stores over the next five years, there can be no assurance
that such stores will be opened or, if opened, that the Company will be chosen
to supply its products to all or a significant portion of such stores. In
addition, there can be no assurance that such stores will generate significant
additional sales for the Company or that such stores will not result in a
reduction of sales to the Company's other customers, whether through
consolidation or otherwise.
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<PAGE> 12
DEPENDENCE ON KEY PERSONNEL
The recent growth and development of the Company largely has been dependent
upon the services of Gabe Mihaly, President and Chief Executive Officer of Acorn
and UnionTools. The loss of Mr. Mihaly's services could have a material adverse
effect on the Company. The Company does not maintain any key-person or similar
insurance policies. See "Management".
UNCERTAINTY OF FUTURE ACQUISITIONS
A key element of the Company's strategy is the acquisition of businesses
and assets in the lawn and garden industry. There can be no assurance, however,
that the Company will be able to identify attractive acquisition opportunities,
obtain sufficient financing for acquisitions on satisfactory terms or
successfully acquire identified targets. In addition, there can be no assurance
that the Company will be successful in integrating acquired businesses into its
existing operations or that such integration will not result in unforeseen
operational difficulties or require a disproportionate amount of management's
attention. Such acquisitions may result in the incurrence of additional
indebtedness by the Company or the issuance of preferred stock or additional
Common Stock. Furthermore, there can be no assurance that competition for
acquisition opportunities in the industry will not escalate, thereby increasing
the cost to the Company of making acquisitions or causing the Company to refrain
from making further acquisitions. See "Business -- Growth Strategy".
AVAILABILITY AND PRICE OF RAW MATERIALS
The Company's products require the supply of raw materials consisting
primarily of steel, plastics and ash wood. The Company has several suppliers for
most of its raw materials. There can be no assurance, however, that the Company
will not experience shortages of raw materials or components essential to its
production processes or be forced to seek alternative sources of supply. In
addition, there can be no assurance that prices for such materials will remain
stable. Any shortages of raw materials may result in production delays and
increased costs which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Raw
Materials".
COMPETITION
All aspects of the lawn and garden industry, including attracting and
retaining customers and pricing, are highly competitive. The Company competes
for customers with large consumer product manufacturers and numerous other
companies that produce specialty home and garden products, as well as with
foreign manufacturers that export their products to the U.S. Many of these
competitors are larger and have significantly greater financial resources than
the Company. There can be no assurance that increased competition in the lawn
and garden industry will not have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Competition".
SUBSTANTIAL AMOUNT OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, approximately 6,422,172 shares of Common
Stock will be outstanding (giving effect to the Offering at an assumed initial
public offering price of $14.00, the mid-point of the range of initial public
offering prices set forth on the cover page of this Prospectus, and the
application of the net proceeds therefrom and giving effect to the Exchange,
each as of May 2, 1997). The 3,250,000 shares of Common Stock sold in the
Offering will be available for resale in the public market without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for shares purchased by "affiliates" of the Company
(in general, any person who has a control relationship with the Company), which
shares will be subject to the resale limitations of Rule 144 promulgated under
the Securities Act. The remaining 3,172,172 outstanding shares of Common Stock
are deemed to be "restricted securities" as that term is defined in Rule 144,
all of which are eligible for sale in the public market in compliance with Rule
144.
The TCW Funds, the executive officers and directors of the Company (who in
the aggregate hold approximately 98.8% of the Common Stock outstanding prior to
the Offering) and the Oaktree Fund have agreed, subject to certain exceptions,
that they will not offer, sell or otherwise dispose of any of the shares of
Common Stock owned by them for a period of 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. Additionally, the Company has agreed that, during the period of
180 days from the date of this Prospectus, subject to certain exceptions, that
it will not issue, sell,
11
<PAGE> 13
offer or agree to sell, grant any options for the sale of (other than employee
stock options) or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable for Common Stock,
other than pursuant to the Offering.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, such as the TCW Funds, is entitled to sell, within any
three-month period, a number of shares of Common Stock which does not exceed the
greater of 1% of the number of then-outstanding shares of the Common Stock or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 also
may be subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities" under
Rule 144 for at least two years, is entitled to sell such shares under Rule
144(k) without regard to the volume limitation, manner of sale provisions,
public information requirements or notice requirements.
Acorn intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 730,000 shares of Common Stock
reserved for issuance under the Incentive Plan. Acorn also intends to file a
registration statement on Form S-8 under the Securities Act to register the sale
of the 73,000 shares of Common Stock reserved for issuance under the Director
Stock Plan. As a result, any shares of Common Stock issued pursuant to awards
granted under such plans will be available, subject to special rules for
affiliates, for resale in the public market after the effective date of such
registration statement, subject to applicable lock-up arrangements. See
"Management -- 1997 Stock Incentive Plan" and "Management -- Director Stock
Plan".
The TCW Funds and the Oaktree Fund have, subject to certain conditions and
restrictions, the right to include the shares of Common Stock owned by them in
registered public offerings of Common Stock (or securities exchangeable for or
convertible into Common Stock) undertaken by Acorn for its own account, as well
as to require Acorn to register the sale of such shares, subject to certain
conditions, upon demand. The TCW Group has informed the Company that the TCW
Funds currently are in their respective liquidation periods, requiring such
funds to liquidate their investments in an orderly manner. Pursuant to their
organizational documents, the TCW Funds terminate over the period from November
2001 to June 2003. As a result, it is likely that the shares of Common Stock
held by the TCW Funds either will be sold prior to such time (whether as a
block, pursuant to a registered public offering or otherwise) or distributed to
investors in the TCW Funds. Upon any such distribution to investors in the TCW
Funds, all such shares, except those acquired by affiliates of the Company, will
be immediately eligible for resale under Rule 144(k).
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities, or the availability of
such shares, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and could impair the Company's future ability to raise capital
through an offering of equity or equity linked securities. See "Shares Available
for Future Sale" and "Underwriting".
IMPACT OF HOLDING COMPANY STRUCTURE
Acorn is a holding company with no business operations of its own.
Following the intended sale of McGuire-Nicholas, Acorn's only material asset
will be all of the outstanding capital stock of UnionTools. Accordingly, Acorn
is dependent upon the earnings and cash flows of, and dividends and
distributions from, UnionTools to pay its expenses and meet its obligations and
to pay any cash dividends or distributions on the Common Stock that may be
authorized by the Board of Directors of Acorn. There can be no assurance that
UnionTools will generate sufficient earnings and cash flows to pay dividends or
distribute funds to Acorn to enable Acorn to pay its expenses and meet its
obligations or that applicable state law and contractual restrictions, including
negative covenants contained in the debt instruments of UnionTools then in
effect, will permit such dividends or distributions. See " -- Restrictions
Imposed by the Terms of the Company's Indebtedness" and " -- No Dividends".
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<PAGE> 14
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial public
offering price has been determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the market
price of the Common Stock after the Offering. See "Underwriting". Subsequent to
the Offering, prices for the Common Stock will be determined by the market and
may be influenced by a number of factors, including the depth and liquidity of
the market for the Common Stock, investor perceptions of the Company and other
participants in the lawn and garden industry, weather and general economic and
other conditions.
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the Credit Facility impose, and the terms and
conditions of future debt instruments of the Company may impose, restrictions on
the Company that affect, among other things, its ability to incur debt, pay
dividends or make distributions, make acquisitions, create liens, sell assets
and make certain investments. The terms of the Credit Facility require
UnionTools to maintain specified financial ratios and satisfy certain tests,
including minimum interest coverage ratios, and place limits on future capital
expenditures of UnionTools. In addition, the Credit Facility restricts
UnionTools' ability to pay dividends and make distributions. As of May 2, 1997,
after giving effect to the Offering and the application of the net proceeds
therefrom (at an assumed initial public offering price of $14.00 per share, the
mid-point of the range of initial public offering prices set forth on the cover
page of this Prospectus) there would have been approximately $27.3 million
outstanding under the Credit Facility, approximately $9.0 million available
under the revolving portion of the Credit Facility and approximately $28.7
million available under the acquisition line of the Credit Facility. See " -- No
Dividends" and "Description of Certain Indebtedness".
The ability of the Company to comply with the terms of its debt instruments
can be affected by events beyond its control, including events and changes in
the competitive environment, which could impair the Company's operating
performance. There can be no assurance that the Company will be able to comply
with the provisions of its debt instruments, including compliance by UnionTools
with the financial ratios and tests contained in the Credit Facility. Breach of
any of these covenants or the failure to fulfill the obligations thereunder and
the lapse of any applicable grace periods could result in an event of default
pursuant to which holders of such indebtedness could declare all amounts
outstanding under such debt instruments to be due and payable immediately. Any
such declaration under a debt instrument is likely to result in an event of
default under one of the other debt instruments of the Company, if any, then
outstanding. There can be no assurance that the assets or cash flows of the
Company would be sufficient to repay in full borrowings under its outstanding
debt instruments, whether upon maturity or in the event of acceleration upon an
event of default, or that the Company would be able to refinance or restructure
the payments of such indebtedness. See "-- Impact of Holding Company Structure"
and "Description of Certain Indebtedness".
NO DIVIDENDS
Acorn currently does not intend to pay any cash dividends on the Common
Stock. Acorn is a holding company with no business operations of its own. Acorn
therefore is dependent upon payments, dividends and distributions from
UnionTools, its principal operating subsidiary, for funds to pay its expenses
and to pay future cash dividends or distributions, if any, to holders of the
Common Stock. UnionTools currently intends to retain any earnings for support of
its working capital, repayment of indebtedness, capital expenditures and general
corporate purposes. UnionTools has no current intention of paying dividends or
making other distributions to Acorn in excess of amounts necessary to pay
Acorn's operating expenses and taxes. The Credit Facility contains restrictions
on UnionTools' ability to pay dividends or make other distributions to Acorn.
The Credit Facility provides that, unless UnionTools meets certain financial
tests, it may not declare any dividends or make any other payments or
distributions to Acorn except for amounts necessary to pay Acorn's operating
expense up to $125,000 per month and to pay Acorn's federal and state income
taxes. See "Dividend Policy" and "Description of Certain Indebtedness".
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<PAGE> 15
CONTROL BY PRINCIPAL STOCKHOLDERS
After giving effect to the Offering and the application of the net proceeds
therefrom and the Exchange (each as of May 2, 1997 and at an assumed initial
public offering price of $14.00, the mid-point of the range of initial public
offering prices set forth on the cover page of this Prospectus), the TCW Group
and the TCW Funds may be deemed to be the beneficial owners of approximately
48.6% of the outstanding shares of Common Stock. Upon consummation of the
Offering, Oaktree and the Oaktree Fund may be deemed to be the beneficial owner
of approximately 12.7% of the outstanding shares of Common Stock. In addition,
Oaktree, the general partner of the Oaktree Fund, has indicated its willingness
to consider providing financing (which may include equity financing) from the
Oaktree Fund for future acquisitions by the Company, however, there can be no
assurance in this regard. Certain individuals designated by the TCW Group to
manage the TCW Funds also are principals of Oaktree. However, Oaktree does not
have voting or dispositive power with respect to the shares of Common Stock
owned by the TCW Funds. Until such time, if ever, that there is a significant
decrease in the number of shares of Common Stock held by the TCW Funds and the
Oaktree Fund, the TCW Group and Oaktree will be able to control the Company
through their ability to determine the outcome of votes of stockholders
regarding, among other things, election of directors and approval of significant
transactions. In addition, upon consummation of the Offering officers and
directors of Acorn will beneficially own an aggregate of approximately 14.3% of
the outstanding shares of the Common Stock. See "-- Substantial Amount of Common
Stock Eligible for Future Sale", "Management", "Principal Stockholders" and
"Certain Transactions".
EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS
Acorn's Board of Directors is authorized, subject to certain limitations
prescribed by law, to issue up to 1,000 shares of preferred stock in one or more
classes or series and to fix the designations, powers, preferences, rights,
qualifications, limitations or restrictions, including voting rights, of those
shares without any further vote or action by stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of Acorn. Acorn has no current plans to issue
additional shares of preferred stock. See "Description of Capital
Stock -- Preferred Stock". The Credit Facility contains provisions that, under
certain circumstances, will cause such indebtedness to become due upon the
occurrence of a change of control of the Company. See "Description of Certain
Indebtedness". These provisions could have the effect of making it more
difficult for a third party to acquire control of the Company.
The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law (the "DGCL"). In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
See "Description of Capital Stock -- Certain Provisions of Delaware Law".
LABOR RELATIONS
Most of the Company's hourly employees are covered by collective bargaining
or similar labor agreements. The Company currently is a party to four such
agreements, one of which expires in 1998 and three of which expire in 1999.
There can be no assurance that the Company will be successful in negotiating new
labor contracts on terms satisfactory to the Company or without work stoppages
or strikes. A prolonged work stoppage or strike at any of the Company's
facilities could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Employees".
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state, and local environmental
laws, ordinances and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. The Company has made,
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<PAGE> 16
and will continue to make, expenditures to comply with these environmental
requirements and regularly reviews its procedures and policies for compliance
with environmental laws. The Company also has been involved in remediation
actions with respect to certain of its facilities. Amounts expended by the
Company in such compliance and remediation activities have not been material to
the Company. However, current conditions and future events, such as changes in
existing laws and regulations, may give rise to additional compliance or
remediation costs that could have a material adverse effect on the Company's
business, financial condition or results of operations. Furthermore, as is the
case with manufacturers in general, if a release of hazardous substances occurs
on or from the Company's properties or any associated offsite disposal location,
or if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable and the amount of such liability
could be material. See "Business -- Environmental Matters".
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their Common Stock. As of
May 2, 1997, the net tangible book value per share was $(14.89). At an assumed
initial public offering price of $14.00 per share, the mid-point of the range of
the initial public offering prices set forth on the cover page of this
Prospectus, current stockholders would experience an increase in net tangible
book value per share of $19.95 and purchasers of shares of Common Stock in the
Offering would experience dilution in net tangible book value of $8.94 per
share. See "Dilution".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,250,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$14.00 per share, the midpoint of the range of initial public offering prices
set forth on the cover page of this Prospectus, and after deducting the
underwriting discount and estimated expenses of the Offering) are estimated to
be $40.8 million. The Company intends to use the net proceeds from the Offering
as follows: (i) approximately $20.4 million of the net proceeds to repay the
term loan portion of the Credit Facility and accrued interest thereon; (ii)
approximately $9.4 million of the net proceeds to redeem the Series A Preferred
Stock and pay accumulated dividends thereon; and (iii) approximately $11.0
million of the net proceeds to repay indebtedness outstanding under the
Subordinated Notes and accrued interest thereon. Pursuant to the Exchange, the
remainder of the Subordinated Notes will be exchanged for shares of Common
Stock. See "Certain Transactions". Although application of the net proceeds from
the Offering will result in a permanent reduction of the principal amount of the
term loan under the Credit Facility, it will not reduce the amounts available to
the Company under either the revolving facility or the acquisition line of the
Credit Facility. Pursuant to its growth strategy, the Company is actively
considering acquisitions, although it currently does not have any understandings
or agreements with respect to potential acquisitions. See "Business -- Growth
Strategy".
The Series A Preferred Stock accrues cumulative dividends at a rate of 13%
per year. The Subordinated Notes bear interest at a rate of 13% per year and
mature in July 2003. Indebtedness outstanding under the Credit Facility bears
interest at variable rates (8.75% per year at May 2, 1997) and matures in
December 2003. See "Description of Certain Indebtedness". Indebtedness under the
Subordinated Notes and the term loan portion of the Credit Facility originally
was incurred in connection with the acquisition of the Company by the TCW Funds
or refinancing of such indebtedness. Indebtedness under the acquisition line of
the Credit Facility was incurred in connection with the Company's recent
acquisition of an injection molding facility.
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<PAGE> 17
DIVIDEND POLICY
Acorn has never paid, and currently does not intend to pay, any cash
dividends on the Common Stock. Acorn is a holding company with no business
operations of its own. Acorn therefore is dependent upon payments, dividends and
distributions from UnionTools for funds to pay dividends to stockholders of
Acorn. UnionTools currently intends to retain any earnings for support of its
working capital, repayment of indebtedness, capital expenditures and other
general corporate purposes. UnionTools has no current intention of paying
dividends or making other distributions to Acorn in excess of amounts necessary
to pay Acorn's operating expenses and taxes. The Credit Facility contains
restrictions on UnionTools' ability to pay dividends or make payments or other
distributions to Acorn. The Credit Facility provides that, unless UnionTools
meets certain financial tests, it may not declare any dividends or make any
other payments or distributions to Acorn except for amounts necessary to pay
Acorn's operating expenses up to $125,000 per month and to pay Acorn's federal
and state income taxes. See "Risk Factors -- Impact of Holding Company
Structure", "Risk Factors -- No Dividends" and "Description of Certain
Indebtedness".
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<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at May 2, 1997 and as adjusted as of such date to give effect to (i) the
issuance and sale of the 3,250,000 shares of Common Stock offered hereby (at an
assumed initial public offering price of $14.00 per share, the midpoint of the
range of initial public offering prices set forth on the cover page of this
Prospectus, and after deducting the underwriting discount and estimated expenses
of the Offering) and the application of the net proceeds therefrom and (ii) the
Exchange. This table should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MAY 2, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving portion of Credit Facility................................ $ 21,019 $ 21,019
Current portion of long-term debt................................... 3,000 0
-------- --------
Total short-term debt....................................... $ 24,019 $ 21,019
======== ========
Long-term debt:
Term loan portion of Credit Facility(1)............................. $ 17,000 $ 0
Acquisition line portion of Credit Facility(1)...................... 6,268 6,268
Subordinated Notes(1)............................................... 31,354 0
-------- --------
Total long-term debt........................................ $ 54,622 $ 6,268
======== ========
Stockholders' equity:
Preferred stock, par value $.001 per share; 1,000 shares authorized,
100 shares issued and outstanding (no shares outstanding as
adjusted)(2)..................................................... $ 8,596 $ 0
Common Stock, par value $.001 per share; 20 million shares
authorized, 1,498,056 shares issued and outstanding (6,422,172
shares outstanding as adjusted)(3)............................... 14,494 77,909
Contributed capital-stock options(4)................................ 460 460
Minimum pension liability(5)........................................ (197) (197)
Retained earnings (deficit)......................................... (14,369) (14,369)
-------- --------
Total stockholders' equity....................................... 8,984 63,803
-------- --------
Total capitalization........................................ $ 87,625 $ 91,090
======== ========
</TABLE>
- ---------------
(1) See Note 4 to Consolidated Financial Statements.
(2) See Note 5 to Consolidated Financial Statements.
(3) Excludes (i) 39,042 shares of Common Stock issuable upon the exercise of
outstanding stock options, (ii) 730,000 shares of Common Stock reserved for
issuance under the Incentive Plan, pursuant to which options to purchase
308,800 shares of Common Stock will be outstanding upon consummation of the
Offering and (iii) 73,000 shares of Common Stock reserved for issuance under
the Director Stock Plan. See "Management -- 1997 Stock Incentive Plan",
"Management -- Director Stock Plan" and Notes 10 and 13 to Consolidated
Financial Statements.
(4) See Note 10 to Consolidated Financial Statements.
(5) See Note 7 to Consolidated Financial Statements.
17
<PAGE> 19
DILUTION
The net tangible book value of the Company at May 2, 1997 was $(22.3)
million, or $(14.89) per share of Common Stock. Net tangible book value per
share represents the amount of tangible assets of the Company, less total
liabilities, divided by the number of outstanding shares of Common Stock.
Without taking into account any other changes in net tangible book value after
May 2, 1997, other than to give effect to (i) the sale by the Company of the
3,250,000 shares of Common Stock offered hereby (at an assumed initial public
offering price of $14.00 per share, the midpoint of the range of initial public
offering prices set forth on the cover page of this Prospectus, and after
deducting the underwriting discount and estimated expenses of the Offering), and
the application of the estimated net proceeds therefrom and (ii) the Exchange,
the pro forma net tangible book value of the Company at May 2, 1997 would have
been $32.5 million, or $5.06 per share. This represents an immediate increase in
net tangible book value of $19.95 per share of Common Stock to existing
stockholders and an immediate dilution of approximately $8.94 per share to new
investors purchasing shares in the Offering. The following table illustrates the
per share book value dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $14.00
Net tangible book value per share before the Offering................... $(14.89)
Increase per share attributable to the Offering......................... 19.95(1)
------
Pro forma net tangible book value per share after the Offering............ 5.06
------
Net tangible book value dilution per share to new investors(2)............ $ 8.94
======
</TABLE>
- ---------------
(1) Of such increase, $7.86 is attributable to the Exchange.
(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offering from the assumed initial public offering price per
share of Common Stock.
The following table sets forth as of May 2, 1997 the difference between the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing holders
of Common Stock and the new investors (at an assumed initial public offering
price of $14.00 per share, the midpoint of the range of initial public offering
prices set forth on the cover page of this Prospectus) before deducting the
underwriting discount and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION PAID AVERAGE
---------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ------------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 1,498,056 23.3% $ 14.5 17.4% $ 9.68
New investors.......................... 3,250,000 50.6 45.5 54.6 $ 14.00
Shares issued pursuant to the
Exchange............................. 1,674,116 26.1 23.4 28.0 $ 14.00
---------- --- ------ ---
Total........................ 6,422,172 100.0% $ 83.4 100.0%
========== === ====== ===
</TABLE>
As of May 2, 1997, there were vested options outstanding to purchase a
total of 33,258 shares of Common Stock at a weighted average exercise price of
$2.10 per share. To the extent that any of these options are exercised, there
will be further dilution to new investors. See "Capitalization" and Note 10 to
Consolidated Financial Statements.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data for fiscal 1992, fiscal 1993, the
four months ended December 2, 1993, the eight months ended July 29, 1994, fiscal
1995 and fiscal 1996 have been derived from the audited Consolidated Financial
Statements of the Company. The Selected Consolidated Financial Data for the nine
months ended April 26, 1996 and the nine months ended May 2, 1997 have been
derived from the unaudited Consolidated Financial Statements of the Company,
which reflect, in the opinion of management of the Company, all adjustments
(which include only normal recurring adjustments) necessary for the fair
presentation of financial data for such periods. The results of such interim
periods are not necessarily indicative of the results that will be reported for
the full fiscal year. The Selected Consolidated Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and Notes
thereto and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SUCCESSOR COMPANY
PREDECESSOR COMPANY ------------------------------------------------------------
----------------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED NINE MONTHS ENDED
------------------- ----------- -------- --------------------- -------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1992 1993 1993(1) 1994 1995 1996 1996 1997
-------- -------- ----------- -------- -------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 60,699 $ 70,051 $ 20,331 $ 72,370 $ 86,543 $ 92,652 $ 69,407 $ 77,967
Cost of goods sold......... 43,856 50,548 14,185 52,271 63,411 67,496 51,036 57,077
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............... 16,843 19,503 6,146 20,099 23,132 25,156 18,371 20,890
Selling, general and
administrative
expenses................. 11,380 12,648 5,482 9,955 15,531 16,815 11,820 13,448
Interest expense........... 4,924 4,939 2,773 3,525 6,485 6,732 5,569 5,743
Amortization of
intangibles.............. 2,525 2,520 124 601 1,061 1,173 603 703
Other expense, net......... -- 34,409(2) -- 11 694 1,522 (3) 546 1,123 (4)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before income taxes...... (1,986) (35,013) (2,233) 6,007 (639) (1,086) (167) (127)
Income taxes............... -- -- -- 290 -- 582 -- 52
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) from
continuing operations.... (1,986) (35,013) (2,233) 5,717 (639) (1,668) (167) (179)
--------- --------- --------- --------- --------- --------- --------- ---------
Loss from discontinued
operations(5)............ (5,684) (33,560)(2) (8,373) (614) (1,800) (6,480) (766) (9,575)
--------- --------- --------- --------- --------- --------- --------- ---------
Cumulative effect of change
in accounting for post-
retirement benefits...... -- -- -- -- -- 869 869 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).......... $ (7,670) $(68,573) $ (10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,824)
========= ========= ========= ========= ========= ========= ========= =========
Pro forma net income from
continuing
operations(6)............ $ 2,887 $ 4,012
Pro forma net income from
continuing operations per
share(6)(7).............. $ 0.45 $ 0.62
Pro forma weighted average
number of shares
outstanding(6)(7)........ 6,444,182 6,450,431
OTHER DATA:
Gross margin............... 27.7% 27.8% 30.2% 27.8% 26.7% 27.2% 26.5% 26.8%
EBIT(8).................... $ 2,938 $ 4,355 $ 540 $ 9,543 $ 6,540 $ 7,168 $ 5,945 $ 6,739
EBITDA(9).................. 6,466 8,343 1,168 11,148 9,570 10,760 8,384 9,141
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------------- ------------------------------------------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1992 1993 1993 1994 1995 1996 1996 1997
-------- -------- ----------- -------- -------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $(20,250) $(17,255) $ (17,902) $ 21,081 $ 5,989 $ 8,543 $ 4,663 $ 21,771
Total assets............... 141,404 68,154 79,439 101,833 112,280 98,895 120,545 113,224
Total debt................. 132,382 127,458 137,437 58,854 72,104 61,891 76,221 78,641
Stockholders' equity....... 269 (68,304) (126,528) 19,422 17,323 18,530 17,346 8,984
</TABLE>
19
<PAGE> 21
- ---------------
(1) Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The
following purchase accounting adjustments impacted the Company's net income
(loss) from continuing operations: (i) the basis of certain manufacturing
equipment was increased by an aggregate of approximately $4.5 million; and
(ii) goodwill was restated to approximately $40.0 million. The increased
basis of the equipment resulted in an annual increase in depreciation
expense of approximately $747,000, which is reflected in cost of goods sold.
The restatement of goodwill resulted in an annual increase in amortization
of intangibles of approximately $430,000. On a pro forma basis, giving
effect to the purchase accounting adjustments described above, cost of goods
sold and amortization of intangibles for the four months ended December 2,
1993 would have increased by approximately $249,000 and $77,000,
respectively. See Note 1 to Consolidated Financial Statements.
(2) In fiscal 1993 the Company reduced goodwill from continuing operations by
$35,826 and goodwill from discontinued operations by $29,659.
(3) In fiscal 1996 the Company recognized other expense of $563,000 in
connection with the resignation of Acorn's previous Chairman of the Board
and other expense of $750,000 in connection with self-insured life insurance
accruals related to the death of a former director of the Company.
(4) In the nine months ended May 2, 1997 the Company recognized other expense of
$950,000 from the write-off of certain capitalized bank fees incurred in
connection with the Company's previous bank credit facility.
(5) Represents the loss from the discontinued VSI and McGuire-Nicholas
operations, as well as (i) a loss of $1,015,000 incurred upon the sale of
substantially all of the assets of VSI, reflecting a loss of $665,000
recorded in fiscal 1996 and a loss of $101,000 recorded in the nine months
ended May 2, 1997 and (ii) a loss of $8.3 million in the nine months ended
May 2, 1997 incurred in connection with the intended disposition of
McGuire-Nicholas. See Note 3 to Consolidated Financial Statements. In
addition, the four months ended December 2, 1993 include restructuring costs
of approximately $7.6 million.
(6) Gives effect to (i) the Offering (at an assumed initial public offering
price of $14.00, the mid-point of the range of initial public offering
prices set forth on the cover page of this Prospectus) and the application
of the net proceeds therefrom to repay indebtedness outstanding under the
Credit Facility (reducing interest expense by approximately $1.2 million and
$1.1 million in fiscal 1996 and the nine months ended May 2, 1997,
respectively) and repay indebtedness outstanding under the Subordinated
Notes and accrued interest thereon (reducing interest expense by
approximately $1.1 million and $1.0 million in fiscal 1996 and the nine
months ended May 2, 1997, respectively) and (ii) the Exchange (reducing
interest expense on the Subordinated Notes by approximately $2.3 million and
$2.1 million in fiscal 1996 and the nine months ended May 2, 1997,
respectively). The proposed redemption of the of Series A Preferred Stock
has no affect on the Company's pro forma net income from continuing
operations. Pro forma net income from continuing operations in the nine
months ended May 2, 1997 includes a $950,000 write-off of certain
capitalized bank fees incurred in connection with the Company's previous
bank credit facility.
(7) Based upon the number of shares of Common Stock outstanding on August 2,
1996 and May 2, 1997, as adjusted to give effect to (i) the issuance of
3,250,000 shares of Common Stock pursuant to the Offering, (ii) the issuance
of 1,674,116 shares of Common Stock pursuant to the Exchange (giving effect
to the Offering at an assumed initial public offering price of $14.00, the
mid-point of the range of initial public offering prices set forth on the
cover page of this Prospectus, and the application of the net proceeds
therefrom and giving effect to the Exchange as of May 2, 1997) and (iii) the
issuance of 29,240 and 28,259 shares of Common Stock at August 2, 1996 and
May 2, 1997, respectively, upon the exercise of outstanding stock options
pursuant to the treasury stock method .
(8) EBIT represents earnings from continuing operations before interest expense,
income taxes and other expenses. EBIT is presented because it is a financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBIT is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
(9) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation, amortization and other expenses. EBITDA
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data, the Consolidated Financial Statements of the
Company and the Notes thereto and the other financial information included
elsewhere in this Prospectus. Certain statements under this caption constitute
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements as a result of various factors, including those set
forth under the caption "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company is a leading manufacturer and distributor of non-powered lawn
and garden tools. Acorn is a holding company with no business operations of its
own. Following the intended sale of McGuire-Nicholas, Acorn's only material
asset will be all of the outstanding capital stock of UnionTools. See
"-- Disposition of Non-Lawn and Garden Business Operations".
Founded in 1890, the Company was operated as a family owned business until
its sale in 1986 pursuant to a leveraged buyout transaction. The Company was
sold in a second highly leveraged transaction in 1989. Primarily as a result of
these transactions, the Company had approximately $132.4 million and $127.5
million of total indebtedness at July 31, 1992 and July 31, 1993, respectively,
with approximately $60.7 million and $70.1 million of net sales in fiscal 1992
and fiscal 1993, respectively. The Company's results of operations from 1989
through December 1993 were adversely affected by a high degree of financial
leverage and a lack of liquidity, despite the implementation of successful
operating strategies by new senior management recruited in 1991. In December
1993, the Company restructured certain of its debt obligations in connection
with the acquisition of the Company by the TCW Funds, thereby significantly
reducing the Company's debt burden. Following the acquisition, the Company
revalued certain assets, reduced goodwill and recognized a gain on the
forgiveness of certain indebtedness. See "-- Results of Operations -- Fiscal
1995 Compared to Twelve Months Ended July 29, 1994".
Over the past six years the Company has successfully implemented a business
strategy designed to transform it from a manufacturing-oriented industrial
company into a marketing-oriented consumer products company. The central
elements of the Company's approach include a market segmentation strategy based
primarily on brand management and a merchandising strategy based on attractive
and informative product displays and labeling. Over the same period the Company
also has expanded its infrastructure to support future growth by recruiting an
experienced management team, increasing manufacturing capacity and enhancing
management information systems. Reflecting the success of these operating
strategies, the Company's net sales from continuing operations increased from
$56.2 million in fiscal 1991 to $92.7 million in fiscal 1996, a CAGR of 10.5%.
The Company's net sales from continuing operations were $78.0 million for the
nine months ended May 2, 1997, an increase of 12.3% from the same period in
fiscal 1996. In addition, net sales of the Company's higher-margin, best-quality
products increased to approximately 36% of total net sales in fiscal 1996, while
net sales of the Company's lower-margin, opening-price-point products decreased
to approximately 7% of total net sales in fiscal 1996.
The price of raw materials used in the Company's products remained
relatively stable during each of the periods discussed below.
Implementation of the Company's market segmentation and merchandising
strategies has resulted in increased selling, general and administrative
expenses as the Company has increased its marketing focus through the
development of merchandising displays, point-of-sale signage and product
labeling, as well as additional cooperative advertising. The Company also
incurred an increase in selling, general and administrative expenses due to
increased staffing and upgrades of management information systems. The Company
believes that its current level of selling, general and administrative expenses
as a percentage of net sales is now consistent with its marketing-oriented
focus.
21
<PAGE> 23
DISPOSITION OF NON-LAWN AND GARDEN BUSINESS OPERATIONS
In December 1996, the Company sold substantially all of the assets of VSI,
a distributor of packaged fasteners, for approximately $6.9 million, plus the
assumption of approximately $2.3 million of related liabilities. The Company
also intends to sell McGuire-Nicholas within the next 12 months.
McGuire-Nicholas is a manufacturer and distributor of leather, canvas and
synthetic fabric tool holders and work aprons. See "Description of
McGuire-Nicholas". VSI's and McGuire-Nicholas' results of operations are shown
as "Loss from discontinued operations" in the Summary Consolidated Financial
Data, Selected Consolidated Financial Data and the Consolidated Financial
Statements appearing elsewhere in this Prospectus. Net assets and net
liabilities of the discontinued VSI and McGuire-Nicholas operations are shown as
"Net assets of discontinued operations" and "Net liabilities of discontinued
operations" in the Consolidated Financial Statements appearing elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
The following table sets forth certain components of the Company's
consolidated statement of operations data expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
---------------------- -----------------------
TWELVE MONTHS ENDED JULY 28, AUGUST 2, APRIL 26, MAY 2,
JULY 29, 1994(1) 1995 1996 1996 1997
------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 72.0 73.3 72.8 73.5 73.2
----- ----- ----- ----- -----
Gross profit..................... 28.0 26.7 27.2 26.5 26.8
Selling, general and
administrative expenses........ 16.7 17.9 18.1 17.0 17.3
Interest expense................. 6.8 7.5 7.3 8.0 7.4
Amortization of intangibles...... 0.9 1.2 1.3 0.9 0.9
Other expenses, net.............. 0.0 0.8 1.6 0.8 1.4
----- ----- ----- ----- -----
Income (loss) from continuing
operations before income
taxes.......................... 3.6 (0.7) (1.1) (0.2) (0.2)
Income taxes..................... 0.3 -- 0.6 -- 0.0
----- ----- ----- ----- -----
Net income (loss) from continuing
operations..................... 3.3 (0.7) (1.7) (0.2) (0.2)
----- ----- ----- ----- -----
Loss from discontinued
operations..................... (9.7) (2.1) (7.0) (1.1) (12.3)
----- ----- ----- ----- -----
Cumulative effect of change in
accounting for postretirement
benefits....................... -- -- 0.9 1.3 --
----- ----- ----- ----- -----
Net loss......................... (6.4)% (2.8)% (7.8)% (0.0)% (12.5)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The
following purchase accounting adjustments impacted the Company's net income
(loss) from continuing operations: (i) the basis of certain manufacturing
equipment was increased by an aggregate of approximately $4.5 million; and
(ii) goodwill was restated to approximately $40.0 million. The increased
basis of the equipment resulted in an annual increase in depreciation
expense of approximately $747,000, which is reflected in cost of goods sold.
The restatement of goodwill resulted in an annual increase in amortization
of intangibles of approximately $430,000. On a pro forma basis, giving
effect to the purchase accounting adjustments described above, cost of goods
sold and amortization of intangibles for the four months ended December 2,
1993 would have increased by approximately $249,000 and $77,000,
respectively. The percentage of net sales data for the 12 months ended July
29, 1994 has been adjusted to give effect to the foregoing purchase
accounting adjustments throughout the period.
22
<PAGE> 24
NINE MONTHS ENDED MAY 2, 1997 COMPARED TO NINE MONTHS ENDED APRIL 26, 1996
Net Sales. Net sales increased 12.3%, or $8.6 million, to $78.0 million in
the nine months ended May 2, 1997 compared to $69.4 million in the same period
in the prior year. The increase in net sales principally reflected increased
unit sales of the Company's better- and best-quality products, which are sold at
higher wholesale prices than the Company's opening-price-point products, and
increased unit sales across all product lines due to a relatively strong fall
lawn and garden season as a result of favorable weather conditions, as well as
increased market penetration.
Gross Profit. Gross profit increased 13.7%, or $2.5 million, to $20.9
million in the nine months ended May 2, 1997 compared to $18.4 million in the
same period in the prior year. Gross margin increased to 26.8% in the nine
months ended May 2, 1997 from 26.5% in the nine months ended April 26, 1996. The
increase in gross margin reflected improved product mix due to increased sales
of the Company's higher-margin, better-and best-quality products partially
offset by the impact of certain new store openings and lower gross margin levels
realized on sales by the Company's recently acquired injection molding division.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 13.8%, or $1.6 million, to $13.4 million in
the nine months ended May 2, 1997 compared to $11.8 million in the same period
in the prior year. As a percentage of net sales, selling, general and
administrative expenses increased to 17.2% in the nine months ended May 2, 1997
from 17.0% in the first nine months of fiscal 1996. The increase principally is
due to merchandising costs related to the conversion of customer stores
previously serviced by the Company's competitors, as well as merchandising costs
associated with opening new customer stores.
Other Expense, Net. Other expense increased to $1,123,000 in the nine
months ended May 2, 1997 from $546,000 in the same period in the prior year
primarily due to the write-off of $950,000 of capitalized bank fees incurred in
connection with the Company's previous bank credit facility.
Net Income (Loss) From Continuing Operations Before Income Taxes. Net loss
from continuing operations before income taxes increased $12,000, to a net loss
of $179,000 in the nine months ended May 2, 1997 compared to a net loss from
continuing operations before income taxes of $167,000 in the same period in the
prior year. Interest expense increased to $5.7 million in the nine months ended
May 2, 1997 from $5.6 million in the nine months ended April 26, 1996.
Net Loss. Net loss increased to $9.8 million in the nine months ended May
2, 1997 compared to $64,000 in the same period in the prior year, primarily as a
result of a loss of $8.8 million incurred in connection with the intended
disposition of McGuire-Nicholas and a $101,000 loss in connection with the
disposition of VSI, partially offset by income of $869,000 realized in
connection with the cumulative effect of a change in accounting for
postretirement benefits.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased 7.1%, or $6.1 million, to $92.7 million in
fiscal 1996 compared to $86.5 million in fiscal 1995. The increase in net sales
principally reflected increased unit sales across all product lines in fiscal
1996 due to the addition of new customers and favorable weather conditions, as
well as lower net sales in fiscal 1995 due to inventory reduction efforts by key
mass merchant customers and poor spring weather conditions.
Gross Profit. Gross profit increased 8.7%, or $2.0 million, to $25.2
million in fiscal 1996 compared to $23.1 million in fiscal 1995. Gross margin
increased to 27.2% in fiscal 1996 from 26.7% in fiscal 1995. The increase in
gross margin primarily resulted from increased manufacturing efficiencies
related to higher production levels, as well as improved product mix due to
increased sales of the Company's higher-margin, better- and best-quality
products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8.3%, or $1.3 million, to $16.8 million in
fiscal 1996 compared to $15.5 million in fiscal 1995. As a percentage of net
sales, selling, general and administrative expenses increased to 18.1% in fiscal
1996 from 17.9% in fiscal 1995. The increase primarily results from an increase
in cooperative advertising expenditures and staffing costs.
23
<PAGE> 25
Other Expense, Net. Other expense increased $828,000 to $1.5 million in
fiscal 1996 compared to $694,000 in fiscal 1995. In fiscal 1996 the Company
recognized other expense of $563,000 in connection with the resignation of
Acorn's previous Chairman of the Board and other expense of $750,000 in
connection with self-insured life insurance accruals related to the death of a
former director of the Company.
Net Loss From Continuing Operations Before Income Taxes. Net loss from
continuing operations before income taxes increased 70.0%, or $447,000, to $1.1
million in fiscal 1996 compared to $639,000 in fiscal 1995.
Net Loss. Net loss increased $4.8 million to $7.3 million in fiscal 1996
compared to $2.4 million in fiscal 1995, primarily as a result of increased
losses from discontinued operations in 1996.
FISCAL 1995 COMPARED TO THE TWELVE MONTHS ENDED JULY 29, 1994
Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The following
purchase accounting adjustments impacted the Company's net income (loss) from
continuing operations: (i) the basis of certain manufacturing equipment was
increased by an aggregate of approximately $4.5 million; and (ii) goodwill was
restated to approximately $40.0 million. The increased basis of the equipment
resulted in an annual increase in depreciation expense of approximately
$747,000, which is reflected in cost of goods sold. The restatement of goodwill
resulted in an annual increase in amortization of intangibles of approximately
$430,000. On a pro forma basis, giving effect to the purchase accounting
adjustments described above, cost of goods sold and amortization of intangibles
for the four months ended December 2, 1993 would have increased by approximately
$249,000 and $77,000, respectively. The following discussion compares the
Company's results of operations for fiscal 1995 to the Company's results of
operations for the 12 months ended July 29, 1994, as adjusted to give effect to
the foregoing purchase accounting adjustments throughout the period.
Net Sales. Net sales decreased 6.6%, or $6.2 million, to $86.5 million in
fiscal 1995 compared to $92.7 million in the twelve months ended July 29, 1994.
Net sales for the twelve months ended July 29, 1994 reflected record levels due
to significant initial inventory purchases by a key mass merchant customer and
favorable weather conditions. The decrease in net sales in fiscal 1995
principally reflected decreased unit sales across all product lines due to poor
spring weather conditions, as well as inventory reduction efforts by key mass
merchant customers which more than offset increased sales to other customers.
Gross Profit. Gross profit decreased 11.0%, or $2.9 million, to $23.1
million in fiscal 1995 compared to $26.0 million in the twelve months ended July
29, 1994. Gross margin decreased to 26.7% in fiscal 1995 from 28.0% in the
twelve months ended July 29, 1994. The decrease in gross margin primarily
resulted from manufacturing inefficiencies related to lower production levels
due to lower net sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 0.6%, or $100,000, to $15.5 million in fiscal
1995 compared to $15.4 million in the twelve months ended July 29, 1994. As a
percentage of net sales, selling, general and administrative expenses increased
to 17.9% in fiscal 1995 from 16.7% in the twelve months ended July 29, 1994. The
increase principally reflects an increase of approximately $1.1 million in
cooperative advertising expenditures and approximately $1.3 million in purchase
accounting charges, partially offset by reductions in other variable costs
related to lower net sales levels. Selling, general and administrative expenses
increased in fiscal 1995 and the twelve months ended July 29, 1994 compared to
prior periods as a result of management information system improvements.
Other Expense, Net. Other expense increased to $694,000 in fiscal 1995
compared to $11,000 in the twelve months ended July 29, 1994. Other expense in
fiscal 1995 resulted from compensation expense of $340,000 related to the
vesting of executive stock options, as well as banking fees.
Net Loss From Continuing Operations Before Income Taxes. Net loss from
continuing operations before income taxes increased to $639,000 in fiscal 1995
compared to net income from continuing operations of $3.7 million in the twelve
months ended July 29, 1994.
Net Loss. Net loss decreased to $2.4 million in fiscal 1995 compared to
net loss of $5.8 million in the twelve months ended July 29, 1994.
24
<PAGE> 26
SEASONAL AND QUARTERLY FLUCTUATIONS; IMPACT OF WEATHER
The lawn and garden industry is seasonal in nature, with a high proportion
of sales and operating income generated in January through May. Accordingly, the
Company's sales tend to be greater during its third and fourth fiscal quarters.
As a result, the Company's operating results depend significantly on the spring
selling season. To support this sales peak, the Company must anticipate demand
and build inventories of finished goods throughout the fall and winter.
Accordingly, the Company's levels of raw materials and finished goods
inventories tend to be at their highest, relative to sales, during the Company's
first and second fiscal quarters. These factors increase variations in the
Company's quarterly results of operations and potentially expose the Company to
greater adverse effects of changes in economic and industry trends. Moreover,
actual demand for the Company's products may vary substantially from the
anticipated demand, leaving the Company with excess inventory or insufficient
inventory to satisfy customer orders. The following table sets forth certain
unaudited data related to net sales for the fiscal quarters in fiscal 1995 and
fiscal 1996. The unaudited quarterly information has been prepared on the same
basis as the annual financial information and, in the opinion of management of
the Company, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information for the quarters
presented.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------------------- -----------------------------------------------
QUARTER ENDED
----------------------------------------------------------------------------------------------
OCTOBER 28, JANUARY 27, APRIL 28, JULY 28, OCTOBER 27, JANUARY 26, APRIL 26, AUGUST 2,
1994 1995 1995 1995 1995 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $19,150 $18,011 $ 32,609 $ 16,773 $16,486 $19,357 $ 33,564 $ 23,245
Cost of goods sold............ 13,623 13,416 23,995 12,377 12,544 14,731 23,738 16,483
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 5,527 4,595 8,614 4,396 3,942 4,626 9,826 6,762
Selling, general and
administrative expenses
(SG&A)...................... 3,886 3,681 4,490 3,474 3,635 3,721 4,464 4,995
------- ------- ------- ------- ------- ------- ------- -------
Gross profit less SG&A(1)..... $ 1,641 $ 914 $ 4,124 $ 922 $ 307 $ 905 $ 5,362 $ 1,767
======= ======= ======= ======= ======= ======= ======= =======
Net sales as a percentage of
full year net sales......... 22.1% 20.8% 37.7% 19.4% 17.8% 20.9% 36.2% 25.1%
Gross profit as a percentage
of full year gross profit... 23.9 19.9 37.2 19.0 15.7 18.4 39.1 26.9
Gross profit less SG&A(1) as a
percentage of full
year operating profit....... 21.6 12.0 54.3 12.1 3.7 10.9 64.3 21.2
<CAPTION>
NINE MONTHS ENDED
MAY 2, 1997
----------------------------------
NOVEMBER 1, JANUARY 31, MAY 2,
1996 1997 1997
------------ ----------- -------
<S> <C> <C> <C>
Net sales..................... $ 19,679 $21,018 $37,270
Cost of goods sold............ 14,507 15,635 26,935
------- ------- -------
Gross profit.................. 5,172 5,383 10,335
Selling, general and
administrative expenses
(SG&A)...................... 4,403 4,236 4,809
------- ------- -------
Gross profit less SG&A(1)..... $ 769 $ 1,147 $ 5,526
======= ======= =======
Net sales as a percentage of
full year net sales.........
Gross profit as a percentage
of full year gross profit...
Gross profit less SG&A(1) as a
percentage of full
year operating profit.......
</TABLE>
- ---------------
(1) Does not include amortization of intangibles and other expenses, each of
which generally are non-seasonal in nature.
Weather is the single most important factor in determining market demand
for the Company's products and also is the least predictable. For example, while
floods in the Midwest adversely affected the sale of most types of lawn and
garden equipment in 1992, the severe winter of 1994 resulted in a surge in
demand for snow shovels. In addition, bad weather during the spring gardening
season, such as that experienced throughout most of the U.S. in the spring of
1995, can adversely affect overall annual sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, capital
expenditures and debt service. The Company has financed its working capital,
capital expenditures and debt service requirements primarily through internally
generated cash flow and funds borrowed under the Credit Facility and the
Subordinated Notes. See "Use of Proceeds", "Certain Transactions" and
"Description of Certain Indebtedness".
Net cash used in continuing operations was $19.0 million in the nine months
ended May 2, 1997 compared to net cash used in continuing operations of $2.0
million in the comparable period in the prior fiscal year. This increase
principally reflects a seasonal increase of inventories of $7.3 million required
to meet anticipated sales demand, a seasonal increase in accounts receivables of
$20.9 million and an increase in financing fees of $681,000 related to new bank
financing. A corresponding seasonal build of inventories was not required in
fiscal 1996 due to higher inventory levels at July 28, 1995, resulting in a
reduction of inventories in the nine months ended April 26, 1996 of $5.6
million. The seasonal build in accounts receivable combined with increased
revenues in the nine months ended May 2, 1997 resulted in an additional use of
cash
25
<PAGE> 27
of $5.3 million for the nine months ended May 2, 1997. Net cash provided by
continuing operations was $14.0 million in fiscal 1996 compared to net cash used
in continuing operations of $504,000 in fiscal 1995. This increase resulted from
a reduction of inventory levels from July 28, 1995, which were unusually high as
a result of poor spring weather conditions in 1995, as well as inventory
reduction efforts by key mass merchant customers. Net cash used in continuing
operations was $504,000 in fiscal 1995 from net cash provided by continuing
operations of $1.8 million in the eight months ended July 29, 1994. This
increase primarily reflects the unusually high inventory levels at July 28,
1995.
The Company made capital expenditures of approximately $2.3 million, $2.9
million, $1.5 million and $1.6 million during fiscal 1994, fiscal 1995, fiscal
1996 and the nine months ended May 2, 1997, respectively. The capital
expenditures relate primarily to on-going maintenance of property, plant and
equipment, manufacturing process improvements and increased manufacturing
capacity. The Company intends to make capital expenditures of approximately
$900,000 in the remainder of fiscal 1997 and capital expenditures of
approximately $3.4 million in fiscal 1998 primarily related to the purchase of
new equipment and equipment and facility maintenance.
In December 1993 and May 1994 Acorn issued the Subordinated Notes in the
aggregate principal amount of approximately $31.4 million. In August 1996 the
Company issued 100 shares of Series A Preferred Stock as payment in full of
accrued interest on the Subordinated Notes for fiscal 1995 and fiscal 1996. As
of May 2, 1997, the aggregate principal balance of the Subordinated Notes and
accrued interest thereon was approximately $34.4 million and the aggregate
liquidation value of the Series A Preferred Stock was approximately $9.4
million. The Company intends to use a portion of the net proceeds from the
Offering to redeem the Series A Preferred Stock and pay accumulated dividends
thereon and to repay a portion of the Subordinated Notes and accrued interest
thereon. Pursuant to the Exchange, the remainder of the Subordinated Notes will
be exchanged for shares of Common Stock upon consummation of the Offering. See
"Use of Proceeds" and "Certain Transactions".
In December 1996, the Company entered into the Credit Facility to finance
capital expenditures, including future acquisitions, if any, and to fund working
capital and other general business requirements. As of May 2, 1997, after giving
effect to the Offering and the use of proceeds therefrom (at an assumed initial
public offering price of $14.00 per share, the mid-point of the range of initial
public offering prices set forth on the cover page of this Prospectus), there
would have been approximately $9.0 million available under the revolving portion
of the Credit Facility and approximately $28.7 million available under the
acquisition line of the Credit Facility. Indebtedness outstanding under the
Credit Facility bears interest at variable rates (8.75% per year at May 2,
1997).
The Company believes that cash generated from operations, together with
amounts available under the Credit Facility, will be adequate to meet its debt
service requirements, capital expenditures and working capital needs for the
foreseeable future, although no assurance can be given in this regard. In
addition, actual capital requirements may change, particularly as a result of
acquisitions, if any, that the Company may make in the future. Depending on the
nature, size and timing of future acquisitions, the Company may be required to
raise additional financing. There can be no assurance that such additional
financing will be available to the Company on acceptable terms.
EFFECTS OF INFLATION
The Company is affected by inflation primarily through the purchase of raw
materials, increased operating costs and expenses and higher interest rates. The
Company believes that the effects of inflation on the Company's operations have
not been material in recent years.
26
<PAGE> 28
BUSINESS
GENERAL
Founded in 1890, the Company is a leading manufacturer and marketer of
non-powered lawn and garden tools in the U.S. The Company's principal products
include long handle tools (such as forks, hoes, rakes and shovels), snow tools,
posthole diggers, wheelbarrows, striking tools and cutting tools. The Company
sells its products under a variety of well-known brand names, including
Razor-Back, Union, Yard 'n Garden, Perfect Cut and, pursuant to a license
agreement, Scotts. In addition, the Company manufactures private label products
for a variety of retailers, including products sold under Sears' Craftsman and
Cotter & Company's True Value brand names. The Company's customers include mass
merchants such as Sears, Kmart and Fred Meyer, home centers such as Home Depot,
HomeBase, Builders Square and Payless Cashways, buying groups such as Cotter &
Company and Ace Hardware and farm and industrial distributors.
The Company's net sales increased from $56.2 million in fiscal 1991 to
$92.7 million in fiscal 1996, a CAGR of 10.5%. The Company's net sales were
$78.0 million for the nine months ended May 2, 1997, an increase of 12.3% from
the same period in fiscal 1996. In addition, net sales of the Company's
higher-margin, best-quality products increased to approximately 36% of total net
sales in fiscal 1996, while net sales of the Company's lower-margin,
opening-price-point products decreased to approximately 7% of total net sales in
fiscal 1996. The Company generated approximately 92% of its revenues in both
fiscal 1996 and the nine months ended May 2, 1997 from sales of long handle
tools. The Company believes that it has gained the second largest market share
in the long handle tools segment of the industry (with an estimated market share
of approximately 28% in 1996) from the third largest market share in the early
1990s.
BUSINESS STRATEGY
Over the past six years the Company has successfully implemented a business
strategy designed to transform it from a manufacturing-oriented industrial
company into a marketing-oriented consumer products company. The central
elements of the Company's approach include a market segmentation strategy based
primarily on brand management and a merchandising strategy based on attractive
and informative product displays and labeling.
- Market Segmentation Strategy. The Company has developed a family of
brands, each targeted to one or more specific consumer segments and
price-points. For example, shovels sold under the Company's
opening-price-point Yard'n Garden brand retail from $3.99 to $5.99, while
shovels sold under the Company's best-quality Razor-Back brand retail
from $19.99 to $21.99. The Company's products and brands are
differentiated by price, features and warranty, as well as by the
materials and production processes used.
- Merchandising Strategy. The Company was the first in the long handle
tool segment of the non-powered lawn and garden industry to successfully
implement sophisticated merchandising and marketing programs. The
Company's merchandising programs are designed to (i) create brand
identification among goods historically treated as commodities and (ii)
increase retail sales while reducing the amount of sales support needed
from the retailer's employees. The Company uses innovative product
labeling and point-of-sale signage and racking to highlight the
comparative value and quality of products within and among the Company's
brands. Products within the Company's Union, Scotts and Perfect Cut lines
are merchandised using the Company's trademarked "Good/Better/Best"
format. Where adequate shelf-space is available, the Company also
merchandises its brands together, from the Company's opening price-point
Yard'n Garden brand to its best-quality Razor-Back brand, using a similar
value positioning technique. The Company believes that its merchandising
strategy facilitates comparison shopping and encourages consumers to
purchase higher price-point products.
Over the past six years, the Company also has expanded its infrastructure
to support future growth by recruiting an experienced management team,
increasing manufacturing capacity and enhancing its management information
systems.
27
<PAGE> 29
GROWTH STRATEGY
The Company believes that it can leverage the success of its business
strategy through the implementation of the following growth strategies:
- Increase Penetration in High Growth Distribution Channels. The Company
believes that certain distribution channels, such as home centers and
mass merchants, are growing more rapidly than the overall industry. The
Company believes that it can continue to increase its sales in these high
growth distribution channels through its unique combination of brand
names, innovative merchandising techniques and high quality products. For
example, in August 1996, after the Company demonstrated the effectiveness
of its market segmentation and merchandising strategies in a select
number of Home Depot stores, Home Depot selected the Company as the
supplier of long handle tools for all new Home Depot stores in new
markets and for 50 existing Home Depot stores. Home Depot has indicated
that it expects to open over 450 additional stores over the next five
years, primarily in new markets. In addition, the Company has been a
continuous supplier to Sears for over 80 years and the primary supplier
of long handle tools to Sears for over 50 years. In five of the last six
years the Company has received the prestigious "Partners in Progress"
trophy awarded to approximately 80 of Sears' 10,000 suppliers. Sears has
indicated that it expects to open or acquire over 500 additional non-mall
hardware stores over the next five years.
- Develop Product Line Extensions. The Company believes that product line
extensions allow the Company to increase sales with minimal incremental
expenditures. The Company recently expanded its cutting tool and striking
tool product lines with the introduction of Perfect Cut pruning shears
and loppers and Razor-Back mattocks, picks, axes, hammers and bars. The
Company also recently introduced the Lady Gardener line of tools, which
is ergonomically designed for female gardeners. The Company is actively
developing additional product line extension opportunities.
- Complete Strategic Acquisitions. The Company intends to increase its
presence in certain segments of the lawn and garden industry through
selective acquisitions and to increase operating efficiencies through
vertical integration. Consistent with this strategy, in February 1997 the
Company acquired an injection molding facility from one of the Company's
largest suppliers of plastics parts. The Company's Credit Facility
contains a $35 million acquisition facility, approximately $28.7 million
of which will be available following consummation of the Offering and the
application of the net proceeds therefrom (as of May 2, 1997 and at an
assumed initial public offering price of $14, the mid-point of the range
of initial public offering prices set forth on the cover page of this
Prospectus). In addition, Oaktree, the general partner of the Oaktree
Fund, has indicated its willingness to consider providing financing from
the Oaktree Fund for future acquisitions by the Company, however, there
can be no assurance in this regard.
The Company believes that continued application of its market segmentation and
merchandising strategies, together with the implementation of the foregoing
growth strategies, will enable the Company to continue its growth, increase its
profitability and enhance its market share.
INDUSTRY
The non-powered lawn and garden tool industry is mature and, due in part to
the low-cost nature of non-powered equipment, relatively non-cyclical. The
Company believes that demand for non-powered lawn and garden tools generally is
driven by the desire of do-it-yourself ("DIY") consumers to maintain and
landscape residential properties and the need of industrial and farm
professionals to acquire and utilize high-quality equipment that will aid them
in efficiently completing their jobs. Industry sources estimate that the
consumer market for lawn and garden tools (which excludes the professional and
industrial markets) generated approximately $550 million in revenues in 1994, an
increase of approximately 5% over 1993 estimates. Industry sources also estimate
that the non-powered lawn and garden tool market will grow at a CAGR of 5.6%
through 2001. The non-powered lawn and garden tool market is comprised of the
following product categories: long handle tools, garden hose, hose attachments,
cutting tools, hose reels, sprayers, wheelbarrows
28
<PAGE> 30
and spreaders. The Company believes that long handle tools comprise the largest
segment of the non-powered lawn and garden tool market.
The Company believes that the lawn and garden industry is the beneficiary
of several trends suggesting a growing demand for lawn and garden tools,
including the following:
- Demographic Trends. According to industry sources, consumers age 45 to
54 represent the largest age group of lawn and garden enthusiasts.
Industry sources estimate that this group will increase by approximately
54% from 1998 to 2000 as "baby boomers" age.
- Lifestyle Trends. Industry sources estimate that approximately 80
million households in the U.S. participated in some form of gardening in
1994. The Company believes that increased environmental awareness,
greater interest in healthy lifestyles and heightened concerns regarding
the maintenance of property values will continue to increase the
popularity of lawn and garden activities, particularly among young
adults. In addition, the success of several new gardening publications
has contributed to the increased popularity of gardening and the greater
sophistication of lawn and garden consumers.
- Housing Starts and Sales of Existing Homes. New housing starts often
represent an addition to the overall number of consumers in the lawn and
garden tool market and, accordingly, an increase in demand. Consumers
moving into new homes often spend substantially on landscaping, including
the purchase of lawn and garden equipment.
PRODUCTS AND BRANDS
Product Lines
The Company sells over 1,000 stock keeping units of non-powered lawn and
garden tools. The Company designs, manufactures and markets tools in the
following product lines: (i) shovels and scoops; (ii) other steel products, such
as hoes, forks, scrapers and rakes; (iii) garden hand tools and posthole
diggers; (iv) snow tools, such as shovels and pushers; and (v) other products
such as repair handles, weeders, edging tools and brooms. In addition, the
Company sells wheelbarrows and cutting and striking tools purchased from outside
equipment manufacturers. As a result of its recent acquisition of an injection
molding facility, the Company also manufactures proprietary custom molded
products and component parts for other manufacturers and distributors, as well
as plastic components used in the Company's products.
