<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1998
REGISTRATION NO. 333-43335
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AIRXCEL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3490 48-1071795
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3050 NORTH SAINT FRANCES STREET
WICHITA, KANSAS 67219
TELEPHONE: (316) 832-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MELVIN L. ADAMS
3050 NORTH SAINT FRANCES STREET
WICHITA, KANSAS 67219
TELEPHONE: (316) 832-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Unit(1) Offering Price(1) Fee(2)
- ---------------------------------------------------------------------------------------------------------------------------
Airxcel, Inc.'s 11% Senior Subordinated
Notes due 2007........................... $90,000,000 $1,000 $90,000,000 $26,550
===========================================================================================================================
</TABLE>
* Not Applicable.
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Registration fee previously paid.
------------------
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 1, 1998
PROSPECTUS
AIRXCEL, INC.
[AIRXCEL, INC. LOGO]
OFFER TO EXCHANGE ITS SERIES B 11% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
Airxcel, Inc., a Delaware corporation ("Airxcel" or the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its Series B
11% Senior Subordinated Notes due 2007 (the "Exchange Notes"), which will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to a Registration Statement of which this prospectus is a part,
for each $1,000 principal amount of its outstanding 11% Senior Subordinated
Notes due 2007 (the "Notes"), of which $90,000,000 principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and term of the Notes (which they replace) except that the Exchange Notes will
bear a Series B designation and will have been registered under the Securities
Act and, therefore, will not bear legends restricting their transfer and will
not contain certain provisions relating to an increase in the interest rate
which were included in the terms of the Notes in certain circumstances relating
to the timing of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Notes (which they replace) and will be issued under and be entitled
to the benefits of the Indenture dated November 10, 1997 between Airxcel and
United States Trust Company of New York (the "Indenture") governing the Notes.
See "The Exchange Offer" and "Description of Exchange Notes."
Airxcel has not issued, and does not have any current firm arrangements to
issue, any indebtedness to which the Exchange Notes would rank senior or pari
passu in right of payment. The Exchange Notes will be subordinated in right of
payment to all Senior Indebtedness of Airxcel (including debt under the Credit
Facility (as defined)). The amount of the Company's outstanding Senior
Indebtedness is $25.4 million.
Airxcel will accept for exchange any and all Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by Airxcel in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, Airxcel will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by Airxcel on November 10, 1997 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act. The
Initial Purchasers subsequently placed the Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and with a limited
number of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions. Accordingly, the Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of Airxcel under
the Exchange and Registration Rights Agreement entered into by Airxcel in
connection with the offering of the Notes. See "The Exchange Offer."
With respect to resales of Exchange Notes, based on interpretations by the staff
of the Securities and Exchange Commission (the "Commission") set forth in
no-action letters issued to third parties, Airxcel believes the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of Airxcel within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See "The Exchange Offer -- Purpose and Effect of the Exchange
Offer" and "The Exchange Offer -- Resales of the Exchange Notes." Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. Airxcel has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
If any holder of Notes is an affiliate of the Company, is engaged in or intends
to engage in or has any arrangement or understanding with any person to
participate in the distribution of the Exchange Notes to be acquired in the
Exchange Offer, such holder (i) cannot rely on the applicable interpretations of
the Commission and (ii) must comply with the registration requirements of the
Securities Act in connection with any resale transaction.
Holders of Notes not tendered and accepted in the Exchange Offer will continue
to hold such Notes and will be entitled to all the rights and benefits and will
be subject to the limitations applicable thereto under the Indenture and with
respect to transfer under the Securities Act. Airxcel will pay all the expenses
incurred by it incident to the Exchange Offer. See "The Exchange Offer."
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SEE "RISK FACTORS" ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
There has not previously been any public market for the Notes or the
Exchange Notes. Airxcel does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Notes could be adversely affected.
The Exchange Notes will be available initially only in book-entry form.
Airxcel expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Certificate representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the Depositary and its participants.
After the initial issuance of the Global Certificate, Exchange Notes in
certified form will be issued in exchange for the Global Certificate only on the
terms set forth in the Indenture. See "Description of Exchange
Notes -- Book-Entry; Delivery and Form."
AVAILABLE INFORMATION
Airxcel has filed with the Commission a Registration Statement on Form S-4
(the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus includes a discussion of all
material elements of the Exchange Offer Registration Statement, but does not
contain all of the information set forth therein. For further information with
respect to Airxcel and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Regional Offices of the commission at 7 World
Trade Center, Suite 1300, New York, NY 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additionally, the Commission maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, Airxcel will become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The obligation of Airxcel to file periodic
reports and other information with the Commission will be suspended if the
Exchange Notes are held of record by fewer than 300 holders as of the beginning
of any fiscal year of Airxcel other than the fiscal year in which the Exchange
Offer Registration Statement is declared effective. Airxcel will nevertheless be
required to continue to file reports with the Commission if the Exchange Notes
are listed on a national securities exchange. In the event Airxcel ceases to be
subject to the informational requirements of the Exchange Act, Airxcel will be
required under the Indenture to continue to file with the Commission the annual
and quarterly reports, information, documents or other reports, including,
without limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required
i
<PAGE> 4
pursuant to the informational requirements of the Exchange Act. Under the
Indenture, Airxcel shall file with the Trustee annual, quarterly and other
reports within fifteen days after it files such reports with the Commission.
Further, to the extent that annual, quarterly or other financial reports are
furnished by Airxcel to stockholders generally it will mail such reports to
holders of Exchange Notes. Airxcel will furnish annual and quarterly financial
reports to stockholders of Airxcel and will mail such reports to holders of
Exchange Notes pursuant to the Indenture, thus holders of Exchange Notes will
receive financial reports every quarter. Annual reports delivered to the Trustee
and the holders of Exchange Notes will contain financial information that has
been examined and reported upon, with an opinion expressed by an independent
public or certified public accountant. Airxcel will also furnish such other
reports as may be required by law.
