<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACORN PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3423 22-3265462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
<TABLE>
<S> <C>
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
</TABLE>
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==============================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value............... $48,500,000 $14,700
==============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
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.
================================================================================
<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 APRIL 17, 1996
PROSPECTUS
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 shares being offered hereby,
shares have been reserved for sale to The OCM Principal Opportunities
Fund, L.P. (the "Oaktree Fund") and 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 $ and $ 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 " ", subject to official notice
of issuance.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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
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)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $
=================================================================================================
</TABLE>
(1) Before deducting expenses payable by Acorn, estimated at $ . 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
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 at the office of McDonald & Company Securities, Inc. 800 Superior
Avenue, Cleveland, Ohio or through the facilities of The Depository Trust
Company, on or about , 1997.
------------------------
MCDONALD & COMPANY A.G. EDWARDS & SONS, INC.
SECURITIES, INC.
The date of this Prospectus is , 1997.
<PAGE> 3
[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
- -for- split of the Common Stock effected on April , 1997 in the form of a
stock dividend to all stockholders of record on April , 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 75% of the 100 million households in the U.S.
participated in some form of gardening in 1995), (ii) the movement of the "baby
boomer" generation into the 45 to 64 age group (from approximately 19.5% of the
U.S. population in 1995 to 24.3% in 2005), which industry sources believe
represents the largest age group of lawn and garden enthusiasts and (iii) an
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 $40.7 million for the six months ended January 31,
1997, an increase of 13.5% from the same period in fiscal 1996. In addition, net
sales of the Company's higher-margin, best-quality products increased from
approximately 5% of total net sales in fiscal 1991 to approximately 35% of total
net sales in fiscal 1996, while net sales of the Company's lower-margin,
opening-price-point products decreased from approximately 35% of total net sales
in fiscal 1991 to approximately 8% of total net sales in fiscal 1996. The
Company generated approximately 92% of its revenues in both fiscal 1996 and the
six months ended January 31, 1997 from sales of long handle tools. The Company
believes that its market share in the long handle tool segment of the industry
has increased from approximately 16% in fiscal 1991 to approximately 28% in
fiscal 1996, giving the Company the second largest market share in this segment
of the industry.
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
3
<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 approximately 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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<PAGE> 6
- 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 $ million
of which will be available following consummation of the Offering and the
application of the net proceeds therefrom. In addition, Oaktree Capital
Management, LLC ("Oaktree"), the manager of the Oaktree Fund, has
indicated its willingness to consider providing financing from the
Oaktree Fund for future acquisitions by the Company.
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 of the discontinued VSI and McGuire-Nicholas operations are shown as
"Net assets 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
Oaktree, on behalf of the Oaktree Fund, has indicated that it intends to
purchase shares of Common Stock in the Offering at the per share Price to
Public set forth on the cover page of this Prospectus.
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 January 31, 1997, the
aggregate principal balance of the Subordinated Notes and accrued interest
thereon was approximately $33.4 million and the aggregate liquidation value of
the Series A Preferred Stock was approximately $9.2 million. See "Certain
Transactions".
The Company intends to use approximately $ million of the estimated net
proceeds of $ 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 and accrued interest
thereon (approximately $ million giving effect to the Offering and the
application of the net proceeds therefrom as of January 31, 1997) divided by the
per share Price to Public set forth on the cover page of this Prospectus (the
"Exchange"). As of January 31, 1997 and at an assumed initial public
5
<PAGE> 7
offering price of $ , the mid-point of the range of initial public
offering prices set forth on the cover page of this Prospectus, the TCW Funds
would receive an aggregate of 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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<S> <C>
Common Stock offered......................... shares
Common Stock outstanding after the shares
Offering(1)................................
Use of Proceeds.............................. The Company intends to use substantially all
of the estimated net proceeds of $ million
to (i) redeem the Series A Preferred Stock and
pay accumulated dividends thereon, (ii) reduce
indebtedness outstanding under the Company's
senior credit facility (the "Credit Facility")
and accrued interest thereon and (iii) repay a
portion of the Subordinated Notes and accrued
interest thereon. See "Use of Proceeds" and
"Certain Transactions".
Proposed Nasdaq National Market symbol.......
</TABLE>
- ---------------
(1) Based upon the number of shares of Common Stock outstanding on April ,
1997, as adjusted to give effect to the issuance of shares of
Common Stock pursuant to the Exchange (giving effect to the Exchange as of
January 31, 1997 and at an assumed initial public offering price of
$ , the mid-point of the range of initial public offering prices
set forth on the cover page of this Prospectus). Excludes (i)
shares of Common Stock issuable upon the exercise of outstanding stock
options, (ii) shares of Common Stock reserved for issuance under
Acorn's 1997 Stock Incentive Plan (the "Incentive Plan"), pursuant to which
options to purchase shares of Common Stock will be outstanding
upon consummation of the Offering, (iii) 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 Note 10 to
Consolidated Financial Statements.
RISK FACTORS
See "Risk Factors" beginning on page 9 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) is a registered
trademark 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.
6
<PAGE> 8
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 six
months ended January 26, 1996 and the six months ended January 31, 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.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------------- ------------------------------------------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED SIX MONTHS ENDED
------------------- ----------- -------- --------------------- -------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, JANUARY 26, JANUARY 31,
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 $ 35,843 $ 40,695
Cost of goods sold........... 43,856 50,548 14,185 52,271 63,411 67,496 27,290 30,142
------- -------- -------- ------- ------- ------- ------- --------
Gross profit................. 16,843 19,503 6,146 20,099 23,132 25,156 8,553 10,553
Selling, general and
administrative expenses.... 11,380 12,648 5,482 9,955 15,531 16,815 7,356 8,641
------- -------- -------- ------- ------- ------- ------- --------
Operating profit............. 5,463 6,855 664 10,144 7,601 8,341 1,197 1,912
Interest expense............. 4,924 4,939 2,773 3,525 6,485 6,732 2,918 3,243
Amortization of
intangibles................ 2,525 2,520 124 601 1,061 1,173 553 572
Other expenses............... -- 34,409(2) -- 11 694 1,522(3) 58 1,088(4)
------- -------- -------- ------- ------- ------- ------- --------
Income (loss) from continuing
operations before income
taxes...................... (1,986) (35,013) (2,233) 6,007 (639) (1,086) (2,332) (2,991)
Income taxes................. -- -- -- 290 -- 582 -- --
------- -------- -------- ------- ------- ------- ------- --------
Net income (loss) from
continuing operations...... (1,986) (35,013) (2,233) 5,717 (639) (1,668) (2,332) (2,991)
------- -------- -------- ------- ------- ------- ------- --------
Loss from discontinued
operations(5).............. (5,684) (33,560)(2) (8,373) (614) (1,800) (6,480) (1,111) (7,082)
------- -------- -------- ------- ------- ------- ------- --------
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) $ (2,574) $ (10,073)
======= ======== ======== ======= ======= ======= ======= ========
Net income (loss) from
continuing operations per
share......................
Weighted average number of
shares outstanding.........
OTHER DATA:
Gross margin................. 27.7% 27.8% 30.2% 27.8% 26.7% 27.2% 23.9% 25.9%
Operating margin............. 9.0% 9.8% 3.3% 14.0% 8.8% 9.0% 3.3% 4.7%
EBITDA(6).................... $ 6,466 $ 8,343 $ 1,168 $ 11,148 $ 9,570 $ 10,760 $ 2,419 $ 2,847
Adjusted net income (loss)
from continuing
operations(7).............. $ 3,931 $ 240 $ (302)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------------- -----------------------------------------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, JANUARY 31, 1997
1992 1993 1993 1994 1995 1996 ACTUAL AS ADJUSTED(8)
-------- -------- ----------- -------- -------- ---------- ------- --------------
(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 $18,194
Total assets................. 141,404 68,154 79,439 101,833 112,280 98,895 95,646
Total debt................... 132,382 127,458 137,437 58,854 72,104 61,891 65,577
Stockholders' equity......... 269 (68,304) (126,528) 19,422 17,323 18,530 8,665
</TABLE>
7
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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 six months ended January 31, 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 net loss of $380,000 incurred upon the sale of
substantially all of the assets of VSI, reflecting a loss of $665,000
recorded in fiscal 1996 and a gain of $285,000 recorded in the six months
ended January 31, 1997 and (ii) a loss of $6.3 million in the six months
ended January 31, 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 $8.9 million.
(6) 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.
(7) As adjusted to give effect to (i) the Offering and the application of the
net proceeds therefrom to repay $ million of indebtedness outstanding
under the Credit Facility and accrued interest thereon and repay
$ million of indebtedness outstanding under the Subordinated Notes and
accrued interest thereon and (ii) the Exchange. Adjusted net income (loss)
from continuing operations in the six months ended January 31, 1997 reflects
a $950,000 write-off of certain capitalized bank fees incurred in connection
with the Company's previous bank credit facility.
(8) As adjusted to give effect to (i) the Offering and the application of the
net proceeds therefrom to redeem the Series A Preferred Stock and pay
accumulated dividends thereon, repay $ million of indebtedness
outstanding under the Credit Facility and accrued interest thereon and repay
$ million of indebtedness outstanding under the Subordinated Notes and
accrued interest thereon and (ii) the Exchange.
8
<PAGE> 10
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 $10.1 million during the six months ended January 31, 1997. The
Company also incurred net losses from continuing operations of $2.0 million,
$35.0 million, $639,000, $1.7 million and $3.0 million, respectively, in fiscal
1992, fiscal 1993, fiscal 1995, fiscal 1996 and the six months ended January 31,
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 11.6%
of gross sales in fiscal 1995, fiscal 1996 and the six months ended January 31,
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
9
<PAGE> 11
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.
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. 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, shares of Common Stock will be
outstanding. The 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 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.
10
<PAGE> 12
Certain existing stockholders of the Company (who in the aggregate hold
shares of Common Stock), the executive officers and directors of the
Company 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
( shares immediately after the Offering) 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 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 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 will be sold prior to such time or distributed 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.
11
<PAGE> 13
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".
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 will be 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 January 31,
1997, after giving effect to the Offering and the use of proceeds therefrom (at
an assumed initial public offering price of $ 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 $ million outstanding
under the Credit Facility and approximately $ million available under the
revolving portion of the Credit Facility and approximately $ 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
12
<PAGE> 14
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".
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering and after giving effect to the Exchange
(as of January 31, 1997 and at an assumed initial public offering price of
$ , 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 % 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 % of
the outstanding shares of Common Stock. 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 shares, or %, 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
13
<PAGE> 15
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,
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
January 31, 1997, the net tangible book value per share was $ . At an
assumed initial public offering price of $ 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 $ and purchasers of shares of Common
Stock in the Offering would experience dilution in net tangible book value of
$ per share. See "Dilution".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby (at an assumed initial public offering price of
$ 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 $ million. The Company intends to use the net proceeds from the Offering
as follows: (i) approximately $ million of the net proceeds to redeem the
Series A Preferred Stock and pay accumulated dividends thereon, (ii)
approximately $ of the net proceeds to repay the term loan portion of
the Credit Facility and accrued interest thereon and reduce indebtedness
outstanding under the acquisition line of the Credit Facility and accrued
interest thereon and (iii) approximately $ 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 (8.25% per year at January 31, 1997) and matures in
December 2003. See "Description of Certain Indebtedness".
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<PAGE> 16
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> 17
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at January 31, 1997 and as adjusted as of such date to give effect to
(i) the issuance and sale of the shares of Common Stock offered
hereby (at an assumed initial public offering price of $ 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>
JANUARY 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving portion of Credit Facility................................ $ 14,223
Current portion of long-term debt................................... 3,000
-------- --------
Total short-term debt....................................... $ 17,223 $
======== ========
Long-term debt:
Term loan portion of Credit Facility(1)............................. $ 17,000 $
Subordinated Notes(1)............................................... 31,354
-------- --------
Total long-term debt........................................ $ 48,354 $
======== ========
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
Common Stock, par value $.001 per share; 20 million shares
authorized, shares issued and outstanding
( shares outstanding as adjusted)(3).................. 14,494
Contributed capital-stock options(4)................................ 460
Minimum pension liability(5)........................................ (197)
Retained earnings (deficit)......................................... (14,688)
-------- --------
Total stockholders' equity....................................... 8,665
-------- --------
Total capitalization........................................ $ 74,242 $
======== ========
</TABLE>
- ---------------
(1) See Note 4 to Consolidated Financial Statements.
(2) See Note 5 to Consolidated Financial Statements.
(3) Excludes (i) shares of Common Stock issuable upon the exercise
of outstanding stock options, (ii) shares of Common Stock
reserved for issuance under the Incentive Plan, pursuant to which options to
purchase shares of Common Stock will be outstanding upon
consummation of the Offering and (iii) shares of Common Stock
reserved for issuance under the Director Stock Plan. See "Management -- 1997
Stock Incentive Plan", "Management -- Director Stock Plan" and Note 10 to
Consolidated Financial Statements.
(4) See Note 10 to Consolidated Financial Statements.
(5) See Note 7 to Consolidated Financial Statements.
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<PAGE> 18
DILUTION
The net tangible book value of the Company at January 31, 1997 was $(22.5)
million, or $ 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
January 31, 1997, other than to give effect to (i) the sale by the Company of
shares of Common Stock offered hereby (at an assumed initial public
offering price of $ 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 January 31, 1997 would
have been $ million, or $
per share. This represents an immediate increase in net tangible book value of
$ per share of Common Stock to existing stockholders and an immediate
dilution of approximately $ 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.............................. $
Net tangible book value per share before the Offering...................... $
Increase per share attributable to the Offering............................
Pro forma net tangible book value per share after the Offering...............
------
Net tangible book value dilution per share to new investors(1)............... $
======
</TABLE>
- ---------------
(1) 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 January 31, 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 $ 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)............... % $ % $
New investors..........................
---------- --- ------ ---
Total........................ 100% $ 100%
========== === ====== ===
</TABLE>
- ---------------
(1) Gives effect to the Exchange.
As of January 31, 1997, there were options outstanding to purchase a total
of shares of Common Stock at a weighted average exercise price of
$ 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.
17
<PAGE> 19
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 six
months ended January 26, 1996 and the six months ended January 31, 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>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------------- ------------------------------------------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED SIX MONTHS ENDED
------------------- ----------- -------- --------------------- -------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, JANUARY 26, JANUARY 31,
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 $ 35,843 $ 40,695
Cost of goods sold......... 43,856 50,548 14,185 52,271 63,411 67,496 27,290 30,142
-------- -------- --------- -------- -------- -------- --------- ---------
Gross profit............... 16,843 19,503 6,146 20,099 23,132 25,156 8,553 10,553
Selling, general and
administrative
expenses................. 11,380 12,648 5,482 9,955 15,531 16,815 7,356 8,641
-------- -------- --------- -------- --------- --------- --------- ---------
Operating profit........... 5,463 6,855 664 10,144 7,601 8,341 1,197 1,912
Interest expense........... 4,924 4,939 2,773 3,525 6,485 6,732 2,918 3,243
Amortization of
intangibles.............. 2,525 2,520 124 601 1,061 1,173 553 572
Other expenses............. -- 34,409(2) -- 11 694 1,522(3) 58 1,088(4)
-------- -------- --------- -------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before income taxes...... (1,986) (35,013) (2,233) 6,007 (639) (1,086) (2,332) (2,991)
Income taxes............... -- -- -- 290 -- 582 -- --
-------- -------- --------- -------- --------- --------- --------- ---------
Net income (loss) from
continuing operations.... (1,986) (35,013) (2,233) 5,717 (639) (1,668) (2,332) (2,991)
-------- -------- --------- -------- --------- --------- --------- ---------
Loss from discontinued
operations(5)............ (5,684) (33,560)(2) (8,373) (614) (1,800) (6,480) (1,111) (7,082)
-------- -------- ---------- -------- --------- --------- --------- ---------
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) $ (2,574) $ (10,073)
======== ======== ========= ========= ========= ========= ========= =========
Net income (loss) from
continuing operations per
share....................
Weighted average number of
shares outstanding.......
OTHER DATA:
Gross margin............... 27.7% 27.8% 30.2% 27.8% 26.7% 27.2% 23.9% 25.9%
Operating margin........... 9.0% 9.8% 3.3% 14.0% 8.8% 9.0% 3.3% 4.7%
EBITDA(6).................. $ 6,466 $ 8,343 $ 1,168 $ 11,148 $ 9,570 $ 10,760 $ 2,419 $ 2,847
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------------- ------------------------------------------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, JANUARY 26, JANUARY 31,
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 $ 2,697 $ 18,194
Total assets............... 141,404 68,154 79,439 101,833 112,280 98,895 116,472 95,646
Total debt................. 132,382 127,458 137,437 58,854 72,104 61,891 75,497 65,577
Stockholders' equity....... 269 (68,304) (126,528) 19,422 17,323 18,530 14,836 8,665
</TABLE>
18
<PAGE> 20
- ---------------
(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 six months ended January 31, 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 net loss of $380,000 incurred upon the sale of
substantially all of the assets of VSI, reflecting a loss of $665,000
recorded in fiscal 1996 and a gain of $285,000 recorded in the six months
ended January 31, 1997 and (ii) a loss of $6.3 million in the six months
ended January 31, 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 $8.9 million.
(6) 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.
19
<PAGE> 21
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 $40.7 million for the
six months ended January 31, 1997, an increase of 13.5% from the same period in
fiscal 1996. In addition, net sales of the Company's higher-margin, best-quality
products increased from approximately 5% of total net sales in fiscal 1991 to
approximately 35% of total net sales in fiscal 1996, while net sales of the
Company's lower-margin, opening-price-point products decreased from
approximately 35% of total net sales in fiscal 1991 to approximately 8% 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.
20
<PAGE> 22
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. The Company intends to use the
proceeds from the expected sale of McGuire-Nicholas to reduce outstanding
indebtedness. 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 of the discontinued VSI and McGuire-Nicholas operations are shown as
"Net assets 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 SIX MONTHS ENDED
---------------------- ---------------------------
TWELVE MONTHS ENDED JULY 28, AUGUST 2, JANUARY 26, JANUARY 31,
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 76.1 74.1
----- ----- ----- ----- -----
Gross profit................. 28.0 26.7 27.2 23.9 25.9
Selling, general and
administrative expenses.... 16.7 17.9 18.1 20.5 21.2
----- ----- ----- ----- -----
Operating profit............. 11.3 8.8 9.1 3.4 4.7
Interest expense............. 6.8 7.5 7.3 8.1 8.0
Amortization of
intangibles................ 0.9 1.2 1.3 1.5 1.4
Other expenses............... 0.0 0.8 1.6 0.2 2.7
----- ----- ----- ----- -----
Income (loss) from continuing
operations before income
taxes...................... 3.6 (0.7) (1.1) (6.4) (7.4)
Income taxes................. 0.3 -- 0.6 -- --
----- ----- ----- ----- -----
Net income (loss) from
continuing operations...... 3.3 (0.7) (1.7) (6.4) (7.4)
----- ----- ----- ----- -----
Loss from discontinued
operations................. (9.7) (2.1) (7.0) (3.1) (17.4)
----- ----- ----- ----- -----
Cumulative effect of change
in accounting for post
retirement benefits........ -- -- 0.9 2.4 --
----- ----- ----- ----- -----
Net income (loss)............ (6.4)% (2.8)% (7.8)% (7.1)% (24.8)%
===== ===== ===== ===== =====
</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.
21
<PAGE> 23
SIX MONTHS ENDED JANUARY 31, 1997 COMPARED TO SIX MONTHS ENDED JANUARY 26, 1996
Net Sales. Net sales increased 13.5%, or $4.9 million, to $40.7 million in
the six months ended January 31, 1997 compared to $35.8 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 23.4%, or $2.0 million, to $10.6
million in the six months ended January 31, 1997 compared to $8.6 million in the
same period in the prior year. Gross margin increased to 25.9% in the six months
ended January 31, 1997 from 23.9% in the six months ended January 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 17.5%, or $1.3 million, to $8.6 million in the
six months ended January 31, 1997 compared to $7.4 million in the same period in
the prior year. As a percentage of net sales, selling, general and
administrative expenses increased to 21.2% in the six months ended January 31,
1997 from 20.5% in the first six 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.
Operating Profit. Operating profit increased 59.7%, or $715,000, to $1.9
million in the six months ended January 31, 1997 compared to $1.2 million in the
same period in the prior year. Operating margin increased to 4.7% in the six
months ended January 31, 1997 from 3.4% in the six months ended January 31,
1996.
Other Expense. Other expense increased to $1,088,000 in the six months
ended January 31, 1997 from $58,000 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 Loss From Continuing Operations Before Income Taxes. Net loss from
continuing operations before income taxes increased 28.3%, or $659,000, to $3.0
million in the six months ended January 31, 1997 compared to $2.3 million in the
same period in the prior year. Interest expense increased to $3.2 million in the
six months ended January 31, 1997 from $2.9 million in the six months ended
January 31, 1996.
Net Loss. Net loss increased $7.5 million to $10.0 million in the six
months ended January 31, 1997 compared to $2.6 million in the same period in the
prior year, primarily as a result of a loss of $6.3 million incurred in
connection with the intended disposition of McGuire-Nicholas.
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.
22
<PAGE> 24
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.
Operating Profit. Operating profit increased 9.7%, or $740,000, to $8.3
million in fiscal 1996 compared to $7.6 million in fiscal 1995. Operating margin
increased to 9.1% in fiscal 1996 from 8.8% in fiscal 1995.
Other Expense. 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.
23
<PAGE> 25
Operating Profit. Operating profit decreased 27.9%, or $2.9 million, to
$7.6 million in fiscal 1995 compared to $10.5 million in the twelve months ended
July 29, 1994. Operating margin decreased to 8.8% in fiscal 1995 from 11.3% in
the twelve months ended July 29, 1994.
Other Expense. 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.
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..... 3,886 3,681 4,490 3,474 3,635 3,721 4,464 4,995
------- ------- ------- ------- ------- ------- ------- -------
Operating profit.............. $ 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
Operating profit 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>
SIX MONTHS ENDED
JANUARY 31, 1997
-------------------------
QUARTER ENDED
-------------------------
NOVEMBER 1, JANUARY 31,
1996 1997
------------ -----------
<S> <C> <C>
Net sales..................... $ 19,679 $21,018
Cost of goods sold............ 14,507 15,635
------- -------
Gross profit.................. 5,172 5,381
Selling, general and
administrative expenses..... 4,403 4,236
------- -------
Operating profit.............. $ 767 $ 1,145
======= =======
Net sales as a percentage of
full year net sales.........
Gross profit as a percentage
of full year gross profit...
Operating profit as a
percentage of full year
operating profit............
</TABLE>
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.
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<PAGE> 26
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 $13.0 million in the six months
ended January 31, 1997 compared to net cash used in continuing operations of
$1.3 million in the comparable period in the prior fiscal year. This increase
reflects a seasonal increase of inventories of $8.4 million required to meet
anticipated sales demand. A corresponding seasonal build of inventories was not
required in fiscal 1996 due to higher inventory levels at July 28, 1995. 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 $887,000 during fiscal 1994, fiscal 1995, fiscal 1996
and the six months ended January 31, 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 $1.6
million 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 January 31, 1997, the aggregate principal balance of the Subordinated Notes
and accrued interest thereon was approximately $33.5 million and the aggregate
liquidation value of the Series A Preferred Stock was approximately $9.2
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 January 31, 1997, after
giving effect to the Offering and the use of proceeds therefrom (at an assumed
initial public offering price of $ 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 $ million available under the revolving
portion of the Credit Facility and approximately $ million available under
the acquisition line of the Credit Facility. Indebtedness outstanding under the
Credit Facility bears interest at variable rates (8.25% per year at January 31,
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.
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<PAGE> 27
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.
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<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
$40.7 million for the six months ended January 31, 1997, an increase of 13.5%
from the same period in fiscal 1996. In addition, net sales of the Company's
higher-margin, best-quality products increased from approximately 5% of total
net sales in fiscal 1991 to approximately 35% of total net sales in fiscal 1996,
while net sales of the Company's lower-margin, opening-price-point products
decreased from approximately 35% of total net sales in fiscal 1991 to
approximately 8% of total net sales in fiscal 1996. The Company generated
approximately 92% of its revenues in both fiscal 1996 and the six months ended
January 31, 1997 from sales of long handle tools. The Company believes that its
market share in the long handle tool segment of the industry has increased from
approximately 16% in fiscal 1991 to approximately 28% in fiscal 1996, giving the
Company the second largest market share in this segment of the industry.
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.
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<PAGE> 29
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 approximately 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 $ million
of which will be available following consummation of the Offering and the
application of the net proceeds therefrom. In addition, Oaktree, the
manager of the Oaktree Fund, has indicated its willingness, to consider
providing financing from the Oaktree Fund for future acquisitions by the
Company.
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. 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
and spreaders. The Company believes that long handle tools comprise the largest
segment of the non-powered lawn and garden tool market.
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<PAGE> 30
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
64 represent the largest age group of lawn and garden enthusiasts. Census
Bureau projections suggest that the proportion of the U.S. population in
this age bracket will increase from 19.5% in 1995 to 24.3% in 2005 as
"baby boomers" age.
- Lifestyle Trends. According to the 1995-1996 National Gardening Survey
conducted for the National Gardening Association by the Gallup
Organization, 72% of the approximately 100 million households in the U.S.
participated in some form of gardening in 1995. 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 an extensive line 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
29
<PAGE> 31
tools. The Razor-Back line is sold primarily through home center, hardware
store, industrial distributor and farm sector distribution channels.
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,
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 $7.4 million, or 16.3%, of the Company's net sales in the six
months ended January 31, 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.
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<PAGE> 32
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 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 11.6% of gross sales in fiscal 1995, fiscal
1996 and the six months ended January 31, 1997, respectively. The Company's ten
largest customers accounted for approximately 44.0%, 51.4% and 50.7% 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
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<PAGE> 33
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.
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.
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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,
respectively, in fiscal 1996 and approximately 69% and 19%, respectively, from
such suppliers in the six months ended January 31, 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 April 16, 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>
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<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 April 16, 1997, the Company employed approximately 780 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. and True Temper Hardware Company, Inc. The
Company has increased its market share in the long handle tool segment of the
industry to approximately 28% in 1996 from approximately 16% in 1991. 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 (approximately 43%) and that True Temper currently has the third
largest in this segment of the industry (approximately 15%).
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 January 31, 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 worldwide 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 McGuire-
Nicholas brand set the design and quality standards for the industry and enjoys
high name recognition with professional and serious DIY consumers.
McGuire-Nicholas leads the industry in market share among industrial and
professional end users and has the second leading market share among 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. It employs approximately 300 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. The executive officers of
Acorn and UnionTools are appointed by the Boards of Directors of Acorn and
UnionTools, respectively, and serve at the discretion of such Boards of
Directors.
<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 1989. 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
37
<PAGE> 39
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, 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.
38
<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"). All 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 -- 20,852
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. 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.
39
<PAGE> 41
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................................ (2) $ 140,000 $0(2)
James B. Farland........................... -- -- -- --
Thomas A. Hyrb............................. -- -- -- --
Stephen M. Kasprisin....................... -- -- -- --
Joseph J. Duffy............................ $ 192,500 --
</TABLE>
- ---------------
(1) Calculated on the basis of $ 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) Following August 2, 1996, options exercisable for shares of Common
Stock vested at an exercise price of $ and options exercisable
for shares of Common Stock expired. Upon consummation of the
Offering, options exercisable for of such shares vest at an
exercise price of $0 per share and the remaining options expire.
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 5, 4, 5 and 7 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.
40
<PAGE> 42
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 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
The Company has entered into an employment agreement with Mr. Mihaly which
provides for his employment as the President and Chief Executive Officer of
Acorn and 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 three years, if by the Company, prior to
expiration of the then-current term. Mr. Mihaly's employment agreement provides
for a base salary of $275,000 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 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, a material breach by the Company of its obligations under the
agreement or for certain other stated reasons (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.
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 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.
The Company has entered into an 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 will instead pay to such
employee an amount equal to three times the amount described in the preceding
sentence.
41
<PAGE> 43
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 shares of Common Stock for issuance under the
Incentive Plan.
There are awards currently outstanding under the Incentive Plan. Acorn has
approved the grant of the following options under the Incentive Plan contingent
upon the consummation of the Offering:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME SUBJECT TO OPTIONS
----------------------------------------------------- ------------------
<S> <C>
Gabe Mihaly..........................................
James B. Farland.....................................
Thomas A. Hyrb.......................................
Stephen M. Kasprisin.................................
Conor D. Reilly......................................
</TABLE>
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 .
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.
42
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 16, 1997, by (i) each person who is
known by the Company 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).............................. 96.5%
Oaktree Capital Management, LLC(5).................. -- --
The OCM Principal Opportunities Fund, LLC........... -- --
Joseph J. Duffy(6).................................. 2.2
Gabe Mihaly(7)...................................... 2.8 *
James B. Farland.................................... -- -- (8) *
Thomas A. Hyrb...................................... -- -- (9) *
Stephen M. Kasprisin................................ -- -- (10) *
Conor D. Reilly..................................... -- -- (11) *
William W. Abbott................................... -- -- (12) *
Matthew S. Barrett(13).............................. -- --
Stephen A. Kaplan(14)............................... -- --
John I. Leahy....................................... * (15) *
All directors and executive officers as group (9
people)(16)....................................... 3.8
</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 shares of Common Stock
pursuant to the Exchange (giving effect to the Exchange as of January 31,
1997 and at an assumed initial public offering price of $ , the
mid-point of the range of initial public offering prices set forth on the
cover page of this Prospectus).
(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 (i) TCW Special Credit Fund
III ( shares), (ii) TCW Special Credits Fund IIIb (
shares), (iii) TCW Special Credits Plus Fund ( shares), (iv) TCW
Special Credits Trust IIIb ( shares), (v) TCW Special Credits Fund
IV ( shares), (vi) TCW Special Credits Trust ( shares),
(vii) TCW Special Credits, as investment manager of Weyerhaeuser Company
Pension Trust, (viii) TCW Special Credits Trust IV ( shares), (ix)
TCW Special Credits Trust IV a ( shares), (x) TCW
43
<PAGE> 45
Special Credits, as investment manager of Delaware State Employees'
Retirement Fund and (xi) TCW Special Credits, as investment manager of The
Common Fund for Bond Investments, each of which is managed by affiliates of
the TCW Group.
(5) All of such shares of Common Stock are owned by the Oaktree Fund.
(6) Includes shares of Common Stock issuable pursuant to options.
(7) Includes shares of Common Stock issuable pursuant to options
currently held by Mr. Mihaly. After the Offering and the Exchange includes
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 and
shares of Common Stock to be held pursuant to the Director Stock
Plan following the consummation of the Offering.
(12) Reflects shares of Common Stock to be held pursuant to the Director Stock
Plan following the consummation of the Offering.
(13) Includes shares of Common Stock owned by the Oaktree Fund and
also shown as beneficially owned by Oaktree. To the extent that Mr.
Barrett, on behalf 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. After the Offering and the Exchange also
includes shares of Common Stock to be held pursuant to the
Director Stock Plan following the consummation of the Offering.
(14) Includes shares of Common Stock owned by the Oaktree Fund and
also shown as beneficially owned by Oaktree. To the extent that Mr. Kaplan,
on behalf 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. After the Offering and the Exchange also includes
shares of Common Stock to be held pursuant to the Director Stock Plan
following the consummation of the Offering.
(15) Reflects shares of Common Stock to be held pursuant to the Director
Stock Plan following the consummation of the Offering.
(16) See notes (6) through (15) above.
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<PAGE> 46
CERTAIN TRANSACTIONS
In December 1993 and May 1994 the Company 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 the Company 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 January 31, 1997, the aggregate principal
amount of the Subordinated Notes and accrued interest thereon was approximately
$33.5 million and the aggregate liquidation value of the Series A Preferred
Stock was approximately $9.2 million.
The Company intends to use approximately $ million of the estimated net
proceeds of $ 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 and accrued interest thereon (approximately
$ million giving effect to the Offering and the application of the net
proceeds therefrom as of January 31, 1997) divided by the per share Price to
Public set forth on the cover page of this Prospectus. As of January 31, 1997
and at an assumed initial public offering price of $ , the mid-point of the
range of initial public offering prices set forth on the cover page of this
Prospectus, the TCW Funds would receive an aggregate of shares of
Common Stock pursuant to the Exchange. See "Risk Factors -- Control by Principal
Stockholders" and "Use of Proceeds".
In December 1996 the Company 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 the Company 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 $689,940 to Gibson, Dunn &
Crutcher LLP in fiscal 1996 and the six months ended January 31, 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 in the
aggregate amount of $574,942 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.
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<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 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,
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<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 shares of Common Stock reserved for issuance upon the
exercise of outstanding options. In addition, Acorn has shares of
Common Stock reserved for issuance pursuant to awards available for grant under
the Incentive Plan and 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 shares of Common
Stock contingent upon consummation of the Offering. Upon consummation of the
Offering, options for the purchase of shares of Common Stock will be
fully vested.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is
.
LISTING
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol " ".
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<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"), and
Acorn, as guarantor. 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
$ million 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 Revolving Facility is available until 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 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 EBITDA (as defined in the Credit
Facility) for the previous twelve months. The Acquisition Facility will convert
into a three year term loan in 2000, with 25% of the balance due in
each of 2001 and 2002 and the remainder due in
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 UnionTools' capital stock after June 30, 1998.
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 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.
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<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, shares of Common Stock will be
outstanding. The 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
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.
Certain existing stockholders of the Company (who in the aggregate hold
shares of Common Stock), the executive officers and directors of the
Company 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
( shares immediately after the Offering) 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 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 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 will be sold prior to such time or
distributed 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).
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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".
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UNDERWRITING
In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc. and (the "Representatives"), have
agreed, severally, subject to the terms and conditions therein set forth, to
purchase from the Company, and the Company has agreed to sell to them, the
number of shares of Common Stock totaling shares, set forth opposite
their respective names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
McDonald & Company Securities, Inc. .................................
A.G. Edwards & Sons, Inc. ...........................................
---------
Total......................................................
=========
</TABLE>
The nature of the Underwriters' obligation under the Underwriting Agreement
is such that all shares of Common Stock being offered, excluding shares covered
by the over-allotment option granted to the Underwriters, must be purchased if
any shares of Common Stock are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus. The Underwriters may allow
to certain selected dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a discount not exceeding $ per
share, and the Underwriters may allow, and such selected dealers may re-allow, a
discount not exceeding $ per share to other dealers who are members of
the NASD. After this Offering, the public offering price and the discount to
dealers may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of shares of Common Stock at the public offering price, less the
underwriting discount, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments in the sale
of the Common Stock that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option, each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase the same percentage
of the option shares as the number of shares to be purchased and offered by that
Underwriter in the table above bears to the total.
At the request of the Company, up to 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
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.
The Company has agreed to indemnify the Underwriters against certain
liabilities which maybe incurred in connection with the Offering, including
liabilities under the Securities Act or to contribute to payments that the
Underwriters may be required to make.
Certain existing stockholders of the Company (who in the aggregate hold
shares of Common Stock), the executive officers and directors of the
Company 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
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<PAGE> 53
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.
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.
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.
The Company 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.
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<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.
Columbus, Ohio
October 4, 1996,
except for Notes 3, 4, 11 and 13
as to which the date is
April , 1997
The foregoing opinion is in the form that will be signed upon the
determination of the stock split as described in Note 13 to the Financial
Statements.
ERNST & YOUNG LLP
Columbus, Ohio
April 17, 1997
F-2
<PAGE> 56
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 28, AUGUST 2, JANUARY 31,
1995 1996 1997
-------- --------- -----------
(UNAUDITED)
<S> <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 18,012
Inventories.............................................. 31,802 23,433 31,787
Prepaids and other current assets........................ 1,511 1,701 1,670
-------- ------- --------
Total current assets.................................. 46,092 37,703 51,469
Property, plant and equipment, net of accumulated
depreciation............................................. 11,511 10,558 10,372
Goodwill................................................... 30,988 30,184 29,781
Deferred income taxes...................................... 756 -- --
Other intangible assets.................................... 1,170 1,166 1,390
Net assets of discontinued operations...................... 21,763 19,284 2,634
-------- ------- --------
Total assets..................................... $112,280 $98,895 $ 95,646
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility................................ $ 19,250 $12,537 $ 14,223
Accounts payable......................................... 5,920 5,198 7,973
Accrued expenses......................................... 4,845 6,154 5,401
Accrued interest......................................... 4,133 -- 1,878
Current portion of long-term debt........................ 3,500 3,500 3,000
Income taxes payable..................................... 1,756 1,100 132
Other current liabilities................................ 699 671 668
-------- ------- --------
Total current liabilities............................. 40,103 29,160 33,275
Long-term debt............................................. 49,354 45,854 48,354
Other long-term liabilities................................ 5,500 5,351 5,352
-------- ------- --------
Total liabilities................................ 94,957 80,365 86,981
Stockholders' equity:
Common stock, par value of $.001, authorized 20,000,000
shares, issued and outstanding in 1995 and
shares in 1996........................................ 14,319 14,406 14,494
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
Minimum pension liability................................ -- (197) (197)
Retained earnings (deficit).............................. 2,664 (4,615) (14,688)
-------- ------- --------
Total stockholders' equity............................ 17,323 18,530 8,665
-------- ------- --------
Total liabilities and stockholders' equity....... $112,280 $98,895 $ 95,646
======== ======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 57
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
----------- ---------------------------------------------------------------
AUGUST 1, DECEMBER 3, YEAR ENDED SIX MONTHS SIX MONTHS
1993 THROUGH 1993 THROUGH -------------------- ENDED ENDED
DECEMBER 2, JULY 29, JULY 28, AUGUST 2, JANUARY 26, JANUARY 31,
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 $ 35,843 $ 40,695
Cost of products sold........ (14,185) (52,271) (63,411) (67,496) (27,290) (30,142)
Selling and administrative
expenses................... (5,482) (9,955) (15,531) (16,815) (7,356) (8,641)
-------- -------- -------- -------- -------- --------
664 10,144 7,601 8,341 1,197 1,912
Interest expense............. 2,773 3,525 6,485 6,732 2,918 3,243
Amortization of intangible
assets..................... 124 601 1,061 1,173 553 572
Other expenses............... -- 11 694 1,522 58 1,088
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes and cumulative effect
adjustment................. (2,233) 6,007 (639) (1,086) (2,332) (2,991)
Provision for income taxes... -- 290 -- 582 -- --
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before
cumulative effect
adjustment................. (2,233) 5,717 (639) (1,668) (2,332) (2,991)
Discontinued operations:
Loss from operations....... (8,373) (614) (1,800) (5,815) (1,111) (1,063)
Loss on disposal........... -- -- -- (665) -- (6,019)
-------- -------- -------- -------- -------- --------
Loss from discontinued
operations................. (8,373) (614) (1,800) (6,480) (1,111) (7,082)
-------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect
adjustment................. (10,606) 5,103 (2,439) (8,148) (3,443) (10,073)
-------- -------- -------- -------- -------- --------
Cumulative effect of change
in accounting for
postretirement benefits.... -- -- -- 869 869 --
-------- -------- -------- -------- -------- --------
Net income (loss)............ (10,606) 5,103 (2,439) (7,279) (2,574) (10,073)
Dividends on preferred
stock...................... -- -- -- -- -- (559)
-------- -------- -------- -------- -------- --------
Net income (loss) applicable
to Common Stock............ $(10,606) $ 5,103 $ (2,439) $ (7,279) $ (2,574) $ (10,632)
======== ======== ======== ======== ======== ========
Earnings per share:
Continuing operations...... $
Discontinued operations....
Adjustment for cumulative
effect of change in
accounting for post-
retirement benefits.....
-------- -------- -------- -------- -------- --------
Net income (loss)
applicable to common
stock................... $
======== ======== ======== ======== ======== ========
Weighted average number of
shares outstanding.........
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<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..... 1,000 $ 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........................ 1,000 $ 2,000 4,427 $43,364 $ -- $ -- $(126,528) $(126,528)
===== ======= ===== ======= ==== ===== ========= =========
SUCCESSOR COMPANY:
Acquisition of Predecessor
Company..................... 1,000 $13,864 -- $ -- $ $ $ -- $ 13,864
Net income for the period
December 3, 1993 through
July 31, 1994............... -- -- -- -- -- -- 5,103 5,103
Stock issued.................. 26 455 -- -- -- 455
----- ------- ----- ------- ---- ----- --------- ---------
Balances at July 29, 1994..... 1,026 14,319 -- -- -- -- 5,103 19,422
Net loss for the period August
1, 1994 through July 31,
1995........................ -- -- -- -- -- -- (2,439) (2,439)
Stock options issued.......... -- -- -- -- 340 -- -- 340
----- ------- ----- ------- ---- ----- --------- ---------
Balances at July 28, 1995..... 1,026 14,319 -- -- 340 -- 2,664 17,323
Net loss for the period August
1, 1995 through August 2,
1996........................ -- -- -- -- -- (7,279) (7,279)
Conversion of debt............ -- -- 100 8,596 -- -- -- 8,596
Stock issued.................. 5 87 -- -- -- -- -- 87
Adjustment to recognize
minimum pension liability... -- -- -- -- -- (197) -- (197)
----- ------- ----- ------- ---- ----- --------- ---------
Balances at August 2, 1996.... 1,031 14,406 100 8,596 340 (197) (4,615) 18,530
Net loss for the period August
3, 1996 through January 31,
1997........................ -- -- -- -- -- -- (10,073) (10,073)
Stock issued.................. 5 88 -- -- -- -- -- 88
Stock options issued.......... -- -- -- -- 120 -- -- 120
-------------------------------------------------------------------------------------------
Balances at January 31, 1997
(unaudited)................. 1,036 $14,494 100 $ 8,596 $ 460 $(197) $ (14,688) $ 8,665
===== ======= ===== ======= ==== ===== ========= =========
</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 SIX MONTHS SIX MONTHS
THROUGH THROUGH -------------------- ENDED ENDED
DECEMBER 2, JULY 29, JULY 28, AUGUST 2, JANUARY 26, JANUARY 31,
1993 1994 1995 1996 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) $(2,574) $ (10,073)
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 1,111 7,082
Depreciation and amortization....... 628 1,605 3,030 3,592 1,775 1,645
Deferred income taxes............... -- 87 -- 756 157 --
Conversion of debt to preferred
stock............................. -- -- -- 4,463 -- --
Financing fees and other, net....... (364) (1,437) (556) (365) (158) (393)
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) (4,458) (5,945)
Inventories......................... (9,468) (2,652) (8,051) 8,369 504 (8,354)
Other assets........................ (4,163) 3,963 (739) (190) (1,549) 31
Accounts payable, accrued expenses
and accrued interest.............. 4,663 (170) 1,788 587 3,655 3,900
Income taxes payable................ 20 1,542 19 (656) (292) (968)
Other liabilities................... 125 (1,477) (2,511) (1,243) (347) (2)
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
continuing operations............... (9,559) 1,819 (504) 13,986 (1,307) (12,957)
Net cash provided by discontinued
operations.......................... 1,363 (6,876) (9,894) (4,001) (3,857) 3,391
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
operating activities................ (8,196) (5,057) (10,398) 9,985 (5,164) (9,566)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment, net...................... (527) (1,738) (2,870) (1,466) (663) (887)
Proceeds from disposal of discontinued
operation........................... -- -- -- -- -- 6,177
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
investing activities................ (527) (1,738) (2,870) (1,466) (663) 5,290
CASH FLOWS FROM FINANCING ACTIVITIES
Subordinated debt..................... -- 6,354 -- -- -- --
Net activity on term loan............. 50 12,500 (3,500) (3,500) -- 2,000
Net activity on revolving loan........ 9,931 (12,354) 16,750 (6,713) 3,393 1,686
Issuance of stock..................... -- 455 -- 87 87 88
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
financing activities................ 9,981 6,955 13,250 (10,126) 3,480 3,774
-------- -------- ------- -------- ------- --------
Net increase (decrease) in cash....... 1,258 160 (18) (1,607) (2,347) (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 $ (238) $ --
======== ======== ======= ======== ======= ========
</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.) (the "Successor Company"), a corporation controlled 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, several investment funds and
accounts (the "TCW Funds") managed by affiliates of the TCW Group 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 from January through May of each year.