Brand Positioning
Pursuant to its market segmentation strategy, the Company has developed a
family of brands, each targeted to one or more specific consumer segments and
price-points. For example, shovels sold under the Company's opening-price-point
Yard 'n Garden brand retail from $3.99 to $5.99, while products sold under the
Company's best-quality Razor-Back brand retail from $19.99 to $21.99. The
Company's products and brands are differentiated by price, features and warranty
(up to a lifetime warranty). Product grades also differ with respect to the
materials and production processes used. For example, the steel components of
the Company's Razor-Back line are heavy-gauge and forged in order to maximize
the product's strength and durability, while the Company's Yard 'n Garden
products are made with lighter gauge components. The Company carefully monitors
its products and searches for growth opportunities that result from changes in
market segments. For example, the Company repositioned the Razor-Back brand to
cater to the growing population of serious DIY consumers by updating the brand
image, introducing product line extensions and developing new promotional
campaigns. See "-- Merchandising and Marketing". The Company's major brands are
described below.
Razor-Back. The Company sells a full line of best-quality, industrial duty
tools for farm, industrial and professional users under the Razor-Back name. The
brand enjoys a strong franchise with agricultural and industrial professionals
and is widely acknowledged as the quality and performance standard for the long
handle tool industry. In 1995 the Company expanded the brand with a high quality
line of cutting and striking tools. The Razor-Back line is sold primarily
through home center, hardware store, industrial distributor and farm sector
distribution channels.
29
<PAGE> 31
UnionPro. The Company sells a limited line of high quality, industrial
duty tools for farm, industrial and professional users under the UnionPro name.
The UnionPro line is sold primarily through industrial distributor and farm
sector distribution channels.
Union. The Union line generates the largest sales volume for the Company.
Under the Union name, the Company sells a full line of medium-quality,
professional duty tools with a wide range of features, quality points and
performance levels designed to match the needs of tradesmen and serious DIY
consumers. The Union line is sold through all distribution channels except
warehouse clubs and is merchandised in a trademarked Good/Better/Best quality
configuration.
Perfect Cut. The Perfect Cut line was introduced in August 1995. The
Company sells a limited line of consumer and professional duty cutting tools for
tradesmen and serious DIY consumers under the Perfect Cut name. The Perfect Cut
line is sold primarily through home centers, mass merchants and hardware store
distribution channels and is merchandised in a trademarked Good/Better/Best
quality configuration.
Scotts. In July 1992, the Company obtained from The Scotts Company the
exclusive right to manufacture, distribute and market in the U.S. and Canada an
extensive line of lawn and garden tools under the Scotts name. The Company has
sought to benefit from The Scotts Company's national prime time advertising
campaigns, to develop joint promotional programs with The Scotts Company and to
leverage the Scotts brand reputation and recognition among retailers that
support The Scotts Company bagged-goods program. Under the Scotts name, the
Company sells a full line of high quality, consumer-oriented tools for home
gardeners who associate the Scotts name with value and quality. The Scotts line
is sold primarily though mass merchant and home center distribution channels and
is merchandised in a trademarked Good/Better/ Best quality configuration.
ProForce. The ProForce line was introduced in August 1993 and is comprised
of a limited line of medium-quality, consumer-oriented tools for DIY consumers.
The ProForce line is sold exclusively through the warehouse club distribution
channel.
Yard 'n Garden. Under the Yard 'n Garden name, the Company sells a limited
line of standard quality, promotional tools designed for occasional DIY
consumers who demand value in basic tools for home use. The Yard 'n Garden line
is sold through all distribution channels.
Lady Gardener. The Lady Gardener line was introduced in August 1996. Under
the Lady Gardener name, the Company sells a limited line of high-quality,
consumer oriented tools ergonomically designed for female gardeners. The Lady
Gardener line is sold primarily through mass merchant, home center and hardware
store distribution channels.
Private Label Products
In addition to its own brands, the Company also manufactures private label
products for a variety of customers including Sears, Cotter & Company, Frank's
Nursery and Agway, which are sold under the Craftsman and Sears, Green Thumb and
TrueValue, Frank's and Agway brand names, respectively. The Company has been a
continuous supplier to Sears for over 80 years and the primary supplier of long
handle tools to Sears for over 50 years. Private label products generated
approximately $17.1 million, or 15.9%, of the Company's net sales in fiscal 1996
and approximately $11.1 million, or 13.1%, of the Company's net sales in the
nine months ended May 2, 1997.
As a result of its recent acquisition of an injection molding facility, the
Company also manufactures proprietary custom molded products and component parts
for other manufacturers and distributors, as well as plastic components used in
the Company's products.
New Product Development
The Company believes that internally developed products, which often extend
existing product lines, allow it to increase sales with relatively modest
expenditures. For example, the Company recently introduced striking tools, such
as mattocks, picks, axes, hammers and bars, to extend the Razor-Back line. The
Company
30
<PAGE> 32
also introduced cutting tools, such as pruners, loppers, shears and bow and
pruning saws marketed under the Perfect Cut line. The striking and cutting tools
are made for the Company by outside manufacturers. The Company also has recently
introduced redesigned posthole diggers with superior functionality and lower
production costs.
As part of its product development effort, the Company tests different
materials in order to enhance product features, reduce tool weight and
facilitate usage. For example, the Company's recently introduced Lady Gardener
line, ergonomically designed for female gardeners, employs plastic or plastic
and steel tool heads in order to make the equipment lighter and easier to
handle.
CUSTOMERS
The Company has well-established customer relationships with most major
retailers in the lawn and garden industry. The Company's largest customer,
Sears, accounted for 8.9%, 12.5% and 11.5% of gross sales in fiscal 1995, fiscal
1996 and the nine months ended May 2, 1997, respectively. The Company's ten
largest customers accounted for approximately 44.0%, 51.4% and 50.5% of gross
sales during each such period. The Company sells its products through a variety
of distribution channels, including (i) mass merchants such as Sears, Kmart and
Fred Meyer, (ii) home centers such as Home Depot, HomeBase, Builders Square and
Payless Cashways, (iii) buying groups such as Cotter & Company and Ace Hardware,
(iv) farm distributors and stores such as Mid-States Distributing Co., Agway,
Wheatbelt, Inc. and Tractor Supply Company, Inc. and (v) industrial distributors
such as Oklahoma Rig & Supply Company, Texas Mill Supply & Manufacturing, Inc.,
Hughes Supply, Inc. and McMaster-Carr Supply Company.
The Company believes that it provides value to its customers by offering a
wide selection of products at a variety of price-points and by reliably
servicing customer needs.
MERCHANDISING AND MARKETING
The Company was the first in the long handle tool segment of the
non-powered lawn and garden industry to successfully implement sophisticated
merchandising and marketing programs. The Company's merchandising programs are
designed to (i) create brand identification among goods historically treated as
commodities and (ii) increase retail sales while reducing the amount of sales
support needed from the retailer's employees. The Company uses innovative
product labeling and point-of-sale signage and racking to highlight the
comparative value and quality of products within and among the Company's brands.
Products within the Company's Union, Scotts and Perfect Cut lines are
merchandised using the Company's trademarked "Good/Better/Best" format. Where
adequate shelf-space is available, the Company also merchandises its brands
together, from the Company's opening price-point Yard 'n Garden brand to its
best-quality Razor-Back brand, utilizing a similar value positioning technique.
The Company believes that its merchandising strategy facilitates comparison
shopping and encourages consumers to purchase higher price-point products.
Where applicable, the Company provides its customers with merchandising
plan-o-grams. The Company also provides its customers with custom designed
product displays complete with informative signs and other "wall-talkers" to
answer consumer questions without the help of the retailer's sales staff. The
Company primarily uses cooperative advertising to promote its products to
consumers.
SALES
The Company's sales force is divided into five regions, each led by a
regional manager. The regional manager supervises a sales force consisting of 14
direct sales professionals who are employed by the Company. In addition, the
Company utilizes 23 manufacturers' representative agencies who also report to
the regional managers. The manufacturers' representatives also sell lawn and
garden products for other manufacturers, but not products that compete with the
Company's products. Company management and senior sales professionals regularly
call on the Company's significant customers, while the manufacturing
representatives provide store level support. The Company's sales professionals
are compensated with a base salary and bonuses based upon a formula that rewards
them for individual performance against an established quota, as well as
Company-wide sales and earnings targets.
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<PAGE> 33
DISTRIBUTION AND LOGISTICS
Customer orders arrive at the Company's headquarters in Columbus, Ohio and
are processed centrally. If the Company can fill the order from the current
stock of finished goods, the order is forwarded to one of the Company's three
distribution centers for shipment based on proximity and availability. The
Company maintains distribution centers in La Mirada, California, Columbus, Ohio
and Frankfort, New York. The Company owns or leases a fleet of three tractors
and 15 trailers for transporting products between its manufacturing and
distribution facilities. Common carriers are used for shipping finished products
from warehouses to customer delivery points.
The Company uses a computerized management information and control system
which allows the Company to determine the status of customer orders and enables
the Company to process the orders quickly, respond to customer inquiries and
adjust shipping schedules to meet customer requirements. Within this system, the
Company uses an electronic data interchange system that enables customers,
through computerized telephone communications, to place orders directly with the
Company. The Company believes that these systems enable efficient order
processing, expedite shipments and improve customer service.
The Company also provides its customers with the service of pre-ticketing
and bar-coding its products in accordance with customer specifications.
MANUFACTURING
The production of non-powered lawn and garden tools is an extensive
manufacturing and assembly process that involves several different technologies,
including sawmill operations, wood finishing, heavy gauge forging, stamping,
grinding and metal painting. The complexity of certain tasks and the
coordination of the various steps of the manufacturing process have been
developed by the Company over the last 100 years.
At the Company's Columbus, Ohio and Frankfort, New York manufacturing
facilities, steel components undergo hot and cold stamping and hot forging or
welding, depending on the type of tool head being produced. The metal is then
cleaned by grinding and polishing the shaped steel heads. The steel components
then are painted using various techniques depending on product type and product
material. The Company operates its own water based paint manufacturing process
which is used for all steel tool components. Some steel components undergo
additional finishing steps such as anodization or immersion in special chemical
baths.
At the Company's eight saw mills, ash logs are cut into flitches, then into
squares and finally into rounds. The rounds, which have diameters of one to two
inches depending on the finished product requirements, then are inspected to
remove defects. The end product of this process is a green ash dowel that is
then shipped to either the Company's Frankfort, New York or Delaware, Ohio
sawmill to be kiln dried, cut to length, shaped and turned into a handle. The
kiln drying process takes approximately six days and removes enough moisture
from the wood to reduce the weight of the original green dowel by approximately
35%. Wood handles undergo chucking, boring, sanding and a finishing process at
the Company's Columbus and Frankfort facilities. The inventory of handles
maintained at these facilities is a function of both price and seasonal
considerations. The assembly of the steel tool head to the handle and packaging
take place in the final manufacturing stage.
The Company has implemented a seasonally adjusted production schedule in
order to maximize its inventories of finished goods. Production is increased
during December through March, the Company's busiest season, and lowered during
the summer and fall seasons.
RAW MATERIALS
The primary raw materials used to produce the Company's products are steel,
plastics and ash wood.
Steel. The Company purchases its steel requirements from several domestic
suppliers. The primary considerations in specialty steel sourcing are
metallurgy, price and width. The Company has strong and long established
relationships with its steel suppliers and has never experienced sourcing
problems. The Company does not enter into long-term contracts with regard to any
of its steel purchases. The Company purchased approximately 75% and 17% of its
steel requirements from Worthington Steel and Acme Steel Corporation,
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<PAGE> 34
respectively, in fiscal 1996 and approximately 65% and 19%, respectively, from
such suppliers in the nine months ended May 2, 1997. The Company has had
relationships with these suppliers in excess of 15 and 7 years, respectively.
Plastics. The Company has selected specially formulated plastics and
resins for use in its tools. Plastic tool heads historically have been produced
by six outside injection molders (including the former owner of the injection
molding facility that the Company recently acquired), utilizing molds developed
and owned by the Company. The Company intends to use its new facility to
manufacture proprietary custom molded products and component parts for other
manufacturers and distributors, as well as to manufacture plastic components
used in the Company's products. The Company does not enter into any long-term
contracts with regard to its plastics purchases.
Ash Wood. Ash is the ideal hardwood for handles because it is lightweight,
flexible and splinters less than most hardwoods. The Company has wood
specialists who maintain relationships with numerous log suppliers and are
responsible for sourcing the Company's ash needs. The Company believes that it
will continue to be able to obtain sufficient quantities of ash. The Company
typically maintains a six to eight week inventory of ash at each of its sawmills
to cover occasional short-term fluctuations in supply. The Company imports ramin
wood handles for some of its promotionally priced Yard 'n Garden brand products,
such as rakes and hoes. Ramin wood is less expensive than ash and is of
sufficient quality for tools (other than shovels) designed for
opening-price-point levels.
FACILITIES
The Company's headquarters and executive offices, located in Columbus,
Ohio, occupy approximately 31,000 square feet in a facility owned by the
Company. As of May 2, 1997, the other principal properties owned or leased by
the Company for use in its business are set forth below.
DISTRIBUTION FACILITIES
<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FEET
------------------------------------------------------- --------- -------
<S> <C> <C>
Columbus, Ohio......................................... Leased 170,000
Frankfort, New York(1)................................. Owned 31,000
La Mirada, California.................................. Leased 19,000
</TABLE>
MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FEET
------------------------------------------------------- --------- -------
<S> <C> <C>
Columbus, Ohio(2)...................................... Owned 165,000
Frankfort, New York(1)................................. Owned 351,000
Hebron, Ohio........................................... Owned 170,000
</TABLE>
33
<PAGE> 35
SAWMILLS
<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FEET
------------------------------------------------------- --------- -------
<S> <C> <C>
Beverly, West Virginia................................. Owned 5,100
Cookeville, Tennessee.................................. Owned 12,000
Delaware, Ohio......................................... Owned 56,000
Frankfort, New York(1)................................. Owned 39,000
Huntington, Indiana.................................... Owned 7,500
Lebanon, Kentucky...................................... Owned 13,500
Portville, New York.................................... Owned 15,000
Shippenburg, Pennsylvania.............................. Owned 15,000
</TABLE>
- ---------------
(1) The Company's 421,000 square foot Frankfort, New York facility is comprised
of a distribution center, a manufacturing facility and a sawmill. The
Company also maintains approximately 20,000 square feet of office space in
this facility.
(2) The Company's 196,000 square foot Columbus, Ohio headquarters consists of
the Company's executive offices and a manufacturing facility.
The Company believes that its existing manufacturing facilities,
distribution centers and sawmills are adequate for the current level of the
Company's operations. The Company believes that its manufacturing facilities
have sufficient excess capacity to accommodate a 35% to 50% increase in current
levels of output. The Company believes that its current sawmill capacity is
sufficient to accommodate up to a 30% increase in current levels of output.
EMPLOYEES
As of May 2, 1997, the Company employed approximately 670 people (including
seasonal employees), approximately 570 of whom were paid on an hourly basis. The
Company's staffing requirements fluctuate during the year as a result of the
seasonality of the lawn and garden industry, adding approximately 100 to 200
additional seasonal employees in the third quarter. The average tenure of the
Company's hourly employees is in excess of 15 years. Hourly employees at the
Company's Columbus, Ohio manufacturing facility and distribution center and
Delaware, Ohio sawmill are represented by the International Association of
Machinists (the "IAM"). Hourly employees at the Company's Frankfort, New York
facilities are represented by the International Brotherhood of Boilermakers,
Iron Ship Builders, Blacksmiths, Forgers and Helpers (the "IBB"). Hourly
employees at the Company's Portville, New York sawmill are represented by the
International Brotherhood of Teamsters (the "IBT"). Hourly employees at the
Company's Hebron, Ohio injection molding facility are represented by the Glass,
Molders, Pottery, Plastics & Allied Workers International Union AFL-CIO (the
"AGM"). The Company's contracts with the IAM, the IBB, the IBT and the AGM
expire in March 1999, May 1998, August 1999 and February 1999, respectively. No
other employees of the Company are represented by unions. The Company has not
been subject to a strike or work stoppage in over 20 years and believes that its
relationships with its employees, the IAM, the IBB, the IBT and the AGM are
good.
PATENTS AND TRADEMARKS
The Company's success and ability to compete are dependent to a significant
degree on its patents and trademarks. The Company registers its patents and
trademarks in the United States Patent and Trademark Office and the patent and
trademark offices of certain other countries and intends to continue to do so as
new patents and trademarks are developed or acquired. The Company's trademarks
include the Lady Gardener, Perfect Cut, Pro Force, Razor-Back, Union, Union Pro
and Yard 'n Garden brand names. In addition, the Company holds trademarks on
various configurations of its Good/Better/Best product labels and signage. In
July 1992, the Company obtained the exclusive right to manufacture, distribute
and market in the U.S. and Canada an extensive line of lawn and garden tools
under the Scotts brand name. The Company pays certain
34
<PAGE> 36
royalties to The Scotts Company, the owner of the Scotts trademark, pursuant to
a license agreement. The current term of the license agreement expires in August
1998 and, subject to certain conditions, is automatically renewed for successive
three year periods.
COMPETITION
All aspects of the lawn and garden industry, including attracting and
retaining customers and pricing, are highly competitive. The Company competes
for customers in this industry with large consumer product manufacturers and
numerous other companies that produce specialty home and garden products, as
well as with foreign manufacturers that export their products to the U.S. Many
of these competitors are larger and have significantly greater financial
resources than the Company.
In the long handle tool segment of the industry, the Company competes
primarily with Ames Company, Inc. ("Ames") and True Temper Hardware Company,
Inc. ("True Temper"). The Company believes that it currently has the second
largest market share in the long handle tools segment of the industry. The
Company believes that Ames currently has the largest market share in the long
handle tools segment of the industry and that True Temper currently has the
third largest in this segment of the industry.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state, and local environmental
laws, ordinances and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. The Company has made,
and will continue to make, expenditures to comply with these environmental
requirements and regularly reviews its procedures and policies for compliance
with environmental laws. The Company also has been involved in remediation
actions with respect to certain of its facilities. Amounts expended by the
Company in such compliance and remediation activities have not been material to
the Company. However, current conditions and future events, such as changes in
existing laws and regulations, may give rise to additional compliance or
remediation costs that could have a material adverse effect on the Company's
business, financial condition or results of operations. Furthermore, as is the
case with manufacturers in general, if a release of hazardous substances occurs
on or from the Company's properties or any associated offsite disposal location,
or if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable and the amount of such liability
could be material.
At May 2, 1997 the Company had a reserve for environmental remediation of
$451,000. The actual cost of remediating environmental conditions may be
different than that accrued by the Company due to the difficulty in estimating
such costs and due to potential changes in the status of legislation. The
Company does not maintain an insurance policy for environmental matters.
LITIGATION
The Company from time to time is involved in routine litigation incidental
to the conduct of its business. Management believes that no currently pending
litigation to which the Company is a party will have a material adverse effect
on its financial position or results of operations.
35
<PAGE> 37
DESCRIPTION OF MCGUIRE-NICHOLAS
Founded in 1932, McGuire-Nicholas is a leader in the leather, canvas and
manmade fabric tool holder and work apron market. McGuire-Nicholas designs,
manufactures and markets construction aprons, nail and tool bags, tool pouches,
tool holders, work and support belts and knee pads. The Company believes that
the McGuire-Nicholas brand enjoys a reputation for superior design and quality,
as well as high name recognition among professional and serious DIY consumers.
McGuire-Nicholas sells its products through market leaders in all hardware
distribution channels, including mass merchants, home centers, buying groups,
distributors, industrial retailers and club stores.
McGuire-Nicholas' merchandising and marketing strategy is focused on brand
management, increased penetration of certain specified distribution channels and
satisfying customer needs. McGuire-Nicholas has developed innovative new
products, packaging and customer specific merchandising programs and provides
retail service and support through plan-o-gram services, custom flyers and
circulars. McGuire-Nicholas participates in distribution channel and customer
specific advertising and promotional events, including "best buy" and
"item-of-the-month" specials and special promotions using custom packaging.
McGuire-Nicholas' manufacturing process largely is comprised of cutting,
sewing and riveting. Leather or canvas is transported from an adjacent warehouse
to the cutting floor, where workers cut the raw material to size and shape.
After cutting, the material is sewn and riveted to form the finished product.
Finished items are packaged on the premises. The principal raw materials used in
McGuire-Nicholas' products consist of tanned leather, Cordura, canvas, nylon
webbing for belts, rivets and other hardware. McGuire-Nicholas does not engage
in leather tanning.
McGuire-Nicholas manufactures and distributes its products worldwide out of
a 72,000 square foot leased facility in Los Angeles, California. It currently is
in the process of moving a portion of its manufacturing facilities to Tecate,
Mexico. As of May 2, 1997, McGuire-Nicholas employed approximately 355 non-union
employees with an average tenure in excess of 10 years.
In December 1996 McGuire-Nicholas entered into a Loan and Credit Facility
(the "Loan Facility"). The Loan Facility is comprised of (i) a $9.25 million
revolving facility, (ii) a $250,000 term loan and (iii) a $500,000 non-revolving
capital expenditure facility to purchase new equipment. All borrowings made
under the Loan Facility bear interest at the rate of 1% over the Prime Rate (as
defined in the Loan Facility). The Loan Facility is secured by, among other
things, all of McGuire-Nicholas' accounts, general intangibles, securities,
inventory and equipment. Neither Acorn nor UnionTools is a party to the Loan
Agreement, either as principal or guarantor.
36
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors of Acorn and the executive officers of the Company. Each director of
Acorn will hold office until the next annual meeting of stockholders of Acorn or
until his successor has been elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Gabe Mihaly................................ 49 President, Chief Executive Officer and
Director of Acorn and UnionTools
James B. Farland........................... 58 Vice President -- Sales and Marketing of
UnionTools
Thomas A. Hyrb............................. 53 Vice President -- Operations of UnionTools
Stephen M. Kasprisin....................... 43 Chief Financial Officer and Vice President
of Acorn and Union Tools
Conor D. Reilly............................ 45 Chairman of the Board and Director of Acorn
and UnionTools
William W. Abbott.......................... 65 Director of Acorn
Matthew S. Barrett......................... 37 Director of Acorn
Stephen A. Kaplan.......................... 38 Director of Acorn
John I. Leahy.............................. 66 Director of Acorn
</TABLE>
Gabe Mihaly became President and Chief Executive Officer of UnionTools in
May 1991 and President, Chief Executive Officer and a director of Acorn in
August 1996. From October 1986 to May 1991, Mr. Mihaly was a partner at Ernst &
Young, where he provided consulting services to senior executives in the areas
of strategy, cost and operations management, performance and competitive
analysis and turnaround management.
James B. Farland became Vice President Sales and Marketing of UnionTools in
March 1992. From October 1990 to March 1992, Mr. Farland was Vice President
National Accounts of Poulan/Weedeater. From March 1988 to October 1990, Mr.
Farland was Vice President Sales and Marketing of Allegratti Co. until its
acquisition by Poulan/Weedeater.
Thomas A. Hyrb became Vice President Operations of UnionTools in August
1991. From September 1982 to July 1991, Mr. Hyrb was Director of Quality
Assurance and Plant Manager of True Temper. From May 1966 to August 1982, Mr.
Hyrb held various manufacturing and engineering management positions with Clarke
(a division of McGraw Edison), Roper Corporation and Allis Chalmers.
Stephen M. Kasprisin became Chief Financial Officer and Vice President of
Acorn in February 1989 and Chief Financial Officer and Vice President of
UnionTools in January 1994. From January 1981 to February 1989, Mr. Kasprisin
held various financial positions with certain private enterprises. From June
1976 to January 1981 Mr. Kasprisin was employed by Coopers & Lybrand, certified
public accountants.
Conor D. Reilly became Chairman and a director of Acorn and UnionTools in
August 1996. Mr. Reilly has been a partner at Gibson, Dunn & Crutcher LLP since
January 1988. Mr. Reilly served as Vice Chairman of Memorex-Telex N.V. in 1992
and 1993 and has been a director of John Deere Insurance Group, Inc. since
August 1992.
William W. Abbott became a director of Acorn in January 1997. Mr. Abbott
currently is self-employed as a business consultant. From August 1989 to January
1995, Mr. Abbott served as Senior Advisor to the United Nations Development
Programme. In 1989, Mr. Abbott retired from 35 years of service at Procter &
Gamble, as a Senior Vice President in charge of worldwide sales and other
operations. From April 1982 to April 1994 Mr. Abbot served as a member of the
Board of Directors of Armstrong World Industries. He currently serves as a
member of the Board of Directors of Horace Mann Educators Corporation, Fifth
Third Bank of Naples,
37
<PAGE> 39
Florida, a member of the Advisory Board of Deloitte & Touche LLP, a member of
the Advisory Board of Manco, a member of the Board of Overseers of the Duke
Cancer Center and an Executive in Residence of Appalachian State University.
Matthew S. Barrett became a director of the Company in December 1993. Mr.
Barrett is a managing director of Oaktree. Prior to joining Oaktree, from 1991
to April 1995, Mr. Barrett was Senior Vice President of TCW Asset Management
Company.
Stephen A. Kaplan became a director of Acorn in December 1993. Mr. Kaplan
is a principal of Oaktree, where he runs the Principal Activities Group. Prior
to joining Oaktree, from November 1993 to April 1995, Mr. Kaplan was a managing
director of Trust Company of the West and was portfolio manager of The Principal
Fund. From January 1991 to October 1993, Mr. Kaplan was a partner at Gibson,
Dunn & Crutcher LLP. Mr. Kaplan currently serves as a member of the Board of
Directors of Chief Auto Parts, Inc., Stratagene Holding Corporation, Decorative
Home Accents, Inc. and KinderCare Learning Centers, Inc.
John I. Leahy became a director of the Company in August 1994. Mr. Leahy
has been the President of Management & Marketing Associates, a management
consulting firm owned by Mr. Leahy, since 1987. In 1987, Mr. Leahy retired after
34 years of service at the Black & Decker Corporation, where he was President
and Group Executive, Western Hemisphere. Mr. Leahy currently serves as a
director of Allied Capital Corporation II, Motorvac Technologies, Inc. and
several privately held companies. Mr. Leahy is a Trustee of Loyola College of
Maryland and St. Mary's University.
COMMITTEES OF THE BOARD OF DIRECTORS
In March 1997 Acorn created a Management Development and Compensation
Committee (the "Compensation Committee") and an Audit Committee (the "Audit
Committee"). Messrs. Abbott (Chairman), Kaplan and Reilly were appointed to the
Compensation Committee and Messrs. Leahy (Chairman) and Barrett were appointed
to the Audit Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1997, Acorn did not have a compensation committee. The full
Board of Directors of Acorn participated in deliberations concerning
compensation of executive officers of the Company during fiscal 1996. None of
the executive officers of Acorn served on the board of directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the compensation committee of Acorn.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving as directors. Non-employee directors receive annual compensation of
$30,000, plus reimbursement of reasonable out-of-pocket expenses. Non-employee
directors can elect to have all of their annual compensation paid in shares of
Common Stock pursuant to the Director Stock Plan or one-half paid in cash and
one-half paid in shares of Common Stock pursuant to the Director Stock Plan.
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<PAGE> 40
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
the annual and long-term compensation earned by Acorn's chief executive officer
and each of the four other most highly compensated executive officers of the
Company whose annual salary and bonus during fiscal 1996 exceeded $100,000 (the
"Named Officers"). Mr. Mihaly's cash compensation was paid by Acorn. All other
compensation was paid by UnionTools.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
FISCAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ------------------------------------------------ ------ -------- ------- ---------------
<S> <C> <C> <C> <C>
Gabe Mihaly(2).................................. 1996 $296,181 $14,000 $12,986
President and Chief Executive Officer of Acorn
and UnionTools
James B. Farland................................ 1996 181,482 49,450 9,470
Vice President Sales and Marketing of
UnionTools
Thomas A. Hyrb.................................. 1996 159,966 46,500 51,752
Vice President Operations of UnionTools
Stephen M. Kasprisin............................ 1996 164,642 46,359 11,887
Chief Financial Officer and Vice President of
Acorn and UnionTools
Joseph J. Duffy(2).............................. 1996 405,233 -- 583,852
President and Chief Executive Officer of Acorn
</TABLE>
- ---------------
(1) Amounts shown include $4,500 of matching benefits paid under the Company's
defined contribution 401(k) plan and other miscellaneous cash benefits, but
do not include retirement benefits under the Company's Salaried Employee
Pension Plan or Supplemental Pension Plan. See "-- Pension Plans". The
amounts shown for Messrs. Duffy and Mihaly include $4,200 and $2,553,
respectively, paid by the Company with respect to supplementary life
insurance for the benefit of Messrs. Duffy and Mihaly. The amount shown for
Mr. Duffy also includes $6,850 paid by the Company with respect to
disability income insurance for the benefit of Mr. Duffy, as well as
$563,000 payable in connection with Mr. Duffy's resignation from the
Company. See note 2 below and "Certain Transactions". The amount shown for
Mr. Hyrb includes $43,454 paid by the Company with respect to relocation
expenses.
(2) Mr. Duffy was Chairman of the Board, President and Chief Executive Officer
of Acorn until August 1, 1996. Mr. Mihaly became President and Chief
Executive Officer, and Mr. Reilly became Chairman of the Board of Acorn,
immediately thereafter.
The following table contains certain information regarding options to
purchase Common Stock held as of August 2, 1996 by each of the Named Officers.
None of such Named Officers exercised any options during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gabe Mihaly................................ 17,352 13,014(2) $ 139,973 $0(2)
James B. Farland........................... -- -- -- --
Thomas A. Hyrb............................. -- -- -- --
Stephen M. Kasprisin....................... -- -- -- --
Joseph J. Duffy............................ 15,906 0 $ 192,463 --
</TABLE>
- ---------------
(1) Calculated on the basis of $12.10 per share, the fair market value of the
Common Stock at August 2, 1996, as determined by the Board of Directors,
less the exercise price payable for such shares.
(2) Upon consummation of the Offering, options exercisable for 5,784 of such
shares vest at an exercise price of $0 per share and options exercisable for
7,230 of such shares expire.
39
<PAGE> 41
PENSION PLANS
UnionTools maintains five noncontributory defined benefit pension plans
covering substantially all of the hourly employees of the Company. UnionTools
also maintains a noncontributory defined benefit pension plan covering salaried,
administrative and supervisory employees of the Company (the "Salaried Employee
Pension Plan") and a supplemental noncontributory defined benefit pension plan
covering certain senior executive officers of the Company (the "Supplemental
Pension Plan").
The following table sets forth the estimated annual benefits payable upon
retirement under the Salaried Employee Pension Plan based on retirement at age
65 and fiscal 1996 covered compensation.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
- ------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000............................. $42,187 $56,250 $70,313 $70,313 $70,313
150,000 and above................... 50,625 67,000 84,375 84,375 84,375
</TABLE>
- ---------------
(1) Based on final earnings.
For each Named Officer, the Salaried Employee Pension Plan covers total
compensation as listed in the summary compensation table, but limited to
$150,000 as required by the Employee Retirement Income Security Act of 1974.
Messrs. Mihaly, Farland, Hyrb and Kasprisin have credited service of
approximately 6, 5, 5 and 8 years, respectively, under the Salaried Employee
Pension Plan. Mr. Duffy had credited service of approximately 6 years under the
Salaried Employee Pension Plan at the time of termination of his employment with
Acorn. Benefits under the Salaried Employee Pension Plan are based on years of
credited service and final earnings (the highest average monthly earnings over
any 60 consecutive calendar month period in the 120 calendar months preceding
retirement or termination of employment). Monthly benefits are paid under the
Salaried Employee Pension Plan in an amount equal to 2.25% of the employees'
final earnings multiplied by the lesser of 25 years or the total number of years
of credited service. Benefits under the Salaried Employee Pension Plan for
credited years of service prior to 1993 were determined pursuant to a formula
that yielded slightly lower benefits. Accordingly, actual benefits for each of
the Named Officers are slightly lower than the amounts indicated in the
foregoing table. The Company's policy is to fund the maximum amount deductible
for federal income tax purposes. Benefits under the Salaried Employee Pension
Plan are not subject to any offset.
The following table sets forth the estimated annual benefits payable upon
retirement under the Supplemental Pension Plan based on retirement at age 65 and
fiscal 1996 covered compensation.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
- ------------------------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$175,000............................. $ 8,437 $ 11,250 $ 14,063 $ 14,063 $ 14,063
200,000............................. 16,875 22,500 28,125 28,125 28,125
225,000............................. 25,313 33,750 42,188 42,188 42,188
250,000............................. 33,750 45,000 56,250 56,250 56,250
300,000............................. 50,625 67,500 84,375 84,375 84,375
400,000............................. 84,375 112,500 140,625 140,625 140,625
</TABLE>
- ---------------
(1) Based on final earnings.
For Messrs. Mihaly and Duffy, the Supplemental Pension Plan covers
compensation as listed in the summary compensation table above $150,000. Mr.
Mihaly has credited service of approximately 6 years under the Supplemental
Pension Plan. Mr. Duffy had credited service of approximately 6 years under the
Supplemental Pension Plan at the time of termination of his employment with
Acorn. Benefits under the Supplemental Pension Plan are based on years of
credited service and final earnings (the highest average monthly earnings over
any 60 consecutive calendar month period in the 120 calendar months preceding
retirement or termination of employment). Monthly benefits are paid under the
Salaried Employee Pension Plan in an amount equal to 2.25% of the employees'
final earnings (as described above) multiplied by the
40
<PAGE> 42
lesser of 25 years or the total number of years of credited service. Benefits
under the Supplemental Pension Plan are not subject to any offset.
AGREEMENTS WITH KEY EMPLOYEES
In May 1997 the Company entered into an employment agreement with Mr.
Mihaly which provides for his employment as the President of Acorn and the
President and Chief Executive Officer of UnionTools. The agreement has a five
year term and automatically is extended for successive one-year periods
thereafter unless notice is given at least 90 days, if by Mr. Mihaly, or one
year, if by the Company, prior to expiration of the then-current term. Mr.
Mihaly's employment agreement provides for a base salary of $296,181 per year, a
bonus of $260,000 if Mr. Mihaly is employed by the Company on January 5, 1998,
an annual cash bonus in an amount to be determined by the Board of Directors of
Acorn and certain additional benefits, including participation in pension,
health and other employee benefits plans of the Company. Mr. Mihaly's employment
agreement provides that if the term of the agreement is not extended by the
Company, the Company is required to make a lump sum payment to Mr. Mihaly in an
amount equal to his then-current base salary. Mr. Mihaly's employment agreement
also provides that if Mr. Mihaly's employment is terminated by the Company
without cause (as defined in the agreement) or if Mr. Mihaly resigns due to a
material diminution in his responsibilities or a material breach by the Company
of its obligations under the agreement (collectively, "Termination"), the
Company is required to make a lump sum payment to Mr. Mihaly in an amount equal
to the full cash compensation due through the remaining term of the agreement
(the "Remaining Salary"). In addition, Mr. Mihaly will be treated for purposes
of pension and related plans as having been employed by the Company through the
end of the then-current term of the agreement. If such Termination occurs within
two years following a change in control of the Company (as defined in the
agreement), the Company also is required to pay to Mr. Mihaly an amount equal to
the difference between (i) three times the highest aggregate annual compensation
(including salary, bonuses and incentive payments) includable in gross income
paid to Mr. Mihaly during any one of the three taxable years preceding the date
of the Termination and (ii) the Remaining Salary.
In May 1997 the Company also entered into agreements with each of Messrs.
Farland, Hyrb and Kasprisin which provide that following the Termination of such
officers' employment with the Company, the Company will pay to such employee an
amount equal to the highest aggregate annual compensation (including salary,
bonuses and incentive payments) includable in gross income paid to such employee
during any one of the three taxable years preceding the date of his Termination.
If such Termination occurs within two years following a change in control of the
Company (as defined in such agreement), the Company also is required to pay to
such employee an amount equal to two times the amount described in the preceding
sentence.
1997 STOCK INCENTIVE PLAN
In April 1997, Acorn adopted the Incentive Plan for members of senior
management and certain other officers and employees of the Company. The purpose
of the Incentive Plan is to provide incentives to employees of the Company by
granting awards tied to the performance of the Common Stock. The Incentive Plan
is administered by the Compensation Committee, which has broad authority in
administering the Incentive Plan. Awards to employees may take the form of
options, stock appreciation rights or sales or grants of restricted stock.
Options granted under the Incentive Plan may be options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or options not intended to so qualify. An award granted to an
employee under the Incentive Plan may include a provision terminating the award
upon termination of employment under certain circumstances or accelerating the
receipt of benefits upon the occurrence of certain specified events. All awards
granted under the Incentive Plan immediately vest upon the occurrence of a
change in control of the Company, as defined in the Incentive Plan. Acorn has
reserved an aggregate of 730,000 shares of Common Stock for issuance under the
Incentive Plan.
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<PAGE> 43
There are no awards currently outstanding under the Incentive Plan. Acorn
has approved the grant of options to the following executive officers and
directors under the Incentive Plan contingent upon the consummation of the
Offering:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME SUBJECT TO OPTIONS
----------------------------------------------------- ------------------
<S> <C>
Gabe Mihaly.......................................... 81,300
James B. Farland..................................... 40,600
Thomas A. Hyrb....................................... 40,600
Stephen M. Kasprisin................................. 40,600
Conor D. Reilly...................................... 32,500
</TABLE>
Acorn also has approved the grant of options to purchase an aggregate of 73,200
shares of Common Stock to other key employees of the Company. The exercise price
for each such option will equal the initial public offering price per share in
the Offering. Upon consummation of the Offering, 25% of each officer's options
vest, with an additional 25% vesting annually over the next three years.
DIRECTOR STOCK PLAN
In April 1997, Acorn adopted the Director Stock Plan. The purpose of the
Director Stock Plan is to increase the proprietary interest in Acorn of
non-employee members of the Board of Directors by providing for payment of all
or one half of their fees in the form of common stock units, thereby increasing
their incentive to contribute to the success of the Company. The Director Stock
Plan is administered by an Administrative Committee comprised of the Chief
Financial Officer and Secretary of Acorn. The Director Stock Plan is intended to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Only non-employee directors are eligible to participate in
the Director Stock Plan. The number of shares of Common Stock reserved for
issuance pursuant to the Director Stock Plan is 73,000.
In lieu of cash, non-employee directors can elect to receive all or
one-half of their fees in the form of common stock units. The number of common
stock units issued is determined by dividing (i) an amount equal to the dollar
amount of the fees to be received in the form of common stock units by (ii) the
average of the high and low sale prices of the Common Stock on the Nasdaq
National Market on the last business day preceding the date of payment. Any cash
or stock dividends payable on shares of Common Stock accrue for the benefit of
the directors in the form of additional common stock units. Common stock units
are distributed to non-employee directors in the form of Common Stock following
the director's resignation from the Board of Directors. Each non-employee
director may elect to receive the Common Stock distributed pursuant to common
stock units either (a) immediately following his or her resignation from the
Board of Directors or (b) in annual installments over a period of time following
such resignation. In addition, common stock units are distributed to directors
in the form of Common Stock following the death of the director or a change in
control of Acorn, as defined in the Director Stock Plan.
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<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of May 22, 1997, by (i) each person who is
known by Acorn to own beneficially more than 5% of the outstanding shares of the
Common Stock; (ii) each director and Named Officer and (iii) all executive
officers and directors as a group. Unless otherwise indicated, each person has
sole voting power and investment power with respect to the shares attributed to
them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------------------
AFTER THE OFFERING
PRIOR TO THE OFFERING AND THE EXCHANGE(2)
--------------------- ---------------------
NUMBER OF NUMBER OF
NAME OF BENEFICIAL OWNER(3) SHARES PERCENT SHARES PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
The TCW Group, Inc.(4)............................. 1,446,000 96.5% 3,120,116 48.6%
Oaktree Capital Management, LLC(5)................. -- -- 812,500 12.7
OCM Principal Opportunities Fund, L.P.............. -- -- 812,500 12.7
Joseph J. Duffy(6)................................. 33,258 2.2 33,258 *
Gabe Mihaly(7)..................................... 37,596 2.5 63,705 *
James B. Farland................................... -- -- 10,150(8) *
Thomas A. Hyrb..................................... -- -- 10,150(9) *
Stephen M. Kasprisin............................... -- -- 10,150(10) *
Conor D. Reilly.................................... -- -- 8,125(11) *
William W. Abbott.................................. -- -- -- --
Matthew S. Barrett(12)............................. -- -- 812,500 12.7
Stephen A. Kaplan(13).............................. -- -- 812,500 12.7
John I. Leahy...................................... 14,460 * 14,460 *
All directors and executive officers as group (9
people)(14)...................................... 52,056 3.4 929,240 14.3
</TABLE>
- ---------------
* Less than 1%
(1) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (i) the power to vote, or direct
the voting of, such security or (ii) investment power which includes the
power to dispose, or to direct the disposition of, such security. In
addition, a person is deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of such security
within 60 days.
(2) Assumes the issuance of an aggregate of 1,674,116 shares of Common Stock
pursuant to the Exchange (giving effect to the Offering at an assumed
initial public offering price of $14.00, the mid-point of the range of
initial public offering prices set forth on the cover page of this
Prospectus, and the application of the net proceeds therefrom and giving
effect to Exchange, each as of May 2, 1997). Other than with respect to
Oaktree and the Oaktree Fund, does not include any shares purchased in the
Offering.
(3) The address of the TCW Group is 865 South Figueroa Street, Los Angeles,
California 90017. The address of Oaktree, the Oaktree Fund, Mr. Barrett and
Mr. Kaplan is 550 South Hope Street, 22nd Floor, Los Angeles, California
90071. The address of Mr. Duffy is 1077 Old County Road, Severna Park,
Maryland 21146. The address for Messrs. Mihaly, Farland, Herb, Kasprisin
and Reilly is c/o Acorn Products, Inc., 500 Dublin Avenue, Columbus, Ohio
43216. The address of Mr. Abbott is 6923 Greentree Drive, Naples, Florida
33963. The address of Mr. Leahy is c/o Management & Marketing Associates,
30 East Padonia Road, Timonium, Maryland 21093.
(4) All such shares of Common Stock are owned by the TCW Funds prior to the
Offering as follows: (i) TCW Special Credit Fund III (299,322 shares); (ii)
TCW Special Credits Fund IIIb (287,754 shares); (iii) TCW Special Credits
Plus Fund (104,112 shares); (iv) TCW Special Credits Trust IIIb (205,332
shares); (v) TCW Special Credits Fund IV (93,990 shares); (vi) TCW Special
Credits Trust (144,600 shares); (vii) TCW Special Credits, as investment
manager of Weyerhaeuser Company Pension Trust (104,112 shares); (viii) TCW
Special Credits Trust IV (144,600 shares); (ix) TCW Special Credits Trust
IVA (31,812 shares); (x) TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund (72,300 shares) and (xi) TCW
Special Credits, as investment manager of The Common
43
<PAGE> 45
Fund for Bond Investments (20,244 shares). The approximately 1,674,116
shares of Common Stock to be issued pursuant to the Exchange as described
in note 2 above will be owned by the TCW Funds as follows: (i) TCW Special
Credit Fund III (351,868 shares); (ii) TCW Special Credits Fund IIIb
(330,019 shares); (iii) TCW Special Credits Plus Fund (120,673 shares);
(iv) TCW Special Credits Trust IIIb (235,911 shares); (v) TCW Special
Credits Fund IV (109,395 shares); (vi) TCW Special Credits Trust (166,888
shares); (vii) TCW Special Credits, as investment manager of Weyerhauser
Company Pension Trust (120,647 shares); (viii) TCW Special Credits Trust IV
(96,989 shares); (ix) TCW Special Credits Trust IVA (36,089 shares); (x)
TCW Special Credits, as investment manager of Delaware State Employees'
Retirement Fund (81,954 shares); (xi) TCW Special Credits, as investment
manager of The Common Fund for Bond Investments (23,683 shares). TCW Asset
Management Company, a wholly-owned subsidiary of the TCW Group, is the
managing general partner of TCW Special Credits. TCW Special Credits is the
general partner of, or the investment advisor to, each of the TCW Funds.
Certain principals of Oaktree are individual general partners of TCW
Special Credits (the "Individual Partners"). The Individual Partners, in
their capacity as general partners of TCW Special Credits, have been
designated to manage the TCW Funds. Although Oaktree provides consulting,
research and other management support services to the Individual Partners,
Oaktree does not have any voting or dispositive power with respect to the
TCW Funds.
(5) All of such shares of Common Stock are owned by the Oaktree Fund.
(6) Includes 15,906 shares of Common Stock issuable pursuant to options.
(7) Includes 17,352 shares of Common Stock issuable pursuant to options
currently held by Mr. Mihaly. After the Offering and the Exchange also
includes 5,784 shares of Common Stock issuable pursuant to options vesting
upon consummation of the Offering and 20,325 shares of Common Stock
issuable pursuant to options granted under the Incentive Plan contingent
upon the consummation of the Offering.
(8) Reflects shares of Common Stock issuable pursuant to options granted under
the Incentive Plan contingent upon the consummation of the Offering.
(9) Reflects shares of Common Stock issuable pursuant to options granted under
the Incentive Plan contingent upon the consummation of the Offering.
(10) Reflects shares of Common Stock issuable pursuant to options granted under
the Incentive Plan contingent upon the consummation of the Offering.
(11) Reflects shares of Common Stock issuable pursuant to options granted under
the Incentive Plan contingent upon the consummation of the Offering.
(12) Reflects shares of Common Stock owned by the Oaktree Fund and also shown as
beneficially owned by Oaktree. To the extent that Mr. Barrett, as a
managing director of Oaktree, participates in the process to vote or
dispose of any such shares, he may be deemed under such circumstances for
the purpose of Section 13 of the Exchange Act to be the beneficial owner of
such shares of Common Stock. Mr. Barrett disclaims beneficial ownership of
such shares of Common Stock.
(13) Reflects shares of Common Stock owned by the Oaktree Fund and also shown as
beneficially owned by Oaktree. To the extent that Mr. Kaplan, as a
principal of Oaktree, participates in the process to vote or dispose of any
such shares, he may be deemed under such circumstances for the purpose of
Section 13 of the Exchange Act to be the beneficial owner of such shares of
Common Stock. Mr. Kaplan disclaims beneficial ownership of such shares of
Common Stock.
(14) See notes (6) through (13) above.
44
<PAGE> 46
CERTAIN TRANSACTIONS
In December 1993 and May 1994 Acorn issued the Subordinated Notes in the
aggregate principal amount of approximately $31.4 million to the TCW Funds. The
Subordinated Notes mature in July 2003 and bear interest at a rate of 13% per
year. In August 1996 Acorn issued 100 shares of Series A Preferred Stock with an
aggregate stated value of approximately $8.6 million to the TCW Funds as payment
in full of accrued interest on the Subordinated Notes for fiscal 1995 and fiscal
1996. As of May 2, 1997, the aggregate principal amount of the Subordinated
Notes and accrued interest thereon was approximately $34.4 million and the
aggregate liquidation value of the Series A Preferred Stock was approximately
$9.4 million.
The Company intends to use approximately $20.4 million of the estimated net
proceeds of $40.8 million from the Offering to redeem the Series A Preferred
Stock and pay accumulated dividends thereon and to repay a portion of the
indebtedness outstanding under the Subordinated Notes and accrued interest
thereon. Pursuant to the Exchange, concurrent with the consummation of the
Offering the TCW Funds will exchange remainder of the Subordinated Notes for a
number of shares of Common Stock equal to the remaining aggregate principal
amount of the Subordinated Notes (approximately $23.4 million giving effect to
the Offering at an assumed initial public offering price of $14.00, the
mid-point of the range of initial public offering prices set forth on the cover
page of this Prospectus, and the application of the net proceeds therefrom as of
May 2, 1997) divided by the per share Price to Public set forth on the cover
page of this Prospectus. As of May 2, 1997 and giving effect to the Offering at
an assumed initial public offering price of $14.00, the mid-point of the range
of initial public offering prices set forth on the cover page of this
Prospectus, and the application of the net proceeds therefrom, the TCW Funds
would receive an aggregate of 1,674,116 shares of Common Stock pursuant to the
Exchange. See "Risk Factors -- Control by Principal Stockholders" and "Use of
Proceeds".
In December 1996 Acorn issued a subordinated promissory note to the TCW
Funds in the aggregate principal amount of $6 million and bearing interest at a
rate of 13% per year as bridge financing. In December 1996 Acorn paid $6.3
million to the TCW Funds in prepayment of the subordinated promissory note,
accrued interest thereon and a $180,000 facility fee.
Conor D. Reilly, Chairman of the Board of Acorn and a director of Acorn and
UnionTools, is a partner in the law firm of Gibson, Dunn & Crutcher LLP. The
Company paid fees of approximately $774,280 and $1,136,660 to Gibson, Dunn &
Crutcher LLP in fiscal 1996 and the nine months ended May 2, 1997, respectively.
In fiscal 1996 John I. Leahy, a director of Acorn, received fees in the
aggregate amount of $15,500 for consulting services rendered to the Company.
In connection with Joseph J. Duffy's resignation as the Chairman of the
Board, President and Chief Executive Officer of Acorn on August 1, 1996, upon
consummation of the Offering Mr. Duffy will receive accelerated payments
(aggregating $263,312 as of May 2, 1997) for certain consulting services
rendered to the Company. Mr. Duffy also is entitled to certain pension benefits.
See "Management -- Executive Compensation -- Pension Plans".
From time to time, the Company extends loans to certain officers and
directors in connection with the purchase of Common Stock. In January 1994, Mr.
Mihaly, the President, Chief Executive Officer and a director of Acorn and
UnionTools, received a loan from UnionTools in the aggregate principal amount of
$245,000. The loan matures in January 1998, bears interest at an annual rate of
5.34% and is secured by a pledge of Common Stock. The principal of, and accrued
interest on, the loan becomes due upon the occurrence of certain events,
including voluntary termination of Mr. Mihaly's employment with the Company.
45
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
GENERAL
Acorn's authorized capital stock consists of 20 million shares of Common
Stock, $.001 par value per share, of which 1,498,056 shares are issued and
outstanding and 1,000 shares of Preferred Stock, par value $.001 per share, of
which 100 shares of Series A Preferred Stock are issued and outstanding. A
portion of the net proceeds from the Offering will be used to redeem the Series
A Preferred Stock and pay accumulated dividends thereon. See "Certain
Transactions". The material terms of Acorn's Amended and Restated Certificate of
Incorporation (the "Charter") and bylaws are discussed below.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
conversion, preemptive or other subscription rights. There are no sinking fund
provisions relating to the Common Stock. Holders of Common Stock are entitled to
receive dividends when and as declared by the Board of Directors of Acorn out of
funds legally available therefor. Acorn does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. See "Dividend Policy".
In the event of the liquidation, dissolution or winding up of Acorn, the holders
of Common Stock will be entitled to share ratably in all of the assets of Acorn,
if any, remaining after satisfaction of the debts and liabilities of Acorn. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, upon payment therefor as contemplated herein, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
Under the Charter, the Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue the preferred stock in one or more
classes or series and to fix the designations, powers, preferences and relative
participation, option or other special rights and qualifications, limitations or
restrictions thereof, including, without limitation, the dividend rate,
conversion or exchange rights, redemption price and liquidation preference, of
any such class or series. In addition, the Board of Directors may fix the number
of shares constituting any such class or series, and increase or decrease the
number of shares of any such class or series, but not below the number of
outstanding shares of any such class or series. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of Acorn. Acorn has no current plans to issue
additional shares of preferred stock. See "Risk Factors -- Effect of Certain
Charter, Change of Control and Statutory Provisions".
CERTAIN PROVISIONS OF DELAWARE LAW
Acorn is incorporated under the DGCL. Acorn is subject to Section 203 of
the DGCL, which restricts certain transactions and "business combinations"
between a Delaware corporation and an "interested stockholder" (in general, a
stockholder owning 15% or more of the corporation's outstanding voting stock) or
an affiliate or associate of an interested stockholder, for a period of three
years from the date the stockholder becomes an interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, unless the transaction is approved by the Board of Directors
and the holders of at least 66 2/3% of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to or receipt of disproportionate financial benefits by the interested
stockholder, or any other transaction that would increase the interested
stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an interested stockholder,
46
<PAGE> 48
the interested stockholder owns at least 85% of the outstanding voting stock of
the corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). See "Risk Factors -- Effect of
Certain Charter, Change of Control and Statutory Provisions".
Acorn's Charter contains certain provisions permitted under the DGCL
relating to the liability of directors. The Charter provides that, to the
fullest extent permitted by the DGCL, no director of Acorn will be personally
liable to Acorn or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Charter and Bylaws of Acorn also contain provisions
indemnifying the directors, officers and employees of Acorn or individuals
serving at the request of Acorn as directors, officers, employees or agents of
another corporation, partnership, joint venture, trust or other enterprise, to
the fullest extent permitted by the DGCL.
Section 203 and certain provisions of Acorn's Charter and Bylaws described
above may make it more difficult for a third party to acquire, or discourage
acquisition bids for, Acorn. Section 203 and these provisions could have the
effect of inhibiting attempts to change the membership of the Board of Directors
of Acorn. In addition, the limited liability provisions in the Charter and the
indemnification provisions in the Charter and Bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their fiduciary duty
(including breaches resulting from grossly negligent conduct) and may have the
effect of reducing the likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might otherwise have
benefited Acorn and its stockholders. Furthermore, a stockholder's investment in
Acorn may be adversely affected to the extent Acorn pays the costs of settlement
and damage awards against directors and officers of Acorn pursuant to the
indemnification provisions in Acorn's Bylaws. The limited liability provisions
in the Charter will not limit the liability of directors under federal
securities laws.
SHARES RESERVED FOR ISSUANCE
Acorn has 39,042 shares of Common Stock reserved for issuance upon the
exercise of outstanding options. In addition, Acorn has 730,000 shares of Common
Stock reserved for issuance pursuant to awards available for grant under the
Incentive Plan a 73,000 shares of Common Stock reserved for issuance pursuant to
common stock units generated pursuant to the Director Stock Plan. Acorn has
approved the grant of options to purchase 308,800 shares of Common Stock
contingent upon consummation of the Offering. Upon consummation of the Offering,
options for the purchase of 116,242 shares of Common Stock will be fully vested.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
LISTING
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ACRN".
47
<PAGE> 49
DESCRIPTION OF CERTAIN INDEBTEDNESS
In December 1996, UnionTools entered into the Credit Facility with Heller
Financial, Inc., as agent for the lenders party thereto (the "Lenders"). Acorn
guarantees the obligations of UnionTools under the Credit Facility. Upon
consummation of the Offering, the Credit Facility will provide for a $30 million
revolving credit facility (the "Revolving Facility") and a $35 million
acquisition facility (the "Acquisition Line"). Prior to the consummation of the
Offering, the Credit Facility also contains a $20 million term loan (the "Term
Loan"). The Company intends to use approximately $20.4 million of the net
proceeds from the Offering to repay the Term Loan and accrued interest thereon.
The Revolving Facility is available until June 2003. The Revolving Facility
is subject to a maximum revolving loan balance equal to 85% of eligible accounts
receivable (as defined in the Credit Facility) plus 60% of eligible inventory
(as defined in the Credit Facility). There is a $3 million limit on the issuance
of letters of credit or other risk participation agreements under the terms of
the Credit Facility.
The Acquisition Line is available until June 2000 and is limited to $15
million per year and $7.5 million per acquisition without the prior approval of
the Lenders. Potential targets must be in a line of business similar to that of
UnionTools and have a positive pro forma EBIDAT (as defined in the Credit
Facility) for the previous twelve months. The Acquisition Facility will convert
into a three year term loan in June 2000, with 25% of the balance due in each of
June 2001 and June 2002 and the remainder due in June 2003.
Interest on all amounts outstanding under the Credit Facility are payable
quarterly in arrears at either the Base Rate (as defined in the Credit Facility)
plus a margin ranging from 0.25% to 0.75% or, at UnionTools' option, the LIBOR
Rate (as defined in the Credit Facility) plus a margin ranging from 2.25% to
2.75%. The applicable margin is determined based on the Adjusted Total
Indebtedness to Operating Cash Flow Ratio (as defined in the Credit Facility).
The Credit Facility is secured by a first priority, senior security interest in
and lien upon substantially all of UnionTools' real and personal property and is
guaranteed by Acorn. The Acorn guarantee is secured by a pledge of all of the
capital stock of UnionTools.
Under the terms of the Credit Facility, UnionTools is required to make
certain mandatory prepayments in an amount equal to (i) 50% of UnionTools'
Excess Cash Flow (as defined in the Credit Facility) commencing in fiscal 1998,
(ii) the net proceeds from the disposition of assets, including the proceeds
from the sale of stock of any of UnionTools' subsidiaries and (iii) the net
proceeds from the sale of equity securities of Acorn, UnionTools or any
subsidiary of UnionTools (other than in connection with the Offering).
UnionTools may elect to prepay all or a portion of the Credit Facility at any
time.
The Credit Facility contains certain covenants, which, among other things,
require UnionTools to maintain specified financial ratios and satisfy certain
tests including minimum interest coverage ratios and places limits on future
capital expenditures by UnionTools. The Credit Facility also includes negative
covenants affecting UnionTools including limitations on indebtedness, liens,
guarantees, obligations, mergers, consolidations, liquidations and dissolutions,
sales of assets, leases, dividends and other payments in respect of capital
stock, capital expenditures, investments, loans and advances, optional payments
and modifications and other debt instruments, transactions with affiliates,
changes in fiscal year, negative pledge clauses and changes in line of business.
The Credit Facility also places certain restrictions on Acorn, including
limitations on indebtedness and guarantees.
48
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, approximately 6,422,172 shares of Common
Stock will be outstanding. The 3,250,000 shares of Common Stock sold in the
Offering will be available for resale in the public market without restriction
or further registration under the Securities Act, except for shares purchased by
"affiliates" of the Company (in general, any person who has a control
relationship with the Company), which shares will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act. The remaining
3,172,172 outstanding shares of Common Stock are deemed to be "restricted
securities" as that term is defined in Rule 144, all of which are eligible for
sale in the public market in compliance with Rule 144.
The TCW Funds, the executive officers and directors of the Company (who in
the aggregate hold approximately 98.8% of the Common Stock outstanding prior to
the Offering), and the Oaktree Fund have agreed, subject to certain exceptions,
that they will not offer, sell or otherwise dispose of any of the shares of
Common Stock owned by them for a period of 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. Additionally, the Company has agreed that, during the period of
180 days from the date of this Prospectus, subject to certain exceptions, that
it will not issue, sell, offer or agree to sell, grant any options for the sale
of (other than employee stock options) or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable for Common Stock, other than pursuant to the Offering.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, such as the TCW Funds, is entitled to sell, within any
three-month period, a number of shares of Common Stock which does not exceed the
greater of 1% of the number of then-outstanding shares of the Common Stock or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 also may be subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted securities" under Rule 144 for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements.
Acorn intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 730,000 shares of Common Stock
reserved for issuance under the Incentive Plan. Acorn also intends to file a
registration statement on Form S-8 under the Securities Act to register the sale
of the 73,000 shares of Common Stock reserved for issuance under the Director
Stock Plan. As a result, any shares of Common Stock issued pursuant to awards
granted under such plans will be available, subject to special rules for
affiliates, for resale in the public market after the effective date of such
registration statement, subject to applicable lock-up arrangements. See
"Management -- 1997 Stock Incentive Plan" and "Management -- Director Stock
Plan".
The TCW Funds and the Oaktree Fund have, subject to certain conditions and
restrictions, the right to include the shares of Common Stock owned by them in
registered public offerings of Common Stock (or securities exchangeable for or
convertible into Common Stock) undertaken by Acorn for its own account, as well
as to require Acorn to register the sale of such shares, subject to certain
conditions, upon demand. The TCW Group has informed the Company that the TCW
Funds currently are in their respective liquidation periods, requiring such
funds to liquidate their investments in an orderly manner. Pursuant to their
organizational documents, the TCW Funds terminate over the period from November
2001 to June 2003. As a result, it is likely that some or all of the shares of
Common Stock held by the TCW Funds either will be sold prior to such time
(whether as a block, pursuant to a registered public offering or otherwise) or
distributed to investors in the TCW Funds. Upon any such distribution to
investors in the TCW Funds, all such shares, except those acquired by affiliates
of the Company, will be immediately eligible for resale under Rule 144(k).