FORWARD LOOKING STATEMENTS
THE PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY THE MANAGEMENT
OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY
UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES
AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES WILL BE
REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL;
(5) ADVERSE STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS
IN PENDING LITIGATION; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR IN
THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH
FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER,
INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE
COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
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<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes included elsewhere in this Prospectus. Holders of Notes are urged
to read this Prospectus in its entirety. Unless the context otherwise requires,
references in this Prospectus to "Airxcel" refer to Airxcel, Inc., references to
"RVP" refer to Recreation Vehicle Products, a division of Airxcel, references to
"Crispaire" refer to Crispaire Corporation, and references to the "Company"
refers to Airxcel after giving effect to the Transactions (as defined). As used
in this Prospectus, the term "pro forma" reflects the Transactions. References
in this Prospectus to "fiscal year" refer, as applicable, to a December 31
fiscal year-end for Airxcel and an October 31 fiscal year-end for Crispaire.
THE COMPANY
OVERVIEW
The Company is a designer, manufacturer and marketer of recreation vehicle
("RV") air conditioners and specialty wall mount air conditioners, environmental
control units ("ECUs") and heat pumps for various applications. The combination
of RVP and Crispaire is the first step in the Company's strategy to establish
itself as a leading designer, manufacturer and marketer of specialty heating,
air conditioning and water heating products. The Company believes that it is
well positioned to effectively pursue this strategy with strong positions in
each of its principal markets and a range of products serving separate customer
bases. The combination of RVP's low cost, high volume manufacturing expertise
with Crispaire's ability to provide customized products will allow the Company
to capitalize on the growing opportunities presented in each of its markets. The
Company's pro forma net sales and EBITDA were approximately $135.5 million and
$16.8 million in fiscal 1997.
RVP supplies a variety of air conditioners to several of the world's
largest RV original equipment manufacturers ("OEMs"), marketing these products
under the popular and well-established "Coleman" brand name. RVP believes that
its air conditioners are more effective to those of its competitors due to
greater air flow capacity, cooling efficiency and more aerodynamic design. RVP's
reputation as a dependable source of high-quality, durable products has resulted
in its long-term relationships with leading RV manufacturers such as Fleetwood
Enterprises ("Fleetwood"), Winnebago, Gulf Stream and Jayco, who have relied on
RVP for substantially all of their RV air conditioner needs for each of the past
six years. Sales to such OEMs provide RVP with a large installed base of
products which generates a significant recurring stream of revenue through sales
of parts and replacement units in the aftermarket. Aftermarket sales to
customers such as RV dealers, supply and service centers are achieved primarily
through an agreement with Coast Distribution System ("Coast"), the largest
wholesale distributor of aftermarket products in the RV industry. RVP believes
that Coast's extensive market penetration and large sales force provide broad
aftermarket coverage and distribution capabilities which enhance its substantial
aftermarket business. In fiscal 1996, as a percentage of Airxcel's net sales,
OEM sales represented 66.3%, and aftermarket sales represented 33.7%. In
addition to serving the RV industry, RVP designs, manufactures and markets air
conditioners for marine applications, the cooling and heating of elevators,
petroleum "logging" trucks and for a wide variety of small-space cooling
applications.
Crispaire is a designer, manufacturer and marketer of specialty wall mount
air conditioners, ECUs and heat pumps for various applications. Crispaire's
customers are principally telecommunications companies, manufacturers of
telecommunication shelters in the cellular, cable, wireless, satellite and
personal communication services ("PCS") markets, wholesale distributors for
foreign telecommunications sales, school districts and construction companies.
The Company believes that Crispaire is one of the largest providers of
environmental control equipment for the U.S. telecommunication shelter market,
through sales to both telecommunications companies and manufacturers of
telecommunication shelters. The Company believes that it is positioned to
benefit from growth in cellular, wireless and PCS telecommunications markets and
the resulting demand for telecommuni-
1
<PAGE> 6
cation shelters. The Company believes that Crispaire's focus on customer service
and quality control and its strong reputation for its ability to offer a broad
and innovative line of products in a timely manner has attracted significant
customers, including MCI, Motorola, AT&T Wireless, Lucent Technologies and other
wireless communication providers. The Company also believes that it will benefit
from an increasing need for cooling units in the nation's schools due to new
state regulations and certain building codes that mandate fresh air
requirements, the rebuilding of school system infrastructures and the steadily
growing student population. Crispaire supplies wall mount air conditioners to
multiple school districts throughout the country, including the Los Angeles
Unified School District. Crispaire has a strong position in each of its
principal markets, through solid relationships with its customers who generally
require tailored products and a high level of customer service. Crispaire's
ability to customize products without interruption of its larger production
lines allows it to work closely with customers to develop and produce equipment
that meets their specific needs quickly and efficiently. In fiscal 1996, sales
to the telecommunication shelter industry and school industry represented 61%
and 23%, of Crispaire's total net sales, respectively. Airxcel's net sales to
Fleetwood, Coast, JayCo and Winnebago, its largest customers, accounted for
approximately 33%, 27%, 12% and 8%, respectively, of the Company's net sales for
1997. Crispaire's net sales to Motorola and UNR-Rohn accounted for approximately
3.8% and 4.2% of its net sales in 1997.
The combination of RVP and Crispaire creates a diversified specialty air
conditioning company with a strong market presence. By combining the major
supply purchasing contracts, it is anticipated that at least a 1% or $700,000
savings in the annual purchases of raw materials and components of the combined
Company would be achieved. Management believes that the Company will benefit
from RVP's low variable cost structure and its cost controlling culture, and
that the Company will be able to streamline Crispaire's operations to achieve
additional cost savings and manufacturing efficiencies. Additionally, management
believes that the Company will be able to leverage off of Crispaire's proven
success in identifying new, emerging markets and customizing its products to
suit the needs of its customers.