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 and, accordingly, its 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 11.6%
of gross sales in fiscal 1995 and fiscal 1996 and the six months ended January
31, 1997, respectively. No other customer accounted for 10% or more of the
Company's sales in fiscal 1995, fiscal 1996 or the six months ended January 31,
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 periodically evaluates the
carrying value of goodwill to assess its continued recoverability as required by
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" which was adopted during fiscal 1996.
F-8
<PAGE> 62
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The determination includes evaluation of factors such as current market value,
future asset utilization, business climate and future cash flows expected to
result from the use of related assets. The Company's policy is to record an
impairment loss in the period when it is determined that the carrying amount of
the asset may not be recoverable.
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.
Earnings Per Share
Earnings per share have been computed by dividing net income (loss)
applicable to Common Stock by the weighted average number of common and common
equivalent shares outstanding during the periods presented, giving effect to the
stock split subsequent to August 2, 1996 and to stock options granted in April
1997 (see Note 10), utilizing the treasury stock method, as if the shares and
options were granted and outstanding as of the earliest year presented. Primary
and fully-diluted earnings per share were not materially different during the
periods presented.
Interim Financial Reporting
In the opinion of management, the unaudited information as of January 31,
1997 and for the six months ended January 26, 1996 and January 31, 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 six months ended January 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending July 31, 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 on the disposal of
$665,000, which represented the write-down of
F-9
<PAGE> 63
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 a gain on disposal
of approximately $285,000 during the six months ended January 31, 1997. The
reduction in the overall loss on disposal was due primarily to lower than
anticipated operating losses prior to the sale.
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 $7,367,000, consisting of an estimated loss on disposal
of $6,304,000 and a provision of $1,063,000 for anticipated operating losses
until disposal. The loss on disposal represents the write-off of goodwill
relating to McGuire-Nicholas.
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)
Income (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 of the Company's discontinued
operations:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2, JANUARY 31,
1995 1996 1997
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable.................................. $ 6,935 $ 6,109 $ 3,046
Inventories.......................................... 14,781 10,321 3,853
Property and equipment............................... 2,299 2,470 1,456
Other assets (including goodwill of $7,600, $7,400
and $422, respectively)............................ 7,725 8,518 1,013
Liabilities.......................................... (9,977) (8,134) (6,734)
------- ------- -------
Net assets of discontinued operations...... $ 21,763 $19,284 $ 2,634
======= ======= =======
</TABLE>
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 28, AUGUST 2, JANUARY 31,
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
------- ------- -------
52,854 49,354 51,354
Less current portion of long-term debt............... 3,500 3,500 3,000
------- ------- -------
$ 49,354 $45,854 $48,354
======= ======= =======
</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 collateralized by substantially all of the
assets and common stock of UnionTools, is guaranteed by Acorn. The Revolving
Facility will expire in 2003. The Acquisition Line is available
until 2000.
Available borrowings under the Revolving Facility are based on specified
percentages of accounts receivable and inventory. As of January 31, 1997, there
was $15.8 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. Following the
second anniversary of the Acquisition Line will convert to a three year term
loan 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 January 31, 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 January 31, 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, 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
F-11
<PAGE> 65
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of $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 the Company 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 the Company 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, the Company 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 the Company
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
January 31, 1997, the aggregate liquidation value of the Series A Preferred
Stock was approximately $9.2 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 six months ended January 31, 1997, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation." 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. In addition, during fiscal 1996 an executive officer of the Company was
granted options to purchase 10 shares of Common Stock at an exercise price of
$17,500 per share (does not give effect to the Company's proposed stock split).
The following table summarizes the stock option activity (without giving
effect to the Company's proposed stock split):
<TABLE>
<CAPTION>
SIX MONTHS
EIGHT MONTHS YEAR ENDED ENDED
ENDED ---------------------- JANUARY
JULY 29, JULY 28, AUGUST 2, 31,
1994 1995 1996 1997
------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... -- 77 77 49
Granted................................. 77 11 10 --
Exercised............................... -- -- 5 5
Expired/terminated...................... -- 11 33 12
-- -- -- --
Outstanding at end of period............ 77 77 49 32
== == == ==
Exercisable at end of period............ -- 19 24 23
</TABLE>
During fiscal 1995 and the six months ended January 31, 1997, options to
purchase 19 and 4 shares of common stock, respectively, vested at an exercise
price of $0 per share and $17,500 per share, respectively. The Company
recognized compensation expense of $340,000 and $120,000 in fiscal 1995 and the
six months ended January 31, 1997, respectively, related to the vesting of these
options. Of the remaining options, options to purchase 4 shares of common stock
will vest at an exercise price of $0 upon consummation of the Offering (as
defined below) and options to purchase 5 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 will account
for the acquisition as a purchase and the results of the injection molding
division's operations will be 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.................................................... 230,000
----------
$6,268,000
==========
</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, the Company filed a registration statement (the
"Registration Statement") with the Securities and Exchange Commission in
connection with the offer and sale of shares ( 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 April 1997, the Company increased the number of authorized shares of
Common Stock to 20 million and effected a -for- 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, the Company 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 shares of Common Stock for
issuance under the Incentive Plan. There are no options currently outstanding
under the Incentive Plan. The
F-17
<PAGE> 71
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has approved the grant of an aggregate of 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, the Company 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
. 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 the Company as defined in
the Director Stock Plan.
Agreements with Key Employees
In April 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 the Company. 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).
F-18
<PAGE> 72
======================================================
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.......................... 9
Use of Proceeds....................... 14
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
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.
======================================================
======================================================
SHARES
ACORN PRODUCTS, INC.
COMMON STOCK
($.001 PAR VALUE)
---------------------------
PROSPECTUS
---------------------------
MCDONALD & COMPANY
SECURITIES, INC.
A.G. EDWARDS & SONS, INC.
DATED , 1997
======================================================
<PAGE> 73
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........................ $ 14,700
NASD filing fee............................................................ 5,350
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................................................................. $ *
=======
</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> 74
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 (the following information does not give effect to the
proposed split of the Registrant's Common Stock):
(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 44 shares of Common Stock. The vesting schedule and
exercise price per share were determined based on certain profitability
targets. Options to purchase 11 shares of Common Stock vested in fiscal
1995 and options to purchase 11 and 22 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 33 shares of Common Stock. The vesting schedule and
exercise price per share were determined based on certain profitability
targets. Options to purchase 8 shares of Common Stock vested in fiscal
1995, options to purchase 4 shares and 12 shares of Common Stock vested and
expired, respectively, the six months ended January 31, 1996 and options to
purchase 4 shares and 5 shares of Common Stock will vest and expire,
respectively, upon consummation of the Offering.
(e) In May 1994, Acorn sold 12 shares of Common Stock to Joseph I.
Duffy for an aggregate purchase price of $210,000.
(f) In May 1994, Acorn sold 14 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 11 shares of Common Stock. All such options
expired.
II-2
<PAGE> 75
(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 10 shares of
Common Stock at an exercise price of $17,500 per share. Mr. Leahy exercised
the option with respect to 5 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 Employment Agreement dated April , 1997, between the Company, UnionTools and
Gabe Mihaly*
10.2.1 Employee Severance Agreement, dated as of April , 1997, between the Company and
James B. Farland*
10.2.2 Employee Severance Agreement, dated as of April , 1997, between the Company and
Thomas A. Hyrb*
10.2.3 Employee Severance Agreement, dated as of April , 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 Credit Agreement, dated as of December 27, 1996, between UnionTools and Heller
Financial, Inc.
10.10 Amendment No. 1 to Credit Agreement between UnionTools and Heller Financial, Inc.
dated as of February 28, 1997
10.11 Amendment No. 2 to Credit Agreement between UnionTools and Heller Financial, Inc.*
</TABLE>
II-3
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ----------------------------------------------------------------------------------
<S> <C>
10.12 License Agreement, dated as of August 1, 1992, between The Scott Company and
UnionTools
10.13 Registration Rights Agreement, dated as of April , 1997, between Acorn Products,
Inc. and various funds and accounts managed by TCW Special Credits*
10.14 Registration Rights Agreement, dated as of April , 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.
(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> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Columbus,
State of Ohio, on April 16, 1997.
ACORN PRODUCTS, INC.
By: /s/ GAVRIL MIHALY
------------------------------------
Gavril Mihaly
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gabe Mihaly and Conor D. Reilly and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacity indicated on April 16, 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
/s/ MATTHEW S. BARRETT Director
- ---------------------------------------------
Matthew S. Barrett
/s/ STEPHEN A. KAPLAN Director
- ---------------------------------------------
Stephen A. Kaplan
/s/ JOHN I. LEAHY Director
- ---------------------------------------------
John I. Leahy
</TABLE>
II-5
<PAGE> 78
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 April , 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.
Columbus, Ohio
October 4, 1996,
except for Notes 3, 4, 11 and 13
as to which the date is
April , 1997
The foregoing opinion is in the form that will be signed upon the
determination of the stock split as described in Note 13 to the Financial
Statements.
Ernst & Young LLP
Columbus, Ohio
April 17, 1997
S-1
<PAGE> 79
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> 80
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> 81
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> 82
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> 83
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACORN PRODUCTS, INC. AND SUBSIDIARIES
AUGUST 2, 1996
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------- ------------ ----------------------------------- ---------- ----------
ADDITIONS
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> 84
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 Employment Agreement dated April , 1997, between the Company, UnionTools
and Gabe Mihaly*..........................................................
10.2.1 Employee Severance Agreement, dated as of April , 1997, between the
Company and James B. Farland*.............................................
10.2.2 Employee Severance Agreement, dated as of April , 1997, between the
Company and Thomas A. Hyrb*...............................................
10.2.3 Employee Severance Agreement, dated as of April , 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 Credit Agreement, dated as of December 27, 1996, between UnionTools and
Heller Financial, Inc. ...................................................
10.10 Amendment No. 1 to Credit Agreement between UnionTools and Heller
Financial, Inc. dated as of February 28, 1997.............................
10.11 Amendment No. 2 to Credit Agreement between UnionTools and Heller
Financial, Inc.*..........................................................
10.12 License Agreement, dated as of August 1, 1992, between The Scott Company
and UnionTools............................................................
10.13 Registration Rights Agreement, dated as of April , 1997, between Acorn
Products, Inc. and various funds and accounts managed by TCW Special
Credits Funds*............................................................
10.14 Registration Rights Agreement, dated as of April , 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.
<PAGE> 1
EXHIBIT 2.1
Execution Copy
ASSET PURCHASE AGREEMENT
DATED AS OF FEBRUARY 19, 1997
BETWEEN
GREIF BROS. CORPORATION
AND
UNIONTOOLS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PARTIES ................................................................................................1
RECITALS ...............................................................................................1
ARTICLE I - DEFINITIONS......................................................................................1
SECTION 1.01. Defined Terms.........................................................................1
ARTICLE II - PURCHASE AND SALE...............................................................................6
SECTION 2.01. Assets................................................................................6
SECTION 2.02. Assumed Liabilities...................................................................8
SECTION 2.03. Purchase Price........................................................................9
SECTION 2.04. Closing..............................................................................10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER......................................................11
SECTION 3.01. Organization, Good Standing and
Authority of Seller.....................................................11
SECTION 3.02. No Conflict..........................................................................12
SECTION 3.03. No Consents or Approvals.............................................................12
SECTION 3.04. Financial Information................................................................12
SECTION 3.05. Right, Title and Interest in
Transferred Assets......................................................14
SECTION 3.06. Real Property........................................................................14
SECTION 3.07. Inventories..........................................................................15
SECTION 3.08. Other Tangible Personal Property.....................................................15
SECTION 3.09. Trade Names, Trademarks and
Copyrights..............................................................16
SECTION 3.10. Trade Secrets........................................................................17
SECTION 3.11. Computer Software; Other Intangible
Personal Property.......................................................17
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.12. Material Contracts...................................................................18
SECTION 3.13. Litigation...........................................................................19
SECTION 3.14. Compliance with Laws.................................................................19
SECTION 3.15. Labor Relations......................................................................20
SECTION 3.16. Employment and Compensation
Arrangements............................................................21
SECTION 3.17. Employee Benefit Plans and Benefit
Arrangements............................................................22
SECTION 3.18. Taxes................................................................................22
SECTION 3.19. Insurance............................................................................23
SECTION 3.20. Licenses, Franchises, Permits and
Authorizations..........................................................23
SECTION 3.21. Agreement Not In Breach of Other
Instruments.............................................................23
SECTION 3.22. Brokers..............................................................................24
SECTION 3.23. Full Disclosure......................................................................24
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER........................................................24
SECTION 4.01. Organization, Good Standing and
Authority of Buyer......................................................24
SECTION 4.02. No Conflict..........................................................................24
SECTION 4.03. No Consents or Approvals.............................................................25
SECTION 4.04. Absence of Litigation................................................................25
SECTION 4.05. Agreement Not In Breach of Other
Instruments.............................................................25
SECTION 4.06. Brokers..............................................................................25
ARTICLE V - ADDITIONAL AGREEMENTS...........................................................................25
SECTION 5.01. No Solicitation, Etc.................................................................25
SECTION 5.02. Conduct of Business Prior to the
Closing.................................................................26
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.03. Approvals; Consents..................................................................26
SECTION 5.04. Access to Premises and Information...................................................27
SECTION 5.05. Employees............................................................................27
SECTION 5.06. Due Diligence; Right to Terminate....................................................27
SECTION 5.07. Proration and Sharing of Taxes.......................................................28
SECTION 5.08. Further Action.......................................................................29
SECTION 5.09. Assets After the Closing.............................................................29
SECTION 5.10. Consents to Transfer of the Material
Contracts...............................................................29
SECTION 5.11. Covenant Not to Compete..............................................................29
SECTION 5.12. Power of Attorney....................................................................30
SECTION 5.13. Uniform Commercial Code and Other
Lien Searches...........................................................31
SECTION 5.14. Worker Adjustment and Retraining
Notification Act........................................................31
SECTION 5.15. Licenses, Franchises, Permits and
Authorizations..........................................................31
SECTION 5.16. Molds................................................................................31
SECTION 5.17. Railroad Spur Access and Maintenance
Agreement...............................................................31
SECTION 5.18. Turn About Access and Maintenance
Agreement...............................................................32
ARTICLE VI - CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS...................................................32
SECTION 6.01. Representations and Warranties.......................................................32
SECTION 6.02. Performance of Covenants.............................................................33
SECTION 6.03. Authority............................................................................33
SECTION 6.04. Approval of Governmental Authorities.................................................33
SECTION 6.05. Purchase Price.......................................................................33
</TABLE>
(iii)
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<TABLE>
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SECTION 6.06. Ancillary Agreements.................................................................33
SECTION 6.07. Buyer's Certificate..................................................................33
SECTION 6.08. Approval of Documentation............................................................33
SECTION 6.09. Consents.............................................................................33
SECTION 6.10. Access Agreements....................................................................34
ARTICLE VII - CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS...................................................34
SECTION 7.01. Representations and Warranties.......................................................34
SECTION 7.02. Performance of Covenants.............................................................34
SECTION 7.03. Authority............................................................................34
SECTION 7.04. Seller's Certificate.................................................................34
SECTION 7.05. Bulk Sales Laws......................................................................34
SECTION 7.06. Sales and Use Tax on Prior Sales.....................................................35
SECTION 7.07. Consents.............................................................................35
SECTION 7.08. Approval of Documentation............................................................35
SECTION 7.09. Approval of Governmental Authorities.................................................35
SECTION 7.10. No Material Adverse Change...........................................................35
SECTION 7.11. Interim Financial Statements.........................................................35
SECTION 7.12. Ancillary Agreements.................................................................35
SECTION 7.13. Key Employees........................................................................36
SECTION 7.14. Title Insurance......................................................................36
SECTION 7.15. Access Agreements....................................................................36
ARTICLE VIII - INDEMNIFICATION..............................................................................36
SECTION 8.01. Seller's Indemnity...................................................................36
SECTION 8.02. Buyer's Indemnity....................................................................36
SECTION 8.03. Claims for Indemnification...........................................................37
</TABLE>
(iv)
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<TABLE>
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ARTICLE IX - GENERAL PROVISIONS.............................................................................38
SECTION 9.01. Termination..........................................................................38
SECTION 9.02. Specific Performance.................................................................38
SECTION 9.03. Survival of Representations and
Warranties..............................................................38
SECTION 9.04. Expenses.............................................................................39
SECTION 9.05. Notices..............................................................................39
SECTION 9.06. Amendment............................................................................39
SECTION 9.07. Waiver...............................................................................40
SECTION 9.08. Headings.............................................................................40
SECTION 9.09. Severability.........................................................................40
SECTION 9.10. Entire Agreement.....................................................................40
SECTION 9.11. Binding Agreement; Assignment........................................................40
SECTION 9.12. Governing Law........................................................................40
SECTION 9.13. [Intentionally Omitted]..............................................................41
SECTION 9.14. Counterparts.........................................................................41
SECTION 9.15. No Third Party Beneficiaries.........................................................41
SECTION 9.16. Publicity............................................................................41
SIGNATURE PAGE..............................................................................................42
LIST OF EXHIBITS............................................................................................43
LIST OF SCHEDULES...........................................................................................44
</TABLE>
(v)
<PAGE> 7
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of February 19, 1997 between GREIF BROS. CORPORATION, a Delaware
corporation ("Seller"), and UNIONTOOLS, INC., a Delaware corporation ("Buyer").
RECITALS
WHEREAS, Seller is engaged in the business (the "Business") of
manufacturing plastic forms by injection molding at Seller's injection molding
division (the "Facility") located in Hebron, Ohio.
WHEREAS, Seller desires to sell to Buyer the Business,
including substantially all of the assets of the Seller which comprise and are
necessary for the conduct of the Business (except those hereinafter specifically
excluded from such sale), and Buyer desires to acquire such Business and assets
from Seller and assume certain liabilities on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants, representations and warranties herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, unless
otherwise provided, the following terms shall have the meanings ascribed to them
below (such definitions to be equally applicable to both the singular and plural
forms of the terms defined):
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, governmental or other
regulatory or administrative agency or commission or arbitration tribunal.
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations of the Securities Exchange Act of
1934.
"Ancillary Agreements" means the other agreements, documents
and instruments to be executed and delivered by Buyer and/or Seller pursuant
hereto, including, without limitation, the Assumption Agreement and the Bill of
Sale and Assignment.
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<PAGE> 8
"Annual Financial Statements" mean (a) the profit and loss
statement of the Business and (b) the statement of fixed assets (including
depreciation) and inventory of the Business, each prepared in accordance with
Seller's internal standards, consistently applied, for a division of the same
type as the Business, for each of the Seller's fiscal years ended October 31,
1996, 1995 and 1994.
"Assumed Liabilities" means, and shall consist only of, the
Liabilities which are specifically identified in Section 2.02(a).
"Assumption Agreement" means an assumption agreement in
substantially the form of Exhibit A hereto.
"Bill of Sale and Assignment" means a bill of sale and
assignment in substantially the form of Exhibit B hereto.
"Blow Molding Division" means Seller's Blow Molding Division
at 1001 O'Neil Drive, Hebron, Ohio 43025, known as Building 17 in the industrial
park where the Owned Realty is situated.
"Business" has the meaning set forth in the first recital.
"Business Combination Proposal" means any proposal or offer to
acquire the Business or any or all of the Transferred Assets other than as
contemplated by this Agreement.
"Business Day" means a day of the year on which banks are not
authorized to be closed in Columbus, Ohio.
"Buyer" has the meaning set forth in the preamble.
"Buyer's Auditors" means Ernst & Young LLP, independent
certified public accountants.
"Closing" and "Closing Date" have the meanings specified in
Section 2.04.
"Code" means the Internal Revenue Code of 1986, as amended.
"Employees" shall mean (i) all employees of Seller who, on the
Closing Date, are full-time employees whose employment relates solely to the
Business and who are at work on the Closing Date or any day within the five days
prior thereto, all of whom are set forth or referred to in part (a) of Schedule
3.16, as well as (ii) the employees of Seller who are set forth in part (b) of
Schedule 3.16.
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<PAGE> 9
"Environmental Damages" means all claims, judgments, damages,
losses, penalties, fines, liabilities (including strict liability),
encumbrances, liens, costs and expenses of investigation and defense of claims,
whether or not any such claim is ultimately defeated, and of any good faith
settlement of judgment for such claims, of whatever kind or nature, contingent
or otherwise, matured or unmatured, foreseeable or unforeseeable, including
without limitation reasonable attorneys' fees and disbursements and consultants'
fees, any of which are incurred at any time as a result of the existence during
the period from the first date Seller owned the Owned Realty through the Closing
Date of Hazardous Materials upon, about or beneath the Owned Realty or migrating
or threatening to migrate from the Owned Realty, or the existence of a violation
of Environmental Requirements pertaining to the Owned Realty, or the
transportation of Hazardous Materials to, from or across the Owned Realty.
"Environmental Requirements" means all applicable present
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises and similar items, of
all governmental agencies, departments or instrumentalities of the United
States, the states and political subdivisions thereof and all applicable
judicial and administrative and regulatory decrees, judgments and orders
relating to the protection of human health or the environment and including, but
not limited to, those pertaining to reporting, licensing, permitting,
investigation and remediation of emissions, discharges, releases or threatened
releases of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Assets" means all the assets of the Facility except
for the Transferred Assets, including without limitation the assets set forth in
Section 2.01(b).
"Facility" has the meaning set forth in the first recital.
"Financial Statements" means, collectively, the Annual
Financial Statements and the Interim Financial Statements.
"GAAP" means generally accepted accounting principles, applied
in a manner consistent with Seller's past practices as reflected in its
financial statements for its fiscal year ended October 31, 1996.
"Goodwill" means the intangible value of the Business on the
basis of its good customer relations, high employee morale and similar factors.
"Governmental Authority" means any court, agency, department,
ministry, commission, board or other administrative or
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<PAGE> 10
governmental body of the United States, or any state, political subdivision or
jurisdiction thereof.
"Hazardous Materials" means any chemical substance, material
or waste which is defined as a "hazardous waste" or "hazardous substance" or
"pollutant or contaminant" under any federal, state or local statute, regulation
or ordinance or amendments thereto, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.) and the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.) and including, without limitation, petroleum and petroleum
products or byproducts, and any substance which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority.
"Impairments" has the meaning set forth in Section 3.06(a).
"Indemnified Damages" means any costs, losses, liabilities,
claims and expenses (reduced by any offsetting or related asset or service
received and any recovery from any third party, such as an insurer) including
reasonable legal fees and costs of investigation.
"Interim Financial Statements" mean (a) the profit and loss
statement of the Business and (b) the statement of fixed assets (including
depreciation) and inventory of the Business, each prepared in accordance with
Seller's internal standards, consistently applied, for a division of the same
type as the Business, for the two months ended December 31, 1996.
"Inventory" has the meaning set forth in Section 2.01(a)(ii).
"Inventory Value" shall mean the lower of cost (as determined
in a manner consistent with the past practices of Seller) or fair market value
of the Inventory, net of applicable reserves, calculated in accordance with
GAAP.
"Liabilities" means any and all debts, liabilities, losses,
claims, damages, costs, expenses and obligations, whether fixed or contingent,
or matured or unmatured, including, without limitation, those arising under any
law, rule, regulation, action, order or consent decree of any governmental
entity or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
"Material Contracts" has the meaning set forth in Section
3.12.
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<PAGE> 11
"Main Spur" means the spur which attaches the public railroad
to Spur #1 and Spur #2 and the switching gear appurtenant thereto.
"Owned Realty" means the real property more particularly
described on Exhibit C attached hereto and made a part hereof, including,
without limitation, all easements related to the Turn About and for railroad
spurs to which the Business has access.
"Person" includes any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, limited liability
company, association, corporation, institution, party, entity or governmental
authority.
"Purchase Price" has the meaning set forth in Section 2.03.
"Railroad Spur Agreement" has the meaning set forth in Section
5.17.
"Relative Use", with respect to either party hereto and with
respect to either the Main Spur or Spur #2, a fraction, the numerator of which
is the number of rail cars that ran on such spur to such party's facility during
the immediately preceding six months and the denominator of which is the
aggregate number of rail cars that ran on such spur to that party's facility and
the other party's facility during the immediately preceding six months.
"Retained Liabilities" means all Liabilities of Seller other
than the Assumed Liabilities.
"Seller" has the meaning set forth in the preamble.
"Seller's Auditors" means Price Waterhouse LLP, independent
certified public accountants.
"Sewer Permit" means the Village of Hebron Sewer Permit
referred to in Schedule 3.20.
"Spur #1" means the railroad spur labeled "Spur #1" on Exhibit
D hereto.
"Spur #2" means the railroad spur labeled "Spur #2" on Exhibit
D hereto.
"Storm Water Permit" means Ohio EPA Storm Water General Permit
- - Permit Number OHR001150, referred to in Schedule 3.20.
"Tax" means any income, gross receipts, transfer, gains,
sales, use, employment, franchise, profits, property or other taxes, fees, stamp
taxes and duties, assessments or charges of any kind whatsoever (whether payable
directly or by withholding), together with any interest and any penalties,
additions to tax or
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<PAGE> 12
additional amounts imposed by any taxing authority with respect thereto.
"Trade Secrets" has the meaning set forth in Section 3.10(a).
"Transferred Assets" has the meaning set forth in Section
2.01(a).
"Turn About" means the concrete area, a portion of which is
located on the Owned Realty and the remaining portion of which is located on
adjacent real estate that will continue to be owned by Seller, which is used to
access the loading docks on the Owned Realty and on the real estate that will
continue to be owned by Seller.
"Turn About Agreement" has the meaning set forth in Section
5.18.
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Assets.
(a) Transferred Assets. Subject to the terms set forth in this
Agreement, on the Closing Date, Seller agrees to convey, sell, transfer, assign
and deliver to Buyer, and Buyer agrees to purchase from Seller, all of the
properties, assets, business, rights, claims and contracts of every kind used
solely in the conduct of the Business or otherwise owned or used by Seller
solely in connection with the Business, other than the Excluded Assets (such
assets and properties of Seller are collectively referred to hereinafter as the
"Transferred Assets"), including, without limitation, the following assets:
(i) The Owned Realty and the improvements
thereon;
(ii) All inventories of raw materials used at the
Facility, finished goods produced at the Facility and work-in-process
at the Facility owned by Seller as of the Closing Date (collectively,
the "Inventory");
(iii) All tangible assets and properties of
Seller employed in the Business, including machinery and equipment,
tooling, tools, furniture, cooperage, office equipment, furnishings and
fixtures, including, without limitation, those which are listed in
Schedule 3.08;
(iv) All rights and claims existing on the
Closing Date under express or implied warranties from suppliers to
Seller or Seller's customers, relating to the Business;
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<PAGE> 13
(v) All of Seller's right, title and interest in
and to each lease (capital and operating), license, contract, vendor
agreement, distribution right, right to advertising space and listings
in directories, purchase or sales order or commitment, whether written
or oral, relating solely to the Business, except for any right, title
or interest listed in Schedule 2.01(a);
(vi) All of Seller's right, title and interest in
and to all trade names, trademarks and trademark applications, service
marks and service mark applications, patents and patent applications,
copyrights and copyright applications (in each such case, whether
registered or to be registered in the United States of America or
elsewhere) applied for, issued to or owned by Seller and relating
solely to the Business, all intangible assets of Seller relating solely
to the Business, and all processes, inventions, trade secrets,
engineering or technical drawings, data and designs, formulas and past
and present customer lists owned by Seller in connection with the
Business or which Seller has the right to use relating to the Business
and all Goodwill and other intangibles relating to the Business,
including, without limitation, those which are listed in Schedules 3.09
and 3.10, provided that the names "Greif" and "Greif Bros. Corporation"
are not being transferred;
(vii) The computer equipment and computer
software, including source codes, whether completed or under
development, and software licenses owned or held by Seller or which
Seller has the right to use which are necessary to Buyer's operation of
the Business and which are more particularly described and are limited
to those which are described in Schedule 3.11, it being agreed that not
all computer equipment is being sold;
(viii) Licenses, franchises, permits and
governmental authorizations relating to the Transferred Assets or the
operation of the Business, including, without limitation, those listed
in Schedule 3.20, but excluding those which are not assignable or
otherwise transferable and are so designated in Schedule 3.20; and
(ix) Originals or, to the extent originals are
not appropriate, copies of all of the following that relate solely to
the Transferred Assets and the Business: business tax records
(excluding corporate minute books and stock records), correspondence,
files, databases, employment, payroll, personnel and workers'
compensation records, environmental control records, sales, marketing
and advertising data and materials, and all other books, records,
documents and information relating to the Transferred Assets and the
Business, provided that upon request Seller may have copies of
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<PAGE> 14
any of the foregoing and otherwise have access to the foregoing at
reasonable times during business hours.
(b) Excluded Assets. Notwithstanding anything to the contrary
in Section 2.01 hereof, Seller is not selling, and Buyer is not purchasing, any
of the following assets owned by Seller, all of which shall be retained by
Seller (such assets of Seller are hereinafter referred to collectively as the
"Excluded Assets"):
(i) All cash, notes and accounts receivable owned
by Seller;
(ii) The assets listed in the Excluded Assets
Schedule attached as Schedule 2.01(b) hereto;
(iii) Seller's minute books, seal, stock record
books, stock certificates and other similar corporate documents that
are not necessary for Buyer to operate the Business, provided that upon
request Buyer may have copies thereof;
(iv) The rights which accrue or will accrue to
Seller under or pursuant to this Agreement; and
(v) All other assets owned by Seller, including
those assets that are part of the Facility or the Business, that are
not specifically listed in Section 2.01(a).
SECTION 2.02. Assumed Liabilities.
(a) Assumed Liabilities. Buyer hereby assumes and shall
hereafter pay or perform, to the extent not paid or performed at the Closing
Date, and defend and hold Seller harmless from, all liabilities with respect to
Buyer's operation of the Business and ownership and use of the Transferred
Assets after the Closing (the "Assumed Liabilities").
(b) Buyer Not Responsible for Liabilities Except Assumed
Liabilities. Except for the assumption of the Assumed Liabilities as set forth
above, Buyer does not assume and shall not be obligated to pay, perform or
otherwise be responsible for any Retained Liabilities. Without limiting the
generality of the foregoing, it is hereby expressly acknowledged and agreed that
Buyer shall be deemed not to assume or be obligated to pay any of the following
Retained Liabilities:
(i) any liabilities of Seller to any director,
officer, shareholder or employee of Seller (including, without
limitation, any liabilities for severance or termination pay to former
employees) other than liabilities included on Schedule 2.02(a);
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<PAGE> 15
(ii) any liabilities or expenses for Taxes of
Seller on income related to the sale of the Transferred Assets;
(iii) to the extent not expressly assumed
pursuant to Section 2.02(a), any liabilities or claims of any kind or
nature, fixed or contingent, asserted or unasserted, arising out of or
related to the operation of the Business or the Transferred Assets
prior to the Closing Date, including any claim for the breach of any
express or implied product warranty or any similar claim that relates
to any product manufactured or sold by Seller on or before the Closing
Date;
(iv) to the extent not expressly assumed pursuant
to Section 2.02(a), any liabilities of Seller arising out of or in
connection with any employee compensation or benefit plan or
arrangement of any kind;
(v) any claims or causes of action, brought by
any governmental agency or any Person whatsoever, arising from any
condition in existence on or before the Closing Date on any of the
premises where the Business has been conducted;
(vi) any liability of Seller to any Person the
existence of which constitutes a breach of any covenant, agreement,
representation, or warranty of Seller contained in this Agreement;
(vii) to the extent not expressly assumed
pursuant to Section 2.02(a), any liability or obligation (contingent or
otherwise) of Seller arising out of any threatened or pending
litigation; and
(viii) any indebtedness of Seller.
SECTION 2.03. Purchase Price.
(a) Consideration to be Paid at Closing. As consideration for
the purchase of the Transferred Assets and the covenant not to compete of
Seller, Buyer, in addition to assuming the Assumed Liabilities, shall pay to
Seller an aggregate purchase price of SIX MILLION SEVEN HUNDRED THOUSAND DOLLARS
($6,700,000) (the "Purchase Price"), subject to adjustment as provided in
subsection 2.03(b) hereof. SIX MILLION DOLLARS ($6,000,000) (the "Initial
Payment") shall be paid by Buyer to Seller at Closing by a bank wire transfer in
immediately available funds to an account designated by Seller at least two
Business Days before the Closing Date. EIGHT HUNDRED THOUSAND DOLLARS ($800,000)
of the Initial Payment shall be allocable to Inventory, subject to adjustment as
set forth in Section 2.03(b) hereof. In addition to the Purchase Price, Buyer
shall pay to Seller the portion of the Taxes allocated to Buyer in accordance
with the provisions of Section 5.07 hereof.
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<PAGE> 16
(b) Inventory Adjustment. On the Closing Date, Seller shall
conduct a full, tagged physical inventory, and a representative of Buyer may
attend and observe such inventory. Within ten (10) days after such physical
inventory, Seller shall prepare a calculation of Inventory Value based on such
physical inventory and deliver a copy thereof to Buyer and Buyers' Auditors for
review. Buyer shall have ten (10) days after receipt of such calculation to
review it and have it reviewed by Buyer's Auditors. If Buyer disagrees with such
calculation, Buyer and Seller shall resolve such disagreements within ten (10)
days thereafter. If the Inventory Value, as agreed on by Buyer and Seller, is
greater than $800,000, Buyer shall promptly pay Seller by bank wire transfer an
amount for the Inventory equal to the difference between the Inventory Value and
$800,000, provided that Buyer shall not be required to pay Seller more than
$700,000. If the Inventory Value, as agreed on by Buyer and Seller, is less than
$800,000, Seller shall promptly pay Buyer by bank wire transfer an amount equal
to the difference between $800,000 and the Inventory Value.
(c) Allocation of Purchase Price. The parties agree that the
Purchase Price shall be allocated among the Transferred Assets and the covenant
not to compete contained in Section 5.11 in accordance with Schedule 2.03(c).
Subject to the requirements of applicable law, such allocation (and any
amendments thereto by reason of adjustments to the purchase price hereunder)
shall be binding on the parties for purposes of filing any return, report or
schedule regarding Taxes arising from or in connection with Buyer's acquisition
of the Transferred Assets from Seller, and any such return, report or schedule
shall be consistent with such allocation. Buyer shall promptly furnish Schedule
2.03(c) after such time as an amount has been settled with respect to Inventory
Value.
SECTION 2.04. Closing.
(a) Time and Place. Subject to the terms and conditions of
this Agreement, the sale and purchase contemplated hereby shall take place at a
closing (the "Closing") at 10:00 a.m., local time, as soon as practicable after
all conditions for the Closing are satisfied or waived, at the offices of Vorys,
Sater, Seymour & Pease located at 52 East Gay Street, Columbus, Ohio, or at such
other time or on such other date or at such other place as Seller and Buyer may
mutually agree upon in writing (the day on which the Closing takes place being
the "Closing Date").
(b) Deliveries at the Closing by Seller. At the Closing,
Seller shall deliver to Buyer the Bill of Sale and Assignment and such
assignments, consents, and other instruments of transfer and powers of attorney
as are reasonably required to transfer to Buyer good and marketable title to the
Transferred Assets, free and clear of any claims, liens, trusts, encumbrances or
other rights or interests of any person other than the Impairments or as
otherwise expressly permitted by the terms of
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<PAGE> 17
this Agreement. In particular, but without limiting the foregoing, Seller shall
deliver to Buyer at the Closing:
(i) The Bill of Sale and Assignment, duly executed by
Seller;
(ii) Certified resolutions of Seller's Board of
Directors approving the sale of the Business to Buyer;
(iii) A certification of non-foreign status executed
by Seller and satisfying the requirements of Section 1.1445-2(b)(2)(i)
of the United States Treasury Regulations promulgated under the Code;
(iv) A warranty deed with respect to the real estate
transferred, duly executed by Seller; and
(v) Such other documents as are required to
effectuate the transactions contemplated by this Agreement.
(c) Deliveries at the Closing by Buyer. At the Closing, Buyer
shall deliver to Seller:
(i) The Assumption Agreement, duly executed by Buyer;
(ii) Certified resolutions of Buyer's Board of
Directors approving the purchase of the Business from Seller;
(iii) Payment of the Initial Payment as provided in
Section 2.03;
(iv) The "sale for resale" certificate or a direct
pay permit number necessary to exempt the inventory that is part of the
Transferred Assets from Ohio sales tax; and
(v) Such other documents as are required to
effectuate the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement, Seller
represents and warrants to Buyer as follows:
SECTION 3.01. Organization, Good Standing and Authority of
Seller. Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power to own its properties and carry on the Business as now owned and operated
by
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Seller. Seller is duly qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction required for the conduct of the
Business, except where the failure so to qualify would not have a material
effect on the Business. Seller has all requisite corporate power and authority
to enter into this Agreement and each of the Ancillary Agreements to which it is
a party, to carry out its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Ancillary Agreements to which Seller is a
party have been duly authorized by all necessary corporate action on the part of
Seller, have been or will be duly executed and delivered by Seller, and this
Agreement and such Ancillary Agreements constitute or, upon execution and
delivery, will constitute, legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their terms.
SECTION 3.02. No Conflict. The execution, delivery and
performance by Seller of this Agreement and each of the Ancillary Agreements to
which Seller is a party do not and, subject to the receipt of consents to
assignments of contracts listed on Schedule 3.02, will not (a) violate or
conflict with any provision of the Articles of Incorporation or By-Laws of
Seller, (b) conflict with or violate any law (other than bulk sales or similar
laws), rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to Seller, the Transferred Assets or the
Business, (c) except as would not materially affect Seller's ability to
consummate the transactions contemplated by this Agreement, violate any
provision of or result in any breach of, or constitute a default (or event
which, with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument relating to the
Transferred Assets to which Seller is a party or by which Seller or any of such
Transferred Assets are bound or affected or (d) result in the creation of any
lien, security interest or encumbrance on the Transferred Assets.
SECTION 3.03. No Consents or Approvals. The execution,
delivery and performance by Seller of this Agreement and each of the Ancillary
Agreements to which Seller is a party do not, and will not, require any consent,
approval, authorization or other action by, or registration or filing with or
notification to, any governmental or regulatory authority or any third party,
except as disclosed on Schedule 3.03.
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SECTION 3.04. Financial Information.
(a) Financial Statements. Seller has previously furnished to
Buyer the Annual Financial Statements. The Annual Financial Statements (i) are
correct and complete in all material respects and were prepared in accordance
with the books and records of Seller; (ii) were prepared in accordance with
Seller's internal standards, consistently applied, for divisions of the same
type as the Business; (iii) fairly present the value of the Transferred Assets
and the results of the operations of the Business as at each relevant date
thereof and for the periods covered thereby; and (iv) with respect to contracts
and commitments relating to the Business, contain and reflect adequate reserves
for all reasonably anticipated material losses and costs and expenses in excess
of expected receipts.
(b) Absence of Certain Changes. Except as set forth in
Schedule 3.04(b), since October 31, 1996 there has not been (i) any transaction
by Seller relating to the Business not in the ordinary course of business as
conducted on such date; (ii) any material adverse change in the results of
operations, condition (financial or otherwise), assets or liabilities (whether
absolute, accrued or contingent or otherwise) of the Business, or occurrence of
any event or condition which to Seller's knowledge reasonably could result in
any such material adverse change; (iii) any damage, destruction or loss, whether
or not covered by insurance, that, individually or in the aggregate, has had a
material adverse effect on the results of operations, condition (financial or
otherwise), assets or properties of the Business; (iv) any sale or transfer of
any of Seller's assets relating to the Business, except sales in the ordinary
course of business of inventory or immaterial amounts of other tangible personal
property not required by the Business; (v) any mortgage, pledge or subjection to
lien, charge or encumbrance of any kind, of any of the assets of Seller relating
to the Business, except for liens for Taxes not due; (vi) any material amendment
or termination of any contract, agreement or license which is identified on
Schedule 3.12 hereto; (vii) any change in accounting methods or practices by
Seller or Seller's Auditors or any material alteration in the manner of keeping
the books, accounts or records of Seller except for changes, if any, required by
GAAP; (viii) any waiver or release of any material right or claim of Seller
relating to the Business; (ix) any commencement, notice or threat of
commencement of any material civil litigation or governmental proceeding against
or investigation of Seller relating to the Business; (x) any other event or
condition of any character which has had a material adverse effect on the
results of operations, condition (financial or otherwise), assets or properties
of the Business, or the occurrence of any event or condition which reasonably
could result in any such material adverse change; (xi) any material revaluation
by Seller of any of its assets relating to the Business; (xii) any increase in
the salary or other compensation or benefits payable or to become payable by
Seller to any of its Employees, or the declaration,
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payment or commitment or obligation of any kind for the payment by Seller of a
bonus or other additional salary or compensation or benefits to any such person
other than the year end adjustment to salaries of 3.15% for all salaried
employees effective January 1, 1997; or (xiii) any agreement by Seller to do any
of the foregoing or to cause any of the foregoing to occur.
SECTION 3.05. Right, Title and Interest in Transferred Assets.
Except as set forth in Schedule 3.05, Seller is the lawful owner of the
Transferred Assets, has good and marketable title thereto, and has the complete
and unrestricted power and the unqualified right to sell, transfer, assign and
deliver the Transferred Assets to Buyer. The Transferred Assets (excluding the
Owned Realty) will be transferred to Buyer on the Closing Date free and clear of
all liens, security interests, claims (including claims for Taxes), rights to
use or possess, other contractual restrictions and other charges and
encumbrances and, upon such transfer, Buyer will be vested with good and
marketable title to the Transferred Assets.