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities, or the availability of
such shares, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and could impair the Company's future ability to raise capital
through an offering of equity or equity linked securities. See "Underwriting".
49
<PAGE> 51
UNDERWRITING
The Underwriters named below have severally agreed with the Company,
subject to the terms and conditions of the Underwriting Agreement, to purchase
the respective number of shares of Common Stock set forth opposite their names
below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
A.G. Edwards & Sons, Inc. ...........................................
---------
Total...................................................... 3,250,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock if any shares of Common Stock are
purchased.
Acorn has been advised by A.G. Edwards & Sons, Inc. and
, the Representatives of the severally Underwriters (the
"Representatives"), that the Underwriters propose to offer the shares of Common
Stock to the public at the offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share, and that the Underwriters and such dealers may reallow a
discount of not in excess of $ per share to other dealers. The public
offering price and the concession and discount to dealers may be changed by the
Representatives after the Offering.
In the Underwriting Agreement, Acorn has granted the Underwriters an
option, expiring at the close of business on the 30th day subsequent to the date
of the Underwriting Agreement, to purchase up to 487,500 additional shares of
Common Stock at the offering price, less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriters may exercise such option
solely to cover over-allotments, if any, in connection with the sale of the
Common Stock. To the extent the Underwriters exercise such option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of the option shares as the number of
shares to be purchased by it given in the table above bears to 3,250,000 and
Acorn will be obligated, pursuant to the option, to sell such shares to the
Underwriters.
At the request of Acorn, up to 812,500 shares of Common Stock in the
Offering have been reserved for sale to the Oaktree Fund at the Price to Public
set forth on the cover page of this Prospectus, and up to 66,500 shares of
Common Stock in the Offering have been reserved for sale to certain officers and
directors of the Company at the Price to Public less the Underwriting Discount
set forth on the cover page of this Prospectus. The number of shares of Common
Stock available for sale in the Offering will be reduced to the extent such
persons purchase such shares. Purchases will be prohibited to the extent that
they are requested in lots of less than 100 shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as the other
shares available through the Offering.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price set forth on the cover page of this
Prospectus has been determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the initial public
offering price were the information set forth in this Prospectus and otherwise
available to the Representatives, the history and prospects for the industry in
which the Company competes, the ability of the Company's management, the past
and present operations of the Company, the historical results of operations, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
offering and the recent market prices and the demand for publicly traded common
stock of comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments that the Underwriters may be required to make.
50
<PAGE> 52
The TCW Funds, the executive officers and directors of the Company (who in
the aggregate hold approximately 98.8% of the Common Stock outstanding prior to
the Offering), and the Oaktree Fund have agreed, subject to certain exceptions,
that they will not offer, sell or otherwise dispose of any of the shares of
Common Stock owned by them for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives.
Additionally, the Company has agreed that, during the period of 180 days from
the date of this Prospectus, subject to certain exceptions, that it will not
issue, sell, offer or agree to sell, grant any options for the sale of (other
than employee stock options) or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable for
Common Stock, other than pursuant to the Offering without the prior written
consent of the Representatives. See "Shares Eligible for Future Sale". The
Representatives have informed the Company that they have no current intention of
consenting to the disposition by the TCW Funds, the executive officers and
directors of the Company, the Oaktree Fund or the Company of shares of Common
Stock, or any securities convertible into or exercisable for Common Stock, prior
to the expiration of the 180-day period described above.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Common Stock during the
"cooling off" period immediately preceding the commencement of sales in the
Offering. The Commission has, however, adopted an exemption from these rules
that permits passive market making under certain conditions. These rules permit
an Underwriter or other member of the selling group to continue to make a market
in the Common Stock subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the Offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Common Stock
during the cooling off period.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for Acorn by Gibson, Dunn & Crutcher LLP, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Jones, Day, Reavis & Pogue,
Cleveland, Ohio. Conor D. Reilly, a partner of Gibson, Dunn & Crutcher LLP, is
Chairman and a director of Acorn and UnionTools. See "Certain Transactions" and
"Principal Stockholders".
EXPERTS
The consolidated balance sheets of the Company as of July 28, 1995 and
August 2, 1996 and the consolidated statements of operations, stockholders'
equity and cash flows for the four months ended December 2, 1993, the eight
months ended July 29, 1994, fiscal 1995 and fiscal 1996, included in this
Prospectus have been included herein in reliance on the report of Ernst & Young
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
51
<PAGE> 53
ADDITIONAL INFORMATION
Acorn has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions having been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, although the material
terms thereof are described in this Prospectus, and, in each instance, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified by such reference to
such exhibits. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office in Washington D.C., at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and through the SEC's internet site at http://www.sec.gov. Copies of all or any
part of the Registration Statement may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission.
Acorn intends to furnish its stockholders with annual reports containing
audited consolidated financial statements certified by its independent auditors
and quarterly reports for each of the first three fiscal quarters of each fiscal
year containing unaudited financial information.
52
<PAGE> 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Acorn Products, Inc.
We have audited the accompanying consolidated balance sheets of Acorn
Products, Inc. (formerly Vision Hardware Group, Inc.) and Subsidiaries
(Successor Company) as of July 28, 1995 and August 2, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years then ended and for the period from December 3, 1993
through July 29, 1994 (Successor Company period), and consolidated statements of
operations, stockholders' equity and cash flows of Better Vision Hardware Group,
Inc. (Predecessor Company) for the period from August 1, 1993 through December
2, 1993 (Predecessor Company period). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned Successor Company consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Acorn Products, Inc. and Subsidiaries at July
28, 1995 and August 2, 1996, and the consolidated results of their operations
and their cash flows for the Successor Company period in conformity with
generally accepted accounting principles. Further, in our opinion, the
aforementioned Predecessor Company consolidated financial statements present
fairly, in all material respects, the results of their operations and their cash
flows for the Predecessor Company period, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
December 3, 1993, all of the outstanding stock of the Predecessor Company was
acquired in a business combination accounted for as a purchase. As a result of
this acquisition, the consolidated financial information for the period after
the acquisition is presented on a different cost basis than that for the period
before the acquisition and, therefore, is not comparable.
As discussed in Note 8 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1996.
/s/ Ernst & Young LLP
Columbus, Ohio
October 4, 1996,
except for Notes 3, 4, 11 and 13
as to which the date is
May 23, 1997
F-2
<PAGE> 56
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MAY 2, MAY 2, 1997
JULY 28, AUGUST 2, 1997 -----------
1995 1996 ----------- (UNAUDITED)
-------- --------- (UNAUDITED) (NOTE 14)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................................ $ 2,109 $ 502 $ --
Accounts receivable, less allowance for
doubtful accounts (1995-$645;
1996-$557)............................... 10,670 12,067 32,942
Inventories................................. 31,802 23,433 31,777
Prepaids and other current assets........... 1,511 1,701 1,754
-------- ------- --------
Total current assets..................... 46,092 37,703 66,473
Property, plant and equipment, net of
accumulated depreciation.................... 11,511 10,558 15,468
Goodwill...................................... 30,988 30,184 29,590
Deferred income taxes......................... 756 -- --
Other intangible assets....................... 1,170 1,166 1,693
Net assets of discontinued operations......... 21,763 19,284 --
-------- ------- --------
Total assets........................ $112,280 $98,895 $ 113,224
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility................... $ 19,250 $12,537 $ 21,019
Accounts payable............................ 5,920 5,198 10,670
Accrued expenses............................ 4,845 6,154 6,057
Accrued interest............................ 4,133 -- 3,057
Current portion of long-term debt........... 3,500 3,500 3,000
Income taxes payable........................ 1,756 1,100 189
Other current liabilities................... 699 671 710
-------- ------- --------
Total current liabilities................ 40,103 29,160 44,702
Long-term debt................................ 49,354 45,854 54,622
Other long-term liabilities................... 5,500 5,351 4,601
Net liabilities of discontinued operations.... -- -- 315
-------- ------- --------
Total liabilities................... 94,957 80,365 104,240
Stockholders' equity:
Common stock, par value of $.001, authorized
20,000,000 shares, issued and outstanding
1,483,596 in 1995 and 1,490,826 shares in 1996... 14,319 14,406 14,494 13,656
Preferred stock, par value of .001,
authorized 1,000 shares, issued and
outstanding 100 shares in 1996........... -- 8,596 8,596 --
Contributed capital-stock options........... 340 340 460 460
Minimum pension liability................... -- (197) (197) (197)
Retained earnings (deficit)................. 2,664 (4,615) (14,369) (14,369)
-------- ------- --------
Total stockholders' equity............... 17,323 18,530 8,984 (450)
-------- ------- --------
Total liabilities and stockholders'
equity............................ $112,280 $98,895 $ 113,224
======== ======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 57
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
----------- -----------------------------------------------------------------
AUGUST 1, DECEMBER 3, YEAR ENDED NINE MONTHS NINE MONTHS
1993 THROUGH 1993 THROUGH -------------------- ENDED ENDED
DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1993 1994 1995 1996 1996 1997
------------ ------------ -------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 20,331 $ 72,370 $ 86,543 $ 92,652 $ 69,407 $ 77,967
Cost of products sold...... (14,185) (52,271) (63,411) (67,496) (51,036) (57,077)
Selling and administrative
expenses................. (5,482) (9,955) (15,531) (16,815) (11,820) (13,448)
-------- -------- -------- -------- -------- --------
Interest expense........... 2,773 3,525 6,485 6,732 5,569 5,743
Amortization of intangible
assets................... 124 601 1,061 1,173 603 703
Other expenses, net........ -- 11 694 1,522 546 1,123
-------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes and
cumulative effect
adjustment............... (2,233) 6,007 (639) (1,086) (167) (127)
Provision for income
taxes.................... -- 290 -- 582 -- 52
-------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations
before cumulative effect
adjustment............... (2,233) 5,717 (639) (1,668) (167) (179)
Discontinued operations:
Loss from operations..... (8,373) (614) (1,800) (5,815) (766) (461)
Loss on disposal......... -- -- -- (665) -- (9,114)
-------- -------- -------- -------- -------- --------
Loss from discontinued
operations............... (8,373) (614) (1,800) (6,480) (766) (9,575)
-------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect
adjustment............... (10,606) 5,103 (2,439) (8,148) (933) (9,754)
-------- -------- -------- -------- -------- --------
Cumulative effect of change
in accounting for
postretirement
benefits................. -- -- -- 869 869 --
-------- -------- -------- -------- -------- --------
Net income (loss).......... (10,606) 5,103 (2,439) (7,279) (64) (9,754)
======== ======== ======== ======== ======== ========
Pro forma net income from
continuing operations.... $ 2,887 $ 4,012
Pro forma loss from
discontinued
operations............... $ (4,962) $ (9,211)
Pro forma per share
information (unaudited):
Continuing operations.... $ .45 $ .62
Discontinued
operations............ (.77) (1.43)
Adjustment for cumulative
effect of change in
accounting for post-
retirement benefits... .13 --
-------- --------
Net income (loss)........ $ (.19) $ (.81)
======== ========
Weighted average number
of shares
outstanding........... 6,444,182 6,450,431
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES
------------------- ------------------- CONTRIBUTED MINIMUM RETAINED
NUMBER NUMBER CAPITAL-STOCK PENSION EARNINGS
OF SHARES AMOUNT OF SHARES AMOUNT OPTIONS LIABILITY (DEFICIT) TOTAL
--------- ------- --------- ------- ------------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balances at July 31, 1993..... 1,446,000 $ 2,000 4,427 $43,364 $ -- $ -- $(113,668) $ (68,304)
Net loss for the period August
1, 1993 through December 2,
1993........................ -- -- -- -- -- -- (10,606) (10,606)
----- ------- ----- ------- ---- ----- --------- ---------
Balances at December 2,
1993........................ 1,446,000 $ 2,000 4,427 $43,364 $ -- $ -- $(126,528) $ (78,910)
===== ======= ===== ======= ==== ===== ========= =========
SUCCESSOR COMPANY:
Acquisition of Predecessor
Company..................... 1,446,000 $13,864 -- $ -- $ $ $ -- $ 13,864
Net income for the period
December 3, 1993 through
July 29, 1994............... -- -- -- -- -- -- 5,103 5,103
Stock issued.................. 37,596 455 -- -- -- 455
----- ------- ----- ------- ---- ----- --------- ---------
Balances at July 29, 1994..... 1,483,596 14,319 -- -- -- -- 5,103 19,422
Net loss for the period August
1, 1994 through July 28,
1995........................ -- -- -- -- -- -- (2,439) (2,439)
Stock options issued.......... -- -- -- -- 340 -- -- 340
----- ------- ----- ------- ---- ----- --------- ---------
Balances at July 28, 1995..... 1,483,596 14,319 -- -- 340 -- 2,664 17,323
Net loss for the period July
29, 1995 through August 2,
1996........................ -- -- -- -- -- -- (7,279) (7,279)
Conversion of debt............ -- -- 100 8,596 -- -- -- 8,596
Stock issued.................. 7,230 87 -- -- -- -- -- 87
Adjustment to recognize
minimum pension liability... -- -- -- -- -- (197) -- (197)
----- ------- ----- ------- ---- ----- --------- ---------
Balances at August 2, 1996.... 1,490,826 14,406 100 8,596 340 (197) (4,615) 18,530
Net loss for the period August
3, 1996 through May 2,
1997........................ -- -- -- -- -- -- (9,754) (9,754)
Stock issued.................. 7,230 88 -- -- -- -- -- 88
Stock options issued.......... -- -- -- -- 120 -- -- 120
----------------------------------------------------------------------------------
Balances at May 2, 1997
(unaudited)................. 1,498,056 $14,494 100 $ 8,596 $ 460 $(197) $ (14,369) $ 8,984
===== ======= ===== ======= ==== ===== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 59
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
----------- ----------------------------------------------------------------
AUGUST 1, DECEMBER 3,
1993 1993 YEAR ENDED
THROUGH THROUGH --------------------
DECEMBER 2, JULY 29, JULY 28, AUGUST 2,
1993 1994 1995 1996
----------- ----------- -------- --------- NINE MONTHS NINE MONTHS
ENDED APRIL ENDED MAY 2,
26, 1996 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................... $ (10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,754)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) continuing operations:
Loss from discontinued
operations...................... 8,373 614 1,800 6,480 766 9,575
Depreciation and amortization..... 628 1,605 3,030 3,592 2,436 2,402
Deferred income taxes............. -- 87 -- 756 157 --
Conversion of debt to preferred
stock........................... -- -- -- 4,463 -- --
Financing fees and other, net..... (364) (1,437) (556) (365) 45 30
Issuance of stock options......... -- -- 340 -- -- 120
Cumulative effect of the change in
accounting principal............ -- -- -- 869 869 --
Changes in operating assets and
liabilities:
Accounts receivable............... 1,233 (5,359) 6,815 (1,397) (15,537) (20,875)
Inventories....................... (9,468) (2,652) (8,051) 8,369 5,576 (7,276)
Other assets...................... (4,163) 3,963 (739) (190) 517 (53)
Accounts payable, accrued expenses
and accrued interest............ 4,663 (170) 1,788 587 5,115 8,432
Income taxes payable.............. 20 1,542 19 (656) (553) (911)
Other liabilities................. 125 (1,477) (2,511) (1,243) (1,306) (711)
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
continuing operations............. (9,559) 1,819 (504) 13,986 (1,979) (19,021)
Net cash provided by (used in)
discontinued operations........... 1,363 (6,876) (9,894) (4,001) (3,240) 3,598
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
operating activities.............. (8,196) (5,057) (10,398) 9,985 (5,219) (15,423)
CASH FLOWS FROM INVESTING ACTIVITIES
Net assets from acquisitions........ -- -- -- -- -- (6,455)
Purchases of property, plant and
equipment, net.................... (527) (1,738) (2,870) (1,466) (1,094) (1,639)
Proceeds from disposal of
discontinued operation............ -- -- -- -- -- 6,177
-------- -------- ------- -------- ------- --------
Net cash used in investing
activities........................ (527) (1,738) (2,870) (1,466) (1,094) (1,147)
CASH FLOWS FROM FINANCING ACTIVITIES
Subordinated debt................... -- 6,354 -- -- -- --
Net activity on term loan........... 50 12,500 (3,500) (3,500) -- 8,268
Net activity on revolving loan...... 9,931 (12,354) 16,750 (6,713) 4,117 8,482
Issuance of stock................... -- 455 -- 87 87 88
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
financing activities.............. 9,981 6,955 13,250 (10,126) 4,204 16,838
-------- -------- ------- -------- ------- --------
Net increase (decrease) in cash..... 1,258 160 (18) (1,607) (2,109) (502)
Cash at beginning of period......... 730 1,967 2,127 2,109 2,109 502
-------- -------- ------- -------- ------- --------
Cash at end of period............... $ 1,988 $ 2,127 $ 2,109 $ 502 $ -- $ --
======== ======== ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITION AND DESCRIPTION OF THE BUSINESS
Effective December 3, 1993, Better Vision Hardware Group, Inc. (the
"Predecessor Company") merged with Acorn Products, Inc. (formerly Vision
Hardware Group, Inc.) ("Acorn" or the "Successor Company"), a corporation
controlled by several investment funds and accounts (the "TCW Funds") managed by
affiliates of The TCW Group, Inc. (the "TCW Group"). The merger was a part of a
series of transactions whereby the TCW Group acquired the revolving credit
facility and bank term loan of the Predecessor Company, as well as $5,000,000
aggregate principal amount of senior subordinated notes of the Predecessor
Company. The TCW Group also acquired all of the outstanding senior preferred
stock and class A, B and C preferred stock of the Predecessor Company. The
Predecessor Company and Successor Company collectively are referred to herein as
Acorn. Acorn and its subsidiaries collectively are referred to herein as the
"Company". Pursuant to the foregoing transaction, the TCW Funds became the
beneficial owners of substantially all of the capital stock of Acorn.
The total purchase price of the above transaction was approximately $66.2
million. The purchase accounting method was used to record the transaction. The
estimated fair value of the acquired assets, excluding goodwill, aggregated
approximately $31.7 million and liabilities assumed aggregated approximately
$5.5 million. The excess of the purchase price over the fair value of net assets
of approximately $40 million was established as goodwill and is being amortized
over 40 years.
Since purchase accounting was reflected in the opening balance sheet of the
Successor Company on December 3, 1993, the financial statements of the Successor
Company are not comparable to the financial statements of the Predecessor
Company. Accordingly, a vertical black line is shown to separate Successor
Company financial statements from those of the Predecessor Company for the
period ended December 2, 1993.
Business
Founded in 1890, the Company is a leading manufacturer and marketer of
non-powered lawn and garden tools in the U.S. The Company's principal products
include long handle tools (such as forks, hoes, rakes and shovels), snow tools,
posthole diggers, wheelbarrows, striking tools and cutting tools. The Company
sells its products under a variety of well-known brand names. In addition, the
Company manufactures private label products for a variety of retailers. The
Company sells its products through a variety of distribution channels. The
Company is a holding company with no business operations of its own. (See Note 3
for a discussion of the Company's disposition of non-lawn and garden
operations.)
The lawn and garden industry is seasonal in nature, with a high proportion
of sales and operating income generated in January through May. As a result, the
Company's operating results depend significantly on the spring selling season.
To support this sales peak, the Company must build inventories of finished goods
throughout the fall and winter. Accordingly, the Company's levels of raw
materials and finished goods inventories tend to be at their highest, relative
to sales, during the Company's first and second fiscal quarters. See Note 12
below.
Weather is the most significant factor in determining market demand for the
Company's products and is inherently unpredictable. Fluctuations in weather can
be favorable or unfavorable for the sale of lawn and garden equipment.
The Company's largest customer, Sears, accounted for 8.9%, 12.5% and 11.5%
of gross sales in fiscal 1995 and fiscal 1996 and the nine months ended May 2,
1997, respectively. No other customer accounted for 10% or more of the Company's
gross sales in fiscal 1995, fiscal 1996 or the nine months ended May 2, 1997.
The Company's products require the supply of raw materials consisting
primarily of steel, plastics and ash wood. The Company has several suppliers for
most of its raw materials.
F-7
<PAGE> 61
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Acorn and its subsidiaries, UnionTools, Inc. ("UnionTools"), McGuire-Nicholas
Company, Inc. ("McGuire-Nicholas") and VSI Fasteners, Inc. ("VSI"). All
intercompany accounts and transactions have been eliminated. See Note 3 --
Discontinued Operations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist of the
following:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................... $ 17,372 $12,473
Work in process.................................................. 6,021 5,703
Raw materials and supplies....................................... 8,759 5932
------- -------
32,152 24,108
Valuation reserves............................................... (350) (675)
------- -------
Total inventories................................................ $ 31,802 $23,433
======= =======
</TABLE>
Property, Plant and Equipment
Property, plant and equipment is stated at cost and is depreciated using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment........................................ 3 to 15 years
Buildings and improvements..................................... 3 to 40 years
Furniture and fixtures......................................... 3 to 15 years
</TABLE>
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 1,181 $ 1,207
Buildings and improvements....................................... 2,431 2,553
Machinery and equipment.......................................... 9,610 10,840
Furniture and fixtures........................................... 1,266 1,355
-------- ---------
14,488 15,955
Accumulated depreciation and amortization........................ (2,977) (5,397)
-------- ---------
$ 11,511 $10,558
======= =======
</TABLE>
Goodwill
Goodwill, resulting from the cost of assets acquired exceeding the
underlying net asset value, is being amortized on the straight-line method over
a forty-year period. Accumulated amortization was $1,411,000 at July 28, 1995
and $2,215,000 at August 2, 1996. The Company assesses the recoverability of its
goodwill whenever adverse events or changes in circumstances or business climate
indicate that expected future cash flows (undiscounted) for individual business
units may not be sufficient to support recorded goodwill. If
F-8
<PAGE> 62
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
undiscounted cash flows are not sufficient to support the recorded asset, an
impairment is recognized to reduce the carrying value of the goodwill based on
the expected discounted cash flows of the business unit.
Income Taxes
The Company files a consolidated federal income tax return. Federal income
taxes are apportioned to each includable member based on that member's taxes as
determined on a separate return basis. State tax returns are filed on a
separate-company basis.
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fiscal Year
The Company's fiscal year is comprised of the 52 or 53 weeks, ending on the
Friday closest to July 31 of each year. Unless otherwise stated, references to
fiscal 1995 and 1996 relate to the fiscal years ended July 28, 1995 and August
2, 1996 and were comprised of 52 weeks and 53 weeks, respectively. The Company's
interim reporting periods for quarterly periods end on the Friday closest to the
last day of each month.
Interim Financial Reporting
In the opinion of management, the unaudited information as of May 2, 1997
and for the nine months ended April 26, 1996 and May 2, 1997 includes all
adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of such financial statements in
accordance with generally accepted accounting principles. Operating results for
the nine months ended May 2, 1997 are not necessarily indicative of the results
that may be expected for the year ending August 1, 1997.
3. DISCONTINUED OPERATIONS
In March 1996, the Company adopted a formal plan to sell VSI. Accordingly,
VSI was accounted for as a discontinued operation in the financial statements
for the fiscal year ended August 2, 1996. Prior year financial statements were
reclassified to conform to the 1996 presentation. During the fiscal year ended
August 2, 1996, the Company provided for estimated losses of $665,000 on the
disposal of VSI, which represented the write-down of inventory and other assets
to estimated net realizable value and the estimated loss through the disposal
date. The Company completed the sale of substantially all of the assets of VSI
on December 4, 1996 and recognized an additional loss on disposal of
approximately $101,000 during the nine months ended May 2, 1997.
On January 23, 1997, the Company adopted a formal plan to sell
McGuire-Nicholas. The Company currently is in the process of reviewing offers
for the sale of McGuire-Nicholas and anticipates that the sale will be completed
in the near future. Accordingly, McGuire-Nicholas has been accounted for as a
discontinued operation and classified as such in the accompanying consolidated
financial statements. The prior year financial statements have been reclassified
to conform to the current year presentation. The estimated loss on the disposal
of McGuire-Nicholas is $9.2 million, consisting of an estimated loss on disposal
of $8.8 million and a provision of $483,000 for anticipated operating losses
until disposal. The loss on disposal represents the
F-9
<PAGE> 63
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
write-off of $7.3 million of goodwill relating to McGuire-Nicholas and the
write-down of inventory and other assets to estimated net realizable value.
The following represents the combined results of operations of the
Company's discontinued operations:
<TABLE>
<CAPTION>
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 2, JULY 29, JULY 28, AUGUST 2,
1993 1994 1995 1996
----------- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................... $18,738 $ 34,955 $ 53,050 $ 49,810
Costs and expenses................. 28,856 34,682 53,145 50,143
Interest expense................... (254) (670) (1,422) (1,577)
Loss from operations............... (8,373) (614) (1,800) (5,815)
</TABLE>
Interest expense has been allocated to discontinued operations for all
periods based on the ratio of net assets of discontinued operations to
consolidated net assets plus debt.
The following table summarizes the net assets (liabilities) of the
Company's discontinued operations:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2, MAY 2,
1995 1996 1997
-------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable................................... $ 6,935 $ 6,109 $ 4,168
Inventories........................................... 14,781 10,321 2,765
Property and equipment................................ 2,299 2,470 1,550
Other assets (including goodwill of $7,600, $7,400 and
$0, respectively)................................... 7,725 8,518 --
Liabilities........................................... (9,977) (8,134) (8,798)
------- ------- -------
Net assets of (liabilities) discontinued
operations................................ $ 21,763 $19,284 $ (315)
======= ======= =======
</TABLE>
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2, MAY 2,
1995 1996 1997
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loan............................................ $ 21,500 $18,000 $20,000
Subordinated debt to shareholder..................... 31,354 31,354 31,354
Acquisition line of credit facility.................. -- -- 6,268
------- ------- -------
52,854 49,354 57,622
Less current portion of long-term debt............... 3,500 3,500 3,000
------- ------- -------
$ 49,354 $45,854 $54,622
======= ======= =======
</TABLE>
F-10
<PAGE> 64
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1996, UnionTools entered into a credit facility (the "Credit
Facility") which provided for a $20,000,000 term loan (the "Term Loan"), a
revolving credit facility with a maximum borrowing of $30,000,000 (the
"Revolving Facility") and a $15,000,000 acquisition facility (the "Acquisition
Line").
Upon consummation of the Offering (as defined below), the Credit Facility
will provide for a $30 million Revolving Facility and a $35 million Acquisition
Line. The Company intends to use a portion of the net proceeds from the Offering
to repay the Term Loan and accrued interest thereon and reduce indebtedness
outstanding under the Acquisition Line and accrued interest thereon.
The Credit Facility, which is secured by substantially all of the assets of
UnionTools, is guaranteed by Acorn. The Acorn guarantee is secured by a pledge
of all the capital stock of UnionTools. The Revolving Facility will expire in
June 2003. The Acquisition Line is available until June 2000.
Available borrowings under the Revolving Facility are based on specified
percentages of accounts receivable and inventory. As of May 2, 1997, there was
$9.0 million available for future borrowing under the Revolving Facility.
Available borrowings under the Acquisition Line are subject to various financial
and non-financial requirements and are limited to $7,500,000 per acquisition and
$15,000,000 per year without the prior approval of the lenders. The Acquisition
Line will convert to a three year term loan in June 2000 and will be payable
according to a predetermined amortization schedule. The Revolving Facility has a
letter of credit subcommitment of $3,000,000.
The Credit Facility bears interest at either the bank prime rate plus a
margin ranging from 0.25% to 0.75% (prime rate at August 2, 1996 was 8.25%) or
at UnionTools' option, the LIBOR rate plus a margin ranging from 2.25% to 2.75%
(LIBOR rate at August 2, 1996 was 5.5%). At May 2, 1997, UnionTools had all debt
outstanding under the LIBOR interest rate option. The interest rate margin
fluctuates based on the ratio of total senior debt to operating cash flow as set
forth in a predetermined pricing table. In addition, UnionTools is required to
pay a fee of 0.5% per year on the unused portion of the Revolving Facility and
the Acquisition Line.
The Credit Facility contains certain covenants, which, among other things,
require UnionTools to maintain specified financial ratios and satisfy certain
tests including minimum interest coverage ratios and places limits on future
capital expenditures by UnionTools. The Credit Facility also includes negative
covenants including limitations on indebtedness, liens, guarantees, obligations,
mergers, consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances, optional payments and modifications and other
debt instruments, transactions with affiliates, changes in fiscal year, negative
pledge clauses and changes in line of business. UnionTools was in compliance of
all debt covenants at May 2, 1997.
UnionTools is required to make certain mandatory prepayments under the
Credit Facility based upon cash flow and other events as defined. UnionTools may
elect to prepay all or a portion of the Credit Facility at any time. The fair
value of the Company's long-term debt approximates the carrying amount.
In December 1993, Acorn issued a Subordinated Unsecured Promissory Note in
the amount of $25,000,000 to the TCW Funds. In May 1994 Acorn issued a Temporary
Subordinated Promissory Note in the amount of $6,354,000 to the TCW Funds. The
Subordinated Unsecured Promissory Note and the Temporary Subordinated Promissory
Note collectively are referred to herein as the "Subordinated Notes". The
Subordinated Notes are due on July 31, 2003 and carry interest at 13% per year.
Annual interest payments for the Subordinated Notes are contingent upon
meeting certain financial measures. These financial measures were not met during
fiscal 1995 and 1996, thus, no cash interest payments were permitted. The
Subordinated Notes require that any non-payment of interest be added to the
principal balance of the outstanding Subordinated Notes. On August 2, 1996,
Acorn issued 100 shares of Series A Preferred Stock (the "Series A Preferred
Stock") with a par value of $.001 per share and a stated value of
F-11
<PAGE> 65
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$8,596,000 as payment in full of accrued interest on the Subordinated Notes due
for fiscal years 1995 and 1996.
Interest paid on the Subordinated Notes was $2,113,000 for the eight month
period ended July 29, 1994. Interest on the Subordinated Notes of $4,133,000 and
$4,463,000 was paid in the form of Series A Preferred Stock during fiscal 1995
and fiscal 1996, respectively.
In December 1996 Acorn issued a subordinated promissory note to the TCW
Funds in the aggregate principal amount of $6 million and bearing interest at a
rate of 13% per year as bridge financing. In December 1996 Acorn paid $6.3
million to the TCW Funds in prepayment of the subordinated promissory note,
accrued interest thereon and a $180,000 facility fee.
Debt of Discontinued Operations
In December 1996, McGuire-Nicholas entered into a loan agreement which
provides for a revolving loan with a maximum borrowing of $9,250,000 and a term
loan in the amount of $250,000. In addition, the loan agreement provides for a
$500,000 capital expenditure facility. Available borrowings are based on
specified percentages of accounts receivable and inventory. The revolving loan
has a letter of credit subcommitment of $1,000,000. The loan agreement is
collateralized by substantially all of the assets of McGuire-Nicholas and
expires on December 30, 1999. The Company does not guarantee McGuire-Nicholas'
debt nor do any of Acorn's or UnionTools' assets collateralize the debt. The
loan agreement will bear interest at the bank prime rate plus 1%. The term loan
calls for monthly maturities of $4,167.
Aggregate maturities of the McGuire-Nicholas term loan for the five years
following August 2, 1996 are as follows: $25,000 in 1997; $50,000 in 1998;
$50,000 in 1999; $50,000 in 2000; $50,000 in 2001; and $25,000 in 2002.
5. PREFERRED STOCK
At August 2, 1996, Acorn had 100 shares of non-voting, non-convertible,
Series A Preferred Stock issued and outstanding. Holders of the Series A
Preferred Stock are entitled to a cumulative 13% dividend, payable quarterly in
additional Series A Preferred Stock at a value of $85,962 per share. The Series
A Preferred Stock is redeemable at the option of Acorn at any time, in whole or
in part, at a price of $85,962 per share, plus accrued dividends. In the event
of an involuntary liquidation, the holders of the outstanding Series A Preferred
Stock would be entitled to full face value plus any unpaid accrued dividends
prior to any payment to common stockholders. As of May 2, 1997, the aggregate
liquidation value of the Series A Preferred Stock was approximately $9.4
million.
F-12
<PAGE> 66
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory.................................................... $ 1,971 $ 1,752
Restructuring expenses....................................... 2,909 230
Accrued expenses and other................................... 2,542 8,043
Net operating loss carryforwards............................. 4,531 5,910
-------- --------
Total deferred tax assets................................. 11,953 15,935
Valuation allowance for deferred tax assets.................... (10,693) (14,897)
-------- --------
Deferred tax assets............................................ 1,260 1,038
Deferred tax liabilities:
Income taxes................................................. 363 209
Depreciation and other....................................... 141 829
-------- --------
Total deferred tax liabilities............................ 504 1,038
-------- --------
Net deferred tax assets.............................. $ 756 $ --
======== ========
</TABLE>
Based upon the Company's operating losses in the past two fiscal years and
the uncertainty of operating earnings in the future, management has determined
that it is not likely that the deferred tax assets will be fully recognized.
Accordingly, a valuation allowance has been recorded.
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
EIGHT MONTHS
FOUR MONTHS ENDED YEAR ENDED YEAR ENDED
ENDED JULY 29, JULY 28, AUGUST 2,
DECEMBER 2, 1993 1994 1995 1996
---------------- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current -- state.............................. $ -- $215 $ -- $ --
Deferred -- state............................. -- 75 -- 582
---- ---- ---- ----
$ -- $290 $ -- $582
==== ==== ==== ====
</TABLE>
At August 2, 1996, the Company has net operating loss carryforwards of
$16,917,700 for income tax purposes that expire in the years 2009 and 2010.
7. RETIREMENT PLANS
UnionTools maintains defined benefit pension plans which cover
substantially all employees. Benefits paid under the defined benefit plans are
based generally on either years of service and the employee's compensation in
recent years of employment or years of service multiplied by contractual
amounts. The Company's funding policy is to fund the maximum amount deductible
for federal income tax purposes.
F-13
<PAGE> 67
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the funded status of the defined benefit plans (in
thousands):
<TABLE>
<CAPTION>
PLANS WHOSE ASSETS PLAN WHOSE BENEFITS
EXCEED BENEFITS EXCEED ASSETS
---------------------- ----------------------
JULY 28, AUGUST 2, JULY 28, AUGUST 2,
1995 1996 1995 1996
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, (primarily
vested)......................................... $ 8,101 $ 8,291 $ 4,714 $ 5,064
====== ====== ======= =======
Projected benefit obligation for service rendered
to date......................................... $ 8,194 $ 8,451 $ 4,714 $ 5,064
Plan assets at fair value.......................... 8,816 9,101 3,381 3,508
------ ------ ------- -------
Projected benefit obligation less than (in excess)
of plan assets.................................. 622 650 (1,333) (1,556)
Unrecognized prior service cost.................... (82) (61) 109 156
Unrecognized net losses (gains).................... 438 621 (109) 327
Adjustment to recognize minimum liability.......... -- -- -- (552)
------ ------ ------- -------
Prepaid (accrued) pension cost included in the
accompanying balance sheet...................... $ 978 $ 1,210 $ (1,333) $(1,625)
====== ====== ======= =======
</TABLE>
The components of net periodic pension cost are as follows (in thousands):
<TABLE>
<CAPTION>
EIGHT MONTHS YEAR ENDED
ENDED ----------------------
JULY 29, JULY 28, AUGUST 2,
1994 1995 1996
------------ -------- ---------
<S> <C> <C> <C>
Service cost........................................ $ 345 $ 371 $ 438
Interest on projected benefit obligation............ 535 965 981
Return on plan assets............................... (338) (462) (411)
Net amortization and deferral....................... (194) (465) (582)
----- ----- -----
Net periodic pension cost......................... $ 348 $ 409 $ 426
===== ===== =====
</TABLE>
Significant assumptions used in 1994, 1995 and 1996 in calculating periodic
pension cost are as follows:
<TABLE>
<S> <C>
Discount rate.................................................. 8%
Expected long-term rate of return.............................. 8%
Rate of increase in future compensation........................ 4%
</TABLE>
Plan assets consist primarily of guaranteed interest contracts and pooled
investment debt securities.
8. POSTRETIREMENT BENEFITS
In addition to providing pension benefits, UnionTools sponsors a defined
benefit health care plan that provides postretirement medical and life insurance
benefits to employees who had attained age 50 and 10 years of service by July 1,
1995 and to current participants receiving benefits.
In connection with the merger between Better Vision Hardware Group, Inc.
and Acorn, the purchase price allocation included an estimated obligation for
the retiree health care benefits of the Company, and accordingly, an accrual of
approximately $5,500,000 was recorded. Effective August 1, 1995, the Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," whereby the cost of such postretirement benefits is accrued
during the employees' active service period. The Company elected to immediately
recognize the accumulated benefit obligation rather than amortize it over future
periods. The cumulative effect of this accounting change as of August 1, 1995
was to increase net income by $869,000.
F-14
<PAGE> 68
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postretirement benefit expense was $105,459 in the four months ended
December 2, 1993, $216,596 in the eight months ended July 29, 1994, $431,000 in
the fiscal year ended 1995 and $425,242 in the fiscal year ended 1996. The
components of expense in 1996 follow:
<TABLE>
<S> <C>
Service cost benefits earned.............................. $ 80,131
Interest cost on projected benefit obligations............ 345,111
--------
$425,242
========
</TABLE>
The following table presents supplemental information related to the
Company's postretirement health care benefits:
<TABLE>
<CAPTION>
AUGUST 2, 1996
--------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $2,773,644
Active employees..................................... 1,938,511
----------
4,712,155
Unrecognized net loss.................................. (111,046)
----------
Accrued postretirement benefit cost.................... $4,601,109
==========
</TABLE>
As the benefits provided by the plan are fixed by the plan document, no
annual assumed rate of increase in per capita cost of covered benefits is
included in the obligation calculation. The discount rate used in determining
the accumulated postretirement benefit obligation was 7.5%.
9. COMMITMENTS AND CONTINGENCIES
UnionTools entered into a royalty agreement with The Scotts Company,
pursuant to which UnionTools obtained the exclusive right to manufacture,
distribute and market in the U.S. and Canada an extensive line of lawn and
garden tools under the Scotts(R) brand name. Under the agreement, UnionTools
must pay certain minimum royalty amounts annually.
Rent expense under operating leases was $662,000 in the four months ended
December 2, 1993, $1,080,000 in the eight months ended July 29, 1994, $2,170,000
in the year ended July 28, 1995 and $2,000,000 in the year ended August 2, 1996.
The minimum annual payments for leases under noncancelable operating leases and
the royalty agreement at August 2, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $2,036
1998........................................................ 1,735
1999........................................................ 1,571
2000........................................................ 917
2001........................................................ 812
Thereafter.................................................. 467
------
$7,538
======
</TABLE>
The Company is a party to personal injury litigation arising out of
incidents involving the use of Company products purchased by consumers from
retailers to whom the Company distributes. The Company generally is covered by
insurance for these product liability claims. Management believes that the
ultimate disposition of this litigation will not have a material effect on the
consolidated financial position or the results of future operations of the
Company.
F-15
<PAGE> 69
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CONTRIBUTED CAPITAL-STOCK OPTIONS
During the nine months ended May 2, 1997, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company has elected to continue to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its employee stock options and, accordingly, does not recognize
compensation costs when the exercise price of its employee stock options is
equal to the fair market value of the stock at the grant date.
Pursuant to employment agreements, certain executive officers of the
Company were granted options to purchase shares of Common Stock. Vesting of the
options and the related exercise price are contingent upon the attainment of
certain profitability targets, and portions of the options that fail to vest
expire.
The following table summarizes the stock option activity:
<TABLE>
<CAPTION>
EIGHT MONTHS YEAR ENDED NINE MONTHS
ENDED ---------------------- ENDED
JULY 29, JULY 28, AUGUST 2, MAY 2,
1994 1995 1996 1997
------------ -------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.... -- 111,342 111,342 70,854
Granted............................... 111,342 15,906 14,460 --
Exercised............................. -- -- 7,230 7,230
Expired/terminated.................... -- 15,906 47,718 17,352
------- ------- ------- ------
Outstanding at end of period.......... 111,342 111,342 70,854 46,272
======= ======= ======= ======
Exercisable at end of period.......... -- 27,474 34,704 33,258
</TABLE>
During fiscal 1995 and the nine months ended May 2, 1997, options to
purchase 27,474 and 5,784 shares of common stock, respectively, vested at an
exercise price of $0 per share and $12.10 per share, respectively. The Company
recognized compensation expense of $340,000 and $120,000 in fiscal 1995 and the
nine months ended May 2, 1997, respectively, related to the vesting of these
options. Of the remaining options, options to purchase 5,784 shares of common
stock will vest at an exercise price of $0 upon consummation of the Offering (as
defined below) and options to purchase 7,230 shares of common stock will expire.
Vested options expire in December 2003.
11. ACQUISITION OF BUSINESS
On February 19, 1997, the Company acquired for approximately $6,268,000 in
cash certain assets of an injection molding company. The Company accounted for
the acquisition as a purchase and the results of the injection molding
division's operations are included in the accompanying financial statements
beginning with the date of acquisition. The Company's preliminary allocation of
the purchase price, based upon an assessment of the fair value of such assets at
the date of acquisition, is as follows:
<TABLE>
<S> <C>
Inventories.............................................................. $1,068,000
Land and buildings....................................................... 2,600,000
Equipment................................................................ 2,370,000
Non-compete agreement.................................................... 417,000
----------
$6,455,000
==========
</TABLE>
The non-compete agreement is to be amortized over a two year period.
F-16
<PAGE> 70
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain financial data of the Company for
each quarter of fiscal 1995 and 1996. The financial data for each of these
quarters is unaudited but includes all adjustments, consisting of only normal
recurring adjustments, which the Company believes to be necessary for a fair
presentation. These operating results, however, are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE
CUMULATIVE LOSS FROM
EFFECT DISCONTINUED NET INCOME
NET SALES GROSS PROFIT ADJUSTMENT OPERATIONS (LOSS)
--------- ------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1995
First quarter.......................... $19,150 $ 5,527 $ 206 $ (589) $ (383)
Second quarter......................... 18,011 4,595 430 (547) (1,380)
Third quarter.......................... 32,609 8,614 1,972 (104) 1,868
Fourth quarter......................... 16,773 4,396 (3,247) (560) (2,544)
------- ------- ------- ------- -------
$86,543 $ 23,132 $ (639) $ (1,800) $ (2,439)
======= ======= ======= ======= =======
1996
First quarter.......................... $16,486 $ 3,942 $(1,614) $ (291) $ (1,036)
Second quarter......................... 19,357 4,626 (1,061) (477) (1,538)
Third quarter.......................... 33,564 9,826 2,888 (355) 2,533
Fourth quarter......................... 23,245 6,762 (1,881) (5,357) (7,238)
------- ------- ------- ------- -------
$92,652 $ 25,156 $(1,668) $ (6,480) $ (7,279)
======= ======= ======= ======= =======
</TABLE>
The fourth quarter of fiscal 1996 reflects expense of $563,000 incurred in
connection with the resignation of Acorn's previous Chairman of the Board and
expense of $750,000 incurred in connection with self-insured life insurance
accruals related to the death of a former director of the Company.
13. SUBSEQUENT EVENTS
Public Offering
In April 1997, Acorn filed a registration statement (the "Registration
Statement") with the Securities and Exchange Commission in connection with the
offer and sale of 3,250,000 shares (3,737,500 shares if the underwriters'
over-allotment option is exercised in full) of Common Stock (the "Offering").
Increase in Authorized Capital Stock and Stock Split
In May 1997, Acorn increased the number of authorized shares of Common
Stock to 20 million and effected a 1,446-for-1 split of the Common Stock in the
form of a common stock dividend (the "Stock Split"). All share and per share
information has been restated to reflect the stock split.
1997 Stock Incentive Plan
In April 1997, Acorn adopted the 1997 Stock Incentive Plan (the "Incentive
Plan") for members of senior management and certain other officers and employees
of the Company. The purpose of the Incentive Plan is to provide incentives to
employees of the Company by granting awards tied to the performance of the
Common Stock. Awards to employees may take the form of options, stock
appreciation rights or sales or grants of restricted stock. The Company has
reserved an aggregate of 730,000 shares of Common Stock for issuance under the
Incentive Plan. There are no options currently outstanding under the Incentive
Plan. Acorn
F-17
<PAGE> 71
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has approved the grant of an aggregate of 308,000 options under the
Incentive Plan upon consummation of the Offering. The exercise price for each
such option will equal the initial public offering price per share in the
Offering.
Director Stock Plan
In April 1997, Acorn adopted the Deferred Equity Compensation Plan for
Directors (the "Director Stock Plan"). The purpose of the Director Stock Plan is
to increase the proprietary interest in the Company of non-employee members of
the Board of Directors thereby increasing their incentive to contribute to the
success of the Company. Only non-employee directors are eligible to participate
in the Director Stock Plan. The number of shares of Common Stock reserved for
issuance pursuant to the Director Stock Plan is 73,000. In lieu of cash,
non-employee directors can elect to receive all or one-half of their fees in the
form of common stock units. The number of common stock units issued is
determined by dividing (i) an amount equal to the dollar amount of the fees to
be received in the form of common stock units by (ii) the average of the high
and low sale prices of the Common Stock on the Nasdaq National Market on the
last business day preceding the date of payment. Any cash or stock dividends
payable on shares of Common Stock accrue for the benefit of the directors in the
form of additional common stock units. Common stock units are distributed to
non-employee directors in the form of Common Stock following the director's
resignation from the Board of Directors. In addition, common stock units are
distributed to directors in the form of Common Stock following the death of the
director or a change in control of Acorn as defined in the Director Stock Plan.
Agreements with Key Employees
In May 1997, the Company terminated existing employment agreements with
certain executive officers of the Company and entered into a new employment
agreement with the President and Chief Executive Officer of Acorn and
UnionTools. In addition, the Company entered into agreements with certain of its
executive officers providing for, under certain circumstances, payments from the
Company following the termination of such officers' employment with the Company
or following a change in control of the Company (as defined therein).
14. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Balance Sheet Data
The pro forma balance sheet data at May 2, 1997 gives effect to the
proposed redemption of the Series A Preferred Stock and the payment of the
accumulated dividends thereon in connection with the Offering, without giving
effect to the proceeds from the Offering.
Pro Forma Statement of Operations Data
The pro forma statements of operations data presents the pro forma effects
on the Company's historical results of operations giving effect to the following
transactions as if they occurred at the beginning of each of the periods
presented: (i) the Offering (at an assumed initial public offering price of
$14.00, the mid-point of the range of initial public offering prices set forth
on the cover page of this Prospectus) and the application of the net proceeds
therefrom to repay indebtedness outstanding under the Credit Facility and repay
indebtedness outstanding under the Subordinated Notes and accrued interest
thereon and (ii) the Exchange. The redemption of the Series A Preferred Stock
and accumulated dividends thereon has no affect on the Company's historical
results of operations.
F-18
<PAGE> 72
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
AUGUST 2, ENDED
1996 MAY 2, 1997
----------- -----------
<S> <C> <C>
Historical loss from continuing operations before
cumulative effect adjustment............................ $(1,668) $ (179)
The elimination of interest expense related to the
repayment of indebtedness under the Credit Facility..... 1,200 1,104
The elimination of interest expense related to the
repayment of indebtedness under the Subordinated
Notes................................................... 1,073 988
The elimination of interest expense related to the
conversion of Subordinated Notes to common stock........ 2,282 2,099
----------- -----------
Pro forma net income from continuing operations........... $ 2,887 $ 4,012
=========== ===========
Historical loss from discontinued operations.............. $(6,480) $(9,575)
The elimination of interest expense related to the
repayment of indebtedness under the Credit Facility..... 400 96
The elimination of interest expense related to the
repayment of indebtedness under the Subordinated
Notes................................................... 357 86
The elimination of interest expense related to the
conversion of Subordinated Notes to common stock........ 761 182
----------- -----------
Pro forma loss from discontinued operations............... $(4,962) $(9,211)
=========== ===========
</TABLE>
Pro forma per share information is based on the number of shares of Common
Stock outstanding on August 2, 1996 and May 2, 1997, as adjusted to give effect
to (i) the issuance of 3,250,000 shares of Common Stock pursuant to the
Offering, (ii) the issuance of 1,674,116 shares of Common Stock pursuant to the
Exchange (giving effect to the Offering at an assumed initial public offering
price of $14.00, the mid-point of the range of initial public offering prices
set forth on the cover page of this Prospectus, and the application of the net
proceeds therefrom and giving effect to the Exchange as of May 2, 1997) and
(iii) the issuance of 29,240 and 28,259 shares of Common Stock at August 2, 1996
and May 2, 1997, respectively, upon the exercise of outstanding stock options
pursuant to the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted for
periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
Company has not yet determined the impact that the adoption of SFAS 128 will
have on the calculation of the Company's earnings per share.
F-19
<PAGE> 73
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Description of McGuire-Nicholas....... 36
Management............................ 37
Principal Stockholders................ 43
Certain Transactions.................. 45
Description of Capital Stock.......... 46
Description of Certain Indebtedness... 48
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Additional Information................ 52
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
3,250,000 SHARES
ACORN PRODUCTS, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------------------
PROSPECTUS
---------------------------
A.G. EDWARDS & SONS, INC.
DATED , 1997
======================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant's expenses in connection with the Offering described in this
registration statement are set forth below. All amounts except the Securities
and Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. (the "NASD") filing fee and the Nasdaq National Market listing fee
are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...................... $ 17,000
NASD filing fee.......................................................... 6,100
Printing and engraving expenses.......................................... *
Accounting fees and expenses............................................. *
Legal fees and expenses.................................................. *
Nasdaq National Market listing fee....................................... *
Fees and expenses (including legal fees) for qualifications under state
securities laws........................................................ *
Transfer agent's fees and expenses....................................... *
Miscellaneous............................................................ *
-------
Total............................................................... $ 1,500,000
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
Registrant under certain circumstances from liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the DGCL, the Registrant's Certificate of Incorporation
(the "Charter") provides that, to the fullest extent permitted by the DGCL, no
director shall be liable to the Registrant or to its stockholders for monetary
damages for breach of his fiduciary duty as a director. Delaware law does not
permit the elimination of liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases or (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Charter is to
eliminate the rights of the Registrant and its stockholders (through
stockholders' derivative suits on behalf of the Registrant) to recover monetary
damages against a director for breach of fiduciary duty as a director thereof
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i)-(iv), inclusive, above. These
provisions will not alter the liability of directors under federal securities
laws.
The Registrant's Bylaws (the "Bylaws") provide that the Registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Registrant) by reason of the fact that he is or was a director,
officer, employee or agent of the Registrant or is or was serving at the request
of the Registrant as a director, officer, employee or agent of another
corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful.
II-1
<PAGE> 75
The Bylaws also provide that the Registrant may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Registrant to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Registrant unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Bylaws also provide that to the extent a director or officer of the
Registrant has been successful in the defense of any action, suit or proceeding
referred to in the previous paragraphs or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for in the Bylaws shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
Registrant may purchase and maintain insurance on behalf of a director or
officer of the Registrant against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the Registrant would have the power to indemnify him against such liabilities
under such Bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has not issued or sold securities within the past three
years pursuant to offerings that were not registered under the Securities Act,
except as follows:
(a) In December 1993, Acorn issued a subordinated promissory note in
the aggregate principal amount of $25 million to several investment funds
and accounts (the "TCW Funds") managed by affiliates of the TCW Group, Inc.
This note was restated in May 1994.
(b) In May 1994, Acorn issued a subordinated promissory note in the
aggregate principal amount of approximately $6.4 million to the TCW Funds.
(c) Pursuant to the terms of an employment agreement dated as of
January 1994 between Acorn and Joseph I. Duffy, Acorn granted to Mr. Duffy
an option to purchase 63,624 shares of Common Stock. The vesting schedule
and exercise price per share were determined based on certain profitability
targets. Options to purchase 15,906 shares of Common Stock vested in fiscal
1995 and options to purchase 15,906 and 31,812 shares of Common Stock
expired in fiscal 1995 and fiscal 1996, respectively.
(d) Pursuant to the terms of an employment agreement dated as of
January 1994 between Acorn and Gabe Mihaly, Acorn granted to Mr. Mihaly an
option to purchase 47,718 shares of Common Stock. The vesting schedule and
exercise price per share were determined based on certain profitability
targets. Options to purchase 11,568 shares of Common Stock vested in fiscal
1995, options to purchase 5,784 shares and 17,352 shares of Common Stock
vested and expired, respectively, the nine months ended May 2, 1996 and
options to purchase 5,784 shares and 7,230 shares of Common Stock will vest
and expire, respectively, upon consummation of the Offering.
(e) In May 1994, Acorn sold 17,352 shares of Common Stock to Joseph I.
Duffy for an aggregate purchase price of $210,000.
(f) In May 1994, Acorn sold 20,244 shares of Common Stock to Gabe
Mihaly for an aggregate purchase price of $245,000.
(g) Pursuant to the terms of an employment agreement dated as of
August 1994 between Acorn and L. Edwin Donegan, Jr., Acorn granted to Mr.
Donegan an option to purchase 15,906 shares of Common Stock. All such
options expired.
II-2
<PAGE> 76
(h) Pursuant to the terms of an option agreement dated as of August 1,
1995, the Company granted John I. Leahy an option to purchase 14,460 shares
of Common Stock at an exercise price of $12.10 per share. Mr. Leahy
exercised the option with respect to 7,230 shares of Common Stock in each
of November 1995 and November 1996.
(i) In August 1996, Acorn issued 100 shares of Series A Preferred
Stock to the TCW Funds as payment in full of approximately $8.6 million in
accrued interest on the Subordinated Notes for fiscal 1995 and fiscal 1996.
(j) In December 1996, Acorn issued a subordinated promissory note in
the aggregate principal amount of $6 million to the TCW Funds.
The transactions set forth above were undertaken in reliance upon the
exemptions from the registration requirements of the Securities Act afforded by
(i) Section 4(2) thereof and/or Regulation D promulgated thereunder, as sales
not involving a public offering, and/or (ii) Rule 701 promulgated thereunder, as
sales by an issuer to employees, directors, officers, consultants or advisors
pursuant to written compensatory benefit plans or written contracts relating to
the compensation of such persons. The purchasers of the securities described
above acquired such securities for their own account not with a view to any
distribution thereof to the public.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
2.1 Asset Purchase Agreement, dated as of February 19, 1997, between Greif Bros.
Corporation and UnionTools, Inc.**
3.1 Amended and Restated Certificate of Incorporation of Acorn Products, Inc.**
3.2 Amended and Restated Bylaws of Acorn Products, Inc.**
4.1 Specimen of Certificate for Common Stock
5.1 Opinion of Gibson, Dunn & Crutcher LLP
10.1 Form of Employment Agreement dated May , 1997, between the Company, UnionTools
and Gabe Mihaly
10.2.1 Form of Employee Severance Agreement, dated as of May , 1997, between the
Company and James B. Farland
10.2.2 Form of Employee Severance Agreement, dated as of May , 1997, between the
Company and Thomas A. Hyrb
10.2.3 Form of Employee Severance Agreement, dated as of May , 1997, between the
Company and Stephen M. Kasprisin
10.3 Acorn Products, Inc. Deferred Equity Compensation Plan for Directors
10.4 Acorn Products, Inc. 1997 Stock Incentive Plan
10.5 Standard Form of Acorn Products, Inc. Stock Option Agreement
10.6 UnionTools, Inc. Retirement Plan for Salaried Employees**
10.7 Amendment No. 1 to UnionTools, Inc. Retirement Plan for Salaried Employees**
10.8 Acorn Products, Inc. Supplemental Pension Plan for Executive Employees**
10.9 Amended and Restated Credit Agreement between UnionTools and Heller Financial,
Inc. dated as of May 20, 1997
10.10 License Agreement, dated as of August 1, 1992, between The Scott Company and
UnionTools**
</TABLE>
II-3
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ----------------------------------------------------------------------------------
<S> <C>
10.11 Form of Registration Rights Agreement, dated as of May , 1997, between Acorn
Products, Inc. and various funds and accounts managed by TCW Special Credits
10.12 Form of Registration Rights Agreement, dated as of May , 1997, between Acorn
Products, Inc. and OMC Principal Opportunities Fund, L.P.
11.1 Statement re computation of earnings per share (See Note 14 of the Notes to the
Consolidated Financial Statements)
21.1 Subsidiaries of the Registrant**
23.1 Consent of Ernst & Young LLP
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included in signature page to registration statement)**
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(B) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULE
- -------- ----------------------------------------------------------------------------------
<C> <S>
I Condensed Financial Information of Registrant
II Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Columbus, State of Ohio, on May 23, 1997.
ACORN PRODUCTS, INC.
By: /s/ GAVRIL MIHALY
------------------------------------
Gavril Mihaly
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacity indicated on May 23, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ GAVRIL MIHALY Chief Executive Officer and President
- --------------------------------------------- (Principal Executive Officer)
Gavril Mihaly
/s/ STEPHEN M. KASPRISIN Chief Financial Officer and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Stephen M. Kasprisin
/s/ CONOR D. REILLY Chairman of the Board
- ---------------------------------------------
Conor D. Reilly
Director
- ---------------------------------------------
William W. Abbott
* Director
- ---------------------------------------------
Matthew S. Barrett
* Director
- ---------------------------------------------
Stephen A. Kaplan
* Director
- ---------------------------------------------
John I. Leahy
*By: /s/ GAVRIL MIHALY
- ---------------------------------------------
Gavril Mihaly
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Acorn Products, Inc.
We have audited the consolidated balance sheets of Acorn Products, Inc.
(formerly Vision Hardware Group, Inc.) and Subsidiaries (Successor Company) as
of July 28, 1995 and August 2, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years then
ended and for the period from December 3, 1993 through July 29, 1994 (Successor
Company period), and consolidated statements of operations, stockholders' equity
and cash flows of Better Vision Hardware Group, Inc. (Predecessor Company) for
the period from August 1, 1993 through December 2, 1993 (Predecessor Company
period) and have issued our report thereon dated October 4, 1996 (except for
notes 3, 4, 11 and 13 as to which the date is May 23, 1997) (included elsewhere
in this Registration Statement). Our audits also included the financial
statement schedules listed in Item 16(b) of this Registration Statement. These
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective
December 3, 1993, all of the outstanding stock of the Predecessor Company was
acquired in a business combination accounted for as a purchase. As a result of
this acquisition, the consolidated financial information for the period after
the acquisition is presented on a different cost basis than that for the period
before the acquisition and, therefore, is not comparable.