INDUSTRY OVERVIEW
RV Industry
In 1996, the North American RV market was approximately $6.3 billion. The
RV market is broadly classified as "motorhomes" and "towables." Motorhomes are
self-propelled and grouped in three main classes: A, B and C. Class A motorhomes
typically have two air conditioners, and Class B and C motorhomes have a minimum
of one air conditioner. Towables typically have a minimum of one standard air
conditioner, with larger towables requiring two and air conditioners being
optional for campers. According to a University of Michigan study sponsored by
the Recreational Vehicle Industry Association ("RVIA"), approximately 8.2
million households owned RVs in 1993, an increase from 5.8 million in 1980. In
general, RV ownership has grown by an average of 100,000 units per year over the
last 17 years, and management currently estimates that one out of every eleven
households in the U.S. owns an RV.
The consistent growth in the RV industry is attributable to the general
maturing of the industry and several key factors, including (i) the overall
increasing number of RV owners, (ii) the growth in the number of potential
consumers, as baby boomers begin entering the typical demographic profile for
premium RV owners, (iii) the changing lifestyle of the U.S. population on
average, which is aging and devoting more time to recreational activities, (iv)
an increase in population in states such as California, Florida and Texas, where
RVs are common, (v) a favorable economic environment, and (vi) the availability
of gasoline.
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HVAC Industry
According to the Air Conditioning and Refrigeration Institute, the
worldwide air conditioning market is currently estimated at $40 to $45 billion
and is expected to grow to $50 billion by 2005. In 1995, the U.S. heating,
ventilation and air conditioning ("HVAC") market was estimated to be $19.2
billion and is forecasted to grow by approximately 6.8% to reach approximately
$20.5 billion by 2000. The Company's principal niche markets within the larger
HVAC market, telecommunication shelters and schools, are forecasted to
experience significant growth.
The telecommunications industry has experienced rapid growth over the last
several years due to deregulation and growth in wireless communication.
According to an article published in Mobile Phone News, the Wireless
Communications Bureau reports that the number of telecommunication sites
constructed has increased from 2,305 in 1987 to 30,045 in 1996. It is estimated
that the number of subscribers for wireless communication is approximately 58.3
million and is expected to grow to 160.6 million by 2007. Growth is expected to
result in an increased demand for telecommunication shelters and cabinets as new
wireless networks are constructed and old networks are overlaid with digital
technology. According to the Cellular Telecommunications Industry Association as
published in the Financial Times, revenues in the cellular market have grown by
over 20% per year, exceeding $23 billion in 1996. In addition to the domestic
market, future growth is also anticipated in international markets such as Latin
America, Europe, Asia and Canada, where land lines are limited and a greater
demand for wireless communications systems is expected. Suppliers of wireless
communications equipment should continue to benefit from the expected
acceleration in the deployment of wireless networks.
Beginning in the 1970's, many schools, primarily in the Sunbelt region of
the U.S., began adding air conditioners to their facilities. Currently, a
significant number of states have passed regulations and have building codes
that require a certain amount of fresh air in classrooms. Today, one-third of
the nation's schools, serving more than 14 million students, needs extensive
repair and renovation with air cooling and air conditioning being some of the
major systems needing overhaul. According to the U.S. General Accounting Office,
Report to Congressional Requesters, School Facilities (1995/1996), 20,104 public
elementary schools nationwide are in need of HVAC repair with an estimated cost
of $3 billion. The U.S. Bureau of the Census has reported that by the year 2005,
U.S. student enrollment in elementary and secondary schools is expected to
increase significantly, requiring an additional 6,000 schools. The public
elementary school HVAC new construction market is estimated to be $314 million
annually through the year 2005.
COMPETITIVE ADVANTAGES
The Company attributes its success and its continued opportunities for
growth and profitability to the following competitive advantages:
- Strong Market Position in Principal Niche Markets.
- Existing Long-Term Customer Relationships.
- Strong Brand Name Recognition.
- High Quality Products, Customer Service and Product Design Capabilities.
- Extensive Distribution Network and Experienced Sales Force.
- Recurring Revenues from Installed Base.
- Experienced Management.
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<PAGE> 8
BUSINESS STRATEGY
The key elements of the Company's business strategy to maintain its
leadership position are to:
- Capitalize on Anticipated Industry Growth.
- Generate Growth Through New Product Development.
- Pursue Growth Through Acquisitions.
See "The Business -- Competitive Advantages" and "-- Business Strategy" for
a more detailed discussion.
The Company is a Delaware corporation. Holdings is a Delaware corporation
whose sole asset is the capital stock of the Company. The Company's principal
executive offices are located at 3050 North Saint Frances Street, Wichita,
Kansas 67219, and its telephone number is (316) 832-3400.
THE TRANSACTIONS
On November 10, 1997 the Company completed the offering of the Notes (the
"Offering") and the acquisition of Crispaire (the "Crispaire Acquisition")
whereby, among other things, the management of Crispaire made a cash equity
investment in Holdings, and Holdings contributed the cash equity investment and
PIK Notes to Airxcel. It is anticipated that Airxcel will acquire 100% of the
outstanding common stock of KODA Enterprises Group, Inc. ("KODA") whereby, among
other things, a $4 million cash equity investment will be made in Holdings which
will be contributed to Airxcel (the "KODA Acquisition" and together with the
Crispaire Acquisition, the "Acquisitions"). The Offering, the Acquisitions, and
the Contributions (as defined) are collectively referred to herein as the
"Transactions." See "The Transactions."
THE OFFERING
Notes..................