SECTION 3.06. Real Property.
(a) Seller has good and marketable title in fee simple to the
Owned Realty and to all plants, buildings and improvements thereon, free and
clear of any mortgage, lien, claim, charge, exception, imperfection of title,
encroachment, easement, right-of-way, squatters' right or encumbrance
(collectively, "Impairments"), except for those Impairments (i) which are
described in part 1 of Schedule 3.06, (ii) which, individually or in the
aggregate, are not material in character, amount or extent and do not have a
material adverse effect on the title, or the present use of, the property
subject thereto or affected thereby or do not otherwise materially impair the
Business; or (iii) which are liens for property taxes not yet due and payable.
With respect to Seller's ownership and use of the Owned Realty, the Impairments
described in (i) above which will remain on the Owned Realty at the time of sale
hereunder, individually and in the aggregate, are not material in character,
amount or extent and have not had a material adverse effect on the present use
of the property subject thereto or affected thereby and have not otherwise
materially impaired the Business. Subject to such Impairments, on the Closing
Date, Buyer will be vested with good and marketable title to the Owned Realty.
The legal descriptions of the Owned Realty set forth on part 1 of Schedule 3.06
are complete and correct descriptions of such real property, its location and
limits and Seller's rights therein and are in each case sufficient to locate the
records pertaining to such Owned Realty in the offices in the jurisdictions
where such Owned Realty is located where public records concerning Owned Realty
are kept. True and complete copies of the deeds, title insurance policies,
surveys, mortgages, agreements and other documents granting or relating to
Seller's ownership of such Owned Realty have previously been delivered to Buyer.
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(b) No part of the Business is located on real property under
which Seller is a lessee or sublessee.
(c) To the best of Seller's knowledge, the buildings and
improvements owned by Seller as part of the Business, and the operation and
maintenance thereof as now operated and maintained, do not (i) contravene any
zoning or building law or ordinance or other administrative regulation or (ii)
violate any restrictive covenant or any provision of federal, state or local
law, the effect of which materially interferes with or prevents the continued
use of such properties for the purposes for which they are now being used, or
would materially affect the value thereof. All of the plants, buildings,
structures and equipment owned by Seller and used in the Business are in good
operating condition and in a state of reasonable maintenance and repair to the
extent necessary for the efficient operation of the Business.
(d) There exists no pending or, to the best knowledge of
Seller, threatened condemnation, eminent domain or similar proceeding with
respect to, or which could affect, any Owned Realty or buildings or improvements
thereon.
SECTION 3.07. Inventories. Except as set forth on Schedule
3.07 hereto, Seller has good and merchantable title to its inventories of raw
materials, finished goods, parts and supplies used in the Business, as of the
date hereof, free and clear of all security interests, liens, claims and
encumbrances or any adverse rights whatsoever; all inventories of finished goods
used in the Business consist of items that have been manufactured in accordance
with, and which meet, applicable industry standards; all inventories used in the
Business are correctly marked with respect to class and character in accordance
with applicable specifications and if tested will meet the indicated class and
character; and each class or type of inventory of finished goods used in the
Business is usable and salable without discount from the prices generally
charged for like material of the same quality in the ordinary course of
business, subject to obsolescence and write-downs consistent with Seller's
experience in its fiscal year ended October 31, 1996.
SECTION 3.08. Other Tangible Personal Property. Schedule 3.08
hereto sets forth (i) a description and the location of each item of tangible
personal property (other than inventory described in Section 3.07 hereof and
Excluded Assets) owned by Seller or in the possession of Seller and used in the
Business that is being sold to Buyer; and (ii) an identification and description
of each material lease of personal property used in the Business under which
Seller is a lessee or a lessor, copies of which have been made available to
Buyer. With respect to the foregoing personal property:
(a) Each of the leases described in Schedule 3.08 is in full
force and effect and is a valid and binding obligation of
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Seller, and Seller has no knowledge that any such lease is not a valid and
binding obligation of each of the other parties thereto;
(b) Seller is not, nor does Seller have knowledge that any
other party is, in default with respect to any material term or condition of any
such lease or any other agreement related to such properties, nor has any event
occurred which, through the lapse of time or the giving of notice, or both,
would constitute a default thereunder or would cause the acceleration of any
obligation of any party thereto or the creation of a lien or encumbrance upon
any asset of Seller;
(c) Each item of tangible personal property used in the
current conduct of the Business is in good operating and usable condition and
repair, subject to normal and reasonable wear and tear; however, Seller makes no
other warranties, express or implied, including any warranty of merchantability
or fitness for a particular purpose; and
(d) Seller has good and merchantable title to and is in
possession of all items of tangible personal property owned or leased by Seller
and used in the Business, free and clear of all liens, pledges, charges,
security interests, restrictions, prior assignments and encumbrances of any
kind, except for property taxes not yet due and payable and except as set forth
on Schedule 3.05.
SECTION 3.09. Trade Names, Trademarks and Copyrights. Schedule
3.09 hereto is a list of all trade names, trademarks, service marks and
copyrights and their registrations or applications, owned solely by Seller or in
which Seller has any rights or licenses and used solely in the Business,
together with a brief description of each. Except as set forth in Schedule 3.09,
to the best knowledge of Seller, no person has infringed or is infringing on any
such trade name, trademark, service mark or copyright. To the best knowledge of
Seller, Seller, in its operation of the Business, has not infringed, and is not
now infringing, on any trade name, trademark, service mark or copyright
belonging to any other person, firm or corporation. Except as set forth in
Schedule 3.09, Seller is not a party to any license agreement or arrangement,
whether as licensor, licensee, franchiser, franchisee or otherwise, with respect
to any trademarks, service marks, trade names or any copyrights, or applications
or registrations for such items, used in the Business. To the best knowledge of
Seller, Seller owns, or holds adequate licenses, free and clear of any liens or
encumbrances, to use, and has full right to use, all trademarks, service marks,
trade names and copyrights necessary for Seller to conduct the Business as now
conducted by it and all such items are listed in Schedule 3.09, and such use
does not and will not conflict with, infringe on or otherwise violate any rights
of others. Seller has the right to sell or assign to Buyer all such owned
trademarks, trade names, service marks and copyrights, and all such licenses and
other rights. All trade names, trademarks, service marks, copyrights and
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licenses listed in Schedule 3.09 are registered or recorded (except as otherwise
disclosed therein) in all jurisdictions material to the Business where failure
to register or record could materially impair Seller's ownership of, or right to
use, such item. All such registrations and recordings are in full force and
effect and no governmental proceeding, including the possible revocation or
cancellation of any such registration, is pending or, to the best knowledge of
Seller, threatened.
SECTION 3.10. Trade Secrets.
(a) Schedule 3.10 hereto is a true and complete list, without
extensive or revealing descriptions, of Seller's trade secrets which are
material to the conduct of the Business, including all material customer (active
and inactive) lists, vendor lists and arrangements therewith, processes,
know-how, computer program and routines and other technical data (collectively,
"Trade Secrets"). The specific location of each Trade Secret's documentation,
including its complete description, specifications, charts, procedures and other
material relating to it, is also set forth in Schedule 3.10. To the extent
necessary for Buyer's conduct of the Business, each Trade Secret's documentation
is current, accurate and sufficient in detail and content to identify and
explain it and to allow its full and proper use by Buyer without reliance on the
special knowledge or memory of others.
(b) Seller is the sole owner of each Trade Secret owned by it,
free and clear of any liens, encumbrances, restrictions or legal or equitable
claims of others, except as specifically stated in Schedule 3.10. Seller has
taken reasonable security measures to protect the secrecy, confidentiality and
value of the Trade Secrets; any of its employees and any other persons who,
either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed the Trade Secrets, or who have knowledge of or
access to information relating to them, have been put on notice and, if
appropriate, have entered into agreements that the Trade Secrets are proprietary
to Seller and are not to be divulged or misused.
(c) To the best knowledge of Seller, all of the Trade Secrets
have not been used, divulged or appropriated to the detriment of Seller.
SECTION 3.11. Computer Software; Other Intangible Personal
Property. Schedule 3.11 hereto identifies the computer software and computer
programs owned by Seller or used by Seller in the conduct of its Business which
is necessary to Buyer's operation of the Business, and to the extent used by
Seller pursuant to a license or other authorization of a third party, describes
such license or other authorization and which is being sold by Seller to Buyer.
To the best of Seller's knowledge, with respect to any such computer software
and programs owned by Seller, such is owned free and clear of all liens,
pledges, charges, security interests,
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restrictions, prior arrangements and encumbrances of any kind, including without
limitation, any claim of any present or former employee of Seller who may have
developed or participated in the development of any such computer software or
program or any portion thereof. Such license or other authorization pursuant to
which Seller is entitled to use any computer software or program is in full
force and effect, is a valid and binding obligation of the parties thereto, is
identified on Schedule 3.11 hereto, is included in the Transferred Assets, and
is assignable to Buyer without the consent of any third party except as
otherwise described in Schedule 3.11 hereto. Schedule 3.11 hereto also lists and
describes any and all interests of Seller in any intangible personal property
used in the Business and not listed in Schedule 3.09 or 3.10.
SECTION 3.12. Material Contracts.
(a) Schedule 3.12 hereto lists each lease, license, contract,
vendor agreement, distribution right, right to advertising space and listings in
directories, purchase or sales order and commitment, whether written or oral
(collectively, the "Material Contracts"), (other than any of the foregoing
specifically disclosed under other sections of this Article) to which Seller is
a party, or by which it or any of its properties are bound, which relates to the
Business and (i) involves expenditures or income in excess of $50,000 per year
and which are not cancelable within 30 calendar days, (ii) is otherwise material
in nature or amount or (iii) is necessary for the continued operation of the
Business as presently conducted. With respect to each such Material Contract:
(i) Each Material Contract is in full force and
effect and is a valid and binding agreement of Seller and, to the best
knowledge of Seller, of the other parties thereto;
(ii) Seller has fulfilled all material
obligations required pursuant to such Material Contract to have been
performed by Seller on its part prior to the date hereof, and Seller
has no reason to believe that it will not be able to fulfill, when due,
all of Seller's obligations under such Material Contract which remain
to be performed after the date hereof;
(iii) To the best knowledge of Seller, there is
no default or event that with notice or lapse of time, or both, would
constitute a default by any other party to such Material Contract; and
(iv) Seller has not received notice that any
party to such Material Contract intends to cancel or terminate such
Material Contract or to exercise or not exercise any options
thereunder.
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(b) Except for the Material Contracts listed in Schedule 3.12,
copies of which have been furnished or made available to Buyer, Seller is not a
party to, nor is any of Seller's property bound by, any distributor's or
manufacturer's representative or agency agreement, any output or requirements
agreement, any agreement that restricts Seller's right to engage in business or
any other agreement that is unusual in nature or amount or that calls for the
payment by Seller of consideration of more than $50,000 per year and which is
not cancelable within 30 calendar days.
SECTION 3.13. Litigation. Except as set forth in Schedule
3.13, there is no Action pending or, to the best knowledge of Seller,
threatened, against or affecting the Business or based upon any theory of
product liability with regard to products produced by the Business. The matters
set forth in Schedule 3.13 hereto, if decided adversely to Seller, will not
result in a material adverse change in the Business. Seller has furnished or
made available to Buyer copies of all relevant court papers and other documents
relating to the matters set forth in Schedule 3.13 hereto. Seller is not in
default with respect to any order, writ, injunction or decree relating to the
Business of any federal, state, local or foreign court, department, agency or
instrumentality. Except as set forth in Schedule 3.13, Seller is not currently
engaged in any legal action to recover material amounts of money due to it or
damages sustained by it arising out of the Business.
SECTION 3.14. Compliance with Laws. Except as set forth in
Schedule 3.14:
(a)(i) Seller is in full compliance with all
Environmental Requirements applicable to operations on and the
conditions of the Owned Realty or the Facility. The Seller has no basis
to expect, and has not received, any actual or threatened order, notice
or other communication from any Governmental Authority or third party
of any actual or potential violation or failure to comply with any
Environmental Requirement, or of any actual or threatened obligation to
undertake or bear the costs of any Environmental Damages with respect
to the Owned Realty or the Facility.
(ii) There are no pending or, to the knowledge of
Seller, threatened claims, encumbrances or other restrictions of any
nature, resulting from any Environmental Damages or arising under or
pursuant to any Environmental Requirement with respect to or affecting
the Owned Realty or the Facility.
(iii) Seller has no basis to expect and has not
received any citation, directive, inquiry, notice, order, summons,
warning or other communication that relates to Hazardous Materials or
any actual or potential violation or failure to comply with any
Environmental Requirement or of any
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alleged, actual or potential obligation to undertake or bear the costs
of any Environmental Damages with respect to the Owned Realty or the
Facility or with respect to any property or facility to which hazardous
materials generated, manufactured, refined, transferred, imported, used
or processed by Seller at the Facility have been transported, treated,
stored, handled, transferred, disposed, recycled or received.
(iv) Seller has not generated, stored, used,
released, treated or disposed of any Hazardous Material on the Owned
Realty or at the Facility except in full compliance with all
Environmental Requirements.
(v) Seller timely obtained and has kept current, as
appropriate, all permits, notifications, and authorizations required
under any environmental law or any activity conducted on the Owned
Realty or at the Facility by Seller or any other Person.
(vi) There are no underground storage tanks or gas
or oil wells on the Owned Realty.
(b) Seller has complied with all requirements of the
Occupational Safety and Health Act and its state equivalents and
regulations promulgated under any such legislation, and with all
orders, judgments and decrees of any tribunal under such legislation
that apply to the Business.
(c) Seller has not directly or indirectly paid or
delivered any fee, commission or other money or property, however
characterized, to any finder, agent, government official or other
party, in the United States or any other country, that is in any manner
related to the Business, the payment or delivery of which was illegal
under any federal, state or local law of the United States or any other
country having jurisdiction.
(d) Seller has complied with, and is not in violation
of, any other applicable federal, state or local statute, law or
regulation applicable to, or affecting the operation of, the Business.
SECTION 3.15. Labor Relations. Except as set forth on Schedule
3.15:
(i) No Employee is covered by a collective
bargaining agreement and there is not now, nor has there occurred at
any time during the past three years, any union representation
activities respecting Employees. Seller has not experienced any work
stoppage or slow down within the last three years.
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(ii) No proceedings or claims by Employees are
pending or, to the best knowledge of Seller, threatened against Seller
with respect to any violation or alleged violation of any applicable
federal, state or local laws, rules and regulations prohibiting
discrimination on any basis, including, without limitation, on the
basis of race, color, religion, sex, national origin, age or
disability.
(iii) No proceedings or claims by or relating to
Employees are pending or, to the best knowledge of Seller, threatened
against Seller with respect to any violation or alleged violation of
any applicable federal, state or local laws, rules and regulations
relating to the employment of labor, including, without limitation,
those related to wages, hours and collective bargaining. Seller has
made all payments and withholdings of taxes and other sums as required
by appropriate governmental authorities and has withheld and paid to
the appropriate governmental authorities, or is holding for payment not
yet due to such authorities, all amounts required to be withheld from
Employees and is not liable for any arrears of wages, taxes, penalties
or other sums for failure to comply with any laws, rules or regulations
relating to the foregoing.
SECTION 3.16. Employment and Compensation Arrangements.
(a) Schedule 3.16 hereto identifies each (i) pension, profit
sharing, deferred compensation, bonus, stock option, stock purchase or incentive
plan or agreement, written or oral, applicable to Employees, except for such
plans or arrangements listed in Schedule 3.17; and (ii) retainer, consulting,
severance, employment or similar contract or agreement, written or oral,
applicable to Employees, to which Seller is a party or by which it is bound.
Seller has delivered to Buyer copies of all such plans and agreements, as they
are currently in effect. Seller is not, and, to the best of its knowledge, no
other party thereto is, in default with respect to any material term or
condition thereof, nor has any event occurred which, with the lapse of time or
the giving of notice, or both, would constitute a material default thereunder or
would cause the acceleration of any material obligation of any party thereto, or
the creation of a lien or encumbrance upon any asset of Seller.
(b) All obligations of Seller relating to Employees, whether
arising by operation of law, by contract or past custom, for payments by Seller
to trusts or other funds or to any governmental agency with respect to workers
compensation, unemployment compensation, social security or any other benefits
for its employees with respect to employment of said Employees through the date
hereof have been paid or adequate accruals thereof have been made and are
reflected in the Financial Statements. All obligations of Seller with respect to
such Employees, whether arising by operation of law, by contract, by past custom
or
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otherwise, for salaries, vacation and holiday pay, sick pay, bonuses, other
forms of compensation or other benefits payable to such employees in respect of
the services rendered by any of them prior to the date hereof have been paid or
adequate accruals therefor have been made and are reflected in the Financial
Statements; provided that with respect to accrued but unpaid vacations through
the Closing Date, Seller shall either (i) pay Buyer the aggregate amount of such
accrual or (ii) pay each Employee the portion of such aggregate accrual
attributable to such Employee.
(c) Schedule 3.16 also sets forth a true and complete list, as
of February __, 1997, of the names and current salaries or compensation rates of
all Employees and of all agents and representatives of Seller. Those Employees
who are at work on the Closing Date or any day within five days prior thereto
are set forth or referred to in part (a) of Schedule 3.16, and those other
Employees being offered employment by Buyer are set forth in part (b) of
Schedule 3.16.
SECTION 3.17. Employee Benefit Plans and Benefit Arrangements.
Schedule 3.17 lists each (i) "Employee Benefit Plan," as such term is defined in
Section 3(3) of ERISA, whether written or oral, that provides or authorizes
benefits to any Employee and (ii) "Benefit Arrangement" which means each
contract, agreement, policy, practice or commitment, whether written or oral,
that provides or authorizes employee benefits to any Employee, other than
Employee Benefit Plans.
Except as set forth on Schedule 3.17, (i) each Employee
Benefit Plan and each Benefit Arrangement complies with, and has been operated
in accordance with, all applicable law, including, without limitation, the
provisions of ERISA, in all material respects, and (ii) no event has occurred in
connection with any Employee Benefit Plan or Benefit Arrangement which has, will
or may result in any fine, penalty, assessment or other liability for which
Seller, any Affiliate of Seller or transferee of the assets of Seller may be
responsible, whether by reason of operation of law or contract.
SECTION 3.18. Taxes.
(a) There are no outstanding assessments for Taxes otherwise
due that if not paid on a timely basis would result, on or after the Closing
Date, in any liens for Taxes on any of the Transferred Assets.
(b) Except as otherwise disclosed on Schedule 3.18, none of
the Transferred Assets is tax-exempt use property within the meaning of Section
168(h) of the Code, and none of the Transferred Assets is property that is or
will be required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in
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effect immediately before the enactment of the Tax Reform Act of 1986.
(c) Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Code.
SECTION 3.19 Insurance. Schedule 3.19 sets forth a true and
correct list of all insurance policies of any nature whatsoever maintained by
Seller which relate to the Business, all of which are in full force and effect.
Seller is in compliance with all material requirements of such policies. All of
the customarily commercially insurable properties and assets of Seller that
constitute Transferred Assets are covered by effective insurance in amounts at
least equal to their fair market value and such insurance provides protection
against all liabilities, claims, losses and risks as are generally insured
against by comparable businesses. There are no outstanding requirements or
recommendations by any insurance company that issued any such policy or by any
governmental authority which requires or recommends any change in the conduct of
the Business, or any repairs or other work to be done on or with respect to any
of the properties of Seller related to the Business. Seller has not received any
notice or other communication from any insurance company within the three years
preceding the date hereof canceling or materially amending any insurance
policies on or relating to the Transferred Assets, and to the best knowledge of
Seller, no such cancellation or amendment nor any material increase of premiums
is threatened with respect to the policies listed in Schedule 3.19 hereto.
Except as set forth in Schedule 3.19, no claim is pending under any policy
listed in Schedule 3.19.
SECTION 3.20. Licenses, Franchises, Permits and
Authorizations. Schedule 3.20 hereto lists all licenses, franchises, permits and
authorizations held by Seller which constitute all of the licenses, franchises,
permits and authorizations necessary for the lawful conduct of the Business, and
specifically notes any such licenses, franchises, permits and authorizations
that are not assignable. Seller has previously delivered copies of such
licenses, franchises, permits and authorizations to Buyer. Seller has not
violated, nor is in material violation of, any of the terms and conditions of
such licenses, franchises, permits and authorizations. As of the Closing Date,
to the best knowledge of Seller, no change will have occurred in the facts or
circumstances reported or assumed in the application for or the granting of such
licenses, franchises, permits or authorizations, and each such license,
franchise, permit and authorization will be in full force and effect.
SECTION 3.21. Agreement Not In Breach of Other Instruments.
Except as set forth in Schedule 3.21, the execution and delivery of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby will not result in or constitute any of the following:
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(a) a default or an event that, with the giving of notice or lapse of time, or
both, would be a default, breach or violation of the Articles of Incorporation
or By-Laws of Seller or any Material Contract, promissory note, indenture,
mortgage, deed of trust or other material agreement, instrument or arrangement
to which Seller is a party or by which it or its properties are bound; (b) an
event that would permit any party to terminate any Material Contract; or (c) the
creation or imposition of any lien, charge or encumbrance on any of the
Transferred Assets.
SECTION 3.22. Brokers. No person or entity is entitled to any
brokerage commission, finder's fee or like payment from Seller in connection
with the transactions contemplated by this Agreement, other than Phil Starr.
SECTION 3.23. Full Disclosure. To the best of Seller's
knowledge, the representations and warranties made by Seller and the information
provided by Seller to Buyer in this Agreement, including its Schedules and its
Exhibits, do not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein, or
necessary to make the statements and facts contained herein or therein, in light
of the circumstances in which they are made, not false or misleading. Copies of
all documents heretofore or hereafter delivered or made available to Buyer
pursuant to this Agreement were or will be complete and accurate copies of such
documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER
As an inducement to Seller to enter into this Agreement, Buyer
represents and warrants to Seller as follows:
SECTION 4.01. Organization, Good Standing and Authority of
Buyer. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and each of the Ancillary
Agreements to which it is a party, to carry out its obligations hereunder or
thereunder, and to consummate the transactions contemplated hereby or thereby.
The execution, delivery and performance of this Agreement and the Ancillary
Agreements to which Buyer is a party have been duly authorized by all necessary
corporate action on the part of Buyer, have been or will be duly executed and
delivered by Buyer, and this Agreement and such Ancillary Agreements constitute
or, upon execution and delivery, will constitute, legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their terms.
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SECTION 4.02. No Conflict. The execution, delivery and
performance by Buyer of this Agreement and each of the Ancillary Agreements to
which it is a party do not, and will not, (a) violate or conflict with the
Articles of Incorporation or By-Laws of Buyer, (b) conflict with or violate any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award applicable to Buyer or (c) except as would not materially affect the
ability of Buyer to consummate the transactions contemplated by this Agreement,
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any lien or other encumbrance on any of the assets or
properties of Buyer pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument relating to
such assets or properties to which Buyer is a party or by which any of such
assets or properties is bound or affected.
SECTION 4.03. No Consents or Approvals. Except as set forth on
Schedule 4.03, no authorization, consent or approval of any public body,
authority or any third party is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement.
SECTION 4.04. Absence of Litigation. No Action is pending or
threatened against Buyer which seeks to delay or prevent the consummation of the
transactions contemplated hereby or which may adversely affect or restrict
Buyer's ability to consummate the transactions contemplated hereby.
SECTION 4.05. Agreement Not In Breach of Other Instruments.
The execution and delivery of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby will not result in or
constitute a default or an event that, with the giving of notice of lapse of
time or both, would be a default, breach or violation of the Articles of
Incorporation of Bylaws of Buyer.
SECTION 4.06. Brokers. No person or entity is entitled to any
brokerage commission, finder's fee or like payment from Buyer in connection with
the transactions contemplated by this Agreement, other than Phil Starr.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. No Solicitation, Etc. Seller agrees that,
between the date hereof and either the Closing Date or the termination of this
Agreement in accordance with the terms of Section 5.06 or 9.01, Seller shall
not, directly or indirectly,
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(i) encourage, initiate or solicit the submission of a Business Combination
Proposal, (ii) enter into any agreement with respect to any Business Combination
Proposal or (iii) participate in any way in discussions or negotiations with, or
furnish any information to, any Person in connection with, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Business Combination
Proposal.
SECTION 5.02. Conduct of Business Prior to the Closing. Seller
agrees that, between the date of this Agreement to and including the Closing
Date, except as permitted by the prior written consent of Buyer and as
contemplated by this Agreement: (i) the Business shall continue to be conducted
in, and Seller shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; (ii) Seller shall use
its best efforts to (v) preserve the Business substantially intact, (w) maintain
the Transferred Assets in customary repair, order and condition (subject to
ordinary wear and tear) and maintain in full force and effect all insurance
relating to the Transferred Assets, (x) comply with all governmental and
regulatory requirements applicable to the Business or the Transferred Assets,
(y) keep available the services of substantially all of the present employees of
Seller involved in the Business and (z) preserve the present relationships of
the Business with customers, suppliers and other Persons with which the Business
has significant business relations; and (iii) Seller shall not:
(i) encumber any material asset, property or right of
Seller relating to the Business or enter into any transaction or make
any contract or commitment relating to the Transferred Assets except in
the ordinary course of business;
(ii) enter into any employment contract with an
Employee which is not terminable without cost or other liability to
Seller or any successor thereof;
(iii) enter into or amend any contract or agreement
relating to the Business (x) which cannot be performed within three
months or less or (y) which involves the expenditure of over $10,000,
except for sales and purchase contracts in the ordinary course of
business;
(iv) transfer any assets of Seller relating to the
Business to any shareholder; or
(v) agree to do any of the above.
SECTION 5.03. Approvals; Consents.
(a) Each of Buyer and Seller will use its best efforts to
obtain or cause to be obtained all necessary consents,
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approvals, authorizations or other actions by, or filings with, or notifications
to, any governmental or regulatory authority or any Person listed on Schedule
5.10, in connection with the consummation of the sale and transfer by Seller of
the Transferred Assets and the transactions contemplated hereby.
(b) Each of Buyer and Seller will use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by this Agreement.
SECTION 5.04. Access to Premises and Information.
(a) Subject to the provisions of Section 5.04(b), from the
date hereof, Seller shall, and shall cause its officers, directors, employees
and authorized agents, to provide to Buyer and its officers, employees and
authorized agents full access to Seller's officers, employees, authorized
agents, offices and other facilities and to all books and records during normal
business hours and in a manner not unreasonably disruptive to the operation of
the Business, and shall promptly furnish to Buyer all financial and operating
data and other information regarding the Business and the Transferred Assets as
Buyer may from time to time reasonably request.
(b) Until the Closing, all information relating to Seller
obtained by Buyer and its authorized representatives in connection with the
transactions contemplated hereby shall be kept confidential by Buyer and shall
not be used by it for any purpose other than in connection with the transactions
contemplated hereby; provided, however, that the foregoing shall not apply to
(i) any information generally available to the public on the date hereof or
which becomes generally available to the public through no fault of Buyer, but
only from and after the date such information becomes so available, and (ii) any
information obtained by Buyer from a third party having the right to disclose
such information.
SECTION 5.05. Employees. On the Closing Date, Buyer agrees to
offer to employ the Employees, at substantially the same salary and wage rate
levels as in effect on the Closing Date. With regard to benefits, subject to
applicable law, Buyer shall offer Employees so hired benefits consistent with
those extended to its Employees on the Closing Date. Seller makes no
representation or warranty that any of the employees will accept Buyer's offer
of employment. In addition, Seller makes no representation or warranty that any
of the Employees that are covered by a collective bargaining agreement will be
removed from coverage under such collective bargaining agreement as a result of
the sale of the Business to Buyer and Buyer's hiring of such Employees.
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SECTION 5.06. Due Diligence; Right to Terminate.
(a) Buyer shall promptly conduct its due diligence review of
the Business including, without limitation, the books and records, financial and
operating data and other information regarding the Business and the Transferred
Assets as Buyer may reasonably request.
(b) In the event that Buyer determines in good faith during
the course of its due diligence investigation (i) that any of the
representations and warranties in this Agreement are false or incorrect in any
material respect or (ii) the existence of facts or conditions concerning the
results of operations, condition (financial or otherwise), assets or liabilities
(whether absolute, accrued or contingent or otherwise) or prospects of the
Business, or the occurrence of any event or condition which, in Buyer's
discretion, have had or are reasonably likely to have a material adverse effect
on the results of operations, condition (financial or otherwise), assets or
liabilities (whether absolute, accrued or contingent or otherwise) or prospects
of the Business, or make it impracticable to proceed with the transactions
contemplated by this Agreement, whether or not such facts or conditions are
within Seller's control, then Buyer may elect to terminate this Agreement by
providing Seller with written notice thereof on or before the Closing Date.
(c) If Buyer elects to terminate this Agreement pursuant to
subsection (b) above, neither party shall have any indemnification or other
obligations or liability to the other party hereto as a result of such
termination or the events that gave rise to it, other than pursuant to Section
5.04(b).
SECTION 5.07. Proration of Taxes. Buyer agrees to execute and
deliver to Seller at the Closing any certificates or other documents that Seller
may reasonably request to document any exemption from Ohio sales tax. Seller
agrees to assume liability for and to pay for all transfer and documentary taxes
and fees imposed with respect to instruments of conveyance in the transactions
contemplated hereby. Seller agrees to assume liability for and pay for any
personal property taxes assessed against it on the Transferred Assets, except
that Buyer agrees to pay to Seller an amount equal to $20,000 with respect to
such taxes. In addition, Seller and Buyer agree to prorate any real property
taxes on the Transferred Assets. Such proration shall (a) be made on the basis
of the most recent real tax bill received by Seller prior to the Closing Date
(each, a "Tax Bill") and (b) make Seller liable for all such taxes through the
Closing Date and Buyer liable for all such taxes from and after the Closing
Date. Specifically, with respect to each Tax Bill, Buyer shall pay to Seller an
amount equal to (x) the amount of such Tax Bill attributable to the Transferred
Assets multiplied by (y) a fraction, the numerator of which is the number of
days remaining in calendar year 1997 as of the Closing Date and the denominator
of
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which is 365. Amounts with respect to personal or property taxes for which Buyer
is responsible under this paragraph shall be an addition to the Purchase Price
and shall be delivered to Seller at Closing. Seller shall be responsible for
making payment of all such Taxes as are contemplated by this paragraph to the
appropriate taxing authorities.
SECTION 5.08. Further Action. Each of the parties hereto shall
execute such documents (including, without limitation, the Ancillary Agreements)
and other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby or, at or after the Closing, to evidence the consummation of the
transactions consummated pursuant to this Agreement and each of the Ancillary
Agreements, upon the terms and subject to the conditions hereof and thereof.
Each of the parties hereto shall take, or cause to be taken, all actions and to
do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and each of the Ancillary Agreements and to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings.
SECTION 5.09. Assets After the Closing. If Seller shall, at
any time after the Closing, receive any Transferred Assets, or any payments
relating thereto (including any payments in respect of the Material Contracts
but excluding payments on accounts receivable), it shall promptly deliver such
assets or property to Buyer.
SECTION 5.10. Consents to Transfer of the Material Contracts.
Schedule 5.10 hereto lists and describes all Persons whose authorization is
required to effect the sale and delivery of all of the Transferred Assets as
contemplated by this Agreement.
SECTION 5.11. Covenant Not to Compete.
(a) Subject to the Closing having occurred, without the prior
written consent of Buyer, Seller will not, directly or indirectly, (i) engage in
any business, activity or operation that competes in the business of
manufacturing or selling plastic spools within the United States or (ii)
approach or seek Restricted Business (as defined below) from any Customer (as
defined below), refer Restricted Business from any Customer to any enterprise or
business, or be paid commissions based on sales to any Customer by any
enterprise or business where such sales constitute Restricted Business; provided
that, if Seller has engaged in, is engaged in or becomes engaged in any
Restricted Business with any Person at any time before or after the Closing Date
but prior to the time such Person becomes a Customer and such Person does not
become a Customer until after the Closing Date, the foregoing restrictions
contained in this paragraph shall not apply to any business between
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Seller and such Person. Seller shall not, directly or indirectly, induce,
solicit, aid or assist any other person to induce or solicit, employees,
salespersons, agents, consultants, distributors, representatives, advisors,
customers or suppliers of the Business to terminate, curtail or otherwise limit
their employment or business relations with the Business.
(b) The covenant not to compete contained in paragraph (a)
shall extend for a period of two (2) years from the Closing Date, or until such
earlier time as Buyer, its successors or assigns, shall cease to carry on or
have an interest in the Business and the Transferred Assets. Nothing in this
covenant not to compete shall prohibit Seller from selling product to, and
otherwise engaging in business with, Seller's affiliates and other divisions of
Seller.
(c) If any one or more of the provisions contained in this
Section 5.11 shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the validity, legality and enforceability of any other
provisions of this Agreement. Such invalid, illegal or unenforceable provision
or provisions shall be deemed to be modified to the extent necessary to render
it, or them, valid, legal and enforceable, and if no such modification shall
render it, or them, valid, legal and enforceable, then this Section 5.11 shall
be construed as if not containing the provision or provisions held to be
invalid, illegal or unenforceable, and the rights and obligations of the parties
shall be construed and enforced accordingly.
(d) For purposes of this Section, the following terms shall
have the following meanings:
(i) "Restricted Business" means any business that is
competitive with the Business.
(ii) "Customer" means any Person which (A) is
currently provided goods or services by the Business, (B) has been
provided goods or services by the Business during the 5-year period
prior to the date hereof or (C) which shall be provided with goods or
services by the Business during the 2-year period from the date
hereof.
SECTION 5.12. Power of Attorney. On the Closing Date, Seller
will, by appropriate instrument, constitute and appoint Buyer and its successors
and assigns, the true and lawful attorneys for Seller, with full power of
substitution, in the name of Seller but on behalf of and for the benefit of and
at the expense of Buyer, to institute and prosecute, in the name of Seller or
otherwise, all proceedings which Buyer may in good faith deem proper in order to
collect, assert or enforce any claim, right or title of any kind in or to the
Transferred Assets, to defend and compromise any and all actions, suits or
proceedings in respect of
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any of such Transferred Assets, and to do all such acts and things in relation
thereto as Buyer in good faith shall deem advisable. The foregoing powers are
and shall be coupled with an interest and shall be irrevocable by Seller or by
Seller's dissolution or in any manner or for any reason. Buyer shall retain for
its own account any amounts collected pursuant to the foregoing powers,
including any sums payable in respect thereof, and Seller shall promptly pay to
Buyer, when received, any amounts which shall be received by Seller in respect
of the Transferred Assets as provided herein.
SECTION 5.13. Uniform Commercial Code and Other Lien Searches.
To the extent that Buyer conducts a UCC-1 search or other lien search in the
state and county in which Seller conducts the Business and such search indicates
the existence of a security interest or other lien on any of the Transferred
Assets, Seller shall promptly obtain a termination or, to the extent such
security interest or lien extends to assets in addition to the Transferred
Assets, a release of the Transferred Assets from such security interest or lien.
SECTION 5.14. Worker Adjustment and Retraining Notification
Act. Buyer agrees to indemnify and hold harmless Seller from any and all claims
arising under the Worker Adjustment and Retraining Notification ("WARN") Act as
a result of actions by Buyer from and after the Closing Date.
SECTION 5.15. Licenses, Franchises, Permits and
Authorizations. Seller agrees to maintain the effectiveness with respect to the
Facility of the Sewer Permit and Storm Water Permit, in each case from the date
hereof until such time as Buyer is able to secure a separate sewer permit from
the Village of Hebron or an Ohio EPA Storm Water General Permit, respectively,
for the Facility. Buyer agrees to use its best efforts to secure such permits as
soon as practicable following the Closing Date and agrees to indemnify and hold
harmless Seller from any and all claims arising as a result of Buyer's operation
of the Business under the Storm Water Permit and Sewer Permit from and after the
Closing Date.
SECTION 5.16. Molds. Seller will use its best efforts to
enable Buyer to take possession of all injection molds at the Closing, including
such injection molds as constitute Excluded Assets, and will take all necessary
steps as are reasonable, including such steps as Buyer may reasonably request,
to allow Buyer's use of such molds in the continuing operations of the Business
from the date of the Closing.
SECTION 5.17. Railroad Spur Access and Maintenance Agreement.
At the Closing, Seller and Buyer shall enter into a Railroad Spur Access and
Maintenance Agreement (the "Railroad Spur Agreement"), in a form mutually
agreeable, which provides substantially as follows:
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(a) Buyer shall have sole access to and responsibility for
maintenance of Spur #1.
(b) With respect to the Main Spur and the portion of Spur #2
that crosses behind the Blow Molding Division's real property, Buyer and Seller
shall each (i) pay for the maintenance of the Main Spur and such portion of Spur
#2, respectively, an amount equal to the total amount of maintenance for the
Main Spur or such portion of Spur #2 multiplied by that party's Relative Use of
the Main Spur or such portion of Spur #2 and (ii) have access to the Main Spur
and such portion of Spur #2.
(c) Buyer shall have sole access to and responsibility for
maintenance of that portion of Spur #2 that crosses behind the Owned Realty.
(d) Buyer and Seller each grant the other party such easements
as are necessary, and shall grant the other party such appropriate rights as the
other party shall reasonably request, to provide the access contemplated by, and
give public record of, the Railroad Spur Agreement.
SECTION 5.18. Turn About Access and Maintenance Agreement. At
the Closing, Seller and Buyer shall enter into a Turn About Access and
Maintenance Agreement (the "Turn About Agreement"), in a form mutually
agreeable, which provides substantially as follows:
(a) Buyer and Seller each shall have access to all of the Turn
About, including that portion of the Turn About that is located on the other's
property.
(b) Buyer and Seller shall share equally the maintenance costs
of all the Turn About.
(c) Buyer and Seller each grant the other party such easements
as are necessary, and shall grant the other party such appropriate rights as the
other party shall reasonably request, to provide the access contemplated by, and
give public record of, the Turn About Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver, at
or prior to the Closing, of each of the following conditions:
SECTION 6.01. Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement
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(including the Schedules and Exhibits hereto) or in any agreement, certificate
or document delivered in connection herewith, including the Ancillary Agreements
to which Buyer is a party, shall be true and correct in all material respects on
the Closing Date with the same effect as if made on and as of the Closing Date.
SECTION 6.02. Performance of Covenants. Each of the
obligations of Buyer to be performed on or before the Closing Date pursuant to
the terms of this Agreement and the Ancillary Agreements shall have been duly
performed in all material respects on or before the Closing Date.
SECTION 6.03. Authority. All actions required to be taken by,
or on the part of, Buyer to authorize the execution, delivery and performance of
this Agreement and the Ancillary Agreements shall have been duly and validly
taken by the Board of Directors of Buyer.
SECTION 6.04. Approval of Governmental Authorities. No claim,
action, suit, investigation or other proceeding shall be pending or threatened
before any court or governmental agency which presents a substantial risk of the
restraint or prohibition of the transactions contemplated by this Agreement. All
approvals of governmental agencies necessary for the consummation of the
transactions contemplated by this Agreement shall have been obtained and shall
be in full force and effect.
SECTION 6.05. Purchase Price. Seller shall have received the
Initial Payment by wire transfer in immediately available funds to an account
designated by Seller.
SECTION 6.06. Ancillary Agreements. Buyer shall have executed
and delivered to Seller the Ancillary Agreements to which Buyer is a party,
including, without limitation, the Assumption Agreement and such other
instruments effecting or evidencing the assumption of Assumed Liabilities
contemplated hereby.
SECTION 6.07. Buyer's Certificate. Seller shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to Seller) executed by (i) the President of
Buyer certifying as to the fulfillment of the conditions specified in Section
6.01 and 6.02 and (ii) the Secretary of Buyer certifying as to the fulfillment
of the condition specified in Section 6.03 and the incumbency of each officer of
Buyer who has executed this Agreement or any Ancillary Agreement.
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SECTION 6.08. Approval of Documentation. The form and
substance of all certificates, instruments and other documents delivered to
Seller under this Agreement shall be satisfactory in all reasonable respects to
Seller and its counsel.
SECTION 6.09. Consents. All agreements and consents of third
parties, including, without limitation, all consents from licensors, vendors,
lessors and other parties to agreements with Seller, to the consummation of the
transactions contemplated by this Agreement, or otherwise pertaining to matters
covered by it, which are material to the continued conduct of the Business after
the consummation of such transactions and the absence of which would result in a
breach of contractual obligations by Seller, shall have been obtained by Seller
and delivered to Buyer.
SECTION 6.10. Access Agreements. Buyer and Seller shall have
entered into the Railroad Spur Agreement and the Turn About Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver, at
or prior to the Closing, of each of the following conditions:
SECTION 7.01. Representations and Warranties. The
representations and warranties of Seller contained in this Agreement (including
the Schedules and Exhibits hereto) or in any agreement, certificate or document
delivered in connection herewith, including the Ancillary Agreements to which
Seller is a party, shall be true and correct in all material respects on the
Closing Date with the same effect as if made on and as of the Closing Date.
SECTION 7.02. Performance of Covenants. Each of the
obligations of Seller to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement and the Ancillary Agreements shall have
been duly performed in all material respects on or before the Closing Date.
SECTION 7.03. Authority. All actions required to be taken by,
or on the part of, Seller to authorize the execution, delivery and performance
of this Agreement and the Ancillary
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Agreements shall have been duly and validly taken by the Board of Directors of
Seller.
SECTION 7.04. Seller's Certificate. Buyer shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to Buyer) executed by (i) the President of
Seller certifying as to the fulfillment of the conditions specified in Sections
7.01 and 7.02 and (ii) the Secretary of Seller certifying as to the fulfillment
of the condition specified in Section 7.03 and the incumbency of each officer of
Seller who has executed this Agreement or any Ancillary Agreement.
SECTION 7.05. Bulk Sales Laws. Buyer and Seller agree that,
because Ohio's bulk sales law was repealed on August 15, 1996, no action is
necessary with respect to bulk sales in connection with the sale of the
Transferred Assets to Buyer.
SECTION 7.06. Sales and Use Tax on Prior Sales. Seller shall
furnish any documentation that Buyer may reasonably request as evidence that all
sales and use tax liabilities of Seller accruing before the Closing Date have
been fully satisfied or provided for.
SECTION 7.07. Consents. All agreements and consents of third
parties, including, without limitation, all consents from licensors, vendors,
lessors and other parties to agreements with Seller, for the consummation of the
transactions contemplated by this Agreement, or otherwise pertaining to matters
covered by it, which are material to the continued conduct of the Business after
the consummation of such transactions, shall have been obtained by Seller and
delivered to Buyer or shall have been taken and proof thereof provided to Buyer
by Seller.