As discussed in Note 8 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1996.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
October 4, 1996,
except for Notes 3, 4, 11 and 13
as to which the date is
May 23, 1997
S-1
<PAGE> 80
ACORN PRODUCTS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash..................................................................... $ 1,211 $ 253
Accounts receivable...................................................... 480 253
Prepaids and other....................................................... 2,501 945
-------- ---------
Total current assets..................................................... 4,192 1,451
Property, plant and equipment, net....................................... 11 4
Goodwill................................................................. 6,995 6,812
Other assets (principally investment in and amounts due from wholly-owned
subsidiaries).......................................................... 64,730 57,420
-------- ---------
Total assets................................................... $ 75,928 $65,687
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving credit facility................................................ $ 19,250 $12,537
Accounts payable and accrued expenses.................................... 742 1,421
Accrued interest......................................................... 4,133 --
Income taxes payable..................................................... 1,488 875
Other current liabilities................................................ 231 220
-------- ---------
Total current liabilities................................................ 25,844 15,053
Long-term debt........................................................... 31,354 31,354
Other long-term liabilities.............................................. 1,407 750
-------- ---------
Total liabilities........................................................ 58,605 47,157
Stockholders' equity
Common stock........................................................... 14,319 14,406
Preferred stock........................................................ -- 8,596
Contributed capital -- stock options................................... 340 340
Minimum pension liability.............................................. -- (197)
Retained earnings (deficit)............................................ 2,664 (4,615)
-------- ---------
Total stockholders' equity.......................................... 17,323 18,530
-------- ---------
Total liabilities and stockholders' equity..................... $ 75,928 $65,687
======= =======
</TABLE>
S-2
<PAGE> 81
ACORN PRODUCTS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
(PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Selling and administrative expenses...................................... $ 1,524 $ 1,828
Interest expense......................................................... -- 1,659
Amortization of intangible assets........................................ 370 471
Other expenses........................................................... -- 1,014
-------- ---------
Loss before equity in earnings of subsidiaries........................... (1,894) (4,972)
Equity in earnings of wholly-owned subsidiaries.......................... (545) (2,307)
-------- ---------
Net loss................................................................. $ (2,439) $(7,279)
======= =======
</TABLE>
S-3
<PAGE> 82
ACORN PRODUCTS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
(PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net cash from operating activities....................................... (17,621) $ 5,661
INVESTING ACTIVITIES
Property and equipment................................................. 5 7
FINANCING ACTIVITIES
Net activity on revolving loan......................................... 16,750 (6,713)
Issuance of stock...................................................... -- 87
-------- ---------
16,750 (6,626)
-------- ---------
Decrease in cash......................................................... $ (866) $ (958)
======= =======
</TABLE>
S-4
<PAGE> 83
ACORN PRODUCTS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company-only financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries. The Company's share of net income (loss) of its unconsolidated
subsidiaries is included in consolidated income using the equity method. Parent
company-only financial statements should be read in conjunction with the
Company's consolidated financial statements.
2. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
At July 28, 1995 and August 2, 1996, the Company had a revolving credit
facility with a maximum borrowing of $30 million (the Revolving Facility). The
Revolving Facility is collateralized by substantially all of the assets and
common stock of the Company's subsidiaries.
Available borrowings under the Revolving Facility are based on specified
percentages of accounts receivable, inventory and fixed assets of the Company's
subsidiaries. The Revolving Facility has a letter of credit subcommitment of
$5,000,000.
The Revolving Facility bears interest at either the bank prime rate plus a
margin ranging from 0.25% to 0.75% (prime rate at August 2, 1996 was 8.25%) or
at the Company's option, the LIBOR rate plus a margin ranging from 2.25% to
2.75% (LIBOR rate at August 2, 1996 was 5.5%). At August 2, 1996, the Company
had all debt outstanding under the LIBOR interest rate option. The interest rate
margin fluctuates based on the ratio of total senior debt to operating cash flow
as set forth in a predetermined pricing table. In addition, the Company is
required to pay a fee of 0.5% per year on the unused portion of the Revolving
Facility.
The Credit Facility contains certain covenants, which, among other things,
require the Company to maintain specified financial ratios and satisfy certain
tests including minimum interest coverage ratios and places limits on future
capital expenditures. The Company was in compliance of all debt covenants at
August 2, 1996.
In December 1993, the Company issued a Subordinated Unsecured Promissory
Note in the amount of $25,000,000 to the TCW Funds. In May 1994 the Company
issued a Temporary Subordinated Promissory Note in the amount of $6,354,000 to
the TCW Funds. The Subordinated Unsecured Promissory Note and the Temporary
Subordinated Promissory Note collectively are referred to herein as the
"Subordinated Notes". The Subordinated Notes are due on July 31, 2003 and carry
interest at 13% per year.
Annual interest payments for the Subordinated Notes are contingent upon
meeting certain financial measures. These financial measures were not met during
fiscal 1995 and 1996, thus, no cash interest payments were permitted. The
Subordinated Notes require that any non-payment of interest be added to the
principal balance of the outstanding Subordinated Notes. On August 2, 1996, the
Company issued 100 shares of Series A Preferred Stock (the "Series A Preferred
Stock") with a par value of $.001 per share and a stated value of $8,596,000 as
payment in full of accrued interest on the Subordinated Notes due for fiscal
years 1995 and 1996.
Interest on the Subordinated Notes of $4,133,000 and $4,463,000 was paid in
the form of Series A Preferred Stock during fiscal 1995 and fiscal 1996,
respectively.
S-5
<PAGE> 84
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACORN PRODUCTS, INC. AND SUBSIDIARIES
AUGUST 2, 1996
<TABLE>
<CAPTION>
COL. C
-----------------------------------
COL. B COL. E
------------ ADDITIONS COL. D ----------
COL. A BALANCE AT ----------------------------------- ---------- BALANCE AT
- -------------------------------- BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DESCRIBE PERIOD
- -------------------------------- ------------ ---------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended August 2, 1996:
Deducted from asset accounts:
Allowance for doubtful
accounts................. $175,000 $ 0 $ 35,000(1) $ 140,000
Reserve for sales discounts
and allowances............. 470,205 105,46 159,000(1) 416,673
--
-------- -------- -------- --------
Total................. $645,205 $105,468 $194,000 $ 556,673
======== ======== == ======== ========
Year Ended July 28, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts................. $175,689 $ 0 $ 689(1) $ 175,000
Reserve for sales discounts
and allowances............. 305,962 329,000 164,757(2) 470,205
--
-------- -------- -------- --------
Total................. $481,651 $329,000 $165,446 $ 645,205
======== ======== == ======== ========
Eight months ended July 29,
1994:
Deducted from asset accounts:
Allowance for doubtful
accounts................. $175,433 $ 256 $ 175,689
Reserve for sales discounts
and allowances............. 219,582 86,380 305,962
--
-------- -------- -------- --------
$395,015 $ 86,636 $ 481,651
======== ======== == ======== ========
</TABLE>
- ---------------
(1) Uncollectible accounts written off net of recoveries.
(2) Discounts taken by customers during year.
S-6
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ -------------------------------------------------------------------------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement*...........................................
2.1 Asset Purchase Agreement, dated as of February 19, 1997, between Greif
Bros. Corporation and UnionTools, Inc.**..................................
3.1 Amended and Restated Certificate of Incorporation of Acorn Products,
Inc.**....................................................................
3.2 Amended and Restated Bylaws of Acorn Products, Inc.**.....................
4.1 Specimen of Certificate for Common Stock..................................
5.1 Opinion of Gibson, Dunn & Crutcher LLP....................................
10.1 Form of Employment Agreement dated May , 1997, between the Company,
UnionTools and Gabe Mihaly................................................
10.2.1 Form of Employee Severance Agreement, dated as of May , 1997, between
the Company and James B. Farland..........................................
10.2.2 Form of Employee Severance Agreement, dated as of May , 1997, between
the Company and Thomas A. Hyrb............................................
10.2.3 Form of Employee Severance Agreement, dated as of May , 1997, between
the Company and Stephen M. Kasprisin
10.3 Acorn Products, Inc. Deferred Equity Compensation Plan for Directors......
10.4 Acorn Products, Inc. 1997 Stock Incentive Plan............................
10.5 Standard Form of Acorn Products, Inc. Stock Option Agreement..............
10.6 UnionTools, Inc. Retirement Plan for Salaried Employees**.................
10.7 Amendment No. 1 to UnionTools, Inc. Retirement Plan for Salaried
Employees**...............................................................
10.8 Acorn Products, Inc. Supplemental Pension Plan for Executive
Employees**...............................................................
10.9 Amended and Restated Credit Agreement between UnionTools and Heller
Financial, Inc. dated as of May 20, 1997..................................
10.10 License Agreement, dated as of August 1, 1992, between The Scott Company
and UnionTools**..........................................................
10.11 Form of Registration Rights Agreement, dated as of May , 1997, between
Acorn Products, Inc. and various funds and accounts managed by TCW Special
Credits...................................................................
10.12 Form of Registration Rights Agreement, dated as of May , 1997, between
Acorn Products, Inc. and The OMC Principal Opportunities Fund, L.P........
11.1 Statement re computation of earnings per share (See Note 14 of the Notes
to the Consolidated Financial Statements).................................
21.1 Subsidiaries of the Registrant**..........................................
23.1 Consent of Ernst & Young LLP..............................................
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)..........
24.1 Power of Attorney (included in signature page to registration
statement)**..............................................................
27.1 Financial Data Schedule...................................................
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
Exhibit 4.1
COMMON STOCK
ACORN PRODUCTS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 004857 10 8
This
Certifies
that
is the
Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE OF $.001
EACH, OF
ACORN PRODUCTS, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney on surrender of this certificate, properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
/s/ Stephen M. Kasprisin /s/ Gavril M. Mihaly
VICE PRESIDENT AND PRESIDENT AND CHIEF
CHIEF FINANCIAL OFFICER EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
American Stock Transfer
& Trust Company
TRANSFER AGENT AND REGISTRAR
<PAGE> 1
EXHIBIT 5.1
May 19, 1997
(212) 351-4000 C 07329-00031
Acorn Products, Inc.
500 Dublin Avenue
Columbus, Ohio 43216-1930
Re: Registration Statement on Form S-1 (Reg. No. 333-25325)
Gentlemen:
We have examined the Registration Statement on Form S-1 (the
"Registration Statement"), File No. 333-25325, of Acorn Products, Inc., a
Delaware corporation (the "Company"), filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), in connection with the public offering by the Company of
up to 3,737,500 newly issued shares (the "Shares") of Common Stock, par value
$.001, of the Company.
For the purposes of the opinion set forth below, we have
examined and are familiar with the proceedings taken and proposed to be taken by
the Company in connection with the issuance and sale of the Shares, including,
among other things, upon our examination of such corporate records of the
Company and certificates of officers of the Company and of public officials and
such other documents as we have deemed relevant and necessary as the basis for
the opinions set forth below. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such copies.
<PAGE> 2
EXHIBIT 5.1
Acorn Products, Inc.
May 19, 1997
Page 2
Based upon the foregoing examination and in reliance thereon,
and subject to the assumptions stated and relying on statements of fact
contained in the documents that we have examined and subject to the completion
of the proceedings to be taken by the Company prior to the sale of the Shares,
it is our opinion that, when the Registration Statement has become effective
under the Securities Act and the shares have been issued and sold as
contemplated in the Registration Statement and duly delivered, the Shares will
be validly issued, fully paid and non-assessable.
We render no opinion herein as to matters involving the laws
of any jurisdiction other than the laws of the United States of America, the
laws of the State of New York and the General Corporation Law of the State of
Delaware. In rendering this opinion, we assume no obligation to revise or
supplement this opinion should current laws, or the interpretations thereof, be
changed.
We consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and the Prospectus which
forms a part thereof. In giving these consents, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), dated as of May ,
1997, by and among ACORN PRODUCTS, INC., a Delaware corporation ("Acorn"), and
UNIONTOOLS, INC., a Delaware corporation ("UnionTools" and, together, with
Acorn, the "Company"), and GABE MIHALY, an individual residing in the State of
Ohio (the "Executive").
W I T N E S S E T H
WHEREAS, the Executive wishes to continue to serve as
President and Chief Executive Officer of the Company and the Company wishes to
secure the services of the Executive under the terms described below.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants contained in this Agreement, the parties hereto agree as
follows:
1. Term of Employment. The Company hereby employs the Executive for a
term (the "Term") of five years commencing upon the date hereof, which Term
shall automatically be extended for, and include, successive one-year periods
thereafter unless written notice of non-renewal is provided at least 90 days, if
by the Executive, or one year, if by the Company, prior to the expiration of the
then current Term. In the event of non-renewal of the Term, the obligations and
covenants of the parties hereunder shall be of no further force and effect as of
the end of the Term, except those obligations which shall survive this Agreement
as set forth in Section 12, and except for vested fringe benefits and
compensation earned by the Executive pursuant to Section 3 up to the termination
date.
2. Duties of Executive. During the Term, the Executive shall perform
the duties of President of Acorn and President and Chief Executive Officer of
Union Tools. Subject to supervision by the Board of Directors of each such
corporation and by the Chief Executive Officer of Acorn, if other than the
Executive, the Executive shall have overall charge of the business affairs of
the Company, with the duties, responsibilities and authorities normally
associated with such position. The Executive also shall serve as a director of
Acorn and UnionTools and as an officer and/or director of one or more affiliates
and subsidiaries of Acorn and UnionTools (the "Subsidiaries") as Acorn's Board
of Directors shall request and shall be entitled to no additional remuneration
for such service.
During the Term, the Executive shall devote substantially all of his
business time and efforts to the business and affairs of the Company and will
not engage in any activity which interferes with the performance of his duties
hereunder.
<PAGE> 2
3. Compensation.
3.1 Base Salary. In consideration of the Executive's service
hereunder, the Company shall pay to the Executive an annual base salary of
$296,181 (the "Base Salary"). The Base Salary shall be payable in accordance
with the standard policies of the Company in existence from time to time,
subject to any deductions required by law.
Beginning on January 1, 1998, the Base Salary shall be
increased annually on January 1 of each year during the Term of this Agreement
by the Percentage Increase (as defined below) of the Consumer Price Index for
All Urban Consumers for All Cities for all items as published by the Bureau of
Labor Statistics of the United States Department of Labor (the "Index") for the
12 months ending immediately prior to such January 1. For purposes hereof,
"Percentage Increase" shall mean such percentage equal to the fraction, the
numerator of which shall be the Index for the immediately preceding December
less the Index for the second preceding December, and the denominator of which
shall be the Index for the second preceding December.
3.2 Bonus. In addition to the Base Salary, the Executive shall
be entitled to a cash bonus (the "Annual Cash Bonus") within three months after
the end of each fiscal year of the Company, with the amount thereof to be
determined at the discretion of the Board of Directors and payable in accordance
with the standard policies of the Company in existence from time to time,
subject to any deductions required by law.
In addition to the Annual Cash Bonus, if (i) the Executive is
employed by the Company on January 5, 1998, (ii) the Executive has died prior to
January 5, 1998 or (iii) the Executive's employment has been terminated, other
than by the Executive (except pursuant to Section 4.1(b) hereof) or pursuant to
Section 4.4 hereof, the Company shall pay to the Executive (or his estate or
personal representative, if applicable) on January 12, 1998 a cash bonus of
$260,000 (the "One-Time Cash Bonus"). The Annual Cash Bonus and the One-Time
Cash Bonus collectively are referred to herein as the "Bonuses".
3.3 Additional Benefits. In addition to the compensation
explicitly provided for herein, the Executive shall be entitled to such fringe
benefits as are made available generally to the senior executives of the
Company, including participation in such pension, group life, disability, health
and other similar benefit or insurance programs as are now or hereafter made
available generally to such executives, including any "top hat" pension program
which the Company may adopt for some or all of its senior executives during the
Term. Without limiting the foregoing, the Executive shall be entitled to a car
allowance in the amount of $750 per month and the Executive shall be entitled to
membership in one country or other social club selected by him and approved by
the Company. All benefits payable pursuant to this Section 3.3 are herein
referred to as the "Additional Benefits".
3.4 Expenses. The Executive shall be reimbursed by the Company
for all reasonable, out-of-pocket ordinary and necessary business expenses
incurred by the Executive for the purpose of and in connection with the
performance of the Executive's services hereunder. Such reimbursement shall be
made upon presentation of vouchers or other
2
<PAGE> 3
statements itemizing such expenses in reasonable detail consistent with the
Company's policies.
3.5. Vacation. The Executive shall be entitled to such amount
of paid vacation during each year as shall be afforded to the other senior
executives of the Company.
3.6. Life Insurance, Disability. The Company shall maintain
for the Executive during the Term a term life insurance policy of not less than
$750,000 and disability insurance providing benefits upon disability at least
equal to 70% of the Base Salary. The Executive shall be entitled to designate
the beneficiaries of such policies.
4. Termination of Employment.
4.1 Termination Without Cause; Resignation for Good Reason.
(a) Termination Without Cause. During the Term, the
Company may terminate this Agreement without Cause, effective upon the
occurrence of any of the following events:
(i) 30 days after written notice is
delivered to the Executive by the Company of the determination
of the permanent disability of the Executive, defined for
purposes of this subparagraph (a) as incapacity of the
Executive to fulfill his normal duties and responsibilities
hereunder for a period of 120 work days out of 150 consecutive
work days by reason of physical or mental disability as
determined by a medical doctor reasonably acceptable to both
the Board of Directors of Acorn and the Executive or his
personal representative and confirmed in writing by such
doctor, which confirmation shall be submitted to the Board of
Directors of Acorn and to the Executive or his personal
representative;
(ii) the death of the Executive; or
(iii) 60 days after written notice of
termination is delivered to the Executive by the Company for
any reason other than pursuant to subsections (a)(i) or
(a)(ii) of this Section or Section 4.4 hereof.
(b) Resignation for Good Reason. During the Term, the
Executive may terminate this Agreement for Good Reason 30 days after
written notice is delivered to the Company by the Executive. "Good
Reason" shall mean (i) a material adverse change or diminution in the
Executive's duties or responsibilities, offices, facilities, staff
assistance, fringe benefits or other indicia of the Executive's
position or (ii) any other material breach by the Company of its
obligations under this Agreement. "Good Reason" shall not include
relocation of the Executive's personal residence or office pursuant to
the relocation of the Company's executive offices from Columbus, Ohio.
3
<PAGE> 4
(c) Upon termination of this Agreement pursuant to
this Section 4.1, the obligations and covenants of the parties
hereunder shall be of no further force and effect, except those
obligations which shall survive this Agreement as set forth in Section
12 and except for the payment obligations of the Company set forth in
Section 4.2 below.
4.2 Payment Obligations of the Company upon Termination
Without Cause or Resignation for Good Reason. In the event of any termination of
this Agreement pursuant to Section 4.1 hereof, the Company shall be obligated to
the Executive as follows:
(a) In the event of termination pursuant to Section
4.1(a)(i) or (ii), the Executive or his estate, as the case may be,
shall be entitled to receive (i) all compensation and other benefits,
including, without limitation, the Base Salary, any Bonuses and
Additional Benefits to which the Executive is entitled through the date
of such termination and (ii) the Additional Benefits for a period of
one year after such termination. If, for any reason, the Company cannot
provide any such Additional Benefits, it shall pay to the Executive the
present value thereof in cash at an assumed per annum interest rate of
seven percent (7%).
(b) In the event of termination pursuant to Section
4.1(a)(iii) or (b), the Executive or his estate shall be entitled to
receive (i) all compensation and other benefits, including, without
limitation, the Base Salary, any Bonuses and Additional Benefits to
which the Executive is entitled through the date of such termination,
(ii) a lump sum payment, to be paid on the fifth day following the date
of termination of the Executive's employment, in an amount equal to all
Base Salary due the Executive through the Term and (iii) the Additional
Benefits for a period of one year after such termination. If, for any
reason, the Company cannot provide any such Additional Benefits, it
shall pay to the Executive the present value thereof in cash at an
assumed per annum interest rate of seven percent (7%).
(c) In the event of termination pursuant to Section
4.1(a)(iii) or (b) within two years following a Change of Control, the
Executive or his estate also shall be entitled to receive a lump sum
payment, to be paid on the fifth day following the date of termination
of the Executive's employment, in an amount equal to the difference
between (i) three times the highest aggregate annual compensation
(including salary, bonuses and incentive payments) includible in gross
income paid to the Executive during any one of the three taxable years
preceding the date of the Executive's termination minus (ii) the
compensation received by the Executive pursuant to clause (ii) of
Section 4.2(b).
For purposes of this Section 4.2, the following terms shall
have the following meanings:
"Affiliate" of any specified Person (as defined in Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
shall mean (i) any other Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control
4
<PAGE> 5
with such specified Person or (ii) any Person who is a director or officer (a)
of such Person, (b) of any subsidiary of such Person or (c) of any Person
described in clause (i) above. For purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meaning correlative to the foregoing.
A "Change of Control" occurs upon any of the following events:
(i) the acquisition by any Person (as defined in Section 13(d) of the Exchange
Act), other than TCW or Oaktree, of beneficial ownership (as defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except such Person shall be deemed
to have "beneficial ownership" of all securities that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time) of securities of the Company (a) having 25% or more of the
total voting power of the then outstanding voting securities of the Company and
(b) having more voting power than the securities of the Company beneficially
owned by Oaktree; (ii) during any 12 month period, a change in the Board of
Directors of Acorn occurs such that Incumbent Members (as defined below) do not
constitute a majority of the Board of Directors of Acorn; (iii) a sale of all or
substantially all of the assets of Acorn or UnionTools; or (iv) the consummation
of a merger or consolidation of the Company with any other Person, provided,
however, that no Change of Control shall have occurred pursuant to this clause
(iv) if (A) after such merger or consolidation the voting securities of Acorn
prior to such merger or consolidation continue to represent more than 50% of the
combined voting power of such Person or (B) if such merger or consolidation does
not result in a material change in the beneficial ownership of Acorn's voting
securities.
"Incumbent Members" shall mean the members of the Board of
Directors of Acorn on the date immediately preceding the commencement of a
twelve-month period, provided that any person becoming a Director during such
twelve-month period whose election or nomination for election was approved by a
majority of the Directors who, on the date of such election or nomination for
election, comprised the Incumbent Members shall be considered one of the
Incumbent Members in respect of such twelve-month period.
"Oaktree" shall mean Oaktree Capital Management, LLC and its
Affiliates, including any partnerships, separate accounts or other entities
managed by Oaktree.
"TCW" shall mean: TCW Special Credits Plus Fund; TCW Special
Credits Fund III; TCW Special Credits Fund IIIb; TCW Special Credits Fund IV;
TCW Special Credits Trust; TCW Special Credits Trust IIIb; TCW Special Credits
Trust IV; TCW Special Credits Trust IVa; TCW Special Credits, as investment
manager of Delaware State Employees' Retirement Fund, Weyerhaeuser Company
Pension Trust and The Common Fund for Bond Investments; and any of their
respective Affiliates.
4.3 Payment Obligations of the Company Upon Non-Renewal of the
Agreement. If the Company provides the Executive with notice of non-renewal
pursuant to Section 1 hereof, the Executive shall be entitled to receive a lump
sum payment, to be paid on the fifth day following the expiration of the Term,
in an amount equal to the Executive's then-
5
<PAGE> 6
current Base Salary; provided, however, that if this Agreement subsequently is
terminated pursuant to Section 4.1(a)(iii) or 4.1(b), the Company shall also be
obligated to make payments to the Executive pursuant to Section 4.2(b).
4.4 Termination for Cause. During the Term, this Agreement may
be terminated for Cause effective upon receipt by the Executive of the Company's
written notice specifying a valid basis for termination of the Executive for
Cause. "Cause" shall mean:
(a) the Executive's criminal conviction for fraud,
embezzlement, misappropriation of assets or any other felony (excluding
traffic violations); or
(b) the continuance of willful and repeated failures
by the Executive to perform his obligations under this Agreement which
have not been cured by the Executive within thirty (30) days following
receipt of written notice from the Board of Directors of Acorn
specifying such failure and the action required by the Executive to
cure such breach of his obligations hereunder.
Upon termination of this Agreement by the Company for
Cause, the obligations and covenants of the parties hereunder shall be
of no further force and effect, except those obligations which shall
survive this Agreement as set forth in Section 12, and except for
vested fringe benefits and compensation earned by the Executive
pursuant to Section 3 up to the termination date.
5. Pension Plans. The Executive shall participate in the pension plans
of the Company for purposes of receiving the pension benefits contemplated by
Section 3.5. For purposes of calculating years of service, vesting, benefit
accrual and other terms under such plans and any other plans in which the
Executive is eligible to participate pursuant to Section 3.5, the Executive
shall be deemed to have been employed by Union Tools since June 1, 1991 and, if
terminated pursuant to Sections 4.1(a) or 4.1(b), the Executive shall receive
credit for the period of time corresponding to the remainder of the Term, for
such purposes to be not less than three years from the date of such termination.
To the extent the Company is not able by the terms of such plans to
extend or continue participation by the Executive under such plans in accordance
with this Section 5, whether because of the sale of Union Tools, termination of
the employment of the Executive or otherwise, the Company shall provide on a
supplemental basis benefits equal to the additional amounts which the Executive
would have received under such plans if participation had been extended as
required.
6. Non-Competition; Confidentiality.
6.1 Non-Competition. At all times during the Term, and for a
period of (a) one year thereafter in the event of termination of this Agreement
by the Company pursuant to Section 4.4 hereof or termination of this Agreement
by the Executive before the end of the Term or (b) six months thereafter in the
event of non-renewal of the term of this Agreement at
6
<PAGE> 7
the election of the Executive, the Executive shall not commit any Prohibited
Acts (as defined in Section 6.2 below).
For purposes of this Section 6.1, the following terms shall
have the following meanings:
"Direct Competitor" shall mean any company which is or becomes
a significant and direct competitor of Acorn, UnionTools or the Subsidiaries on
or after the date of this Agreement. A company will be considered a significant
and direct competitor of Acorn, UnionTools or the Subsidiaries if such company
acquires a 10% or greater market share in the United States of any product
category which accounts for 10% or more of the revenue of Acorn, UnionTools and
the Subsidiaries on a consolidated basis in any of the last three fiscal years.
"Prohibited Acts" shall mean owning, managing, operating,
controlling or participating in the ownership, management, operation or control
of, or being connected as an officer, employee, partner, director, agent or
consultant of, or having any financial interest in, any Direct Competitor.
6.2 De Minimis Stock Ownership. Notwithstanding any other
provisions of this Section 6, ownership of five percent (5%) or less of any
class of voting securities of a company listed on a nationally recognized stock
exchange or for which prices are quoted on the NASDAQ National Market shall not
constitute a violation hereof.
6.3 Confidentiality. The Executive agrees, at all times during
and after the Executive's employment hereunder, to hold in strictest confidence,
and not to disclose to any person, firm or corporation, without the express
written authorization of the Board of Directors of Acorn, any trade secrets,
such as inventions, processes, formulae, programs, data, any financial
information or any secret or confidential information relating to the research
and development program, products, vendor and marketing programs, customers,
customers' information, sales or business of the Company, except as such
disclosure or use may be required in connection with his work for the Company or
is published or otherwise readily available to the public or becomes known to
the public other than by breach by him of this Agreement.
The Executive further agrees, upon termination of this
Agreement, to promptly deliver to the Company all notes, books, engineering
records, correspondence, drawings, magnetic tape, punch cards, computer storage
information or media, and any and all other written and graphical records in his
possession or under his control relating to the past, present or future
business, products, or projects of the Company.
6.4 Remedies. It is recognized that damages in the event of
breach by the Executive of this Section 6 would be difficult, if not impossible,
to ascertain, and it is therefore agreed that the Company, in addition to and
without limiting any other remedy or right it may have, shall have the right to
an injunction or other equitable relief, in any court of competent jurisdiction,
enjoining any such breach, and the Executive hereby waives any and
7
<PAGE> 8
all defenses he may have on the ground of lack of jurisdiction or competence of
the court to grant such an injunction or other equitable relief. The existence
of this right shall not preclude or impair any other rights and remedies at law
or in equity that the Company may have.
7. Indemnification. The Company will indemnify the Executive against
all costs, charges and expenses (including reasonable attorneys' fees) incurred
or sustained by him in connection with any claim, action, suit or proceeding to
which he may be made a party by reason of his being an officer, director or
employee of the Company or the Subsidiaries, provided the Executive acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was illegal. In
addition, the Company shall indemnify the Executive for all costs, including
reasonable attorneys' fees, incurred by the Executive in connection with any
successful action by the Executive to enforce or otherwise determine or insure
compliance by the Company with the terms of this Agreement.
8. Certain Additional Payments by the Employers. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, collectively, the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (the "Excise Tax
Payment") in an amount equal to the Excise Tax imposed upon the Payment and any
additional payments made pursuant to this Section 8.
9. Assignability; Binding Nature.
(a) This Agreement shall inure to the benefit of the
Company and the Executive and their respective successors, heirs (in
the case of the Executive) and assigns. For purposes of this Agreement,
the term "successor" of the Company shall include any person or entity,
whether direct or indirect, whether by purchase, merger, consolidation,
operation of law, assignment or otherwise who acquires or controls all
or substantially all of the assets of Acorn or UnionTools.
(b) The Company shall require any successor of the
Company, by an agreement in form and substance reasonably satisfactory
to the Executive, to expressly assume and agree to be bound by the
terms of this Agreement in the same manner and to the same extent that
the Company would be required to perform if no succession had occurred.
The Company shall be in material breach of this Agreement if any such
successor fails to expressly assume or otherwise agree to guaranty
performance of this Agreement to the extent the Company was obligated
prior to any succession.
8
<PAGE> 9
(c) Except as expressly stated in Section 9(a) above,
this Agreement shall be non-assignable by either the Company or the
Executive without the prior written consent of all parties hereto.
10. Notices. Any notice hereunder shall be properly given if by
personal delivery or registered or certified mail, return receipt requested, as
follows:
If to Executive, at his address as it appears on the payroll records of
Union Tools.
If to the Company to:
Acorn Products, Inc.
500 Dublin Avenue
Columbus, Ohio 43216
Attention: President
with a copy to:
Conor D. Reilly, Esq.
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, N.Y. 10166-0193
or to such other addresses as the parties may designate in writing.
11. Integration; Modification. Except for the letter agreement, dated
as of the date hereof, among Acorn, UnionTools and the Executive, this Agreement
shall supersede all previous negotiations, commitments and writings with respect
to the employment of the Executive. This Agreement may not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing signed on behalf of each of the parties hereto. The
failure of any party hereto to enforce at any time any of the provisions of this
Agreement shall in no way be construed to be a waiver of any such provisions,
nor in any way to affect the validity of this Agreement or the right of any
party thereafter to enforce each and every such provisions. No waiver of any
breach of this Agreement shall be held to be a waiver of any other or subsequent
breach.
12. Survival of Certain Obligations. Except as otherwise specifically
provided for herein, the obligations of the parties pursuant to Sections 3.3,
3.4, 4.2, 6, 7, 8 and this Section 12 shall survive the termination of this
Agreement.
13. Severability. If any term or provisions of this Agreement is
declared invalid by a court of competent jurisdiction the remaining terms and
provisions of this Agreement shall remain unimpaired. If any term or provisions
of Section 6 of this Agreement, or portion thereof, is so broad in scope or
duration as to be unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
9
<PAGE> 10
14. Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and as a reference and in no way define, limit
or describe the scope or intent of this Agreement or any of the provisions
hereof.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York without
giving effect to any choice or conflict of laws provisions or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE> 11
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.
ACORN PRODUCTS, INC.
By: ____________________________________
Name:
Title:
UNION TOOLS, INC.
By: ____________________________________
Name:
Title:
________________________________________
Gabe Mihaly
11
<PAGE> 1
EXHIBIT 10.2.1
EMPLOYEE SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of May , 1997 among
Acorn Products, Inc., a Delaware corporation ("Acorn"), UnionTools, Inc., a
Delaware corporation ("UnionTools" and together with Acorn, the "Company") and
James B. Farland (the "Executive").
R E C I T A L S
As an inducement to the Executive to remain in the employ of the
Company, the Company has agreed to provide certain severance benefits and, under
certain circumstances, to make certain bonus payments to the Executive as
specifically set forth herein.
Notwithstanding anything in this Agreement to the contrary, the
Executive shall remain an employee-at-will hereafter. Accordingly, the Executive
may be discharged or may resign for any or no reason, and the rights of the
Executive and the Company upon any such termination of the Executive's
employment shall be as set forth herein.
NOW THEREFORE, the parties hereby agree as follows:
1. Severance.
(a) Severance Events. The Executive shall be entitled to the Severance
Payment set forth in Section 1(c) upon the termination of the Executive's
employment with the Company by either the Executive or the Company in the
following circumstances:
(i) resignation by the Executive for Good Reason; or
(ii) termination of the Executive's employment by the Company
other than for Cause.
The date of the termination of the Executive's employment in such instances
shall be fifteen (15) business days after the date written notice of resignation
is tendered by the Executive to the Company or written notice of termination is
tendered by the Company to the Executive, as applicable. Any such notice shall
specify with reasonable particularity the basis for resignation or termination
hereunder.
(b) Cause; Good Reason. As used in this agreement, the following terms
shall have the meanings set forth below:
(i) "Cause" shall mean (x) the Executive's criminal conviction
for fraud, embezzlement, misappropriation of assets or any other felony
(excluding traffic violations) or (y) the continuance of willful and
repeated failures by the Executive to perform the duties assigned to
him as an employee of the Company, which failures have not been cured
by the Executive within thirty (30) days following receipt of written
notice from the Board
<PAGE> 2
of Directors of Acorn or UnionTools, as applicable, specifying such failure and
the action required by the Executive to cure such breach of his obligations.
(ii) "Good Reason" shall mean, without the written consent of
the Executive, (A) a material adverse change or diminution in the
Executive's duties or responsibilities, offices, reporting
responsibilities, facilities, staff assistance, fringe benefits or
other indicia of the Executive's position substantially as set forth on
Annex A hereto (as the same may from time to time be modified with the
written consent of the Company and the Executive) or (B) material
breach by the Company of its duties to the Executive, including timely
payment of compensation, provision of benefits and reimbursement of
expenses, in keeping with past practice. "Good Reason" shall not
include relocation of the Executive's personal residence or office
pursuant to the relocation of the Company's executive offices from
Columbus, Ohio.
(c) Severance Payments. If the Executive is entitled to a payment
pursuant to this Section 1, then the Company shall pay to the Executive as a
Severance Payment in a lump sum, on the fifth day following the date of
termination of the Executive's employment, an amount equal to the highest
aggregate annual compensation (including salary, bonuses and incentive payments)
includible in gross income paid to the Executive during any one of the three
taxable years preceding the date of the Executive's termination, such amount to
be subject to adjustment pursuant to Section 3(c).
2. Change of Control.
(a) Change of Control Events. If the Executive's employment with the
Company is terminated by either the Executive or the Company in accordance with
Section 1(a) of this Agreement within two years after a Change of Control, in
addition to the severance payment provided in Section 1(c), the Executive also
shall be entitled to the Change of Control Payment provided in Section 2(c).
(b) Change of Control. A "Change of Control" occurs upon any of the
following events: (i) the acquisition by any Person (as defined in Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other
than TCW or Oaktree, of beneficial ownership (as defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except such Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) of securities of Acorn (a) having 25% or more of the total voting power
of the then outstanding voting securities of Acorn and (b) having more voting
power than the securities of Acorn beneficially owned by Oaktree; (ii) during
any twelve month period, a change in the Board of Directors of Acorn occurs such
that Incumbent Members do not constitute a majority of the Board of Directors of
Acorn; (iii) a sale of all or substantially all of the assets of Acorn or
UnionTools; or (iv) the consummation of a merger or consolidation of Acorn with
any other Person, provided, however, that no Change of Control shall have
occurred pursuant to this clause (iv) if (A) after such merger or consolidation
the voting securities of Acorn prior to such merger or consolidation continue to
represent more than 50% of the combined voting power of such
2
<PAGE> 3
Person or (B) if such merger or consolidation does not result in a material
change in the beneficial ownership of Acorn's voting securities.
For purposes of this Section 2, the following terms shall have the
following meanings:
"Affiliate" of any specified Person (as defined in Section 13(d) of the
Exchange Act) shall mean (i) any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with
such specified Person or (ii) any Person who is a director or officer (a) of
such Person, (b) of any subsidiary of such Person or (c) of any Person described
in clause (i) above. For purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meaning correlative to the foregoing.
"Incumbent Members" shall mean the members of the Board of Directors of
Acorn on the date immediately preceding the commencement of a twelve-month
period, provided that any person becoming a Director during such twelve-month
period whose election or nomination for election was approved by a majority of
the Directors who, on the date of such election or nomination for election,
comprised the Incumbent Members shall be considered one of the Incumbent Members
in respect of such twelve-month period.
"Oaktree" shall mean Oaktree Capital Management, LLC and its
Affiliates, including any partnerships, separate accounts or other entities
managed by Oaktree.
"TCW" shall mean: TCW Special Credits Plus Fund; TCW Special Credits
Fund III; TCW Special Credits Fund IIIb; TCW Special Credits Fund IV; TCW
Special Credits Trust; TCW Special Credits Trust IIIb; TCW Special Credits Trust
IV; TCW Special Credits Trust IVa; TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund, Weyerhaeuser Company Pension Trust
and The Common Fund for Bond Investments; and any of their respective
Affiliates.
(c) Change of Control Payment. If the Executive is entitled to a
payment pursuant to this Section 2, then the Company shall pay to the Executive
as a Change of Control Payment in a lump sum, on the fifth day following the
date of termination of the Executive's employment, an amount equal to two times
the highest aggregate annual compensation (including salary, bonuses and
incentive payments) includible in gross income paid to the Executive during any
one of the three taxable years preceding the date of the Executive's
termination, such amount to be subject to adjustment pursuant to Subsection
3(c).
3. Additional Payment Terms.
(a) No Reduction. The Executive shall not be required to mitigate
damages or the amount of any payment provided for under Section 1(c) or Section
2(c) by seeking other employment or otherwise, nor shall the amount of any
payment provided for under Section 1(c) or Section 2(c) be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date of termination or otherwise.
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<PAGE> 4
(b) Indemnification. The Company shall indemnify the Executive for all
costs, including reasonable attorneys' fees, incurred by the Executive in
connection with any successful action by the Executive to enforce or otherwise
determine or ensure compliance by the Company with the terms of this Agreement.
(c) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement (a "Payment"), would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended, or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest and penalties,
collectively, the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (the "Excise Tax Payment") in an
amount equal to the Excise Tax imposed upon the Payment and any
additional payments made pursuant to this Section 3(c).
(ii) If, within two years after the Executive resigns for Good
Reason or his employment is terminated by the Company other than for
Cause, the Executive obtains employment from any person or entity other
than the Company and as a result thereof is required to relocate to a
city outside of the greater metropolitan area in which the Executive's
principal residence was located at the time of such termination (and
remains so located at the time such employment is obtained), then the
Company shall be obligated to pay all reasonable relocation expenses
(upon presentation of proper receipts therefor) directly incurred by
the Executive in connection with such relocation in accordance with the
Company's policies currently then in effect (the "Relocation Payment").
The Executive shall be entitled to the Relocation Payment, if
applicable, only in connection with the first full-time employment
obtained by the Executive following the termination of his employment
with the Company.
4. Miscellaneous.
(a) Assignability; Binding Nature.
(i) This Agreement shall inure to the benefit of the Company
and the Executive and their respective successors, heirs (in the case
of the Executive) and assigns. For purposes of this Agreement, the term
"successor" of the Company shall include any person or entity, whether
direct or indirect, whether by purchase, merger, consolidation,
operation of law, assignment or otherwise who acquires or controls all
or substantially all of the assets of Acorn or UnionTools.
(ii) The Company shall require any successor of the Company,
by an agreement in form and substance reasonably satisfactory to the
Executive, to expressly assume and agree to be bound by the terms of
this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had occurred.
4
<PAGE> 5
The Company shall be in material breach of this Agreement if any such
successor fails to expressly assume or otherwise agree to guaranty
performance of this Agreement to the extent the Company was obligated
prior to any succession.
(iii) Except as expressly stated in Section 4(a) above, this
Agreement shall be non-assignable by either the Company or the
Executive without the prior written consent of all parties hereto.
(b) Notices. Any notice hereunder shall be properly given if by
personal delivery or registered or certified mail, return receipt requested, as
follows:
If to the Executive, at his address as it appears on the payroll
records of the Company.
If to the Company, to:
Acorn Products, Inc.
500 Dublin Ave.
Columbus, Ohio 43216-1930
Attention: President
or to such other addresses as the parties may designate in writing.
(c) Integration; Modification. This Agreement shall supersede all
previous negotiations, commitments and writings with respect to the employment
of the Executive. This Agreement may not be released, discharged, abandoned,
changed or modified in any manner, except by an instrument in writing signed on
behalf of each of the parties hereto. The failure of either party hereto to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provisions, nor in any way to affect the
validity of this Agreement or the right of either party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
(d) Severability. If any term or provision of this Agreement is
declared invalid by a court of competent jurisdiction, the remaining terms and
provisions of this Agreement shall remain unimpaired.
(e) Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and as a reference and in no way define, limit
or describe the scope or intent of this Agreement or any of other provisions
hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
5
<PAGE> 6
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
EXECUTIVE
________________________________________
Name: James B. Farland
ACORN PRODUCTS, INC.
By: ___________________________________
Name:
Title:
UNIONTOOLS, INC.
By: ___________________________________
Name:
Title:
7
<PAGE> 1
EXHIBIT 10.2.2
EMPLOYEE SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of May , 1997 among
Acorn Products, Inc., a Delaware corporation ("Acorn"), UnionTools, Inc., a
Delaware corporation ("UnionTools" and together with Acorn, the "Company") and
Thomas A. Hyrb (the "Executive").
R E C I T A L S
As an inducement to the Executive to remain in the employ of the
Company, the Company has agreed to provide certain severance benefits and, under
certain circumstances, to make certain bonus payments to the Executive as
specifically set forth herein.
Notwithstanding anything in this Agreement to the contrary, the
Executive shall remain an employee-at-will hereafter. Accordingly, the Executive
may be discharged or may resign for any or no reason, and the rights of the
Executive and the Company upon any such termination of the Executive's
employment shall be as set forth herein.
NOW THEREFORE, the parties hereby agree as follows:
1. Severance.
(a) Severance Events. The Executive shall be entitled to the Severance
Payment set forth in Section 1(c) upon the termination of the Executive's
employment with the Company by either the Executive or the Company in the
following circumstances:
(i) resignation by the Executive for Good Reason; or
(ii) termination of the Executive's employment by the Company
other than for Cause.
The date of the termination of the Executive's employment in such instances
shall be fifteen (15) business days after the date written notice of resignation
is tendered by the Executive to the Company or written notice of termination is
tendered by the Company to the Executive, as applicable. Any such notice shall
specify with reasonable particularity the basis for resignation or termination
hereunder.
(b) Cause; Good Reason. As used in this agreement, the following terms
shall have the meanings set forth below:
(i) "Cause" shall mean (x) the Executive's criminal conviction
for fraud, embezzlement, misappropriation of assets or any other felony
(excluding traffic violations) or (y) the continuance of willful and
repeated failures by the Executive to perform the duties assigned to
him as an employee of the Company, which failures have not been cured
by the Executive within thirty (30) days following receipt of written
notice from the Board
<PAGE> 2
of Directors of Acorn or UnionTools, as applicable, specifying such failure and
the action required by the Executive to cure such breach of his obligations.
(ii) "Good Reason" shall mean, without the written consent of
the Executive, (A) a material adverse change or diminution in the
Executive's duties or responsibilities, offices, reporting
responsibilities, facilities, staff assistance, fringe benefits or
other indicia of the Executive's position substantially as set forth on
Annex A hereto (as the same may from time to time be modified with the
written consent of the Company and the Executive) or (B) material
breach by the Company of its duties to the Executive, including timely
payment of compensation, provision of benefits and reimbursement of
expenses, in keeping with past practice. "Good Reason" shall not
include relocation of the Executive's personal residence or office
pursuant to the relocation of the Company's executive offices from
Columbus, Ohio.
(c) Severance Payments. If the Executive is entitled to a payment
pursuant to this Section 1, then the Company shall pay to the Executive as a
Severance Payment in a lump sum, on the fifth day following the date of
termination of the Executive's employment, an amount equal to the highest
aggregate annual compensation (including salary, bonuses and incentive payments)
includible in gross income paid to the Executive during any one of the three
taxable years preceding the date of the Executive's termination, such amount to
be subject to adjustment pursuant to Section 3(c).
2. Change of Control.
(a) Change of Control Events. If the Executive's employment with the
Company is terminated by either the Executive or the Company in accordance with
Section 1(a) of this Agreement within two years after a Change of Control, in
addition to the severance payment provided in Section 1(c), the Executive also
shall be entitled to the Change of Control Payment provided in Section 2(c).
(b) Change of Control. A "Change of Control" occurs upon any of the
following events: (i) the acquisition by any Person (as defined in Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other
than TCW or Oaktree, of beneficial ownership (as defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except such Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) of securities of Acorn (a) having 25% or more of the total voting power
of the then outstanding voting securities of Acorn and (b) having more voting
power than the securities of Acorn beneficially owned by Oaktree; (ii) during
any twelve month period, a change in the Board of Directors of Acorn occurs such
that Incumbent Members do not constitute a majority of the Board of Directors of
Acorn; (iii) a sale of all or substantially all of the assets of Acorn or
UnionTools; or (iv) the consummation of a merger or consolidation of Acorn with
any other Person, provided, however, that no Change of Control shall have
occurred pursuant to this clause (iv) if (A) after such merger or consolidation
the voting securities of Acorn prior to such merger or consolidation continue to
represent more than 50% of the combined voting power of such
2
<PAGE> 3
Person or (B) if such merger or consolidation does not result in a material
change in the beneficial ownership of Acorn's voting securities.
For purposes of this Section 2, the following terms shall have the
following meanings:
"Affiliate" of any specified Person (as defined in Section 13(d) of the
Exchange Act) shall mean (i) any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with
such specified Person or (ii) any Person who is a director or officer (a) of
such Person, (b) of any subsidiary of such Person or (c) of any Person described
in clause (i) above. For purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meaning correlative to the foregoing.
"Incumbent Members" shall mean the members of the Board of Directors of
Acorn on the date immediately preceding the commencement of a twelve-month
period, provided that any person becoming a Director during such twelve-month
period whose election or nomination for election was approved by a majority of
the Directors who, on the date of such election or nomination for election,
comprised the Incumbent Members shall be considered one of the Incumbent Members
in respect of such twelve-month period.
"Oaktree" shall mean Oaktree Capital Management, LLC and its
Affiliates, including any partnerships, separate accounts or other entities
managed by Oaktree.
"TCW" shall mean: TCW Special Credits Plus Fund; TCW Special Credits
Fund III; TCW Special Credits Fund IIIb; TCW Special Credits Fund IV; TCW
Special Credits Trust; TCW Special Credits Trust IIIb; TCW Special Credits Trust
IV; TCW Special Credits Trust IVa; TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund, Weyerhaeuser Company Pension Trust
and The Common Fund for Bond Investments; and any of their respective
Affiliates.
(c) Change of Control Payment. If the Executive is entitled to a
payment pursuant to this Section 2, then the Company shall pay to the Executive
as a Change of Control Payment in a lump sum, on the fifth day following the
date of termination of the Executive's employment, an amount equal to two times
the highest aggregate annual compensation (including salary, bonuses and
incentive payments) includible in gross income paid to the Executive during any
one of the three taxable years preceding the date of the Executive's
termination, such amount to be subject to adjustment pursuant to Subsection
3(c).
3. Additional Payment Terms.
(a) No Reduction. The Executive shall not be required to mitigate
damages or the amount of any payment provided for under Section 1(c) or Section
2(c) by seeking other employment or otherwise, nor shall the amount of any
payment provided for under Section 1(c) or Section 2(c) be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date of termination or otherwise.
3
<PAGE> 4
(b) Indemnification. The Company shall indemnify the Executive for all
costs, including reasonable attorneys' fees, incurred by the Executive in
connection with any successful action by the Executive to enforce or otherwise
determine or ensure compliance by the Company with the terms of this Agreement.
(c) Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, collectively, the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (the "Excise Tax
Payment") in an amount equal to the Excise Tax imposed upon the Payment and any
additional payments made pursuant to this Section 3(c).
4. Miscellaneous.
(a) Assignability; Binding Nature.
(i) This Agreement shall inure to the benefit of the Company
and the Executive and their respective successors, heirs (in the case
of the Executive) and assigns. For purposes of this Agreement, the term
"successor" of the Company shall include any person or entity, whether
direct or indirect, whether by purchase, merger, consolidation,
operation of law, assignment or otherwise who acquires or controls all
or substantially all of the assets of Acorn or UnionTools.
(ii) The Company shall require any successor of the Company,
by an agreement in form and substance reasonably satisfactory to the
Executive, to expressly assume and agree to be bound by the terms of
this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had occurred. The
Company shall be in material breach of this Agreement if any such
successor fails to expressly assume or otherwise agree to guaranty
performance of this Agreement to the extent the Company was obligated
prior to any succession.
(iii) Except as expressly stated in Section 4(a) above, this
Agreement shall be non-assignable by either the Company or the
Executive without the prior written consent of all parties hereto.
(b) Notices. Any notice hereunder shall be properly given if by
personal delivery or registered or certified mail, return receipt requested, as
follows:
If to the Executive, at his address as it appears on the payroll
records of the Company.
If to the Company, to:
Acorn Products, Inc.
4
<PAGE> 5
500 Dublin Ave.
Columbus, Ohio 43216-1930
Attention: President
or to such other addresses as the parties may designate in writing.
(c) Integration; Modification. This Agreement shall supersede all
previous negotiations, commitments and writings with respect to the employment
of the Executive. This Agreement may not be released, discharged, abandoned,
changed or modified in any manner, except by an instrument in writing signed on
behalf of each of the parties hereto. The failure of either party hereto to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provisions, nor in any way to affect the
validity of this Agreement or the right of either party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
(d) Severability. If any term or provision of this Agreement is
declared invalid by a court of competent jurisdiction, the remaining terms and
provisions of this Agreement shall remain unimpaired.
(e) Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and as a reference and in no way define, limit
or describe the scope or intent of this Agreement or any of other provisions
hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 6
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
EXECUTIVE
________________________________________
Name: Thomas A. Hyrb
ACORN PRODUCTS, INC.
By: ___________________________________
Name:
Title:
UNIONTOOLS, INC.
By: ____________________________________
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.2.3
EMPLOYEE SEVERANCE AGREEMENT
THIS AGREEMENT is made and entered into as of May , 1997 among
Acorn Products, Inc., a Delaware corporation ("Acorn"), UnionTools, Inc., a
Delaware corporation ("UnionTools" and together with Acorn, the "Company") and
Stephen M. Kasprisin (the "Executive").
R E C I T A L S
As an inducement to the Executive to remain in the employ of the
Company, the Company has agreed to provide certain severance benefits and, under
certain circumstances, to make certain bonus payments to the Executive as
specifically set forth herein.
Notwithstanding anything in this Agreement to the contrary, the
Executive shall remain an employee-at-will hereafter. Accordingly, the Executive
may be discharged or may resign for any or no reason, and the rights of the
Executive and the Company upon any such termination of the Executive's
employment shall be as set forth herein.
NOW THEREFORE, the parties hereby agree as follows:
1. Severance.
(a) Severance Events. The Executive shall be entitled to the Severance
Payment set forth in Section 1(c) upon the termination of the Executive's
employment with the Company by either the Executive or the Company in the
following circumstances:
(i) resignation by the Executive for Good Reason; or
(ii) termination of the Executive's employment by the Company
other than for Cause.
The date of the termination of the Executive's employment in such instances
shall be fifteen (15) business days after the date written notice of resignation
is tendered by the Executive to the Company or written notice of termination is
tendered by the Company to the Executive, as applicable. Any such notice shall
specify with reasonable particularity the basis for resignation or termination
hereunder.
(b) Cause; Good Reason. As used in this agreement, the following terms
shall have the meanings set forth below:
(i) "Cause" shall mean (x) the Executive's criminal conviction
for fraud, embezzlement, misappropriation of assets or any other felony
(excluding traffic violations) or (y) the continuance of willful and
repeated failures by the Executive to perform the duties assigned to
him as an employee of the Company, which failures have not been cured
by the Executive within thirty (30) days following receipt of written
notice from the Board
<PAGE> 2
of Directors of Acorn or UnionTools, as applicable, specifying such failure and
the action required by the Executive to cure such breach of his obligations.
(ii) "Good Reason" shall mean, without the written consent of
the Executive, (A) a material adverse change or diminution in the
Executive's duties or responsibilities, offices, reporting
responsibilities, facilities, staff assistance, fringe benefits or
other indicia of the Executive's position substantially as set forth on
Annex A hereto (as the same may from time to time be modified with the
written consent of the Company and the Executive) or (B) material
breach by the Company of its duties to the Executive, including timely
payment of compensation, provision of benefits and reimbursement of
expenses, in keeping with past practice. "Good Reason" shall not
include relocation of the Executive's personal residence or office
pursuant to the relocation of the Company's executive offices from
Columbus, Ohio.
(c) Severance Payments. If the Executive is entitled to a payment
pursuant to this Section 1, then the Company shall pay to the Executive as a
Severance Payment in a lump sum, on the fifth day following the date of
termination of the Executive's employment, an amount equal to the highest
aggregate annual compensation (including salary, bonuses and incentive payments)
includible in gross income paid to the Executive during any one of the three
taxable years preceding the date of the Executive's termination, such amount to
be subject to adjustment pursuant to Section 3(c).
2. Change of Control.
(a) Change of Control Events. If the Executive's employment with the
Company is terminated by either the Executive or the Company in accordance with
Section 1(a) of this Agreement within two years after a Change of Control, in
addition to the severance payment provided in Section 1(c), the Executive also
shall be entitled to the Change of Control Payment provided in Section 2(c).
(b) Change of Control. A "Change of Control" occurs upon any of the
following events: (i) the acquisition by any Person (as defined in Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other
than TCW or Oaktree, of beneficial ownership (as defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except such Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time) of securities of Acorn (a) having 25% or more of the total voting power
of the then outstanding voting securities of Acorn and (b) having more voting
power than the securities of Acorn beneficially owned by Oaktree; (ii) during
any twelve month period, a change in the Board of Directors of Acorn occurs such
that Incumbent Members do not constitute a majority of the Board of Directors of
Acorn; (iii) a sale of all or substantially all of the assets of Acorn or
UnionTools; or (iv) the consummation of a merger or consolidation of Acorn with
any other Person, provided, however, that no Change of Control shall have
occurred pursuant to this clause (iv) if (A) after such merger or consolidation
the voting securities of Acorn prior to such merger or consolidation continue to
represent more than 50% of the combined voting power of such
2
<PAGE> 3
Person or (B) if such merger or consolidation does not result in a material
change in the beneficial ownership of Acorn's voting securities.
For purposes of this Section 2, the following terms shall have the
following meanings:
"Affiliate" of any specified Person (as defined in Section 13(d) of the
Exchange Act) shall mean (i) any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with
such specified Person or (ii) any Person who is a director or officer (a) of
such Person, (b) of any subsidiary of such Person or (c) of any Person described
in clause (i) above. For purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meaning correlative to the foregoing.
"Incumbent Members" shall mean the members of the Board of Directors of
Acorn on the date immediately preceding the commencement of a twelve-month
period, provided that any person becoming a Director during such twelve-month
period whose election or nomination for election was approved by a majority of
the Directors who, on the date of such election or nomination for election,
comprised the Incumbent Members shall be considered one of the Incumbent Members
in respect of such twelve-month period.
"Oaktree" shall mean Oaktree Capital Management, LLC and its
Affiliates, including any partnerships, separate accounts or other entities
managed by Oaktree.
"TCW" shall mean: TCW Special Credits Plus Fund; TCW Special Credits
Fund III; TCW Special Credits Fund IIIb; TCW Special Credits Fund IV; TCW
Special Credits Trust; TCW Special Credits Trust IIIb; TCW Special Credits Trust
IV; TCW Special Credits Trust IVa; TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund, Weyerhaeuser Company Pension Trust
and The Common Fund for Bond Investments; and any of their respective
Affiliates.
(c) Change of Control Payment. If the Executive is entitled to a
payment pursuant to this Section 2, then the Company shall pay to the Executive
as a Change of Control Payment in a lump sum, on the fifth day following the
date of termination of the Executive's employment, an amount equal to two times
the highest aggregate annual compensation (including salary, bonuses and
incentive payments) includible in gross income paid to the Executive during any
one of the three taxable years preceding the date of the Executive's
termination, such amount to be subject to adjustment pursuant to Subsection
3(c).
3. Additional Payment Terms.
(a) No Reduction. The Executive shall not be required to mitigate
damages or the amount of any payment provided for under Section 1(c) or Section
2(c) by seeking other employment or otherwise, nor shall the amount of any
payment provided for under Section 1(c) or Section 2(c) be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the date of termination or otherwise.
3
<PAGE> 4
(b) Indemnification. The Company shall indemnify the Executive for all
costs, including reasonable attorneys' fees, incurred by the Executive in
connection with any successful action by the Executive to enforce or otherwise
determine or ensure compliance by the Company with the terms of this Agreement.
(c) Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, collectively, the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (the "Excise Tax
Payment") in an amount equal to the Excise Tax imposed upon the Payment and any
additional payments made pursuant to this Section 3(c).
4. Miscellaneous.
(a) Assignability; Binding Nature.
(i) This Agreement shall inure to the benefit of the Company
and the Executive and their respective successors, heirs (in the case
of the Executive) and assigns. For purposes of this Agreement, the term
"successor" of the Company shall include any person or entity, whether
direct or indirect, whether by purchase, merger, consolidation,
operation of law, assignment or otherwise who acquires or controls all
or substantially all of the assets of Acorn or UnionTools.
(ii) The Company shall require any successor of the Company,
by an agreement in form and substance reasonably satisfactory to the
Executive, to expressly assume and agree to be bound by the terms of
this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had occurred. The
Company shall be in material breach of this Agreement if any such
successor fails to expressly assume or otherwise agree to guaranty
performance of this Agreement to the extent the Company was obligated
prior to any succession.
(iii) Except as expressly stated in Section 4(a) above, this
Agreement shall be non-assignable by either the Company or the
Executive without the prior written consent of all parties hereto.
(b) Notices. Any notice hereunder shall be properly given if by
personal delivery or registered or certified mail, return receipt requested, as
follows:
If to the Executive, at his address as it appears on the payroll
records of the Company.
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<PAGE> 5
If to the Company, to:
Acorn Products, Inc.
500 Dublin Ave.
Columbus, Ohio 43216-1930
Attention: President
or to such other addresses as the parties may designate in writing.
(c) Integration; Modification. This Agreement shall supersede all
previous negotiations, commitments and writings with respect to the employment
of the Executive. This Agreement may not be released, discharged, abandoned,
changed or modified in any manner, except by an instrument in writing signed on
behalf of each of the parties hereto. The failure of either party hereto to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provisions, nor in any way to affect the
validity of this Agreement or the right of either party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
(d) Severability. If any term or provision of this Agreement is
declared invalid by a court of competent jurisdiction, the remaining terms and
provisions of this Agreement shall remain unimpaired.
(e) Captions. The captions appearing in this Agreement are inserted
only as a matter of convenience and as a reference and in no way define, limit
or describe the scope or intent of this Agreement or any of other provisions
hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of New York without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
EXECUTIVE
________________________________________
Name: Stephen M. Kasprisin
ACORN PRODUCTS, INC.
By: ___________________________________
Name:
Title:
UNIONTOOLS, INC.
By: ___________________________________
Name:
Title:
6
<PAGE> 1
EXHIBIT 10.3
ACORN PRODUCTS, INC.
DEFERRED EQUITY COMPENSATION PLAN FOR DIRECTORS
SECTION 1. INTRODUCTION
1.1 ESTABLISHMENT OF PLAN. Acorn Products, Inc., a Delaware corporation
(the "Company"), hereby establishes the Acorn Products, Inc. Deferred Equity
Compensation Plan for Directors (the "Plan") for those directors of the Company
who are not employees of the Company. The Plan provides the opportunity for
Directors to defer receipt of all or one-half of their cash compensation on a
pretax basis and to invest those deferrals in the Company's Stock.
1.2 PURPOSES. The purposes of the Plan are to align the interests of
Directors more closely with the interests of other shareholders of the Company,
to encourage the highest level of Director performance by providing the
Directors with a direct interest in the Company's attainment of its financial
goals and to help attract and retain qualified Directors.
1.3 EFFECTIVE DATE. The Plan shall be effective (the "Effective Date")
on May , 1997. To the extent an investment or distribution of Stock may be
made under the Plan, the Plan is intended to qualify for the exemption provided
by Rule 16b-3 under the Exchange Act, as now in effect or hereafter amended,
from short swing profit liability under Section 16(b) of the Exchange Act.
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "Administrative Committee" means the committee designated
in Section 3 to administer the Plan.