The Notes were sold by the Company on November 10, 1997 to
Chase Securities Inc. and NationsBanc Montgomery
Securities, Inc. (the "Initial Purchasers") pursuant to a
Purchase Agreement dated November 5, 1997 (the "Purchase
Agreement"). The Initial Purchasers subsequently resold
the Notes to qualified institutional buyers pursuant to
Rule 144A under the Securities Act and to a limited number
of institutional accredited investors that agreed to
comply with certain transfer restrictions and other
conditions.
Exchange and
Registration Rights
Agreement............
Pursuant to the Purchase Agreement, the Company and the
Initial Purchasers entered into an Exchange and
Registration Rights Agreement dated November 10, 1997,
which grants the holder of the Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.....
$90,000,000 aggregate principal amount of Series B 11%
Senior Subordinated Notes due 2007 (the "Exchange Notes").
The Exchange Offer.....
$1,000 principal amount of the Exchange Notes in exchange
for each $1,000 principal amount of Notes. As of the date
hereof, $90,000,000 aggregate principal amount of Notes
are outstanding. The Company will
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<PAGE> 9
issue the Exchange Notes to holders on or promptly after
the Expiration Date.
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
the Company believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business
and that such holder does not intend to participate and
has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
Each Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for
Notes where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for
a period of 180 days after the Expiration Date, it will
make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale.
See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes
could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance
may result in such holder incurring liability under the
Securities Act for which the holder is not indemnified by
the Company.
Expiration Date........
5:00 p.m., New York City time, on , 1998 unless
the Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to which
the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and
the Notes............
Each Exchange Note will bear interest from its issuance
date. Holders of Notes that are accepted for exchange will
receive, in cash, accrued interest thereon to, but not
including, the issuance date of the Exchange Notes. Such
interest will be paid with the first interest payment on
the Exchange Notes. Interest on the Notes accepted for
exchange will cease to accrue upon issuance of the
Exchange Notes.
Conditions to the
Exchange Offer.......
The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer -- Conditions."
5
<PAGE> 10
Procedures for
Tendering Notes......
Each holder of Notes wishing to accept the Exchange Offer
must complete, sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with the Notes and any other required
documentation to the Exchange Agent (as defined) at the
address set forth herein. By executing the Letter of
Transmittal, each holder will represent to the Company
that, among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder,
that neither the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and
that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities
Act, of the Company. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "-- Procedures for
Tendering."
Untendered Notes.......
Following the consummation of the Exchange Offer, holders
of Notes eligible to participate but who do not tender
their Notes will not have any further exchange rights and
such Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of
the market for such Notes could be adversely affected.
Consequences of Failure
to Exchange..........
The Notes that are not exchanged pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such
Notes may be resold only (i) to the Company, (ii) pursuant
to Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the Securities Act,
(iii) outside the United States to a foreign person
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement............
If any holder of the Notes (other than any such holder
which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) is not eligible
under applicable securities laws to participate in the
Exchange Offer, and such holder has provided information
regarding such holder and the distribution of such
holder's Notes to the Company for use therein, the Company
has agreed to register the Notes on a shelf registration
statement (the "Shelf Registration Statement") and use its
best efforts to cause it to be declared effective by the
Commission as promptly as practical on or after the
consummation of the Exchange Offer. The Company has agreed
to maintain the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a maximum of
three years, to cover resales of the Notes held by any
such holders.
Special Procedures for
Beneficial Owners....
Any beneficial owner whose Notes are registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's
6
<PAGE> 11
behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and delivering its
Notes, either make appropriate arrangements to register
ownership of the Notes in such owner's name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time. The Company will keep the Exchange Offer open for
not less than twenty days in order to provide for the
transfer of registered ownership.
Guaranteed Delivery
Procedures...........
Holders of Notes who wish to tender their Notes and whose
Notes are not immediately available or who cannot deliver
their Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights......
Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Acceptance of Notes and
Delivery of Exchange
Notes................
The Company will accept for exchange any and all Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date. See
"The Exchange Offer -- Terms of the Exchange Offer."
Use of Proceeds........
There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Exchange Agent.........
United States Trust Company of New York
THE EXCHANGE NOTES
General................
The form and terms of the Exchange Notes are the same as
the form and terms of the Notes (which they replace)
except that (i) the Exchange Notes bear a Series B
designation, (ii) the Exchange Notes have been registered
under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the
holders of Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights
Agreement, including the provisions providing for an
increase in the interest rate on the Notes in certain
circumstances relating to the timing of the Exchange
Offer, which rights will terminate when the Exchange Offer
is consummated. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer." The Exchange Notes will
evidence the same debt as the Notes and will be entitled
to the benefits of the Indenture. See "Description of
Exchange Notes." The Notes and the Exchange Notes are
referred to herein collectively as the "Senior
Subordinated Notes."
Securities Offered.....
$90,000,000 aggregate principal amount of Series B 11%
Senior Subordinated Notes due 2007 of the Company.
Maturity Date..........
November 15, 2007.
7
<PAGE> 12
Interest Payment
Dates................
May 15 and November 15, commencing May 15, 1998.
Events of Default......
The Indenture under which the Exchange Notes will be
issued provides for certain events which, should they
occur, would constitute a default thereunder. Such events
include the following: (a) the failure to make principal
payments on any of the Exchange Notes; (b) the failure to
pay interest on the Notes when due, if continued for 30
days or more; (c) default in the payment of principal of
or interest on any Note required to be purchased pursuant
to any Offer to Purchase required by the Indenture when
due and payable or failure to pay on the Purchase Date the
Purchase Price for any Note validly tendered pursuant to
any Offer to Purchase; (d) the failure to comply with any
of the provisions described under "Certain Covenants --
Merger, Sale of Assets, etc." therein; (e) the failure to
perform any other covenant, warranty or agreement of the
Company under the Indenture; (f) defaults under the terms
of one or more instruments evidencing or securing
Indebtedness of the Company having an outstanding
principal amount of $5 million or more individually or in
the aggregate that has resulted in the acceleration of the
payment of such Indebtedness or failure by the Company to
pay principal when due at the stated maturity of any such
Indebtedness and such default shall have continued after
any applicable grace period and shall not have been cured
or waived; (g) the rendering of a final judgment or
judgments (not subject to appeal) against the Company in
an amount of $5 million or more (net of any amounts
covered by reputable and creditworthy insurance companies)
which remain undischarged or unstayed for a period of 60
days after the date on which the right to appeal has
expired; or (h) certain events of bankruptcy, insolvency
or reorganization affecting the Company. See "Description
of Exchange Notes -- Events of Default."