SECTION 7.08. Approval of Documentation. The form and
substance of all certificates, instruments and other documents delivered to
Buyer under this Agreement shall be satisfactory in all reasonable respects to
Buyer and its counsel.
SECTION 7.09. Approval of Governmental Authorities. No claim,
action, suit, investigation or other proceeding shall be pending or threatened
before any court or governmental agency which presents a substantial risk of the
restraint or prohibition of the transactions contemplated by this Agreement. All
approvals of governmental agencies necessary for the consummation of the
transactions contemplated by this Agreement shall have been obtained and shall
be in full force and effect.
SECTION 7.10. No Material Adverse Change. During the period
from the date hereof to the Closing Date, there shall not have occurred any
material adverse change in the Business.
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SECTION 7.11. Interim Financial Statements. Seller shall have
furnished Buyer with complete copies of the Interim Financial Statements. The
Interim Financial Statements (i) are correct and complete in all material
respects and were prepared in accordance with the books and records of Seller;
(ii) were prepared in accordance with Seller's internal standards, consistently
applied, for divisions of the same type as the Business; (iii) fairly present
the value of the Transferred Assets and the results of the operations of the
Business as at the relevant date thereof and for the period covered thereby; and
(iv) with respect to contracts and commitments relating to the Transferred
Assets, contain and reflect adequate reserves for all reasonably anticipated
material losses and costs and expenses in excess of expected receipts.
SECTION 7.12. Ancillary Agreements. Seller shall have executed
and delivered to Buyer the Ancillary Agreements to which Seller is a party,
including, without limitation, the Bill of Sale and Assignment, the warranty
deed and such other instruments effecting or evidencing Buyer's assumption of
Assumed Liabilities contemplated hereby.
SECTION 7.13. Key Employees. Paul Devin and James Schultice
shall have agreed to terms of employment with Buyer beginning on the Closing
Date.
SECTION 7.14. Title Insurance. Buyer shall have received an
irrevocable commitment for title insurance covering the Owned Realty from
Chicago Title Insurance Company in the amount of One Million Dollars
($1,000,000), at Seller's expense, which commitment shall contain no exceptions
other than the Impairments.
SECTION 7.15. Access Agreements. Seller and Buyer shall have
entered into the Railroad Spur Agreement and the Turn About Agreement.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Seller's Indemnity. Seller shall, up to a
maximum aggregate payment of $2,000,000 for a period of two years after the
Closing, indemnify, defend, save and hold harmless Buyer and its successors and
assigns, and their employees, representatives, officers, directors and agents
from and against any and all Indemnified Damages arising out of or resulting
from (a) any breach or inaccuracy in any representation or warranty made by
Seller in this Agreement or any Schedule or Exhibit to, or in any certificate or
other document furnished by Seller pursuant to, this Agreement, or (b) any
breach of any covenant requiring performance after the Closing Date, or (c) any
claims against, or liabilities or obligations of, Seller not specifically
assumed by
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Buyer pursuant to this Agreement. Notwithstanding the foregoing, Seller shall
not be liable for any Indemnified Damages pursuant to clause (a) of the
preceding sentence until the amount thereof exceeds $250,000 and then Seller
shall be liable for the excess; provided, however, that Seller shall be liable
for the full amount of Indemnified Damages pursuant to clauses (b) and (c) of
the preceding sentence up to the maximum aggregate payment of $2,000,000 listed
above.
SECTION 8.02. Buyer's Indemnity. Buyer shall, up to a maximum
aggregate payment of $2,000,000, for a period of two years after the Closing,
indemnify, defend, save and hold harmless Seller and its successors and assigns,
and their employees, representatives, officers, directors and agents from and
against any and all Indemnified Damages arising out of or resulting from (a) any
breach or inaccuracy in any representation or warranty made by Buyer in this
Agreement or any Schedule or Exhibit to, or in any certificate or other document
furnished by Buyer pursuant to, this Agreement, or (b) any breach of any
covenant requiring performance after the Closing Date, including without
limitation, Buyer's performance of the Assumed Liabilities. Notwithstanding the
foregoing, Buyer shall not be liable for any Indemnified Damages pursuant to
clause (a) of the preceding sentence until the amount thereof exceeds $250,000
and then Buyer shall be liable for the excess; provided, however, that Buyer
shall be liable for the full amount of Indemnified Damages pursuant to clause
(b) of the preceding sentence.
SECTION 8.03. Claims for Indemnification. Whenever any claim
for indemnification shall arise under this Article VIII, the party asserting
such claim (the "Indemnified Party") shall notify the other party (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event of any claim for indemnification hereunder
resulting from or in connection with legal proceedings by a third party, such
notice shall also specify, if known, the amount or an estimate of the amount of
the liability arising therefrom. If any lawsuit is filed or instituted against
the Indemnified Party asserting any claim for which the Indemnifying Party may
be responsible hereunder, written notice thereof shall be given to the
Indemnifying Party as promptly as practicable; and if the Indemnifying Party
shall acknowledge in writing that the Indemnifying Party shall be responsible
and liable for payment of all costs, losses, liabilities, claims and expenses in
connection with such lawsuit, then the Indemnifying Party shall be entitled, if
the Indemnifying Party so elects (subject to the Indemnified Party's written
consent which may be withheld by the Indemnified Party to the extent that the
Indemnified Party's rights under any other contested matter or any aspect of the
Indemnified Party's ongoing business operations may be prejudiced materially by
the Indemnified Party's lack of control over such lawsuit), to take control of
the defense and investigation of such lawsuit and to employ and engage attorneys
of its own choice to handle and defend the same, at the Indemnifying Party's
cost, risk and expense; and
37
<PAGE> 44
the Indemnified Party shall cooperate in all reasonable respects, at the
Indemnifying Party's cost, risk and expense, with the Indemnifying Party and
such attorneys in the investigation, trial and defense of such lawsuit and any
appeal arising therefrom; provided, however, that the Indemnified Party may, at
its own cost, participate in any such investigation, trial and defense of any
such lawsuit and any appeal arising therefrom. Unless authorized in the
Indemnified Party's consent, the Indemnifying Party shall not consent to a
settlement of, or the entry of any judgment arising from, any such claim or
legal proceeding, without the prior written consent of the Indemnified Party,
which shall not be unreasonably withheld. If the Indemnifying Party does not
assume the defense of any such claim or litigation resulting therefrom in
accordance with the terms hereof, the Indemnified Party may defend against such
claim or litigation in such manner as it may deem appropriate, including,
without limitation, settling such claim or litigation, after giving notice of
the same to the Indemnifying Party, on such terms as the Indemnified Party may
deem appropriate. If the Indemnifying Party seeks to question the manner in
which the Indemnified Party defended such claim or litigation or the amount of
or other nature of any such settlement, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend such claim in a reasonably prudent manner.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Termination. This Agreement may be terminated at
any time prior to the Closing: (i) by the mutual written consent of Seller and
Buyer; (ii) by Seller if any of the conditions set forth in Article VI shall not
have been satisfied or waived prior to Closing; (iii) by Buyer if any of the
conditions set forth in Article VII shall not have been satisfied or waived
before Closing; (iv) by either party hereto, if the Closing does not occur on or
prior to February 28, 1997; or (v) by Buyer pursuant to Section 5.06 hereof;
provided, however, that the party seeking termination pursuant to clause (ii),
(iii) or (iv) is not in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement. In the event
that this Agreement is terminated as provided above, this Agreement shall become
void and of no further force and effect, except for Article VIII and Sections
5.04(b), 9.04 and 9.13, and other than pursuant to such provisions, there shall
be no liability on the part of either party hereto; provided, however, that
nothing in this Section 9.01 or elsewhere in this Agreement shall release either
party from any liability for breach of this Agreement.
SECTION 9.02. Specific Performance. The parties hereto agree
that money damages would not be a sufficient remedy for a breach of this
Agreement or the Ancillary Agreements by Seller or
38
<PAGE> 45
Buyer because of the difficulty of ascertaining the amount of damages that will
be suffered in connection therewith, that each party would be irreparably
damaged in the event any obligation of the other party under this Agreement or
the Ancillary Agreements is not performed in accordance with its specific terms
and that each party shall be entitled to equitable relief (including injunction
and specific performance) in any action instituted in any court of the United
States or any state thereof having subject matter jurisdiction, as a remedy for
any breach or to prevent any breach of this Agreement or the Ancillary
Agreements. Such remedies shall not be deemed to be exclusive remedies for a
breach or anticipatory breach of this Agreement or the Ancillary Agreements, but
shall be in addition to all other remedies available at law or equity.
SECTION 9.03. Survival of Representations and Warranties. The
respective representations and warranties of Buyer and Seller contained herein,
in the Ancillary Agreements, or in writing in any certificates or other
documents delivered in connection herewith prior to or at the Closing, shall
survive the execution and delivery of this Agreement and the Closing for a
period of two years.
SECTION 9.04. Expenses. Subject to Section 7.14, all costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred in connection with this Agreement
and the Ancillary Agreements shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred; provided that any fees
payable to Phil Starr in connection with this Agreement shall be paid in equal
part by each of Buyer and Seller.
SECTION 9.05. Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made as of the date delivered if delivered personally or by
telecopy or fifteen (15) days after being mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) if to Seller: Greif Bros. Corporation
621 Pennsylvania Avenue
Delaware, Ohio 43015
Attn.: William B. Sparks, Jr.
Telephone: 614-363-1271
Telecopier: 614-363-9742
with a copy to: Vorys, Sater, Seymour and Pease
52 East Gay Street
Columbus, Ohio 43215
Attn.: Thomas O. Ruby
Telephone: 614-464-5698
39
<PAGE> 46
Telecopier: 614-464-6350
(b) if to Buyer: UnionTools, Inc.
500 Dublin Avenue
Columbus, Ohio 43216-1930
Attn: Gabe Mihaly
Telephone: 614-222-4400
Telecopier: 614-222-4437
with a copy to: Gibson, Dunn & Crutcher LLP
200 Park Avenue, 47th Fl.
New York, New York 10166-0193
Attn: Conor D. Reilly, Esq.
Telephone: 212-351-3850
Telecopier: 212-351-5247
SECTION 9.06. Amendment. Subject to applicable law, no
provision of this Agreement may be amended, modified, supplemented or waived
except by written agreement duly executed by Buyer and Seller.
SECTION 9.07. Waiver. At any time prior to the Closing, either
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties made by the other party and contained
herein or in any document delivered by the other party pursuant hereto and (c)
waive compliance by the other party hereto with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party to be bound thereby.
SECTION 9.08. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.09. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the greatest
extent possible.
SECTION 9.10. Entire Agreement. This Agreement and the
Ancillary Agreements constitute the entire agreement between Seller and Buyer
and supersede and cancel all prior agreements and
40
<PAGE> 47
undertakings, both written and oral, with respect to the subject matter hereof.
SECTION 9.11. Binding Agreement; Assignment. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned, by operation of law or otherwise, by any party hereto without
the prior written consent of the other party; provided, however, that Buyer may
assign this Agreement and all of its rights, interests and obligations hereunder
to any Affiliate of Buyer but that in such event Buyer shall remain a guarantor
of the performance by such Affiliate of its obligations hereunder.
SECTION 9.12. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Ohio applicable
to contracts executed and to be performed wholly in Ohio, without regard to
principles of conflicts of laws.
SECTION 9.13. [Intentionally Omitted].
SECTION 9.14. Counterparts. This Agreement may be executed in
one or more counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties.
SECTION 9.15. No Third Party Beneficiaries. Nothing express or
implied in this Agreement is intended to confer upon any Person, other than
Buyer and Seller and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 9.16. Publicity. Buyer and Seller shall consult with
each other before issuing any press release or announcement concerning the
transactions contemplated by this Agreement; provided, however, that if Seller
is required by law to make any such disclosure prior to agreement with Buyer
regarding its contents, it shall be permitted to do so.
[The remainder of this page has been left intentionally blank.]
41
<PAGE> 48
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
GREIF BROS. CORPORATION
By: /s/ Michael J. Gasser
------------------------------------
Name: Michael J. Gasser
Title: Chairman and Chief
Executive Officer
UNIONTOOLS, INC.
By: /s/ Gabe Mihaly
------------------------------------
Name: Gabe Mihaly
Title: President & CEO
42
<PAGE> 49
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Assumption Agreement
Exhibit B Bill Of Sale and Assignment
Exhibit C Description of Real Property Transferred
Exhibit D Diagram of Rail Spurs
</TABLE>
43
<PAGE> 50
LIST OF SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.01(a) Excluded Contracts
Schedule 2.01(b) Excluded Assets
Schedule 2.02(a) Schedule of Assumed Liabilities
Schedule 2.03(c) Allocation of Purchase Price
Schedule 3.02 Conflicts
Schedule 3.03 Consents or Approvals (Seller)
Schedule 3.04(b) Certain Changes
Schedule 3.05 Right, Title and Interest in Transferred
Assets
Schedule 3.06
Part 1 Owned Realty
Part 2 Leased Realty: None
Schedule 3.07 Liens on Inventory
Schedule 3.08 Other Tangible Personal Property
Schedule 3.09 Trade Names, Trademarks, Service Marks
and Copyrights
Schedule 3.10 Trade Secrets
Schedule 3.11 Computer Software, Computer Programs and
Other Intangible Personal Property
Schedule 3.12 Material Contracts
Schedule 3.13 Litigation
Schedule 3.14 Compliance with Laws
Schedule 3.15 Labor Relations
Schedule 3.16 Employment and Compensation Arrangements;
Employees
Schedule 3.17 Employee Benefit Plans
Schedule 3.18 Taxes
Schedule 3.19 Insurance
Schedule 3.20 Licenses, Franchises, Permits and
Authorizations
Schedule 3.21 Breach of Other Agreements
Schedule 4.03 Consents or Approvals (Buyer)
Schedule 5.10 Consents to Transfer of Material Contracts
</TABLE>
44
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ACORN PRODUCTS, INC.
----------------------------
The undersigned, for the purpose of amending and restating the
Certificate of Incorporation of Acorn Products, Inc., a Delaware corporation
(the "Corporation"), does hereby certify that:
(1) The name of the Corporation is Acorn Products, Inc.
(2) The date of filing of its original Certificate of
Incorporation with the Secretary of State of Delaware under the Corporation's
prior name of New Vision, Incorporated, was November 3, 1993.
(3) Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, this Amended and Restated Certificate
of Incorporation was adopted by the Corporation's Board of Directors and
stockholders, the stockholders of the Corporation having approved the Amended
and Restated Certificate of Incorporation by the written consent of the holders
of a majority of the outstanding shares in accordance with Section 228 thereof,
and written notice having been given in accordance with the requirements of such
Section. The Amended and Restated Certificate of Incorporation restates and
integrates the provisions of the Certificate of Incorporation of the
Corporation.
(4) The Certificate of Incorporation of Acorn Products, Inc.
is hereby amended and restated in its entirety as follows:
FIRST: The name of the Corporation (hereinafter called the
"Corporation) is Acorn Products, Inc.
SECOND: The address, including street, number, city, and
county, of the registered office of the Corporation in the State of Delaware is
1013 Centre Road, City of Wilmington 19805, County of New Castle, and the name
of the registered agent of the Corporation in the State of Delaware at such
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
<PAGE> 2
FOURTH: The total number of shares which the corporation shall
have authority to issue is Twenty Million One Thousand (20,001,000) consisting
of:
(a) 20,000,000 shares of common stock, par value $0.001 per
share (the "Common Stock"); and
(b) 1,000 shares of preferred stock, par value $0.001 per
share (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby vested with authority to fix by
resolution or resolutions the designations and the powers, preferences and
relative participation, optional 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 series of the Preferred Stock, and to fix the number of
shares constituting any such series and to increase or decrease the number of
shares of any such series (but not below the number of shares thereof
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.
FIFTH: The name and the mailing address of the incorporator is
as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Sherry A. Craig Corporation Service Company
1013 Centre Road
Wilmington, D.E. 19805
</TABLE>
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: For the management of the business and the conduct of
the affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of
the affairs of the Corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole
Board of Directors shall be fixed by, or in the manner provided in, the
Bylaws. The phrase "whole Board" and the phrase "total number of the
directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no
vacancies.
2
<PAGE> 3
2. After the original or other Bylaws of the
Corporation have been adopted, amended, or repealed, as the case may
be, in accordance with the provisions of Section 109 of the Delaware
General Corporation Law, and, after the Corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
Bylaws of the Corporation may be exercised by the Board of Directors of
the Corporation.
EIGHTH: To the full extent permitted by the Delaware General
Corporation Law as the same may be amended or supplemented, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. If the Delaware
General Corporation Law is amended after the date of the filing of this
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended from time to
time. No repeal or modification of this Article EIGHTH by the stockholders shall
adversely affect any right or protection of a director of the Corporation
existing by virtue of this Article EIGHTH at the time of such repeal or
modification.
NINTH: The Corporation shall, to the fullest extent permitted
by the Delaware General Corporation Law, as the same may be amended or
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said law from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person. If the Delaware General
Corporation Law is amended after the date of filing of this Certificate of
Incorporation to authorize corporate action providing for additional
indemnification, then the Corporation shall provide for such indemnification to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended from time to time. No repeal or modification of this Article NINTH by
the stockholders shall adversely affect any right of any person otherwise
entitled to indemnification by virtue of this Article NINTH at the time of such
repeal or modification.
TENTH: From time to time, subject to the provisions of any
Certificate of Designation filed by the Board of Directors, any of the
provisions of this Certificate of Incorporation may be amended, altered, or
repealed, and other provisions authorized by the laws of the State of Delaware
at the time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders
3
<PAGE> 4
of the Corporation by this Certificate of Incorporation are granted subject to
the provisions of this Article TENTH.
IN WITNESS WHEREOF, the undersigned has executed, signed and
acknowledged this Amended and Restated Certificate of Incorporation on behalf of
Acorn Products, Inc. this 15th day of April, 1997.
/s/ Stephen M. Kasprisin
----------------------------------------
Name: Stephen M. Kasprisin
Title: Chief Financial Officer
4
<PAGE> 1
EXHIBIT 3.2
ACORN PRODUCTS, INC.
(A DELAWARE CORPORATION)
AMENDED AND RESTATED BYLAWS
(ADOPTED ON APRIL 3, 1997)
ARTICLE I
OFFICES
SECTION 1.01 Registered Office. The registered office of Acorn
Products, Inc. (hereinafter called the Corporation) in the State of Delaware
shall be at 1013 Centre Road, City of Wilmington 19805, County of New Castle and
the name of the registered agent in charge thereof shall be The Corporation
Service Company.
SECTION 1.02 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the Board) may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the stockholders
for the transaction of any proper business may be called at any time by the
Board, the Chairman of the Board, the President or a stockholder or stockholders
holding of record at least a majority of the shares of outstanding stock of the
Corporation.
SECTION 2.03 Place of Meetings. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the
<PAGE> 2
person or persons calling the respective meeting and specified in the respective
notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to such stockholder
personally, or by depositing such notice in the United States mail or in the
care of an express courier, in a postage prepaid envelope, directed to such
stockholder at his or her post office address or other delivery address
furnished by such stockholder to the Secretary of the Corporation for such
purpose or, if such stockholder shall not have furnished to the Secretary his or
her address for such purpose, then at his or her post office address last known
to the Secretary, or by transmitting a notice thereof to such stockholder at
such address by facsimile, telegraph, cable, or wireless. Except as otherwise
expressly required by law, no publication of any notice of a meeting of the
stockholders shall be required. Every notice of a meeting of the stockholders
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, shall also state the purpose or purposes for which the meeting
is called. Notice of any meeting of stockholders shall not be required to be
given to any stockholder who shall have waived such notice and such notice shall
be deemed waived by any stockholder who shall attend such meeting in person or
by proxy, except as a stockholder who shall attend such meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time and place thereof are announced at
the meeting at which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the election
of directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy
2
<PAGE> 3
and entitled to vote thereat or, in the absence therefrom of all the
stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting may adjourn such meeting from time to time. At any such adjourned
meeting at which a quorum is present any business may be transacted which might
have been transacted at the meeting as originally called.
SECTION 2.06 Voting.
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him or her and registered in his or her name on
the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws
as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (a)
at the close of business on the day next preceding the day on which
notice of the meeting shall be given or (b) if notice of the meeting
shall be waived, at the close of business on the day next preceding the
day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he or she shall have expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his or her proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons or other entities, whether fiduciaries, members of a partnership,
joint tenants in common, tenants by entirety or otherwise, or with respect to
which two or more persons or other entities have the same fiduciary
3
<PAGE> 4
relationship, shall be voted in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his or her proxy appointed by an instrument in writing,
subscribed by such stockholder or by his or her attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he or she shall in writing so notify the secretary of
the meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
Stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his or her proxy, if there be such proxy, and it shall
state the number of shares voted.
SECTION 2.07 List of Stockholders. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 2.08 Judges. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act
4
<PAGE> 5
with respect to such vote. Each judge so appointed shall first subscribe an oath
faithfully to execute the duties of a judge at such meeting with strict
impartiality and according to the best of his or her ability. Such judges shall
decide upon the qualification of the voters and shall report the number of
shares represented at the meeting and entitled to vote on such question, shall
conduct and accept the votes, and, when the voting is completed, shall ascertain
and report the number of shares voted respectively for and against the question.
Reports of judges shall be in writing and subscribed and delivered by them to
the Secretary of the Corporation. The judges need not be stockholders of the
Corporation, and any officer of the Corporation may be a judge on any question
other than a vote for or against a proposal in which he or she shall have a
material interest.
SECTION 2.09 Action Without Meeting. Any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares of stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors shall
be such number as from time to time shall be fixed by resolution of the Board.
Each of the directors of the Corporation shall hold office until his or her
successor shall have been duly elected and shall qualify or until he or she
shall resign or shall have been removed in the manner hereinafter provided.
5
<PAGE> 6
SECTION 3.03 Election of Directors. The directors shall initially
consist of the persons elected as such by the incorporator and thereafter shall
be elected annually by the stockholders of the Corporation entitled to vote
thereon and the persons receiving the greatest number of votes, up to the number
of directors to be elected, shall be the directors.
SECTION 3.04 Resignations. Any director of the Corporation may resign
at any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate
of Incorporation, any vacancy on the Board, whether because of death,
resignation, disqualification, an increase in the number of directors, or any
other cause, may be filled by vote of the majority of the remaining directors,
although less than a quorum. Each director so chosen to fill a vacancy shall
hold office until his or her successor shall have been elected and shall qualify
or until he or she shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting
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is to be held, then the meeting shall be held at the same hour and place on the
next succeeding business day not a legal holiday. Except as provided by law,
notice of regular meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board shall be
held whenever called by the Chairman of the Board, the President or a majority
of the number of directors then serving on the Board of Directors. Except as
otherwise provided by law notice of the time and place of each such special
meeting shall be mailed to each director, addressed to him or her at his or her
residence or usual place of business, at least five (5) days before the day on
which the meeting is to be held, or shall be sent to him or her at such place by
facsimile, wireless, telegraph or cable or be delivered personally not less than
forty-eight (48) hours before the time at which the meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of
the purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who is present at such
meeting, except a director who shall attend such meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided
in the Certificate of Incorporation, in these Bylaws or by law, the presence of
a majority of the authorized number of directors shall be required to constitute
a quorum for the transaction of business at any meeting of the Board, and all
matters shall be decided at any such meeting, a quorum being present, by the
affirmative votes of a majority of the directors present. In the absence of a
quorum, a majority of directors present at any meeting may adjourn the same from
time to time until a quorum shall be present. Notice of any adjourned meeting
need not be given. The directors shall act only as a Board, and the individual
directors shall have no power as such.
SECTION 3.11 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such
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committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of the
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the shares entitled to elect directors of the Corporation given at a
special meeting of the stockholders called for the purpose.
SECTION 3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him or her on account of his or her
attendance at any meetings of the Board or committees of the Board. Neither the
payment of such compensation nor the reimbursement of such expenses shall be
construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
SECTION 3.14 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or she or they constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member.
ARTICLE IV
OFFICERS
SECTION 4.01 Number. The Board shall elect a President, a Secretary and
a Treasurer and it may, if it so determines, choose
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a Chairman of the Board from among its members as well as such other officers of
the Corporation as it shall deem necessary who shall have such authority and
shall perform such duties as the Board may prescribe. The Board may also choose
one or more Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers.
SECTION 4.02 Election, Term of Office and Qualifications. The officers
of the Corporation, except such officers as may be appointed in accordance with
Section 4.03, shall be elected annually by the Board at the first meeting
thereof held after the election thereof. Each officer shall hold office until
his or her successor shall have been duly chosen and shall qualify or until his
or her resignation or removal in the manner hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the
officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board may from time to time determine. The Board may delegate to any
officer of the Corporation or any committee of the Board the power to appoint,
remove and prescribe the duties of any such assistants, agents or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (i) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of any other officer, assistant,
agent or employee, by any officer of the Corporation or committee of the Board
upon whom or which such power of removal may be conferred by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at any
time by giving written notice of his or her resignation to the Board or the
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, upon receipt thereof by the
Board or the Secretary, as the case may be; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
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SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The President. The President of the Corporation, may, by
resolution of the Board, be the chief executive officer of the Corporation and
shall have, subject to the control of the Board, general and active supervision
and management over the business of the Corporation and over its several
officers, assistants, agents and employees.
SECTION 4.08 The Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board may from time to time prescribe. At
the request of the President, or in case of the President's absence or inability
to act upon the request of the Board, a Vice President shall perform the duties
of the President and, when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 4.09 The Secretary. The Secretary shall, if present, record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he or she shall see that all notices are duly
given in accordance with these Bylaws and as required by law; he or she shall be
custodian of the seal of the Corporation and shall affix and attest the seal to
all documents to be executed on behalf of the Corporation under its seal; and,
in general, he or she shall perform all the duties incident to the office of
Secretary and such other duties as may from time to time be assigned to him or
her by the Board.
SECTION 4.10 The Treasurer. The Treasurer shall have the general care
and custody of the funds and securities of the Corporation, and shall deposit
all such funds in the name of the Corporation in such banks, trust companies or
other depositories as shall be selected by the Board. He or she shall receive,
and give receipts for, moneys due and payable to the Corporation from any source
whatsoever. He or she shall exercise general supervision over expenditures and
disbursements made by officers, agents and employees of the Corporation and the
preparation of such records and reports in connection therewith as may be
necessary or desirable. He or she shall, in general, perform all
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other duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him or her by the Board.
SECTION 4.11 Compensation. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. None of such officers
shall be prevented from receiving such compensation by reason of the fact that
he or she is also a director of the Corporation. Nothing contained herein shall
preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he or she is also a director of the Corporation. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving proper compensation
therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 Execution of Contracts. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of election for the account of the
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Corporation, the President, any Vice President or the Treasurer (or any other
officer or officers, assistant or assistants, agent or agents, or attorney or
attorneys of the Corporation who shall from time to time be determined by the
Board) may endorse, assign and deliver checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select
or as may be selected by any officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him or her. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation,
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the respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases provided
for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his or her attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer clerk or
a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name shares of stock stand on
the books of the Corporation shall be deemed the owner thereof for all purposes
as regards the Corporation. Whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact shall be so expressed in the
entry of transfer if, when the certificate or certificates shall be presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the
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stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any other change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board may fix, in advance, a record date, which
shall not be more than 60 nor less than 10 days before the date of any such
meeting, nor more than 60 days prior to any such other action. If in any case
involving the determination of stockholders for any purpose other than notice of
or voting at a meeting of stockholders or expressing consent to corporate action
without a meeting the Board shall not fix such a record date, the record date
for determining stockholders for such purpose shall be the close of business on
the day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 Action, Etc., Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a director, officer or employee of the
Corporation, or that, being such a director, officer or employee, he or she is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (all persons serving or having served in such capacities
hereinafter referred to as "indemnitees"), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct
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was unlawful; provided, however, that, except as provided in Section 7.06 hereof
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with any
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by two-thirds of the board of
directors of the corporation. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the indemnitee
did not act in good faith and in a manner which he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful.
SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was an indemnitee (as defined above) against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery 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.
SECTION 7.03 Expenses. To the extent that an indemnitee of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 7.01 or 7.02, or in defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
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SECTION 7.04 Determination of Right of Indemnification. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation unless a determination is reasonably and promptly made
(i) by the Board by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 7.05 Advances of Expenses. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding if the Corporation shall have received an
undertaking by or on behalf of the director or officer to repay any amounts so
advanced in the event that he or she is ultimately determined not to be entitled
to be indemnified by the Corporation as authorized in this Article. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
SECTION 7.06 Right of Indemnitee to Indemnification Upon Application.
Any indemnification pursuant to Sections 7.01 and 7.04 or 7.02 and 7.04, or any
advance made pursuant to Section 7.05 of this Article shall be made promptly,
and in any event within ninety (90) days, in the case of indemnification, and
thirty (30) days, in the case of an advancement, of the receipt by the Secretary
of the corporation of the written request of the indemnitee, unless with respect
to applications under Section 7.01, 7.02 or 7.05, a determination is promptly
made by the board of directors or by a majority vote of disinterested directors
that the indemnitee acted in a manner set forth in such
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Sections as to justify the Corporation's not indemnifying or making an advance
to the indemnitee. In the event no quorum of disinterested directors is
obtainable, the board of directors shall promptly direct that independent legal
counsel shall decide whether the indemnitee acted in the manner set forth in
such Sections as to justify the Corporation's not indemnifying or making an
advance to the indemnitee. The right to indemnification or advances as granted
by this Article shall be enforceable by the indemnitee in any court of competent
jurisdiction, if the board or independent legal counsel denies the claim, in
whole or in part, or if no disposition of such claim is made within ninety days.
The indemnitee's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such proceeding shall also be indemnified by the Corporation.
SECTION 7.07 Other Rights and Remedies. The rights provided by or
granted pursuant to this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
indemnitee's official capacity and as to action in another capacity while vested
with such official capacity. All rights provided pursuant to this Article shall
be deemed to be provided by a contract between the Corporation and the
indemnitee who serves in such official capacity at any time while these bylaws
are in effect and are intended to be retroactive and available with respect to
actions taken in an official capacity or actions taken while vested with such
official capacity prior to the adoption hereof. Any repeal or modification of
any provisions hereof shall not affect any rights or obligations existing at the
time of such repeal or modification.
SECTION 7.08 Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was an indemnitee against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Article. The Corporation
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such sums as may become necessary to effect indemnification as provided herein.
SECTION 7.09 Constituent Corporations. For the purposes of this
Article, references to "the Corporation" shall include in addition to the
resulting corporation any constituent corporation
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(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 7.10 Other Enterprises, Fines, and Serving at Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
SECTION 7.11 Beneficiaries of This Article. The rights provided by or
granted pursuant to the provisions of this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Fiscal Year. The fiscal year of the Corporation shall end
on the Friday nearest to the 31st day of July in each year unless changed by
resolution of the Board.
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SECTION 8.02 Seal. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
SECTION 8.03 Waiver of Notices. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation, the person entitled to said
notice may waive such notice in writing, either before or after the time stated
therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.04 Amendments. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board, or (ii) by the stockholders holding shares of a class of
stock entitled to vote for the election of directors, at any annual meeting of
stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any Bylaws made or
altered by the stockholders may be altered or repealed by either the Board or
the stockholders.
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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")
upon the effective date of the registration statement filed in connection with
the Company's initial public offering of the Company's Stock pursuant to the
Securities Act of 1933, as amended. 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" means the Board of Directors of the Company or any
committee thereof authorized by the Board to take action with respect to the
Plan.
<PAGE> 2
(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 12 month period, a change in the Board of
Directors occurs such that Incumbent Members (as defined below) do not
constitute a majority of the Board of Directors; (iii) a sale by the Company of
all or substantially all of the assets of the Company; 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" means as of any applicable date 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 United
States securities exchange on which the Company's common stock is listed or, in
the absence of any 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 Board.
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(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; Trust Company of the
West; 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.
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<PAGE> 4
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, [INSERT NUMBER EQUAL TO 1%
OF THE OUTSTANDING STOCK IMMEDIATELY AFTER IPO ON A FULLY DILUTED BASIS] 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
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<PAGE> 5
calendar year with respect to which the election is made, except as provided in
Section 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
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<PAGE> 6
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 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 IN CONTROL. Notwithstanding any provision of this Plan to
the contrary, in the event of a Change in Control, each Director shall receive,
within ten (10) days of the date of such Change in 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 in 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
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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 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
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"unfunded" for tax purposes (and for the purposes of Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA")).
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<PAGE> 9
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
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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.
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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 April , 1997. The Plan shall be effective upon the
effective date of the registration statement filed in connection with the
Company's proposed initial public offering. 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 [INSERT NUMBER EQUAL TO 10% OF
OUTSTANDING STOCK AFTER IPO ON A FULLY DILUTED BASIS] 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 . 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
Compensation Committee (the "Committee") consisting of not less than two members
appointed by the Board of Directors (the "Board") of the Company. Each member of
the Committee shall be a member of the Board who qualifies both as an "outside
director" within the meaning of Section 162(m) of the Code, and as a
"non-employee director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). 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
<PAGE> 2
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 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 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,
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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
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 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
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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 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 in 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 in 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;
4
<PAGE> 5
(ii) during any 12 month period, a change in the Board occurs such that
Incumbent Members (as defined below) do not constitute a majority of the Board;
(iii) a sale by the Company of all or substantially all of the assets of the
Company; 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.
"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; Trust Company of the West; 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
April , 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
5
<PAGE> 6
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.
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 the Company (as defined below) to encourage
the Optionee's contribution to the success and progress of the Company.
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].
<PAGE> 2
"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.
"Effective Date" is defined in the preamble.
"Exercise Price" is defined in Section 2.
"Fiscal Year" means the fiscal year of the Company.
"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 shares of Common Stock, on the terms and
conditions hereinafter set forth, all or any part of the number of shares of
Common Stock set forth below the Optionee's signature below (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)
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.
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
<PAGE> 3
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 (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 or its Subsidiaries, (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
<PAGE> 4
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.
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
<PAGE> 5
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.
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, P.O Box 1930
Columbus, Ohio 43216-1930
Attention: Secretary
<PAGE> 6
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 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
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 10.6
UNIONTOOLS, INC.
(SUCCESSOR BY MERGER OF THE UNION FORK AND HOE COMPANY)
RETIREMENT PLAN FOR SALARIED EMPLOYEES
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996
(EXCEPT AS OTHERWISE PROVIDED HEREIN)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I DEFINITIONS......................................................................... 1
II SERVICE............................................................................. 6
2.1 Hour of Service......................................................... 6
2.2 Years of Contributing Membership........................................ 10
2.3 Years of Membership..................................................... 10
2.4 Years of Vesting Service................................................ 11
2.5 Break in Service........................................................ 11
2.6 Records................................................................. 11
III MEMBERSHIP.......................................................................... 12
3.1 Time of Membership...................................................... 12
3.2 Transfer to Non-Covered Position........................................ 12
3.3 Transfer to Employee Position........................................... 12
IV ELIGIBILITY FOR PLAN BENEFITS....................................................... 12
4.1 Normal Retirement Benefit............................................... 12
4.2 Postponed Retirement Benefit............................................ 12
4.3 Early Retirement Benefit................................................ 13
4.4 Death Benefits before Retirement........................................ 13
4.5 Vested Deferred Benefit................................................. 13
4.6 Termination of Employment before Eligibility
for a Vested Deferred Benefit........................................... 14
V BENEFITS............................................................................ 15
5.1 Benefit Accrual......................................................... 15
5.2 Benefit Accrual Before January 1, 1993, and 1996 ....................... 16
5.3 Amount of Normal Retirement Benefit..................................... 17
5.4 Amount of Postponed Retirement Benefit.................................. 17
5.5 Amount of Early Retirement Benefit...................................... 18
5.6 Amount of Vested Deferred Benefit....................................... 18
5.7 Maximum Amount of Benefit............................................... 18
5.8 Limitations on Member Contributions..................................... 21
5.9 Small Benefit Payments.................................................. 23
5.10 Benefits upon Reemployment of a Member.................................. 23
5.11 Benefit Payments to be No Less than Member's
Accumulated Contributions............................................... 24
5.12 Amount of Qualified Preretirement Death Benefit ........................ 24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
VI METHOD AND MODE OF BENEFIT PAYMENTS................................................. 25
6.1 Qualified Joint and Survivor Annuity.................................... 25
6.2 Elections............................................................... 26
6.3 Cash Out of Certain Small Benefits...................................... 27
6.4 Elective Rollovers...................................................... 27
6.5 Determination of Marital Status......................................... 27
6.6 Methods and Modes of Distribution....................................... 27
6.7 Non-Married Member...................................................... 28
6.8 Distribution............................................................ 29
6.9 Limitation on Benefit Payments.......................................... 29
6.10 Prohibition Against More than Incidental Death Benefits ................ 30
VII CONTRIBUTIONS AND FUNDING........................................................... 30
7.1 Purposes of Funding..................................................... 30
7.2 Contributing Member's Contributions..................................... 30
7.3 Company Contributions................................................... 30
7.4 Funding Agency.......................................................... 31
7.5 Forfeitures............................................................. 31
7.6 Funding Standard Account................................................ 31
7.7 Funding Policy.......................................................... 31
7.8 Tax Deductibility of Contributions...................................... 31
7.9 Additional Payments..................................................... 31
VIII ADMINISTRATION...................................................................... 31
8.1 Plan Administrator...................................................... 31
8.2 Powers of Plan Administrator............................................ 31
8.3 Conclusiveness of Various Documents..................................... 32
8.4 Actions to be Uniform................................................... 32
IX AMENDMENT AND TERMINATION OF THE PLAN............................................... 32
9.1 Amendment of the Plan................................................... 32
9.2 Termination of the Plan................................................. 33
9.3 Allocation of Assets upon Plan Termination ............................. 33
9.4 Merger or Consolidation................................................. 34
X CONDITIONAL BENEFIT RESTRICTIONS.................................................... 34
10.1 Restrictions on Benefits Payable to Certain Members .................... 34
</TABLE>
<PAGE> 4
<TABLE>
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<S> <C> <C>
XI MISCELLANEOUS PROVISIONS............................................................ 35
11.1 Evidence of Survival.................................................... 35
11.2 Non-Alienation of Benefits.............................................. 35
11.3 Payments to Incompetents................................................ 36
11.4 Misstated Information................................................... 36
11.5 Claims Procedure........................................................ 36
11.6 Ohio Law Applicable..................................................... 37
11.7 Plan Not an Employment Contract......................................... 37
11.8 Exclusive Benefit of Members and Beneficiaries ......................... 37
11.9 Headings................................................................ 37
11.10 Qualified Domestic Relations Orders..................................... 37
XII TOP HEAVY PROVISIONS................................................................ 39
12.1 Definitions............................................................. 39
12.2 Top Heavy Determination................................................. 40
12.3 General Rule............................................................ 42
12.4 Vesting Requirements.................................................... 42
12.5 Minimum Benefits........................................................ 42
12.6 Maximum Benefits........................................................ 43
12.7 Transition Rules When Plan Ceases to be Top Heavy ...................... 43
XIII MULTIEMPLOYER PROVISIONS............................................................ 43
13.1 Original Company ....................................................... 43
13.2 Adoption by Other Companies ............................................ 44
13.3 "Company" Further Defined .............................................. 44
13.4 Participation .......................................................... 44
13.5 Combined Service ....................................................... 44
13.6 Administration ......................................................... 45
13.7 Common Fund ............................................................ 45
13.8 Amendment of Plan ...................................................... 45
13.9 Withdrawal Termination ................................................. 45
</TABLE>
<PAGE> 5
UNIONTOOLS, INC.
RETIREMENT PLAN FOR SALARIED EMPLOYEES
UnionTools, Inc., successor by merger of The Union Fork and
Hoe Company (hereinafter referred to as the Company), hereby adopts the
following amended and restated defined benefit pension plan for the exclusive
benefit of the Company's eligible Employees and, where applicable, the
Designated Beneficiaries of such Employees. It is intended that this Plan,
together with the Trust, shall comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, and the Employee Retirement Income
Security Act of 1974, as amended. The Plan as amended and restated reflects the
elimination of Employee contributions effective as of January 1, 1996. The
benefits provided in this Plan, as amended and restated effective January 1,
1996, shall apply only to an Employee who terminates employment with the Company
on or after January 1, 1996 and no Employee or any person claiming through an
Employee who terminated employment with the Company prior to January 1, 1996
shall have his benefits increased or otherwise altered as a result of this Plan.
ARTICLE I
DEFINITIONS
The following words and phrases when used with the initial
capital letter throughout this Plan and any subsequent amendment thereof shall
have the meanings set forth below unless a different meaning is plainly required
by the context. Words in the masculine gender shall connote the feminine gender
as well as, and when appropriate, singular nouns may include the plural.
"ACTUARIAL EQUIVALENT" or "ACTUARIALLY EQUIVALENT" means, in
the case of monthly payments to a retiree or beneficiary, the equivalent value
of the normal form of benefit, adjusted for the contingency and guarantee of the
optional form elected, using the UP84 Mortality Table (20% Female) and an
interest rate of 8%. In the case of a lump sum benefit payment to a terminated
or retired Member, actuarial equivalency shall not be less than the benefit
determined using: (a) the interest rate on 30-year Treasury securities as of the
November 1 preceding the Plan Year that includes the date of distribution; and
(b) the prevailing NAIC standard mortality table.
"AFFILIATE" means any other employer which, together with the
Company, is a member of a controlled group of corporations or of a commonly
controlled trade or business [as defined in Code Sections 414(b) and (c) and as
modified by Code Section 415(h)] or of an affiliated service group [as defined
in Code Section 414(m)] or other organization described in Code Section 414(o).
For purposes of applying any of the provisions of this Plan which impose
requirements described in Section 415 of the Code, the phrase "more than 50%"
shall be
<PAGE> 6
substituted for the phrase "more than 80%" each place it appears in Section
1563(a)(1) of the Code.
"ANNUITY STARTING DATE" means the first day of the first
period for which an amount is paid as an annuity or any other form.
"APPROPRIATE REDUCTION PERCENTAGE" means, with respect to a
Member who: (i) terminates employment on or before December 31, 1992, 5/9ths of
1% for each of the first 60 months and 5/18ths of 1% for each month more than 60
months that his Benefit Commencement Date precedes his Normal Retirement Date;
or (ii) terminates employment on or after January 1, 1993, 4/10ths of 1% for
each month that his Benefit Commencement Date precedes his Normal Retirement
Date.
"BENEFIT COMMENCEMENT DATE" means the date on which a Member's
benefit payments commence under the Plan.
"CODE" means the Internal Revenue Code of 1986, as may be
amended from time to time, and corresponding provisions of future federal
internal revenue codes.
"COMPANY" means UnionTools, Inc., successor by merger of The
Union Fork and Hoe Company (or any corporate successor) and any other Affiliate
which adopts the Plan as provided in Article XIII.