(b) "Affiliate" of any specified Person means (i) any other
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any Person who is a
director or officer (a) of such Person, (b) of any subsidiary of such Person or
(c) of any Person described in clause (i) above. For purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meaning correlative to the
foregoing.
(c) "Board", as used in connection with the defined terms
"Change of Control" and "Incumbent Members" means the Board of Directors of the
Company. As used elsewhere in the Plan, the Board shall mean not only the Board
of Directors of the Company but, with respect to actions taken or to be taken in
connection with the Plan, any committee thereof authorized by the Board to take
action with respect to the Plan.
<PAGE> 2
EXHIBIT 10.3
(d) "Change of Control" occurs upon any of the following
events: (i) the acquisition by any Person (as defined in Section 13(d) of the
Exchange Act) other than TCW or Oaktree of beneficial ownership (as defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except such Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time) of securities of the Company (a) having 25% or more of the
total voting power of the then outstanding voting securities of the Company and
(b) having more voting power than the securities of the Company beneficially
owned by Oaktree; (ii) during any twelve month period, a change in the Board
occurs such that Incumbent Members do not constitute a majority of the Board;
(iii) a sale of all or substantially all of the assets of the Company or
UnionTools, Inc.; or (iv) the consummation of a merger or consolidation of the
Company with any other Person, provided, however, that no Change of Control
shall have occurred pursuant to this clause (iv) if (A) after such merger or
consolidation the voting securities of the Company prior to such merger or
consolidation continue to represent more than 50% of the combined voting power
of such Person or (B) if such merger or consolidation does not result in a
material change in the beneficial ownership of the Company's voting securities.
(e) "Common Stock Equivalent" means a hypothetical share of
Stock which shall have a value on any date equal to the Fair Market Value of one
share of Stock on that date.
(f) "Deferred Stock Equivalent Account" means the bookkeeping
account established by the Company in respect to each Director pursuant to
Section 5.3 hereof and to which shall be credited the fees deferred by the
Director as provided in the Plan and the Common Stock Equivalents into which
such deferred fees are deemed invested pursuant to the Plan.
(g) "Director" means a member of the Board who is not an
employee of the Company or a subsidiary of the Company. For purposes of the
Plan, an employee is an individual whose wages are subject to the withholding of
federal income tax under Section 3401 of the Internal Revenue Code.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
(i) "Fair Market Value" of a share of Stock means as of any
applicable date the average of the high and low sale prices of such Stock on the
date such determination is required herein, or if there were no sales on such
date, the average of the closing bid and asked prices, as reported on the
principal United States securities exchange on which the Stock is listed or, in
the absence of any such listing, on the Nasdaq National Market or, if the Stock
is not at the time listed on a national securities exchange or traded on the
Nasdaq National Market, the value of such Stock on such date as determined in
good faith by the Board.
2
<PAGE> 3
EXHIBIT 10.3
(j) "Incumbent Members" means the members of the Board on the
date immediately preceding the commencement of a twelve-month period, provided
that any person becoming a Director during such twelve-month period whose
election or nomination for election was approved by a majority of the Directors
who, on the date of such election or nomination for election, comprised the
Incumbent Members shall be considered one of the Incumbent Members in respect of
such twelve-month period.
(k) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time.
(l) "Oaktree" means Oaktree Capital Management, LLC and its
Affiliates, including any partnerships, separate accounts or other entities
managed by Oaktree.
(m) "Payment Date" means each of the dates each year on which
the Company pays fees to Directors.
(n) "Stock" means the $0.001 par value common stock of the
Company.
(o) "TCW" means: TCW Special Credits Plus Fund; TCW Special
Credits Fund III; TCW Special Credits Fund IIIb; TCW Special Credits Fund IV;
TCW Special Credits Trust; TCW Special Credits Trust IIIb; TCW Special Credits
Trust IV; TCW Special Credits Trust IVa; TCW Special Credits, as investment
manager of Delaware State Employees' Retirement Fund, Weyerhaeuser Company
Pension Trust and The Common Fund for Bond Investments; and any of their
respective Affiliates.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the definitions
of any term herein in the singular shall also include the plural.
SECTION 3. PLAN ADMINISTRATION
The Plan shall be administered by the Administrative Committee,
comprised of the Chief Financial Officer and the Secretary of the Company or
such other officers of the Company as the Board may designate. Subject to the
limitations of the Plan, the Administrative Committee shall have the sole and
complete authority: (i) to impose such limitations, restrictions and conditions
as it shall deem appropriate; (ii) to interpret the Plan and to adopt, amend and
rescind administrative guidelines and other rules and regulations relating to
the Plan; and (iii) to make all other determinations and to take all other
actions necessary or advisable for the implementation and administration of the
Plan. Notwithstanding the foregoing, the Administrative Committee shall have no
authority, discretion or power to alter any terms or conditions specified in the
Plan. The Administrative Committee's determinations on matters within its
authority shall be conclusive and binding upon the Company, the Directors and
all other persons.
3
<PAGE> 4
EXHIBIT 10.3
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. There shall be authorized for issuance under the
Plan, in accordance with the provisions of the Plan, 73,000 shares of Stock.
This authorization may be increased from time to time by approval of the Board
and by the shareholders of the Company if the Board determines that such
shareholder approval is required. The Company shall at all times during the term
of the Plan retain as authorized and unissued Stock at least the number of
shares from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder. The shares of
Stock issuable hereunder shall be authorized and unissued shares or previously
issued and outstanding shares of Stock reacquired by the Company.
4.2 ADJUSTMENTS UPON CHANGES IN STOCK. If there shall be any change in
the Stock, through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, spin-off, split up, dividend in kind or other
change in the corporate structure or distribution to the shareholders,
appropriate adjustments shall be made by the Administrative Committee (or if the
Company is not the surviving corporation in any such transaction, the board of
directors of the surviving corporation) in the aggregate number and kind of
shares subject to the Plan and the number and kind of shares which may be issued
under the Plan. Appropriate adjustments may also be made by the Administrative
Committee in the terms of Common Stock Equivalents under the Plan to reflect
such changes and to modify any other terms on an equitable basis as the
Administrative Committee in its discretion determines.
SECTION 5. DEFERRALS AND DISTRIBUTIONS
5.1 DEFERRAL ELECTIONS. A Director may elect to defer receipt of all or
one-half of the annual fees payable to the Director for serving on the Board. A
Director may make the elections permitted hereunder by giving written notice to
the Company in a form approved by the Administrative Committee. The notice shall
state: (i) whether all or one-half of such fees shall be deferred; (ii) the date
as of which deferral is to commence; and (iii) subject to the limitations of
this Section 5, the year in which distribution is to commence and the form
(i.e., lump sum or installments over a stated number of years) of distribution.
5.2 TIME FOR ELECTING DEFERRAL AND CHANGE IN ELECTION. The election to
defer fees shall be made in the first instance prior to the first meeting of the
Board following the Effective Date of the Plan and, thereafter, prior to the
latest to occur of the following: (i) the beginning of the calendar year for
which the fees are to be earned; (ii) such Director's first day of Board service
in that year; or (iii) the thirty-first day following the date the Director
first becomes eligible to participate in the Plan; provided that, an election
made on or after the first day of a calendar year shall only apply to fees
earned after the date of the election. An election to defer, once made, is
irrevocable for the first calendar year with respect to which the election is
made, except as provided in Section
4
<PAGE> 5
EXHIBIT 10.3
5.11 hereof. An election to defer, once made, shall continue to be effective for
succeeding calendar years until revoked or modified by the Director by written
request to the Administrative Committee prior to the beginning of a calendar
year for which fees would otherwise be deferred.
5.3 DEFERRED STOCK EQUIVALENT ACCOUNTS. A Deferred Stock Equivalent
Account shall be established for each Director. Deferred fees shall be credited
to such Account as of the date such amounts would have otherwise been paid in
cash to the Director, and shall be converted into Common Stock Equivalents based
on the Fair Market Value as of the date such amounts would have otherwise been
paid in cash to the Director. Deferred fees shall be converted into Common Stock
Equivalents by dividing (i) an amount equal to the dollar amount of the fees
deferred by (ii) the Fair Market Value. A Director's Deferred Stock Equivalent
Account also shall be credited with dividend equivalents and other distributions
pursuant to Section 5.4.
5.4 DIVIDEND EQUIVALENTS. Dividends and other distributions with
respect to Common Stock Equivalents shall be deemed to have been paid as if such
Common Stock Equivalents were actual shares of Stock issued and outstanding on
the respective record or distribution dates. Common Stock Equivalents shall be
credited to a Director's Deferred Stock Equivalent Account in respect of cash
dividends and any other securities or property distributed with respect to the
Stock in connection with reclassifications, spin-offs and the like on the basis
of the value of the dividend or other asset distributed and the Fair Market
Value of the Common Stock Equivalents on the date of the announcement of the
dividend or asset distribution, all at the same time and in the same amount as
dividends or other distributions are paid or distributed with respect to the
Stock. Fractional shares shall be credited to a Director's Deferred Stock
Equivalent Account cumulatively, but the balance of shares of Common Stock
Equivalents in a Director's Deferred Stock Equivalent Account shall be rounded
to the next highest whole share for any distribution to such Director pursuant
to this Section 5.
5.5 STATEMENT OF ACCOUNTS. A statement as to the balance of his or her
Deferred Stock Equivalent Account will be sent to each Director at least once
each calendar year.
5.6 PAYMENT OF ACCOUNTS. As soon as practicable following termination
of service as a Director, a Director shall receive a distribution of his or her
Deferred Stock Equivalent Account as directed by the Director in his or her most
recent notice of distribution instructions, provided, however, that any such
notice, other than the initial such notice, shall not be effective to direct the
time and manner of distribution of the Director's Deferred Stock Equivalent
Account unless such notice is received by the Administrative Committee at least
two years prior to the effective date of the Director's termination of service.
Either a lump sum or the first of a stated number of equal annual installments
shall be paid in the year of such termination. Succeeding installments (if any)
shall be paid on January 31 of each calendar year following the calendar year in
which the first payment was made. Such distribution(s) shall be made in shares
of Stock on the basis of one share of Stock for each Common Stock Equivalent
credited to such Director's
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<PAGE> 6
EXHIBIT 10.3
Deferred Stock Equivalent Account as of the Payment Date immediately preceding
the date of distribution.
5.7 PAYMENTS FOLLOWING THE DEATH OF A DIRECTOR. In the event of a
Director's death before the balance of his or her Deferred Stock Equivalent
Account is fully paid, payment of the balance of the Director's Deferred Stock
Equivalent Account shall then be made to the beneficiary or beneficiaries, at
such time or times and in such manner as shall be designated by the Director
pursuant to Section 5.8 or, in the absence of a designation as to the time and
manner of payment, in the time and manner selected by the Administrative
Committee. The Administrative Committee may, in its discretion, take into
account the application of any designated beneficiary and direct that the
balance of the Director's Deferred Stock Equivalent Account be paid to such
beneficiary in the manner requested by such application.
5.8 DESIGNATION OF BENEFICIARY. A Director shall file with the
Administrative Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the amount, if any, payable
hereunder after the Director's death. Such designation also shall specify the
manner and the time or times at which such amount shall be paid. A Director may,
from time to time, revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the
Administrative Committee. The last such designation received by the
Administrative Committee shall be controlling; provided, however, that no
designation or change or revocation thereof shall be effective unless received
by the Administrative Committee prior to the Director's death and in no event
shall it be effective as of a date prior to its receipt. If no such beneficiary
designation is in effect at the time of the Director's death, or if no
designated beneficiary survives the Director, the Director's estate shall be
deemed to have been designated his or her beneficiary and the executor or
administrator thereof shall receive the amount, if any, payable hereunder after
the Director's death. If the Administrative Committee is in doubt as to the
right of any person to receive all or part of such amount, the Company may
retain such amount until the rights thereto are determined, or the Company may
pay such amount into any court of appropriate jurisdiction and such payment
shall be a complete discharge of the liability of the Company therefor.
5.9 CHANGE OF CONTROL. Notwithstanding any provision of this Plan to
the contrary, in the event of a Change of Control, each Director shall receive,
within ten (10) days of the date of such Change of Control a lump sum
distribution of the number of shares of Stock equal to the number of Common
Stock Equivalents credited to such Director's Deferred Stock Equivalent Account
as of the date of the Change of Control.
5.10 EMERGENCY PAYMENTS. In the event of an "unforeseeable emergency"
as defined herein, the Administrative Committee may determine the amounts
payable under Section 5 hereof and pay all or a part of such amounts in shares
of Stock without regard to the payment dates otherwise determined pursuant to
Sections 5.6, 5.7 and 5.8, to the extent the Administrative Committee determines
that such action is necessary in light of immediate and substantial needs of the
Director (or his beneficiary) occasioned by severe
6
<PAGE> 7
EXHIBIT 10.3
financial hardship. For the purposes of this Section, an "unforeseeable
emergency" is a severe financial hardship to the Director resulting from a
sudden and unexpected illness or accident of the Director or beneficiary, or of
a dependent (as defined in Section 152(a) of the Internal Revenue Code) of the
Director or beneficiary, loss of the Director's or beneficiary's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Director or beneficiary.
Payments shall not be made pursuant to this Section to the extent that such
hardship is or may be relieved: (a) through reimbursement or compensation by
insurance or otherwise; (b) by liquidation of the Director's or beneficiary's
assets, to the extent the liquidation of such assets would not itself cause
severe financial hardship; or (c) by cessation of the Director's deferrals under
the Plan. Such action shall be taken only if a Director (or a Director's legal
representatives or successors) signs an application describing fully the
circumstances which are deemed to justify the payment, together with an estimate
of the amounts necessary to prevent such hardship, which application shall be
approved by the Administrative Committee after making such inquiries as the
Administrative Committee deems necessary or appropriate.
5.11 PAYMENT OF TAXABLE AMOUNT. Notwithstanding any other provision of
this Section 5 or any payment schedule directed by a Director pursuant to
Sections 5.6, 5.7 or 5.8 and regardless of whether payments have commenced under
this Section 5, in the event that the Internal Revenue Service should finally
determine that part or all of the value of a Director's Deferred Stock
Equivalent Account which has not actually been distributed to the Director is
nevertheless required to be included in the Director's or beneficiary's gross
income for federal income tax purposes, then the balance of the Deferred Stock
Equivalent Account or the part thereof that was determined to be includable in
gross income shall be distributed in shares of Stock to the Director or
beneficiary, as the case may be, in a lump sum as soon as practicable after such
determination, without any action or approval by the Administrative Committee. A
"final determination" of the Internal Revenue Service for purposes of this
Section is a determination in writing by said Service ordering the payment of
additional tax, reporting of additional gross income or otherwise requiring Plan
amounts to be included in gross income, which is not appealable or which the
Director or beneficiary does not appeal within the time prescribed for appeals.
SECTION 6. GENERAL CREDITOR STATUS
Each participating Director and beneficiary designated by a Director
shall be and remain an unsecured general creditor of the Company with respect to
any payments due and owing to such Director or beneficiary hereunder. All
payments to persons entitled to benefits hereunder shall be made out of the
general assets and shall be solely the obligation of the Company. The Plan is a
promise by the Company to pay benefits in the future and it is the intention of
the Company and participating Directors that the Plan be "unfunded" for tax
purposes (and for the purposes of Title I of the Employee Retirement Income
Security Act of 1974).
7
<PAGE> 8
EXHIBIT 10.3
SECTION 7. CLAIMS PROCEDURES
If a claim for benefits made by any person (the "Applicant") is denied,
the Administrative Committee shall furnish to the Applicant, within 90 days
after its receipt of such claim (or within 180 days after such receipt if
special circumstances require an extension of time), a written notice which: (i)
specifies the reasons for the denial; (ii) refers to the pertinent provisions of
the Plan on which the denial is based; (iii) describes any additional material
or information necessary for the perfection of the claim and explains why such
material or information is necessary; and (iv) explains the claim review
procedures. Upon the written request of the Applicant submitted within 60 days
after receipt of such written notice, the Administrative Committee shall afford
the Applicant a full and fair review of the decision denying the claim and, if
so requested: (i) permit the Applicant to review any documents which are
pertinent to the claim; (ii) permit the Applicant to submit to the
Administrative Committee issues and comments in writing; and (iii) afford the
Applicant an opportunity to meet with the Administrative Committee as a part of
the review procedure. Within 60 days after its receipt of a request for review
(or within 120 days after such receipt if special circumstances, such as the
need to hold a hearing, require an extension of time) the Administrative
Committee shall notify the Applicant in writing of its decision and the reasons
for its decision and shall refer the Applicant to the provisions of the Plan
which form the basis for its decision.
SECTION 8. ASSIGNABILITY
The right of a Director and his beneficiary to receive payments or
distributions hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer (other than by will or the laws of descent and
distribution), assignment, pledge, encumbrance, attachment, or garnishment by
creditors of a participating Director or his beneficiary.
SECTION 9. PLAN TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall automatically terminate at the close of business on the
fifteenth anniversary of the effective date unless sooner terminated by the
Board. The Board may at any time terminate, and from time to time may amend or
modify the Plan, provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
federal or state statutory or regulatory requirements, and, provided further
that no termination, amendment or modification shall reduce the then existing
balance of any Director's Deferred Stock Equivalent Account or otherwise
adversely change the terms and conditions thereof without the Director's
consent.
SECTION 10. GOVERNING LAW/PLAN CONSTRUCTION
The Plan and all agreements hereunder shall be construed in accordance
with and
8
<PAGE> 9
EXHIBIT 10.3
governed by the laws of the State of New York. Nothing in this document shall be
construed as an employment agreement or in any way impairing the right of the
Company, the Board or its committees or the Company's shareholders, to remove a
Director from service as a director, to refuse to renominate or reelect such
person as a director, or to enforce the duly adopted retirement policies of the
Board.
9
<PAGE> 1
EXHIBIT 10.4
ACORN PRODUCTS, INC.
1997 STOCK INCENTIVE PLAN
1. Establishment and Purpose of the Plan. This 1997 Stock Incentive
Plan (the "Plan") is established by Acorn Products, Inc., a Delaware corporation
(the "Company"), as of May , 1997. The Plan is designed to enable the Company
to attract, retain and motivate members of the senior management and certain
other officers and key employees of the Company, UnionTools, Inc., a Delaware
corporation ("UnionTools"), and the Company's other direct and indirect
subsidiaries by providing for or increasing their proprietary interest in the
Company. The Plan provides for the grant of options ("Options") that qualify as
incentive stock options ("Incentive Stock Options") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as Options that
do not so qualify ("Non-Qualified Options"), for the grant of stock appreciation
rights ("Stock Appreciation Rights") and for the sale or grant of restricted
stock ("Restricted Stock").
2. Stock Subject to the Plan. The maximum number of shares of stock
that may be subject to Options or Stock Appreciation Rights granted hereunder
and the number of shares of stock that may be sold as Restricted Stock
hereunder, shall not in the aggregate exceed 730,000 shares of common stock,
$0.001 par value (the "Shares", and individually, a "Share"), of the Company,
subject to adjustment under Section 12 hereof. Anything contained herein to the
contrary notwithstanding, the aggregate number of Shares with respect to which
options or stock appreciation rights may be granted during any calendar year to
any individual shall be limited to 90,000. The Shares that may be subject to
Options granted under the Plan, and Restricted Stock sold or granted under the
Plan, may be authorized and unissued Shares or Shares reacquired by the Company
and held as treasury stock.
Shares that are subject to the unexercised portions of any Options that
expire, terminate or are canceled, and Shares that are not required to satisfy
the exercise of any Stock Appreciation Rights that expire, terminate or are
canceled, and Shares of Restricted Stock that are reacquired by the Company
pursuant to the restrictions thereon, may again become available for the grant
of Options or Stock Appreciation Rights and the sale or grant of Restricted
Stock under the Plan. If a Stock Appreciation Right is exercised, any Option or
portion thereof that is surrendered in connection with such exercise shall
terminate and the Shares theretofore subject to the Option or portion thereof
shall not be available for further use under the Plan.
3. Administration of the Plan. The Plan shall be administered by the
Management Development and Compensation Committee (the "Committee") consisting
of not less than two members appointed by the Board of Directors (the "Board")
of the Company. If no persons are designated by the Board to serve on the
Committee, the Plan shall be administered by the Board and all references
herein to the Committee shall refer to the Board. From time to time, the Board
shall have the discretion to add, remove or replace members of the Committee
and shall have the sole authority to fill vacancies on the Committee. All
actions of the Committee shall comply with the provisions of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section
162(m) of the Code.
<PAGE> 2
EXHIBIT 10.4
All actions of the Committee shall be authorized by a majority vote
thereof at a duly called meeting. The Committee shall have the sole authority,
in its absolute discretion, to adopt, amend, and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan, to construe and interpret the Plan, the rules and regulations, and the
agreements and other instruments evidencing Options and Stock Appreciation
Rights granted and Restricted Stock sold or granted under the Plan and to make
all other determinations deemed necessary or advisable for the administration of
the Plan. All decisions, determinations, and interpretations of the Committee
shall be final and conclusive upon the Eligible Employees, as hereinafter
defined. Notwithstanding the foregoing, any dispute arising under any Agreement
(as defined below) shall be resolved pursuant to the dispute resolution
mechanism (if any) set forth in such Agreement.
Subject to the express provisions of the Plan, the Committee shall
determine the number of Shares subject to grants or sales and the terms thereof,
including the provisions relating to the exercisability of Options and Stock
Appreciation Rights, lapse and non-lapse restrictions upon the Shares obtained
or obtainable under the Plan and the termination and/or forfeiture of Options
and Stock Appreciation Rights and Restricted Stock under the Plan. The terms
upon which Options and Stock Appreciation Rights are granted and Restricted
Stock is sold or granted shall be evidenced by a written agreement executed by
the Company and the Participant (as defined below) to whom such Options, Stock
Acquisition Rights and Restricted Stock are sold or granted (the "Agreement").
4. Eligibility. Persons who shall be eligible for grants of Options or
Stock Appreciation Rights or sales or grants of Restricted Stock hereunder
("Eligible Employees") shall be employee directors of the Company or UnionTools
or the Company's other direct and indirect subsidiaries and those employees of
the Company, UnionTools or the Company's other direct and indirect subsidiaries
who are members of a select group of management or other key employees that the
Committee may from time to time designate to participate under the Plan
("Participants") through grants of Non-Qualified Options, Incentive Stock
Options and, if applicable, Stock Appreciation Rights, and/or through sales or
grants of Restricted Stock.
5. Terms and Conditions of Options. No Incentive Stock Option shall be
granted for a term of more than ten years and no Non-Qualified Option shall be
granted for a term of more than ten years and thirty days. Options may, in the
discretion of the Committee, be granted with associated Stock Appreciation
Rights or be amended so as to provide for associated Stock Appreciation Rights.
The Agreement may contain such other terms, provisions and conditions as may be
determined by the Committee as long as such terms, conditions and provisions are
not inconsistent with the Plan. The Committee shall designate as such those
Options intended to be eligible to qualify and be treated as Incentive Stock
Options and, correspondingly, those Options not intended to be eligible to
qualify and be treated as Incentive Stock Options.
6. Exercise Price of Options. The exercise price per share for each
Non-Qualified Option granted hereunder shall be set forth in the Agreement. The
exercise price per share of any Option intended to be eligible to qualify and be
treated as an Incentive Stock Option shall not be less than the Fair Market
Value of a Share on the date such Incentive Stock Option is granted, except that
if such Incentive Stock Option is granted to a Participant who on the date of
grant is treated under Section 424(d) of the Code as owning stock (not including
stock purchasable under outstanding options) possessing more than ten percent of
the total combined voting power of all classes of the Company's stock, the
exercise price per share shall not be less than one hundred ten
2
<PAGE> 3
EXHIBIT 10.4
percent (110%) of the Fair Market Value of a Share on the date such Incentive
Stock Option is granted, and the option shall not be exercisable more than four
years from the date of grant.
Payment for Shares purchased upon exercise of any Option granted
hereunder shall be in cash at the time of exercise, except that, if either the
Agreement so provides or the Committee so permits, and if the Company is not
then prohibited from purchasing or acquiring Shares, such payment may be made in
whole or in part with Shares. The Committee also may on an individual basis
permit payment or agree to permit payment by such other alternative means as may
be lawful, including by delivery of an executed exercise notice together with
irrevocable instructions to a broker promptly to deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price.
7. Determination of Fair Market Value. The Fair Market Value of a Share
for the purposes of the Plan shall mean the average of the high and low sale
prices of a Share on the date such determination is required herein, or if there
were no sales on such date, the average of the closing bid and asked prices, as
reported on the principal United States securities exchange on which the Shares
are listed or, in the absence of such listing, on the Nasdaq National Market or,
if Shares are not at the time listed on a national securities exchange or traded
on the Nasdaq National Market, the value of a Share on such date as determined
in good faith by the Committee.
8. Non-Transferability. Except to the extent provided otherwise in the
Agreement, any Option granted under the Plan shall by its terms be
nontransferable by the Participant other than by will or the laws of descent and
distribution (in which case such descendant or beneficiary shall be subject to
all terms of the Plan applicable to Participants) and is exercisable during the
Participant's lifetime only by the Participant or by the Participant's guardian
or legal representative.
9. Incentive Stock Options. The provisions of the Plan are intended to
satisfy the requirements set forth in Section 422 of the Code and the
regulations promulgated thereunder (including the aggregate fair market value
limits set forth in Section 422(d) of the Code) with respect to Incentive Stock
Options granted under the Plan. For the purpose of this Section 9, the Fair
Market Value of a Share shall be determined at the time the Incentive Stock
Option is granted.
10. Stock Appreciation Rights. The Committee may, under such terms and
conditions as it deems appropriate, grant to any Eligible Employee selected by
the Committee, Stock Appreciation Rights, which may or may not be associated
with Options. Upon exercise of a Stock Appreciation Right, the Participant shall
be entitled to receive payment of an amount equal to the excess of the Fair
Market Value of the underlying Shares on the date of exercise over the exercise
price of the Stock Appreciation Rights. Such payment may be made in additional
Shares valued at their Fair Market Value on the date of exercise or in cash, or
partly in Shares and partly in cash, as the Committee may designate. The
Committee may require that any Stock Appreciation Right shall be subject to the
condition that the Committee may at any time, in its absolute discretion, not
allow the exercise of such Stock Appreciation Right. The Committee may further
impose such conditions on the exercise of Stock Appreciation Rights as may be
necessary or desirable to comply with Rule 16b-3 under the Exchange Act.
11. Restricted Stock. The Committee may sell or grant Restricted Stock
under the Plan (either independently or in connection with the exercise of
options or Stock Appreciation Rights under the Plan) to Eligible Employees
selected by the Committee. The Committee shall in each case
3
<PAGE> 4
EXHIBIT 10.4
determine the number of Shares of Restricted Stock to be sold or granted, the
price at which such Shares are to be sold, if applicable, and the terms or
duration of the restrictions to be imposed upon those Shares.
12. Adjustments. If at any time the class of Shares subject to the Plan
is changed into or exchanged for a different number or kind of shares or
securities, as the result of any one or more reorganizations, recapitalizations,
stock splits, reverse stock splits, stock dividends or similar events, or in the
event of a rights offering to purchase Shares at a price substantially below
Fair Market Value, an appropriate adjustment consistent with such change,
exchange or offering shall be made in the number, exercise or sale price and/or
type of shares or securities for which Options or Stock Appreciation Rights may
thereafter be granted and Restricted Stock may thereafter be sold or granted
under the Plan in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
participants in the Plan. Any such adjustment in outstanding Options or in
outstanding rights to purchase Restricted Stock shall be made without changing
the aggregate exercise price applicable to the unexercised portions of such
Options or the aggregate purchase price of such Restricted Stock, as the case
may be.
13. Change of Control. Notwithstanding any provision of this Plan to
the contrary, in the event of a Change of Control (as defined below), all
Options and Stock Appreciation Rights that have been granted by the Board as of
the date thereof shall vest and become exercisable, as the case may be,
immediately prior to the effective time of any Change of Control and all
conditions to exercise thereof shall be deemed to have been met.
For purposes of this Section 13, the following terms shall have the
following meanings:
"Affiliate" of any specified Person (as defined in Section 13(d) of the
Exchange Act) shall mean (i) any other Person, directly or indirectly,
controlling or controlled by or under direct or indirect common control with
such specified Person or (ii) any Person who is a director or officer (a) of
such Person, (b) of any subsidiary of such Person or (c) of any Person described
in clause (i) above. For purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meaning correlative to the foregoing.
"Change of Control" shall mean: (i) the acquisition by any Person (as
defined in Section 13(d) of the Exchange Act) other than TCW or Oaktree, of
beneficial ownership (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except such Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) of securities of the
Company (a) having 25% or more of the total voting power of the then outstanding
voting securities of the Company and (b) having more voting power than the
securities of the Company beneficially owned by Oaktree; (ii) during any twelve
month period, a change in the Board occurs such that Incumbent Members do not
constitute a majority of the Board; (iii) a sale of all or substantially all of
the assets of the Company or UnionTools; or (iv) the consummation of a merger or
consolidation of the Company with any other Person, provided, however, that no
Change of Control shall have occurred pursuant to this clause (iv) if (A) after
such merger or consolidation the voting securities of the Company prior to such
merger or consolidation continue to represent more than 50% of the combined
voting power of
4
<PAGE> 5
EXHIBIT 10.4
such Person or (B) if such merger or consolidation does not result in a material
change in the beneficial ownership of the Company's voting securities.
"Incumbent Members" shall mean the members of the Board on the date
immediately preceding the commencement of a twelve-month period, provided that
any person becoming a Director during such twelve-month period whose election or
nomination for election was approved by a majority of the Directors who, on the
date of such election or nomination for election, comprised the Incumbent
Members shall be considered one of the Incumbent Members in respect of such
twelve-month period.
"Oaktree" shall mean Oaktree Capital Management, LLC and its
Affiliates, including any partnerships, separate accounts or other entities
managed by Oaktree.
"TCW" shall mean: TCW Special Credits Plus Fund; TCW Special Credits
Fund III; TCW Special Credits Fund IIIb; TCW Special Credits Fund IV; TCW
Special Credits Trust; TCW Special Credits Trust IIIb; TCW Special Credits Trust
IV; TCW Special Credits Trust IVa; TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund, Weyerhaeuser Company Pension Trust
and The Common Fund for Bond Investments; and any of their respective
Affiliates.
14. Investment Representation. Each Agreement may provide that, upon
demand by the Committee for such a representation, the Optionee shall deliver to
the Committee at the time of any exercise of an Option a written representation
that the Shares to be acquired upon such exercise are to be acquired for
investment and not for resale or with a view to the distribution thereof. Upon
such demand, delivery of such representation prior to the delivery of any Shares
issued upon exercise of an Option shall be a condition precedent to the right of
the Optionee or such other person to purchase any Shares.
15. Duration of the Plan. Options and Stock Appreciation Rights may not
be granted and Restricted Stock may not be sold or granted under the Plan after
May , 2007.
16. Amendment and Termination of the Plan. The Board may at any time
alter, amend, suspend or terminate the Plan. The Committee may amend the Plan or
any Agreement issued hereunder to the extent necessary for any Option or Stock
Appreciation Right granted or Restricted Stock sold or granted under the Plan to
comply with applicable tax or securities laws.
No Option or Stock Appreciation Right may be granted or Restricted
Stock sold or granted during any suspension or after the termination of the
Plan. No amendment, suspension or termination of the Plan or of any Agreement
issued hereunder shall, without the consent of the affected holder of such
Option or Stock Appreciation Right or Restricted Stock, alter or impair any
rights or obligations in any Option or Stock Appreciation Right or Restricted
Stock theretofore granted or sold to such holder under the Plan.
17. Nature of the Plan. The Plan is intended to qualify as a
compensatory benefit plan within the meaning of Rule 701 under the Securities
Act of 1933. The grant, exercise or sale of securities under the Plan is
intended to qualify for the exemption from short swing profits liability under
Section 16(b) of the Exchange Act, provided by Rule 16b-3 promulgated
thereunder, as such Rule is now in effect or hereafter amended.
5
<PAGE> 6
EXHIBIT 10.4
18. Cancellation of Options. Any Option granted under the Plan may be
canceled at any time with the consent of the holder and a new Option may be
granted to such holder in lieu thereof.
19. Withholding Taxes. Whenever Shares are to be issued with respect to
the exercise of Options or amounts are to be paid or income earned with respect
to Stock Appreciation Rights or Restricted Stock under the Plan, the Committee
in its discretion may require the Participant to remit to the Company, prior to
the delivery of any certificate or certificates for such Shares or the payment
of any such amounts, all or any part of the amount determined in the Committee's
discretion to be sufficient to satisfy federal, state and local withholding tax
obligations (the "Withholding Obligation") that the Company or its counsel
determines may arise with respect to such exercise, issuance or payment.
Pursuant to a procedure established by the Committee, the Participant may (i)
request the Company to withhold delivery of a sufficient number of Shares or a
sufficient amount of the Participant's compensation or (ii) deliver a sufficient
number of previously-issued Shares, to satisfy the Withholding Obligation.
20. No Rights as Stockholder or to Continuance of Employment. No
Participant shall have any rights as a Stockholder with respect to any Shares
subject to his or her Option or Stock Appreciation Right prior to the date of
issuance to him or her of a certificate or certificate for such Shares. The Plan
and any Option or Stock Appreciation Rights granted and any Restricted Stock
sold or granted under the Plan shall not confer upon any Participant any right
with respect to any continuance of employment by the Company, nor shall they
interfere in any way with the right of the Company to terminate his or her
employment at any time.
21. Compliance with Government Law and Regulations. The Plan, the grant
and exercise of Options and Stock Appreciation Rights, and the grant and sale of
Restricted Stock thereunder, and the obligation of the Company to sell and
deliver Shares under such Options and Stock Appreciation Rights, shall be
subject to all applicable laws, rules and regulations and to such approvals by
any government or regulatory agency that may be required. The Company shall not
be required to issue or deliver any certificates for Shares prior to (i) the
listing of such Shares on any stock exchange on which Shares may then be listed
and (ii) the completion of any registration or qualification of such Shares
under any state or federal law, or any ruling or regulation of any governmental
body which the Company shall, in its sole discretion, determine to be necessary
or advisable.
6
<PAGE> 1
EXHIBIT 10.5
STOCK OPTION AGREEMENT
PURSUANT TO THE
ACORN PRODUCTS, INC.
1997 STOCK INCENTIVE PLAN
THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of
(the "Effective Date"), between Acorn Products, Inc., a Delaware
corporation ("API"), and Name (the "Optionee").
R E C I T A L S
A. API has adopted the 1997 Stock Incentive Plan (the "Plan"),
a copy of which is attached hereto as Exhibit A.
B. API desires to grant the Optionee the opportunity to
acquire a proprietary interest in API to encourage the Optionee's contribution
to the success and progress of the Company (as defined below).
C. In accordance with the Plan, the Committee (as defined in
the Plan) has, as of the Effective Date, granted to the Optionee an option to
purchase shares of Common Stock, $0.001 par value, of API (the "Common Stock")
subject to the terms and conditions of the Plan and this Agreement. Such option
[is/is not] intended to qualify as an incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended.
AGREEMENTS
1. Definitions. Capitalized terms used herein shall have the
following meanings:
"Act" is defined in Section 8(a).
"Agreement" means this Stock Option Agreement.
"Board" is defined in Section 4(a).
"Cause" is defined in Section 4(a).
"Committee" is defined in Section 3 of the 1997 Stock
Incentive Plan.
"Common Stock" is defined in recital C.
"Company" means API and its Subsidiaries. With respect to the
Optionee's employment, including but not limited to policies associated
therewith and retirement or termination therefrom, the Company shall mean
[INSERT NAME OF ACTUAL EMPLOYER].
"Disability" means the failure by the Optionee to render
services to the Company for an aggregate of sixty (60) business days in any
continuous period of six (6) months on account of physical or mental disability.
<PAGE> 2
EXHIBIT 10.5
"Effective Date" is defined in the preamble.
"Exercise Price" is defined in Section 2.
"Fiscal Year" means the fiscal year of API.
"Option" is defined in Section 2.
"Optionee" is defined in the preamble.
"Option Shares" is defined in Section 2.
"Plan" is defined in recital A.
"Retirement" means the Optionee's retirement from employment
with the Company in accordance with the Company's retirement policy then in
effect. The Optionee's Retirement shall not constitute resignation from
employment with the Company.
"Subsidiary" means any joint venture, corporation, partnership
or other entity as to which API, whether directly or indirectly, has more than
50% of the (i) voting rights or (ii) rights to capital or profits.
"Termination Date" means the date on which the Optionee ceases
to be employed by the Company for any reason.
2. Grant of Option. API grants to the Optionee the right and
option (the "Option") to purchase up to shares of Common Stock (the
"Option Shares"), at the purchase price of $ per Share (as such amount may
be adjusted, the "Exercise Price"), on the terms and conditions set forth
herein.
3. Exercisability. The Optionee's right to exercise the Option
shall vest to the extent of one-quarter (1/4) of the number of Option Shares on
the date (the "Vesting Date") that is the Effective Date, and one quarter (1/4)
of the number of Option Shares on each of the next three (3) succeeding dates
that are the anniversary of the Effective Date provided that, on each such
Vesting Date, Optionee is employed by the Company. Pursuant to Section 13 of the
Plan, upon a Change of Control (as defined in the Plan), the Option shall fully
vest and become immediately exercisable immediately prior to the effective time
of any Change of Control.
4. Expiration.
(a) The vested portion of the Option shall expire
upon the earlier of (1) the seventh (7th) anniversary of the Effective Date, or
(2) (i) if the Optionee resigns from employment or is terminated from employment
by the Company for cause, the Termination Date, (ii) if the Optionee ceases to
be employed by the Company due to death or Disability, the one-year anniversary
of the Termination Date, or (iii) if the Optionee ceases to be employed by the
Company due to Retirement or termination by the Company without cause, the
ninetieth (90th) day following the Termination Date. For the purposes of the
preceding sentence, "cause" shall mean the Optionee's
<PAGE> 3
EXHIBIT 10.5
(i) conviction of, or plea of guilty or nolo contendere to, a felony or a crime
involving moral turpitude, (ii) embezzlement or misappropriation of funds or
property of the Company, (iii) continued use of alcohol or drugs to an extent
that interferes with the performance by the Optionee of his or her employment
responsibilities or (iv) willful failure or refusal to perform those duties
reasonably assigned or delegated to him or her by the Board of Directors of the
Company (the "Board") or his or her supervisor, which failure or refusal
continues following (a) the Company giving the Optionee written notice setting
forth the facts or events constituting such failure or refusal and (b) a
reasonable opportunity to correct the deficiencies or other problems specified
in such notice to the reasonable satisfaction of the Board or such supervisor.
(b) The Optionee shall not be considered to have
ceased to be employed by the Company for purposes of this Agreement if he or she
continues to be employed by API or a Subsidiary.
(c) The unvested portion of the Option shall expire
on the Termination Date.
5. Nontransferability. The Option shall not be transferable by
the Optionee otherwise than upon the Optionee's death to Optionee's spouse,
child, estate, personal representative, heir or successor or to a trust for the
benefit of Optionee's spouse, child or heir, as designated by Optionee in a form
of Beneficiary Designation filed by Optionee with the Committee, and the Option
is exercisable, during the Optionee's lifetime, only by him or her or, in the
event of the Optionee's Disability, Optionee's guardian or legal representative.
More particularly (but without limiting the generality of the foregoing), the
Option may not be assigned, transferred (except as aforesaid), pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process. Any assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any attachment or similar process upon
the Option that would otherwise effect a change in the ownership of the Option,
shall terminate the Option; provided, however, that in the case of the
involuntary levy of any attachment or similar involuntary process upon the
Option, the Optionee shall have thirty (30) days after notice thereof to cure
such levy or process before the Option terminates. This Agreement shall be
binding on and enforceable against any person who is a permitted transferee of
the Option pursuant to the first sentence of this Section.
6. Adjustments. If the shares of the Common Stock are changed
into or exchanged for a different number or kind of shares or securities, as the
result of any one or more reorganizations, recapitalizations, mergers,
acquisitions, stock splits, reverse stock splits, stock dividends or similar
events, or in the event of a rights offering to purchase Common Stock at a price
substantially below its fair market value, an appropriate adjustment shall be
made in the number and kind of shares or other securities subject to the Option,
and the price for each share or other unit of any securities subject to this
Agreement, in accordance with Section 12 of the Plan. No fractional interests
shall be issued on account of any such adjustment unless the Committee
specifically determines to the contrary; provided, however, that in lieu of
fractional interests, the Optionee, upon the exercise of the Option in whole or
part, shall receive cash in an amount equal to the amount by which the fair
market value of such fractional interests exceeds the Exercise Price
attributable to such fractional interests.
<PAGE> 4
EXHIBIT 10.5
7. Exercise of the Option. Prior to the expiration thereof,
the Optionee may exercise the vested portion of the Option from time to time in
whole or in part, provided that unless the Committee in its sole discretion
shall determine otherwise, each such exercise, other than an exercise for all
remaining shares pursuant to this Agreement, shall be for no fewer than one
hundred (100) shares. Upon electing to exercise the Option, the Optionee shall
deliver to the Secretary of the Company a written and signed notice of such
election setting forth the number of Option Shares the Optionee has elected to
purchase and shall at the time of delivery of such notice tender cash or a
cashier's or certified bank check to the order of the Company for the full
Exercise Price of such Option Shares and any amount required pursuant to Section
13 hereof. Alternatively, if the Company is not at the time prohibited from
purchasing or acquiring shares of its capital stock, and if the Committee,
acting in its sole discretion, grants its approval, the Exercise Price may be
paid in whole or in part by delivery of shares of the Common Stock owned by the
Optionee. The value of any such shares delivered as payment of the Exercise
Price shall be the average of the high and low sale prices of such Common Stock
on the date such determination is required herein, or if there were no sales on
such date, the average of the closing bid and asked prices, as reported on the
principal national securities exchange on which the Company's common stock is
listed or, in the absence of such listing, on the Nasdaq National Market or, if
the common stock is not at the time listed on a national securities exchange or
traded on the Nasdaq National Market, the value of such common stock on such
date as determined in good faith by the Committee. The Committee further may, in
its discretion, permit payment of the Exercise Price in such form or in such
manner as may be permissible under the Plan and under any applicable law.
8. Compliance with Legal Requirements.
(a) No Option Shares shall be issued or transferred
pursuant to this Agreement unless and until all legal requirements applicable to
such issuance or transfer have, in the opinion of counsel to the Company, been
satisfied. Such requirements may include, but are not limited to, registering or
qualifying such Shares under any state or federal law, satisfying any applicable
law relating to the transfer of unregistered securities or demonstrating the
availability of an exemption from applicable laws, placing a legend on the
Shares to the effect that they were issued in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the "Act"), and may
not be transferred other than in reliance upon Rule 144 or Rule 701 promulgated
under the Act, if available, or upon another exemption from the Act, or
obtaining the consent or approval of any governmental regulatory body.
(b) The Optionee understands that the Company intends
for the offering and sale of Option Shares to be effected in reliance upon Rule
701 or another available exemption from registration under the Act and intends
to file a Form 701 as appropriate, and that the Company is under no obligation
to register for resale the Option Shares issued upon exercise of the Option. In
connection with any such issuance or transfer, the person acquiring the Option
Shares shall, if requested by the Company, provide information and assurances
satisfactory to counsel to the Company with respect to such matters as the
Company reasonably may deem desirable to assure compliance with all applicable
legal requirements, including without limitation, a representation that the
Option Shares are being acquired for investment and not with a view to the sale
or distribution thereof.
<PAGE> 5
EXHIBIT 10.5
9. No Interest in Shares Subject to Option. Neither the
Optionee (individually or as a member of a group) nor any beneficiary or other
person claiming under or through the Optionee shall have any right, title,
interest, or privilege in or to any shares of stock allocated or reserved for
the purpose of the Plan or subject to this Agreement except as to such Option
Shares, if any, as shall have been issued to such person upon exercise of this
Option or any part of it.
10. Plan Controls. The Option hereby granted is subject to,
and the Company and the Optionee agree to be bound by, all of the terms and
conditions of the Plan as the same may be amended from time to time in
accordance with the terms thereof, but no such amendment shall be effective as
to the Option without the Optionee's consent insofar as it may adversely affect
the Optionee's rights under this Agreement.
11. Not an Employment Contract. Nothing in the Plan, in this
Agreement or any other instrument executed pursuant thereto shall confer upon
the Optionee any right to employment by API, the Company or any Subsidiary or
shall affect the right of the Company to terminate the employment of the
Optionee with or without cause (as defined in Section 4).
12. Governing Law. All terms of and rights under this
Agreement shall be governed by and construed in accordance with the internal law
of the State of New York, without giving effect to principles of conflicts of
law.
13. Taxes. The Committee may, in its discretion, make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local and other taxes required by law to be
withheld with respect to the issuance or exercise of the Option including, but
not limited to, deducting the amount of any such withholding taxes from any
other amount then or thereafter payable to the Optionee, requiring the Optionee
to pay to the Company the amount required to be withheld or to execute such
documents as the Committee deems necessary or desirable to enable it to satisfy
its withholding obligations, or any other means provided in the Plan.
14. Notices. All notices, requests, demands and other
communications pursuant to this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered, telexed or telecopied
to, or, if mailed, when received by, the other party at the following addresses
(or at such other address as shall be given in writing by either party to the
other):
If to the Company to:
Acorn Products, Inc.
500 Dublin Avenue
Columbus, Ohio 43216-1930
Attention: Secretary
If to the Optionee, to the address set forth below the
Optionee's signature below.
15. Amendments and Waivers. This Agreement may be amended, and
any provision hereof may be waived, only by a writing signed by both parties
hereto.
16. Entire Agreement. This Agreement, together with the Plan,
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and
<PAGE> 6
EXHIBIT 10.5
supersedes all prior oral and written and all contemporaneous oral discussions,
agreements and understandings of any kind or nature.
17. Separability. In the event that any provision of this
Agreement is declared to be illegal, invalid or otherwise unenforceable by a
court of competent jurisdiction, such provision shall be reformed, if possible,
to the extent necessary to render it legal, valid and enforceable, or otherwise
deleted, and the remainder of this Agreement shall not be affected except to the
extent necessary to reform or delete such illegal, invalid or unenforceable
provision.
18. Headings. The headings preceding the text of the sections
hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
19. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
20. Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement.
21. Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective permitted
successors and assigns.
22. Restrictions on Transfers During Lock-Up Period. Prior to
[ , 1997], the expiration of the lock-up period in connection with
API's initial public offering, Option Shares acquired upon exercise of an Option
shall not be transferable or transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) except that the Optionee may
transfer such Option Shares to his or her spouse, child, estate, personal
representative, heir or successor or to a trust for the benefit of the Optionee
or his or her spouse, child or heir. This restriction shall be binding on and
enforceable against any person who is a permitted transferee of such Option
Shares. The stock certificates issued to evidence such Option Shares upon
exercise of the Option hereunder may bear a legend referring to this
restriction.
<PAGE> 7
EXHIBIT 10.5
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the Effective Date.
ACORN PRODUCTS, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
OPTIONEE
________________________________________
[Name]
Address: [Address]
<PAGE> 1
EXHIBIT 10.9
------------------------------------------------------------------------------
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF MAY 20, 1997
Among
UNIONTOOLS, INC.
as Borrower
HELLER FINANCIAL, INC.
as Agent and as a Lender
SANWA BUSINESS CREDIT CORPORATION
as a Lender
FLEET CAPITAL CORPORATION
as a Lender
PNC BANK, OHIO NATIONAL ASSOCIATION
as a Lender
BANKBOSTON, N.A., formerly known as
The First National Bank Of Boston
as a Lender
and
STAR BANK, N.A.
as a Lender
------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
SECTION 1
AMOUNTS AND TERMS OF LOANS................................................. 2
1.1 Loans.................................................... 2
1.2 Interest and Related Fees................................ 7
1.3 Other Fees and Expenses.................................. 11
1.4 Payments................................................. 11
1.5 Prepayments.............................................. 12
1.6 Term of the Agreement.................................... 13
1.7 Loan Accounts............................................ 13
1.8 Capital Adequacy and Other Adjustments................... 14
1.9 Taxes.................................................... 14
1.10 Optional Prepayment/Replacement of Lender in Respect of
Increased Costs.......................................... 16
SECTION 2
AFFIRMATIVE COVENANTS...................................................... 16
2.1 Compliance With Laws..................................... 16
2.2 Maintenance of Properties; Insurance..................... 17
2.3 Inspection; Lender Meeting............................... 17
2.4 Corporate Existence, Etc................................. 18
2.5 Further Assurances....................................... 18
SECTION 3
NEGATIVE COVENANTS......................................................... 18
3.1 Indebtedness............................................. 18
3.2 Liens and Related Matters................................ 19
3.3 Investments; Joint Ventures.............................. 20
3.4 Contingent Obligations................................... 21
3.5 Restricted Junior Payments............................... 22
3.6 Restriction on Fundamental Changes....................... 23
3.7 Disposal of Assets or Subsidiary Stock................... 24
3.8 Transactions with Affiliates............................. 24
3.9 Management Fees and Compensation......................... 24
3.10 Conduct of Business...................................... 24
3.11 Changes Relating to Subordinated Indebtedness............ 25
3.12 Fiscal Year.............................................. 25
3.13 Press Release; Public Offering Materials................. 25
3.14 Subsidiaries............................................. 25
3.15 Bank Accounts............................................ 25
3.16 Non-Operating Expenditures............................... 25
SECTION 4
FINANCIAL COVENANTS/REPORTING.............................................. 25
4.1 Capital Expenditure Limits............................... 25
(i)
<PAGE> 3
4.2 Lease Limits............................................. 26
4.3 EBIDAT................................................... 26
4.4 Fixed Charge Coverage.................................... 26
4.5 Total Interest Coverage.................................. 27
4.6 Total Indebtedness to Operating Cash Flow Ratio.......... 28
4.7 [Intentionally Deleted.]................................. 28
4.8 [Intentionally Deleted.]................................. 28
4.9 [Intentionally Deleted.]................................. 28
4.10 Financial Statements and Other Reports................... 28
4.11 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement............................. 32
SECTION 5
REPRESENTATIONS AND WARRANTIES............................................. 32
5.1 Disclosure............................................... 32
5.2 No Material Adverse Effect............................... 32
5.3 No Default............................................... 33
5.4 Organization, Powers, Capitalization and Good Standing... 33
5.5 Financial Statements..................................... 33
5.6 Intellectual Property.................................... 34
5.7 Investigations, Audits, Etc.............................. 34
5.8 Employee Matters......................................... 34
5.9 Solvency................................................. 34
SECTION 6
DEFAULT, RIGHTS AND REMEDIES............................................... 34
6.1 Event of Default......................................... 34
6.2 Suspension of Commitments................................ 38
6.3 Acceleration............................................. 38
6.4 Performance by Agent..................................... 38
SECTION 7
EFFECTIVENESS OF THIS AGREEMENT AND CONDITIONS TO LOANS.................... 39
7.1 Effectiveness of this Agreement.......................... 39
7.2 Conditions to All Loans.................................. 40
SECTION 8
ASSIGNMENT AND PARTICIPATION............................................... 40
8.1 Assignments and Participations in Loans and Notes........ 40
8.2 Agent.................................................... 42
8.3 Amendments, Consents and Waivers for Certain Actions..... 46
8.4 Set Off and Sharing of Payments.......................... 47
8.5 Disbursement of Funds.................................... 47
8.6 Disbursements of Advances; Payment....................... 47
(ii)
<PAGE> 4
SECTION 9
MISCELLANEOUS.............................................................. 50
9.1 Indemnities.............................................. 50
9.2 Amendments and Waivers................................... 50
9.3 Notices.................................................. 51
9.4 Failure or Indulgence Not Waiver; Remedies Cumulative.... 52
9.5 Marshalling; Payments Set Aside.......................... 52
9.6 Severability............................................. 52
9.7 Lenders' Obligations Several; Independent Nature of
Lenders' Rights ......................................... 52
9.8 Headings................................................. 52
9.9 Applicable Law........................................... 52
9.10 Successors and Assigns................................... 52
9.11 No Fiduciary Relationship................................ 53
9.12 Construction............................................. 53
9.13 Confidentiality.......................................... 53
9.14 Consent to Jurisdiction and Service of Process........... 53
9.15 Waiver of Jury Trial..................................... 54
9.16 Survival of Warranties and Certain Agreements............ 54
9.17 Entire Agreement......................................... 54
9.18 Counterparts; Effectiveness.............................. 55
SECTION 10
DEFINITIONS................................................................ 55
10.1 Certain Defined Terms.................................... 55
10.2 Other Definitional Provisions............................ 60
(iii)
<PAGE> 5
INDEX OF DEFINED TERMS
Defined Term Defined in Section
------------ ------------------
Accounting Changes Section 4.11
Acquisition Loans Section 1.1(C)
Acquisition Loan Commitment Section 1.1(C)
Adjusted Total Indebtedness to
Operating Cash Flow Ratio Section 1.2(A)
Affected Lender Section 1.10
Affiliate Section 10.1
Agent Section 10.1
Agreement Section 10.1
Asset Disposition Section 10.1
Assigning Lender Section 8.3(C)
Bankruptcy Code Section 10.1
Base Rate Section 1.2(A)
Base Rate Loans Section 1.2(A)
Base Rate Margin Section 1.2(A)
Borrower Preamble & Section 10.1
Borrowing Base Section 1.1(A)(1)
Borrowing Base Certificate Section 1.1(A)(1)
Business Day Section 10.1
Calculation Period Section 1.2(A)
Capex Limit Section 4.1
Capital Expenditures Section 4.1
Cash Equivalents Section 3.3
Certificate of Exemption Section 1.9(C)
Closing Date Section 10.1
Collateral Section 10.1
Contingent Obligation Section 3.4
Contractual Obligation Section 2.1
Daily Interest Amount Section 8.6(A)(3)
Daily Interest Rate Section 8.6(A)(3)
Daily Loan Balance Section 8.6(A)(3)
Default Section 10.1
EBIDAT Section 4.3
Event of Default Section 6.1
Excess Cash Flow Exhibit 1.5(B)
Excess Revolving Loans Section 1.1(A)(2)
Expiry Date Section 10.1
Fixed Charge Coverage Section 4.4
Foreign Lenders Section 1.9(C)
Funding Date Section 7.2
GAAP Section 10.1
(iv)
<PAGE> 6
Heller Preamble
Holdings 3rd Recital
Indebtedness Section 10.1
Indemnities Section 9.1
Intellectual Property Section 5.6
Interest Period Section 1.2(A)(2)
Interest Ratio Section 8.6(A)(3)
Interest Settlement Date Section 8.6(A)(3)
Investments Section 3.3
IPO 4th Recital
IRC Section 10.1
Lender(s) Section 10.1
Lender Addition Agreement Section 10.1
Lender Letter of Credit Section 1.1(B)
Letter of Non-Exemption Section 1.9(C)
LIBOR Section 1.2(A)(2)
LIBOR Breakage Fee Section 1.3(B)
LIBOR Loans Section 1.2(A)(2)
LIBOR Margin Section 1.2(A)
Lien Section 10.1
Loan(s) Section 10.1
Loan Documents Section 10.1
Loan Party Section 10.1
Loan Year Section 10.1
Material Adverse Effect Section 10.1
Maximum Revolving Loan Balance Section 1.1(A)(1)
Net Proceeds Section 10.1
Note(s) Section 10.1
Oaktree Section 6.1(T)
Obligations Section 10.1
Operating Cash Flow Section 4.6
Original Credit Agreement 1st Recital
Permitted Acquisitions Section 3.3
Permitted Encumbrances Section 3.2(A)
Person Section 10.1
Pro Forma Total Indebtedness to
Operating Cash Flow Ratio Section 1.1(C)
Pro Rata Share Section 10.1
Projections Section 10.1
Related Transactions Section 10.1
Related Transactions Documents Section 10.1
Replacement Lender Section 1.10(A)
Requisite Lenders Section 10.1
Restricted Junior Payment Section 3.5
Revolving Loan Commitment Section 1.1(A)
Revolving Loans Section 1.1(A)
(v)
<PAGE> 7
Risk Participation Agreement Section 1.1(B)
Risk Participation Liability Section 10.1
Scheduled Acquisition Loan Installments Section 1.1(C)
Security Documents Section 10.1
Settlement Date Section 8.6(A)(2)
Statement Section 4.10(B)
Subordinated Indebtedness Section 10.1
Subsidiary Section 10.1
Target Section 1.1(C)
Tax Liabilities Section 1.9(A)
TCW Notes 5th Recital
Total Indebtedness Section 4.6
Total Interest Coverage Section 4.5
(vi)
<PAGE> 8
LIST OF EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit 1.2(G) - LIBOR Loan Request
Exhibit 1.5(B) - Excess Cash Flow Computation
Exhibit 4.10(C) - Compliance Certificate
Exhibit 4.10(F) - Borrowing Base Certificate
Exhibit 10.1(A) - Notes
Schedules
- ---------
Schedule 3.2(A)(10) - Liens
Schedule 3.4 - Contingent Obligations
Schedule 3.8 - Affiliate Transactions
Schedule 3.10 - Business Description
Schedule 3.16 - Non-Operating Expenditures
Schedule 5.3 - Violations, Conflicts, Breaches and Defaults
Schedule 5.4(A) - Jurisdictions of Organization
Schedule 5.4(B) - Capitalization
Schedule 5.4(D) - Foreign Qualifications
Schedule 5.6 - Intellectual Property
Schedule 5.7 - Investigations and Audits
Schedule 5.8 - Employee Matters
(vii)
<PAGE> 9
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is dated as of May 20, 1997 and
entered into by and among UNIONTOOLS, INC., a Delaware corporation ("Borrower"),
with its principal place of business at 500 Dublin Avenue, Columbus, Ohio 43216,
HELLER FINANCIAL, INC., a Delaware corporation ("Heller"), with offices at 500
West Monroe Street, Chicago, Illinois 60661, in its capacity as a Lender (as
hereinafter defined in Section 10), and in its capacity as Agent (as hereinafter
defined in Section 10) for all Lenders, and such other Persons executing this
Agreement as Lenders.
R E C I T A L S:
WHEREAS, Borrower, Agent and Lenders are parties to that certain Credit
Agreement dated as of December 27, 1996, as amended and modified by Amendment
No. 1 to Credit Agreement dated as of February 28, 1997 (as so amended and
modified, the "Original Credit Agreement"), pursuant to which Lenders extended a
certain term credit facility, revolving credit facility and acquisition credit
facility to Borrower, to fund the repayment of certain indebtedness of Borrower,
to provide working capital financing for Borrower, to fund certain permitted
acquisitions, and to provide funds for other general corporate purposes of
Borrower; and
WHEREAS, Borrower secured all of its Obligations (as hereinafter defined
in Section 10) under the Loan Documents (as hereinafter defined in Section 10)
by granting to Agent, for the benefit of Agent and Lenders, a security interest
in and lien upon substantially all of its personal and real property; and
WHEREAS, Acorn Products, Inc., a Delaware corporation formerly known as
Vision Hardware Group, Inc. ("Holdings"), which owns all of the issued and
outstanding capital stock of Borrower, guaranteed all of the Obligations of
Borrower to Lenders under the Loan Documents and pledged to Agent, for the
benefit of Agent and Lenders, all of the capital stock of Borrower to secure
such guaranty; and
WHEREAS, Holdings intends to make an initial public offering of its Common
Stock pursuant to Registration Statement Number 333-25325 filed on Form S-1
pursuant to the Securities Act of 1933 ("IPO"); and
WHEREAS, one-half of the net proceeds of the IPO shall be used first to
pay accrued but unpaid dividends on the Series A Preferred Stock of Holdings,
second to redeem such Series A Preferred Stock, third to pay accrued but unpaid
interest on the $25,000,000 Subordinated Unsecured Promissory Note and the
$6,304,167 Temporary Subordinated Unsecured Promissory Note, both dated May 26,
1994 and executed by Holdings to the order of TCW Special Credits, a California
general partnership (collectively, the "TCW Notes"), and fourth to repay the
principal balance of the TCW Notes; and any balance of the TCW Notes and
<PAGE> 10
such Series A Preferred Stock remaining outstanding shall be converted into
Common Stock of Holdings at the IPO price; and
WHEREAS, the remainder of the net proceeds of the IPO shall be used first
to satisfy, in whole or in part, the principal balance of the Term Loan (as
defined in the Original Credit Agreement), and then to satisfy, in whole or in
part, the principal balance of the Acquisition Loans; and any remaining
principal balance of such Term Loan shall be added to the principal balance of
the Acquisition Loans; and
WHEREAS, the parties now desire to amend and restate the Original Credit
Agreement upon the terms and provisions set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Agent and Lenders agree as
follows:
SECTION 1
AMOUNTS AND TERMS OF LOANS
1.1 Loans. Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Borrower contained herein:
(A) Revolving Loans.