Optional Redemption....
Except as described below, the Company may not redeem the
Exchange Notes prior to November 15, 2002. On or after
such date, the Company may redeem the Exchange Notes, in
whole or in part, at the redemption prices set forth
herein, together with accrued and unpaid interest to the
redemption date. In addition, at any time and from time to
time on or prior to November 15, 2000, the Company may
redeem up to 35% of the original aggregate principal
amount of the Exchange Notes with the cash proceeds of one
or more Public Equity Offerings (as defined) by the
Company or Holdings, at a redemption price equal to 111%
of the principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of
redemption provided that at least $60 million of the
Exchange Notes remains outstanding immediately after each
such redemption. See "Description of Exchange
Notes -- Optional Redemption."
Change of Control......
Upon the occurrence of a Change of Control (as defined),
each holder will have the right to require the Company to
make an offer to repurchase all or any portion of such
holder's Exchange Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of Exchange Notes -- Offer to Purchase Upon
Change of Control." The Credit Facility prohibits the
repurchase of outstanding Exchange Notes prior to
repayment of the borrowings under the Credit Facility.
There can be no assurance that upon a Change of Control
the Company will have sufficient
8
<PAGE> 13
funds to repurchase any of the Exchange Notes. See
"Description of the Revolving Credit Facility."
Ranking................
The Exchange Notes will constitute unsecured debt
obligations of the Company and will rank subordinate in
right of payment to all existing and future Senior
Indebtedness (as defined) including any Indebtedness under
the Credit Facility. The Exchange Notes do not rank senior
to any outstanding indebtedness. At December 31, 1997,
after giving pro forma effect to the Transactions, there
would have been approximately $25.4 million of
indebtedness or other liabilities to which the Exchange
Notes would have been subordinated. The Company could have
borrowed up to approximately $13 million under the terms
of the New Credit Facility, subject to borrowing base and
certain other requirements, all of which would have
constituted Senior Indebtedness. See "Description of the
Revolving Credit Facility."
Restrictive
Covenants..............
The Indenture under which the Exchange Notes will be
issued limits (i) the incurrence of additional
Indebtedness by the Company and its Restricted
Subsidiaries (as defined); (ii) the payment of dividends
on and redemption of, capital stock of the Company and its
Restricted Subsidiaries; (iii) certain other Restricted
Payments, including without limitation, Investments; (iv)
sales of assets and Restricted Subsidiary stock; (v)
certain transactions with Affiliates; (vi) the sale or
issuance of capital stock of its Restricted Subsidiaries;
(vii) the creation of Liens; (viii) the lines of business
in which the Company and its Restricted Subsidiaries may
operation; (ix) consolidations, mergers and transfers of
all or substantially all of the Company's assets; and (x)
sale and leaseback transactions. The Indenture also
prohibits certain restrictions on distributions from
Restricted Subsidiaries. However, all of these limitations
and prohibitions are subject to a number of important
qualifications and exemptions. See "Description of
Exchange Notes -- Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
Holders of Notes should carefully consider all of the information set forth
in this Prospectus and, in particular, should evaluate the specific factors
under "Risk Factors" as well as the other information and data included in this
Prospectus prior to tendering their Notes in the Exchange Offer. Such Risk
Factors include, but are not limited to, the following: Substantial Leverage and
Potential Inability to Service Debt; Dependence Upon Significant Customers;
Risks Associated with Fluctuations in Costs of Raw Materials; Potential
Termination of Supplier Relationships; Dependence Upon Conditions in Various
Industries; Subordination of Exchange Notes; Substantial Competition;
Limitations on Change of Control; Pending Patent Litigation; Limited Use of
Coleman Brand Name and Restrictions Imposed by the Credit Facility and the
Indenture. For a more detailed discussion of the above, see "Risk Factors"
beginning on page 13.
9
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma financial and
other data of the Company for the fiscal year ended December 31, 1997. The
summary unaudited pro forma statement of operations data gives effect to the
KODA Acquisition as if it occurred on January 1, 1997. The summary unaudited pro
forma balance sheet data gives effect to the KODA Acquisition as if it occurred
on December 31, 1997. The pro forma financial and other data for the year ended
December 31, 1997 were derived from the "Unaudited Pro Forma Financial
Information" included elsewhere herein. The pro forma financial and other data
do not purport to represent what the Company's financial position or results of
operations would actually have been had the Transactions in fact occurred on the
assumed dates or to project the Company's financial position, results of
operations or cash flows for any future date or period. The information
contained in the following table should also be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Financial Information," and the
historical financial statements and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA (1):
Net sales................................................. $135,527
Cost of sales............................................. 102,781
--------
Gross profit.............................................. 32,746
Selling, general and administrative expenses.............. 19,624
Engineering, research and development expenses............ 1,139
--------
Operating income.......................................... 11,983
Interest expense.......................................... 11,052
Income from continuing operations before income taxes..... 1,648
OTHER DATA (1):
Gross margin.............................................. 24.2%
EBITDA(2)................................................. 16,782
EBITDA margin (3)......................................... 12.4%
Depreciation and amortization............................. 4,082
Capital expenditures...................................... 1,590
Cash interest expense..................................... 11,052
Ratio of EBITDA to cash interest expense (4).............. 1.5x
Ratio of net debt to EBITDA............................... 6.9x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (5)....................................... $ 28,194
Total assets.............................................. 112,595
Total debt................................................ 115,355
Total stockholders' (deficiency).......................... (21,009)
</TABLE>
- ---------------
(1) See the historical financial statements and related notes of Airxcel, Inc.
included elsewhere in this Prospectus for discontinued operations and
extraordinary item.