"CONTRACT" means (i) the Group Annuity Contract or Contracts
issued by The Equitable Life Assurance Society of the United States for the
Plan; or (ii) any other group annuity contract or contracts that are issued for
the Plan.
"CONTRIBUTING MEMBER" means an eligible Employee who elected
to make Employee contributions under the Plan for periods prior to January 1,
1996, under the terms of the Plan as in effect prior to January 1, 1996.
"CONTRIBUTORY PENSION CREDITS ACCRUED" means, with respect to
any Contributing Member who terminates employment with the Company prior to his
Normal Retirement Date, the aggregate amount determined under Section 5.2(a)
based upon such Contributing Member's Years of Contributing Membership to his
date of termination.
"DESIGNATED BENEFICIARY" means such person (who may be the
Member's spouse) or persons, natural or legal, as may be designated by the
Member as his beneficiary under the Plan to receive any benefits payable upon
the death of the Member under a Non-Qualified Joint and Survivor Annuity or a
Term Certain Annuity pursuant to Section 6.6 of Article VI, by written
instrument signed by the Member and filed with the Plan Administrator before the
Member's death; provided, however, that the Designated Beneficiary of a Member
who is married within the meaning of Section 6.5 of Article VI shall be such
Member's Eligible Spouse unless such Member's Eligible Spouse consents in
writing pursuant to Section 6.2 of
2
<PAGE> 7
Article VI to the designation of another person and such consent is notarized
and provides that such designation may not be changed without such spouse's
consent or that such right has been waived by such spouse. Subject to the
foregoing, such designation may be revoked or changed (without the consent of
any previously appointed Designated Beneficiary) only by written instrument
signed by the Member and filed with the Plan Administrator before the earlier of
the Member's death or his Benefit Commencement Date. In default of such
designation and at any other time when there is no existing Designated
Beneficiary designated by the Member, his Designated Beneficiary shall be his
Eligible Spouse (or the estate of such Eligible Spouse if such Eligible Spouse
does not survive for a sufficient time to receive all benefits payable to such
Eligible Spouse on account of the death of the Member) or, if there is no
Eligible Spouse, the issue of the Member, then living, per stirpes, or, if there
are no living issue, the Member's estate.
"EARLY RETIREMENT DATE" means the first day of the month
(before a Member's Normal Retirement Date) coinciding with or next following the
date such Member retires provided he has both (a) attained age 55; and (b)
completed five Years of Vesting Service as of the date of retirement.
"EARNINGS" shall mean basic compensation [whether for current
services or for back pay described in Section 2.1(b) of Article II] paid to an
Employee by the Company, including overtime pay, but excluding incentive pay,
bonuses and similar forms of compensation and excluding benefit payments
pursuant to the terms of this Plan or any other plan providing retirement
benefits. Notwithstanding any provision contained herein, (a) effective for Plan
Years beginning after December 31, 1988 and prior to January 1, 1994, Earnings
shall not include any amount paid to an Employee during any such Plan Year in
excess of $200,000.00 (as increased by regulations issued by the Secretary of
the Treasury); and (b) effective for Plan Years beginning on or after January 1,
1994, Earnings shall not include any amount paid to an Employee during any such
Plan Year in excess of $150,000.00 [as increased in accordance with applicable
provisions of Code Section 401(a)(17)]. For Plan Years prior to January 1, 1997,
in determining the Earnings of a Member for purposes of the $200,000 or $150,000
limit, the family aggregation rules of Code Section 414(q)(6) will apply, except
in applying such rules, the term "family" will include only the spouse of the
Member and any lineal descendants of the Member who have not attained age 19
before the close of the year. If, as a result of the application of such rules,
Earnings would exceed the adjusted $200,000 or $150,000 limitation, then (except
for purposes of determining the portion of Earnings up to the integration level)
the limitation will be prorated among the affected persons in proportion to each
such person's Earnings as determined under this paragraph prior to the
application of this limitation.
"ELIGIBLE SPOUSE" means the person to whom a Member has been
legally married throughout the 12-month period ending on the earlier of the
Member's Annuity Starting Date or the Member's date of death.
"EMPLOYEE" means each person who is in the employ of the
Company who is (a) compensated on a salary basis; or (b) is a buyer or a
salesman; or (c) is designated by the Company as an administrative or
supervisory employee.
3
<PAGE> 8
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and regulations and rulings issued thereunder.
"FINAL AVERAGE MONTHLY EARNINGS" shall mean the highest
average monthly Earnings of a Member which can be derived from any period of 60
consecutive calendar months of Membership during the 120 consecutive calendar
months immediately prior to such Member's date of retirement, date of other
termination of employment or other date on which a computation is made of the
Member's accrued benefit. In the event the Member shall not have completed 60
consecutive months of Membership with the Company before any given date, then
his Final Average Monthly Earnings shall be determined using the average of his
monthly Earnings during his latest period of consecutive calendar months of
Membership. For purposes of this definition, two periods of Membership separated
exclusively by a period of Company approved leave of absence shall be regarded
as consecutive.
"HIGHLY-COMPENSATED EMPLOYEE" means any Employee of the
Company or an Affiliate who meets any of the following requirements in either
the prior or current Plan Year:
(a) is a more than 5% owner of the Company or an Affiliate;
(b) has $75,000.00 or more in Earnings;
(c) has $50,000.00 or more in Earnings and is a member of the
top 20% of Employees of the Company, excluding employees described in Section
414(q)(8) of the Code, when ranked on the basis of Earnings paid during the
year;
(d) is an officer of the Company or an Affiliate [as described
in Code Section 416(i)] who has Earnings of more than 50% of the amount in
effect under Code Section 415(b)(1)(A) for such year; or
(e) is a former Employee who was a Highly-Compensated Employee
upon separation from service or was a Highly-Compensated Employee at any time
after he attained age 55.
In addition, the Earnings paid to any family member [as
described in Code Section 414(q)(6)(B)] of a more than 5% owner or of one of the
top 10 Employees by Earnings shall be aggregated with the Earnings of such
Employee for the purposes of this definition. Notwithstanding the foregoing, an
Employee will not be a Highly-Compensated Employee for the current year merely
by compensation or officer status unless he is in the top 100 Employees by
Earnings. The amounts indicated in (b) and (c) above shall be adjusted for
cost-of-living by the Secretary of the Treasury at the same time and in the same
manner as under Code Section 415(d).
4
<PAGE> 9
"LATE RETIREMENT DATE" means the first day of the month
coincident with or following a Member's actual retirement after his Normal
Retirement Date.
"MEMBER" means an eligible Employee who satisfies the
requirements for membership pursuant to Article III.
"MEMBER'S ACCUMULATED CONTRIBUTIONS" shall mean, at any given
time, the contributions made to the Plan by a Member plus interest credited
thereon at the rate of: (a) 2% per annum compounded annually until December 1,
1976; (b) 5% per annum compounded annually from December 1, 1976 to December 31,
1987; (c) 120% of the Federal mid-term rate (as in effect under Section 1274 for
the first month of the Plan Year) compounded annually from January 1, 1988 to
the date the determination is made; and (d) the rate which would be used under
the Plan under Code Section 417(e)(3) as of the determination date, for the
period starting on the determination date and ending on the Member's Normal
Retirement Date, less any withdrawals made by, or other payments made to, such
Member pursuant to the terms of the Plan. The crediting of interest hereunder
shall cease upon the earlier of (i) the date of payment of any or all of such
contributions to the Member, his Eligible Spouse, Designated Beneficiary or
estate; (ii) the Member's Benefit Commencement Date; or (iii) the Member's
Normal Retirement Date.
"NON-CONTRIBUTING MEMBER" means an eligible Employee who
satisfied the requirements for membership pursuant to Article III prior to
January 1, 1996, but who did not timely elect to become a Contributing Member or
who was not a Contributing Member on the date of determination prior to January
1, 1996.
"NON-HIGHLY-COMPENSATED EMPLOYEE" means any Employee who is
not a Highly-Compensated Employee.
"NORMAL RETIREMENT DATE" means the first day of the month
coinciding with or next following a Member's 65th birthday; provided, however,
the right of a Member to his Normal Retirement Benefit shall be nonforfeitable
upon attaining his 65th birthday if he is then in the employ of the Company.
"PENSION CREDITS ATTRIBUTABLE TO COMPANY CONTRIBUTIONS" means
for a Contributing Member, at any date, the difference between the Contributory
Pension Credits Accrued on such date and the Pension Credits Attributable to
Employee Contributions on such date.
"PENSION CREDITS ATTRIBUTABLE TO EMPLOYEE CONTRIBUTIONS"
means, at any date prior to Normal Retirement Date, computed in the form of a
monthly benefit payable for the life of the Member commencing at Normal
Retirement Date, the amount obtained by dividing the number 12 into an amount
determined by multiplying 10% by the Member's Accumulated Contributions at the
date of the determination with assumed interest on such amount being compounded:
5
<PAGE> 10
(a) for the period ending December 31, 1987, at the rate of
5%;
(b) for the period starting January 1, 1988 and ending on the
date on which the determination is made, at the rate of 120% of the Federal
mid-term rate (as in effect under Section 1274 for the first month of the Plan
Year); and
(c) for the period starting on the determination date and
ending on the Member's Normal Retirement Date, at the rate which would be used
under the Plan under Code Section 417(e)(3) as of the determination date.
"PLAN" means the provisions of the UnionTools, Inc. Retirement
Plan for Salaried Employees as set forth herein and as may be amended from time
to time, which is a continuation of the plan formerly known as The Contributory
Retirement Plan of The Union Fork and Hoe Company (the "Predecessor Contributory
Plan") and which is the surviving plan of a merger effective January 1, 1984 of
the Predecessor Contributory Plan, Basic Pension Plan No. 1 Established By The
Union Fork and Hoe Company ("Plan No. 1") and of Basic Pension Plan No.
4 Established By The Union Fork and Hoe Company ("Plan No. 4").
"PLAN ADMINISTRATOR" means UnionTools, Inc. in its exercise of
discretionary authority and control with respect to the administration and
management of the Plan.
"PLAN YEAR" means each calendar year.
"PRE-1993 FINAL AVERAGE MONTHLY EARNINGS" means the highest
average monthly Earnings of a Contributing Member which can be derived from any
period of 60 consecutive calendar months of Contributing Membership during 120
consecutive calendar months immediately prior to January 1, 1993. In the event
the Contributing Member shall not have completed 60 consecutive months of
Contributing Membership as of January 1, 1993, then his Pre-1993 Final Average
Monthly Earnings shall be determined using the average of his monthly Earnings
during his last period of consecutive calendar months of Contributing Membership
ending on that date. For purposes of this definition, two periods of
Contributing Membership separated exclusively by a period of Company approved
leave of absence shall be regarded as consecutive.
"RETIREMENT DATE" means the Member's Normal Retirement Date
or, if applicable, Late Retirement Date or Early Retirement Date.
"TRUST" means the trust established to hold the assets of the
Plan.
ARTICLE II
SERVICE
6
<PAGE> 11
2.1 HOUR OF SERVICE. Hours of Service shall be determined from
records maintained by the Company and shall be credited to Employees as follows:
(a) Performance of Duties. Each hour for which an Employee is
directly or indirectly paid, or entitled to payment by the Company or an
Affiliate for the performance of duties. Each such Hour of Service shall be
credited to the Employee to the Plan Year in which the duties were performed.
(b) Back Pay. Each hour not credited in (a) for which back pay
(irrespective of mitigation of damages) has been either awarded or agreed to by
the Company or an Affiliate. Each such Hour shall be credited to the Employee to
the Plan Year to which the award or agreement for back pay pertains rather than
to the Plan Year in which the award, agreement or payment is made.
(c) Non-Working Time Pay. Each hour for which an Employee is
directly or indirectly paid, or entitled to payment, by the Company or an
Affiliate, irrespective of whether the employment relationship has terminated,
on account of a period of time during which no duties are performed due to
vacation, holiday, sickness, incapacity, disability, layoff, jury duty, military
duty or compensated leave of absence and similar paid periods. Each such Hour of
Service shall be credited to the Employee to the Plan Year in which the period
during which no duties are performed occurs, on the following basis:
(i) Units of Time. If the payments are calculated
on the basis of units of time, such as hours, days, weeks or
months, the number of Hours of Service to be credited shall be
the number of regularly scheduled working hours included in
the units of time on the basis of which the payments are
calculated. In the case of an Employee without an actual
regular work schedule, such Employee shall be deemed to have a
regular work schedule of 40 hours per week and 8 hours per
workday. Each such Hour of Service shall be credited to the
Plan Year in which the period during which no duties are
performed occurs, beginning with the first unit of time to
which the payment relates.
(ii) No Units of Time. If the payments referred to
above are not calculated on the basis of units of time (such
as a lump sum disability payment for an injury), the number of
Hours of Service to be credited shall be equal to the amount
of the payment divided by the Employee's most recent hourly
rate of compensation before the period during which no duties
are performed. If an Employee's compensation is determined on
the basis of a fixed rate for specified periods of time (other
than hours) such as days, weeks or months, the Employee's
hourly rate of compensation shall be his most recent rate of
compensation for a specified period of time (other than an
hour) divided by the number of hours regularly scheduled for
the performance of duties during such period. If the Employee
has no regular work schedule, the rate of compensation shall
be
7
<PAGE> 12
calculated on the basis of a 40-hour workweek or an 8-hour
workday. If the Employee has no fixed rate of payment for
specified periods of time, the rate of compensation shall be
the lowest hourly rate of compensation paid to employees in
the same job classification as that of the Employee. Each such
Hour of Service shall be credited to the Plan Year in which
the period during which no duties are performed occurs, except
that if the period of nonperformance of duties extends beyond
one Plan Year, such Hours of Service shall be allocated by the
Plan Administrator, in its discretion, between not more than
the first two such Plan Years on any reasonable basis which is
consistently applied with respect to all employees within the
same job classification, reasonably defined.
(iii) Exclusions. Notwithstanding the foregoing,
(A) an Employee shall not be credited
on account of a period during which no duties are
performed with a number of Hours of Service which
is greater than the number of hours regularly
scheduled for the performance of duties during
such period;
(B) in no event shall the number of
credited Hours of Service attributable to a single
continuous period (whether or not such period
involves more than one Plan Year) for which no
duties are performed exceed 501 Hours of Service;
(C) an Hour of Service shall not be
credited for a payment which reimburses an
Employee solely for medical or medically related
expenses incurred by the Employee;
(D) an Hour of Service shall not
include any hour for which an Employee is directly
or indirectly paid, or entitled to payment, on
account of a period during which no duties are
performed if such payment is made or due under a
plan maintained solely for the purposes of
complying with applicable workers' compensation,
unemployment compensation or disability insurance
laws.
(d) No Duplication. An Employee shall not be credited with an
Hour of Service under more than one of paragraphs (a), (b) and (c) above with
respect to the same item.
(e) Overlapping Payroll Period. In the case of Hours of
Service attributable to a payroll period of no more than 31 days which overlaps
two Plan Years, all such Hours of Service shall be credited to either the first
Plan Year or to the second Plan Year as the Plan Administrator in its discretion
may determine on a consistent basis with respect to all employees within the
same job classification, reasonably defined.
8
<PAGE> 13
(f) Period of Absence. Each hour for which an Employee is not
directly or indirectly paid or entitled to payment by the Company or an
Affiliate during a period of absence if such absence is
(i) a layoff not in excess of 90 days;
(ii) pursuant to a leave of absence granted in
writing in advance by the Company or an Affiliate; or
(iii) pursuant to the rules of the Company or an
Affiliate or required to be treated by law or contract as
periods during which employment continues.
The period of time described in any of the preceding clauses shall be referred
to herein as a "period of authorized absence."
The number of hours to be credited to an Employee under this
paragraph (f) for a period of authorized absence will be equal to the number of
hours which would have been credited under paragraph (a) of this Section 2.1 if
he had performed duties at his customary rate of hours throughout such period of
absence; provided, however, that hours will not be credited under this paragraph
(f) unless the person returns to active employment as an Employee within 30 days
after the end of such period of authorized absence or, in the case of service in
the United States Armed Forces, within the period during which he is legally
entitled to reemployment. In no event shall the number of credited Hours of
Service attributable to a single continuous period of authorized absence
(whether or not such period involves more than one Plan Year) exceed 501 Hours
of Service for general purposes under the Plan unless additional hours are
required to be credited pursuant to law or contract or pursuant to rules of the
Company or an Affiliate; provided, however, that Hours of Service shall continue
to be credited under this paragraph (f) during such period of authorized absence
beyond such limitation but solely for purposes of determining whether a One-Year
Break in Service is incurred. Each such Hour of Service shall be credited to the
Plan Year in which the period during which no duties are performed occurs for
the reasons set forth in this paragraph (f), except that if the period of
nonperformance of duties extends beyond one Plan Year, such Hours of Service
shall be allocated by the Plan Administrator, in its discretion, between not
more than the first two such Plan Years on any reasonable basis which is
consistently applied with respect to all employees within the same job
classification, reasonably defined.
(g) Maternity and Paternity Absences. If an Employee is absent
from work for any period (i) by reason of the pregnancy of such Employee; (ii)
by reason of the birth of a child of such Employee; (iii) by reason of the
placement of a child with such Employee in connection with the adoption of such
child by such Employee; or (iv) for purposes of caring for such child for a
period beginning immediately following such birth or placement, the Plan shall
treat as Hours of Service, solely for purposes of determining whether a Break in
Service has occurred, the following hours: (A) the Hours of Service which
otherwise would normally have
9
<PAGE> 14
been credited to such Employee but for such absence; or (B) in any case in which
the Plan is unable to determine the hours described in clause (A), 8 Hours of
Service per day of such absence; provided, however, that for purposes of both
clauses (A) and (B), the total number of hours that shall be treated as Hours of
Service by reason of any such pregnancy or placement shall not exceed 501 hours.
For purposes of the foregoing, the hours described in the preceding sentence
shall be treated as Hours of Service (1) only in the Plan Year in which the
absence from work begins, if such Employee would be prevented from incurring a
Break in Service in such Plan Year solely because the period of absence is
treated as Hours of Service in accordance with the foregoing; or (2) in any
other case, in the immediately following Plan Year. Notwithstanding the
foregoing, however, no credit for Hours of Service shall be given pursuant to
the foregoing unless the Employee furnishes to the Plan Administrator such
information as the Plan Administrator may reasonably request to establish (I)
that the absence from work is for any of the reasons referred to above; and (II)
the number of days for which there was such an absence.
2.2 YEARS OF CONTRIBUTING MEMBERSHIP. The Years of
Contributing Membership of a Contributing Member shall be the sum of full years
and months of Contributing Membership [excluding all Years of Contributing
Membership forfeited due to a Break in Service in accordance with Section 2.5 or
due to a payment of any portion of the Member's Accumulated Contributions in
accordance with Section 4.6(a) of Article IV] computed as follows:
(a) For Service prior to December 1, 1976. As determined in
accordance with the provisions of the Predecessor Contributory Plan as in effect
prior to December 1, 1976, a Contributing Member shall be credited with a Year
of Contributing Membership for each year of "continuous service" (as defined in
the Plan as it was in effect prior to December 1, 1976) as a Member which he had
accumulated under the Predecessor Contributory Plan prior to December 1, 1976.
(b) For Service prior to January 1, 1984 but after November
30, 1976. As determined in accordance with the provisions of the Predecessor
Contributory Plan as in effect prior to January 1, 1984, a Contributing Member
shall be credited with a Year of Contributing Membership for each Year of
Membership (as defined in the Predecessor Contributory Plan as it was in effect
prior to January 1, 1984) as a Member which he had accumulated under the
Predecessor Contributory Plan for the period commencing December 1, 1976 and
ending December 31, 1983, including credit of 1/12th of a year for membership
during the month of December, 1983.
(c) For Service on and after January 1, 1984 and before
January 1, 1996. A Member shall be credited with one full Year of Contributing
Membership for each Plan Year commencing on or after January 1, 1984 but before
January 1, 1996, in which he completed 1,000 or more Hours of Service and made
any contributions to the Plan in accordance with the provisions of the Plan as
in effect prior to January 1, 1996.
10
<PAGE> 15
(d) Years of Contributing Membership shall be computed on the
basis of full years and months during which a Member made contributions to the
Plan.
2.3 YEARS OF MEMBERSHIP. A Member shall be credited with one
full Year of Membership for: (a) each Plan Year after December 31, 1995, in
which he completes 1,000 or more Hours of Service; and (b) each Year of
Contributing Membership in 1993, 1994 and/or 1995. "Years of Membership" shall
exclude: (i) service before the individual became a Member; (ii) service which
is not required to be taken into account under the Break in Service rules; (iii)
any Plan Year in which the Member has less than 1,000 Hours of Service; and (iv)
any service during which the Member is not an eligible Employee.
2.4 YEARS OF VESTING SERVICE. The Years of Vesting Service of
a Member shall be the sum of each year determined as follows:
(a) For Service prior to January 1, 1976. As determined in
accordance with the provisions of the Predecessor Contributory Plan (or Plan No.
1 or Plan No. 4, whichever may be applicable, in the case of a Non-Contributing
Member) as in effect prior to January 1, 1976, an Employee shall be credited
with a Year of Vesting Service for each year of credited service or fraction
thereof which he had accumulated under the applicable plan as of December 31,
1975.
(b) For Service on and after January 1, 1976. An Employee
shall also be credited with one Year of Vesting Service for each calendar year
commencing on or after January 1, 1976 in which he completes at least 1,000
Hours of Service with the Company or an Affiliate.
(c) Years of Vesting Service shall be the sum of all Years of
Vesting Service of an Employee excluding all of his Years of Vesting Service
forfeited due to a Break in Service in accordance with Section 2.5.
2.5 BREAK IN SERVICE.
(a) A Member who completes less than 501 Hours of Service
during a Plan Year shall incur a One-Year Break in Service.
(b) If an Employee incurs a One-Year Break in Service before
he is eligible for a Vested Deferred Benefit pursuant to Section 4.5 of Article
IV and if the number of consecutive One-Year Breaks in Service equals or
exceeds the greater of (i) five; or (ii) his Years of Vesting Service prior to
such Break in Service, he shall forfeit for all purposes his Years of Vesting
Service credited prior to such Break in Service and his years of benefit accrual
service accrued prior to such Break in Service.
11
<PAGE> 16
2.6 RECORDS. Records of the plant in which an Employee claims
Hours of Service shall be presumed to be conclusive of the facts concerning his
employment or nonemployment unless shown beyond a reasonable doubt to be
incorrect.
12
<PAGE> 17
ARTICLE III
MEMBERSHIP
3.1 TIME OF MEMBERSHIP. Every Employee shall become a Member
of the Plan on the January 1st coinciding with or next following the three-month
anniversary of his date of employment with the Company, provided that on such
January 1st he is an Employee. A person in the employ of the Company who is
rehired or who transfers to a position such that he first becomes an Employee
hereunder upon such transfer shall immediately become a Member of the Plan upon
such date of rehire or transfer, provided such person has completed three months
of employment with the Company at the date of rehire or transfer.
3.2 TRANSFER TO NON-COVERED POSITION. A Member who remains in
the employ of the Company but does not remain an Employee for purposes of this
Plan shall: (a) continue as a Member and shall continue to be credited with
Years of Vesting Service under this Plan for all purposes except accrual of
benefits under Section 5.1 and 5.2 so long as he remains in the employ of the
Company or an Affiliate; and (b) shall not continue to be credited with Years of
Membership.
3.3 TRANSFER TO EMPLOYEE POSITION. An Employee who was in the
employment of the Company before he became an Employee within the meaning of the
Plan shall receive credit for purposes of determining Years of Vesting Service
as though he had been an Employee within the meaning of the Plan throughout such
period of employment with the Company or an Affiliate; provided, however, Years
of Membership shall not be credited for any period during which the Employee was
not a Member.
ARTICLE IV
ELIGIBILITY FOR PLAN BENEFITS
4.1 NORMAL RETIREMENT BENEFIT. When a Member retires at his
Normal Retirement Date, he shall be entitled to receive his Normal Retirement
Benefit specified in Section 5.3 of Article V, payable in the form as determined
under Article VI. The Benefit Commencement Date of a Member who retires at his
Normal Retirement Date shall be his Normal Retirement Date.
4.2 POSTPONED RETIREMENT BENEFIT. A Member who continues
employment after his Normal Retirement Date shall be entitled to receive his
Postponed Retirement Benefit specified in Section 5.4 of Article V when he
terminates employment, payable in the form as determined under Article VI. The
Benefit Commencement Date of a Member who retires after his Normal Retirement
Date shall be his Late Retirement Date.
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<PAGE> 18
4.3 EARLY RETIREMENT BENEFIT. When a Member retires at an
Early Retirement Date, he shall be entitled to receive his Early Retirement
Benefit specified in Section 5.5 of Article V, payable in the form as determined
under Article VI. The Benefit Commencement Date of a Member who retires at an
Early Retirement Date shall be his Early Retirement Date.
4.4 DEATH BENEFITS BEFORE RETIREMENT.
(a) Payment of Accumulated Contributions. If a Member dies
while employed by the Company (i) before he completes five Years of Vesting
Service; or (ii) after he completes five Years of Vesting Service, but he is not
survived by an Eligible Spouse and no other benefit is payable on his behalf
from this Plan, then the Member's Accumulated Contributions, if any, at the
time of his death shall be payable in the form of a single sum within 90 days of
receipt by the Plan Administrator of official notice of the death of such
Member. This benefit shall be payable to the Member's Designated Beneficiary.
(b) Preretirement Eligible Spouse Death Benefit. A Qualified
Preretirement Death Benefit specified in Section 5.12 of Article V shall be
payable to a Member's surviving Eligible Spouse if the Member dies before
commencement of Normal or Early Retirement Benefits after becoming eligible for
a Vested Deferred Benefit under Section 4.5 of Article IV.
(c) Term Certain and Life Annuity. Subject to paragraph (b) of
Section 6.2, if a Member who has made an effective election for the Term Certain
and Life Annuity dies while employed by the Company after his Normal Retirement
Date, his Designated Beneficiary shall be paid benefits in accordance with such
election and no Qualified Preretirement Death Benefit shall be paid on behalf of
such Member and, subject to Section 5.11 of Article V hereof, no separate
payment of such Member's Accumulated Contributions shall be made. Benefits pay
able hereunder shall be paid in monthly installments within five years of the
Member's date of death in such total amount which is the commuted Actuarial
Equivalent value of the term certain payments determined under Section 6.6.
(d) Except as provided in this Section 4.4, no benefits under
this Plan shall be paid to any person on account of the death of a Member who
dies while in the employ of the Company or an Affiliate.
4.5 VESTED DEFERRED BENEFIT.
(a) If a Member's employment with the Company or an Affiliate
is terminated for a reason other than death or retirement and if such
termination of employment occurs on or after the Member's completion of five
Years of Vesting Service, he shall be entitled to a Vested Deferred Benefit,
specified in Section 5.6 of Article V, payable in the form as determined under
Article VI. Unless the Member elects otherwise pursuant to the provisions of
paragraph
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<PAGE> 19
(b) of this Section 4.5, the Benefit Commencement Date of a Member entitled to a
Vested Deferred Benefit shall be his Normal Retirement Date.
(b) When a Member who is entitled to a Vested Deferred Benefit
under paragraph (a) of this Section 4.5 attains the age of 55 years, he may
elect, by written notice to the Plan Administrator, to receive a reduced benefit
commencing on the first day of any month designated by him (but no later than
his 65th birthday) in the amount determined under the applicable provisions of
Section 5.6, payable in the form as determined under Article VI. The Benefit
Commencement Date of a Member who elects to receive his Vested Deferred Benefit
after attaining the age of 55 years shall be the first day of the month
designated by such Member.
(c) A Contributing Member who is entitled to a Vested Deferred
Benefit under paragraph (a) of this Section 4.5 upon termination of his
employment and is less than age 55 years at the time of termination of
employment may elect to withdraw his Accumulated Contributions by delivery of an
election to the Plan Administrator at any time prior to attainment of age 55
years by such Member, in which case such Accumulated Contributions shall be
returned to him in the form of a single sum within 90 days of receipt of such
election by the Plan Administrator and such Contributing Member's Vested
Deferred Benefit shall be reduced by the amount of the Pension Credits
Attributable to Employee Contributions corresponding to the Accumulated
Contributions so withdrawn.
(d) If a Contributing Member who is entitled to a Vested
Deferred Benefit under paragraph (a) of this Section 4.5 dies before his Benefit
Commencement Date, death benefits shall be payable under Section 4.4.
4.6 TERMINATION OF EMPLOYMENT BEFORE ELIGIBILITY FOR A VESTED
DEFERRED BENEFIT.
(a) If a Contributing Member's employment is terminated for a
reason other than death or retirement and if such termination of employment
occurs prior to the Contributing Member becoming eligible for a Vested Deferred
Benefit pursuant to Section 4.5(a) of Article IV ("Terminated Contributing
Member"), only his Accumulated Contributions shall be returned to him in the
form of a single sum at such date elected by the Member, which shall be no
earlier than 60 days following the date of his termination of employment. Such
election shall be made by delivery to the Plan Administrator of request for
payment and shall be irrevocable. Upon payment of any part of the Terminated
Contributing Member's Accumulated Contributions, he shall thereupon forfeit for
all purposes of the Plan thereafter his Years of Contributing Membership
credited to the date of termination of employment; provided, however, subject to
the forfeiture rules of Section 2.5 of Article II, if such Terminated
Contributing Member (i) is reemployed by the Company or an Affiliate; (ii) again
becomes a Member; and (iii) repays to the Plan the amount paid out to him under
this Section 4.6 plus interest thereon at the rate of 5% per annum, compounded
annually, within five years from the date he again becomes a Member under the
Plan, then his Years of Contributing Membership to the date of termination shall
be thereupon reinstated to his credit.
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<PAGE> 20
(b) If a Terminated Contributing Member dies and has
Accumulated Contributions to his credit in the Plan, the amount of such Member's
Accumulated Contributions then held by the Plan shall be paid in a single sum
within 90 days of receipt by the Plan Administrator of official notice of the
death of such Member to his Designated Beneficiary.
(c) Except as may be provided in the foregoing paragraphs (a)
and (b) of this Section 4.6, if a Member's employment is terminated for any
reason other than death or retirement and if such termination of employment
occurs prior to the Member becoming eligible for a Vested Deferred Benefit
pursuant to Section 4.5(a) of Article IV, the Member or anyone claiming through
the Member shall not be entitled to any benefits under the Plan.
ARTICLE V
BENEFITS
5.1 BENEFIT ACCRUAL. For Members who terminate employment with
the Company on or after January 1, 1993, the amount of monthly benefits computed
in the form of a Life Annuity, described in Section 6.4 of Article VI,
commencing on Normal Retirement Date shall be:
(a) 2.25% of the Member's Final Average Monthly Earnings
multiplied by the lesser of twenty-five (25) or the total number of such
Member's Years of Membership occurring after December 31, 1992; plus
(b) for Members who were Contributing Members before January
1, 1993, the amount accrued for periods as a Contributing Member before January
1, 1993, under Section 5.2(a); plus
(c) for Members who were Non-Contributing Members before
January 1, 1996, the amount accrued for periods as a Non-Contributing Member
before January 1, 1996, under Section 5.2(b).
Notwithstanding any other provisions of this Plan, each
Section 401(a)(17) Member's (as hereinafter defined) accrued benefit under this
Plan will be the sum of: (i) such Member's accrued benefit as of December 31,
1993, frozen in accordance with Section 1.401(a)(4)-13 of the Department of
Treasury Regulations; and (ii) such Member's accrued benefit determined under
the benefit formula applicable for the Plan Year beginning on or after January
1, 1994, as applied to such Member's years of service credited to such Member
for Plan Years beginning on or after January 1, 1994, for purposes of benefit
accruals. As used in this Section, a "Section 401(a)(17) Member" means a Member
whose current accrued benefit as of a date on or after January 1, 1994 is based
on Earnings for a year beginning prior to January 1, 1994 that exceed
$150,000.00.
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<PAGE> 21
5.2 BENEFIT ACCRUAL BEFORE JANUARY 1, 1993, AND 1996. For
Members who terminate employment with the Company on or after January 1, 1989,
the amount of monthly benefits computed in the form of a Life Annuity, described
in Section 6.6 of Article VI, commencing on Normal Retirement Date shall be
computed under paragraph (a) or (b) of this Section 5.2, whichever shall be
applicable.
(a) Contributing Member. If the Member was a Contributing
Member before January 1, 1993:
(i) 39% of the Contributing Member's Pre-1993
Final Average Monthly Earnings up to $750.00 plus 48% of his
Pre-1993 Final Average Monthly Earnings in excess of $750.00
multiplied by a fraction, the numerator of which is the total
number of such Contributing Member's Years of Contributing
Membership as of December 31, 1992, and the denominator of
which is the greater of fifteen (15) or the number of Years of
Contributing Membership which the Contributing Member would
complete if he continued as a Contributing Member until his
Normal Retirement Date (but in no event shall such fraction
exceed 1.0); plus
(ii) the number obtained by multiplying 2% by the
Contributing Member's actual contributions, if any, to the
Predecessor Contributory Plan through November 30, 1979; plus
(iii) the amount of any "Past Service" benefit
(that is relating to service before January 1, 1951) to which
the Contributing Member was entitled on November 30, 1979
pursuant to the terms of the Predecessor Contributory Plan in
effect on that date.
A Contributing Member who terminated his contributions under
the Plan for any reason other than termination of status as an Employee or
approved leave of absence as provided in Section 7.2(c) shall have his
Contributory Pension Credits Accrued under the Plan finally determined as if he
had then terminated employment. If at the time he terminated his contributions
the Member has five or more Years of Contributing Membership, then his Accumu-
lated Contributions shall be held by the Plan and paid as part of his benefit
computed under this Section. If at the time he had less than five Years of
Contributing Membership, then the Member may elect in a writing delivered to the
Plan Administrator at any time thereafter to withdraw his Accumulated
Contributions to the date of their termination and thereupon he shall forfeit
all of his Contributory Pension Credits Accrued.
Anything contained in the Plan to the contrary
notwithstanding, the amount of normal monthly retirement benefit of a
Contributing Member shall not be less than (1) the Contributing Member's normal
monthly retirement benefit accrued to November 30, 1979 under the terms of the
Predecessor Contributory Plan in effect on that date; or (2) the Contributing
17
<PAGE> 22
Member's Contributory Pension Credits Accrued hereunder at any time after he has
completed five Years of Vesting Service; or (3) the amount determined by
multiplying the Appropriate Dollar Amount [as defined in 5.2(b) below] by the
sum of such Member's Years of Vesting Service plus the Actuarial Equivalent of
his Accumulated Contributions as of the date of the computation.
(b) Non-Contributing Member; Former Contributing Member. If a
Member was a Non-Contributing Member on December 31, 1995 (or the date of an
earlier computation), such amount shall be determined by multiplying the
Appropriate Dollar Amount (as hereinafter defined) by the sum of such Member's
Years of Vesting Service before January 1, 1996. If a Member is a
Non-Contributing Member at the date of computation but was a Contributing Member
in the past, such amount shall be determined as the greater of (i) the amount
determined by multiplying the Appropriate Dollar Amount by the sum of such
Member's Years of Vesting Service before January 1, 1996, plus the Actuarial
Equivalent of his Accumulated Contributions standing to his credit on that date;
and (ii) his Contributory Pension Credits Accrued to the date his status as a
Contributing Member ceased plus the amount determined by multiplying the
Appropriate Dollar Amount by the sum of such Member's Years of Vesting Service
computed only to include Plan Years which commence: (A) after the year in which
his status as a Contributing Member ceased; and (B) before January 1, 1996,
minus the Actuarial Equivalent of the amount of his Accumulated Contributions
which may have been paid to him from the Plan. As used in this Section 5.2(b)
and in Section 5.2(a), the term "Appropriate Dollar Amount" means (A) with
respect to any Member who terminates employment on or before December 31, 1990,
$9.25; and (B) with respect to any Member who terminates employment on or after
January 1, 1991, $12.00.
5.3 AMOUNT OF NORMAL RETIREMENT BENEFIT. A Member's Normal
Retirement Benefit shall be the amount determined in either (a) or (b),
whichever is applicable.
(a) A Member who retires and elects to receive his benefit in
the Life Annuity form, described in Section 6.6(a) of Article VI, shall receive
a monthly benefit equal to the total amount of monthly benefit determined under
Section 5.1.
(b) A Member who retires and elects to receive his benefit in
a form of annuity other than the Life Annuity form shall receive a monthly
benefit in an amount Actuarially Equivalent to the Life Annuity amount under
Section 5.1.
5.4 AMOUNT OF POSTPONED RETIREMENT BENEFIT. A Member's
Postponed Retirement Benefit shall be equal to the greater of (a) the increased
amount Actuarially Equivalent on his Benefit Commencement Date to the amount of
his Normal Retirement Benefit determined as of his Normal Retirement Date under
Section 5.1; and (b) the amount of monthly benefit determined under Section 5.1
(and adjusted in accordance with Section 5.3 if the Member retires on a form of
annuity other than the Life Annuity) as of such Member's Late Retirement Date.
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<PAGE> 23
5.5 AMOUNT OF EARLY RETIREMENT BENEFIT.
(a) The monthly amount of Early Retirement Benefit, in the
Life Annuity form, of a Member who retires at an Early Retirement Date shall be
equal to his benefit determined at the time of his retirement under Section 5.1,
reduced by the Appropriate Reduction Percentage.
(b) The monthly amount of a Member's Early Retirement Benefit
in a form other than the Life Annuity form shall be the Actuarial Equivalent of
the amount determined under this Section.
5.6 AMOUNT OF VESTED DEFERRED BENEFIT.
(a) A Member's monthly Vested Deferred Benefit in the Life
Annuity form commencing at his Normal Retirement Date shall, subject to the
provisions of Section 4.5(c) of Article IV, be equal to the benefit accrued to
the date of his termination in accordance with Section 5.1. If such Member
elects pursuant to Section 4.5(b) of Article IV to receive his Vested Deferred
Benefit prior to his Normal Retirement Date, the amount determined under the
preceding sentence shall be reduced by the Appropriate Reduction Percentage.
(b) The monthly amount of a Member's Vested Deferred Benefit
in a form other than the Life Annuity form shall be the Actuarial Equivalent of
the amount determined under this Section.
5.7 MAXIMUM AMOUNT OF BENEFIT.
(a) For purposes of this Section 5.7 and Section 5.8, the
following terms shall have the meanings prescribed herein:
(i) "Annual Benefit" shall mean a retirement
benefit under the Plan which is payable annually in the form
of a straight life annuity. Except as provided below, a
benefit payable in a form other than a straight life annuity
must be adjusted to an Actuarially Equivalent straight life
annuity before applying the limitations of this section. The
interest rate assumption used to determine Actuarial
Equivalence will be the greater of the interest rate specified
in the Plan or 5%. The Annual Benefit does not include any
benefits attributable to Member contributions or rollover
contributions or the assets transferred from a qualified plan
that was not maintained by the Company. No actuarial
adjustment to the benefit is required for (A) the value of a
Qualified Joint and Survivor Annuity; (B) the value of
benefits that are not directly related to retirement benefits;
and (C) the value of postretirement cost-of-living increases
made in accordance with Section 415(d) of the Code and Section
1.415-3(c)(2)(iii) of regulations promulgated by the Secretary
of Treasury.
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<PAGE> 24
(ii) "Average Compensation" shall mean a Member's
highest Average Compensation from the Company over a period of
three consecutive calendar years. If a Member is employed for
less than three calendar years, his Average Compensation shall
be his Average Compensation over his calendar years of
employment. Average Compensation shall include bonus payments
and other taxable remuneration.
(iii) "Compensation" shall mean compensation as
defined in Treasury Regulation Section 1.415-2(d) and shall
include wages, salaries, fees for professional services,
percentage of profits, earned income in the case of a
self-employed Member, disability payments under Code Section
105(d), paid or reimbursed moving expenses to the extent not
deductible by the Member, medical reimbursement items and the
value of a non-qualified stock option to the extent includable
in an Employee's gross income upon making the election under
Code Section 83(b). Specifically excluded are salary deferral
contributions that are not included in the Participant's gross
income for the year of contribution, distributions from most
deferred compensation plans, amounts realized from the sale of
a non-qualified stock option plan or from the sale, exchange
or other disposition of stock acquired under a qualified stock
option plan and most amounts which receive special tax
benefits.
(iv) "Limitation Year" shall mean the Plan Year.
If the Limitation Year is amended to a different
12-consecutive-month period, the new Limitation Year must
begin on a date within the Limitation Year in which the
amendment is made.
(v) "Projected Annual Benefit" shall mean the
Annual Benefit to which the Member would be entitled under all
Company sponsored defined benefit plans, assuming that the
Member continues employment until his Normal Retirement Date,
that the Member's Earnings continue until his Normal
Retirement Date at the rate in effect during the current
calendar year and that all other factors relevant for
determining benefits under the plans remain constant at the
level in effect during the current calendar year.
(vi) "Social Security Retirement Age" shall mean,
in the case of a Member attaining age 62 before January 1,
2000, age 65; in the case of a Member attaining age 62 after
December 31, 1999 and before January 1, 2017, age 66; in the
case of a Member attaining age 62 after December 31, 2016, age
67.
(vii) "Year of Participation" shall mean each
accrual computation period under the Plan in which a Member is
(A) credited with 1,000 Hours of Service; and (B) is included
as a Member under the eligibility provisions of the Plan for
at least one day of the accrual computation period. If these
two conditions are met, the portion of a Year of Participation
credited to the Member
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<PAGE> 25
shall equal the amount of benefit accrual service credited to
the Member for such accrual computation period. A Member who
is Totally and Permanently Disabled within the meaning of
Section 415(c)(3)(C)(i) of the Code for an accrual computation
period shall receive a Year of Participation with respect to
that period. In addition, for a Member to receive a Year of
Participation (or part thereof) for an accrual computation
period, the Plan must be established no later than the last
day of such accrual computation period. In no event will more
than one Year of Participation be credited for any 12-month
period.
(b) Subject to the remaining provisions of this Section, this
Plan, when aggregated with the benefits from any other defined benefit plan ever
maintained by the Company or an Affiliate (whether or not terminated), shall not
provide Annual Benefits which exceed the lesser of $90,000.00 or 100% of a
Member's Average Compensation. This limitation shall be hereinafter referred to
as the "Maximum Annual Benefit." The Maximum Annual Benefit shall be increased
by cost-of-living increases published in regulations by the Secretary of the
Treasury. Any adjustments made as a result of this paragraph (b) shall not be
effective prior to the first day of the calendar year for which the increase is
effective as prescribed by the regulations.