(1) Subject to the satisfaction of the terms and conditions
set forth herein and in reliance upon the representations and warranties set
forth herein, each Lender agrees, severally and not jointly, to lend to Borrower
from the Closing Date to the Expiry Date its Pro Rata Share of the loans
requested by Borrower to be made by Lenders under this subsection 1.1(A), up to
an aggregate maximum for all Lenders of $30,000,000 (as the same may be reduced
from time to time hereunder, the "Revolving Loan Commitment"). Advances or
amounts outstanding under the Revolving Loan Commitment will be called
"Revolving Loans". Revolving Loans may be repaid and reborrowed. The "Maximum
Revolving Loan Balance" will be the lesser of (a) the "Borrowing Base" (as
calculated on Exhibit 4.10(F), the "Borrowing Base Certificate") or (b) the
Revolving Loan Commitment less outstanding Risk Participation Liability. If at
any time the outstanding Revolving Loans exceed the Maximum Revolving Loan
Balance (as it may be deemed increased from time to time pursuant to subsection
1.1(A)(2)), Lenders shall not be obligated to make Revolving Loans and issue
Lender Letters of Credit and Risk Participation Agreements, and Revolving Loans
must be repaid immediately, in an amount sufficient to eliminate any excess.
Revolving Loans may be requested in any amount with one (1) Business Day prior
notice required for amounts greater than $5,000,000. For amounts less than
$5,000,000, written or telephonic notice must be provided by noon CT on the day
on which the Loan is to be made. All LIBOR Loans require three (3) Business Days
notice. All Loans requested telephonically must be confirmed in writing within
twenty-four (24) hours. Neither Agent nor any Lender shall incur any liability
to Borrower for acting upon any telephonic notice that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to borrow on behalf of Borrower.
2
<PAGE> 11
(2) If Borrower requests that Lenders make, or permit to
remain outstanding, Revolving Loans in an aggregate amount in excess of the
Borrowing Base, Requisite Lenders may in their discretion elect to cause all
Lenders to make, or permit to remain outstanding, such excess Revolving Loans
(such Revolving Loans in excess of the Borrowing Base being referred to as
"Excess Revolving Loans"), provided that, Requisite Lenders may not cause all
Lenders to make, or permit to remain outstanding, aggregate Revolving Loans in
excess of the Revolving Loan Commitment or Excess Revolving Loans in excess of
15% of the Revolving Loan Commitment. If Excess Revolving Loans are made, or
permitted to remain outstanding, pursuant to the preceding sentence, then (a)
the Maximum Revolving Loan Balance shall be deemed increased by the amount of
such Excess Revolving Loans, but only for so long as Requisite Lenders allow
such Excess Revolving Loans to be outstanding and (b) all Lenders that have
committed to make Revolving Loans shall be bound to make, or permit to remain
outstanding, such Excess Revolving Loans based upon their Pro Rata Shares in
accordance with the terms of this Agreement. If Excess Revolving Loans remain
outstanding for more than ninety (90) days during any 360-day period, Revolving
Loans must be repaid immediately, in an amount sufficient to eliminate all of
such Excess Revolving Loans.
(B) Letters of Credit and Risk Participation Agreements. The
Revolving Loan Commitment may, in addition to advances under the Revolving Loan,
be utilized, upon the request of Borrower, for (i) the issuance of letters of
credit for the benefit of Borrower by Agent, including without limitation a
letter of credit issued for the account of Holdings in the amount of $1,000,000
with respect to certain insurance maintained for the benefit of Borrower (each
such letter of credit, a "Lender Letter of Credit") or (ii) the issuance by
Agent of risk participation agreements (each such agreement, a "Risk
Participation Agreement") to confirm payment to banks which issue letters of
credit for the account of Borrower.
(1) Maximum Amount. The aggregate amount of Risk Participation
Liability with respect to all Lender Letters of Credit and Risk Participation
Agreements outstanding for the account of Borrower at any time shall not exceed
$3,000,000.
(2) Reimbursement. Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent for any amounts paid by Agent
with respect to a Lender Letter of Credit or a Risk Participation Agreement
issued for the account of Borrower, including all fees, costs and expenses paid
by Agent to any bank that issues letters of credit. Borrower hereby authorizes
and directs Agent, at Agent's option, to make a Revolving Loan in the amount of
any payment made by Agent with respect to any Lender Letter of Credit or any
Risk Participation Agreement. All amounts paid by Agent with respect to any
Lender Letter of Credit or Risk Participation Agreement that are not immediately
repaid by Borrower with the proceeds of a Revolving Loan or otherwise shall bear
interest at the interest rate applicable to Revolving Loans calculated using the
Base Rate. Each Lender agrees to fund its Pro Rata Share of any Revolving Loan
made pursuant to this subsection 1.1(B)(2). If no such Revolving Loan is made,
each Lender agrees to purchase, and shall be deemed to have purchased, a
participation in such Lender Letter of Credit or Risk Participation Agreement,
as the case may be, in an amount equal to its Pro Rata Share of the Risk
Participation Liability of such Lender Letter of Credit or Risk Participation
Agreement, as the case may be, and each Lender agrees to pay to Agent such
Lender's Pro Rata
3
<PAGE> 12
Share of any payments made by Agent under such Lender Letter of Credit and Risk
Participation Agreement. The obligation of each Lender to deliver to Agent an
amount equal to its respective Pro Rata Share pursuant to the preceding two (2)
sentences shall be absolute and unconditional and such remittance shall be made
notwithstanding the occurrence or continuation of an Event of Default or Default
or the failure to satisfy any condition set forth in subsection 7.2. If any
Lender fails to make available to Agent the amount of such Lender's Pro Rata
Share of any payments made by Agent in respect of such Lender Letter of Credit
or Risk Participation Agreement as provided in this subsection 1.1(B)(2), Agent
shall be entitled to recover such amount on demand from such Lender together
with interest at the Base Rate.
(3) Conditions of Issuance of Letters of Credit or Risk
Participation Agreements. In addition to all other terms and conditions set
forth in this Agreement, the issuance by Agent of any Lender Letter of Credit or
Risk Participation Agreement shall be subject to the conditions precedent that
the Lender Letter of Credit, the Risk Participation Agreement or the letter of
credit for which Borrower requests a Risk Participation Agreement shall support
a transaction entered into in the ordinary course of Borrower's business and
shall be in such form, be for such amount, and contain such terms and conditions
as are reasonably satisfactory to Agent. The expiration date of each Lender
Letter of Credit and each letter of credit to be issued under a Risk
Participation Agreement shall be on a date which is the earlier of (a) one year
from its date of issuance, or (b) the thirtieth (30th) day before the date set
forth in clause (c) of the definition of the term Expiry Date. Each Risk
Participation Agreement shall provide that the agreement terminates and all
demand or claims for payment must be presented by a date certain, which date
will be at least thirty (30) days before the date set forth in clause (c) of the
definition of the term Expiry Date.
(4) Request for Lender Letters of Credit or Risk Participation
Agreements. Borrower shall give Agent at least three (3) Business Days prior
notice specifying the date a Lender Letter of Credit or Risk Participation
Agreement (or a letter of credit to be issued under a Risk Participation
Agreement) is requested to be issued, identifying the beneficiary and describing
the nature of the transactions proposed to be supported thereby. After the
issuance of a Risk Participation Agreement in favor of a bank that will issue
letters of credit on behalf of Borrower, Borrower shall give Agent at least two
(2) Business Days prior written notice specifying the date a letter of credit is
to be issued under a Risk Participation Agreement (five (5) Business Days in the
case of the first letter of credit to be issued under a particular Risk
Participation Agreement), identifying the beneficiary and describing the nature
of the transactions proposed to be supported thereby. Any notice described in
this paragraph shall be accompanied by the form of the Lender Letter of Credit
or the letter of credit to which such Risk Participation Agreement relates.
(C) Acquisition Loans. Subject to the satisfaction of the terms and
conditions set forth herein and in reliance upon the representations and
warranties set forth herein, each Lender agrees, severally and not jointly, to
lend to Borrower from the Closing Date to the third anniversary thereof its Pro
Rata Share of the loans requested by Borrower (upon not less than thirty (30)
days prior written notice to Agent) to be made by Lenders under this subsection
1.1(C) (the "Acquisition Loans"), up to an aggregate maximum for all Lenders of
$35,000,000 (the "Acquisition Loan Commitment"). An Acquisition Loan shall be
made only upon the
4
<PAGE> 13
acquisition by Borrower of all of the issued and outstanding capital stock of
another Person, or of all or substantially all of the assets of another Person
or of a division of another Person (a "Target") and shall be limited in amount
to the purchase price of such acquisition, and the proceeds of the Acquisition
Loan may be used only to fund such purchase price. Amounts borrowed under this
subsection 1.1(C) and repaid may not be reborrowed, except for such amounts
repaid from the net proceeds of the IPO as set forth in the Recitals hereof. The
obligations of Lenders to make any Acquisition Loan are further subject to the
following conditions precedent:
(1) At least ten (10) Business Days prior to the acquisition
of the subject Target, Agent shall have received a certificate demonstrating
compliance with subsections 1.1(C)(3), (4), (5), (6) and (7);
(2) Agent shall have received such financial and other
information concerning the subject Target as Agent may reasonably request;
(3) Requisite Lenders shall have approved the acquisition of
the subject Target, provided, however, that such approval shall not be required
if the purchase price for the subject Target is not greater than $7,500,000 and
the sum of the purchase price for the subject Target plus the purchase price(s)
for any other Target(s) previously acquired by Borrower during the then current
Loan Year, is not greater than $15,000,000;
(4) The subject Target's EBIDAT (as defined in Exhibit
4.10(C)) during the twelve (12) months immediately preceding the acquisition of
the subject Target, plus those expenses deducted in calculating such earnings
that would be eliminated upon such acquisition (as agreed to by Requisite
Lenders), shall have been positive;
(5) Based upon the financial performance of both Borrower and
the subject Target during the twelve (12) months immediately preceding the
acquisition of the subject Target, the combined financial performance of
Borrower and the subject Target would comply with the financial covenants set
forth in Article 4 hereof after giving effect to the Acquisition Loan;
(6) The Maximum Revolving Loan Balance as of the acquisition
of the subject Target must exceed the Revolving Loans then outstanding by not
less than the applicable amount set forth below (based upon the period in which
such acquisition occurs), after giving effect to such acquisition:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
January 1 through March 31 of any calendar year $6,000,000
April 1 through June 30 of any calendar year $7,000,000
July 1 through September 30 of any calendar year $9,000,000
October 1 through December 31 of any calendar year $8,000,000
</TABLE>
5
<PAGE> 14
(7) Based upon the financial performance of both Borrower and
the subject Target during the twelve (12) months immediately preceding the
acquisition of the subject Target, the Pro Forma Total Indebtedness to Operating
Cash Flow Ratio of Borrower and the subject Target on a pro forma combined basis
would not be more than 4.25:1 as of the last day of any month in the first Loan
Year, 4.00:1 as of the last day of any month in the second Loan Year and 3.75:1
as of the last day of any month in the third Loan Year. For the purposes of this
subsection 1.1(C)(7), "Pro Forma Total Indebtedness to Operating Cash Flow
Ratio" means the ratio of (i) the sum of (a) the average daily principal balance
of the Revolving Loans during the twelve (12) month period ending on the last
day of the subject month (for any month preceding the Closing Date, such average
daily principal balance shall be deemed to be $13,000,000), plus (b) the
aggregate outstanding principal balance of the Acquisition Loans, the Lender
Letters of Credit and Risk Participation Agreements as of the last day of such
month plus (c) all other Indebtedness for borrowed money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of such month, to (ii)
Operating Cash Flow (calculated as illustrated on Exhibit 4.10(C)) for the
twelve (12) month period ending on the last day of such month;
(8) The subject Target shall be in the same or similar type of
business as Borrower;
(9) No event shall have occurred and be continuing or would
result from the acquisition of the subject Target or the Acquisition Loan which
would reasonably be expected to cause a Material Adverse Effect; and
(10) No event shall have occurred and be continuing or would
result from the acquisition of the subject Target or the Acquisition Loan that
would constitute an Event of Default or a Default.
On the dates indicated below, Borrower shall repay the Acquisition Loans
through periodic installments in the amounts equal to the applicable percentage
of the Acquisition Loans outstanding as of the third anniversary of the Closing
Date ("Scheduled Acquisition Loan Installments").
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
Each September 30th of calendar years
2000, 2001 and 2002 8.333%
Each December 31st of calendar years
2000, 2001 and 2002 2.083%
Each March 31st of calendar years
2001, 2002 and 2003 2.083%
Each June 30th of calendar years 2001
and 2002 12.50%
</TABLE>
6
<PAGE> 15
On June 30, 2003, the entire remaining principal balance of the Acquisition
Loans, together with all accrued but unpaid interest thereon, shall be due and
payable in full.
(D) Notes. Borrower shall execute and deliver to each Lender (i) a
Note to evidence the Revolving Loans, such Note to be in the principal amount of
such Lender's Pro Rata Share of the Revolving Loan Commitment and (ii) a Note to
evidence the Acquisition Loans, such Note to be in the principal amount of such
Lender's Pro Rata Share of the Acquisition Loan Commitment. In the event of an
assignment under subsection 8.1, Borrower shall, upon surrender of the assigning
Lender's Notes, issue new Notes to reflect the interests of the assigning Lender
and the Person to which interests are to be assigned.
1.2 Interest and Related Fees.
(A) Interest. From the date the Loans are made and the date the
other Obligations become due, depending upon Borrower's election from time to
time, as permitted herein, to have portions of the Loans accrue interest based
upon the LIBOR, the Loans and the other Obligations shall bear interest at the
rates set forth in paragraphs (1) and (2)below:
(1) If a Base Rate Loan, then at the sum of the Base Rate plus
the Base Rate Margin then applicable.
(2) If a LIBOR Loan, then at the sum of the LIBOR plus the
LIBOR Margin then applicable.
"Base Rate" means a variable rate of interest per annum equal to the
rate of interest from time to time published by the Board of Governors of the
Federal Reserve System in Federal Reserve statistical release H.15 (519)
entitled "Selected Interest Rates" as the Bank prime loan rate. Base Rate also
includes rates published in any successor publications of the Federal Reserve
System reporting the Bank prime loan rate or its equivalent. The statistical
release generally sets forth a Bank prime loan rate for each business day. The
applicable Bank prime loan rate for any date not set forth shall be the rate set
forth for the last preceding date. In the event the Board of Governors of the
Federal Reserve System ceases to publish a Bank prime loan rate or equivalent,
the term "Base Rate" shall mean a variable rate of interest per annum equal to
the highest of the "prime rate," "reference rate," "base rate" or other similar
rate as determined by Agent announced from time to time by any of Bankers Trust
Company, The Chase Manhattan Bank, National Association and Citibank, N.A. (with
the understanding that any such rate may merely be a reference rate and may not
necessarily represent the lowest or best rate actually charged to any customer
by such bank).
"Base Rate Loans" means Loans bearing interest at rates determined
by reference to the Base Rate.
"Base Rate Margin" shall mean, (i) for the period commencing on the
Closing Date and ending on January 1, 1998, three quarters of one percent
(0.75%) per annum, and (ii) for each period commencing on January 2, 1998, or
any subsequent first Business Day of a calendar quarter after Agent has received
a new Compliance Certificate delivered by Borrower
7
<PAGE> 16
pursuant to subsection 4.10(C) (each such First Business Day being hereinafter
referred to as an "Adjustment Date"), and ending on the day immediately
preceding each subsequent Adjustment Date (each such period being hereinafter
referred to as a "Calculation Period"), the applicable percent per annum set
forth in the pricing table below opposite the Adjusted Total Indebtedness to
Operating Cash Flow Ratio calculated for such Calculation Period.
"LIBOR" means, for each Interest Period, a rate equal to: (a) the
rate of interest determined by Agent at which deposits in U.S. dollars for the
relevant Interest Period are offered based on information presented on the
Reuters Screen LIBO Page as of 11:00 a.m. (London time) on the day which is two
(2) Business Days prior to the first day of such Interest Period, provided that
if at least two such offered rates appear on the Reuters Screen LIBO Page in
respect of such Interest Period, the arithmetic mean of all such rates will be
the rate used, provided, further, that if fewer than two offered rates appear or
if Reuters ceases to provide LIBOR quotations, such rate shall be the rate of
interest at which deposits in U.S. dollars are offered for the relevant Interest
Period by any of Bankers Trust Company, The Chase Manhattan Bank, National
Association or Citibank, N.A. to prime banks in the London interbank market,
divided by (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days prior to the
beginning of such Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto, as now and from time to time in
effect) for Eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) which are required to be maintained
by a member bank of the Federal Reserve System; such rate to be rounded upward
to the next whole multiple of one-sixteenth of one percent (.0625%).
"LIBOR Loans" means Loans bearing interest at rates determined by
reference to the LIBOR.
"LIBOR Margin" shall mean, (i) for all LIBOR Loans having an
Interest Period commencing during the period commencing on the Closing Date and
ending on the day immediately preceding the first Adjustment Date, two and three
quarters percent (2.75%) per annum, and (ii) for all LIBOR Loans having an
Interest Period commencing during a subsequent period commencing on an
Adjustment Date and ending on the day immediately preceding the subsequent
Adjustment Date (each such period being hereinafter referred to as a
"Calculation Period"), the applicable percent per annum set forth in the pricing
table below opposite the Adjusted Total Indebtedness to Operating Cash Flow
Ratio calculated for such Calculation Period.
For the purposes of this subsection 1.2(A), "Adjusted Total
Indebtedness to Operating Cash Flow Ratio" means, for any Calculation Period,
the ratio of (i) the sum of (a) the average daily principal balance of the
Revolving Loans during the twelve (12) month period ending on the last day of
the month for which the Compliance Certificate most recently delivered pursuant
to subsection 4.10(C) was prepared, plus (b) the aggregate outstanding principal
balance of the Acquisition Loans, the Lender Letters of Credit and Risk
Participation Agreements as of the last day of such month plus (c) all other
Indebtedness for borrowed money of the Borrower
8
<PAGE> 17
and its Subsidiaries on a consolidated basis as of the last day of such month,
to (ii) Operating Cash Flow (calculated as illustrated on Exhibit 4.10(C)) for
the twelve (12) month period ending on the last day of such month.
PRICING TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Adjusted Total Indebtedness
to Operating Cash
Flow Ratio Base Rate Margin LIBOR Margin
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Greater than 3.75:1 0.75% 2.75%
- ----------------------------------------------------------------------------------------
Equal to or greater than 3.00:1 but equal to or less 0.50% 2.50%
than 3.75:1
- ----------------------------------------------------------------------------------------
Less than 3:00:1 0.25% 2.25%
- ----------------------------------------------------------------------------------------
</TABLE>
If Borrower shall fail to deliver a Compliance Certificate by the
date required pursuant to subsection 4.10(C), effective as of the first Business
Day of the immediately succeeding calendar month and continuing through the day
preceding the next succeeding Adjustment Date, each applicable Base Rate Margin
and each applicable LIBOR Margin shall be conclusively presumed to equal the
highest Base Rate Margin and the highest LIBOR Margin specified in the pricing
table set forth above.
Each LIBOR Loan may be obtained for a one (1), two (2), three (3),
or six (6) month period (each being an "Interest Period"). With respect to all
LIBOR Loans: (a) the Interest Period will commence on the date that the LIBOR
Loan is made or the date on which a Base Rate Loan is converted into a LIBOR
Loan, as applicable, or in the case of immediately successive Interest Periods,
each successive Interest Period shall commence on the day on which the next
preceding Interest Period expires, (b) if the Interest Period expires on a day
that is not a Business Day, then it will expire on the next Business Day, and
(c) no Interest Period shall extend beyond the date set forth in clause (c) of
the definition of the term "Expiry Date."
If the introduction of or the interpretation of any law, rule, or
regulation would increase the reserve requirement or otherwise increase the cost
to any Lender of making or maintaining a LIBOR Loan, then Agent, on behalf of
all affected Lenders, shall submit a certificate to Borrower demonstrating the
calculation of the increased cost and requiring payment thereof to Agent for the
benefit of the affected Lenders within ten (10) days after the date of the
certificate. There are no limitations on the number of times such certificate
may be submitted.
(B) Unused Line Fees. On the first day of each month, Borrower shall
pay Agent, for the benefit of all Lenders committed to make Revolving Loans and
Acquisition Loans (based upon their respective Pro Rata Shares), an unused line
fee in an amount equal to one-half of one percent (0.5%) per annum of the sum of
(1) the amount by which the Revolving Loan Commitment exceeded the average daily
outstanding Revolving Loans, Lender Letters of Credit and Risk Participation
Agreements during the immediately preceding month, plus (2) the amount
9
<PAGE> 18
by which the Acquisition Loan Commitment exceeded the average daily outstanding
Acquisition Loans during the immediately preceding month.
(C) Risk Participation Fee. From the Closing Date, Borrower shall
pay Agent, for the benefit of all Lenders committed to make Revolving Loans
(based upon their respective Pro Rata Shares), a fee for each Lender Letter of
Credit and each Risk Participation Agreement, from the date of issuance to the
date of termination, equal to (1) the average daily outstanding amount of the
Risk Participation Liability, multiplied by (2) two and three quarters percent
(2.75%) per annum. Such fee is to be paid monthly in arrears on the first day of
each month. Borrower shall also reimburse Agent for any and all fees and
expenses paid to the issuer of any letter of credit that is in any way related
to a Risk Participation Agreement.
(D) Computation of Interest and Related Fees. Interest on all Loans
and all other Obligations and any fees set forth in this subsection 1.2 shall be
calculated daily on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed in the period during which it accrues. The date of
funding a Base Rate Loan and the first day of an Interest Period with respect to
a LIBOR Loan shall be included in the calculation of interest. The date of
payment of a Base Rate Loan and the last day of an Interest Period with respect
to a LIBOR Loan shall be excluded from the calculation of interest. If a Loan is
repaid on the same day that it is made, one (1) days' interest shall be charged.
Interest on all Base Rate Loans is payable in arrears on the first day of each
calendar quarter and on the Expiry Date, whether by acceleration or otherwise.
Interest on LIBOR Loans shall be payable on the last day of the applicable
Interest Period, unless the Interest Period is greater than three (3) months, in
which case interest will be payable on the last day of each three (3) month
interval. In addition, interest on LIBOR Loans is due on the Expiry Date,
whether by acceleration or otherwise.
(E) Default Rate of Interest. At the election of Agent or Requisite
Lenders, after the occurrence of an Event of Default and for so long as it
continues, the Loans and other Obligations shall bear interest at a rate that is
two percent (2%) in excess of the rates otherwise payable under this Agreement.
Furthermore, during any period in which any Event of Default is continuing, as
the Interest Periods for LIBOR Loans then in effect expire, such Loans shall be
converted at Agent's discretion into Base Rate Loans and the LIBOR election will
not be available to Borrower until all Events of Default are cured or waived.
(F) Excess Interest. Under no circumstances will the rate of
interest chargeable be in excess of the maximum amount permitted by law. If
excess interest is charged and paid in error, then the excess amount will be
promptly refunded.
(G) LIBOR Rate Election. Borrower may request, upon not less than
three (3) Business Days' notice to Agent, that Revolving Loans to be made be
LIBOR Loans and that outstanding portions of the Acquisition Loans be converted
to LIBOR Loans. Agent shall provide a copy of any such request to each Lender at
least two (2) Business Days prior to the commencement of the subject Interest
Period. Any such request, which will be made by submitting a LIBOR Loan request,
in the form of Exhibit 1.2(G), shall pertain to Loans in an aggregate minimum
amount of $500,000 and integral multiples of $10,000 in excess thereof. Once
given, a LIBOR Loan request shall be irrevocable and Borrower shall be bound
thereby.
10
<PAGE> 19
Upon the expiration of an Interest Period, in the absence of a new LIBOR Loan
request submitted to Agent not less than three (3) Business Days prior to the
end of such Interest Period, the LIBOR Loan then maturing shall be automatically
converted to a Base Rate Loan. There may be no more than six (6) LIBOR Loans
outstanding at any one time. Loans which are not the subject of a LIBOR Loan
request shall be Base Rate Loans.
1.3 Other Fees and Expenses.
(A) Certain Fees. Borrower shall pay to Heller, individually, on
each December 30th, the fees specified in that certain letter agreement dated
November 20, 1996 between Borrower and Heller. On the Closing Date, Borrower
shall pay Agent, for the benefit of all Lenders (based upon their respective Pro
Rata Shares), an amendment fee in the amount of $75,000.
(B) LIBOR Breakage Fee. Upon any payment of a LIBOR Loan on any day
that is not the last day of the Interest Period applicable thereto (regardless
of the source of such prepayment and whether voluntary, by acceleration or
otherwise) or if for any reason (other than a default by Agent or Lenders) a
borrowing or advance of, or conversion to or continuation of, a LIBOR Loan does
not take place on the date specified therefor, Borrower shall pay Agent, for the
benefit of all affected Lenders, an amount (the "LIBOR Breakage Fee") equal to
the amount of any losses, expenses and liabilities (including, without
limitation, any loss (including interest paid) sustained by each such affected
Lender in connection with the re-employment of such funds) that any such
affected Lender may sustain as a result of the payment of such LIBOR Loan on a
day that is not the last day of the Interest Period applicable thereto or as a
result of a borrowing or advance of, or conversion to or continuation of, a
LIBOR Loan not taking place on the date specified therefor.
(C) Expenses and Attorneys Fees. Borrower agrees to promptly pay the
reasonable fees, out-of-pocket costs and expenses (including those of attorneys)
incurred by Agent in connection with any matters contemplated by or arising out
of the Loan Documents, in connection with the examination, review, due diligence
investigation, documentation, negotiation and closing of the transactions
contemplated herein and in connection with the continued administration of the
Loan Documents including any amendments, modifications and waivers. Borrower
agrees to promptly pay all fees, costs and expenses incurred by Agent and
Lenders in connection with any action to enforce any Loan Document or to collect
any payments due from Borrower or any other Loan Party. All fees, costs and
expenses for which Borrower is responsible under this subsection 1.3(C) shall be
deemed part of the Obligations when incurred, payable in accordance with the
final two sentences of subsection 1.4 and secured by the Collateral.
1.4 Payments. All payments by Borrower of the Obligations shall be made in
same day funds and delivered to Agent, for the benefit of Agent and Lenders, as
applicable, by wire transfer to the following account or such other place as
Agent may from time to time designate.
11
<PAGE> 20
ABA No. 0710-0001-3
Account Number 55-00540
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Reference: Heller Corporate Finance Group
for the benefit of UnionTools, Inc.
Borrower shall receive credit on the day of receipt for funds received by Agent
by 1:00 p.m. CST. In the absence of timely receipt, such funds shall be deemed
to have been paid on the next Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest and fees due
hereunder.
Borrower hereby authorizes Lenders to make Revolving Loans, on the
basis of their Pro Rata Shares, for the payment of Scheduled Acquisition Loan
Installments, interest, unused line fees, amendment fees, Risk Participation
Liability fees, LIBOR Breakage Fees, and Risk Participation Liability payments.
Prior to an Event of Default, other fees, costs and expenses (including those of
attorneys) reimbursable to Agent pursuant to subsections 1.3(A) and (C) or
elsewhere in any Loan Document may be debited to the Revolving Loan after
fifteen (15) days notice. After the occurrence of an Event of Default, no prior
notice will be required, but Agent will promptly notify Borrower of the amount
of any such debit.
1.5 Prepayments.
(A) Voluntary Prepayment of Term Loan and Acquisition Loans. At any
time, Borrower may prepay the Acquisition Loans in whole or in part, in minimum
amounts of $500,000, without penalty, but with LIBOR Breakage Fees, if
applicable, after not less than five (5) Business Days' prior written notice to
Agent specifying how such prepayment shall be applied.
(B) Prepayments from Excess Cash Flow. On or before the first (1st)
day of the December following the end of each of its fiscal years, commencing
with the fiscal year ending July 31, 1998, Borrower shall prepay the Loans in an
amount equal to fifty percent (50%) of the Excess Cash Flow for such fiscal year
pursuant to the calculation on Exhibit 1.5(B). The calculation shall be based on
the audited financial statements for Borrower. The payments shall be applied in
accordance with subsection 1.5(E).
(C) Prepayments from Asset Dispositions. Immediately upon receipt of
the Net Proceeds in excess of $250,000 for any single transaction or series of
transactions, or in excess of $500,000 in the aggregate during any fiscal year
of Borrower, Borrower shall repay the outstanding principal balance of the
Revolving Loan by the amount of any reduction in the Borrowing Base attributable
to the Asset Disposition giving rise to such Net Proceeds. Borrower or any
Subsidiary may, upon prior written notice to Agent, reinvest all remaining Net
Proceeds of such Asset Disposition, within ninety (90) days, in productive
replacement assets of a kind
12
<PAGE> 21
then used or usable in the business of Borrower. If Borrower does not intend to
so reinvest such Net Proceeds or if the period set forth in the immediately
preceding sentence expires without Borrower having reinvested such Net Proceeds,
Borrower shall prepay the Loans in an amount equal to the remaining Net Proceeds
of such Asset Disposition. The payments shall be applied in accordance with
subsection 1.5(E).
(D) Prepayment from Issuance of Securities. Unless otherwise agreed
by Requisite Lenders, immediately upon the receipt by Holdings, Borrower or any
of its Subsidiaries of the proceeds of the issuance of equity securities (other
than (1) proceeds of the IPO and any other issuance of equity securities
received on or before the Closing Date, (2) proceeds from the issuance of equity
securities to members of the management of Borrower and (3) proceeds of the
issuance of equity securities to Borrower or any Subsidiary), Borrower shall
prepay the Loans in an amount equal to such proceeds, net of underwriting
discounts and commissions and other reasonable costs associated therewith. The
prepayments under this subsection 1.5(D) shall be applied in accordance with
subsection 1.5(E).
(E) Application of Proceeds. With respect to the mandatory
prepayments described in subsections 1.5(B), 1.5(C) and 1.5(D), such prepayments
shall first be applied in payment of the Acquisition Loans pro rata against all
remaining Scheduled Acquisition Loan Installments and, at any time after the
Acquisition Loans shall have been prepaid in full, such prepayments shall be
applied to reduce the outstanding principal balance of the Revolving Loans and
as a permanent reduction of the Revolving Loan Commitment.
1.6 Term of the Agreement. All of the Obligations shall become due and
payable as otherwise set forth herein, but in any event, all of the remaining
Obligations shall become due and payable on the date set forth in clause (c) of
the definition of the term "Expiry Date." Upon such date and following repayment
in full of the Obligations, this Agreement will terminate. Notwithstanding any
such termination, until all Obligations have been fully paid and satisfied,
Agent, for the benefit of Agent and Lenders, shall be entitled to retain the
security interests in the Collateral granted under the Security Documents and
the ability to exercise all rights and remedies available to them under the Loan
Documents and applicable laws.
1.7 Loan Accounts. Agent will maintain loan account records for (a) all
Loans, interest charges and payments thereof, (b) all Risk Participation
Liability, (c) the charging and payment of all fees, costs and expenses and (d)
all other debits and credits pursuant to this Agreement. The balance in the loan
accounts shall be presumptive evidence of the amounts due and owing to Lenders,
provided that any failure by Agent to so record shall not limit or affect the
Borrower's obligation to pay. Within five (5) days of the first of each month,
Agent shall provide a statement for each loan account setting forth the
principal of each account and interest due thereon. Borrower must deliver a
written objection within sixty (60) days after receipt of the statement or the
statement will be presumptive evidence of the Obligations absent manifest error.
During the continuance of an Event of Default, Borrower irrevocably waives the
right to direct the application of any and all payments and Borrower hereby
irrevocably agrees that Agent shall have the continuing exclusive right to apply
and reapply payments in any manner it deems appropriate.
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1.8 Capital Adequacy and Other Adjustments. In the event that any Lender
shall have determined that the adoption after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, reserve requirements or similar requirements
or compliance by any Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy, reserve requirements or similar
requirements (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) from any central bank or governmental
agency or body having jurisdiction does or shall have the effect of increasing
the amount of capital, reserves or other funds required to be maintained by such
Lender or any corporation controlling such Lender and thereby reducing the rate
of return on such Lender's or such corporation's capital as a consequence of its
obligations hereunder, then Borrower shall from time to time within fifteen (15)
days after notice and demand from such Lender (together with the certificate
referred to in the next sentence and with a copy to Agent) pay to Agent, for the
account of such Lender, additional amounts sufficient to compensate such Lender
for such reduction. A certificate as to the amount of such cost and showing the
basis of the computation of such cost submitted by such Lender to Borrower and
Agent shall, absent manifest error, be final, conclusive and binding for all
purposes.
1.9 Taxes.
(A) No Deductions. Any and all payments or reimbursements made
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (all such taxes, levies,
imposts, deductions, charges or withholdings and all liabilities with respect
thereto excluding such taxes imposed on net income, herein "Tax Liabilities"),
excluding, however, taxes imposed on the net income of a Lender or Agent. If
Borrower shall be required by law to deduct any such amounts from or in respect
of any sum payable hereunder to any Lender or Agent, then the sum payable
hereunder shall be increased as may be necessary so that, after making all
required deductions, such Lender or Agent receives an amount equal to the sum it
would have received had no such deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the
Closing Date, (1) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (2) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (3) compliance by Agent or any Lender with any request or directive
(whether or not having the force of law) from any governmental authority, agency
or instrumentality:
(a) does or shall subject Agent or any Lender to any tax of
any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit or Risk
Participation Agreements issued hereunder, or change the basis of taxation
of payments to Agent or such Lender of principal, fees, interest or any
other amount payable hereunder (except for net income taxes, or franchise
taxes imposed in lieu of net income taxes, imposed generally by federal,
state or local taxing authorities with respect to
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interest or commitment or other fees payable hereunder or changes in the
rate of tax on the overall net income of Agent or such Lender); or
(b) does or shall impose on Agent or any Lender any other
condition or increased cost in connection with the transactions
contemplated hereby or participations herein;
and the result of any of the foregoing is to increase the cost to Agent or any
such Lender of issuing any Lender Letter of Credit or Risk Participation
Agreement or making or continuing any Loan hereunder, as the case may be, or to
reduce any amount receivable hereunder, then, in any such case, Borrower shall
promptly pay to Agent or such Lender, upon its demand, any additional amounts
necessary to compensate Agent or such Lender, on an after-tax basis, for such
additional cost or reduced amount receivable, as determined by Agent or such
Lender with respect to this Agreement or the other Loan Documents. If Agent or
such Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Borrower of the event by reason of which
Agent or such Lender has become so entitled. A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Agent or such
Lender to Borrower and Agent shall, absent manifest error, be final, conclusive
and binding for all purposes.
(C) Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which payments
to be made under this Agreement or under the Notes are exempt from United States
withholding tax or are subject to United States withholding tax at a reduced
rate under an applicable statute or tax treaty shall provide to Borrower and
Agent (1) a properly completed and executed Internal Revenue Service Form 4224
or Form 1001 or other applicable form, certificate or document prescribed by the
Internal Revenue Service of the United States certifying as to such Foreign
Lender's entitlement to such exemption or reduced rate of withholding with
respect to payments to be made to such Foreign Lender under this Agreement and
under the Notes (a "Certificate of Exemption") or (2) a letter from any such
Foreign Lender stating that it is not entitled to any such exemption or reduced
rate of withholding (a "Letter of Non-Exemption"). Prior to becoming a Lender
under this Agreement and within fifteen (15) days after a reasonable written
request of Borrower or Agent from time to time thereafter, each Foreign Lender
that becomes a Lender under this Agreement shall provide a Certificate of
Exemption or a Letter of Non-Exemption to Borrower and Agent.
If a Foreign Lender is not entitled to an exemption or reduced rate
of withholding with respect to payments to be made to such Foreign Lender under
this Agreement or if a Foreign Lender is entitled to an exemption with respect
to payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption to
Borrower and Agent within the time periods set forth in the preceding paragraph,
Borrower shall withhold taxes from payments to such Foreign Lender at the
applicable statutory rates and Borrower shall not be required to pay any
additional amounts as a result of such withholding, provided that all such
withholding shall cease upon delivery by such Foreign Lender of a Certificate of
Exemption to Borrower and Agent.
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1.10 Optional Prepayment/Replacement of Lender in Respect of Increased
Costs. Within fifteen (15) days after receipt by Borrower of written notice and
demand from any Lender (an "Affected Lender") for payment of additional costs as
provided in subsection 1.8, Borrower may, at its option, notify Agent and such
Affected Lender of its intention to do one of the following:
(A) Borrower may obtain, at Borrower's expense, a replacement Lender
("Replacement Lender") for such Affected Lender, which Replacement Lender shall
be reasonably satisfactory to Agent. In the event Borrower obtains a Replacement
Lender within ninety (90) days following notice of its intention to do so, the
Affected Lender shall sell and assign its Loans and its obligations under the
Revolving Loan Commitment and Acquisition Loan Commitment to such Replacement
Lender, provided that Borrower has reimbursed such Affected Lender for its
increased costs for which it is entitled to reimbursement under this Agreement
through the date of such sale and assignment; or
(B) Borrower may prepay in full all outstanding Obligations owed to
such Affected Lender and terminate such Affected Lender's Pro Rata Share of the
Revolving Loan Commitment and Acquisition Loan Commitment, in which case the
Revolving Loan Commitment and Acquisition Loan Commitment will be reduced by the
amount of such Pro Rata Share. Borrower shall, within ninety (90) days following
notice of its intention to do so, prepay in full all outstanding Obligations
owed to such Affected Lender (including such Affected Lender's increased costs
for which it is entitled to reimbursement under this Agreement through the date
of such prepayment), and terminate such Affected Lender's obligations under the
Revolving Loan Commitment and Acquisition Loan Commitment.
SECTION 2
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment or Acquisition Loan Commitment is in effect and until payment in full
of all Obligations and termination of all Lender Letters of Credit and Risk
Participation Agreements, unless Requisite Lenders shall otherwise give their
prior written consent, Borrower shall perform and comply with, and shall cause
each of the other Loan Parties to perform and comply with, all covenants in this
Section 2 applicable to such Person.
2.1 Compliance With Laws. Borrower will (a) comply with and will cause
each of its Subsidiaries to comply with (i) the requirements of all applicable
laws, rules, regulations and orders of any governmental authority (including,
without limitation, laws, rules, regulations and orders relating to taxes,
employer and employee contributions, securities, employee retirement and welfare
benefits, environmental protection matters and employee health and safety) as
now in effect and which may be imposed in the future in all jurisdictions in
which Borrower or its Subsidiaries are now doing business or may hereafter be
doing business, and (ii) the obligations, covenants, and conditions contained in
any Contractual Obligation of Borrower and/or such Subsidiary, other than those
laws, rules, regulations, orders and Contractual Obligations the noncompliance
with which could not be reasonably expected to have, either individually or in
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the aggregate, a Material Adverse Effect, and (b) maintain or obtain and will
cause each of its Subsidiaries to maintain or obtain, all licenses,
qualifications and permits now held or hereafter required to be held by Borrower
and its Subsidiaries, for which the loss, suspension, revocation or failure to
obtain or renew, could have a Material Adverse Effect. This subsection 2.1 shall
not preclude the Borrower or any Subsidiary from contesting any taxes, fees,
assessments, charges, levies or other payments, if they are being diligently
contested in good faith and if appropriate expense provisions have been recorded
in conformity with GAAP. Borrower represents and warrants that as of the date
hereof, it (i) is in compliance and each of its Subsidiaries is in compliance
with the requirements of all applicable laws, rules, regulations and orders of
any governmental authority as now in effect, and all Contractual Obligations,
and (ii) maintains and each of its Subsidiaries maintains all licenses,
qualifications and permits referred to above, except in each case as could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
"Contractual Obligations", as applied to any Person, means any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject including, without limitation,
the Related Transactions Documents.
2.2 Maintenance of Properties; Insurance. Borrower will maintain or cause
to be maintained in good repair, working order and condition all material
properties used in the business of Borrower and its Subsidiaries and will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers, public liability and property damage insurance with respect
to its business and properties and the business and properties of its
Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation engaged in similar
businesses and in amounts acceptable to Agent and will deliver evidence thereof
to Agent. Borrower will maintain business interruption insurance in an amount
not less than $30,000,000. Borrower shall cause, pursuant to endorsements and
assignments and assignments in form and substance reasonably satisfactory to
Agent, Agent, for the benefit of Agent and Lenders, to be named as lender's loss
payee in the case of casualty insurance, Agent for the benefit of Agent and
Lenders, to be named as additional insured in the case of all liability
insurance and Agent, for the benefit of Agent and Lenders, to be named as
assignee in the case of all business interruption insurance. Borrower represents
and warrants that it and each of its Subsidiaries currently maintains all
material properties as set forth above and maintains all insurance described
above.
2.3 Inspection; Lender Meeting. Borrower shall permit any authorized
representatives of Agent to visit and inspect any of the properties of Borrower
or any of its Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and business with its and their officers and certified
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably requested. Representatives of each Lender will be
permitted to accompany representatives of Agent during each visit, inspection
and discussion referred to in the immediately preceding sentence. Without in any
way limiting the foregoing, Borrower will participate and will cause its key
management personnel to participate in a meeting with Agent
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and Lenders at least once during each year, which meeting shall be held at such
time and such place as may be reasonably requested by Agent.
2.4 Corporate Existence, Etc. Except as otherwise permitted by subsection
3.6, Borrower will, and will cause each of its Subsidiaries to, at all times
preserve and keep in full force and effect its corporate existence and all
rights and franchises material to its business.
2.5 Further Assurances.
(A) Borrower shall and shall cause each Loan Party to, from time to
time, execute such guaranties, financing statements, documents, security
agreements and reports as Agent or Requisite Lenders at any time may reasonably
request to evidence, perfect or otherwise implement the guaranties and security
for repayment of the Obligations contemplated by the Loan Documents.
(B) At Agent's or Requisite Lenders' request, Borrower shall cause
any Subsidiaries of Borrower promptly to guaranty the Obligations and to grant
to Agent, for the benefit of Agent and Lenders, a security interest in the real,
personal and mixed property of such Subsidiary to secure the Obligations. The
documentation for such guaranty or security shall be substantially similar to
the Loan Documents executed concurrently herewith with such modifications as are
reasonably requested by Agent.
SECTION 3
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment or Acquisition Loan Commitment is in effect and until payment in full
of all Obligations and termination of all Lender Letters of Credit and Risk
Participation Agreements, unless Requisite Lenders shall otherwise give their
prior written consent, Borrower shall perform and comply with, and shall cause
each of the other Loan Parties to perform and comply with, all covenants in this
Section 3 applicable to such Person.
3.1 Indebtedness. Borrower will not and will not permit any of its
Subsidiaries or Holdings directly or indirectly to create, incur, assume,
guaranty, or otherwise become or remain directly or indirectly liable with
respect to any Indebtedness except:
(A) the Obligations;
(B) intercompany Indebtedness among Borrower, its Subsidiaries or
Holdings; provided that the obligations of each obligor of such Indebtedness
shall: (1) be subordinated in right of payment to the Obligations from and after
such time as any portion of the Obligations shall become due and payable
(whether at stated maturity, by acceleration or otherwise); (2) be evidenced by
promissory notes, which shall have been pledged to Agent, for the benefit of
Agent and Lenders, as security for the Obligations; and (3) have such other
terms and provisions as Agent or Requisite Lenders may reasonably require; and
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(C) Indebtedness not to exceed $2,000,000 in the aggregate at any
time outstanding secured by purchase money Liens or incurred with respect to
capital leases.
3.2 Liens and Related Matters.
(A) No Liens. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument with respect to goods or accounts receivable) of Borrower or any of
its Subsidiaries, whether now owned or hereafter acquired, or any income or
profits therefrom, except Permitted Encumbrances. "Permitted Encumbrances" means
the following:
(1) Liens for taxes, assessments or other governmental charges
not yet due and payable;
(2) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which are
incurred in the ordinary course of business for sums not more than thirty (30)
days delinquent or which are being contested in good faith; provided that a
reserve or other appropriate provision shall have been made therefor and the
aggregate amount of liabilities secured by such Liens is less than $100,000;
(3) Liens (other than any Lien imposed by the Employee
Retirement Income Security Act of 1974 or any rule or regulation promulgated
thereunder) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(4) deposits, in an aggregate amount not to exceed $50,000,
made in the ordinary course of business to secure liability to insurance
carriers, excluding the Lender Letters of Credit and the letters of credit
issued under the Risk Participation Agreements;
(5) Liens for purchase money obligations; provided that: (a)
the purchase of the asset subject to any such Lien is permitted under subsection
4.1; (b) the Indebtedness secured by any such Lien is permitted under subsection
3.1; and (c) any such Lien encumbers only the asset so purchased;
(6) any attachment or judgment Lien not constituting an Event
of Default under subsection 6.1(I);
(7) easements, rights of way, restrictions, and other similar
charges or encumbrances not interfering in any material respect with the
ordinary conduct of the business of Borrower or any of its Subsidiaries;
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(8) any interest or title of a lessor or sublessor under any
lease permitted by subsection 4.2;
(9) Liens in favor of Agent, for the benefit of Agent and
Lenders;
(10) Liens existing on the date hereof and renewals and
extensions thereof, which Liens are set forth on Schedule 3.2(A)(10) hereto;
(11) Liens existing on any fixed assets acquired by Borrower
or its Subsidiaries at the time of its acquisition; provided that the
acquisition is a Permitted Acquisition hereunder and the Lien is confined solely
to the fixed assets so acquired; and
(12) Liens on fixed assets of corporations which become
subsidiaries of Borrower after the date hereof; provided that such corporations
become subsidiaries of Borrower under a Permitted Acquisition hereunder and such
Liens existed at the time the respective corporations became Subsidiaries of
Borrower and were not created in anticipation thereof.
(B) No Negative Pledges. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired.
(C) No Restrictions on Subsidiary Distributions to Borrower. Except
as provided herein, Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by Borrower or any
Subsidiary of Borrower; (2) subject to subordination provisions for the benefit
of Agent and Lenders, pay any Indebtedness owed to Borrower or any other
Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
(4) transfer any of its property or assets to Borrower or any other Subsidiary.
3.3 Investments; Joint Ventures. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to make or own any Investment in any
Person except:
(A) Borrower and its Subsidiaries may make and own Investments in
Cash Equivalents; provided that such Cash Equivalents are not subject to setoff
rights;
(B) Borrower and its Subsidiaries may make intercompany loans to the
extent permitted under subsection 3.1;
(C) Borrower and its Subsidiaries may make loans and advances to
employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $100,000 in the aggregate at any time
outstanding;
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(D) Borrower or a Subsidiary may make Investments of up to $750,000
in the aggregate in a United States corporation, limited liability company or
limited liability partnership, for the purposes of a joint venture with Mexican
investors for the purchase and sale of wheelbarrows.
(E) Permitted Acquisitions.
"Investment" means (i) any direct or indirect purchase or other
acquisition by Borrower or any of its Subsidiaries of any beneficial interest
in, including stock, partnership interest or other equity securities of, any
other Person; and (ii) any direct or indirect loan (including the purchase of
Indebtedness), advance or capital contribution by Borrower or any of its
Subsidiaries to any other Person, including all indebtedness and accounts
receivable from that other Person that are not current assets or did not arise
from sales to that other Person in the ordinary course of business. The amount
of any Investment shall be the original cost of such Investment plus the cost of
all additions thereto, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment.
"Cash Equivalents" means: (i) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition thereof;
(ii) commercial paper maturing no more than one (1) year from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iii)
certificates of deposit or bankers' acceptances maturing within one (1) year
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $500,000,000; (iv) time deposits
maturing no more than thirty (30) days from the date of creation thereof with
commercial banks having membership in the Federal Deposit Insurance Corporation
in amounts not exceeding the lesser of $100,000 or the maximum amount of
insurance applicable to the aggregate amount of Borrower's deposits at such
institution; and (v) deposits or investments in mutual or similar funds offered
or sponsored by brokerage or other companies having membership in the Securities
Investor Protection Corporation in amounts not exceeding the lesser of $100,000
or the maximum amount of insurance applicable to the aggregate amount of
Borrower's deposits at such institution.
"Permitted Acquisitions" shall mean acquisitions by Borrower or any of its
Subsidiaries of the stock or assets of any Person in a negotiated transaction;
provided that such acquisition either is funded by an Acquisition Loan made
pursuant to subsection 1.1(C) or is consented to in writing by the Requisite
Lenders.
3.4 Contingent Obligations. Borrower will not and will not permit any of
its Subsidiaries directly or indirectly to create or become or be liable with
respect to any Contingent Obligation except those:
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(A) resulting from endorsement of negotiable instruments for
collection in the ordinary course of business;
(B) existing on the Closing Date and described in Schedule 3.4
annexed hereto;
(C) arising under indemnity agreements to title insurers to cause
such title insurers to issue to Agent mortgagee title insurance policies;
(D) arising with respect to customary indemnification obligations
incurred in connection with Asset Dispositions;
(E) incurred in the ordinary course of business with respect to
surety and appeal bonds, performance and return-of-money bonds and other similar
obligations not exceeding at any time outstanding $25,000 in aggregate
liability;
(F) incurred with respect to Indebtedness permitted by subsection
3.1; and
(G) not permitted by clauses (A) through (F) above, so long as any
such Contingent Obligations, in the aggregate at any time outstanding, do not
exceed $25,000.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability of that Person: (i) with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; (ii) with respect to any letter of
credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings; or (iii) under any foreign
exchange contract, currency swap agreement, interest rate swap agreement or
other similar agreement or arrangement designed to alter the risks of that
Person arising from fluctuations in currency values or interest rates.
Contingent Obligations shall also include (a) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, and (c) any liability of such Person for the
obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to
maintain the solvency, financial condition or any balance sheet item or level of
income of another. The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported or, if not a fixed
and determined amount, the maximum amount so guaranteed.
3.5 Restricted Junior Payments. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to declare, order, pay, make or set
apart any sum for any Restricted Junior Payment, except that if after giving
effect thereto no Default or Event of
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Default would exist, Borrower may make the following Restricted Junior Payments
(without duplication):
(A) Borrower may make payments and distributions to Holdings to
permit Holdings to pay federal and state income taxes then due and owing,
franchise taxes and other similar licensing expenses incurred in the ordinary
course of business; provided that Borrower's aggregate contribution to taxes as
a result of the filing of a consolidated return by Holdings shall not be
greater, nor the aggregate receipt of tax benefits less, than they would have
been had Borrower not filed a consolidated return with Holdings;
(B) Wholly-owned Subsidiaries of Borrower may make Restricted Junior
Payments with respect to their common stock;
(C) Borrower may make payments and distributions to Holdings for
corporate expenditures in cash of up to a maximum aggregate amount of $125,000
per month; provided, however, that such dollar limitation shall not apply if (i)
after giving effect to such payments and distributions, the Fixed Charge
Coverage (calculated as illustrated on Exhibit 4.10(C)) during the immediately
preceding twelve (12) month period (or such lesser number of months that have
elapsed since January 1, 1997) would not be less than 1.2:1 for such periods
ending prior to July 31, 1998 and 1.3:1 for such periods ending on or after July
31 1998, and the Maximum Revolving Loan Balance would exceed the outstanding
Revolving Loans by an amount not less than $5,000,000, (ii) all such payments
and distributions held by Holdings shall be pledged to Agent in a manner
reasonably satisfactory to Agent, and shall be used only for the current
ordinary business expenses of Holdings and specifically not for any expenditures
related to any Subsidiary of Holdings other than Borrower and its Subsidiaries,
and (iii) Agent shall have received a certificate demonstrating compliance with
the foregoing requirements; and
(D) Borrower may make payments and distributions to Holdings to
cover those non-operating expenses of Holdings set forth on Schedule 3.16.
"Restricted Junior Payment" means: (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding, except a
dividend payable solely in shares of that class of stock to the holders of that
class; (ii) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of Borrower or any of its Subsidiaries now or
hereafter outstanding; (iii) any payment or prepayment of interest on, principal
of, premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Subordinated
Indebtedness; and (iv) any payment made to retire, or to obtain the surrender
of, any outstanding warrants, options or other rights to acquire shares of any
class of stock of Borrower or any of its Subsidiaries now or hereafter
outstanding.
3.6 Restriction on Fundamental Changes. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to: (a) amend, modify or
waive any term or provision of its articles of incorporation, certificates of
designations pertaining to preferred stock or by-laws unless required by law;
(b) enter into any transaction of merger or consolidation except
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<PAGE> 32
any Subsidiary of Borrower may be merged with or into Borrower (provided that
Borrower is the surviving entity) or any other Subsidiary of Borrower; (c)
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); or (d) acquire by purchase or otherwise all or any substantial
part of the business or assets of any other Person, except for any Permitted
Acquisition.
3.7 Disposal of Assets or Subsidiary Stock. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to: convey, sell, lease,
sublease, transfer or otherwise dispose of, or grant any Person an option to
acquire, in one transaction or a series of transactions, any of its property,
business or assets, or the capital stock of or other equity interests in any of
its Subsidiaries, whether now owned or hereafter acquired, except for (a) bona
fide sales of inventory to customers for fair value in the ordinary course of
business and dispositions of obsolete equipment not used or useful in the
business and (b) Asset Dispositions if all of the following conditions are met:
(i) the market value of assets sold or otherwise disposed of in any single
transaction or series of related transactions does not exceed $250,000 and the
aggregate market value of assets sold or otherwise disposed of in any fiscal
year of Borrower does not exceed $500,000; (ii) the consideration received is at
least equal to the fair market value of such assets; (iii) the sole
consideration received is cash; (iv) the Net Proceeds of such Asset Disposition
are applied as required by subsection 1.5(C); (v) after giving effect to the
sale or other disposition of the assets included within the Asset Disposition
and the repayment of Indebtedness with the proceeds thereof, Borrower is in
compliance on a pro forma basis with the covenants set forth in Section 4
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; and (vi) no Default or Event of Default then exists or shall result
from such sale or other disposition.
3.8 Transactions with Affiliates. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to enter into or permit to exist
any transaction (including the purchase, sale, lease or exchange of any property
or the rendering of any service) with any Affiliate or with any director,
officer or employee of any Loan Party, except (a) as set forth on Schedule 3.8
or (b) transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of Borrower or any of its Subsidiaries and upon
fair and reasonable terms which are fully disclosed to Agent and are no less
favorable to Borrower or such Subsidiary than would be obtained in a comparable
arm's length transaction with a Person that is not an Affiliate. Notwithstanding
the foregoing, upon the election of Agent no payments may be made with respect
to any items set forth on Schedule 3.8 upon the occurrence and during the
continuation of a Default or Event of Default.
3.9 Management Fees and Compensation. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to pay any management,
consulting or similar fees to any Affiliate or to any director, officer or
employee of any Loan Party.
3.10 Conduct of Business. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to engage in any business other than
businesses of the type described on Schedule 3.10.
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<PAGE> 33
3.11 Changes Relating to Subordinated Indebtedness. Borrower will not and
will not permit any of its Subsidiaries or Holdings directly or indirectly to
change or amend the terms of any Subordinated Indebtedness if the effect of such
amendment is to: (a) increase the interest rate on such Indebtedness; (b) change
the dates upon which payments of principal or interest are due on such
Indebtedness; (c) change any event of default or add or change any covenant with
respect to such Indebtedness; (d) change the prepayment provisions of such
Indebtedness; (e) change the subordination provisions thereof (or the
subordination terms of any guaranty thereof); or (f) change or amend any other
term if such change or amendment would materially increase the obligations of
the obligor or confer additional material rights on the holder of such
Indebtedness in a manner adverse to Borrower, any of its Subsidiaries, Holdings
or Lenders.
3.12 Fiscal Year. Neither Borrower nor any Subsidiary of Borrower shall
change its fiscal year.
3.13 Press Release; Public Offering Materials. Borrower will not and will
not permit any of its Subsidiaries to disclose the name of Agent or any Lender
in any press release or in any prospectus, proxy statement or other materials
filed with any governmental entity relating to a public offering of the capital
stock of any Loan Party, except as required by applicable law.
3.14 Subsidiaries. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to establish, create or acquire any new
Subsidiary, except for Permitted Acquisitions.
3.15 Bank Accounts. Borrower will not and will not permit any of its
Subsidiaries to establish any new bank accounts without prior written notice to
Agent and unless Agent and the bank at which the account is to be opened enter
into a bank agency agreement in form and substance satisfactory to Agent.
3.16 Non-Operating Expenditures. Borrower will not make any expenditures
that are not related to its current or future business operations, except as
described on Schedule 3.16.
SECTION 4
FINANCIAL COVENANTS/REPORTING
Borrower covenants and agrees that so long as the Revolving Loan
Commitment or the Acquisition Loan Commitment is in effect, and until payment in
full of all Obligations and termination of all Lender Letters of Credit and Risk
Participation Agreements, unless Requisite Lenders shall otherwise give their
prior written consent, Borrower shall perform and comply with, and shall cause
each of the other Loan Parties to perform and comply with, all covenants in this
Section 4 applicable to such Person.
4.1 Capital Expenditure Limits. The aggregate amount of all Capital
Expenditures of Borrower and its Subsidiaries will not exceed $3,500,000 (the
"Capex Limit") in any fiscal year of Borrower. Notwithstanding the foregoing, in
the event Borrower and its Subsidiaries do not expend the entire Capex Limit
permitted in any fiscal year, Borrower and its Subsidiaries
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<PAGE> 34
may carry forward to the immediately succeeding fiscal year 50% of the
unutilized portion of the Capex Limit. All Capital Expenditures made by Borrower
and its Subsidiaries shall first be applied to reduce the applicable Capex Limit
and then to reduce the carry forward from the previous fiscal year, if any.
"Capital Expenditures" will be calculated as illustrated on Exhibit 4.10(C).
4.2 Lease Limits. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to become or remain liable in any way,
whether directly or by assignment or as a guarantor or other surety, for the
obligations of the lessee under any operating lease (other than intercompany
leases between Borrower and its Subsidiaries), if the aggregate amount of all
rents paid by Borrower and its Subsidiaries under all such leases would exceed
$3,000,000 in any fiscal year of Borrower.
4.3 EBIDAT.
(a) Borrower shall not permit EBIDAT for any of the periods set
forth below to be less than the amount set forth for such period.
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
January 1, 1997 through April 30, 1997 $ 7,000,000
January 1, 1997 through July 31, 1997 $ 9,100,000
January 1, 1997 through October 31, 1997 $10,200,000
</TABLE>
(b) Borrower shall not permit EBIDAT for the twelve (12) month
period ending on the last day of any fiscal quarter ending on the dates or
during the periods set forth below to be less than the amount set forth below
for such date or period.
<TABLE>
<CAPTION>
Date/
Period Amount
------ ------
<S> <C>
January 31, 1998 $11,100,000
April 30, 1998 $12,500,000
July 31, 1998 $13,200,000
October 31, 1998 $13,500,000
January 31, 1999 $14,000,000
April 30, 1999 $15,100,000
On or after July 31, 1999 $15,600,000
</TABLE>
"EBIDAT" will be calculated as illustrated on Exhibit 4.10(C).