(2) EBITDA represents earnings before interest expense, net, other nonoperating
income, net, income tax expense, depreciation and amortization. Other
nonoperating income was $717 for the year ended December 31, 1997. EBITDA,
as calculated by the Company, may not be similar to the method used by other
companies. The Company has included information concerning EBITDA because it
is relevant for covenant analysis under the Indenture, which defines EBITDA
as set forth above for the period shown, and is presented because it is used
by certain investors as a measure of a company's ability to service debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows or other consolidated income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(3) EBITDA margin reflects EBITDA as a percentage of net sales.
(4) See "Selected Financial and Other Data," and "Unaudited Pro Forma Financial
Information," and the historical financial statements and related notes
included elsewhere in this Prospectus for information as to Ratio of
earnings to fixed charges.
(5) Working capital represents current assets less current liabilities,
including net liabilities of the discontinued Faulkner manufacturing
division of $466 as of December 31, 1997.
10
<PAGE> 15
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
AIRXCEL (FORMERLY KNOWN AS RECREATION VEHICLE PRODUCTS, INC. ("RVP"))
The following summary historical financial and other data of Airxcel are
derived from audited historical financial statements. The historical financial
statements of Airxcel as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997, included elsewhere herein, have
been audited by Coopers & Lybrand, L.L.P., independent accountants. The
historical financial statements of Airxcel as of December 31, 1993, 1994 and
1995 and for each of the two years in the period ended December 31, 1994 have
been derived from the audited consolidated financial statements of Airxcel
Holdings Corporation, formerly known as RV Products Holding Corp. and
Subsidiary, which are not included herein. The information contained in the
following table should also be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Financial Information," and the historical
financial statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $50,743 $56,162 $55,788 $ 58,169 $ 58,323
Cost of sales............................................. 38,338 41,614 42,257 43,803 44,732
------- ------- ------- -------- --------
Gross profit.............................................. 12,405 14,548 13,531 14,366 13,590
Selling, general and administrative expenses(1)........... 9,979 7,886 10,959 5,980 4,862
------- ------- ------- -------- --------
Operating income.......................................... 2,426 6,662 2,572 8,386 8,729
Interest expense(2)....................................... 2,273 1,282 1,097 2,273 4,619
Income from continuing operations before income taxes..... 138 5,352 1,383 5,968 4,087
Net income (loss)......................................... (1,878) 2,616 (453) 1,074 (4,548)
OTHER DATA:
Gross margin.............................................. 24.4% 25.9% 24.3% 24.7% 23.3%
EBITDA(3)................................................. 5,422 9,683 5,554 10,369 9,850
EBITDA margin............................................. 10.7% 17.2% 10.0% 17.8% 16.9%
Cash provided by operating activities..................... 4,201 6,472 857 4,249 7,229
Cash used in investing activities......................... (619) (821) (1,183) (434) (44,083)
Cash (used in) provided by financing activities........... (3,444) (5,395) 553 (4,210) 46,319
Depreciation and amortization(4).......................... 2,996 3,021 2,982 1,983 1,144
Capital expenditures...................................... 621 843 356 459 716
Cash interest expense(2).................................. 2,087 1,267 1,083 2,170 4,311
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(5)........................................ $ 7,131 $ 9,301 $ 8,819 $ 5,632 $ 23,186
Total assets(6)........................................... 26,920 24,753 26,561 24,748 76,933
Total debt................................................ 20,907 15,581 24,824 48,280 90,355
Total stockholders' equity (deficiency)................... 735 3,718 (4,255) (28,701) (25,009)
</TABLE>
- ---------------
(1) Selling, general and administrative expenses for 1995 includes $4,279 of
nonrecurring expenses related to costs incurred to compensate certain option
holders for their personal tax liabilities incurred when such options were
exercised.
(2) Excludes interest expense related to the discontinued Faulkner manufacturing
division.
(3) EBITDA represents earnings before interest expense, net, other nonoperating
expense, net, income tax expense, depreciation and amortization. Other
nonoperating expenses were $15, $28, $92, $145 and $23 for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively. EBITDA, as
calculated by the Company, may not be similar to the method used by other
companies. Airxcel has included information concerning EBITDA because it is
relevant for covenant analysis under the Indenture, which defines EBITDA as
set forth above for the periods shown, and is presented because it is used
by certain investors as a measure of a company's ability to service debt.
EBITDA should not be considered in isolation or as a substitute for net
income, cash flows or other consolidated income or cash flow data prepared
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity.
(4) Excludes depreciation and amortization related to the discontinued Faulkner
manufacturing division.
(5) Working capital represents current assets less current liabilities,
including net assets (liabilities) held for sale of the discontinued
Faulkner manufacturing division of $4,789, $3,704, $5,634, $6,421 and ($466)
as of December 31; 1993, 1994, 1995, 1996 and 1997, respectively.
(6) Total assets include net assets held for sale of $4,789, $3,704, $5,634 and
$6,421 as of December 31, 1993, 1994, 1995, 1996, respectively, and exclude
net liabilities of the discontinued Faulkner manufacturing division of $466
as of December 31, 1997.