(c) Subject to the remaining provisions of this Section, if
the Annual Benefit payable from this Plan or from this Plan and any other
defined benefit plan maintained by the Company to a Member does not exceed
$1,000.00 multiplied by the Member's Years of Vesting Service (or parts thereof)
(not to exceed 10), the adjustment to the Annual Benefit in paragraph (b) above
shall not be required, provided that the Member has never been covered by a
defined contribution plan, a welfare plan as defined in Section 419(e) of the
Code or an individual medical account as defined in Section 415(l)(2) of the
Code, maintained by the Company.
(d) If the Member has less than 10 Years of Participation with
the Company, the defined benefit dollar limitation described in paragraph (b)
shall be reduced by 1/10th for each Year of Participation (or part thereof) less
than 10. To the extent provided in regulations or in other guidance issued by
the Internal Revenue Service, the preceding sentence shall be applied separately
with respect to each change in the benefit structure of the Plan.
(e) If the Member has less than 10 Years of Vesting Service
with the Company, the compensation limitation described in paragraph (b) shall
be reduced by 1/10th for each Year of Vesting Service (or part thereof) less
than 10. The adjustments of this paragraph shall be applied in the denominator
of the defined benefit fraction based upon Years of Vesting Service. Years of
Vesting Service shall include future years occurring before the Member's Normal
Retirement Date. Such future years shall include the year which contains the
date the Member reaches age 65, only if it can be reasonably anticipated that
the Member will receive a Year of Vesting Service for such year.
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<PAGE> 26
(f) If the Annual Benefit of a Member commences prior to age
62, the defined benefit dollar limitation shall be the Actuarial Equivalent of
an Annual Benefit beginning at age 62, as determined above, reduced for each
month by which benefits commence before the month in which the Member attains
age 62. To determine Actuarial Equivalence, the interest rate assumption is the
greater of the rate specified in the Plan or 5%. Any decrease in the defined
benefit dollar limitation determined in accordance with this provision shall not
reflect the mortality decrement to the extent that benefits will not be
forfeited upon the death of the Member.
(g) If the Annual Benefit of the Member commences before the
Member's Social Security Retirement Age, but on or after age 62, the defined
benefit dollar limitation as reduced above, if necessary, shall be determined as
follows:
(i) If a Member's Social Security Retirement Age
is 65, the dollar limitation for benefits, commencing on or
after age 62, is determined by reducing the defined benefit
dollar limitation by 5/9ths of 1% for each month by which
benefits commence before the month in which the Member attains
age 65.
(ii) If a Member's Social Security Retirement Age
is greater than 65, the dollar limitation for benefits,
commencing on or after age 62, is determined by reducing the
defined benefit dollar limitation by 5/9ths of 1% for each of
the first 36 months and 5/12ths of 1% for each of the
additional months (up to 24 months) by which benefits commence
before the month of the Member's Social Security Retirement
Age.
(h) If the Annual Benefit of a Member commences after the
Member's Social Security Retirement Age, the defined benefit dollar limitation
as reduced in paragraph (d) above, if necessary, shall be adjusted so that it is
the Actuarial Equivalent of an Annual Benefit of such dollar limitation
beginning at the Member's Social Security Retirement Age. To determine Actuarial
Equivalence, the interest rate assumption used is the lesser of the rate
specified in the Plan or 5%.
(i) If a Member has at any time participated in any defined
contribution plan maintained by the Company or any Affiliate, then the Annual
Benefit payable to such Member shall be reduced to the extent necessary so that
the sum of such Member's Defined Benefit Plan Fraction and Defined Contribution
Plan Fraction shall not exceed 1.0. The limitation imposed by the preceding
sentence shall be applied without taking into account any contribution which the
trustee is required to return to such Member pursuant to Section 5.8. For
purposes of this clause (i), (i) a Member's "Defined Contribution Plan Fraction"
for a Limitation Year shall be a fraction, the numerator of which is the sum of
such Member's Annual Additions, as defined in Section 5.8, for such Limitation
Year, and the denominator of which is the amount determined pursuant to Section
5.8(a)(ii)(A); and (ii) a Member's Defined Benefit Plan Fraction shall be deter-
mined in accordance with Section 5.8(b)(ii).
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<PAGE> 27
5.8 LIMITATIONS ON MEMBER CONTRIBUTIONS. For purposes of
Section 415 of the Code, contributions made by Contributing Members are
considered to be a separate defined contribution plan maintained by the Company
(the "Subplan"). The following limitations shall apply to the Subplan:
(a) With respect to the Subplan, for any Limitation Year, the
Annual Addition, as defined below, of any Member shall not exceed the lesser of
(i) and (ii), where
(i) an amount is equal to the lesser of (A) 25% of
the Member's Compensation for such Limitation Year; and (B)
$30,000.00 (or if greater, one fourth of the defined benefit
limitation set forth in Section 415(b)(1)(A) of the Code); and
(ii) the amount results from the following steps:
(A) determine the amount which is the
sum of the lesser of the following amounts
determined for such Limitation Year and for each
prior Limitation Year during such Member's Years
of Service:
(1) the product of 1.25
multiplied by the dollar limitation in
effect under Section 415(c)(1)(A) of
the Code for such Limitation Year; and
(2) the product of 1.4
multiplied by 25% of the amount which
may be taken into account under Section
415(c)(1)(B) of the Code with respect
to such Member for such Limitation
Year;
(B) multiply the result in step (A),
above, by one minus the Defined Benefit Plan
Fraction, as defined below:
(C) subtract the sum of such Member's
Annual Additions for all prior Limitation Years
from the result in step (B), above.
(b) For purposes of this Section 5.8 and Section 5.9, the
following terms have the definitions set forth below:
(i) "Annual Addition" means for any Limitation
Year
(A) any of a Member's own contributions
under the Subplan or any other defined
contribution or defined benefit plan for the
Member maintained by the Company or any Affiliate
plus
23
<PAGE> 28
(B) any forfeitures allocated to the
Member's accounts under such plans plus
(C) contributions made by the Company
or any Affiliate under the Subplan or any other
defined contribution plan maintained by the
Company or any Affiliate for the Member.
(D) Amounts allocated after March 31,
1984 to an individual medical account, as defined
in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Company
or an Affiliate; and
(E) Amounts derived from contributions
paid or accrued after December 31, 1985 in taxable
years ending after such date which are
attributable to postretirement medical benefits
allocated to the separate account of a key
employee (as defined in Section 416(i) of the
Code) under a welfare benefit fund (as defined in
Section 419(e) of the Code) maintained by the
Company or an Affiliate.
(ii) "Defined Benefit Plan Fraction" means a
fraction, the numerator of which is the Member's Projected
Annual Benefit payable under any defined benefit plan
maintained by the Company or any Affiliate, and the
denominator of which is the lesser of (A) the product of 1.25
multiplied by the dollar limitation in effect under Section
415(b)(1)(A) of the Code for such limitation year; or (B) the
product of 1.4 multiplied by the amount which may be taken
into account under Section 415(b)(1)(B) of the Code with
respect to such Member under such plan for such Limitation
Year; provided, however, that if a Member has not completed 10
Years of Service for purposes of such defined benefit plan,
such denominator shall be multiplied by a fraction, the
numerator of which is such Member's Years of Service and the
denominator of which is 10.
(c) If the Annual Addition limitation set forth in Section
5.6(a) is exceeded with respect to any Member by reason of the allocation of
forfeitures, a reasonable error in estimating a Member's annual compensation or
other limited facts and circumstances which the Commissioner of Internal Revenue
finds justify the availability of the procedure described in this Section
5.8(c), the trustee shall return to such Member such portion or all of such
Member's contribution to the Subplan until such Annual Addition limitation is
not exceeded.
5.9 SMALL BENEFIT PAYMENTS. The Company may cause a benefit of
$20.00 per month or less to be paid at such intervals as will make the payments
amount to at least $20.00 each.
5.10 BENEFITS UPON REEMPLOYMENT OF A MEMBER.
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<PAGE> 29
(a) Suspension of Payments. Anything in this Plan to the
contrary notwithstanding, benefit payments shall be suspended on the date of
rehire of a former Employee by the Company or an Affiliate, provided that if the
Member is rehired after his Normal Retirement Date, the benefit payment to such
Member shall be suspended for a month only if he works for the Company or an
Affiliate during eight or more days during the month and is given notice of the
suspension of benefit payments in accordance with applicable regulations issued
by the United States Department of Labor.
(b) Benefit Computation after Reemployment. The benefits
payable to a reemployed Member upon his subsequent retirement or termination of
employment shall be in an amount as determined under whichever sections of this
Article V shall apply at that time, based upon the total number of his Years of
Membership and Years of Vesting Service. However, if such an Employee's previous
retirement benefits were paid in the form of an Early Retirement Benefit or a
Vested Deferred Benefit prior to his Normal Retirement Date, or if the Employee
withdrew or was otherwise paid any of his Accumulated Contributions and did not
repay them pursuant to the procedures of paragraph (a) of Section 4.6, then the
amount of monthly benefit payable upon his subsequent termination shall be
reduced by the Actuarial Equivalent of the total amount of such benefits and/or
withdrawals previously paid to him.
5.11 BENEFIT PAYMENTS TO BE NO LESS THAN MEMBER'S ACCUMULATED
CONTRIBUTIONS. In no event shall the total amount of payments from the Plan made
to a Member and/or his Eligible Spouse, Designated Beneficiary, joint annuitant
or his estate be less than the total amount of such Member's Accumulated
Contributions, if any, to the earlier of (a) the date of his death; or (b) his
Benefit Commencement Date. Upon the later death of (i) the Member; and (ii) in
the case of benefits payable other than in the form of a Life Annuity, his
Eligible Spouse or joint annuitant or other Designated Beneficiary, as the case
may be, the amount, if any, by which such Member's Accumulated Contributions to
the earlier of the date of his death or his Benefit Commencement Date exceeds
total payments made to the Member, and/or his Eligible Spouse, joint annuitant,
Designated Beneficiary or his estate, shall be paid to the Member's estate in a
lump sum.
5.12 AMOUNT OF QUALIFIED PRERETIREMENT DEATH BENEFIT. The
Qualified Preretirement Death Benefit payable to an Eligible Spouse of a Member
with respect to whom such a benefit is payable under Section 4.4(b) of Article
IV shall be equal to
(a) in the case of a Member who dies while in the employ of
the Company after becoming eligible for a Vested Deferred Benefit under Section
4.5 of Article IV and after the earliest date on which he could have elected to
receive retirement benefits under the Plan (the "Earliest Retirement Date"), but
before his Normal Retirement Date, the amounts which would have been payable to
such Eligible Spouse as a survivor annuity under the Qualified Joint and
Survivor Annuity had such Member retired with an immediate Qualified Joint and
Survivor Annuity on the day before his death;
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(b) in the case of a Member who dies after terminating
employment with the Company after becoming eligible for a Vested Deferred
Benefit under Section 4.5 of Article IV and after the Earliest Retirement Date,
but before benefit payments have commenced and before his Normal Retirement
Date, the amounts which would have been payable to such Eligible Spouse as a
survivor annuity under the Qualified Joint and Survivor Annuity had such Member
elected an Early Retirement Benefit commencing in the month of such Member's
death;
(c) in the case of a Member who dies while in the employ of
the Company after becoming eligible for a Vested Deferred Benefit under Section
4.5 of Article IV, but before the Earliest Retirement Date, the amounts which
would have been payable to such Eligible Spouse as a survivor annuity under the
Qualified Joint and Survivor Annuity, had such Member terminated employment on
the date of his death, survived until the Earliest Retirement Date, retired with
an immediate Qualified Joint and Survivor Annuity at the Earliest Retirement
Date and died on the day after the Earliest Retirement Date;
(d) in the case of a Member who dies after terminating
employment with the Company after becoming eligible for a Vested Deferred
Benefit under Section 4.5 of Article IV, but before the Earliest Retirement
Date, the amounts which would have been payable to such Eligible Spouse as a
survivor annuity under the Qualified Joint and Survivor Annuity, had such Member
survived until the Earliest Retirement Date, received at his Normal Retirement
Date a Qualified Joint and Survivor Annuity and died on the day after the
Earliest Retirement Date; and
(e) in the case of a Member who dies while in the employ of
the Company after his Normal Retirement Date, the amounts which would have been
payable to such Eligible Spouse as a survivor annuity under the Qualified Joint
and Survivor Annuity, had such Member retired with an immediate Qualified Joint
and Survivor Annuity on the day before his death.
For purposes of this Section, the earliest period for which
such Eligible Spouse may receive a payment under the Qualified Preretirement
Death Benefit shall not be later than the month in which such Member would have
attained the Earliest Retirement Date; provided, however, that such Eligible
Spouse may elect, on a form provided by the Plan Administrator, to defer
commencement of the Qualified Preretirement Death Benefit, subject to the
provisions of Section 6.9 of Article VI.
ARTICLE VI
METHOD AND MODE OF BENEFIT PAYMENTS
6.1 QUALIFIED JOINT AND SURVIVOR ANNUITY. The accrued benefit
of a married Member who is eligible for benefits in accordance with Articles IV
and V hereof shall be used to purchase a single premium annuity or to make
distributions hereunder having the effect of an annuity (a "Qualified Joint and
Survivor Annuity") (a) for the life of such Member with a survivor annuity for
the life of his Eligible Spouse which is equal to 50% of the amount of the
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annuity which is payable during the joint lives of such Member and his Eligible
Spouse; and (b) which is the Actuarial Equivalent of the normal form of
retirement benefit under Section 5.3(a) or (b) of Article V. The preceding
paragraph shall apply to a Member who has been married for less than 12 months
on his Annuity Starting Date, except that, if the Member does not remain married
for at least one year: (i) the Member's spouse loses the survivor annuity under
the Qualified Joint and Survivor Annuity; and (ii) the amount paid to the Member
shall not be retroactively corrected.
6.2 ELECTIONS.
(a) Each Member may elect at any time during the Applicable
Election Period (as hereinafter defined) to waive the Qualified Joint and
Survivor Annuity form of benefit. Any such election made by a Member may be
revoked at any time during the Applicable Election Period. For purposes of this
Section, the term "Applicable Election Period" means the time period which is
not less than 30 days nor more than 90 days prior to the Annuity Starting Date.
(b) No election may be made by a Member pursuant to Section
6.2(a) hereof unless (i) his spouse consents in writing to such election; (ii)
the election designates a form of benefit payment which may not be changed
without spousal consent (or the spouse expressly permits designations by the
Member without any further spousal consent); (iii) the consent acknowledges the
effect of such election; and (iv) the consent is witnessed by a notary public.
If it is established to the satisfaction of a Plan representative that there is
no spouse or that the spouse cannot be located, a waiver will be deemed to
satisfy the requirements of this paragraph. Any consent by a spouse obtained
under this provision (or establishment that the consent of a spouse may not be
obtained) shall be effective only with respect to such spouse. A consent that
permits designations by the Member without any requirement of further consent by
such spouse must acknowledge that the spouse has the right to limit consent to a
specific beneficiary, and a specific form of benefit where applicable, and that
the spouse voluntarily elects to relinquish either or both of such rights. A
revocation of a prior waiver may be made by a Member without the consent of the
spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this provision shall
be valid unless the Member has received notice as provided in either paragraph
(d) or (e).
(c) If an effective waiver and any required consent are filed
by a Member with the Plan Administrator with respect to a Qualified Joint and
Survivor Annuity form of benefit in accordance with the preceding provisions of
this section, his benefits will be paid in accordance with such waiver in the
form of benefit such Member elects under Section 6.6. If such Member
subsequently files a timely revocation of a waiver described in this Section
6.2, such Member shall be treated under Section 6.1 as if such waiver had never
been filed.
(d) In the case of a Qualified Joint and Survivor Annuity, the
Plan Administrator shall, within the Applicable Election Period, provide each
Member a written explanation of (i) the terms and conditions of a Qualified
Joint and Survivor Annuity; (ii) the
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Member's right to make and the effect of an election to waive the Qualified
Joint and Survivor Annuity form of benefit; (iii) the rights of a Member's
spouse; (iv) the right to make and the effect of a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity; and (v) the relative
values of the various optional forms of benefit under the Plan.
(e) The Qualified Preretirement Survivor Annuity is fully
subsidized. The Qualified Preretirement Survivor Annuity cannot be waived and
another beneficiary cannot be selected.
6.3 CASH OUT OF CERTAIN SMALL BENEFITS. Notwithstanding
Sections 6.1 and 6.6, if a Member is eligible for benefits or has terminated
employment and the Actuarial Equivalent of a Member's accrued benefit is $3,500
or less (as of the current and any prior distribution), then the Member (or if
the Member dies prior to retirement, the Member's surviving spouse) shall
receive a lump sum payment of the Actuarial Equivalent of his accrued benefit
and no other retirement or death benefit shall be paid. Any lump sum payment
shall be paid in accordance with Section 6.4.
6.4 ELECTIVE ROLLOVERS. A Distributee may elect, at the time
and in the manner prescribed by the Plan Administrator, to have all or any
portion of an lump sum distribution (except to the extent such distribution is
required under Section 401(a)(9) of the Code) paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover. For purposes
of this Section:
(a) An "Eligible Retirement Plan" is an individual retirement
account described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a) or a qualified trust described in Code Section 401(a) that accepts the
Distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the Member's surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
(b) A "Distributee" includes an Employee or former Employee.
In addition, the Member's surviving spouse is a Distributee with regard to the
interest of the spouse.
(c) A "Direct Rollover" is a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
6.5 DETERMINATION OF MARITAL STATUS. No provision in the Plan
relating to the distribution of benefits in the form of a Qualified Joint and
Survivor Annuity or in the form of a Qualified Preretirement Death Benefit shall
be applicable to a Member and his spouse unless such spouse is an Eligible
Spouse (as defined in Article I).
6.6 METHODS AND MODES OF DISTRIBUTION. With respect to a
Member who is not married within the meaning of Section 6.5, and to a married
Member whose benefit is not required to be paid pursuant to Section 6.1, such
Member shall have the right to elect to receive
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his benefit then held hereunder in any one of the optional forms set forth in
this Section. Any optional form of benefit under this Section shall be the
Actuarial Equivalent of the pension payment which it replaces.
(a) Life Annuity. A monthly pension which shall commence and
be paid to the Member on the same days his pension payments would have been made
to him had he not elected this option, the last monthly payment to be made on
the first day of the month in which the Member dies.
(b) Non-Qualified Joint and Survivor Annuity. An annuity,
payable monthly, during the lifetime of the Member and following his death a
percentage as selected by the Member (not to exceed 100%) of such monthly
benefit payable to his surviving joint annuitant for the joint annuitant's
lifetime. Subject to paragraph (d) of this Section, if a Member who has elected
the Non-Qualified Joint and Survivor Annuity form dies while employed by the
Company after his Normal Retirement Date, his surviving joint annuitant shall
receive the survivor portion of such form commencing on the first day of the
month next following such Member's date of death.
(c) Term Certain Annuity. An annuity, payable monthly during
the lifetime of the Member and in the event of the Member's death prior to the
end of the term certain (which shall be designated by the Member) monthly
payments shall be continued to the Designated Beneficiary in the same amount as
was paid to the Member until the end of the term certain. The term certain shall
be designated by the Member under paragraph (d) hereof.
(d) Subject to Section 6.2 of Article VI, election of the
Non-Qualified Joint and Survivor Annuity or a Term Certain Annuity must be made
in writing on forms provided by the Plan Administrator at any time prior to the
applicable Benefit Commencement Date; provided, however, if made within the
six-month period immediately prior to such Benefit Commencement Date, evidence
satisfactory to the Plan Administrator of the Employee's (or former Employee's)
good health at the time of filing the election will be required for the election
to be effective. An election of the Non-Qualified Joint and Survivor Annuity
must state the percentage of the Member's benefit to be payable to his
Designated Beneficiary and proof satisfactory to the Plan Administrator of the
age of the Designated Beneficiary must be furnished to the Plan Administrator at
the time of filing the election. The election must state the percentage of the
Member's benefit to be payable to his joint annuitant. The Member's benefit
under this Non-Qualified Joint and Survivor Annuity form shall not be less than
51% of his benefit under the Life Annuity form, unless the Designated
Beneficiary is the Eligible Spouse of the Member. An election of the Term
Certain Annuity must state the number of months payment shall be certain under
the Annuity. The election under this Section may be revoked by the Member at any
time prior to his Benefit Commencement Date.
6.7 NON-MARRIED MEMBER. A Member who is not married to an
Eligible Spouse at his Benefit Commencement Date shall receive his benefits in
the Life Annuity form under Section 6.6 unless, subject to the conditions and
restrictions of paragraph (d) of Section
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6.6, he elects the Non-Qualified Joint and Survivor Annuity or Term Certain
Annuity under Section 6.6.
6.8 DISTRIBUTION. Unless the Member elects otherwise, the
payment of benefits shall begin no later than 60 days after the latest of the
close of the Plan Year in which (a) the Member attains his Normal Retirement
Date; (b) occurs the tenth anniversary of the year in which the Member commenced
participation in the Plan; or (c) the Member terminates service with the
Company. Notwithstanding the foregoing, the failure of a Member to consent to a
distribution while a benefit is immediately distributable shall be deemed to be
an election to defer commencement of the payment of any benefit sufficient to
satisfy this Section.
6.9 LIMITATION ON BENEFIT PAYMENTS.
(a) Notwithstanding any provision of the Plan which may be to
the contrary, distribution of a Member's benefit shall commence no later than
April 1 of the calendar year following the calendar year in which such Member
attains age 70 1/2.
(b) Notwithstanding any provision of the Plan which may be to
the contrary, unless distributed as a lump sum, distribution of a Member's
benefit must be made in one of the following forms:
(i) over the life of such Member;
(ii) over the lives of such Member and his
Designated Beneficiary;
(iii) over a period not extending beyond the life
expectancy of such Member; or
(iv) over a period not extending beyond the life
expectancy of such Member and his Designated Beneficiary.
For purposes of this Article VI, the life expectancy of such Member and his
Designated Beneficiary may be redetermined as often as permitted by Section
401(a)(9) of the Code.
(c) Notwithstanding any provision of the Plan which may be to
the contrary,
(i) if (A) distribution of Member's benefit has
begun; (B) such distribution was not made in a lump sum; and
(C) such Member dies before his entire benefit has been
distributed to him, then the undistributed portion of his
benefit shall be distributed to his Designated Beneficiary at
least as rapidly as under the method of distribution in effect
as of the date of such Member's death; and
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(ii) if a Member dies before distribution of his
benefit has begun, then such Member's entire benefit shall be
distributed within five years after such Member's date of
death; provided, however, that if the portion of such Member's
benefit that is payable to (or for the benefit of) such
Member's Designated Beneficiary is distributed over the life
of such Designated Beneficiary or over a period not extending
beyond the life expectancy of such Designated Beneficiary and
distribution commences to such Designated Beneficiary not
later than one year after the date of such Member's death (or
such later date as the Secretary of the Treasury may by
regulations prescribe), then the portion of such Member's
benefit that is payable to (or for the benefit of) such
Designated Beneficiary shall be treated as having been
distributed within five years after such Member's date of
death.
(d) If a Member's Designated Beneficiary is his surviving
spouse, then (i) for purposes of Section 6.9(c)(ii), distribution of benefits to
such spouse shall not be required to begin earlier than the date on which such
Member would have attained age 70 1/2 had he lived to such date; and (ii) if
such spouse dies before distribution of benefits to such beneficiary has
commenced, then the provisions of Section 6.9(c) shall be applied as if such
spouse were the Member and the person(s) to whom benefits are payable after the
death of such spouse were such spouse's Designated Beneficiary.
6.10 PROHIBITION AGAINST MORE THAN INCIDENTAL DEATH BENEFITS.
Notwithstanding any provision of this Plan which may be to the contrary, in no
event may a Member elect to receive his benefits in a form pursuant to which the
present value of the payments to be made to such Member would be less than 50%
of the present value of all payments to be made to such Member and his
Designated Beneficiary. The determination of such present value shall be made as
of the date benefit payments to such Member commence and shall be based on life
expectancies as of such date.
ARTICLE VII
CONTRIBUTIONS AND FUNDING
7.1 PURPOSES OF FUNDING. The Plan shall be funded for the
exclusive purpose of providing benefits to Members and their beneficiaries and
for defraying reasonable expenses in administering the Plan.
7.2 CONTRIBUTING MEMBER'S CONTRIBUTIONS. For Plan Years before
January 1, 1996, each Contributing Member was required to contribute to the Plan
during each month in which he was a Contributing Member in accordance with the
Plan as then in effect.
7.3 COMPANY CONTRIBUTIONS. The Company will contribute to the
Plan from time to time such amounts in addition to a Contributing Member's
contributions as will be
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sufficient to keep the Plan on an actuarially sound basis and to meet the
minimum funding requirements of ERISA.
7.4 FUNDING AGENCY. The amounts to be contributed for the
purpose of the benefits shall be determined by the Plan Administrator and paid
to the Trust.
7.5 FORFEITURES. All amounts arising as a result of
forfeitures shall be used to reduce further contributions to the Plan and shall
not be applied to increase the benefits of any Member or anyone claiming through
any Member.
7.6 FUNDING STANDARD ACCOUNT. The Plan Administrator shall
cause a funding standard account to be maintained.
7.7 FUNDING POLICY. This Article VII shall constitute the
funding policy of the Plan.
7.8 TAX DEDUCTIBILITY OF CONTRIBUTIONS. The foregoing
provisions of this article to the contrary notwithstanding, the Company shall
not be required to make in any year any contribution in an amount which is
greater than the amount deductible for tax purposes in that year.
7.9 ADDITIONAL PAYMENTS. The Company may also make from time
to time such additional payments as it deems desirable. Such additional payments
shall be credited against future payments which the Company would otherwise be
required to make.
ARTICLE VIII
ADMINISTRATION
8.1 PLAN ADMINISTRATOR. The Plan will be administered by
UnionTools, Inc. as Plan Administrator. The construction and interpretation of
the Plan provisions are vested with the Plan Administrator, in its absolute
discretion, including, without limitation, the determination of benefits,
eligibility and interpretation of Plan provisions. All such decisions,
determinations and interpretations shall be final, conclusive and binding upon
all parties having an interest in the Plan.
8.2 POWERS OF PLAN ADMINISTRATOR. The Plan Administrator shall
administer the Plan in accordance with its terms and shall have all powers
necessary to carry out the provisions of the Plan. Without limiting the
generality thereof, the Plan Administrator shall have the following duties and
powers:
(a) to determine the amounts of such contributions to the Plan
based on appropriate information and consistent with the funding policy of the
Plan;
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(b) to determine the amounts and time of payment of benefits
and the rights of Members and their beneficiaries to Plan benefits, to take any
actions necessary to assure timely payment of benefits to any Member or
beneficiary eligible to receive benefits under the Plan and to assure a full and
fair review for any person who is denied a claim to any benefit under the Plan;
(c) to maintain Plan records, to communicate appropriate
information to the insurance company or the trustee, to communicate to Members
and their beneficiaries and to submit required reports to appropriate regulatory
authorities;
(d) to employ other persons, including the employment of
counsel, to render advice with respect to any responsibility or authority being
carried out by the Plan Administrator and to assist in the administration of the
Plan;
(e) to employ, on behalf of the Plan Members, an enrolled
actuary and an independent qualified public accountant; and
(f) to take any action necessary or appropriate to assure that
the Plan is administered for the exclusive purpose of providing benefits to
Members and their beneficiaries in accordance with the Plan and defraying
reasonable expenses of administering the Plan, subject to the requirements of
any applicable law.
8.3 CONCLUSIVENESS OF VARIOUS DOCUMENTS. UnionTools, Inc. and
its directors and officers will be entitled to rely upon all tables, valuations,
certificates and reports furnished by any actuary, accountant, counsel or other
expert appointed, employed or engaged by the Plan Administrator.
8.4 ACTIONS TO BE UNIFORM. Any discretionary actions to be
taken under the Plan will be nondiscriminatory and uniform with respect to all
persons similarly situated.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENT OF THE PLAN.
(a) UnionTools, Inc. reserves the right to modify, alter or
amend this Plan at any time and from time to time and to any extent (consistent
with Code Section 411(d)(6) and the regulations thereunder) that it may deem
advisable, including, but not limited to, any amendment deemed necessary to
insure the continued qualification of this Plan under the provisions of the
Internal Revenue Code. Any amendment shall be made pursuant to a resolution duly
adopted by UnionTools, Inc.'s Board of Directors.
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(b) A Plan amendment that changes the Plan's vesting schedule
shall not be effective with respect to any Member with three Years of Service
who makes an irrevocable election during the "election period" to have such
benefit determined without regard to such amendment. For purposes of this
paragraph (b) the "election period" shall begin on the date the Plan amendment
is adopted and end on the latest of the following dates: (i) the date which is
60 days after the day the Plan amendment is adopted; (ii) the date which is 60
days after the day the Plan amendment is effective; or (iii) the date which is
60 days after the day the Member is issued written notice of the Plan amendment
by the Plan Administrator.
9.2 TERMINATION OF THE PLAN.
(a) UnionTools, Inc. reserves the right to terminate the Plan
at any time by action of its Board of Directors upon written notice thereof
being given to the Plan Administrator and the trustee of the Trust.
(b) Upon termination of the Plan, or upon partial termination
of the Plan, the rights of all affected Members to their benefits accrued in
accordance with Section 5.1 to the date of termination or date of partial
termination shall be nonforfeitable; provided, however, any Member or any person
claiming benefits on account of a Member shall have recourse for the payment of
any Plan benefit only against the assets of the Plan and Trust [or the Pension
Benefit Guaranty Corporation ("PBGC"), where applicable] and shall not have any
recourse against the Company or its directors, officers, employees or agents for
the payment of any benefits under the Plan.
9.3 ALLOCATION OF ASSETS UPON PLAN TERMINATION. Upon
termination or partial termination of the Plan, the assets thereof shall be
allocated to the affected Members and their beneficiaries in the following
order:
(a) the portion of each Member's benefit which is derived from
the Member's own contributions;
(b) benefits payable as an annuity to (i) Members and their
beneficiaries who began receiving benefits at least three years prior to the
termination date of the Plan; and (ii) Members and their beneficiaries who could
have been receiving benefits as of three years prior to the termination date of
the Plan if they had retired prior to the beginning of the three-year period and
if their benefits had commenced (in the Life Annuity form under this Plan) as of
the beginning of such period, based on the provisions of the Plan (as in effect
during the five-year period ending on such termination date) under which their
benefits would be least;
(c) all other benefits, which are insured by the PBGC,
determined without regard to Section 4022(b)(5) of ERISA or which would have
been so insured if Section 4022(b)(6) of ERISA did not apply.
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(d) all other nonforfeitable benefits under the Plan;
(e) all other benefits under the Plan.
If the assets of the Plan available for allocation under (b)
or (c) are insufficient to satisfy in full the benefits which are described, the
assets shall be allocated pro rata among such individuals on the basis of the
present value (as of the Plan's date of termination) of their respective
benefits.
If after the satisfaction of all liabilities, both fixed and
contingent under the Plan, any assets then remain, such assets shall be returned
to the Company.
9.4 MERGER OR CONSOLIDATION. No merger or consolidation with,
or transfer of assets or liabilities to, any other Plan shall be made unless, in
the event the Plan is terminated immediately after such merger, consolidation or
transfer, each Member in this Plan would receive a benefit equal to or greater
than the benefit he would have been entitled to receive if this Plan terminated
immediately before the merger, consolidation or transfer, as determined under
Treasury Regulations promulgated under Section 414(l) of the Internal Revenue
Code (or the successor provision thereto).
ARTICLE X
CONDITIONAL BENEFIT RESTRICTIONS
10.1 RESTRICTIONS ON BENEFITS PAYABLE TO CERTAIN MEMBERS.
(a) Subject to the provisions of Section 10.1(b),
notwithstanding any provision of the Plan which may be to the contrary:
(i) in the event of Plan termination, the benefit
of any Highly-Compensated Employee (or any former
Highly-Compensated Employee) will be limited to one that is
nondiscriminatory under Section 401(a)(4) of the Code; and
(ii) in any Plan Year beginning on or after
January 1, 1994, the payment of benefits to, or on behalf of,
a Restricted Employee (as hereinafter defined) shall not
exceed an amount equal to the payments that would be made to,
or on behalf of, the Restricted Employee in that Plan Year
under:
(A) a straight life annuity that is the
Actuarial Equivalent of the accrued benefit and
other benefits to which the Restricted Employee is
entitled under the Plan (other than a Social
Security supplement); and
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(B) the amount of the payments that the
Restricted Employee is entitled to receive under a
Social Security supplement, if any.
(b) The restrictions contained in Section 10.1(a)(ii) will not
apply if anyone of the following requirements is satisfied:
(i) after payment to, or on behalf of, a
Restricted Employee of all benefits payable to, or on behalf
of, such Restricted Employee under the Plan, the value of Plan
assets equals or exceeds 110% of the value of current
liabilities [as defined in Section 412(l)(7) of the Code];
(ii) the value of the benefits payable to, or on
behalf of, the Restricted Employee is less than 1% of the
value of current liabilities [as defined in Section 412(l)(7)
of the Code]; or
(iii) the value of the benefits payable to, or on
behalf of, the Restricted Employee does not exceed the amount
described in Section 411(a)(11)(A) of the Code.
(c) As used in this Section 10.1:
(i) "Restricted Employee" means any
Highly-Compensated Employee or former Highly-Compensated
Employee; provided, however, that a Highly-Compensated
Employee or former Highly-Compensated Employee need not be
treated as a Restricted Employee in the current Plan Year if
he is not one of the 25 nonexcludable Employees or former
Employees of the Employer with the largest amount of
compensation in the current or any prior Plan Year; and
(ii) "benefit" includes, among other benefits,
loans in excess of amounts set forth in Code Section
72(p)(2)(A), any periodic income, any withdrawal values
payable to a living Employee or former Employee and any death
benefits not provided for by insurance on the Employee's or
former Employee's life.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 EVIDENCE OF SURVIVAL. Where a benefit payment is
contingent upon the survival of any person, evidence of such person's survival
must be furnished which is satisfactory to the Plan Administrator.
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11.2 NON-ALIENATION OF BENEFITS.
(a) None of the benefits, payments, proceeds, claims or rights
of any Member hereunder shall be subject to any claim of any creditor of any
Member and in particular the same shall not be subject to attachment or
garnishment or other legal process by any creditor of any Member nor shall any
such Member have any right to pledge, encumber or assign or otherwise alienate
any of the benefits, payments, proceeds, claims or other rights which he may
expect to receive contingently or otherwise under this Plan.
(b) If a Member or any person receiving or entitled to receive
benefits under the Plan shall attempt to or shall sell, transfer, assign, pledge
or otherwise encumber such benefits or any part thereof or if by reason of
attachment, garnishment, insolvency, bankruptcy or any other such proceeding or
event such benefits would devolve upon any other person, firm or corporation or
would not be enjoyed by him, then the Plan Administrator, in its discretion,
which shall be exercised uniformly by treating individuals in similar
circumstances alike, shall terminate his interest in any such benefit and cause
it to be held or applied for his benefit or the benefit of his spouse, children
or other dependents, or any of them, in such manner as the Plan Administrator
deems proper; and upon his death, any amount which would have been payable but
for this provision, less amounts actually expended as hereinbefore provided,
shall be paid to such Member's beneficiary or to his estate if he has not
designated a beneficiary. The provisions of this paragraph (b) shall not apply
if they violate any applicable law.
11.3 PAYMENTS TO INCOMPETENTS. If the Plan Administrator
receives evidence satisfactory to it that (a) a payee entitled to receive any
payment under the Plan is physically or mentally incompetent to receive such
payment or is a minor; (b) another person or an institution is then maintaining
or has custody of such payee; and (c) no guardian, Committee or other
representative of the estate of such payee has been appointed, the Plan
Administrator may direct that payments be made to such other person or
institution.
11.4 MISSTATED INFORMATION. If any information has been
misstated on which a benefit under the Plan with respect to a person was based,
such benefit shall not be invalidated but the amount of the benefit shall be
adjusted to the proper amount as determined on the basis of the correct
information. Overpayments, if any, with interest as determined by the Plan
Administrator shall be charged against any payments accruing with respect to the
person. The Plan Administrator reserves the right to require proof of age of any
person entitled to a benefit under this Plan.
11.5 CLAIMS PROCEDURE. All claims for benefits under the Plan
shall be directed in writing to the attention of the Plan Administrator. If a
claim for retirement benefits under the Plan is denied, in whole or in part, by
the Plan Administrator, the claimant shall be notified in writing within 90 days
of filing of the claim with the Plan Administrator of (a) the specific reasons
for such denial; (b) the pertinent Plan provisions on which the denial is based;
(c) any additional material or information necessary for the claimant to perfect
his claim (with an explanation as to the reason such material or information is
necessary); and (d) further steps
37
<PAGE> 42
which the claimant can take in order to have his claim reviewed (including a
statement that the claimant or his duly authorized representative may review
Plan documents and submit issues and comments regarding the claim to the Plan
Administrator). If the claimant wishes further consideration of his position, he
may request a review of his claim by filing a written request with the Plan
Administrator within 90 days after receipt of the written notification provided
for in the preceding sentence. A final decision on the claim shall be made by
the Plan Administrator within 60 days after the receipt of the request for
review and shall be communicated in writing to the claimant with a statement of
the specific reasons for any denial and the pertinent Plan provisions on which
any such denial is based.
11.6 OHIO LAW APPLICABLE. The law of the State of Ohio shall
be the controlling law in all matters relating to the Plan and shall apply to
the extent it is not preempted by the laws of the United States of America.
11.7 PLAN NOT AN EMPLOYMENT CONTRACT. Nothing contained herein
shall be construed as a commitment on the part of any Member to continue his
employment with the Company and nothing contained herein shall be construed as a
commitment on the part of the Company to continue the employment of any Member
or to continue the rate of pay of any Member for any period. All Employees of
the Company shall remain subject to discharge as fully as if this Plan had never
been put into effect.
11.8 EXCLUSIVE BENEFIT OF MEMBERS AND BENEFICIARIES. Except as
may be provided in Section 9.3 of Article IX, it shall be impossible for any
contributions made by the Company under this Plan to be used for or diverted to
purposes other than the exclusive benefit of the Members and their
beneficiaries.
11.9 HEADINGS. The headings appearing herein are for
convenience only and shall be disregarded entirely in the application and
interpretation of this Plan.
11.10 QUALIFIED DOMESTIC RELATIONS ORDERS.
(a) The provisions of Section 11.2 shall not apply to the
creation or recognition of a right to any benefit payable with respect to a
Member pursuant to a domestic relations order which is determined to be a
Qualified Domestic Relations Order. For purposes of the foregoing, the term
"Qualified Domestic Relations Order" has the meaning given to such term in
Section 414(p)(1)(A) of the Code and the term "domestic relations order" has the
meaning given to such term in Section 414(p)(1)(B) of the Code.
(b) In the case of any payment before a Member has terminated
his employment with the Company, a domestic relations order may require that
payment of benefits be made to an Alternate Payee (as hereinafter defined):
(i) on or after the date on which such Member
attains (or would have attained) his Normal Retirement Date;
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<PAGE> 43
(ii) as if such Member had retired on the date on
which such payment is to begin under such order (but taking
into account only the present value of the benefits actually
accrued using the interest rate assumption specified in the
definition of Actuarial Equivalent in Article I and not taking
into account any Company subsidy for early retirement); and
(iii) in any form in which such benefits may be
paid under the Plan to such Member (other than in the form of
a joint and survivor annuity with respect to the Alternate
Payee and his or her subsequent spouse).
(c) To the extent provided in any Qualified Domestic Relations
Order, (i) the former spouse of a Member shall be treated as a surviving spouse
of such Member for purposes of Article VI; and (ii) if married for at least one
year, the surviving spouse shall be treated as an Eligible Spouse.
(d) In the case of any domestic relations order received by
the Plan or the Plan Administrator,
(i) the Plan Administrator shall promptly notify
the Member and any other Alternate Payee of the receipt of
such order and the Plan's procedures for determining the
qualified status of domestic relations orders; and
(ii) within a reasonable period after receipt of
such order, the Plan Administrator shall determine whether
such order is a Qualified Domestic Relations Order and notify
the Member and each Alternate Payee of such determination.
The Plan Administrator shall establish reasonable procedures to determine the
qualified status of domestic relations orders and to administer distributions
under Qualified Domestic Relations Orders.
(e) During any period in which the issue of whether a domestic
relations order is a Qualified Domestic Relations Order is being determined (by
the Plan Administrator, by a court of competent jurisdiction or otherwise), the
Plan Administrator shall segregate in a separate account in the Plan or in an
escrow account the amounts which would have been payable to the Alternate Payee
during such period if the order had been determined to be a Qualified Domestic
Relations Order and the following rules shall apply:
(i) if within 18 months the order (or modification
thereof) is determined to be a Qualified Domestic Relations
Order, the Plan Administrator shall pay the segregated amounts
(and any interest thereon) to the person or persons entitled
thereto;
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<PAGE> 44
(ii) if within 18 months (A) it is determined that
the order is not a Qualified Domestic Relations Order; or (B)
the issue as to whether such order is a Qualified Domestic
Relations Order is not resolved, the Plan Administrator shall
pay the segregated amounts (and any interest thereon) to the
person or persons who would have been entitled to such amounts
if there had been no order;
(iii) any determination that an order is a
Qualified Domestic Relations Order which is made after the
close of such 18-month period shall be applied prospectively
only.
(f) For purposes of this Section 11.10, the term "Alternate
Payee" means any spouse, former spouse, child or other dependent of a Member who
is recognized by a domestic relations order as having a right to receive all, or
a portion of, the benefits payable under the Plan with respect to such Member.
ARTICLE XII
TOP HEAVY PROVISIONS
12.1 DEFINITIONS. FOR PURPOSES OF THIS ARTICLE XII,
(a) "Aggregation Group" shall mean that group of plans which
includes (i) each defined benefit and defined contribution plan maintained by
the Company or an Affiliate in which a Key Participant is a participant
(regardless of whether the plan has terminated); and (ii) each other defined
benefit and defined contribution plan maintained by the Company or an Affiliate
which enables any plan described in clause (i) to meet the requirements of
Section 401(a)(4) or 410 of the Code.
(b) "Determination Date" shall mean, with respect to any Plan
Year, the last day of the preceding Plan Year.
(c) "Key Participant" shall mean, with respect to the Plan (or
any other defined benefit or defined contribution plan maintained by the Company
or an Affiliate), any Member who, at any time during the Plan Year or any of the
four preceding Plan Years, is
(i) an officer of the Company if such individual's
annual compensation exceeds 50% of the dollar limitation under
Code Section 415(b)(1)(A);
(ii) 1 of the 10 employees owning (or considered
as owning within the meaning of Section 318 of the Code) the
largest interests in the Company if such individual's annual
compensation exceeds the dollar limitation under Code Section
415(c)(1)(A);
40
<PAGE> 45
(iii) a 5% owner of the Company; or
(iv) a 1% owner of the Company having an annual
compensation from the Company of more than $150,000.00.