4.4 Fixed Charge Coverage.
(a) Borrower shall not permit Fixed Charge Coverage for any of the
periods set forth below to be less than the amount set forth below for such
period.
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<PAGE> 35
Period Amount
------ ------
January 1, 1997 through April 30, 1997 1.1:1
January 1, 1997 through July 31, 1997 1.1:1
January 1, 1997 through October 31, 1997 1.1:1
(b) Borrower shall not permit Fixed Charge Coverage for the twelve
(12) month period ending on the last day of any fiscal quarter ending on the
dates or during the periods set forth below to be less than the amount set forth
below for such date or period.
Date/
Period Amount
------ ------
January 31, 1998 1.1:1
On or after April 30, 1998 1.2:1
"Fixed Charge Coverage" will be calculated as illustrated on Exhibit 4.10(C).
4.5 Total Interest Coverage.
(a) Borrower shall not permit Total Interest Coverage for any of the
periods set forth to be less than the amount set forth below for such period.
Period Amount
------ ------
January 1, 1997 through April 30, 1997 6.2:1
January 1, 1997 through July 31, 1997 4.7:1
January 1, 1997 through October 31, 1997 4.2:1
(b) Borrower shall not permit Total Interest Coverage for the twelve
(12) month period ending on the last day of any fiscal quarter ending on the
dates or during the periods set forth below to be less than the amount set forth
below for such date or period.
Date/
Period Amount
------ ------
January 31, 1998 3.4:1
April 30, 1998 3.8:1
July 31, 1998 4.0:1
October 31, 1998 4.2:1
January 31, 1999 4.4:1
April 30, 1999 4.9:1
On or after July 31, 1999 5.2:1
"Total Interest Coverage" will be calculated as illustrated on Exhibit 4.10(C).
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<PAGE> 36
4.6 Total Indebtedness to Operating Cash Flow Ratio.
(a) Borrower shall not permit the ratio of Total Indebtedness
calculated as of the last day of any of the periods set forth below to Operating
Cash Flow for such period to be greater than the amount set forth below for such
period.
Period Amount
------ ------
January 1, 1997 through April 30, 1997 5.7:1
January 1, 1997 through July 31, 1997 3.4:1
January 1, 1997 through October 31, 1997 3.0:1
(b) Borrower shall not permit the ratio of Total Indebtedness
calculated as of the last day of any fiscal quarter ending on the dates or
during the periods set forth below to Operating Cash Flow for the twelve (12)
month period ending on such day to be greater than the amount set forth below
for such date or period.
Date/
Period Amount
------ ------
January 31, 1998 4.0:1
April 30, 1998 3.8:1
July 31, 1998 2.7:1
October 31, 1998 2.3:1
January 31, 1999 3.0:1
April 30, 1999 3.0:1
On or after July 31, 1999 2.0:1
"Total Indebtedness" and "Operating Cash Flow" will be calculated as illustrated
on Exhibit 4.10(C).
4.7 [Intentionally Deleted.]
4.8 [Intentionally Deleted.]
4.9 [Intentionally Deleted.]
4.10 Financial Statements and Other Reports. Borrower will maintain, and
cause each of its Subsidiaries and Holdings to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that monthly financial statements are not required to have footnote
disclosures and are subject to changes resulting from normal year-end
adjustments). Borrower will deliver each of the financial statements and other
reports described below to Agent (and each Lender in the case of the financial
statements and other reports described in subsections (A), (B), (C), (G), (I)
and (K)).
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<PAGE> 37
(A) Monthly Financials. As soon as available and in any event within
thirty (30) days after the end of each month, Borrower will deliver (1) the
consolidated and consolidating balance sheets of Holdings, Borrower and their
Subsidiaries, as at the end of such month, and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow for such
month and for the period from the beginning of the then current fiscal year of
Borrower to the end of such month and (2) a schedule of the outstanding
Indebtedness for borrowed money of Holdings, Borrower and their Subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan.
(B) Year-End Financials. As soon as available and in any event on or
before the fifteenth (15th) day of the November following the end of each fiscal
year of Borrower, Borrower will deliver (1) the consolidated and consolidating
balance sheets of Holdings, Borrower and their Subsidiaries, as at the end of
such year, and the related consolidated and consolidating statements of income,
stockholders' equity and cash flow for such fiscal year, (2) a schedule of the
outstanding Indebtedness for borrowed money of Holdings, Borrower and their
Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan and (3) a report with respect to
the financial statements from a firm of Certified Public Accountants selected by
Borrower and reasonably acceptable to Agent, which report shall be prepared in
accordance with Statement of Auditing Standards No. 58 (the "Statement")
entitled "Reports on Audited Financial Statements" and such report shall be
"Unqualified" (as such term is defined in such Statement).
(C) Borrower Compliance Certificate. Together with each delivery of
financial statements of Holdings, Borrower and their Subsidiaries pursuant to
subsections 4.10(A) and 4.10(B) above for periods ending on the last day of any
fiscal quarter or fiscal year, Borrower will deliver a fully and properly
completed Compliance Certificate (in substantially the same form as Exhibit
4.10(C)) signed by Borrower's chief executive officer or chief financial
officer.
(D) Accountants' Reliance Letter. Together with each delivery of
consolidated financial statements of Borrower pursuant to subsection 4.10(B),
Borrower will deliver a copy of a letter addressed to Borrower's certified
public accountants informing such accountants that a primary intent of Borrower
was for the professional services such accountants provided to Borrower in
preparing their audit report was to benefit or influence Lenders and their
successors or assigns, and identifying Lenders as parties that Borrower has
indicated intend to rely on such professional services provided to Borrower by
such accountants.
(E) Accountants' Reports. Promptly upon receipt thereof, Borrower
will deliver copies of all significant reports submitted by Borrower's firm of
certified public accountants in connection with each annual, interim or special
audit or review of any type of the financial statements or related internal
control systems of Borrower made by such accountants, including any comment
letter submitted by such accountants to management in connection with their
services.
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<PAGE> 38
(F) Borrowing Base Certificate. As soon as available and in any
event within thirty (30) days after the end of each month, and from time to time
upon the request of Agent, Borrower will deliver a Borrowing Base Certificate
(in substantially the same form as Exhibit 4.10(F)) as at the last day of such
period.
(G) Management Report. Together with each delivery of financial
statements of Borrower pursuant to subsections 4.10(A) and 4.10(B), Borrower
will deliver a management report (1) describing the operations and financial
condition of Holdings, Borrower and their Subsidiaries for the month then ended
and the portion of the current fiscal year then elapsed (or for the fiscal year
then ended in the case of year-end financials), (2) setting forth in comparative
form the corresponding figures for the corresponding periods of the previous
fiscal year and the corresponding figures from the most recent Projections for
the current fiscal year delivered pursuant to subsection 4.10(J) and (3)
discussing the reasons for any significant variations. The information above
shall be presented in reasonable detail and shall be certified by the chief
financial officer of Borrower to the effect that such information fairly
presents the results of operations and financial condition of Holdings, Borrower
and their Subsidiaries as at the dates and for the periods indicated, subject to
normal year-end adjustments.
(H) Collateral Value Report. Upon the request of Agent, which may be
made not more than once each year prior to an Event of Default and at any time
(but not more often than quarterly) while and so long as an Event of Default
shall be continuing, Borrower will obtain and deliver to Agent a report of an
independent collateral auditor satisfactory to Agent (which may be, or be
affiliated with, a Lender) with respect to the accounts and inventory components
included in the Borrowing Base, which report shall indicate whether or not the
information set forth in the Borrowing Base Certificate most recently delivered
is accurate and complete in all material respects based upon a review by such
auditors of the accounts (including verification with respect to the amount,
aging, identity and credit of the respective account debtors and the billing
practices of Borrower) and inventory (including verification as to the value,
location and respective types).
(I) Appraisals. From time to time, if Agent or any Lender determines
that obtaining appraisals is necessary in order for Agent or such Lender to
comply with applicable laws or regulations, Agent will, at Borrower's expense,
obtain appraisal reports in form and substance and from appraisers satisfactory
to Agent stating the then current fair market values of all or any portion of
the real estate owned by Borrower or any of its Subsidiaries. In addition to the
foregoing, from time to time, but in the absence of a Default or Event of
Default not more than once during each calendar year, Agent may require Borrower
to obtain and deliver to Agent appraisal reports in form and substance and from
appraisers satisfactory to Agent stating the then current market values of all
or any portion of the real estate and personal property owned by Borrower or any
of its Subsidiaries.
(J) Projections. As soon as available and in any event no later than
September 30th of each of Borrower's fiscal years, Borrower will deliver
Projections of Borrower and its Subsidiaries for the then current fiscal year
and the forthcoming two (2) fiscal years, year by year, and for the then current
fiscal year, month by month.
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<PAGE> 39
(K) SEC Filings and Press Releases. Promptly upon their becoming
available, Borrower will deliver copies of (1) all financial statements,
reports, notices and proxy statements sent or made available by Holdings,
Borrower or any of their respective Subsidiaries to their security holders, (2)
all regular and periodic reports and all registration statements and
prospectuses, if any, filed by Holdings, Borrower or any of their respective
Subsidiaries with any securities exchange or with the Securities and Exchange
Commission or any governmental or private regulatory authority, and (3) all
press releases and other statements made available by Holdings, Borrower or any
of their respective Subsidiaries to the public concerning developments in the
business of any such Person.
(L) Events of Default, Etc. Promptly upon any officer of Borrower
obtaining knowledge of any of the following events or conditions, Borrower shall
deliver copies of all notices given or received by Borrower or Holdings with
respect to any such event or condition and a certificate of Borrower's chief
executive officer specifying the nature and period of existence of such event or
condition and what action Borrower has taken, is taking and proposes to take
with respect thereto: (1) any condition or event that constitutes an Event of
Default or Default; (2) any notice that any Person has given to Borrower or any
of its Subsidiaries or any other action taken with respect to a claimed default
or event or condition of the type referred to in subsection 6.1(B); or (3) any
event or condition that could reasonably be expected to result in any Material
Adverse Effect.
(M) Litigation. Promptly upon any officer of Borrower obtaining
knowledge of (1) the institution of any action, suit, proceeding, governmental
investigation or arbitration against or affecting any Loan Party or any property
of any Loan Party not previously disclosed by Borrower to Agent or (2) any
material development in any action, suit, proceeding, governmental investigation
or arbitration at any time pending against or affecting any Loan Party or any
property of any Loan Party which, in each case, could reasonably be expected to
have a Material Adverse Effect, Borrower will promptly give notice thereof to
Agent and provide such other information as may be reasonably available to them
to enable Agent and its counsel to evaluate such matter.
(N) Supplemented Schedules; Notice of Corporate Changes. Annually,
concurrently with Borrower's delivery of the Projections required by subsection
4.10(J), Borrower shall supplement in writing and deliver revisions of the
Schedules annexed to this Agreement to the extent necessary to disclose new or
changed facts or circumstances after the Closing Date; provided that subsequent
disclosures shall not constitute a cure or waiver of any Default or Event of
Default resulting from the matters disclosed. Borrower shall provide prompt
written notice of (1) all jurisdictions in which a Loan Party becomes qualified
after the Closing Date to transact business, (2) any material change after the
Closing Date in the authorized and issued capital stock or other equity
interests of any Loan Party or any of their respective Subsidiaries or any other
material amendment to their charter, by-laws or other organization documents and
(3) any Subsidiary created or acquired by any Loan Party after the Closing Date,
such notice, in each case, to identify the applicable jurisdictions, capital
structures or Subsidiaries, as applicable.
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<PAGE> 40
(O) Other Information. With reasonable promptness, Borrower will
deliver such other information and data with respect to any Loan Party or any
Subsidiary of any Loan Party as from time to time may be reasonably requested by
Agent.
4.11 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Agent pursuant to subsection 4.10 shall be prepared in accordance with GAAP as
in effect at the time of such preparation. No "Accounting Changes" (as defined
below) shall affect financial covenants, standards or terms in this Agreement;
provided that Borrower shall prepare footnotes to each Compliance Certificate
and the financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (a)
changes in accounting principles required by GAAP and implemented by Borrower;
(b) changes in accounting principles recommended by Borrower's certified public
accountants and implemented by Borrower; and (c) changes in carrying value of
Borrower's or any of its Subsidiaries' assets, liabilities or equity accounts
resulting from (i) the application of purchase accounting principles (A.P.B. 16
and/or 17 and EITF 88-16 and FASB 109) or (ii) as the result of any other
adjustments that, in each case, were applicable to, but not included in, the Pro
Forma. All such adjustments resulting from expenditures made subsequent to the
Closing Date (including, but not limited to, capitalization of costs and
expenses or payment of pre-Closing Date liabilities) shall be treated as
expenses in the period the expenditures are made.
SECTION 5
REPRESENTATIONS AND WARRANTIES
In order to induce Agent and Lenders to enter into this Agreement, to make
Loans and to issue Lender Letters of Credit and Risk Participation Agreements,
Borrower represents and warrants to Agent and each Lender that the following
statements are and, after giving effect to the Related Transactions, will be
true, correct and complete:
5.1 Disclosure. No representation or warranty of any Loan Party contained
in this Agreement, the financial statements referred to in subsection 5.5, the
other Related Transactions Documents or any other document, certificate or
written statement furnished to Agent or any Lender by or on behalf of any such
Person for use in connection with the Loan Documents or the Related Transactions
Documents contains any untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made.
5.2 No Material Adverse Effect. Since the date of the most recent
financial statements delivered to Agent, there have been no events or changes in
facts or circumstances affecting any Loan Party which individually or in the
aggregate have had or could reasonably be expected to have a Material Adverse
Effect and that have not been disclosed herein or in the attached Schedules.
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<PAGE> 41
5.3 No Default. The consummation of the Related Transactions does not and
will not violate, conflict with, result in a breach of, or constitute a default
(with due notice or lapse of time or both) under any contract of any Loan Party
except if such violations, conflicts, breaches or defaults have either been
waived on or before the Closing Date and are disclosed on Schedule 5.3 or could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
5.4 Organization, Powers, Capitalization and Good Standing.
(A) Organization and Powers. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation (which jurisdiction is set forth on
Schedule 5.4(A)). Each of the Loan Parties has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and proposed to be conducted, to enter into each Related Transactions
Document to which it is a party and to carry out the Related Transactions.
(B) Capitalization. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 5.4(B). All issued and outstanding shares of
capital stock of each of the Loan Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens other than those
in favor of Agent, for the benefit of Agent and Lenders, and such shares were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. The capital stock of the Borrower is owned by the
stockholders and in the amounts set forth on Schedule 5.4(B). No shares of the
capital stock of any Loan Party, other than those described above, are issued
and outstanding. There are no preemptive or other outstanding rights, options,
warrants, conversion rights or similar agreements or understandings for the
purchase or acquisition from any Loan Party, of any shares of capital stock or
other securities of any such entity, except as disclosed in Schedule 5.4(B).
(C) Binding Obligation. This Agreement is, and the other Related
Transactions Documents when executed and delivered will be, the legally valid
and binding obligations of the applicable parties thereto, each enforceable
against each of such parties, as applicable, in accordance with their respective
terms.
(D) Qualification. Each of the Loan Parties is duly qualified and in
good standing wherever necessary to carry on its business and operations, except
in jurisdictions in which the failure to be qualified and in good standing could
not reasonably be expected to have a Material Adverse Effect. All jurisdictions
in which each Loan Party is qualified to do business are set forth on Schedule
5.4(D).
5.5 Financial Statements. All financial statements concerning Holdings,
Borrower and their respective Subsidiaries which have been or will hereafter be
furnished to Agent pursuant to this Agreement, have been or will be prepared in
accordance with GAAP consistently applied (except as disclosed therein) and do
or will present fairly the financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended, subject to normal year-end adjustments.
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5.6 Intellectual Property. Borrower and each of its Subsidiaries owns, is
licensed to use or otherwise has the right to use, all patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or necessary
for the conduct of its business as currently conducted that are material to the
condition (financial or other), business or operations of Borrower or its
Subsidiaries (collectively called "Intellectual Property") and all such
Intellectual Property is identified on Schedule 5.6 and fully protected and/or
duly and properly registered, filed or issued in the appropriate office and
jurisdictions for such registrations, filings or issuances. Except as disclosed
in Schedule 5.6, the use of such Intellectual Property by Borrower and its
Subsidiaries does not and has not been alleged by any Person to infringe on the
rights of any Person.
5.7 Investigations, Audits, Etc. Except as set forth on Schedule 5.7, none
of Holdings, Borrower or any of their respective Subsidiaries, is the subject of
any review or audit by the Internal Revenue Service or any governmental
investigation concerning the violation or possible violation of any law.
5.8 Employee Matters. Except as set forth on Schedule 5.8, (a) no Loan
Party nor any of their respective employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its respective
employees, other than employee grievances arising in the ordinary course of
business which could not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect. Except as set forth on Schedule
5.8, neither Borrower nor any of its Subsidiaries is party to an employment
contract.
5.9 Solvency. Borrower: (a) owns and will own assets the fair saleable
value of which are (i) greater than the total amount of liabilities (including
contingent liabilities) of Borrower and (ii) greater than the amount that will
be required to pay the probable liabilities of Borrower's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to Borrower; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or
after giving effect to any contemplated transaction; and (c) does not intend to
incur and does not believe that it will incur debts beyond its ability to pay
such debts as they become due.
SECTION 6
DEFAULT, RIGHTS AND REMEDIES
6.1 Event of Default. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) Payment. Failure to pay any installment of principal of any Loan
when due, or to repay Revolving Loans to reduce their balance to the Maximum
Revolving Loan Balance or to reimburse Agent for any payment made by Agent under
or in respect of any
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Lender Letters of Credit or Risk Participation Agreements when due or failure to
pay, within five (5) days after the due date, any interest on any Loan or any
other amount due under this Agreement or any of the other Loan Documents; or
(B) Default in Other Agreements. (1) Failure of Holdings, Borrower
or any of its Subsidiaries to pay when due or within any applicable grace period
any principal or interest on Indebtedness (other than the Loans) or any
Contingent Obligations or (2) breach or default of Holdings, Borrower or any of
its Subsidiaries with respect to any Indebtedness (other than the Loans) or any
Contingent Obligations, if the effect of such breach or default is to cause or
to permit the holder or holders then to cause, Indebtedness and/or Contingent
Obligations having an individual principal amount in excess of $250,000 or
having an aggregate principal amount in excess of $500,000 to become or be
declared due prior to their stated maturity; or
(C) Breach of Certain Provisions. Failure of Borrower to perform or
comply with any term or condition contained in that portion of subsection 2.2
relating to Borrower's obligation to maintain insurance, subsection 2.3, Section
3 or Section 4; or
(D) Breach of Warranty. Any representation, warranty, certification
or other statement made by any Loan Party in any Loan Document or in any
statement or certificate at any time given by such Person in writing pursuant or
in connection with any Loan Document is false in any material respect on the
date made; or
(E) Other Defaults Under Loan Documents. Borrower or any other Loan
Party defaults in the performance of or compliance with any term contained in
this Agreement or the other Loan Documents and such default is not remedied or
waived within fifteen (15) days after receipt by Borrower of notice from Agent
or Requisite Lenders of such default (other than occurrences described in other
provisions of this subsection 6.1 for which a different grace or cure period is
specified or which constitute immediate Events of Default); or
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc. (1) A
court enters a decree or order for relief with respect to Holdings, Borrower or
any of its Subsidiaries in an involuntary case under the Bankruptcy Code, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for sixty (60) days unless dismissed, bonded or discharged: (a) an
involuntary case is commenced against Holdings, Borrower or any of its
Subsidiaries, under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect; or (b) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over Holdings, Borrower or any of its
Subsidiaries, or over all or a substantial part of its property, is entered; or
(c) an interim receiver, trustee or other custodian is appointed without the
consent of Holdings, Borrower or any of its Subsidiaries, for all or a
substantial part of the property of Holdings, Borrower or any such Subsidiary;
or
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc. (1) An order
for relief is entered with respect to Holdings, Borrower or any of its
Subsidiaries or Holdings, Borrower or any of its Subsidiaries commences a
voluntary case under the Bankruptcy Code,
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or consents to the entry of an order for relief in an involuntary case or to the
conversion of an involuntary case to a voluntary case under any such law or
consents to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; or (2) Holdings,
Borrower or any of its Subsidiaries makes any assignment for the benefit of
creditors; or (3) the Board of Directors of Holdings, Borrower or any of its
Subsidiaries adopts any resolution or otherwise authorizes action to approve any
of the actions referred to in this subsection 6.1(G); or
(H) Governmental Liens. Any lien, levy or assessment is filed or
recorded with respect to or otherwise imposed upon all or any part of the
Collateral or the assets of Holdings, Borrower or any of its Subsidiaries by the
United States or any department or instrumentality thereof or by any state,
county, municipality or other governmental agency (other than Permitted
Encumbrances); or
(I) Judgment and Attachments. Any money judgment, writ or warrant of
attachment, or similar process (other than those described in subsection 6.1(H))
involving (1) an amount in any individual case in excess of $50,000 or (2) an
amount in the aggregate at any time in excess of $100,000 (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) is entered or filed against Holdings, Borrower or any of
its Subsidiaries or any of their respective assets and remains undischarged,
unvacated, unbonded or unstayed for a period of thirty (30) days or in any event
later than five (5) Business Days prior to the date of any proposed sale
thereunder; or
(J) Dissolution. Any order, judgment or decree is entered against
Holdings, Borrower or any of its Subsidiaries decreeing the dissolution or split
up of Holdings, Borrower or that Subsidiary and such order remains undischarged
or unstayed for a period in excess of fifteen (15) days; or
(K) Solvency. Borrower ceases to be solvent (as represented by
Borrower in subsection 5.9) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(L) Injunction. Holdings, Borrower or any of its Subsidiaries is
enjoined, restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than fifteen (15) days; or
(M) ERISA; Pension Plans. (1) Borrower or any of its Affiliates
fails to make full payment when due of all amounts which, under the provisions
of any employee benefit plans or any applicable provisions of the IRC, any such
Person is required to pay as contributions thereto and such failure results in
or is likely to result in a Material Adverse Effect; or (2) an accumulated
funding deficiency in excess of $25,000 occurs or exists in relation to the
minimum funding requirements of the IRC, whether or not waived, with respect to
any such employee benefit plans; or (3) any employee benefit plan loses its
status as a qualified plan under the IRC which results in or could reasonably be
expected to result in a Material Adverse Effect; or
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(N) Environmental Matters. Holdings, Borrower or any of their
respective Subsidiaries fails to: obtain or maintain any operating licenses or
permits required by environmental authorities; begin, continue or complete any
remediation activities as required by any environmental authorities; store or
dispose of any hazardous materials in accordance with applicable environmental
laws and regulations; or comply with any other environmental laws; if such
failure could reasonably be expected to have a Material Adverse Effect; or
(O) Invalidity of Loan Documents. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to such effect; or
(P) Damage; Strike; Casualty. Any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive days, the
cessation or substantial curtailment of revenue producing activities at any
facility of Borrower or any of its Subsidiaries if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect; or
(Q) Licenses and Permits. The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew could reasonably be expected to have a Material Adverse Effect;
or
(R) Failure of Security. Agent, for the benefit of Agent and
Lenders, does not have or ceases to have a valid and perfected first priority
security interest in the Collateral (subject to Permitted Encumbrances) or any
substantial portion thereof, in each case, for any reason other than the failure
of Agent to take any action within its control; or
(S) Business Activities. Holdings engages in any type of business
activity other than the ownership of stock of Borrower, McGuire-Nicholas
Company, a California corporation, or other Person engaged in the same or
similar business or acquired in a Permitted Acquisition, and performance of its
obligations under the Related Transaction Documents to which it is a party; or
(T) Change in Control or Ownership. (1) Oaktree Capital Management,
LLC ("Oaktree") ceases to beneficially own (as determined under Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934) at least ten percent (10%) of
the issued and outstanding shares of each class of capital stock of Holdings
entitled (without regard to the occurrence of any contingency) to vote for the
election of a majority of the members of the boards of directors of Holdings,
(2) in connection with any shareholders' election of the board of directors of
Holdings, Holdings' board of directors shall have failed to nominate at least
two (2) candidates for election to such board designated by Oaktree, or (3)
Holdings ceases to beneficially own, directly, one hundred percent (100%) of the
issued and outstanding shares of capital stock of Borrower.
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6.2 Suspension of Commitments. Upon the occurrence of any Default or Event
of Default, Agent and each Lender without notice or demand, may immediately
cease making additional Loans and issuing Lender Letters of Credit and Risk
Participation Agreements and cause its obligation to lend its Pro Rata Share of
the Revolving Loan Commitment and the Acquisition Loan Commitment to be
suspended; provided that, in the case of a Default, if the subject condition or
event is waived, cured or removed by Requisite Lenders within any applicable
grace or cure period, any suspended portion of the Revolving Loan Commitment and
the Acquisition Loan Commitment shall be reinstated. Each Lender may
alternatively suspend only a portion of its obligation to lend its Pro Rata
Share of the Revolving Loan Commitment and the Acquisition Loan Commitment.
6.3 Acceleration. Upon the occurrence of any Event of Default described in
the foregoing subsections 6.1(F) or 6.1(G), the unpaid principal amount of and
accrued interest and fees on the Revolving Loans and the Acquisition Loans,
payments under the Lender Letters of Credit and Risk Participation Agreements
and all other Obligations shall automatically become immediately due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other requirements of any kind, all of which are
hereby expressly waived by Borrower, and the obligations of Agent and Lenders to
make Revolving Loans and Acquisition Loans and issue Lender Letters of Credit
and Risk Participation Agreements shall thereupon terminate. Upon the occurrence
and during the continuance of any other Event of Default, Agent may, and upon
written demand by Requisite Lenders shall, by written notice to Borrower (a)
declare all or any portion of the Loans and all or some of the other Obligations
to be, and the same shall forthwith become, immediately due and payable together
with accrued interest thereon, and the obligations of Agent and Lenders to make
Revolving Loans and Acquisition Loans and issue Lender Letters of Credit and
Risk Participation Agreements shall thereupon terminate and (b) demand that
Borrower immediately deposit with Agent an amount equal to the aggregate
outstanding Risk Participation Liability to enable Agent to make payments under
the Lender Letters of Credit and Risk Participation Agreements when required and
such amount shall become immediately due and payable.
6.4 Performance by Agent. If Borrower shall fail to perform any covenant,
duty or agreement contained in any of the Loan Documents, Agent may perform or
attempt to perform such covenant, duty or agreement on behalf of Borrower after
the expiration of any cure or grace periods set forth herein. In such event,
Borrower shall, at the request of Agent, promptly pay any amount reasonably
expended by Agent in such performance or attempted performance to Agent,
together with interest thereon at the highest rate of interest in effect upon
the occurrence of an Event of Default as specified in subsection 1.2(E) from the
date of such expenditure until paid. Notwithstanding the foregoing, it is
expressly agreed that Agent shall not have any liability or responsibility for
the performance of any obligation of Borrower under this Agreement or any other
Loan Document.
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SECTION 7
EFFECTIVENESS OF THIS AGREEMENT AND
CONDITIONS TO LOANS
7.1 Effectiveness of this Agreement. The effectiveness of this Agreement
is subject to the satisfaction of all of the following conditions precedent on
or before July 31, 1997:
(A) The proceeds of the IPO, net of underwriting discounts and
commissions and other reasonable costs associated therewith, shall have been not
less than $35,000,000, and such net proceeds shall have been used in accordance
with the Recitals hereof;
(B) Oaktree shall beneficially own (as determined under Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934) at least ten percent (10%)
of the Common Stock of Holdings;
(C) Agent shall have received such amendments, modifications,
reaffirmations, replacements, restatements, endorsements and other agreements
and documents as it may require in accordance with the terms and provisions
hereof;
(D) Agent shall have received all of the following documents in form
and substance satisfactory to Agent:
(1) Certified copies of the certificates or articles of
incorporation of Borrower and each Loan Party together with good standing
certificates from the respective states of incorporation and the respective
states in which the principal places of business of each is located and from all
states in which the activities of such Persons require them to be qualified
and/or licensed to do business, each to be dated a recent date prior to the
Closing Date;
(2) Copies of the bylaws of Borrower and each Loan Party
certified as of the Closing Date by its corporate secretary or an assistant
secretary;
(3) Resolutions of the boards of directors of Borrower and
each Loan Party authorizing and approving the execution, delivery and
performance of the Loan Documents to which such Person is a party, certified as
of the Closing Date by its corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
(4) Signature and incumbency certificates of (i) the officers
of Borrower executing the Loan Documents, and (ii) the officers of each Loan
Party executing the Loan Documents to which any of them is a party; and
(5) Written opinions of Gibson, Dunn & Crutcher LLP, counsel
for Borrower and the Loan Parties, dated as of the Closing Date; and
(E) No Default or Event of Default shall have occurred and be
continuing.
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Subject to the satisfaction of all of the above conditions precedent, (i)
this Agreement shall amend and restate the Original Credit Agreement in its
entirety, (ii) each reference in any other Loan Document to the Original Credit
Agreement shall mean and be a reference to this Agreement, and (iii) Agent and
Lenders consent to the IPO and the use of the net proceeds thereof as set forth
in the Recitals hereof.
7.2 Conditions to All Loans. The obligations of Lenders to make Loans and
of Agent to issue Lender Letters of Credit and Risk Participation Agreements on
any date ("Funding Date") are subject to the further conditions precedent set
forth below.
(A) Agent shall have received, in accordance with the provisions of
subsection 1.1, a notice requesting an advance of a Revolving Loan or issuance
of a Lender Letter of Credit or Risk Participation Agreement.
(B) The representations and warranties contained in Section 5 of
this Agreement and elsewhere herein and in the Loan Documents shall be (and each
request by Borrower for a Loan or a Lender Letter of Credit and Risk
Participation Agreement shall constitute a representation and warranty by
Borrower that such representations and warranties are) true, correct and
complete in all material respects on and as of that Funding Date to the same
extent as though made on and as of that date, except for any representation or
warranty limited by its terms to a specific date and taking into account any
amendments to the Schedules or Exhibits as a result of any disclosures made in
writing by Borrower to Agent after the Closing Date and approved by Agent in
writing.
(C) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated (or notice requesting
issuance of a Lender Letters of Credit and Risk Participation Agreement) that
would constitute an Event of Default or a Default.
(D) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making any Loan or Agent from issuing any Lender Letter of Credit or Risk
Participation Agreement.
SECTION 8
ASSIGNMENT AND PARTICIPATION
8.1 Assignments and Participations in Loans and Notes. Each Lender
(including Heller) may assign, subject to the terms of a Lender Addition
Agreement, its rights and delegate its obligations under this Agreement to
another Person, provided that (a) such Lender (excluding Heller) shall first
obtain the written consent of Agent and Borrower, which consent shall not be
unreasonably withheld; (b) the Pro Rata Share of the Revolving Loan Commitment
and the Acquisition Loan Commitment being assigned shall in no event be less
than the lesser of (i) $5,000,000 and (ii) the entire amount of the Pro Rata
Share of the Revolving Loan Commitment and the Acquisition Loan Commitment of
the assigning Lender; and (c) upon the consummation of each such assignment the
Lender accepting the assignment shall pay Agent an administrative
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fee of $3,000. The administrative fee referred to in clause (c) of the preceding
sentence shall not apply to an assignment from a Lender to an affiliate of such
Lender. In the case of an assignment authorized under this subsection 8.1, the
assignee shall have, to the extent of such assignment, the same rights, benefits
and obligations as it would if it were an initial Lender hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
its Pro Rata Share of the Revolving Loan Commitment and the Acquisition Loan
Commitment or assigned portion thereof. Borrower hereby acknowledges and agrees
that any assignment will give rise to a direct obligation of Borrower to the
assignee and that the assignee shall be considered to be a "Lender".
Each Lender (including Heller) may sell participations in all or any
part of its Pro Rata Share of the Revolving Loan Commitment and the Acquisition
Loan Commitment to another Person, provided that (a) such Lender (excluding
Heller) shall first obtain the prior written consent of Agent, which consent
shall not be unreasonably withheld; and (b) any such participation shall be in a
minimum amount of $5,000,000, and provided, further, that all amounts payable by
Borrower hereunder shall be determined as if that Lender had not sold such
participation and the holder of any such participation shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly effecting (i) any reduction in the principal amount, interest rate or
fees payable with respect to any Loan in which such holder participates; (ii)
any extension of the Expiry Date, any extension of the date on which any
Scheduled Acquisition Loan Installment is to be paid or any change of any date
fixed for any payment of interest or fees payable with respect to any Loan in
which such holder participates; (iii) any change of the aggregate unpaid
principal amount of the Loans; (iv) any change of the percentage of Lenders
which shall be required for Lenders or any of them to take any action hereunder;
(v) any release of Collateral (except if the sale or disposition of such
Collateral is permitted under subsection 8.2 or any other Loan Document); (vi)
any amendment or waiver of this subsection 8.1 or the definitions of the terms
used in this subsection 8.1 insofar as the definitions affect the substance of
this subsection 8.1; (vii) any consent to the assignment, delegation or other
transfer by any Loan Party of any of its rights and obligations under any Loan
Document; (viii) any change in the form in which interest is required to be
paid; and (ix) any change of any advance rate set forth in the Borrowing Base
Certificate. Borrower hereby acknowledges and agrees that any participation will
give rise to a direct obligation of Borrower to the participant, and the
participant shall for purposes of subsections 1.8, 1.9, 8.4 and 9.1 be
considered to be a "Lender".
Except as otherwise provided in this subsection 8.1 no Lender shall,
as between Borrower and that Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
granting of a participation in, all or any part of the Loans, the Notes or other
Obligations owed to such Lender. Each Lender may furnish any information
concerning Borrower and its Subsidiaries in the possession of that Lender from
time to time to assignees and participants (including prospective assignees and
participants), subject to the provisions of subsection 9.13.
Borrower agrees that it will assist and cooperate with Agent and any
Lender in any manner reasonably requested by Agent or such Lender to effect the
sale of a participation
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or an assignment described above, including without limitation assistance in the
preparation of appropriate disclosure documents or placement memoranda.
Agent shall provide Borrower with written notice of the name and
address of any new Lender after the date hereof. In the event that Heller
assigns all or a portion of its Pro Rata Share of the Revolving Loan Commitment
or the Acquisition Loan Commitment, or sells participation(s) therein, where the
effect of such assignment(s) or participation(s) is to reduce Heller's Pro Rata
Share (less the aggregate amount of any percentage participation interests held
therein by another Person) to less than twenty-three percent (23%), Heller shall
give reasonably prompt subsequent notice thereof to each Lender.
Notwithstanding anything contained in this Agreement to the
contrary, so long as the Requisite Lenders shall remain capable of making LIBOR
Loans, no Person shall become a "Lender" hereunder unless such Person shall also
be capable of making LIBOR Loans.
8.2 Agent.
(A) Appointment. Each Lender hereby designates and appoints Heller
as its Agent under this Agreement and the other Loan Documents, and each Lender
hereby irrevocably authorizes Agent to take such action or to refrain from
taking such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto.
Agent is authorized and empowered to amend, modify, or waive any provisions of
this Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances as
provided in subsections 8.3 and 9.2. Agent agrees to act as such on the express
conditions contained in this subsection 8.2. The provisions of this subsection
8.2 are solely for the benefit of Agent and Lenders and neither Borrower nor any
Loan Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
Agent shall act solely as agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for Borrower or any other Loan Party. Agent may perform any of its
duties hereunder, or under the Loan Documents, by or through its agents or
employees.
(B) Nature of Duties. The duties of Agent shall be mechanical and
administrative in nature. Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Nothing in this Agreement or
any of the Loan Documents, express or implied, is intended to or shall be
construed to impose upon Agent any obligations in respect of this Agreement or
any of the Loan Documents except as expressly set forth herein or therein. Each
Lender shall make its own independent investigation of the financial condition
and affairs of Borrower in connection with the extension of credit hereunder and
shall make its own appraisal of the creditworthiness of Borrower, and Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Lender with any credit or other information with respect thereto
(other than as expressly required herein). If Agent seeks the consent or
approval of any Lenders to the taking or refraining from taking any action
hereunder, then Agent shall send notice thereof to each Lender. Agent shall
promptly
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notify each Lender any time that the Requisite Lenders have instructed Agent to
act or refrain from acting pursuant hereto. In the event that Agent receives a
written notice or certificate from Borrower pursuant to subsection 4.10(L),
Agent shall provide a copy thereof to each Lender in a reasonably prompt manner.
(C) Rights, Exculpation, Etc. Neither Agent nor any of its officers,
directors, employees or agents shall be liable to any Lender for any action
taken or omitted by them hereunder or under any of the Loan Documents, or in
connection herewith or therewith, except that Agent shall be liable with respect
to its own gross negligence or willful misconduct. Agent shall not be liable for
any apportionment or distribution of payments made by it in good faith and if
any such apportionment or distribution is subsequently determined to have been
made in error the sole recourse of any Lender to whom payment was due but not
made, shall be to recover from other Lenders any payment in excess of the amount
to which they are determined to be entitled (and such other Lenders hereby agree
to return to such Lender any such erroneous payments received by them). In
performing its functions and duties hereunder, Agent shall exercise the same
care which it would in dealing with loans for its own account, but Agent shall
not be responsible to any Lender for any recitals, statements, representations
or warranties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, or sufficiency of this Agreement or any of the
Loan Documents or the transactions contemplated thereby, or for the financial
condition of any Loan Party. Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any of the Loan Documents or the financial
condition of any Loan Party, or the existence or possible existence of any
Default or Event of Default. Agent may at any time request instructions from
Lenders with respect to any actions or approvals which by the terms of this
Agreement or of any of the Loan Documents Agent is permitted or required to take
or to grant, and if such instructions are promptly requested, Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from Requisite Lenders
or all of the Lenders, as applicable. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against Agent as a result of Agent
acting or refraining from acting under this Agreement, the Notes, or any of the
other Loan Documents in accordance with the instructions of Requisite Lenders.
(D) Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any written or oral notices, statements,
certificates, orders or other documents or any telephone message or other
communication (including any writing, telex, telecopy or telegram) believed by
it in good faith to be genuine and correct and to have been signed, sent or made
by the proper Person, and with respect to all matters pertaining to this
Agreement or any of the Loan Documents and its duties hereunder or thereunder,
upon advice of counsel selected by it. Agent shall be entitled to rely upon the
advice of legal counsel, independent accountants, and other experts selected by
Agent in its sole discretion.
(E) Indemnification. Lenders will reimburse and indemnify Agent for
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including, without limitation,
attorneys' fees and expenses), advances or
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disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against Agent in any way relating to or arising out of this
Agreement or any of the Loan Documents or any action taken or omitted by Agent
under this Agreement or any of the Loan Documents, in proportion to each
Lender's Pro Rata Share; provided, however, that no Lender shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements resulting
from Agent's gross negligence or willful misconduct. If any indemnity furnished
to Agent for any purpose shall, in the opinion of Agent, be insufficient or
become impaired, Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The obligations of Lenders under this subsection 8.2(E) shall survive
the payment in full of the Obligations and the termination of this Agreement.
(F) Heller Individually. With respect to its obligations under the
Revolving Loan Commitment and the Acquisition Loan Commitment, the Loans made by
it, and the Notes issued to it, Heller shall have and may exercise the same
rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender. The
terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the
context clearly otherwise indicates, include Heller in its individual capacity
as a Lender or one of the Requisite Lenders. Heller may lend money to, and
generally engage in any kind of banking, trust or other business with any Loan
Party as if it were not acting as Agent pursuant hereto.
(G) Successor Agent.
(1) Resignation. Agent may resign from the performance of all
its agency functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to Borrower and the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) Appointment of Successor. Upon any such notice of
resignation pursuant to clause (1) above, Requisite Lenders shall, upon receipt
of Borrower's prior consent which shall not be unreasonably withheld, appoint a
successor Agent. If a successor Agent shall not have been so appointed within
the thirty (30) Business Day period, referred to in clause (1) above, the
retiring Agent, upon notice to Borrower, shall then appoint a successor Agent
who shall serve as Agent until such time, if any, as Requisite Lenders, upon
receipt of Borrower's prior written consent which shall not be unreasonably
withheld, appoint a successor Agent as provided above.
(3) Successor Agent. Upon the acceptance of any appointment as
Agent under the Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Documents. After any retiring
Agent's resignation as Agent under the Loan Documents, the provisions of this
subsection 8.2 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under the Loan Documents.
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(H) Collateral Matters.
(1) Release of Collateral. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by the Security Documents
(i) upon termination of the Revolving Loan Commitment and payment and
satisfaction of all Obligations (other than contingent indemnification
Obligations not then due and payable); (ii) constituting property being sold or
disposed of if Borrower certifies to Agent that the sale or disposition is made
in compliance with the provisions of this Agreement (and Agent may rely in good
faith conclusively on any such certificate, without further inquiry); (iii)
constituting property leased to Borrower under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by Borrower to be, renewed or
extended; or (iv) in accordance with the provisions of the succeeding sentence.
Agent may release or compromise any Collateral and the proceeds thereof having a
value not greater than ten percent (10%) of the total book value of all
Collateral, either in a single transaction or in a series of related
transactions, with the consent of Lenders owning an aggregate of at least eighty
percent (80%) of the Revolving Loan Commitment and the Acquisition Loan
Commitment, provided that in no event will Agent, acting under the authority
granted to it pursuant to this sentence, release or compromise Collateral or the
proceeds thereof having a total book value in excess of twenty percent (20%) of
the book value of all Collateral, as determined by Agent, during any calendar
year.
(2) Confirmation of Authority; Execution of Releases. Without
in any manner limiting Agent's authority to act without any specific or further
authorization or consent by Lenders (as set forth in subsection 8.2(H)(1)), each
Lender agrees to confirm in writing, upon request by Agent or Borrower, the
authority to release any property covered by the Security Documents conferred
upon Agent under clauses (i) through (iii) of subsection 8.2(H)(1). Upon receipt
by Agent of confirmation from the requisite percentage of Lenders required by
subsection 8.2(H)(1), if any, of its authority to release or compromise any
particular item or types of property covered by the Security Documents, and upon
at least ten (10) Business Days prior written request by Borrower, Agent shall
(and is hereby irrevocably authorized by Lenders to) execute such documents as
may be necessary to evidence the release or compromise of the Liens granted to
Agent, for the benefit of Agent and Lenders, upon such Collateral, provided that
(i) Agent shall not be required to execute any such document on terms which, in
Agent's opinion, would expose Agent to liability or create any obligation or
entail any consequence other than the release or compromise of such Liens
without recourse or warranty, and (ii) such release or compromise shall not in
any manner discharge, affect or impair the Obligations or any Liens upon (or
obligations of any Loan Party, in respect of), all interests retained by any
Loan Party, including (without limitation) the proceeds of any sale, all of
which shall continue to constitute part of the property covered by the Security
Documents.
(3) Absence of Duty. Agent shall have no obligation whatsoever
to any Lender or any other Person to assure that the property covered by the
Security Documents exists or is owned by Borrower or is cared for, protected or
insured or has been encumbered or that the Liens granted to Agent have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
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particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent in this subsection 8.2(H) or in any of the Loan Documents, it
being understood and agreed that in respect of the property covered by the
Security Documents or any act, omission or event related thereto, Agent may act
in any manner it may deem appropriate, in its discretion, given Agent's own
interest in property covered by the Security Documents as one of the Lenders and
that Agent shall have no duty or liability whatsoever to any of the other
Lenders, provided that Agent shall exercise the same care which it would in
dealing with loans for its own account.
(I) Agency for Perfection. Agent and each Lender hereby appoint each
other Lender as agent for the purpose of perfecting Agent's security interest in
assets which, in accordance with Article 9 of the Uniform Commercial Code in any
applicable jurisdiction, can be perfected only by possession. Should any Lender
(other than Agent) obtain possession of any such Collateral, such Lender shall
notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver
such Collateral to Agent or in accordance with Agent's instructions. Each Lender
agrees that it will not have any right individually to enforce or seek to
enforce any Security Document or to realize upon any collateral security for the
Loans, it being understood and agreed that such rights and remedies may be
exercised only by Agent.
(J) Dissemination of Information. Agent will use its best efforts to
provide Lenders with any information received by Agent from Borrower or any
other Loan Party which is required to be provided to a Lender hereunder,
provided that Agent shall not be liable to Lenders for any failure to do so,
except to the extent that such failure is attributable to Agent's gross
negligence or willful misconduct.
8.3 Amendments, Consents and Waivers for Certain Actions.
(A) Except as otherwise provided in this subsection 8.3, in
subsection 9.2 or in any Lender Addition Agreement and except as to matters set
forth in other subsections hereof or in any other Loan Document as requiring
only Agent's consent, the consent of Requisite Lenders and Borrower will be
required to amend, modify, terminate, or waive any provision of this Agreement
or any of the other Loan Documents.
(B) In the event Agent requests the consent of a Lender and does not
receive a written consent or denial thereof within ten (10) Business Days after
such Lender's receipt of such request, then such Lender will be deemed to have
denied the giving of such consent.
(C) In the event Agent requests the consent of a Lender and such
consent is denied, then Heller or the Lender which assigned its interest in the
Loans to such Lender (the "Assigning Lender") may, at its option, require such
Lender to reassign its interest in the Loans to Heller or the Assigning Lender,
as applicable, for a price equal to the then outstanding principal amount
thereof plus accrued and unpaid interest and fees due such Lender, which
interest and fees will be paid when collected from Borrower. In the event that
Heller or the Assigning Lender elects to require any Lender to reassign its
interest to Heller or the Assigning Lender, Heller or the Assigning Lender, as
applicable, will so notify such Lender in writing within forty-five (45) days
following such Lender's denial, and such Lender will reassign its
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interest to Heller or the Assigning Lender, as applicable, no later than five
(5) days following receipt of such notice.
8.4 Set Off and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, during the continuance of any Event of Default, each Lender is hereby
authorized by Borrower at any time or from time to time, with reasonably prompt
subsequent notice to Borrower and Agent (any prior or contemporaneous notice
being hereby expressly waived) to set off and to appropriate and to apply any
and all (A) balances held by such Lender at any of its offices for the account
of Borrower or any of its Subsidiaries (regardless of whether such balances are
then due to Borrower or its Subsidiaries), and (B) other property at any time
held or owing by such Lender to or for the credit or for the account of Borrower
or any of its Subsidiaries, against and on account of any of the Obligations.
Any Lender exercising a right to set off shall, to the extent the amount of any
such set off exceeds its Pro Rata Share of the amount set off, purchase for cash
(and the other Lenders shall sell) interests in each such other Lender's Pro
Rata Share of the Obligations as would be necessary to cause such Lender to
share such excess with each other Lender in accordance with their respective Pro
Rata Shares. Borrower agrees, to the fullest extent permitted by law, that any
Lender may exercise its right to set off with respect to amounts in excess of
its Pro Rata Share of the Obligations and upon doing so shall deliver such
excess to the Agent for the benefit of all Lenders in accordance with their Pro
Rata Shares.
8.5 Disbursement of Funds. Agent may, on behalf of Lenders, disburse funds
to Borrower for Loans requested. Each Lender shall reimburse Agent on demand for
all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender
will remit to Agent its Pro Rata Share of any Loan before Agent disburses same
to Borrower. If Agent elects to require that each Lender make funds available to
Agent, prior to a disbursement by Agent to Borrower, Agent shall advise each
Lender by telephone or telecopy of the amount of such Lender's Pro Rata Share of
the Loan requested by Borrower no later than 1:00 p.m. CST on the Funding Date
applicable thereto, and each such Lender shall pay Agent such Lender's Pro Rata
Share of such requested Loan, in same day funds, by wire transfer to Agent's
account on such Funding Date. If any Lender fails to pay the amount of its Pro
Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrower,
and Borrower shall immediately repay such amount to Agent. Any repayment
required pursuant to this subsection 8.5 shall be without premium or penalty.
Nothing in this subsection 8.5 or elsewhere in this Agreement or the other Loan
Documents, including without limitation the provisions of subsection 8.6, shall
be deemed to require Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its commitments hereunder or
to prejudice any rights that Agent or Borrower may have against any Lender as a
result of any default by such Lender hereunder.
8.6 Disbursements of Advances; Payment.
(A) Revolving Loan Advances, Payments and Settlements; Related Fee
Payments.
(1) The Revolving Loan balance may fluctuate from day to day
through Agent's disbursement of funds to, and receipt of funds from, Borrower.
In order to minimize
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the frequency of transfers of funds between Agent and each Lender
notwithstanding terms to the contrary set forth in Section 1 or subsection 8.5,
Revolving Loan advances and payments will be settled among Agent and Lenders
according to the procedures described in this subsection 8.6. Notwithstanding
these procedures, each Lender's obligation to fund its portion of any advances
made by Agent to Borrower will commence on the date such advances are made by
Agent. Such payments will be made by such Lender without set-off, counterclaim
or reduction of any kind.
(2) On the second (2nd) Business Day of each week, or more
frequently (including daily), if Agent so elects (each such day being a
"Settlement Date"), Agent will advise each Lender by telephone or telecopy of
the amount of each such Lender's Pro Rata Share of the Revolving Loan balance as
of the close of business of the (2nd) second Business Day immediately preceding
the Settlement Date. In the event that payments are necessary to adjust the
amount of such Lender's required Pro Rata Share of the Revolving Loan balance to
such Lender's actual Pro Rata Share of the Revolving Loan balance as of any
Settlement Date, the party from which such payment is due will pay the other, in
same day funds, by wire transfer to the other's account not later than 3:00 p.m.
CST on the Business Day following the Settlement Date.
(3) For purposes of this subsection 8.6(A)(3), the following
terms and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount calculated as
of the end of each calendar day by subtracting (i) the cumulative
principal amount paid by Agent to a Lender on a Loan from the Closing Date
through and including such calendar day, from (ii) the cumulative
principal amount on a Loan advanced by such Lender to Agent on that Loan
from the Closing Date through and including such calendar day.
(b) "Daily Interest Rate" means an amount calculated by
dividing the interest rate payable to a Lender on a Loan (as set forth in
subsection 1.2) as of each calendar day by three hundred sixty (360).
(c) "Daily Interest Amount" means an amount calculated
by multiplying the Daily Loan Balance of a Loan by the associated Daily
Interest Rate on that Loan.
(d) "Interest Ratio" means a number calculated by
dividing the total amount of the interest on a Loan received by Agent with
respect to the immediately preceding month by the total amount of interest
on that Loan due from Borrower during the immediately preceding month.
On the first (1st) Business Day of each month ("Interest Settlement Date"),
Agent will advise each Lender by telephone, telex, or telecopy of the amount of
such Lender's Pro Rata Share of interest and fees on each of the Loans as of the
end of the last day of the immediately preceding month. Provided that such
Lender has made all payments required to be made by it under this
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Agreement, Agent will pay to such Lender, by wire transfer to such Lender's
account (as specified by such Lender on the signature page of this Agreement or
the applicable Lender Addition Agreement, as amended by such Lender from time to
time after the date hereof pursuant to the notice provisions contained herein or
in the applicable Lender Addition Agreement) not later than 3:00 p.m. (Chicago
time) on the next Business Day following the Interest Settlement Date, such
Lender's Pro Rata Share of interest and fees on each of the Loans. Such Lender's
Pro Rata Share of interest on each Loan will be calculated for that Loan by
adding together the Daily Interest Amounts for each calendar day of the prior
month for that Loan and multiplying the total thereof by the Interest Ratio for
that Loan. Such Lender's Pro Rata Share of each of the commitment fee described
in subsection 1.2(B) and the Risk Participation Liability fee described in
subsection 1.2(C) shall be paid and calculated in a manner consistent with the
payment and calculation of interest as described in this subsection 8.6(A).
(B) Acquisition Loan Payments; Related Fee Payments. Payments of
principal, interest and fees in respect of the Acquisition Loans, and payment of
all other fees and expenses not otherwise described in subsection 8.6(A) will be
settled on the Business Day received by Agent in accordance with the provisions
of Section 1.
(C) Availability of Lender's Pro Rata Share.
(1) Unless Agent has been notified by a Lender prior to a
Funding Date of such Lender's intention not to fund its Pro Rata Share of the
Loan amount requested by Borrower, Agent may assume that such Lender will make
such amount available to Agent on the Business Day following the next Settlement
Date. If such amount is not, in fact, made available to Agent by such Lender
when due, Agent will be entitled to recover such amount on demand from such
Lender without set-off, counterclaim or deduction of any kind.
(2) Nothing contained in this subsection 8.6(C) will be deemed
to relieve a Lender of its obligation to fulfill its commitments or to prejudice
any rights Agent or Borrower may have against such Lender as a result of any
default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing, each
Lender shall be obligated to fund its Pro Rata Share of any Revolving Loan or
Acquisition Loan made after any Event of Default or acceleration of the
Obligations with respect to any draw on a Lender Letter of Credit or a Risk
Participation Agreement.
(D) Return of Payments
(1) If Agent pays an amount to a Lender under this Agreement
in the belief or expectation that a related payment has been or will be received
by Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender without set-off,
counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
person pursuant to any
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solvency law or otherwise, then, notwithstanding any other term or condition of
this Agreement, Agent will not be required to distribute any portion thereof to
any Lender. In addition, each Lender will repay to Agent on demand any portion
of such amount that Agent has distributed to such Lender, together with interest
at such rate, if any, as Agent is required to pay to Borrower or such other
Person, without set-off, counterclaim or deduction of any kind.
SECTION 9
MISCELLANEOUS
9.1 Indemnities. Borrower agrees to indemnify, pay, and hold Agent, each
Lender and their respective officers, directors, employees, agents, and
attorneys (the "Indemnitees") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits and claims of
any kind or nature whatsoever that may be imposed on, incurred by, or asserted
against the Indemnitee as a result of its being a party to this Agreement;
provided that Borrower shall have no obligation to an Indemnitee hereunder with
respect to liabilities arising from the gross negligence or willful misconduct
of that Indemnitee as determined by a court of competent jurisdiction. This
subsection and other indemnification provisions contained within the Loan
Documents shall survive the termination of this Agreement.
9.2 Amendments and Waivers. Except as otherwise provided herein, no
amendment, modification, termination or waiver of any provision of this
Agreement, the Notes or any of the other Loan Documents, or consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by Requisite Lenders (or Agent, if
expressly set forth herein, in any Note or in any other Loan Document) and the
applicable Loan Party; provided, that except to the extent permitted by the
applicable Lender Addition Agreement, no amendment, modification, termination or
waiver shall, unless in writing and signed by all Lenders, do any of the
following: (a) increase any Lender's Pro Rata Share of the Revolving Loan
Commitment or the Acquisition Loan Commitment; (b) reduce the principal of, rate
of interest on or fees payable with respect to any Loan; (c) extend the Expiry
Date, extend the date on which any Scheduled Acquisition Loan Installment is to
be paid or change any date fixed for any payment of interest or fees; (d) change
the aggregate unpaid principal amount of the Loans; (e) change the percentage of
Lenders which shall be required for Lenders or any of them to take any action
hereunder; (f) release Collateral (except if the sale or disposition of such
Collateral is permitted under subsection 8.2 or any other Loan Document); (g)
amend or waive this subsection 9.2 or the definitions of the terms used in this
subsection 9.2 insofar as the definitions affect the substance of this
subsection 9.2; (h) consent to the assignment, delegation or other transfer by
any Loan Party of any of its rights and obligations under any Loan Document; (i)
change the form in which interest is required to be paid and (j) change the
advance rates set forth in the Borrowing Base Certificate; and provided,
further, that no amendment, modification, termination or waiver affecting the
rights or duties of Agent under any Loan Document shall in any event be
effective, unless in writing and signed by Agent, in addition to Lenders
required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment,
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modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note. No notice
to or demand on Borrower or any other Loan Party in any case shall entitle
Borrower or any other Loan Party to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent effected in accordance with this subsection 9.2 shall be binding upon
each holder of the Notes at the time outstanding, each future holder of the
Notes, and, if signed by a Loan Party, on such Loan Party. Agent shall provide a
copy of any written amendments, modifications, terminations and waivers as
provided in this subsection 9.2 to each Lender in a reasonably prompt manner.
9.3 Notices. Any notice or other communication required shall be in
writing addressed to the respective party as set forth below and may be
personally served, telecopied, sent by overnight courier service or U.S. mail
and shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. CST; (c) if delivered by
overnight courier, two (2) days after delivery to the courier properly
addressed; or (d) if delivered by U.S. mail, four (4) Business Days after
deposit with postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to Borrower: UNIONTOOLS, INC.
500 Dublin Avenue
Columbus, Ohio 43216
ATTN: Chief Financial Officer
Telecopy: (614) 222-4437
With a copy to: Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
ATTN: Conor D. Reilly, Esq.
Telecopy: (212) 351-4035
If to Agent or Heller: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Portfolio Manager
Corporate Finance Group
Telecopy: (312) 441-7367
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Legal Department
Corporate Finance Group
Telecopy: (312) 441-7367
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If to a Lender: To the address set forth in the applicable Lender
Addition Agreement
9.4 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of Agent or any Lender to exercise, nor any partial exercise
of, any power, right or privilege hereunder or under any other Loan Documents
shall impair such power, right, or privilege or be construed to be a waiver of
any Default or Event of Default. All rights and remedies existing hereunder or
under any other Loan Document are cumulative to and not exclusive of any rights
or remedies otherwise available.
9.5 Marshalling; Payments Set Aside. Neither Agent nor any Lender shall be
under any obligation to marshall any assets in payment of any or all of the
Obligations. To the extent that Borrower makes payment(s) or Agent enforces its
Liens or Agent or any Lender exercises its right of set-off, and such payment(s)
or the proceeds of such enforcement or set-off is subsequently invalidated,
declared to be fraudulent or preferential, set aside, or required to be repaid
by anyone, then to the extent of such recovery, the Obligations or part thereof
originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
9.6 Severability. The invalidity, illegality, or unenforceability in any
jurisdiction of any provision under the Loan Documents shall not affect or
impair the remaining provisions in the Loan Documents.
9.7 Lenders' Obligations Several; Independent Nature of Lenders' Rights.
The obligation of each Lender hereunder is several and not joint and no Lender
shall be responsible for the obligation or commitment of any other Lender
hereunder. In the event that any Lender at any time should fail to make a Loan
as herein provided, the Lenders, or any of them, at their sole option, may make
the Loan that was to have been made by the Lender so failing to make such Loan.
Nothing contained in any Loan Document and no action taken by Agent or any
Lender pursuant hereto or thereto shall be deemed to constitute Lenders to be a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt.
9.8 Headings. Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purposes or be given substantive effect.
9.9 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
9.10 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns except that Borrower may not assign its rights or obligations hereunder
without the written consent of all Lenders.
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9.11 No Fiduciary Relationship. No provision in the Loan Documents and no
course of dealing between the parties shall be deemed to create any fiduciary
duty owing to Borrower by Agent or any Lender.
9.12 Construction. Agent, each Lender and Borrower acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review the Loan Documents with its legal counsel and
that the Loan Documents shall be constructed as if jointly drafted by Agent,
each Lender and Borrower.
9.13 Confidentiality. Agent and each Lender agree to exercise their best
efforts to keep any non-public information delivered pursuant to the Loan
Documents confidential from Persons other than those employed by or engaged by
Agent or such Lender and those employed by or engaged by Agent's or such
Lender's assignees or participants, or potential assignees or participants. This
subsection shall not apply to disclosures required to be made by Agent or any
Lender to any regulatory or governmental agency or pursuant to legal process.
9.14 Consent to Jurisdiction and Service of Process.
(A) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY BORROWER AGAINST AGENT OR ANY LENDER OR
ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT
ONLY IN A COURT IN CHICAGO, ILLINOIS.