11
<PAGE> 16
CRISPAIRE
The following summary historical financial and other data of Crispaire are
derived from the audited historical financial statements of Crispaire. The
historical financial statements of Crispaire as of and for the year ended
October 31, 1997 have been audited by Coopers & Lybrand L.L.P., independent
accountants. The historical financial statements of Crispaire as of October 31,
1993, 1994, 1995 and 1996 and for each of the fiscal years in the four-year
period ended October 31, 1996, have been audited by Mauldin & Jenkins, LLC,
independent accountants. The historical financial statements of Crispaire as of
October 31, 1995, 1996 and 1997 and for each of the fiscal years in the
three-year period ended October 31, 1997 are included elsewhere herein. The
information contained in the following table should also be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Financial
Information," and the historical financial statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
-------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 17,701 $ 24,152 $ 27,304 $ 34,138 $ 39,114
Cost of sales.................................. 13,667 18,143 20,104 24,758 28,160
-------- ----------- ----------- ----------- -----------
Gross profit................................... 4,034 6,009 7,200 9,380 10,954
Engineering, research and development.......... 580 537 752 878 1,111
Selling, general and administrative expenses... 2,632 3,547 4,089 5,129 5,857
Operating income............................... 843 1,989 2,381 3,438 3,986
Interest expense, net.......................... 194 160 94 146 125
Net income..................................... 649 1,829 2,287 3,292 3,861
OTHER DATA:
Gross margin................................... 22.8% 24.9% 26.4% 27.5% 28.0%
EBITDA(1)...................................... 994 2,150 2,571 3,668 4,266
EBITDA margin.................................. 5.6% 8.9% 9.4% 10.7% 10.9%
Cash provided by operating activities.......... 10 3,140 1,646 2,671 3,713
Cash used in investing activities.............. (42) (515) (512) (1,452) (498)
Cash (used in) provided by financing
activities................................... 36 (2,561) (1,133) (1,165) (3,211)
Depreciation and amortization.................. 151 161 190 231 280
Capital expenditures........................... 42 565 393 1,419 504
Cash interest expense.......................... 194 160 94 146 124
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(2)............................. $ 2,902 $ 4,286 $ 4,800 $ 6,213 $ 7,811
Total assets................................... 8,000 9,007 10,647 14,106 16,081
Total debt..................................... 550 758 595 1,242 471
Total stockholders' equity..................... 3,133 4,731 5,717 8,298 10,249
</TABLE>
- ---------------
(1) EBITDA represents earnings before interest expense, net, income tax expense,
depreciation and amortization. EBITDA, as calculated by Crispaire, may not
be similar to the method used by other companies. The Company has included
information concerning EBITDA because it is relevant for covenant analysis
under the Indenture, which defines EBITDA as set forth above for the periods
shown, and is presented because it is used by certain investors as a measure
of a company's ability to service debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other
consolidated income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(2) Working capital represents current assets less current liabilities.
12
<PAGE> 17
RISK FACTORS
Holders of Notes should consider carefully the following factors, which the
Company believes represent all material risks, in addition to the other
information set forth in this Prospectus prior to tendering their Notes in the
Exchange Offer. The risk factors set forth below are generally applicable to the
Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE AND POTENTIAL INABILITY TO SERVICE INDEBTEDNESS
As a result of the consummation of the Transactions, the Company is highly
leveraged. After giving pro forma effect to the Transactions as of December 31,
1997, the Company would have had Indebtedness of $115.4 million and the
Company's stockholders' deficiency would have been $21.0 million. In addition,
the Company would have had the ability, subject to borrowing base and certain
other requirements, to borrow an additional $13 million under the New Credit
Facility, and subject to the restrictions in the New Credit Facility and the
Indenture, the Company may incur additional indebtedness from time to time. The
degree to which the Company is leveraged could have important consequences to
holders of the Exchange Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be limited; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on the Exchange Notes, the New Credit Facility and
its other existing indebtedness, thereby reducing the funds available to the
Company for other purposes; (iii) all of the indebtedness under the New Credit
Facility will be at variable rates of interest, which will cause the Company to
be vulnerable to increases in interest rates; (iv) all of the indebtedness
outstanding under the New Credit Facility will be secured by security interests
in, or liens on, the accounts receivable, inventory and real property of the
Company, and will become due prior to the time the principal on the Exchange
Notes will become due; (v) the Company may be hindered in its ability to adjust
rapidly to changing market conditions and (vi) the Company's substantial degree
of leverage could make it more vulnerable in the event of a downturn in general
economic conditions or in its business.
The Company's ability to pay interest on the Exchange Notes and to satisfy
its other debt obligations will depend on its future operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control. If the Company's
cash flow and capital resources are insufficient to fund its debt service
obligations, the Company may be forced to reduce or delay capital expenditures,
sell assets, obtain additional equity capital or restructure its debt. There can
be no assurance that the Company's cash flow and capital resources will be
sufficient for payment of its indebtedness in the future. In the absence of such
operating results and resources, the Company could face substantial liquidity
problems and might be required to dispose of material assets or operations to
meet its debt service and other obligations, and there can be no assurance as to
the timing of such sales or the proceeds which the Company could realize
therefrom. The financial covenants and other restrictions in the Credit Facility
and the Indenture limit the Company's ability to borrow additional funds and
dispose of certain assets. See "Description of the Revolving Credit Facility"
and "Description of Exchange Notes."
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
Airxcel's net sales to Fleetwood, Coast, Jayco and Winnebago, its largest
customers, accounted for approximately 33%, 27%, 12% and 8%, respectively, of
the Company's net sales for 1997. Crispaire's net sales to Motorola and
UNR-Rohn, its largest customers, accounted for approximately 3.8% and 4.2% of
its net sales in 1997. There can be no assurance that the Company will maintain
or improve these relationships or that the Company will continue to supply these
customers at current levels. The loss of a significant portion of sales to any
of these customers could have a material adverse effect on the Company's
business. In addition, many of the arrangements that the Company has with such
customers are by purchase order and terminable at
13
<PAGE> 18
will at the option of either party. A significant decrease or interruption in
businesses of any of the Company's significant customers could have a material
adverse effect on the Company. See "Business -- Sales, Distribution and
Marketing."