For purposes of clause (i), no more than 50 employees (or, if lesser, the
greater of 3 or 10% of the employees) shall be treated as officers. The rules of
Section 416(i) shall be applied for purposes of applying clauses (i) through
(iv).
(d) "Non-Key Participant" shall mean, with respect to the Plan
(or any other defined benefit or defined contribution plan maintained by the
Company or an Affiliate), any employee who is not a Key Participant. The rules
of Section 416(i) shall be applied for purposes of making this determination.
(e) "Valuation Date" shall mean, with respect to any Plan
Year, the valuation date used for computing Plan costs for minimum funding,
whether or not a valuation is actually performed that year.
12.2 TOP HEAVY DETERMINATION.
(a) In General. The Plan shall be considered top heavy on a
Determination Date if, as of such Determination Date, the present value of the
cumulative accrued benefits under the Plan for Key Participants exceeds 60% of
the present value of the cumulative accrued benefits under the Plan for all
Members.
(b) Aggregation Group. The Plan shall also be considered top
heavy on a Determination Date if, as of such Determination Date, the Plan is
part of an Aggregation Group which is a Top Heavy Group. An Aggregation Group
shall be considered a "Top Heavy Group" if, as of any Determination Date, the
sum of (i) the present value of the cumulative accrued benefits for Key
Participants under all defined benefit plans included in such Aggregation Group;
and (ii) the aggregate of the accounts of Key Participants under all defined
contribution plans included in such Aggregation Group, exceeds 60% of a similar
sum determined for all participants under all plans included in the Aggregation
Group.
If two or more plans which are part of an Aggregation Group
have different Determination Dates, the following procedure will be followed to
determine whether the Aggregation Group is a Top Heavy Group. First, with
respect to any calendar year, determine the present value of the cumulative
accrued benefits for Key Participants and all participants under each defined
benefit plan separately as of the Determination Date for such plan which falls
within such calendar year and determine the aggregate of the accounts of Key
Participants and of all participants under each defined contribution plan
separately as of the Determination Date for such plan which falls within such
calendar year. Second, add the results for each plan in the
41
<PAGE> 46
Aggregation Group as of the Determination Date for such plan that falls in the
same calendar year and apply the 60% test set forth earlier in this paragraph
(b).
(c) Permissive Aggregation. A plan maintained by the Company
or an Affiliate which would not otherwise be included in an Aggregation Group
may be included, at the election of the Company, in such group for determining
whether such group is a Top Heavy Group, provided that aggregation under this
paragraph is permitted only if such group would continue to meet the
requirements of Sections 401(a)(4) and 410 of the Code with such plan being
taken into account.
(d) Exception. Notwithstanding the provisions of Section
12.2(a), the Plan shall not be considered top heavy on a Determination Date if,
as of said date, the Plan is part of a required or permissive Aggregation Group
which is not a Top Heavy Group.
(e) Determination of Present Value of Accrued Benefit. The
present value of accrued benefits under the Plan shall be determined as of the
most recent Valuation Date which is within the 12-month period ending on the
Determination Date, subject to the rules set forth in paragraphs (f) and (g).
The accrued benefit for a current Member shall be determined as if the Member
had terminated service as of the Valuation Date. All benefits (whether
attributable to Members' contributions or Company contributions) accruing under
the Plan shall be taken into account. The applicable factors for use in
determining the present value of accrued benefits shall be as set forth in the
latest actuarial valuation certified by the enrolled actuary for the Plan.
(f) Distributions within Five Years. The present value of the
cumulative accrued benefit for any Member under the Plan shall be increased by
the aggregate distribution made with respect to such Member under the Plan
during the five-year period ending on the Determination Date, except that
distributions made after the Valuation Date but before the Determination Date
shall not be included to the extent that such distributions are included in the
present value of the accrued benefits as of the Valuation Date.
(g) Benefits of Members Who Cease to be Key Participants. If a
Member is a Non-Key Participant with respect to the Plan for any Plan Year but
was a Key Participant with respect to the Plan for any prior Plan Year, the
accrued benefit for such Member shall not be taken into account for purposes of
determining whether the Plan is top heavy (or whether any Aggregation Group of
which the Plan is a part is a Top Heavy Group).
(h) Determination of Aggregation Group Benefits and Accounts.
With respect to any other defined benefit or defined contribution plan which is
included in an Aggregation Group of which this Plan is a part, the present value
of cumulative accrued benefits and the aggregate of the accounts of Key
Participants and all participants thereunder shall be determined under the rules
set forth in Section 416 of the Code and the regulations promulgated thereunder.
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<PAGE> 47
(i) Accrued Benefits of Certain Former Employees. The accrued
benefit or account of any participant in any defined benefit or defined
contribution plan maintained by the Company (including this Plan) or by an
Affiliate shall not be taken into account for purposes of making any top heavy
determination pursuant to this Section 12.2 if such participant has not
performed any services for the company maintaining any such plan in which he is
a participant (other than benefits under such plan) at any time during the
five-year period ending on the Determination Date with respect to which a top
heavy determination is being made.
12.3 GENERAL RULE. Notwithstanding any provision contained
herein to the contrary, if, on any Determination Date, the Plan is top heavy (as
determined under Section 12.2), the provisions of Sections 12.4 through 12.7
shall apply to the Plan for the Plan Year following such Determination Date.
12.4 VESTING REQUIREMENTS.
(a) New Vesting Provision. Notwithstanding the provisions of
Section 4.5(a) to the contrary, any Member who has three Years of Vesting
Service shall be 100% vested in his accrued benefit.
(b) Special Rule. The benefits of a Member who does not have
an Hour of Service after the Plan becomes top heavy are not determined under the
minimum vesting provision set forth in the preceding paragraph (a).
12.5 MINIMUM BENEFITS.
(a) Minimum Normal Retirement Benefit. A Non-Key Participant
who is eligible for a Normal Retirement Benefit under the provisions of Section
4.1 shall be entitled to a monthly benefit equal to the greater of (i) the
monthly Normal Retirement Benefit to which such Non-Key Participant would be
entitled under Section 5.3(a); or (ii) the product of his average compensation
for years in the testing period (as hereinafter defined) and his applicable
percentage (as hereinafter defined) determined as of such computation date.
(b) Minimum Accrued Benefit. For purposes of determining a
Non-Key Participant's early or deferred vested benefit under Article V hereof, a
Member's accrued benefit, as of any computation date, should be equal to the
greater of (i) the accrued benefit determined in accordance with Article V; or
(ii) the benefit to which a Member would be entitled at his Normal Retirement
Date computed in accordance with 12.5(a)(ii) hereof, based upon his average
Earnings for years in the testing period and his applicable percentage
determined as of said computation date.
(c) Years in the Testing Period. For purposes of this section,
"years in the testing period" shall mean the period of consecutive years (not
exceeding five) accruing at any time before a computation date during which a
Non-Key Participant had the highest aggregate compensation from the Company.
Years ending in a Plan Year beginning before January 1,
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<PAGE> 48
1984, years beginning after the close of the last Plan Year in which the Plan is
top heavy and years ending after a Member's Normal Retirement Date shall not be
considered for purposes of the preceding sentence. Years taken into account
under this paragraph (c) shall be properly adjusted for years not included in a
top heavy Year of Credited Service.
(d) Applicable Percentage. For purposes of this section,
"applicable percentage" shall mean the lesser of (i) 2% multiplied by the number
of Top Heavy Years of Credited Service [as defined in Section 12.5(e)] of a
Member as of a computation date; or (ii) 20%.
(e) Top Heavy Years of Credited Service. For purposes of this
section, "Top Heavy Years of Credited Service" shall be equal to the number of
Years of Vesting Service as determined pursuant to Section 2.4 reduced by (i)
each Year of Vesting Service during which a Plan Year ends in which the Plan was
not top heavy; and (ii) each Year of Vesting Service completed in a Plan Year
beginning before January 1, 1984.
12.6 MAXIMUM BENEFITS. For purposes of determining the maximum
limitation on annual benefits, all references in Section 5.8(a)(ii)(A)(1) and
(b)(ii) to the number "1.25" shall instead be deemed to refer to the number
"1.0."
12.7 TRANSITION RULES WHEN PLAN CEASES TO BE TOP HEAVY. If, on
any Determination Date following any Plan Year in which the Plan is top heavy,
the Plan ceases to be top heavy, the following transitional rules shall apply to
the Plan thereafter during each Plan Year in which the Plan is not top heavy:
(a) Vesting Requirements. The vesting shall revert to that
provided in Sections 4.5 and 4.6, provided that no person who was a Member on
such Determination Date shall have a vesting percentage applied to his accrued
benefit which is less than the vesting percentage which applied to him on such
Determination Date as a result of the application of Section 12.4.
(b) Minimum Benefit. Normal, early and deferred vested
benefits shall be determined pursuant to Article V, provided that any benefit
which was accrued as of such Determination Date due to the application of
Section 12.5 shall not be decreased by virtue of the application of these
transition rules.
(c) Distribution of Benefits. Distributions shall be made at
such times as determined under Article IV and Section 6.6.
ARTICLE XIII
MULTIEMPLOYER PROVISIONS
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<PAGE> 49
13.1 ORIGINAL COMPANY. As used in this Article XIII, the term
"Original Company" shall refer to The Union Fork and Hoe Company and its
Successor by Merger, UnionTools, Inc.
13.2 ADOPTION BY OTHER COMPANIES. Effective as of January 1,
1991, any Affiliate may adopt the Plan with the approval of the Board of
Directors of the Original Company. The adopting Affiliate and the Original
Company shall execute an Adoption Agreement evidencing the Affiliate's adoption
of the Plan. The Adoption Agreement shall specify whether the adopting Affiliate
is adopting this Plan as a new plan or as the continuation of an existing plan.
The Adoption Agreement may contain variations in Plan terms applicable to the
adopting Affiliate and its Employees. However, the Original Company shall have
the sole and exclusive right to amend the Plan or Trust in any other respect, as
more fully described in Section 9.1. The Adoption Agreement shall become, as to
the adopting Affiliate and its Employees, a part of this Plan. It shall not be
necessary for the adopting Affiliate to execute the original or any amended Plan
and Trust documents. The provisions of the Plan shall apply separately to each
Affiliate except as provided in this article.
13.3 "COMPANY" FURTHER DEFINED. Except as otherwise provided
in this Article XIII, the term "Company" shall be defined in accordance with
Article I, provided, however, that it is intended that the provisions of the
Plan shall apply separately to each participating Company and to the Members of
each such participating Company; and the term "Company" as used throughout the
Plan shall be so construed so that, except as otherwise provided in this Article
XIII and except for the common investment of all assets of the Trust and the
availability for the common investment of all assets of the Trust and the
availability of all assets of the Trust to pay benefits to all Members as
described below, the Plan shall constitute a separate Plan for each
participating Company.
13.4 PARTICIPATION. The participation of any participating
Company in the Plan shall become effective as of the date stated in its Adoption
Agreement. A participating Company's participation in the Plan shall continue
until terminated in accordance with the terms of the Plan; provided, however,
that a Company's participation will automatically terminate effective as of the
date of participation if the Internal Revenue Service denies initial
qualification under Code Section 401 with respect to participation by the
participating Company. If that happens, the Trustees, within one year of the
denial of qualification, shall return to the participating Company all
contributions made by that Company; and, notwithstanding any provision in the
Plan to the contrary, no person shall have a right or claim to any benefit under
the Plan with respect to that Company. If the Company's participation is a new
plan, no benefits shall be paid with respect to Employees of that Company until
a favorable initial determination has been received. Further, participation by
any participating Company shall terminate if the Internal Revenue Service
notifies the participating Company that such participation has failed to retain
qualified status under the Internal Revenue Code. However, the participating
Company's participation shall not terminate until the participating Company
ceases to contest the disqualification, unless the Internal Revenue Service
requires that participation terminate as of an earlier date.
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<PAGE> 50
13.5 COMBINED SERVICE. As of the effective date of a
participating Company's Adoption Agreement, the term "service" or "employment"
shall refer equally to service with any participating Company. A Member shall be
deemed to have terminated employment for Plan benefit purposes only upon the
termination of his employment with all of the participating Companies. Credit
for Hours of Service and Years of Service completed prior to the effective date
of any Adoption Agreement executed by a participating Company shall be
determined in accordance with Article II and the terms of the applicable
Adoption Agreement. If a Member is employed by more than one participating
Company, either concurrently or successively, his benefits under the Plan shall
be determined as if all service were with any one participating Company, but he
will not receive credit for more than one Year of Service for any Plan Year. Any
determination of the contributions to be made by each participating Company, or
other portion of a Member's accrued benefit attributable to service with any
particular Company, will be made by the Plan Administrator upon advice of the
Plan's actuary.
13.6 ADMINISTRATION. The Original Company and the Plan
Administrator shall have exclusive administrative authority over the Plan and
Trust, although responsibility for those internal matters peculiar to a
particular Company may be delegated to that Company.
13.7 COMMON FUND. The Trustees of the Plan need not earmark or
keep separate the assets attributable to each Company, but may commingle them
with assets attributable to other Companies. The Trust shall be available to pay
benefits to Members and their beneficiaries without distinction as to the
Company to which particular assets or amounts are attributable.
13.8 AMENDMENT OF PLAN. The term "Company" as used in Article
IX, pertaining to amendment of the Plan, refers only to the Original Company,
which shall be vested with the sole power to amend the Plan in any manner,
except that, with the consent of the Original Company's Board of Directors, the
Board of Directors of any other participating Company shall have the right to
amend the Plan in any manner otherwise permitted by Article IX which affects the
Plan only as to that participating Company and in no way affects the Plan as to
any other participating Company and in no way affects the Plan as to any other
participating Company; provided, however, that the Board of Directors of any
participating Company shall have the right, without the necessity of obtaining
the consent of any other participating Company, to amend the Plan in such a way
as to transfer its participation in the Plan and the portion of the assets of
the Trust attributable to it to a separate plan under an agreement established
solely for the benefit of Employees of that participating Company.
13.9 WITHDRAWAL - TERMINATION.
(a) Any Company, by action of its Board of Directors or other
governing authority, and notice to the Plan Administrator and the Trustee, may
withdraw from the Plan and Trust, or may terminate the Plan with respect to its
Employees, without affecting any other Companies. A withdrawing Company may
arrange for the continuation of this Plan and Trust in
46
<PAGE> 51
separate form for its own employees, with such amendments as it may deem proper,
and may arrange for continuation of the Plan and Trust by merger with an
existing plan and trust, and transfer of Trust assets. The Original Company may,
in its absolute discretion, terminate the entire Plan or a Company's
participation at any time, without the consent of any Company, Member or
beneficiary.
(b) A Company which withdraws from or terminates this Plan,
shall direct the trustee to liquidate the share of the Trust allocable to its
Members or their beneficiaries, as determined by the Plan Administrator with the
assistance of the actuaries for the Plan. If the Company is not terminating the
Plan, such share shall be transferred to a successor trust upon receipt of
evidence satisfactory to the trustee that the successor trust qualifies under
Code Section 401(a). If the Company is terminating the Plan, such share shall be
allocated as provided in Section 9.3.
(c) A terminating or withdrawing Company shall give at least
90 days' prior written notice of its intention to terminate or withdraw to the
Plan Administrator and the trustees unless the trustee and the Plan
Administrator agree to shorter notice.
IN WITNESS WHEREOF, the undersigned has caused this Plan to be
executed by a duly authorized individual effective as of January 1, 1996.
UNIONTOOLS, INC.
Date: Nov. 11, 1996 By: /s/ Stephen M. Kasprisin
------------------------ ------------------------------------
Name (Print): Stephen M. Kasprisin
---------------------------
Title: CFO
---------------------------------
47
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NO. 1
TO THE
UNIONTOOLS, INC. RETIREMENT PLAN
FOR SALARIED EMPLOYEES
(RESTATEMENT EFFECTIVE AS OF JANUARY 1, 1996)
WHEREAS, UnionTools, Inc. (the "Company") sponsors the UnionTools, Inc.
Retirement Plan for Salaried Employees (the "Plan");
WHEREAS, the Company desires to amend the Plan to offer an early
retirement window to eligible employees;
NOW, THEREFORE, effective as of January 1, 1997, the Plan shall be
amended as follows:
1. Section 5.13 shall be added to the Plan to provide as follows:
5.13 EARLY RETIREMENT WINDOW AT AGE 60.
(a) Each Member who: (i) has at least five Years of Vesting
Service and is at least 60 years old on January 1, 1997; (ii) is
employed on February 1, 1997; and (iii) is a Non-Highly-Compensated
Employee, shall receive the benefits described in paragraph (b),
provided the Member notifies the Company on or before March 7, 1997 of
his intention to retire, and actually retires on April 18, 1997.
(b) A Member meeting the requirements of paragraph (a) shall
receive:
(i) his normal retirement benefit under this Article
determined as of January 1, 1997 and commencing as of May 1,
1997, without reduction for early commencement under Section
5.5.
(ii) a supplemental benefit equal to 50% of his
Earnings for 1996. A Member (or, if married, a Member and his
spouse) may elect, in accordance with the election procedures
in Section 6.2, to have the supplemental benefit paid in a
lump sum as of May 1, 1997. If a lump sum payment is not
elected, the value of such benefit shall be added to the
Member's normal retirement benefit under this Article.
<PAGE> 2
2. Section 5.14 shall be added to the Plan to provide as follows:
5.14 EARLY RETIREMENT WINDOW AT AGE 57.
(a) Each Member who: (i) has at least five Years of Vesting
Service and is at least 57 but less than 60 years old on January 1,
1997; (ii) is employed on February 1, 1997; and (iii) is a
Non-Highly-Compensated Employee, shall receive the benefits described
in paragraph (b), provided the Member notifies the Company on or before
March 7, 1997 of his intention to retire and actually retires on April
18, 1997.
(b) A Member meeting the requirements of paragraph (a) shall
receive:
(i) his normal retirement benefit under this Article
determined as of January 1, 1997 and commencing as of May 1,
1997, increased by an amount equal to 11.25% of his Earnings
for 1996, and without reduction for early commencement under
Section 5.5.
(ii) a supplemental benefit equal to 50% of his
Earnings for 1996. A Member (or, if married, a Member and his
spouse) may elect, in accordance with the election procedures
in Section 6.2, to have the supplemental benefit paid in a
lump sum as of May 1, 1997. If a lump sum payment is not
elected, the value of such benefit shall be added to the
Member's normal retirement benefit under this Article.
IN WITNESS WHEREOF, the Company has cause this Amendment to be executed
as of the 23 day of January, 1997.
UNIONTOOLS, INC.
By: /s/ Stephen M. Kasprisin
_____________________________________
Print Name: Stephen M. Kasprisin
Title: CFO
-2-
<PAGE> 1
EXHIBIT 10.8
VISION HARDWARE GROUP, INC.
SUPPLEMENTAL PENSION PLAN FOR EXECUTIVE EMPLOYEES
ARTICLE 1 - PURPOSE
1.1 This Plan has been established to provide retirement income for
certain highly compensated executives of Vision Hardware Group, Inc. and its
subsidiaries. The Plan is intended to supplement the benefits payable under the
Union Fork and Hoe Company Retirement Plan for Salaried Employees to the extent
those benefits are reduced by the limitations imposed on tax qualified pension
plans by sections 415 and 401(a)(17) of the Internal Revenue Code.
ARTICLE 2 - DEFINITIONS
2.1 "Beneficiary" means a person entitled to receive benefits under the
Basic Plan on account of a Participant's death.
2.2 "Basic Plan" means the Union Fork and Hoe Company Retirement Plan
for Salaried Employees.
2.3 "Board of Directors" or "Board" means the Board of Directors of
Vision Hardware Group, Inc.
2.4 "Company" means (i) Vision Hardware Group, Inc. or any company
which is a successor to Vision Hardware Group, Inc. as a result of merger,
consolidation, liquidation, transfer of assets, or other reorganization and (ii)
any subsidiary of Vision Hardware Group, Inc. which adopts this Plan by action
of its Board of Directors.
2.5 "Participant" means any executive employee of the Company who is
designated by the Board of Directors as a Participant in this Plan.
2.6 "Plan" means this Supplemental Pension Plan for Executive
Employees.
2.7 "Qualified Plan Limits" means (i) the limits on benefits and annual
additions under tax qualified pension and profit sharing plans imposed by
section 415 of the Internal Revenue Code, and (ii) the limits imposed by section
401(a)(17) of the Internal Revenue Code of 1986, as amended, on the amount of
compensation which may be considered under a tax qualified pension or profit
sharing plan.
ARTICLE 3 - RETIREMENT
3.1 Eligibility. A Participant who retires under the Basic Plan or who
terminates employment with the Company with a vested benefit under the Basic
Plan shall be entitled to receive a benefit under this Plan equal to the
difference between the benefit payable to him under
<PAGE> 2
the Basic Plan and the benefit which would have been payable to him under the
Basic Plan in the absence of the Qualified Plan Limits.
3.2 Commencement and Form of Payment. A Participant's benefit under
this Plan shall begin at the same time as his benefit under the Basic Plan and
shall be paid to him (and to his Beneficiary if Basic Plan payments extend
beyond his death) in the same form as his benefit under the Basic Plan.
ARTICLE 4 - DEATH PAYMENTS
4.1 Qualification and Amount. If a Participant dies before beginning to
receive benefits under this Plan, the Participant's Beneficiary or Beneficiaries
shall be entitled to receive a benefit under this Plan equal to the difference
between the benefit payable to such Beneficiary under the Basic Plan and the
benefit which such Beneficiary would have received in the absence of the
Qualified Plan Limits.
4.2 Duration of Payment. Benefits payable under Section 4.1 shall begin
at the same time as the Beneficiary's benefit under the Basic Plan and shall
continue until the Beneficiary's benefit under the Basic Plan terminates.
ARTICLE 5 - DISABILITY
5.1 Eligibility. A Participant who receives a disability retirement
benefit under the Plan shall be entitled to receive a benefit under this Plan
equal to the difference between the benefit payable to him under the Basic Plan
and the benefit which would have been payable to him under the Basic Plan in the
absence of the 401(a)(17) Limits.
5.2 Commencement and Form of Payment. A Participant's benefit under
this Plan shall begin at the same time as his benefit under the Basic Plan and
shall be paid to him in the same form as his benefit under the Basic Plan.
ARTICLE 6 - ADMINISTRATION
6.1 Board of Directors. The Board shall administer, construe, and
interpret this Plan. No member of the Board shall be liable for any act done or
determination made in good faith. No member of the Board who is a Participant in
this Plan may vote on matters affecting his personal benefit under this Plan,
but any such member shall otherwise be fully entitled to act in matters arising
out of or affecting this Plan notwithstanding his participation herein. In
carrying out its duties herein, the Board or any person or committee to whom the
Board's duties have been delegated under Section 5.2, shall have discretionary
authority to exercise all powers and to make all determinations, consistent with
the terms of the Plan, in all matters entrusted to it, and its determinations
shall be given deference and shall be final and binding on all parties. The
Board shall determine, subject to the provisions of this Plan, the eligibility
of employees to participate in the Plan and the amount, if any, due a
Participant or surviving spouse under this Plan.
2
<PAGE> 3
6.2 Delegation of Duties. The Board may, in its discretion, delegate
some or all of its duties to an officer or employee or a committee composed of
officers or employees of the Company. No person to whom the Board delegates its
duties under this Plan shall be liable for any act done or determination made in
good faith.
6.3 Claims Procedure.
(a) The Board or a person or committee designated by the Board pursuant
to Section 5.2, shall be responsible for determining any claims for benefits
under this Plan by Participants or their Beneficiaries. Within 90 days after
receiving a claim (or within up to 180 days, if the claimant is so notified,
including the reason for the delay), the Board (or other person or committee
responsible for determining the claim) shall notify the Participant or
beneficiary of its decision. If the decision is adverse to the claimant, the
claimant shall be advised of the Plan provision involved, of any additional
information which he must provide to perfect his claim and why, and of his right
to request a review of the decision.
(b) A Participant or Beneficiary may request a review of an adverse
decision by written request to the Board made within 60 days after receipt of
the decision. The claimant, or his attorney, may review pertinent documents and
submit written issues and comments.
(c) Within 60 days after receiving a request for review, the Board or
its designee shall notify the claimant in writing of (i) its decision, (ii) the
reasons therefor, and (iii) the Plan provisions upon which it is based.
(d) The Board may at any time alter the claims procedure set forth
above, so long as the revised claims procedure complies with the Employee
Retirement Income Security Act of 1974 and regulations issued thereunder.
ARTICLE 7 - MISCELLANEOUS PROVISIONS
7.1 Limitation of Rights. Nothing contained in this Plan shall be
construed to limit any rights the Company may have to terminate a Participant's
employment at any time or be evidence of any agreement or understanding, express
or implied, that the Company will employ a Participant in any particular
position or at any particular rate of pay.
7.2 Alienation of Benefits Prohibited. Benefits under this Plan may not
be assigned, pledged, mortgaged or hypothecated and, to the extent permitted by
law, no such benefit shall be subject to legal process or attachment for the
benefit of any claims against any person entitled to receive the same.
7.3 Amendment or Termination of Plan. The Board may amend this Plan
from time to time in any respect, and may at any time terminate the Plan in its
entirety or as it applies to any Company; provided, however, that once an
employee has been designated a Participant, his entitlement to benefits under
this Plan may not be terminated or reduced.
3
<PAGE> 4
7.4 Construction of Plan. This Plan is unfunded. The obligations of the
Company with respect to the benefits payable hereunder shall be paid out of the
Company's general assets and shall not be secured by any form of trust, escrow
or otherwise. This Plan shall be so construed that it will be maintained
primarily for the purpose of providing deferred compensation for a "select group
of management or highly compensated employees" as defined in the Employee
Retirement Income Security Act of 1974.
7.5 Gender and Number. Wherever used in this Plan, the masculine shall
be deemed to include the feminine and the singular shall be deemed to include
the plural, unless the context clearly indicates otherwise.
ARTICLE 8 - EFFECTIVE DATE
8.1 This Plan as amended shall become effective December 1, 1994.
4
<PAGE> 1
EXHIBIT 10.9
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF DECEMBER 27, 1996
Between
UNIONTOOLS, INC.
as Borrower
and
HELLER FINANCIAL, INC.
as Agent and as a Lender
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1
AMOUNTS AND TERMS OF LOANS...................................................................................... 1
1.1 Loans................................................................................ 1
1.2 Interest and Related Fees............................................................ 7
1.3 Other Fees and Expenses.............................................................. 11
1.4 Payments............................................................................. 12
1.5 Prepayments.......................................................................... 12
1.6 Term of the Agreement................................................................ 13
1.7 Loan Accounts........................................................................ 14
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........................................................................................... 17
2.1 Compliance With Laws................................................................. 17
2.2 Maintenance of Properties; Insurance................................................. 17
2.3 Inspection; Lender Meeting........................................................... 18
2.4 Corporate Existence, Etc............................................................. 18
2.5 Further Assurances................................................................... 18
SECTION 3
NEGATIVE COVENANTS.............................................................................................. 19
3.1 Indebtedness......................................................................... 19
3.2 Liens and Related Matters............................................................ 19
3.3 Investments; Joint Ventures.......................................................... 21
3.4 Contingent Obligations............................................................... 22
3.5 Restricted Junior Payments........................................................... 23
3.6 Restriction on Fundamental Changes................................................... 24
3.7 Disposal of Assets or Subsidiary Stock............................................... 24
3.8 Transactions with Affiliates......................................................... 25
3.9 Management Fees and Compensation..................................................... 25
3.10 Conduct of Business.................................................................. 25
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........................................................... 26
</TABLE>
(1)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 4
FINANCIAL COVENANTS/REPORTING................................................................................... 26
4.1 Capital Expenditure Limits........................................................... 26
4.2 Lease Limits......................................................................... 26
4.3 EBIDAT............................................................................... 26
4.4 Fixed Charge Coverage................................................................ 27
4.5 Total Interest Coverage.............................................................. 27
4.6 Total Indebtedness to Operating Cash Flow Ratio...................................... 28
4.7 [Intentionally Deleted.]............................................................. 29
4.8 [Intentionally Deleted.]............................................................. 29
4.9 [Intentionally Deleted.]............................................................. 29
4.10 Financial Statements and Other Reports............................................... 29
4.11 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement......................................................... 32
SECTION 5
REPRESENTATIONS AND WARRANTIES.................................................................................. 33
5.1 Disclosure........................................................................... 33
5.2 No Material Adverse Effect........................................................... 33
5.3 No Default........................................................................... 33
5.4 Organization, Powers, Capitalization and Good Standing............................... 33
5.5 Financial Statements................................................................. 34
5.6 Intellectual Property................................................................ 34
5.7 Investigations, Audits, Etc.......................................................... 34
5.8 Employee Matters..................................................................... 35
5.9 Solvency............................................................................. 35
SECTION 6
DEFAULT, RIGHTS AND REMEDIES.................................................................................... 35
6.1 Event of Default..................................................................... 35
6.2 Suspension of Commitments............................................................ 38
6.3 Acceleration......................................................................... 38
6.4 Performance by Agent................................................................. 39
SECTION 7
CONDITIONS TO LOANS............................................................................................. 39
7.1 Conditions to Initial Loans.......................................................... 39
7.2 Conditions to All Loans.............................................................. 39
SECTION 8
ASSIGNMENT AND PARTICIPATION.................................................................................... 40
8.1 Assignments and Participations in Loans and Notes.................................... 40
8.2 Agent................................................................................ 41
8.3 Amendments, Consents and Waivers for Certain Actions................................. 46
8.4 Set Off and Sharing of Payments...................................................... 46
</TABLE>
(2)
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
8.5 Disbursement of Funds................................................................ 47
8.6 Disbursements of Advances; Payment................................................... 47
SECTION 9
MISCELLANEOUS................................................................................................... 49
9.1 Indemnities.......................................................................... 49
9.2 Amendments and Waivers............................................................... 50
9.3 Notices.............................................................................. 50
9.4 Failure or Indulgence Not Waiver; Remedies Cumulative................................ 51
9.5 Marshalling; Payments Set Aside...................................................... 51
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............................................................ 52
9.12 Construction......................................................................... 52
9.13 Confidentiality...................................................................... 52
9.14 Consent to Jurisdiction and Service of Process....................................... 53
9.15 Waiver of Jury Trial................................................................. 53
9.16 Survival of Warranties and Certain Agreements........................................ 54
9.17 Entire Agreement..................................................................... 54
9.18 Counterparts; Effectiveness.......................................................... 54
SECTION 10
DEFINITIONS..................................................................................................... 54
10.1 Certain Defined Terms................................................................ 54
10.2 Other Definitional Provisions........................................................ 60
</TABLE>
(3)
<PAGE> 5
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Defined in Section
------------ ------------------
<S> <C>
Acquisition Loan Commitment Section 1.1(D)
Acquisition Loans Section 1.1(D)
Affiliate Section 10.1
Agent Section 10.1
Agreement Section 10.1
Asset Disposition Section 10.1
Bankruptcy Code Section 10.1
Base Rate Section 1.2(A)(1)
Base Rate Loans Section 1.2(A)(1)
Borrower Preamble & Section 10.1
Borrowing Base Section 1.1(B)(1)
Borrowing Base Certificate Section 1.1(B)(1)
Business Day Section 10.1
Cash Equivalents Section 3.3
Closing Date Section 10.1
Collateral Section 10.1
Contingent Obligation Section 3.4
Default Section 10.1
Event of Default Section 6.1
Excess Cash Flow Exhibit 1.5(B)
Expiry Date Section 10.1
Funding Date Section 7.2
GAAP Section 10.1
Heller Preamble
Holdings 3rd Recital
Indebtedness Section 10.1
Interest Period Section 1.2(A)(2)
Investments Section 3.3
IRC Section 10.1
Lender(s) Section 10.1
Lender Addition Agreement Section 10.1
Lender Letter of Credit Section 1.1(C)
LIBOR Section 1.2(A)(2)
LIBOR Breakage Fee Section 1.3(B)
LIBOR Loans Section 1.2(A)(2)
Lien Section 10.1
Loan(s) Section 10.1
Loan Documents Section 10.1
Loan Party Section 10.1
</TABLE>
(4)
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
Loan Year Section 10.1
Material Adverse Effect Section 10.1
Maximum Revolving Loan Balance Section 1.1(B)(1)
Net Proceeds Section 10.1
Note(s) Section 10.1
Obligations Section 10.1
Operating Cash Flow Section 4.7
Permitted Acquisitions Section 3.3
Permitted Encumbrances Section 3.2(A)
Person Section 10.1
Pro Forma Section 10.1
Pro Rata Share Section 10.1
Projections Section 10.1
Related Transactions Section 10.1
Related Transactions Documents Section 10.1
Requisite Lenders Section 10.1
Restricted Junior Payment Section 3.5
Revolving Loan Commitment Section 1.1(B)
Revolving Loans Section 1.1(B)
Risk Participation Agreement Section 1.1(C)
Risk Participation Liability Section 10.1
Scheduled Term Loan Installments Section 1.1(A)
Scheduled Acquisition Loan Installments Section 1.1(D)
Security Documents Section 10.1
Subordinated Indebtedness Section 10.1
Subsidiary Section 10.1
Target Section 1.1(D)
Term Loan Section 1.1(A)
Total Indebtedness Section 4.7
</TABLE>
(5)
<PAGE> 7
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
Exhibits
<S> <C> <C>
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
Schedule 7.1 - List of Closing Documents
Schedule 10.1(A) - Pro Forma
Schedule 10.1(B) - Indebtedness to be Repaid
</TABLE>
(6)
<PAGE> 8
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of December 27, 1996 and entered into
by and between UNIONTOOLS, INC., a Delaware corporation ("Borrower"), with its
principal place of business at 500 Dublin Avenue, Columbus, Ohio 43216 and
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.
R E C I T A L S:
WHEREAS, Borrower desires that Lenders extend 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 desires to secure 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, Vision Hardware Group, Inc., a Delaware corporation
("Holdings"), which owns all of the issued and outstanding capital stock of
Borrower, is willing to guaranty all of the Obligations of Borrower to Lenders
under the Loan Documents and to pledge to Agent, for the benefit of Agent and
Lenders, all of the capital stock of Borrower to secure such guaranty;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Heller and Agent 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) Term Loan. Heller agrees to lend to Borrower, in one draw,
on the Closing Date, the aggregate amount of $20,000,000 (the "Term Loan").
Borrower shall repay the Term Loan through periodic payments on the dates and in
the amounts indicated below ("Scheduled Term Loan Installments"). Amounts
borrowed under this subsection 1.1(A) and repaid may not be reborrowed.
<PAGE> 9
<TABLE>
<CAPTION>
Date Scheduled Installment
---- ---------------------
<S> <C> <C>
June 30, 1997 $1,500,000
September 30, 1997 $1,000,000
December 31, 1997 $ 500,000
Each March 31st of calendar years
1998, 1999, 2000 and 2001 $ 250,000
Each June 30th of calendar years
1998, 1999, 2000 and 2001 $1,500,000
Each September 30th of calendar years
1998, 1999, 2000 and 2001 $1,000,000
Each December 31st of calendar years
1998, 1999 and 2000 $ 250,000
December 31, 2001 $5,250,000
</TABLE>
(B) 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(B), 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(B)(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
2
<PAGE> 10
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) 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.
(C) 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
3
<PAGE> 11
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(C)(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 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(C)(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.
4
<PAGE> 12
(D) 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 second 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(D) (the "Acquisition Loans"), up to an aggregate maximum for all
Lenders of $15,000,000 (the "Acquisition Loan Commitment"). An Acquisition Loan
shall be made only upon the 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(D) and repaid may not be reborrowed.
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(D)(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 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 $7,500,000;
(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> <C>
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
<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>
(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 and 4.00:1 as of the last day of any month in
the second Loan Year. For the purposes of this subsection 1.1(D)(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 Term Loan, 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 second anniversary of
the Closing Date ("Scheduled Acquisition Loan Installments").
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
Each March 31st of calendar years
1999 and 2000 2.083%
Each June 30th of calendar years
</TABLE>
6
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C>
1999 and 2000 12.50%
Each September 30th of calendar years
1999 and 2000 8.333%
Each December 31st of calendar years
1999 and 2000 2.083%
March 31, 2001 1.563%
June 30, 2001 9.375%
September 30, 2001 6.25%
</TABLE>
On December 31, 2001, the entire remaining principal balance of the Acquisition
Loans, together with all accrued but unpaid interest thereon, shall be due and
payable in full.
(E) 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, (ii) a
Note to evidence the Term Loan, such Note to be in the principal amount of such
Lender's Pro Rata Share of the Term Loan, and (iii) 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
7
<PAGE> 15
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 the day immediately preceding such first
Business Day of a calendar quarter that follows the first anniversary of the
Closing Date, three quarters of one percent (0.75%) per annum, and (ii) for each
period commencing on such first Business Day of a calendar quarter that follows
the first anniversary of the Closing Date, or any subsequent first Business Day
of a calendar quarter after Agent has received a new Compliance Certificate
delivered by Borrower 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
8
<PAGE> 16
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 Term Loan, 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.
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
9
<PAGE> 17
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 by which $15,000,000 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
10
<PAGE> 18
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. All Loans made on the Closing Date
shall be Base Rate Loans and remain so for three (3) Business Days. Any LIBOR
Loans made during the sixty (60) days immediately following such three (3)
Business Days shall have an Interest Period of no more than thirty (30) days.
Thereafter, Borrower may request, upon not less than three (3) Business Days'
notice, that Revolving Loans to be made be LIBOR Loans and that outstanding
portions of the Term Loan or the Acquisition Loans be converted to LIBOR Loans.
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.
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 the Closing Date and on each anniversary thereof, the fees specified in that
certain letter agreement dated November 20, 1996 between Borrower and Heller.
(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
11
<PAGE> 19
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 admini-
stration 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.
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 Term Loan
Installments, Scheduled Acquisition Loan Installments, interest, commitment
fees, Risk Participation Liability fees,
12
<PAGE> 20
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 Term Loan and 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 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 Term Loan 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 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; provided, however, that with
respect to any such net proceeds from the issuance of equity securities by
Holdings during the first eighteen (18) months following the Closing Date, and
so long as no Default or Event of Default has occurred and is
13
<PAGE> 21
continuing or would result therefrom, such net proceeds may first be used to
repay the existing Subordinated Indebtedness of Holdings and, upon the repayment
of such Subordinated Indebtedness in full, may then be used to redeem or
repurchase the preferred capital stock of Holdings issued and outstanding as of
the date hereof, and any remaining balance shall be applied as a prepayment of
the Loans. 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 Term Loan pro rata against all
remaining Scheduled Term Loan Installments and, at any time after the Term Loan
shall have been prepaid in full, such prepayments shall be applied in payment of
the Acquisition Loans pro rata against all remaining Scheduled Acquisition Loan
Installments and, at any time after the Term Loan and 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.
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
14
<PAGE> 22
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
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
15
<PAGE> 23
(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 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, in which case the Revolving 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.
SECTION 2
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving 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 the
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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
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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 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 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 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
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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
(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);
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(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;
(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;
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(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;
(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 guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (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 engaged in a business that
is the same or similar to the
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business of Borrower as of the Closing Date in a negotiated transaction;
provided that such acquisition either is funded by an Acquisition Loan made
pursuant to subsection 1.1(D) 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:
(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
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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 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
$1,500,000 per fiscal year;
(D) Borrower may make payments and distributions to Holdings
to enable Holdings to make payments on the Subordinated Indebtedness of Holdings
provided that such payments by Holdings are permitted pursuant to that certain
Subordination and Intercreditor Agreement of even date herewith among Agent,
Holdings and the holders of such Subordinated Indebtedness;
(E) Borrower may make payments and distributions to the extent
provided in subsection 1.5(D); and
(F) 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
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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 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
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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.
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
26
<PAGE> 34
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 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> <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> <C>
</TABLE>
27
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C> <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.
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C> <C>
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
</TABLE>
(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.
<TABLE>
<CAPTION>
Date/
Period Amount
------ ------
<S> <C> <C>
January 31, 1998 1.1:1
April 30, 1998 1.1:1
On or after July 31, 1998 1.2:1
</TABLE>
"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.
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C> <C>
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
</TABLE>
28
<PAGE> 36
(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.
<TABLE>
<CAPTION>
Date/
Period Amount
------ ------
<S> <C> <C>
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
</TABLE>
"Total Interest Coverage" will be calculated as illustrated on Exhibit 4.10(C).
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.
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C> <C>
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
</TABLE>
(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.
<TABLE>
<CAPTION>
Date/
Period Amount
------ ------
<S> <C> <C>
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
</TABLE>
29
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C>
On or after July 31, 1999 2.0:1
</TABLE>
"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)).
(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).
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<PAGE> 38
(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.
(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
31
<PAGE> 39
(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.
(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.
32
<PAGE> 40
(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.
(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
33
<PAGE> 41
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 August 2, 1996, 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.
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.
34
<PAGE> 42
(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 each of the Loan
Parties 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, including those listed below,
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.
(A) The consolidated balance sheets at August 2, 1996 and the
related statement of income of Borrower and its Subsidiaries, for the fiscal
year then ended, certified by Ernst & Young LLP.
(B) The consolidated balance sheet at December 6, 1996 and the
related statement of income of Borrower and its Subsidiaries for the four (4)
months then ended.
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
35
<PAGE> 43
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 trans action; 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 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
36
<PAGE> 44
(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, 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
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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 and
McGuire-Nicholas Company, a California corporation, 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") and Messrs. Howard S. Marks, Bruce A. Karsh, D.
Richard Masson and Sheldon M. Stone together cease to exercise the exclusive
management and control of at least fifty-one percent (51%) 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) TCW Asset
Management Company ("TCW") or any Person directly or indirectly controlling,
controlled by, or under common control with, TCW shall be entitled, directly or
indirectly, to receive more than twenty percent (20%) of the distributions that
could be made on the issued and outstanding shares of
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capital stock of Holdings, or (3) Holdings ceases to beneficially own, directly,
one hundred percent (100%) of the issued and outstanding shares of capital stock
of Borrower.
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 Term Loan, 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
CONDITIONS TO LOANS
The obligations of Lenders to make Loans and of Agent to issue Lender
Letters of Credit and Risk Participation Agreements are subject to satisfaction
of all of the applicable conditions set forth below.
7.1 Conditions to Initial Loans. The obligations of Lenders to make the
initial Loans and of Agent to issue any Lender Letters of Credit and Risk
Participation Agreements on the Closing Date are, in addition to the conditions
precedent specified in subsection 7.2, subject to the delivery of all documents
listed on Schedule 7.1, all in form and substance satisfactory to Agent, and the
satisfaction of all other conditions precedent contained in Schedule 7.1.