(B) BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE
IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A
COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 9.3 EXCEPT THAT UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO
ACCEPT
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SERVICE, BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
9.15 Waiver of Jury Trial. BORROWER, AGENT AND EACH LENDER HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION
AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. BORROWER, AGENT AND EACH
LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LOAN
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS OR THE
LENDER LETTERS OF CREDIT OR RISK PARTICIPATION AGREEMENTS. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT. BORROWER, AGENT AND EACH LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY
UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF AGENT AND EACH
LENDER.
9.16 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the making of the Loans, issuances of Lender Letters
of Credit and Risk Participation Agreements and the execution and delivery of
the Notes. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Borrower set forth in subsections 1.3(C), 1.8 and
9.1 shall survive the payment of the Loans and the termination of this
Agreement.
9.17 Entire Agreement. This Agreement, the Notes and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, understandings, whether oral or written, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous or subsequent oral agreements or discussions of the
parties hereto.
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9.18 Counterparts; Effectiveness. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one in the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto, subject to subsection 7.1.
SECTION 10
DEFINITIONS
10.1 Certain Defined Terms. The terms defined below are used in this
Agreement as so defined. Terms defined in the preamble and recitals to this
Agreement are used in this Agreement as so defined.
"Affiliate" means any Person: (a) directly or indirectly
controlling, controlled by, or under common control with, Borrower; (b)
directly or indirectly owning or holding five percent (5%) or more of any
equity interest in Borrower; or (c) five percent (5%) or more of whose
voting stock or other equity interest is directly or indirectly owned or
held by Borrower. For purposes of this definition, "control" (including
with correlative meanings, the terms "controlling", "controlled by" and
"under common control with") means the possession directly or indirectly
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities
or by contract or otherwise.
"Agent" means Heller in its capacity as agent for the Lenders under
this Agreement and each of the other Loan Documents and any successor in
such capacity appointed pursuant to subsection 8.2.
"Agreement" means this Amended and Restated Credit Agreement
(including all schedules and exhibits hereto).
"Asset Disposition" means the disposition whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise of any of
the following: (a) any of the stock of any of Borrower's Subsidiaries or
(b) any or all of the assets of Borrower or any of its Subsidiaries other
than sales of inventory in the ordinary course of business.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect and all rules
and regulations promulgated thereunder.
"Borrower" shall have the meaning ascribed to that term in the
preamble of this Agreement.
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"Business Day" means (a) for all purposes other than as covered by
clause (b) below, any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the Commonwealth of Pennsylvania or the
State of Illinois, or is a day on which banking institutions located in
any such states are closed, and (b) with respect to all notices,
determinations, fundings and payments in connection with Loans bearing
interest at the LIBOR, any day that is a Business Day described in clause
(a) above and that is also a day for trading by and between banks in
Dollar deposits in the applicable interbank LIBOR market.
"Closing Date" means July 31, 1997, or such earlier date on which
all of the conditions precedent set forth in Section 7.1 have been
satisfied in full.
"Collateral" means, collectively: (a) all capital stock and other
property pledged pursuant to the Security Documents; (b) all "Collateral"
as defined in the Security Documents; (c) all real property mortgaged
pursuant to the Security Documents; and (d) any property or interest
provided in addition to or in substitution for any of the foregoing.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or
event were not cured or removed within any applicable grace or cure
period.
"Expiry Date" means the earlier of (a) the suspension (subject to
reinstatement) of the Lenders' obligations to make Revolving Loans and
Acquisition Loans pursuant to subsection 6.2, (b) the acceleration of the
Obligations pursuant to subsection 6.3 or (c) June 30, 2003.
"GAAP" means generally accepted accounting principles as set forth
in statements from Auditing Standards No. 69 entitled "The Meaning of
'Present Fairly in Conformance with Generally Accepted Accounting
Principles in the Independent Auditors Reports'" issued by the Auditing
Standards Board of the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board that are applicable to the circumstances as of the date of
determination.
"Indebtedness", as applied to any Person, means: (a) all
indebtedness for borrowed money; (b) that portion of obligations with
respect to capital leases that is properly classified as a liability on a
balance sheet in conformity with GAAP; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any
part of the deferred purchase price of property or services if the
purchase price is due more than six (6) months from the date the
obligation is incurred or is evidenced by a note or similar written
instrument; and (e) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.
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"IRC" means the Internal Revenue Code of 1986, as amended from time
to time and all rules and regulations promulgated thereunder.
"Lender" or "Lenders" means Heller together with its successors and
permitted assigns pursuant to subsection 8.1.
"Lender Addition Agreement" means an agreement among Agent, a Lender
and such Lender's assignee regarding their respective rights and
obligations with respect to assignments of the Loans, the Revolving Loan
Commitment, the Acquisition Loan Commitment and other interests under this
Agreement and the other Loan Documents.
"Lien" means any lien, mortgage, pledge, security interest, charge
or encumbrance of any kind, whether voluntary or involuntary (including
any conditional sale or other title retention agreement and any lease in
the nature thereof), and any agreement to give any lien, mortgage, pledge,
security interest, charge or encumbrance.
"Loan" or "Loans" means an advance or advances under the Revolving
Loan Commitment or the Acquisition Loans.
"Loan Documents" means this Agreement, the Notes, the Security
Documents and all other instruments, documents and agreements executed by
or on behalf of any Loan Party and delivered heretofore, concurrently
herewith or at any time hereafter to or for the benefit of Agent or any
Lender in connection with the Loans and other transactions contemplated by
this Agreement, all as amended, supplemented or modified from time to
time.
"Loan Party" means, collectively, Holdings, Borrower and any other
Person (other than Agent and each Lender) which is or becomes a party to
any Loan Document.
"Loan Year" means any period of twelve (12) consecutive months
commencing on December 30, 1996, or any anniversary thereof.
"Material Adverse Effect" means (a) a material adverse effect upon
the business, operations, properties, assets or condition (financial or
otherwise) either of Borrower or any of its Subsidiaries, taken as a
whole, or of Holdings or (b) the impairment of the ability of any Loan
Party to perform its material obligations under any Loan Document to which
it is a party or of Agent or any Lender to enforce any Loan Document or
collect any of the Obligations. In determining whether any individual
event would result in a Material Adverse Effect, notwithstanding that such
event does not of itself have such effect, a Material Adverse Effect shall
be deemed to have occurred if the cumulative effect of such event and all
other then existing events would result in a Material Adverse Effect.
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"Net Proceeds" means cash proceeds received by Borrower or any of
its Subsidiaries from any Asset Disposition (including insurance proceeds,
awards of condemnation, and payments under notes or other debt securities
received in connection with any Asset Disposition), net of (a) the costs
of such sale, lease, transfer or other disposition (including taxes
attributable to such sale, lease or transfer) and (b) amounts applied to
repayment of Indebtedness (other than the Obligations) secured by a Lien
on the asset or property disposed.
"Note" or "Notes" means one or more of the notes of Borrower
substantially in the form of Exhibit 10.1(A), or any combination thereof.
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Agent or any
Lender under the Loan Documents including the principal amount of all
debts, claims and indebtedness, accrued and unpaid interest and all fees,
costs and expenses, whether primary, secondary, direct, contingent, fixed
or otherwise, heretofore, now and/or from time to time hereafter owing,
due or payable whether before or after the filing of a proceeding under
the Bankruptcy Code by or against Borrower or any of its Subsidiaries.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, limited liability partnerships,
general partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or
other organizations, whether or not legal entities, and governments and
agencies and political subdivisions thereof and their respective permitted
successors and assigns (or in the case of a governmental person, the
successor functional equivalent of such Person).
"Pro Rata Share" means the percentage obtained by dividing (i) such
Lender's commitment to make Revolving Loans and Acquisition Loans, as set
forth on the signature page of this agreement opposite such Lender's
signature or in the most recent Lender Addition Agreement, if any,
executed by such Lender, by (ii) all such commitments of all Lenders to
make Revolving Loans and Acquisition Loans.
"Projections" means Borrower's forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a consistent basis with
Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions. The
Projections represent and will represent as of the date thereof the good
faith estimate of Borrower and its senior management concerning the most
probable course of its business.
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"Related Transactions" means the funding of all Loans on the Closing
Date, and the payment of all fees, costs and expenses associated with all
of the foregoing.
"Related Transactions Documents" means the Loan Documents, and all
other agreements, instruments and documents executed or delivered in
connection with the Related Transactions.
"Requisite Lenders" means Lenders having sixty-six and two-thirds
percent (66-2/3%) or more of the sum of the Revolving Loan Commitment and
the Acquisition Loan Commitment.
"Risk Participation Liability" means, as to each Lender Letter of
Credit and each Risk Participation Agreement, all reimbursement
obligations of Borrower to the issuer of the Lender Letter of Credit or to
the issuer of the letter of credit with respect to the transaction for
which the Risk Participation Agreement was executed and delivered,
consisting of (a) the amount available to be drawn or which may become
available to be drawn; (b) all amounts which have been paid and made
available by the issuing bank to the extent not reimbursed by Borrower,
whether by the making of a Revolving Loan or otherwise; and (c) all
accrued and unpaid interest, fees and expenses with respect thereto. For
purposes of determining the outstanding amount of Risk Participation
Liability, the maximum amount potentially owing under any Risk
Participation Agreement will be considered outstanding unless the bank
which is the beneficiary of such Risk Participation Agreement reports
daily activity to Agent showing actual outstanding letters of credit
subject to such Risk Participation Agreement.
"Security Documents" means all instruments, documents and agreements
executed by or on behalf of any Loan Party to guaranty or provide
collateral security with respect to the Obligations including, without
limitation, any security agreement or pledge agreement, any guaranty of
the Obligations, any mortgage, any subordination and intercreditor
agreements, and all instruments, documents and agreements executed
pursuant to the terms of the foregoing.
"Subordinated Indebtedness" means the "Junior Note" as defined in
that certain Subordination and Intercreditor Agreement dated as of
December 27, 1996 among Agent, Borrower and Holdings, and all other
Indebtedness of Borrower, Holdings or any of their Subsidiaries which is
subordinated, in a manner satisfactory to Agent, in right of payment to
the Obligations.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time
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owned or controlled, directly or indirectly, by that Person or one or more
of the other Subsidiaries of that Person or a combination thereof.
10.2 Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 10.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, "hereof," "herein," "hereto," "hereunder"
and the like mean and refer to this Agreement as a whole and not merely to the
specific section, paragraph or clause in which the respective word appears;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation"; references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only to
the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document; references
to Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations.
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
UNIONTOOLS, INC.
By: /s/ Stephen M. Kasprisin
---------------------------------
Title: Vice Presidient
---------------------------------
Commitment to make Revolving Loans HELLER FINANCIAL, INC., as Agent and
and Acquisition Loans: a Lender
$15,000,000 (23.077%)
By: /s/ Joseph F. Romic
---------------------------------
Title: Vice President
---------------------------------
Commitment to make Revolving Loans SANWA BUSINESS CREDIT
and Acquisition Loans: CORPORATION
$10,000,000 (15.385%)
By: /s/ Lawrence J. Placek
---------------------------------
Title: Vice President
---------------------------------
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Commitment to make Revolving Loans FLEET CAPITAL CORPORATION
and Acquisition Loans:
$10,000,000 (15.385%)
By: /s/ Alisa Frederick
---------------------------------
Title: Vice President
---------------------------------
Commitment to make Revolving Loans PNC BANK, OHIO, NATIONAL
and Acquisition Loans: ASSOCIATION
$10,000,000 (15.385%)
By: /s/ Warren Weber
---------------------------------
Title: Assistant Vice President
---------------------------------
Commitment to make Revolving Loans BANKBOSTON, N.A., formerly known as
and Acquisition Loans: The First National Bank Of Boston
$12,500,000 (19.231%)
By: /s/ Timothy M. Barns
---------------------------------
Title: Division Executive
---------------------------------
Commitment to make Revolving Loans STAR BANK, N.A.
and Acquisition Loans:
$7,500,000 (11.537%)
By: /s/ Rick Neltner
---------------------------------
Title: Vice President
---------------------------------
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<PAGE> 1
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
May __,1997 among ACORN PRODUCTS, INC., a Delaware corporation (the "Company"),
and the entities listed on Exhibit A to this Agreement as the "SHAREHOLDERS"
(the "Shareholders").
W I T N E S S E T H
WHEREAS, in connection with the Company's proposed initial
public offering of its Common Stock (the "IPO"), the Shareholders have agreed
with the representatives of the underwriters, pursuant to certain lock-up
agreements (the "IPO Lock-Up Agreements"), for the benefit of the Company, not
to offer, sell, transfer or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of the IPO without the prior written consent
of the representatives of the underwriters (the "IPO Lock-Up Period");
WHEREAS, the Company believes that unorganized sales of shares
of Common Stock by the Shareholders in the public market could have an adverse
effect on prevailing market prices for the Common Stock and could adversely
impact the Company's ability to participate in the capital markets;
WHEREAS, in order to provide for the orderly distribution of
the shares of Common Stock held by the Shareholders, the Company has agreed to
grant registration rights to the Shareholders with respect to the shares of
Common Stock as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
(a) As used in this Agreement the following terms
shall have the following meanings:
"ACT": the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"COMMISSION": the Securities and Exchange Commission
or any other federal agency at the time administering the Act.
"COMMON STOCK": the common stock, $0.001 par value,
of the Company.
"COMPANY": as defined in the preamble.
<PAGE> 2
"EFFECTIVE DATE": the date that the IPO Registration
Statement is declared effective under the Act by the Commission.
"EXCHANGE ACT": the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder.
"FUND INVESTOR": the investors in the Shareholders
set forth on Exhibit B.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time.
"HOLDER": a Shareholder or a Permitted Transferee.
"INITIATING HOLDERS": means one or more Holders who,
singularly or in the aggregate, hold 25% or more of the Registrable Securities.
"IPO": as defined in the preamble.
"IPO LOCK-UP AGREEMENTS": as defined in the preamble.
"IPO LOCK-UP PERIOD": as defined in the preamble.
"IPO REGISTRATION STATEMENT": the Registration
Statement on Form S-1 (Reg. No. 333-25325) filed by the Company with the
Commission in connection with the IPO.
"PERMITTED TRANSFER": any transfer of Registrable
Securities that is permitted without the consent of the representatives of the
underwriters under the terms of the IPO Lock-Up Agreements and any distribution
of Registrable Securities from the Shareholders to the Fund Investors.
"PERMITTED TRANSFEREE": any transferee that receives
Registrable Securities pursuant to a Permitted Transfer and who agrees in
writing to become bound by the terms of this Agreement.
"PERSON": an individual, partnership, joint venture,
corporation, trust, unincorporated organization or a government or any
department or agency thereof.
"PIGGYBACK NOTICE": as defined in Section 2.
"PROSPECTIVE SELLER": with respect to any
registration, a Holder that proposes to include shares of Registrable Securities
in such registration.
"REGISTER," "REGISTERED" and "REGISTRATION": a
registration effected by preparing and filing a registration statement in
compliance with the Act, the declaration or ordering of effectiveness of such
registration statement by the Commission and the compliance
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<PAGE> 3
with all applicable state securities or blue sky laws which will permit the sale
of Registrable Securities to the public.
"REGISTRABLE SECURITIES": (i) those shares of Common
Stock currently held by the Shareholders, (ii) those shares of Common Stock to
be received by the Shareholders pursuant to the Exchange (as defined and
described in the IPO Registration Statement) in connection with the IPO, (iii)
any Common Stock issued or issuable with respect to or in exchange for the
shares of Common Stock described in clauses (i) and (ii) above by reason of a
stock dividend or other distribution on such shares or stock split or in
connection with a combination of shares, recapitalization, reclassification,
exchange, offer, merger, consolidation or other reorganization. Each share of
Registrable Securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such stock shall have become
effective under the Act and such stock shall have been disposed of in accordance
with such registration statement, (b) such stock ceases to be outstanding, (c)
such stock is no longer held by a Holder or (d) the fourth anniversary of the
Effective Date has occurred. A schedule of the number of shares of Registrable
Securities held by each Shareholder is attached hereto as Exhibit C.
"REGISTRATION EXPENSES": as defined in Section 7.
"UNDERWRITTEN OFFERING": a registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
(b) Unless otherwise specified therein, all terms
defined in this Agreement shall have the defined meanings when used in any
certificate or document made or delivered pursuant hereto.
(c) As used herein and in any certificate or other
documents made or delivered pursuant hereto, accounting terms not defined in
Section 1(a) and accounting terms partly defined in Section 1(a) to the extent
not defined, shall have the respective meanings given to them under GAAP.
(d) Any reference to any provision of or rule under
the Act or the Exchange Act shall encompass any successor provision or rule.
(e) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified.
(f) The meanings given to terms defined herein shall
be equally applicable to the singular and plural forms of such terms.
2. Incidental Registration. If the Company proposes to
register any of its securities for sale (other than a registration relating to
the sale of securities to employees of the
3
<PAGE> 4
Company pursuant to a stock option, stock purchase or similar plan including a
registration statement on Form S-8, an exchange offer, a transaction subject to
Rule 145 of the Act or in connection with the acquisition of the assets or
shares of or merger or consolidation with another company), and the registration
form to be used also may be used for the registration of the Registrable
Securities, then it shall give written notice (a "Piggyback Notice"), at its
expense, to all Holders of Registrable Securities of its intention to do so at
least 10 business days prior to the filing of a registration statement with
respect to such registration with the Commission. The Company shall specify in
the Piggyback Notice the form and manner of, and the other relevant facts
involved in, such proposed registration, including the estimated effective date
of the registration statement for such registration (the "Estimated Effective
Date). If any Holder desires to dispose of all or part of its Registrable
Securities in such registration, it shall deliver to the Company, within 10
business days after receipt of the Piggyback Notice, written notice of such
request stating the number of shares of Registrable Securities so proposed to be
sold by such Holder. Any Holder may withdraw its request for inclusion at any
time prior to 15 business days prior to the Estimated Effective Date. The
Company shall use its commercially reasonable efforts to cause all shares of
Registrable Securities specified in such written notice to be included in such
registration, subject, however, to the limitations set forth in Section 3 and
provided that, for purposes of this sentence, commercially reasonable efforts
shall not require the Company or any other seller of securities of the Company
(other than a Holder of Registrable Securities), to reduce the amount or sale
price of such securities proposed to be so registered.
3. Limitations on Incidental Registration.
(a) If the registration of which the Company gives
notice pursuant to Section 2 is for the purpose of permitting a disposition of
securities pursuant to an Underwritten Offering, the Piggyback Notice shall so
state, and, if requested to do so by the managing underwriter of the offering,
the Company shall have the right to limit the aggregate size of the offering or
the number of shares of Registrable Securities to be included therein by the
Holders in accordance with the provisions of Section 3(b) below.
(b) Whenever the number of shares of Registrable
Securities that may be registered pursuant to Section 2 is limited by the
provisions of Section 3(a) above, the Company or any other seller of securities
of the Company for whom such registration was initiated, as the case may be,
shall have priority as to sales over the Holders, and each Holder hereby agrees
that he or she shall withdraw his or her securities from such registration to
the extent necessary to allow the Company or such other seller of securities of
the Company to include all the shares it desires to include in such
registration, and thereafter the number of shares of Registrable Securities to
be included in such registration shall be allocated pro rata among Holders of
Registrable Securities (with such allocation to be made on the basis of the
number of shares requested to be included in such registration by such Holders)
and any person other than a Holder who holds registration rights with respect to
securities of the Company (each such person, an "Additional Registration Rights
Holder"), to the extent provided in the relevant agreement between the Company
and the Additional Registration Rights Holder.
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<PAGE> 5
(c) Nothing in this Section 3 shall be construed as
creating an obligation on the part of the Company to register Registrable
Securities if the Board of Directors of the Company shall have determined in its
sole discretion not to proceed with a registration of its securities whether or
not a Piggyback Notice shall have previously been sent by the Company.
4. Registration on Request.
(a) At any time following the expiration of the IPO
Lock-Up Period, Initiating Holders may by written notice make a request that the
Company effect the registration under the Act of all or part of such Initiating
Holders' Registrable Securities, specifying the intended method or methods of
disposition thereof; provided that the Shareholders, collectively, are entitled
to an aggregate of four such registrations pursuant to this Section 4(a).
Notwithstanding the provisions of this Section 4(a), the Company shall not be
obligated to effect a registration under the Act of the designated Registrable
Securities if in the preceding 180 days the Company shall have previously
effected a registration under the Act of the Company's securities.
(b) Upon receipt of the request of the Initiating
Holders pursuant to Section 4(a), the Company shall give written notice of the
requested registration ( a "Demand Notice"), at its expense, to all Holders of
Registrable Securities within 15 business days of receipt of such Initiating
Holders request and thereupon shall use its commercially reasonable efforts to
effect the registration under the Act of:
(i) the Registrable Securities that the Company
has been so requested to register by the Initiating Holders
for disposition in accordance with the intended method or
methods of disposition stated in such request; and
(ii) all other Registrable Securities that the
Company has been requested to register by the Holders thereof
by written request delivered to the Company within 15 business
days after the giving of the Demand Notice (which request
shall specify the intended method or methods of disposition of
such Registrable Securities);
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered.
(c) Whenever the Company shall effect a registration
of Registrable Securities pursuant to this Section 4, subject to Section 4(d)
below, (i) any Additional Registration Rights Holder shall have the right to
include in the registration made pursuant to this Section 4, to the extent
provided in the relevant agreement between the Company and the Additional
Registration Rights Holder, the securities held by such Additional Registration
Rights Holders to which such registration rights relate and (ii) the Company
shall have the right to include in the registration made pursuant to this
Section 4 any securities to be issued by the Company (the securities referred to
in clause (i) and (ii) above are hereinafter referred to as "Additional
Securities").
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<PAGE> 6
(d) Each registration requested pursuant to this
Section 4 shall be effected by the filing of a registration statement on the
applicable form, as reasonably determined by the Company.
(e) If the managing underwriter of any Underwritten
Offering undertaken pursuant to this Section 4 shall advise the Company in
writing (with a copy to each holder of Registrable Securities requesting
registration) that, in its opinion, the number or type of securities requested
to be included in such registration (including any Additional Securities) is a
number or type which would adversely affect such offering, then the number of
shares of Registrable Securities to be included in such registration shall be
allocated pro rata among Holders of Registrable Securities (with such allocation
to be made on the basis of the number of shares requested to be included in such
registration by such Holders) and, thereafter, pro rata among the Company and
the Additional Registration Rights Holders (such limited number to be allocated
between the Company and the affected Additional Registration Rights Holders as
the Company shall determine).
(f) If the Company determines, in its reasonable
judgment, that a registration requested pursuant to this Section 4 would
interfere with or require public disclosure of any financing, acquisition,
disposition, corporate reorganization or other transaction involving the
Company or its subsidiaries which would have a material adverse effect on such
transaction, the Company shall be entitled to postpone for a reasonable period
of time (not to exceed 90 days) the filing, supplementing or amending of any
such registration statement. Upon such determination, the Company shall give the
holders of Registrable Securities requesting registration written notice of such
determination and an estimate of the anticipated delay. The Company shall not,
within 120 days of the expiration of any such postponement, exercise again its
right of postponement pursuant to this Section 4(f). If the Company shall so
postpone the filing of a registration statement, such holders of Registrable
Securities may withdraw their request for registration by giving written notice
to the Company within 15 days of receipt of the notice of postponement and such
withdrawn request shall not constitute a request for registration pursuant to
Section 4(a).
(g) Notwithstanding anything in this Section 4 to the
contrary, in no event shall the Company be required to effect a registration
pursuant to this Section 4 in which the estimated aggregate gross proceeds from
the sale of Registrable Securities included therein is less than $1 million.
5. Underwritten Offerings.
(a) Selection of Underwriters. Whenever a
registration requested pursuant to Section 4 hereof is for an Underwritten
Offering, the Initiating Holders shall select managing underwriter(s) of
recognized standing to administer the offering, subject to approval by the
Company with such approval not to be unreasonably withheld, and each Holder
requesting registration of its Registrable Securities for disposition in an
Underwritten Offering agrees to include such Registrable Securities such
Underwritten Offering and shall be bound by the provisions of this Section 5.
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<PAGE> 7
(b) Underwriting Agreement. If requested by the
underwriters for any Underwritten Offering of Registrable Securities pursuant to
a registration requested under Section 4 hereof, the Company shall enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain representations and warranties by the Company and other terms and
provisions not inconsistent with this Agreement as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 8 hereof; and the Company will cooperate with such Holders of
Registrable Securities to the end that the conditions precedent to the
obligations of such Holders of Registrable Securities under such underwriting
agreement shall not include conditions that are not customary in underwriting
agreements with respect to secondary distributions and shall be otherwise
reasonably satisfactory to such Holders. The Holders on whose behalf shares of
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Holders selling Registrable Securities. Such Holders shall not be required
by the Company to make any representations or warranties to or agreements with
the Company or the underwriters (including any restrictions on sales
inconsistent with Section 5(c) hereof) other than reasonable representations,
warranties or agreements regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method or methods of disposition and any
other representation required by law. If requested by the underwriters for any
Underwritten Offering of Registrable Securities pursuant to a registration under
Section 2 hereof, the Holders on whose behalf shares of Registrable Securities
are to be distributed by such underwriters shall execute and deliver to such
underwriters and the Company an Underwriting Agreement, subject to the
limitations set forth in the preceding two sentences.
(c) Restrictions on Sales by Holders. If any
registration subject to Section 2 or 4 shall be in connection with an
Underwritten Offering on a firm commitment basis, each Holder agrees, if and to
the extent requested in writing by the managing underwriter, not to effect any
public sales or distribution (other than as part of such Underwritten Offering
pursuant to Section 2 or 4, respectively) of Common Stock, any securities of the
Company similar to Common Stock or any securities of the Company convertible,
exchangeable or exercisable for Common Stock, including a sale pursuant to Rule
144 or pursuant to a registered offering not being distributed on a firm
commitment basis by or through one or more underwriters, within the period from
seven days prior to the effective date of such registration statement up to
ninety (90) days after the effective date of such registration statement or such
other period not to exceed one hundred and twenty (120) days after the effective
date of such registration statement as may be required by such managing
underwriter.
(d) Restrictions on Sales by the Company. The Company
agrees not to effect any public sale or distribution of any Common Stock, any
securities of the Company similar to Common Stock or any securities of the
Company convertible, exchangeable or exercisable for Common Stock (including
pursuant to a registered offering not being distributed on a firm commitment
basis by or through one or more underwriters) within the period from seven days
7
<PAGE> 8
prior to the effective date of any registration statement that includes
Registrable Securities to be distributed by or through one or more underwriters
on a firm commitment basis up to ninety (90) days after the effective date of
such registration statement or such other period not to exceed one hundred and
eighty (180) days after the effective date of such registration statement as may
be required by such managing underwriter unless such sale or distribution is
pursuant to such registration statement (or a separate registration statement
filed concurrently); provided, however, that the foregoing shall not prevent the
conversion or exchange of any securities pursuant to their terms into or for
other securities or the offer or sale of securities by the Company pursuant to a
dividend reinvestment plan or to its employees or directors pursuant to an
employee benefit plan.
6. Registration Procedures
(a) Each Prospective Seller shall furnish to the
Company such information as the Company may reasonably require for inclusion in
the registration statement (and the prospectus included therein).
(b) The Prospective Sellers shall not (until further
notice) effect sales of the shares covered by the registration statement after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus.
7. Expenses of Registration. All expenses of
registration pursuant to either Section 2 or Section 4, including, without
limitation, all registration and filing fees, printing expenses (including
reasonable expenses of printing prospectuses), expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of Registrable Securities), fees and
disbursements of counsel, auditors or experts for the Company, expenses of any
audits incidental to or required by any such registration, expenses of all
marketing and promotional efforts requested by the managing underwriter
(collectively, "Registration Expenses") shall be borne by the Company; provided,
however, that each Prospective Seller shall bear all underwriting discounts,
commissions or fees and all brokerage fees or commissions relating to the sale
of its Registrable Securities and the fees and expenses of counsel for such
Prospective Seller.
8. Indemnification.
(a) Indemnification by the Company. In connection
with any registration statement filed pursuant to Section 2 or 4 hereof, the
Company shall indemnify and hold harmless each Holder selling Registrable
Securities covered by such registration statement, its directors, officers,
employees, agents, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such Holder or such underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or
8
<PAGE> 9
expenses (including reasonable costs of investigation and reasonable legal
expenses), joint or several, to which such Person may become subject, insofar as
such losses, claims, damages, liabilities or expenses (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment thereof or supplement thereto, or any document
incorporated by reference therein, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
and relating to action required of or inaction by the Company in connection with
any such registration, and the Company shall reimburse such Indemnified Person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense (or action or
proceeding in respect thereof) arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information about such Indemnified Person furnished to the Company
through an instrument duly executed by such Indemnified Person specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Person and shall
survive the transfer of such securities by such seller. The Company shall agree
to a provision for contribution relating to such indemnity as shall be
reasonably requested by any seller of Registrable Shares or the underwriters.
(b) Indemnification by the Prospective Sellers. The
Company may require, as a condition to including any Registrable Securities in
any registration statement filed pursuant to Section 2 or 4 hereof, that the
Company shall have received an undertaking satisfactory to it from each
Prospective Seller to indemnify and hold harmless such Person, each director of
such Person, each officer of such Person who shall sign such registration
statement, each Person who participates as an underwriter (if such underwriter
so requests) in the offering or sale of such securities and each other Person,
if any, who controls the Company or any such underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities or expenses (including reasonable costs of
investigation and reasonable legal expenses), to which such Person may become
subject, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment thereof or supplement thereto, or any
document incorporated by reference therein, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such actual or
alleged statement or omission described in (i) or (ii) above was made in
reliance upon and in conformity with written information about such Prospective
Seller
9
<PAGE> 10
furnished to such Person through an instrument duly executed by such Prospective
Seller specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. The indemnification obligations of any
Prospective Seller shall not be greater than the dollar amount of the net
proceeds received by such Prospective Seller upon the sale of the Registrable
Securities giving rise to such obligation. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Person or any such director, officer, participating Person or controlling Person
and shall survive the transfer of such securities by such Prospective Seller.
(c) Notice of Claims, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action, proceeding,
investigation or threat involving a claim referred to in Section 8(a) or 8(b),
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, proceeding, investigation or threat; provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 8 except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless a conflict of interest between
such indemnified and indemnifying parties exists in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, and after notice from the indemnifying party to such
indemnified party of its elections so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, which consent shall
not be unreasonably withheld or delayed, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to
that specified in the preceding subdivisions of this Section 8 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any state securities or blue sky law or
regulation of a governmental authority other than the Act.
(e) Contribution. If the indemnification provided for
in Section 8(a) or 8(b) above is unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified parties on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations.
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<PAGE> 11
Such relative fault shall be determined by reference to, among other things,
whether any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party, or by the indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Holders agree that it would not
be just and equitable if contribution pursuant to this Section 8(e) were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding paragraph; provided that the Company and each holder of
Registrable Securities shall agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that the
underwriter's portion of such contribution shall not exceed the underwriting
discount. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities or actions in respect thereof referred
to in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. The contribution obligations of any Prospective Seller shall
not be greater than the excess of (A) the dollar amount of the net proceeds
received by such Prospective Seller upon the sale of the Registrable Securities
giving rise to such contribution obligation over (B) the dollar amount of any
damages that such Holder has otherwise been required to pay by reason of the
untrue or alleged untrue statement or omission or alleged omission giving rise
to such obligation. No Person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(f) Indemnification Payments. The indemnification
required by this Section 8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
9. Miscellaneous.
(a) Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
sent by overnight courier service; or delivered (in person or by telecopy)
against receipt, in each case to the party to whom it is given: (i) if to the
Company, to it at 500 Dublin Avenue, Columbus, Ohio 43210-1930, with a copy to
Gibson, Dunn & Crutcher LLP, 200 Park Avenue, 48th Floor, New York, New York
10016, attention: Conor D. Reilly; and (ii) if to the Holders, to each c/o TCW
Special Credits, 550 South Hope Street, 22nd Floor, Los Angeles, California
90071, attention: Kenneth Liang.
Any notice or other communication given hereunder
shall be deemed given when sent, except for a notice changing a party's address,
which shall be deemed given at the time of receipt thereof.
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<PAGE> 12
(b) Assignment. Except with respect to Permitted
Transferees, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by the Company or the Holders without
the prior written consent of the other party, and any purported assignment shall
be void.
(c) Binding Effect. The provisions of this Agreement
shall be binding upon and inure to the benefit of the Company and the Holders
and their respective successors and permitted assigns.
(d) Third-Party Beneficiaries. This Agreement does
not create, and shall not be construed as creating, any rights enforceable by
any Person not a party to this Agreement other than any assignee with respect to
whom the respective assignment was made in accordance with the terms hereof.
(e) Effectiveness. This Agreement shall be effective
as of the Effective Date.
(f) Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(g) Governing Law. This Agreement and the rights and
obligations of the parties under this Agreement shall be governed by, and
construed and interpreted in accordance with, the substantive law of the State
of New York without regard to principles of choice or conflicts of laws.
(h) Attorney's Fees. In the event of litigation
arising between the parties respecting the subject matter hereof, the prevailing
party shall be entitled to recover its reasonable attorney's fees and costs.
(i) Expenses. Except as otherwise specifically set
forth herein, each party shall bear its own costs and expenses incurred in
connection with this Agreement or the transactions herein contemplated.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement or caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the day and year first written above.
ACORN PRODUCTS, INC.
By: ________________________________
Name:
Title:
TCW SPECIAL CREDITS, on behalf of the
Shareholders listed on Exhibit A
hereto
By: TCW ASSET MANAGEMENT
COMPANY, its managing partner
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
13
<PAGE> 14
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
NAME
Delaware State Employees Retirement Fund
TCW Special Credits Plus Fund
TCW Special Credits Fund III
TCW Special Credits Fund IIIb
TCW Special Credits Fund IV
The Common Fund for Bond Investments
Weyerhaeuser Company Master Pension Trust
TCW Special Credits Trust IVA
TCW Special Credits Trust
TCW Special Credits Trust IV
TCW Special Credits Trust IIIb
14
<PAGE> 15
EXHIBIT B
SCHEDULE OF FUND INVESTORS
15
<PAGE> 16
EXHIBIT C
SCHEDULE OF REGISTRABLE SECURITIES
<TABLE>
<CAPTION>
NAME OF HOLDER NUMBER OF SHARES
- -------------- ----------------
[pre IPO stock split and
Exchange]
<S> <C>
Delaware State Employees Retirement Fund 50
TCW Special Credits Plus Fund 72
TCW Special Credits Fund III 207
TCW Special Credits Fund IIIb 199
TCW Special Credits Fund IV 65
The Common Fund for Bond Investments 14
Weyerheuser Company Master Pension Trust 72
TCW Special Credits Trust IVA 22
TCW Special Credits Trust 100
TCW Special Credits Trust IV 57
TCW Special Credits Trust IIIb 142
</TABLE>
16
<PAGE> 1
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
May __,1997 among ACORN PRODUCTS, INC., a Delaware corporation (the "Company"),
and the entities listed on Exhibit A to this Agreement as the "SHAREHOLDERS"
(the "Shareholders").
W I T N E S S E T H
WHEREAS, in connection with the Company's proposed initial
public offering of its Common Stock (the "IPO"), the Shareholders have agreed
with the representatives of the underwriters, pursuant to certain lock-up
agreements (the "IPO Lock-Up Agreements"), for the benefit of the Company, not
to offer, sell, transfer or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of the IPO without the prior written consent
of the representatives of the underwriters (the "IPO Lock-Up Period");
WHEREAS, the Company believes that unorganized sales of shares
of Common Stock by the Shareholders in the public market could have an adverse
effect on prevailing market prices for the Common Stock and could adversely
impact the Company's ability to participate in the capital markets;
WHEREAS, in order to provide for the orderly distribution of
the shares of Common Stock held by the Shareholders, the Company has agreed to
grant registration rights to the Shareholders with respect to the shares of
Common Stock as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
(a) As used in this Agreement the following terms
shall have the following meanings:
"ACT": the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"COMMISSION": the Securities and Exchange Commission
or any other federal agency at the time administering the Act.
"COMMON STOCK": the common stock, $0.001 par value,
of the Company.
"COMPANY": as defined in the preamble.
<PAGE> 2
"EFFECTIVE DATE": the date that the IPO Registration
Statement is declared effective under the Act by the Commission.
"EXCHANGE ACT": the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder.
"FUND INVESTOR": the investors in the Shareholders
set forth on Exhibit B.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time.
"HOLDER": a Shareholder or a Permitted Transferee.
"INITIATING HOLDERS": means one or more Holders who,
singularly or in the aggregate, hold 25% or more of the Registrable Securities.
"IPO": as defined in the preamble.
"IPO LOCK-UP AGREEMENTS": as defined in the preamble.
"IPO LOCK-UP PERIOD": as defined in the preamble.
"IPO REGISTRATION STATEMENT": the Registration
Statement on Form S-1 (Reg. No. 333-25325) filed by the Company with the
Commission in connection with the IPO.
"PERMITTED TRANSFER": any transfer of Registrable
Securities that is permitted without the consent of the representatives of the
underwriters under the terms of the IPO Lock-Up Agreements and any distribution
of Registrable Securities from the Shareholders to the Fund Investors.
"PERMITTED TRANSFEREE": any transferee that receives
Registrable Securities pursuant to a Permitted Transfer and who agrees in
writing to become bound by the terms of this Agreement.
"PERSON": an individual, partnership, joint venture,
corporation, trust, unincorporated organization or a government or any
department or agency thereof.
"PIGGYBACK NOTICE": as defined in Section 2.
"PROSPECTIVE SELLER": with respect to any
registration, a Holder that proposes to include shares of Registrable Securities
in such registration.
"REGISTER," "REGISTERED" and "REGISTRATION": a
registration effected by preparing and filing a registration statement in
compliance with the Act, the declaration or ordering of effectiveness of such
registration statement by the Commission and the compliance
2
<PAGE> 3
with all applicable state securities or blue sky laws which will permit the sale
of Registrable Securities to the public.
"REGISTRABLE SECURITIES": (i) those shares of Common
Stock currently held by the Shareholders, (ii) those shares of Common Stock to
be received by the Shareholders pursuant to the Exchange (as defined and
described in the IPO Registration Statement) in connection with the IPO, (iii)
any Common Stock issued or issuable with respect to or in exchange for the
shares of Common Stock described in clauses (i) and (ii) above by reason of a
stock dividend or other distribution on such shares or stock split or in
connection with a combination of shares, recapitalization, reclassification,
exchange, offer, merger, consolidation or other reorganization. Each share of
Registrable Securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such stock shall have become
effective under the Act and such stock shall have been disposed of in accordance
with such registration statement, (b) such stock ceases to be outstanding, (c)
such stock is no longer held by a Holder or (d) the fourth anniversary of the
Effective Date has occurred. A schedule of the number of shares of Registrable
Securities held by each Shareholder is attached hereto as Exhibit C.
"REGISTRATION EXPENSES": as defined in Section 7.
"UNDERWRITTEN OFFERING": a registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
(b) Unless otherwise specified therein, all terms
defined in this Agreement shall have the defined meanings when used in any
certificate or document made or delivered pursuant hereto.
(c) As used herein and in any certificate or other
documents made or delivered pursuant hereto, accounting terms not defined in
Section 1(a) and accounting terms partly defined in Section 1(a) to the extent
not defined, shall have the respective meanings given to them under GAAP.
(d) Any reference to any provision of or rule under
the Act or the Exchange Act shall encompass any successor provision or rule.
(e) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
section, subsection, schedule and exhibit references are to this Agreement
unless otherwise specified.
(f) The meanings given to terms defined herein shall
be equally applicable to the singular and plural forms of such terms.
2. Incidental Registration. If the Company proposes to
register any of its securities for sale (other than a registration relating to
the sale of securities to employees of the
3
<PAGE> 4
Company pursuant to a stock option, stock purchase or similar plan including a
registration statement on Form S-8, an exchange offer, a transaction subject to
Rule 145 of the Act or in connection with the acquisition of the assets or
shares of or merger or consolidation with another company), and the registration
form to be used also may be used for the registration of the Registrable
Securities, then it shall give written notice (a "Piggyback Notice"), at its
expense, to all Holders of Registrable Securities of its intention to do so at
least 10 business days prior to the filing of a registration statement with
respect to such registration with the Commission. The Company shall specify in
the Piggyback Notice the form and manner of, and the other relevant facts
involved in, such proposed registration, including the estimated effective date
of the registration statement for such registration (the "Estimated Effective
Date). If any Holder desires to dispose of all or part of its Registrable
Securities in such registration, it shall deliver to the Company, within 10
business days after receipt of the Piggyback Notice, written notice of such
request stating the number of shares of Registrable Securities so proposed to be
sold by such Holder. Any Holder may withdraw its request for inclusion at any
time prior to 15 business days prior to the Estimated Effective Date. The
Company shall use its commercially reasonable efforts to cause all shares of
Registrable Securities specified in such written notice to be included in such
registration, subject, however, to the limitations set forth in Section 3 and
provided that, for purposes of this sentence, commercially reasonable efforts
shall not require the Company or any other seller of securities of the Company
(other than a Holder of Registrable Securities), to reduce the amount or sale
price of such securities proposed to be so registered.
3. Limitations on Incidental Registration.
(a) If the registration of which the Company gives
notice pursuant to Section 2 is for the purpose of permitting a disposition of
securities pursuant to an Underwritten Offering, the Piggyback Notice shall so
state, and, if requested to do so by the managing underwriter of the offering,
the Company shall have the right to limit the aggregate size of the offering or
the number of shares of Registrable Securities to be included therein by the
Holders in accordance with the provisions of Section 3(b) below.
(b) Whenever the number of shares of Registrable
Securities that may be registered pursuant to Section 2 is limited by the
provisions of Section 3(a) above, the Company or any other seller of securities
of the Company for whom such registration was initiated, as the case may be,
shall have priority as to sales over the Holders, and each Holder hereby agrees
that he or she shall withdraw his or her securities from such registration to
the extent necessary to allow the Company or such other seller of securities of
the Company to include all the shares it desires to include in such
registration, and thereafter the number of shares of Registrable Securities to
be included in such registration shall be allocated pro rata among Holders of
Registrable Securities (with such allocation to be made on the basis of the
number of shares requested to be included in such registration by such Holders)
and any person other than a Holder who holds registration rights with respect to
securities of the Company (each such person, an "Additional Registration Rights
Holder"), to the extent provided in the relevant agreement between the Company
and the Additional Registration Rights Holder.
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<PAGE> 5
(c) Nothing in this Section 3 shall be construed as
creating an obligation on the part of the Company to register Registrable
Securities if the Board of Directors of the Company shall have determined in its
sole discretion not to proceed with a registration of its securities whether or
not a Piggyback Notice shall have previously been sent by the Company.
4. Registration on Request.
(a) At any time following the expiration of the IPO
Lock-Up Period, Initiating Holders may by written notice make a request that the
Company effect the registration under the Act of all or part of such Initiating
Holders' Registrable Securities, specifying the intended method or methods of
disposition thereof; provided that the Shareholders, collectively, are entitled
to an aggregate of four such registrations pursuant to this Section 4(a).
Notwithstanding the provisions of this Section 4(a), the Company shall not be
obligated to effect a registration under the Act of the designated Registrable
Securities if in the preceding 180 days the Company shall have previously
effected a registration under the Act of the Company's securities.
(b) Upon receipt of the request of the Initiating
Holders pursuant to Section 4(a), the Company shall give written notice of the
requested registration ( a "Demand Notice"), at its expense, to all Holders of
Registrable Securities within 15 business days of receipt of such Initiating
Holders request and thereupon shall use its commercially reasonable efforts to
effect the registration under the Act of:
(i) the Registrable Securities that the Company
has been so requested to register by the Initiating Holders
for disposition in accordance with the intended method or
methods of disposition stated in such request; and
(ii) all other Registrable Securities that the
Company has been requested to register by the Holders thereof
by written request delivered to the Company within 15 business
days after the giving of the Demand Notice (which request
shall specify the intended method or methods of disposition of
such Registrable Securities);
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered.
(c) Whenever the Company shall effect a registration
of Registrable Securities pursuant to this Section 4, subject to Section 4(d)
below, (i) any Additional Registration Rights Holder shall have the right to
include in the registration made pursuant to this Section 4, to the extent
provided in the relevant agreement between the Company and the Additional
Registration Rights Holder, the securities held by such Additional Registration
Rights Holders to which such registration rights relate and (ii) the Company
shall have the right to include in the registration made pursuant to this
Section 4 any securities to be issued by the Company (the securities referred to
in clause (i) and (ii) above are hereinafter referred to as "Additional
Securities").
5
<PAGE> 6
(d) Each registration requested pursuant to this
Section 4 shall be effected by the filing of a registration statement on the
applicable form, as reasonably determined by the Company.
(e) If the managing underwriter of any Underwritten
Offering undertaken pursuant to this Section 4 shall advise the Company in
writing (with a copy to each holder of Registrable Securities requesting
registration) that, in its opinion, the number or type of securities requested
to be included in such registration (including any Additional Securities) is a
number or type which would adversely affect such offering, then the number of
shares of Registrable Securities to be included in such registration shall be
allocated pro rata among Holders of Registrable Securities (with such allocation
to be made on the basis of the number of shares requested to be included in such
registration by such Holders) and, thereafter, pro rata among the Company and
the Additional Registration Rights Holders (such limited number to be allocated
between the Company and the affected Additional Registration Rights Holders as
the Company shall determine).
(f) If the Company determines, in its reasonable
judgment, that a registration requested pursuant to this Section 4 would
interfere with or require public disclosure of any financing, acquisition,
disposition, corporate reorganization or other transaction involving the Company
or its subsidiaries, which would have a material adverse effect on such
transaction the Company shall be entitled to postpone for a reasonable period of
time (not to exceed 90 days) the filing, supplementing or amending of any such
registration statement. Upon such determination, the Company shall give the
holders of Registrable Securities requesting registration written notice of such
determination and an estimate of the anticipated delay. The Company shall not,
within 120 days of the expiration of any such postponement, exercise again its
right of postponement pursuant to this Section 4(f). If the Company shall so
postpone the filing of a registration statement, such holders of Registrable
Securities may withdraw their request for registration by giving written notice
to the Company within 15 days of receipt of the notice of postponement and such
withdrawn request shall not constitute a request for registration pursuant to
Section 4(a).
(g) Notwithstanding anything in this Section 4 to the
contrary, in no event shall the Company be required to effect a registration
pursuant to this Section 4 in which the estimated aggregate gross proceeds from
the sale of Registrable Securities included therein is less than $1 million.
5. Underwritten Offerings.
(a) Selection of Underwriters. Whenever a
registration requested pursuant to Section 4 hereof is for an Underwritten
Offering, the Initiating Holders shall select managing underwriter(s) of
recognized standing to administer the offering, subject to approval by the
Company with such approval not to be unreasonably withheld, and each Holder
requesting registration of its Registrable Securities for disposition in an
Underwritten Offering agrees to include such Registrable Securities such
Underwritten Offering and shall be bound by the provisions of this Section 5.
6
<PAGE> 7
(b) Underwriting Agreement. If requested by the
underwriters for any Underwritten Offering of Registrable Securities pursuant to
a registration requested under Section 4 hereof, the Company shall enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain representations and warranties by the Company and other terms and
provisions not inconsistent with this Agreement as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 8 hereof; and the Company will cooperate with such Holders of
Registrable Securities to the end that the conditions precedent to the
obligations of such Holders of Registrable Securities under such underwriting
agreement shall not include conditions that are not customary in underwriting
agreements with respect to secondary distributions and shall be otherwise
reasonably satisfactory to such Holders. The Holders on whose behalf shares of
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Holders selling Registrable Securities. Such Holders shall not be required
by the Company to make any representations or warranties to or agreements with
the Company or the underwriters (including any restrictions on sales
inconsistent with Section 5(c) hereof) other than reasonable representations,
warranties or agreements regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method or methods of disposition and any
other representation required by law. If requested by the underwriters for any
Underwritten Offering of Registrable Securities pursuant to a registration under
Section 2 hereof, the Holders on whose behalf shares of Registrable Securities
are to be distributed by such underwriters shall execute and deliver to such
underwriters and the Company an Underwriting Agreement, subject to the
limitations set forth in the preceding two sentences.
(c) Restrictions on Sales by Holders. If any
registration subject to Section 2 or 4 shall be in connection with an
Underwritten Offering on a firm commitment basis, each Holder agrees, if and to
the extent requested in writing by the managing underwriter, not to effect any
public sales or distribution (other than as part of such Underwritten Offering
pursuant to Section 2 or 4, respectively) of Common Stock, any securities of the
Company similar to Common Stock or any securities of the Company convertible,
exchangeable or exercisable for Common Stock, including a sale pursuant to Rule
144 or pursuant to a registered offering not being distributed on a firm
commitment basis by or through one or more underwriters, within the period from
seven days prior to the effective date of such registration statement up to
ninety (90) days after the effective date of such registration statement or such
other period not to exceed one hundred and twenty (120) days after the effective
date of such registration statement as may be required by such managing
underwriter.
(d) Restrictions on Sales by the Company. The Company
agrees not to effect any public sale or distribution of any Common Stock, any
securities of the Company similar to Common Stock or any securities of the
Company convertible, exchangeable or exercisable for Common Stock (including
pursuant to a registered offering not being distributed on a firm commitment
basis by or through one or more underwriters) within the period from seven days
7
<PAGE> 8
prior to the effective date of any registration statement that includes
Registrable Securities to be distributed by or through one or more underwriters
on a firm commitment basis up to ninety (90) days after the effective date of
such registration statement or such other period not to exceed one hundred and
eighty (180) days after the effective date of such registration statement as may
be required by such managing underwriter unless such sale or distribution is
pursuant to such registration statement (or a separate registration statement
filed concurrently); provided, however, that the foregoing shall not prevent the
conversion or exchange of any securities pursuant to their terms into or for
other securities or the offer or sale of securities by the Company pursuant to a
dividend reinvestment plan or to its employees or directors pursuant to an
employee benefit plan.
6. Registration Procedures
(a) Each Prospective Seller shall furnish to the
Company such information as the Company may reasonably require for inclusion in
the registration statement (and the prospectus included therein).
(b) The Prospective Sellers shall not (until further
notice) effect sales of the shares covered by the registration statement after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus.
7. Expenses of Registration. All expenses of
registration pursuant to either Section 2 or Section 4, including, without
limitation, all registration and filing fees, printing expenses (including
reasonable expenses of printing prospectuses), expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of Registrable Securities), fees and
disbursements of counsel, auditors or experts for the Company, expenses of any
audits incidental to or required by any such registration, expenses of all
marketing and promotional efforts requested by the managing underwriter
(collectively, "Registration Expenses") shall be borne by the Company; provided,
however, that each Prospective Seller shall bear all underwriting discounts,
commissions or fees and all brokerage fees or commissions relating to the sale
of its Registrable Securities and the fees and expenses of counsel for such
Prospective Seller.
8. Indemnification.
(a) Indemnification by the Company. In connection with
any registration statement filed pursuant to Section 2 or 4 hereof, the Company
shall indemnify and hold harmless each Holder selling Registrable Securities
covered by such registration statement, its directors, officers, employees,
agents, each other Person who participates as an underwriter in the offering or
sale of such securities and each other Person, if any, who controls such Holder
or such underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or
8
<PAGE> 9
expenses (including reasonable costs of investigation and reasonable legal
expenses), joint or several, to which such Person may become subject, insofar as
such losses, claims, damages, liabilities or expenses (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment thereof or supplement thereto, or any document
incorporated by reference therein, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
and relating to action required of or inaction by the Company in connection with
any such registration, and the Company shall reimburse such Indemnified Person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense (or action or
proceeding in respect thereof) arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information about such Indemnified Person furnished to the Company
through an instrument duly executed by such Indemnified Person specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Person and shall
survive the transfer of such securities by such seller. The Company shall agree
to a provision for contribution relating to such indemnity as shall be
reasonably requested by any seller of Registrable Shares or the underwriters.
(b) Indemnification by the Prospective Sellers. The
Company may require, as a condition to including any Registrable Securities in
any registration statement filed pursuant to Section 2 or 4 hereof, that the
Company shall have received an undertaking satisfactory to it from each
Prospective Seller to indemnify and hold harmless such Person, each director of
such Person, each officer of such Person who shall sign such registration
statement, each Person who participates as an underwriter (if such underwriter
so requests) in the offering or sale of such securities and each other Person,
if any, who controls the Company or any such underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities or expenses (including reasonable costs of
investigation and reasonable legal expenses), to which such Person may become
subject, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment thereof or supplement thereto, or any
document incorporated by reference therein, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such actual or
alleged statement or omission described in (i) or (ii) above was made in
reliance upon and in conformity with written information about such Prospective
Seller
9
<PAGE> 10
furnished to such Person through an instrument duly executed by such Prospective
Seller specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. The indemnification obligations of any
Prospective Seller shall not be greater than the dollar amount of the net
proceeds received by such Prospective Seller upon the sale of the Registrable
Securities giving rise to such obligation. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Person or any such director, officer, participating Person or controlling Person
and shall survive the transfer of such securities by such Prospective Seller.
(c) Notice of Claims, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action, proceeding,
investigation or threat involving a claim referred to in Section 8(a) or 8(b),
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, proceeding, investigation or threat; provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 8 except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless a conflict of interest between
such indemnified and indemnifying parties exists in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that it may wish, and after notice from the indemnifying party to such
indemnified party of its elections so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, which consent shall
not be unreasonably withheld or delayed, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a release
from all liability in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to
that specified in the preceding subdivisions of this Section 8 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any state securities or blue sky law or
regulation of a governmental authority other than the Act.
(e) Contribution. If the indemnification provided for
in Section 8(a) or 8(b) above is unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified parties on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations.
10
<PAGE> 11
Such relative fault shall be determined by reference to, among other things,
whether any untrue or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party, or by the indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Holders agree that it would not
be just and equitable if contribution pursuant to this Section 8(e) were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding paragraph; provided that the Company and each holder of
Registrable Securities shall agree with each other and the underwriters of the
Registrable Securities, if requested by such underwriters, that the
underwriter's portion of such contribution shall not exceed the underwriting
discount. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities or actions in respect thereof referred
to in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. The contribution obligations of any Prospective Seller shall
not be greater than the excess of (A) the dollar amount of the net proceeds
received by such Prospective Seller upon the sale of the Registrable Securities
giving rise to such contribution obligation over (B) the dollar amount of any
damages that such Holder has otherwise been required to pay by reason of the
untrue or alleged untrue statement or omission or alleged omission giving rise
to such obligation. No Person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(f) Indemnification Payments. The indemnification
required by this Section 8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
9. Miscellaneous.
(a) Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
sent by overnight courier service; or delivered (in person or by telecopy)
against receipt, in each case to the party to whom it is given: (i) if to the
Company, to it at 500 Dublin Avenue, Columbus, Ohio 43210-1930, with a copy to
Gibson, Dunn & Crutcher LLP, 200 Park Avenue, 48th Floor, New York, New York
10016, attention: Conor D. Reilly; and (ii) if to the Holders, to each c/o
Oaktree Capital Management, LLC, 550 South Hope Street, 22nd Floor,
Los Angeles, California 90071, attention: Kenneth Liang.
Any notice or other communication given hereunder
shall be deemed given when sent, except for a notice changing a party's address,
which shall be deemed given at the time of receipt thereof.
11
<PAGE> 12
(b) Assignment. Except with respect to Permitted
Transferees, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by the Company or the Holders without
the prior written consent of the other party, and any purported assignment shall
be void.
(c) Binding Effect. The provisions of this Agreement
shall be binding upon and inure to the benefit of the Company and the Holders
and their respective successors and permitted assigns.
(d) Third-Party Beneficiaries. This Agreement does
not create, and shall not be construed as creating, any rights enforceable by
any Person not a party to this Agreement other than any assignee with respect to
whom the respective assignment was made in accordance with the terms hereof.
(e) Effectiveness. This Agreement shall be effective
as of the Effective Date.
(f) Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(g) Governing Law. This Agreement and the rights and
obligations of the parties under this Agreement shall be governed by, and
construed and interpreted in accordance with, the substantive law of the State
of New York without regard to principles of choice or conflicts of laws.
(h) Attorney's Fees. In the event of litigation
arising between the parties respecting the subject matter hereof, the prevailing
party shall be entitled to recover its reasonable attorney's fees and costs.
(i) Expenses. Except as otherwise specifically set
forth herein, each party shall bear its own costs and expenses incurred in
connection with this Agreement or the transactions herein contemplated.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement or caused this Agreement to be executed by their respective officers
thereunto duly authorized as of the day and year first written above.
ACORN PRODUCTS, INC.
By: ________________________________
Name:
Title:
OAKTREE CAPITAL MANAGEMENT, LLC, on
behalf of the Shareholders listed on
Exhibit A hereto
By: ________________________________
Name:
Title:
13
<PAGE> 14
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
NAME
14
<PAGE> 15
EXHIBIT B
SCHEDULE OF FUND INVESTORS
15
<PAGE> 16
EXHIBIT C
SCHEDULE OF REGISTRABLE SECURITIES
NAME OF HOLDER NUMBER OF SHARES
- -------------- ----------------
[pre IPO stock split and
Exchange]
16
<PAGE> 1
EXHIBIT 11.1
Statement Re: Computation
of Per Share Earnings
<TABLE>
<CAPTION>
Year ended Nine months ended
Pro Forma August 2, 1996 May 2, 1997
- --------- --------------- -----------------
<S> <C> <C>
Shares outstanding 1,490,826 1,498,056
Shares issued upon the
consummation of the
offering 4,924,116 4,924,116
Net effect of stock options
based on the treasury stock
method 29,240 28,259
------------- --------------
Total 6,444,182 6,450,431
------------- --------------
Continuing Operations
- ---------------------
Pro forma net income from
continuing operations $ 2,887 $ 4,012
------------- --------------
Per share amount $ .45 .62
------------- --------------
</TABLE>
<TABLE>
<S> <C> <C>
Discontinued Operations
- -----------------------
Pro forma loss from
discontinued operations $ (4,962) $ (9,211)
------------- -------------
Per share amount $ (.19) $ (1.43)
------------- -------------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated October 4, 1996 (except Notes 3, 4, 11 and 13 as to
which the date is May 23, 1997) in the Registration Statement (Form S-1) and
related Prospectus of Acorn Products, Inc. dated May 23, 1997.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
---------------------
Columbus, Ohio
May 23, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT ON FORM
S-1 (REGISTRATION NO. 333-25325) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUL-28-1995 AUG-03-1996
<PERIOD-END> AUG-02-1996 MAY-02-1997
<EXCHANGE-RATE> 1 1
<CASH> 502 0
<SECURITIES> 0 0
<RECEIVABLES> 11,226 33,322
<ALLOWANCES> 556 380
<INVENTORY> 23,433 31,777
<CURRENT-ASSETS> 37,703 66,473
<PP&E> 15,955 22,564
<DEPRECIATION> 5,397 (7,096)
<TOTAL-ASSETS> 98,895 113,224
<CURRENT-LIABILITIES> 29,160 44,702
<BONDS> 45,854 54,622
0 0
8,596 8,596
<COMMON> 14,406 14,494
<OTHER-SE> (4,472) (14,106)
<TOTAL-LIABILITY-AND-EQUITY> 98,895 113,224
<SALES> 92,652 77,967
<TOTAL-REVENUES> 92,652 77,967
<CGS> 67,496 57,077
<TOTAL-COSTS> 67,496 57,077
<OTHER-EXPENSES> 16,815 13,448
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,732 5,743
<INCOME-PRETAX> (1,086) (129)
<INCOME-TAX> 582 52
<INCOME-CONTINUING> (1,668) (179)
<DISCONTINUED> (6,480) (9,575)
<EXTRAORDINARY> 0 0
<CHANGES> 869 0
<NET-INCOME> (7,279) (9,754)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