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
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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,
the Acquisition Loan Commitment and Term Loan 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, the Acquisition Loan Commitment and
Term Loan of the assigning Lender; and (c) upon the consummation of each such
assignment the Lender accepting the assignment shall pay Agent an administrative
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, the
Acquisition Loan Commitment and the Term Loan 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 Term Loan Installment or 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".
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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 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.
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
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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 notify each
Lender any time that the Requisite Lenders have instructed Agent to act or
refrain from acting pursuant hereto.
(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
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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 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
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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.
(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, the Acquisition Loan Commitment
and the outstanding Term Loan, 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)
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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 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
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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 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 (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; except that no
Lender shall exercise any such right without the prior written consent of Agent.
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
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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 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
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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 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) Term Loan and Acquisition Loan Payments; Related Fee
Payments. Payments of principal, interest and fees in respect of the Term Loan
and 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.
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(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 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
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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 Term Loan, 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 Term Loan Installment or
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,
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.
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
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(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
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
If to a Lender: To the address set forth
in the applicable Lender
Addition Agreement
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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
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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.
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
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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 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
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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.
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.
SECTION 10
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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 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.
"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
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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 December 30, 1996, or such later 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) December 31, 2001.
"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.
"IRC" means the Internal Revenue Code of 1986, as
amended from time to time and all rules and regulations promulgated
thereunder.
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"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, the Acquisition Loans, or the Term Loan.
"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 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; but excluding all Capitalization/Acquisition Documents.
"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 the Closing Date 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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<PAGE> 68
"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 Forma" means the unaudited consolidated balance sheet of
Borrower and its Subsidiaries as of the Closing Date, based upon the
financial statements dated as of December 6, 1996 prepared in
accordance with GAAP, but after giving effect to the Related
Transactions. The Pro Forma is annexed hereto as Schedule 10.1(A).
"Pro Rata Share" means (a) with respect to a Lender's
obligation to lend a portion of the Term Loan and receive payments of
interest and principal with respect thereto, the percentage obtained by
dividing (i) such Lender's commitment to make a portion of the Term
Loan, 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 the Term Loan, (b) with respect to a
Lender's obligation to make Revolving Loans and receive payments of
interest
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<PAGE> 69
and principal with respect thereto and with respect to a Lender's
obligation to share in Risk Participation Liability (and with respect
to the related Risk Participation Liability fee described in subsection
1.2(C)), the percentage obtained by dividing (i) such Lender's
commitment to make Revolving 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
(c) with respect to the Acquisition Loan Commitment and all other
matters (including without limitation the indemnification obligations
arising under subsection 8.2(E)), the percentage obtained by dividing
(i) the sum of the then outstanding portion of the Term Loan which was
funded by such Lender, plus the commitment of such Lender to make
Revolving 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) the sum of the then
outstanding Term Loan, plus the aggregate Revolving Loan Commitment.
"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.
"Related Transactions" means the funding of all Loans on the
Closing Date, the repayment of the Indebtedness identified on Schedule
10.1(B) which is to be paid in full 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 (a) sixty-six and
two-thirds percent (66-2/3%) or more of the sum of the Revolving Loan
Commitment, the Acquisition Loan Commitment and the outstanding
principal balance of the Term Loan or, (b) if the Revolving Loan
Commitment has been terminated, sixty-six and two-thirds percent
(66-2/3%) or more of the aggregate outstanding principal balance of the
Loans.
"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
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<PAGE> 70
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, 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 of even date
herewith among Agent, Holdings and the holders of Subordinated
Indebtedness set forth therein, the "Junior Note" as defined in that
certain Subordination and Intercreditor Agreement of even date herewith
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
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
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<PAGE> 71
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.
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<PAGE> 72
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 President
-----------------------
HELLER FINANCIAL, INC., as Agent and
a Lender
By: /s/ Andrew W. Chidester
---------------------------
Title: Assistant Vice President
-------------------------
66
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1
TO CREDIT AGREEMENT
This Amendment dated as of February 28, 1997 (this "Amendment"), is
entered into by and among UnionTools, Inc., a Delaware corporation ("Borrower"),
Heller Financial, Inc., a Delaware corporation, in its capacity as Agent
("Agent"), and each of the Lenders under the Credit Agreement (as defined
below), with reference to the following facts:
RECITALS
A. Lenders are extending various secured financial accommodations to
Borrower upon the terms of that certain Credit Agreement dated as of December
27, 1996 among Borrower, Agent and Lenders (the "Credit Agreement").
B. Borrower, Agent and Lenders desire to amend the Credit Agreement
upon the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and for the other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by each party hereto, Borrower, Agent and Lenders hereby agree as
follows:
1. Defined Terms. Unless otherwise specified herein, any capitalized
terms defined in the Credit Agreement shall have the same respective meanings as
used herein.
2. Set Off. With respect to subsection 8.4 of the Credit Agreement,
any Lender may exercise its set off rights as provided therein without the prior
written consent of Agent, provided that such Lender shall give reasonably prompt
subsequent written notice thereof to both Borrower and Agent.
3. Environmental and Other Regulatory Matters. With respect to the
environmental and other regulatory matters identified in the reports prepared by
GaiaTech, Borrower shall, in a timely manner, provide such information and
obtain such reports as may be reasonably required by Agent, and otherwise comply
with the provisions of subsection 2.1 of the Credit Agreement.
4. LIBOR Loan Request. With respect to any LIBOR Loan request received
by Agent from Borrower pursuant to subsection 1.2(G) of the Credit Agreement,
Agent shall provide a copy of such request to each Lender at least two (2)
Business Days prior to the commencement of the subject Interest Period.
<PAGE> 2
5. Assignments and Participations. In the event that Heller assigns
all or a portion of its Pro Rata Share of the Revolving Loan Commitment, the
Acquisition Loan Commitment and Term Loan, or sells participation(s) therein,
pursuant to subsection 8.1 of the Credit Agreement, 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.
6. Events of Default, Etc. In the event that Agent receives a written
notice or certificate from Borrower pursuant to subsection 4.10(L) of the Credit
Agreement, Agent shall provide a copy thereof to each Lender in a reasonably
prompt manner.
7. Amendments and Waivers. Agent shall provide a copy of any written
amendments, modifications, terminations and waivers as provided in subsection
9.2 of the Credit Agreement to each Lender in a reasonably prompt manner.
8. Rubbermaid Product. With respect to the definition of "Permitted
Encumbrances" in subsection 3.2 of the Credit Agreement, the interests of
Rubbermaid Incorporated in the product it has delivered or may hereafter deliver
to Borrower for processing, together with the products and proceeds thereof, and
increases, substitutions, replacements, additions and accessions thereto, shall
be deemed to be Permitted Encumbrances.
9. Representations and Warranties. Borrower reaffirms that the
representations and warranties made to Agent or Lenders in the Credit Agreement
and other Loan Documents are true and correct in all material respects as of the
date of this Amendment as though made as of such date and after giving effect to
this Amendment. In addition, Borrower makes the following representations and
warranties to Agent and Lenders, which shall survive the execution of this
Amendment:
a. The execution, delivery and performance of this Amendment
are within Borrower's powers, have been duly authorized by all necessary
actions, have received all necessary governmental approvals, if any, and do not
contravene any law or any contractual restrictions binding on Borrower.
b. This Amendment is the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium and other
similar laws affecting the rights of creditors generally.
c. No event has occurred and is continuing, or would result
from the execution, delivery and/or performance of this Amendment, which
constitutes a Default or Event of Default under the Credit Agreement or any
other of the Loan Documents, or would constitute
2
<PAGE> 3
such a Default or Event of Default but for the requirement that notice be given
or time elapse or both, after giving effect to this Amendment.
10. Continuing Effect of Loan Documents. To the extent of any
inconsistencies between the terms of this Amendment and the Credit Agreement,
this Amendment shall govern. In all other respects, the Credit Agreement and
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
11. References. Upon the effectiveness of this Amendment, each
reference in any Loan Document to "the Agreement", "hereunder," "herein,"
"hereof," or of like import referring to the Credit Agreement shall mean and be
a reference to the Credit Agreement as amended hereby.
12. Governing Laws. This Amendment, upon becoming effective, shall be
deemed to be a contract made under, governed by, and subject to, and shall be
construed in accordance with, the internal laws of the State of Illinois.
13. Effectiveness. This Amendment shall become effective upon its due
execution and delivery by the parties hereto and the due execution and delivery
of the following Consent of Guarantor to Agent.
14. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Amendment as of the date first set forth above, to
become effective in the manner set forth above.
UNIONTOOLS, INC.
By: /s/ Stephen M. Kasprisin
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
HELLER FINANCIAL, INC., as Agent
By: /s/ Elizabeth Price
-------------------------------------
Name: Elizabeth Price
-----------------------------------
Title: Vice President
----------------------------------
3
<PAGE> 4
HELLER FINANCIAL, INC., as a Lender
By: /s/ Elizabeth Price
-------------------------------------
Name: Elizabeth Price
----------------------------------
Title: Vice President
---------------------------------
4
<PAGE> 5
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By: /s/ Lawrence J. Placek
-------------------------------------
Name: Lawrence J. Placek
-----------------------------------
Title: Vice President
---------------------------------
FLEET CAPITAL CORPORATION, as a Lender
By: /s/ Alisa G. Frederick
-------------------------------------
Name: Alisa G. Frederick
-----------------------------------
Title: Vice President
---------------------------------
PNC BANK, OHIO, NATIONAL
ASSOCIATION, as a Lender
By: /s/ Warren F. Weber
-------------------------------------
Name: Warren F. Weber
-----------------------------------
Title: AVP
---------------------------------
THE FIRST NATIONAL BANK OF BOSTON, as
a Lender
By: /s/ Timothy M. Sarns
-------------------------------------
Name: Timothy M. Sarns
-----------------------------------
Title: Division Executive
---------------------------------
STAR BANK, N.A., as a Lender
By: /s/ Richard W. Neltner
-------------------------------------
Name: Richard W. Neltner
-----------------------------------
Title: Vice President
---------------------------------
5
<PAGE> 6
CONSENT OF GUARANTOR
The undersigned, as guarantor of the Obligations of Borrower to Agent
and Lenders pursuant to that certain Guaranty dated as of December 27, 1996 (the
"Guaranty") hereby acknowledges receipt of a copy of the foregoing Amendment No.
1 and acknowledges, consents and agrees that (i) the Guaranty remains in full
force and effect and is hereby reaffirmed, and (ii) the execution and delivery
of the foregoing Amendment No. 1 and any and all documents executed in
connection therewith shall not alter, amend, reduce or modify its obligations
and liability under the Guaranty.
Dated: As of February 28, 1997 VISION HARDWARE GROUP, INC., a Delaware
corporation
By: /s/ Stephen M. Kasprisin
____________________________________
Name:___________________________________
Title:__________________________________
6
<PAGE> 1
EXHIBIT 10.12
LICENSE AGREEMENT
This License Agreement ("Agreement") is made and entered into as of the
1st day of August, 1992, by and between THE O.M. SCOTT & SONS COMPANY, a
Delaware corporation ("Licensor"), and THE UNION FORK AND HOE COMPANY, a
Delaware corporation ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor is the owner of the common law trademarks "Scotts"
and "Scotts and Oval Design" for lawn, turf and garden tools and equipment, a
copy of which is depicted in the Exhibit A attached hereto and incorporated
herein ("the Marks"); and
WHEREAS, Licensee wishes to obtain a license to use the Marks in
connection with the design, manufacture, marketing and distribution, through
sale or otherwise, of certain garden and industrial tool products described more
fully herein; and
WHEREAS, Scotts desires to grant to Licensee a limited license to
utilize the Mark in accordance with the terms of this Agreement:
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements of the parties hereto, the sufficiency of which is
hereby acknowledged, each party does agree with the other as follows:
1. LICENSE GRANT.
1.1 Products. Upon the terms and conditions hereinafter set forth,
Scotts hereby grants to Licensee and Licensee hereby accepts the exclusive right
except as noted herein, license and privilege of utilizing the Mark solely in
connection with the manufacture, sale and distribution of a line of high quality
(non-power) garden and industrial tools designed to be sold in the middle to
high end price range of the consumer product market and the high quality middle
price range of the industrial/contractor market as specified in Exhibit B
attached hereto and incorporated herein (the "Licensed Products").
1.2 Territory. The license hereby granted is for the United States of
America and Canada (the "Territory").
1.3 Channels of Distribution. Licensed Products may be sold to mass
merchandisers, department stores, home centers, warehouse or club retailers,
wholesalers, co-ops, hardware stores, lawn and garden retailers and
landscape/contractor suppliers or other channels as specifically and reasonably
agreed to by the parties ("Channels of Distribution") within the Territory who
intend to offer this line for sale in a manner consistent with the marketing
positioning and strategy established by Licensee marketing plans further defined
in Article 5.1 and brand segmentation/distribution strategy shown in Exhibit D.
<PAGE> 2
1.4 Goodwill. Licensee recognizes the great value of the goodwill
associated with the Marks and hereby acknowledges that the Marks and all of the
rights therein and the goodwill pertaining thereto belong exclusively to
Licensor, and that the Marks have acquired secondary meaning in the minds of the
consuming public.
1.5 Sublicenses. Licensee may sublicense the rights granted hereunder
to any affiliated or related entity but only with the prior written approval of
Licensor which approval is at Licensor's sole discretion and on the condition
precedent that each sublicensee agrees in writing to adhere to all of the terms
and conditions of this License Agreement. Nothing herein shall preclude Licensee
from subcontracting the manufacturing, advertisement or promotion of the
Licensed products to a third party. In the event of such sublicense or
subcontract, the Licensee shall remain fully liable for the fulfillment of all
of the terms and conditions of this Agreement.
1.6 Limitation of Licensee. Licensee may engage in the manufacture and
sale of products that perform similar functions to the Licensed Products, only
if such other products do not have the same exclusive colors or features as the
Licensed products set forth in Exhibit E attached hereto and incorporated
herein. In addition Licensee shall not enter into any other license agreement or
business arrangement that conflicts with this Agreement.
1.7 Limitation of Licensor. Licensor agrees not to license Marks to any
other long handle or garden tool manufacturer, distributor or marketer except
for those license agreements currently in effect for Licensed Products or
Related Lines as set forth in Exhibits B and C respectively attached hereto and
incorporated herein. Notwithstanding the foregoing: 1) Licensor has the right,
however, to manufacture on its own, or have manufactured, Related Lines of
products as defined in Exhibit C that utilize the Marks that may be sold by
Licensor or its normal or established distribution channels, and 2) the parties
acknowledge and agree that Licensor currently manufactures or has manufactured
for it spreaders which it sells and/or distributes and Licensor may in the
future license a third party to manufacture, sell and/or distribute spreaders
bearing the Marks.
1.8 Special Promotions. Licensee will supply Licensor on such terms and
conditions as agreed to by the parties from time to time certain Licensed
Products which Licensor will sell (directly or indirectly) to the professional
landscape, turf management or other commercial customers.
2. TERM AND TERMINATION.
2.1 Term. This Agreement shall commence on the date first written above
(the "Commencement Date") and shall have an initial term of three (3) years,
unless otherwise terminated as provided herein. This Agreement shall be renewed
automatically for successive three (3) year periods thereafter, unless sooner
terminated as provided for herein.
2.2 Material Breach: Opportunity to Cure. Either party may immediately
terminate this Agreement by written notice and without judicial intervention,
and without waiving any remedies or claims resulting from such termination, if
the other party shall: 1) fail to comply
2
<PAGE> 3
with or breach any of its material monetary obligations and covenants hereunder
and shall not and make good such breach or failure within ten (10) business days
from the receipt of a written notice to cure a monetary related breach; or 2)
fail to comply with or breach any of its material non-monetary obligations and
covenants hereunder and shall not remedy and make good such breach or failure,
or has failed to take steps to cure the same, within twenty (20) business days
from the receipt of a written notice of breach. In the case of an alleged breach
for non-payment, there shall be no termination of this Agreement if the claim is
based on payments, the amount of which is being disputed in good faith by the
parties, until the parties resolve the dispute in good faith or until an action
to resolve the dispute has been adjudicated in accordance with Section 16.1
below.
2.3 Termination for Insolvency. If: (i) a party shall file a petition
in bankruptcy for liquidation of its business; (ii) a petition in bankruptcy is
filed against a party and is not dismissed within a ninety (90) day period;
(iii) a party makes an assignment for the benefit of its creditors or an
arrangement pursuant to any bankruptcy law; (iv) a party discontinues its
business with intention that it be permanent; or (v) a receiver is appointed for
a party or its business and such appointment is not dismissed within a ninety
(90) day period, this Agreement shall, at the option of the other party, be
terminable immediately upon written notice. In the event this Agreement is so
terminated by Licensor, Licensee, its receivers, representatives, trustees,
agents, administrators, successors and/or assigns shall have no right to sell,
exploit or in any way deal with or in the Licensed Products bearing the Mark, or
any carton, container, packing material, wrapping material, advertisement,
promotional material or display material pertaining thereto, except as indicated
in Section 2.10.
2.4 Termination for Insufficient Sale by Licensee. Licensee may
terminate this Agreement upon ninety (90) days written notice to Licensor prior
to end of the first term in the event that Licensee has not generated sales
levels necessary to meet at least eighty (80) percent of the Minimum Guaranteed
Royalty Payments for Year Two (even though such Minimum Guaranteed Royalty has
been paid) and the outlook for achieving the sales level for the Minimum
Guaranteed Royalty in Year Three looks unfavorable.
2.5 Termination for Insufficient Sales by Licensor. Any time after the
completion of first term, Licensor may terminate this Agreement based upon
Licensee's royalties as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C> <C> <C>
(1) 4-6 If actual royalties for Year Five and forecasted
royalties for Year Six are: less than $750,000 and
less than 65% of the average royalties for Year Four
and Five; or
(2) 7-9 If royalties for the current term average below
$1,000,000; or
(3) 10+ beyond If royalties for the current term average below
$1,500,000
</TABLE>
3
<PAGE> 4
then Licensor shall give Licensee ninety (90) days written notice of termination
prior to the end of the then current term, such termination shall be
automatically effective without further notice at the end of the then current
term.
2.6 Termination in Case of Infringement. Either Licensor or Licensee
shall have the right to terminate this Agreement immediately if there is a bona
fide third party claim or a final adjudication that the use of the Marks on the
Licensed Products infringes the proprietary rights of any third party. In the
event of a bona fide third party claim, before exercising any termination
rights, Licensor, in consultation with Licensee, shall seek or negotiate in good
faith to obtain the rights or use from the third party for Licensee to use the
Marks on the Licensed Products.
2.7 Termination for Breach of Sub Distributor Agreement. Licensor may
terminate this Agreement immediately upon written notice if the Licensee
materially breaches the Sub Distributor Agreement attached hereto and
incorporated herein as Exhibit F between Licensor and Licensee, provided the
Licensee fails to cure pursuant to the terms of the Wolf Agreement, an Exhibit
of the Sub Distributor Agreement.
2.8 Termination for Damage to Reputation, Business or Goodwill. In the
event either Licensor or Licensee reasonably determines, in good faith, that
continuation of this Agreement would materially damage its reputation, business
(not including the fact that Licensor could derive more revenue from selling the
Licensed Products itself or through a different Licensee), or goodwill
collectively ("the Goodwill"), Licensor or Licensee, as the case may be, may
terminate this Agreement at the end of any three-year term after giving ninety
(90) days written notice of termination to the other and the other party has
failed to cure the Goodwill of the terminating party. To exercise its rights
hereunder, the party must demonstrate substantial evidence of damage to its
Goodwill as follows:
(a) For Licensor: documented material or a pattern of customer
and/or retailer complaints regarding the quality of the Licensed Products,
Licensee's service practices with respect to the Licensed Products, or its
reputation as a result of adjudications or other findings of improper business
conduct by Licensee.
(b) For Licensee: documented material or a pattern of customer
and/or retailer complaints regarding the quality of Licensor's products, or its
service practices, or Licensor's reputation as a result of adjudications or
other findings of improper business conduct by Licensor.
2.9 Payment Due Upon Termination. In the event of termination of this
Agreement Licensee is obligated to pay Royalties earned except that if
termination is pursuant to Section 2.2 if Licensee is the defaulting party, 2.3,
2.4 or 2.5, Licensee is still obligated to pay Minimum Guaranteed Royalty for
the Year of termination (Year is defined in Section 3.2) or other Royalties
earned, whichever is greater.
2.10 Sale of Inventory Upon Termination. Upon the date of termination,
Licensee shall cease manufacturing Licensed Products. For a period of six months
after termination, Licensee may continue to distribute by sale, lease or
otherwise Licensed Products manufactured
4
<PAGE> 5
prior to such date, provided that Royalty as set forth in Section 3 is paid on
sale or disposal of such Licensed Products. Notwithstanding the above, a sale or
disposal of Licensed Products shall not be allowed if termination resulted from
contract breach based upon: (1) failure to properly utilize the Marks on
Licensed Products or on related communications or packaging materials pursuant
to the terms of this Agreement; (2) failure to substantially adhere to quality
standards, design, or Annual Marketing Plan as outlined in Section 5, Marketing
Plan, and Section 7, Performance and Product Quality; or (3) failure to comply
with laws regarding manufacture or sale of Licensed Products.
2.11 Effect of Termination or Expiration. Sixty (60) days before the
expiration of the term of this Agreement, or of any extensions thereof, and, in
the event of its termination ten (10) days after receipt of notice of
termination or the happening of the event which terminates this Agreement where
no notice is required, a statement showing the number and description of units
of the Licensed Products covered by this Agreement on hand or in work in process
shall be furnished by Licensee to Licensor. Licensor shall have the right, upon
reasonable notice, to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such physical
inventory by Licensor shall forfeit Licensee's right to dispose of such
inventory pursuant to Section 2.10 of this Agreement.
3. PAYMENTS BY LICENSEE.
3.1 Royalty. During the term of this Agreement or any renewal terms,
Licensee shall pay to Licensor a royalty which is the greater of: (i) five
percent (5%) of the gross amount invoiced by Licensee for the sale or other
disposition for value (directly or through affiliated or related entities) of
all Licensed Products to third parties, less all applicable sales and use-type
taxes, customer discounts, credits for returned or rejected articles,
allowances, shipping charges, and insurance, provided gross to net sales
calculation is consistent with Licensee's historical past business practices and
GAAP standards (the "Net Price") or (ii) the Minimum Guaranteed Royalty set
forth in paragraph 3.2 (collectively, the "Royalty").
3.2 Minimum Guaranteed Royalty. For each year this Agreement is in
effect, Licensee shall pay to Licensor a Royalty not less than:
<TABLE>
<CAPTION>
<S> <C> <C>
First Year $250,000
Second Year $400,000
Third Year $500,000
</TABLE>
Fourth and all subsequent years, Third year royalty base of
$500,000 shall be adjusted by Consumer Price Index each year.
For purposes of this Article 3, a "Year" is a period of twelve completed months,
not a calendar year. The first year shall end on the last day of the twelfth
month following the Commencement Date. Each year thereafter shall be the
twelve-month anniversary of the first year.
3.3 Manner of Royalty Payment. All Royalty payments with respect to
each Licensed Product shall be made by check or wire transfer, in U.S. Dollars.
Royalty payments shall be at
5
<PAGE> 6
Licensor's office as set forth below. Each Royalty payment shall be accompanied
by documentation of how the Royalty was calculated, which shall be certified by
an officer of Licensee. The first shall be equal to one-fourth of Minimum
Guaranteed Royalty due and payable upon execution of the Agreement. The balance
shall be paid quarterly until the annual Minimum Guaranteed Royalty is exceeded.
Thereafter, the Royalty shall be paid monthly within thirty (30) days of month
end. For each subsequent year, the Minimum Guaranteed Royalty shall also be paid
quarterly with the first payment due of the first day of the year. Once the
Minimum Guaranteed Royalty is exceeded, Royalty payment shall be made on a
monthly basis as set forth above.
3.4 Licensing Records. For as long as a Royalty is due under this
Agreement, Licensee will keep true and accurate records adequate to permit
royalties due to Licensor to be computed and verified, which records shall be
made available upon prior written request, during business hours (but not more
than three times in any twelve month period), for inspection at Licensee's
premises, by an independent accountant who is reasonably acceptable to Licensee
and who shall be bound by a confidentiality agreement with the Licensee, to the
extent necessary for the determination of the accuracy of the reports made
hereunder. Monthly reports shall be submitted to Scotts of Licensed Products
sold along with statement of earned royalty to date which shall be provided with
each quarterly payment of Minimum Guaranteed Royalty and subsequent payments
after the Minimum Guaranteed Royalty is exceeded.
4. ADVERTISING AND LABELING.
4.1 Licensee agrees that it will cause to appear on or within each of
the Licensed Products sold by it under this License, and on or within all
advertising, promotional or display material bearing the Marks, appropriate
statutory notice of trademark registration or notice of common law trademark
rights thereto as indicated in Exhibit A of this Agreement. Guidelines are set
forth in Exhibit G attached hereto and incorporated herein. In the event that
any of the Licensed Products are marketed in a carton, container and/or packing
material or wrapping material bearing the Mark, such notice shall also appear
upon said carton, container and/or packing material or wrapping material. A
sample of each and every tag, label, imprint or other device containing any such
notice and all advertising, promotional material or display material bearing the
Marks shall be submitted by Licensee to Licensor and shall be subject to
Licensor's written approval prior to any use of the Marks by Licensee, such
approval shall not be unreasonably withheld or delayed. Any item submitted to
Licensor shall not be deemed approved unless and until the same shall have been
approved by Licensor in writing. Licensor shall direct all specimens for
approval to the person indicated in Exhibit H attached hereto and incorporated
herein, as it may be changed by Licensor upon written notice. After advertising,
promotional materials or display materials have been approved pursuant to this
Section 4, Licensee shall not depart therefrom in any material respect without
Licensor's prior written consent which shall not be unreasonably withheld or
delayed. From time to time after Licensee has commenced advertising or promoting
the sale of the Licensed Products, and upon Licensor's written request, Licensee
shall furnish to Licensor, without cost to Licensor, a reasonable number of
samples of each advertisement, promotional material or display material bearing
the Marks utilized by Licensee in connection with the sale of the Licensed
Products for purposes of
6
<PAGE> 7
reviewing compliance with this Agreement. Licensee reserves all copyright to any
designs or works created by it in connection with the Licensed Products.
5. MARKETING.
5.1 Each year during the first term or renewal term then in effect,
Licensee shall present Licensor with a copy of its preliminary marketing plan
for Licensed Products for the next year in sufficient time to allow for review
and input before a final annual marketing plan is developed. Licensee agrees to
promote the Licensed Products substantially as outlined in the Annual Marketing
Plan to the Channels of Distribution in the Territory covered in this Agreement.
The initial marketing plan to be prepared by Licensee pursuant to this Agreement
shall be submitted by Licensee within thirty (30) days following the execution
of this Agreement. The marketing plan for the subsequent years during the term
or renewal term, as the case may be, shall be submitted by Licensee to Licensor
by March 1 for the following year. Such marketing plan shall include the
following matters based on the previous season and future market outlook: the
pertinent market overview; external factors affecting the market; the product
line, including specifications and performance standards, product positioning,
features/benefits, price/value versus competitive products; consumer research;
sales strategy and target customers; merchandising programs and advertising
programs; and a three (3) year sales forecast in units and dollars. Licensee
anticipates using certain product designations set for in Exhibit H, which is
attached hereto and incorporated herein, in connection with the marketing and
sale of the Licensed Products. For the term of this Agreement and for three (3)
years thereafter, Licensee shall not use such designations set forth in Exhibit
H in connection with the marketing and sale of lawn and garden tools other than
Licensed Products. The final marketing plan shall not be implemented by Licensee
until the Licensor has had the opportunity to review the plan and identify any
areas of concern. Licensor and Licensee will work in good faith to resolve any
reasonable concerns of Licensor regarding the marketing plan or its execution.
5.2 In the event Licensor becomes aware of a use of the Marks or
execution of the Annual Marketing Plan by Licensee which the Licensor believes
in good faith violates the terms of this Agreement, Licensor shall have the
right to request copies of the Licensee's then-current promotional literature,
trade programs, advertising, labeling and other public materials bearing the
Marks. Licensee shall endeavor in good faith to cure any improper use of the
Marks of which it is notified by Licensor within thirty (30) days of the notice.
6. REPRESENTATIONS AND WARRANTIES.
6.1 Licensor represents and warrants to the Licensee as follows:
(a) Licensor owns all the necessary rights and has all
necessary power and authority to enter into this Agreement, perform its
obligations hereunder, and license the Marks pursuant to the terms hereof.
Licensor's performance under this Agreement does not conflict with any contract
to which Licensor is bound, its certificate of incorporation or its by-laws.
(b) To the best of the Licensor's knowledge (1) the use by the
Licensor and by the Licensee of the Marks in connection with the design,
manufacture, marketing and distribution
7
<PAGE> 8
of the Licensed Products will not infringe upon any trademark, copyright or
other proprietary rights of any third parties provided Wolf and Licensee sign
and approve the Agreements as provided in 6.1(a) above, and (2) no other person
or entity is infringing on the Licensor's or Licensee's rights to the Marks in
connection with the Licensed Products.
(c) The Licensor will use its best efforts to maintain the
validity of the Marks and its ownership thereof. It will actively police
infringing uses of the Marks by others and will not permit any other entity to
use the Marks in connection with the Licensed Products except for Wolf. Any
assignment by Licensor of the Marks to any third party for the same Licensed
Products shall be subject to the License granted herein.
6.2 Licensee represents and warrants to the Licensor as follows:
(a) Licensee will exercise best efforts to design,
manufacture, market, sell, and distribute the Licensed Products.
(b) Licensor shall not be responsible, in any manner
whatsoever, for the repair, replacement or refund of the purchase price of the
Licensed Products, or for any damage or loss suffered by any third party as a
result of the use of the Licensed Product or any cost associated therewith
regardless of whether claims or such repair, replacement, refund, damage or loss
arise under Licensee's warranties to the purchaser and/or user of the Licensed
Product or product liability claims. Licensee will ensure that finished Licensed
Products manufactured, marketed, sold and distributed under this Agreement shall
conform to the specification(s) and requirements included in this Agreement,
that the Licensed Products are merchantable and fit for their intended purpose
in accordance with labeling and printed direction for use and/or maintenance
included with the Licensed Product. Licensee shall assume all responsibility
without charge to Licensor for the repair or replacement obligations it
undertakes with respect to the Licensed Products as well as all damages, costs,
litigation, expenses, attorney's fees and the like for any claims for personal
injury including death relating to the manufacture, sale and use of Licensed
Products by its customers and the ultimate users.
(c) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action of Licensee and will be
binding on Licensee.
(d) Licensee will advise Licensor of any apparent infringement
of the Marks in connection with Licensed Products of which it becomes aware and
will reasonably cooperate with Licensor in the prosecution of any action in that
regard brought by Licensor at Licensor's cost. Licensee shall not take any
action with respect to any alleged infringement of the Marks unless so directed
by Licensor.
(e) Licensee has no rights to the Marks except those set forth
herein and will not challenge or cause a third party to challenge the validity
of the Marks or Licensor's ownership thereof, but that in the event of a finding
of actual infringement and a lawful order to discontinue use of Marks, Licensee
shall immediately cease all uses of the Marks.
8
<PAGE> 9
(f) The Licensed Products will comply with all applicable laws
and regulations, and Licensee shall employ such controls and inspections as are
necessary to protect the environment from exposure to and injury from the raw
materials, in-process materials, off-test product or finished Licensed Products
handled pursuant to this Agreement with Licensor having no liability whatsoever
therefor; and, Licensee warrants and agrees that it is solely responsible for
complying with all federal, state and local laws, rules, and regulations with
respect to the Licensed Products and the obligations under this Agreement
including without limitation the treatment, storage or disposal of all wastes
generated.
7. PERFORMANCE AND PRODUCT QUALITY.
7.1 Licensee agrees that the Licensed Products shall be of such
superior and consistent quality as to protect and enhance the goodwill embodied
in the Marks, and that all marketing and promotion of said goods shall be
conducted in a dignified manner in keeping with the high standards and integrity
of the Licensor and Licensee. Prior to execution of this Agreement, Licensor has
become familiar with the Licensed Products and reviewed materials regarding
Licensee's advertising and promotion of same. Licensee hereby covenants to
maintain the same or higher level of quality throughout the term of this
Agreement not to use the Marks in connection with goods that are inferior to the
high standards established by Licensee for its other products, and to ensure
that Licensed Products conform to the specifications set forth in Exhibit J
hereto. Licensee agrees to maintain quality control, to provide adequate test of
materials, to provide quality workmanship, and to do such other things as are
necessary to assure high quality production and servicing of the Licensed
Products, it being understood that Licensee shall be solely responsible for any
failure of Licensed Products as manufactured herewith to meet the specifications
in Exhibit J hereto. Licensee will assign all necessary employees to implement
and oversee these quality assurance procedures.
7.2 Licensee shall not provide, sell or offer to sell under the Marks
any goods the provision, sale or offer for sale of which violates any applicable
federal, state or local law or regulation.
7.3 Subject to compliance with the quality assurance provisions above,
during the term of this Agreement, Licensee may, in its discretion, modify and
improve any of the Licensed Products and their containers, marketing literature,
and related materials after consultation and written agreement from Licensor
(unless the change is not material under Section 4.1 above), which agreement
shall not be reasonably withheld or delayed.
8. LITIGATION.
8.1 Each party hereby agrees to give the other prompt written notice of
any claim or legal proceeding which is threatened or actually instituted against
either party by any third party and involving the Marks or this Agreement.
9
<PAGE> 10
9. ASSIGNMENT.
9.1 This Agreement and the rights granted hereunder shall not be
assignable, in whole or in part, by Licensee or Licensor, without the prior
written consent of the other, which shall not be unreasonably withheld or
delayed. Any such attempted assignment is null and void.
9.2 This Agreement shall be binding upon and inure to the benefit of
the parties hereto, their permitted assigns and representatives, and their
successors.
10. LIMITATION OF RELATIONSHIP BETWEEN PARTIES.
10.1 Neither party shall have power to bind the other by any guarantee
or representation that either party may give, or in any other respect
whatsoever, or to incur any debts or liabilities in the name of or on behalf of
the other party, and for purposes of this Agreement, the parties hereto shall
not be deemed partners, joint venturers, or to have created the relationship of
agency or of employer and employee between the parties.
11. LIMITATION OF LIABILITIES.
11.1 WITH RESPECT TO CLAIMS ARISING UNDER THIS AGREEMENT AS BETWEEN THE
PARTIES REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT OR IN TORT,
INCLUDING NEGLIGENCE, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY
FOR ANY LOSS OF PROFIT OR REVENUE BY THE OTHER OR FOR CONSEQUENTIAL DAMAGES
INCURRED OR SUFFERED BY THE OTHER, EVEN IF IT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH LOSS OR DAMAGES. THIS PROVISION SHALL SURVIVE EXPIRATION OR
TERMINATION OF THIS AGREEMENT.
12. INDEMNITY.
12.1 The provisions of Section 11.1 notwithstanding, with regards to
claims made against Licensee by third parties and/or claims based on such third
party claims, Licensor agrees to indemnify, protect, defend and hold harmless
Licensee, its affiliates, servants, employees, direct or indirect customers,
ultimate users, subcontractors, sublicensees and other agents and related or
affiliated companies against any and all expenses (including reasonable
attorneys' fees), claims, losses, damages or liabilities arising out of (1) any
breach of this Agreement by Licensor and/or Licensor's representations and
warranties contained herein, or (2) with respect to any action brought against
Licensee, or its affiliates and related companies, by any third party related to
a claim that the Marks, when applied to the Licensed Products, infringe any
copyright or trademark of any third party or constitutes an unlawful trade
practice provided Licensee gave Licensor timely notice as set forth in Section
6, or (3) the products of Licensor. Subsection (2) above does not apply to any
such claim of infringement that results from Licensee's manufacture of the
Licensed Products or from any other action or omission not envisioned by or
performed pursuant to the terms of this Agreement.
10
<PAGE> 11
12.2 The provisions of Section 11.1 notwithstanding, with regards to
claims made against Licensor by third parties and/or claims based on such third
party claims, Licensee agrees to indemnify, protect, defend and hold harmless
Licensor, its affiliates, servants, employees, direct or indirect customers,
ultimate users, subcontractors, sublicensees and other agents against any and
all expenses (including reasonable attorney's fees), claims, losses, damages or
liabilities arising out of (1) any breach of this Agreement by Licensee and/or
Licensee's representations and warranties contained herein or (2) with respect
to any claim that the Licensed Products manufactured for, by or under the
direction of Licensee are defective or otherwise do not comply with any
applicable law or regulation and/or claims for injury to or death of any person
(including, without limitation, such person's agents, servants, employees,
independent contractors, direct and indirect customers and ultimate users)
relating to the Licensed Product or Licensee's acts or omission.
12.3 Sections 12.1 and 12.2 shall survive expiration or termination of
this Agreement.
13. INSURANCE.
13.1 Licensee shall, at its own expense, carry and maintain the
following insurance with an insurance company with at least an A plus rating as
follows:
(a) Comprehensive General Liability (Bodily Injury and
Property Damage) Insurance, including Broad Form Property Damage Liability
Insurance, Contractor Liability Insurance, and Product Liability. The limits of
liability of such insurance shall be not less than Five Hundred Thousand Dollars
($500,000) per person and not less than One Million Dollars ($1,000,000) per
occurrence.
(b) All insurance shall be expressly endorsed to name Licensor
as an additional insured and shall include the requirement that the insurer
provide Licensor with not less that thirty (30) days advance written notice
prior to the effective date of any cancellation or material change and a copy of
this endorsement shall be delivered to Licensor with the execution of this
Agreement. Licensor shall be continued to be listed as an additional insured on
this insurance for a period of fifteen (15) years from the date of the last sale
by Licensee of the Licensed Products. This provision shall survive expiration or
termination of this Agreement.
14. EXCUSED PERFORMANCE.
14.1 Neither Licensor nor Licensee will be liable to the other for
failure to provide services, non-performance, incomplete performance, delay or
error under this Agreement if the cause of the same is beyond its reasonable
control or caused by acts of other persons not under control of either party,
governmental rules or orders, court orders, any labor or civil disturbance,
embargoes, strike, boycott, riot, floods, shortages of materials, insurrection,
war, or act of God. Any of these events will delay the required performance for
a period equal to the length of the event plus a reasonable time thereafter to
implement performance. The parties shall notify each other of an event of
excused performance and cooperate in good faith to ascertain a possible solution
of the situation.
11
<PAGE> 12
15. EMPLOYEES.
15.1 During the term of this Agreement and for a period of one (1) year
thereafter, both parties agree not to solicit or directly induce any employee to
leave the employ of the other party or its parent organization without the prior
written consent of the other party.
16. CONFIDENTIALITY.
16.1 The terms and conditions of Confidentiality as set forth in
Exhibit K, attached hereto and incorporated herein by reference, shall survive
the expiration or termination of this License Agreement.
17. MISCELLANEOUS.
17.1 This Agreement shall be construed and the respective rights of the
parties shall be determined, under and pursuant to the laws of the State of
Ohio. The parties agree that prior to initiating any litigation that they will
submit the matter in good faith to negotiation through the Columbus Bar
Association Mediation Program with each party sharing half the cost.
17.2 The invalidity of unenforceability of any particular provision(s)
of this Agreement will not affect the other provision(s) of it, and this
Agreement will be construed in all aspects as if such invalid or unenforceable
provision had been omitted.
17.3 This Agreement may be modified only by a written instrument
executed by both parties. A waiver of a breach or default under this Agreement
shall not be a waiver of any subsequent default.
18. NOTICES.
18.1 Notices required under this Agreement shall be in writing and be
sent by registered mail or by facsimile transmission with telephonic
confirmation of receipt or hand delivery to the respective parties at the
following addresses:
Notice to Licensor: The O.M. Scott & Sons Company
14111 Scottslawn Road
Marysville, OH 43041
Telecopy: 513-644-
Attn: Bernie Ford
With a copy to: The O.M. Scott & Sons Company
14111 Scottslawn Road
Marysville, OH 43041
Telecopy: 513-644-7153
Attn: Legal Department
Notice to Licensee: The Union Fork and Hoe Company
500 Dublin Avenue
12
<PAGE> 13
Columbus, OH 43216-1540
Telecopy: 614-221-8397
Attn: Gavril Mihaly
With a copy to: Piper & Marbury
36 Charles Center South
Baltimore, MD 21201
Telecopy: 410-539-0489
Attn: Robert W. Smith, Jr., Esq.
or to such other address as either party may designate by a notice given in
compliance with this paragraph, and shall be deemed effective when received.
19. ENTIRE AGREEMENT.
19.1 This Agreement, including the Exhibits hereto, constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.
LICENSEE LICENSOR
THE UNION FORK AND HOE COMPANY THE O.M. SCOTT & SONS COMPANY
By: /s/ Gavril Mihaly By: /s/ Bernard R. Ford
------------------------------ -------------------------------
Title: President and CEO Title: Vice President, Strategy
--------------------------- & Business Development
----------------------------
13
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF ACORN PRODUCTS, INC.
UnionTools, Inc.
McGuire-Nicholas Company, Inc.
VSI Fasteners, Inc.
<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 April , 1997) in the Registration Statement (Form S-1) and
related Prospectus of Acorn Products, Inc. dated April , 1997.
Columbus, Ohio
April , 1997
The foregoing consent is in the form that will be signed upon the determination
of the stock split as described in Note 13 to the financial statements.
Ernst & Young LLP
Columbus, Ohio
April 17, 1997
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<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JUL-28-1995 AUG-03-1996
<PERIOD-END> AUG-02-1996 JAN-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 502 0
<SECURITIES> 0 0
<RECEIVABLES> 11,226 18,721
<ALLOWANCES> 556 708
<INVENTORY> 23,433 31,787
<CURRENT-ASSETS> 37,703 51,469
<PP&E> 15,955 16,842
<DEPRECIATION> 5,397 (6,470)
<TOTAL-ASSETS> 98,895 95,646
<CURRENT-LIABILITIES> 29,160 33,275
<BONDS> 45,854 48,354
0 0
8,596 8,596
<COMMON> 14,406 14,494
<OTHER-SE> (4,472) (14,425)
<TOTAL-LIABILITY-AND-EQUITY> 98,895 95,646
<SALES> 92,652 40,695
<TOTAL-REVENUES> 92,652 40,695
<CGS> 67,496 30,142
<TOTAL-COSTS> 67,496 30,142
<OTHER-EXPENSES> 16,815 8,641
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,732 3,243
<INCOME-PRETAX> (1,086) (2,991)
<INCOME-TAX> 582 0
<INCOME-CONTINUING> (1,668) (2,991)
<DISCONTINUED> (6,480) (7,082)
<EXTRAORDINARY> 0 0
<CHANGES> 869 0
<NET-INCOME> (7,279) (10,073)
<EPS-PRIMARY> 0 0
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