DEPENDENCE UPON CONDITIONS IN VARIOUS INDUSTRIES
A significant part of the Company's operations are directly dependent upon
the conditions in the highly cyclical RV industry, highly competitive
telecommunications industry and the commercial and public construction industry.
Companies within these industries, including the Company's largest customers,
are subject to volatility in operating results due to external factors such as
economic, demographic and political changes. These factors include seasonal
factors, fuel availability and fuel prices, overall consumer confidence and
general economic conditions, the level of discretionary consumer spending,
government regulation, interest rates and unemployment. To the extent such
factors have a substantial adverse effect on the Company's largest customers in
such industries, there could be a material adverse effect on the Company.
RISKS ASSOCIATED WITH FLUCTUATIONS IN COSTS OF RAW MATERIALS
The Company depends on certain raw materials such as copper and aluminum
for the manufacturing of its products. The prices for such materials have shown
considerable volatility during the past few years. In order to hedge against
price increases in these materials, the Company actively manages its materials
costs through futures contracts on copper and aluminum; however, no assurance
can be given that the Company will continue to be successful in managing such
price fluctuations or that future price fluctuations in copper and aluminum and
other raw materials will not have a material adverse effect on the Company.
Fluctuation in copper and aluminum prices can have an adverse effect on the
Company. See "-- Supplier Relationships" and "Management's Discussion and
Analysis of Financial Condition and Result of Operations -- Overview."
POTENTIAL TERMINATION OF SUPPLIER RELATIONSHIPS
The Company's relationships with its suppliers often afford it certain
purchasing advantages, including stable supply and favorable pricing
arrangements. The arrangements, however, are by purchase order with an average
term of one year, although terminable at will at the option of either party with
prior notice. Therefore, there can be no assurance that any of the supplier
relationships will not be terminated in the future. In addition, the Company
annually confirms existing pricing with competitive bids and while the Company
has been able to obtain sufficient supplies at competitive prices, fluctuating
raw material prices cause volatility in supplier pricing. The Company is subject
to the risk that a significant variance in the supplier pricing may trigger a
change of the product's price to customers. An interruption in the Company's
supplies or volatility in supplier pricing could have a material adverse effect
on the Company. See "Business -- Products and Services".
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes are contractually subordinated to all Senior
Indebtedness including all obligations under the Credit Facility. In the event
of a circumstance in which the contractual subordination provisions apply,
holders of the Exchange Notes will not be entitled to receive, and will have an
obligation to pay over to holders of Senior Indebtedness, any payments they may
receive in respect of the Exchange Notes. At December 31, 1997, after giving pro
forma effect to the Acquisitions adjusting for the issuance of the Exchange
Notes, there would have been approximately $25.4 million of indebtedness or
other liabilities outstanding to which the Exchange Notes would have been
subordinated. Subject to certain limitations, the Indenture permits the Company
to incur additional indebtedness. See "Description of Exchange
Notes -- Covenants -- Limitation on Indebtedness." Substantially all of the
assets of the Company are or may be pledged to secure other indebtedness of the
Company. See "Description of the Revolving Credit Facility" and "Description of
Exchange Notes."
14
<PAGE> 19
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY AND THE INDENTURE
The Credit Facility requires the Company to maintain specified financial
ratios and tests, among other obligations, including a minimum interest coverage
ratio and a maximum leverage ratio. In addition, the Credit Facility restricts,
among other things, the Company's ability to incur additional indebtedness and
make acquisitions and capital expenditures beyond a certain level. A failure to
comply with the restrictions contained in the Credit Facility could lead to an
event of default thereunder which could result in an acceleration of such
indebtedness. Such an acceleration would constitute an event of default under
the Indenture relating to the Exchange Notes. In addition, the Indenture
restricts, among other things, the Company's ability to incur additional
indebtedness, sell assets, make certain payments and dividends or merge or
consolidate. A failure to comply with the restrictions in the Indenture could
result in an event of default under the Indenture. See "Description of the
Revolving Credit Facility" and "Description of Exchange Notes."
SUBSTANTIAL COMPETITION
The Company competes with a number of established companies that have
greater financial, technological and marketing resources than the Company. There
can be no assurance that the Company will be able to maintain its current market
share. The ability of the Company to compete as a supplier to the RV industry is
largely dependent on its ability to provide name brand high quality products at
competitive prices and to manufacture and deliver products on a timely basis.
Certain of the Company's principal competitors are less highly-leveraged than
the Company and may be better able to withstand volatile market conditions
within the RV industry which could lead to adverse changes in the Company's
relationships with its customers. In addition, the Company faces substantial
competition in the broader HVAC industry which is comprised of hundreds of small
to medium-sized companies with various niche markets and several large,
well-capitalized, highly diversified industrial corporations with major market
shares of standard residential and commercial HVAC product lines. There can be
no assurance that the Company will not encounter increased competition in the
future, which could have a material adverse effect on the Company. See
"Business -- Competition."
LIMITATIONS ON CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to make
an offer for cash to repurchase the Exchange Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
repurchase date. A Change of Control will result in an event of default under
the Credit Facility and may result in a default under other indebtedness of the
Company that may be incurred in the future. The Credit Facility prohibits the
purchase of outstanding Exchange Notes prior to repayment of the borrowings
under the Credit Facility and any exercise by the holders of the Exchange Notes
of their right to require the Company to repurchase the Exchange Notes will
cause an event of default under the Credit Facility. Finally, there can be no
assurance that the Company will have the financial resources necessary to
repurchase the Exchange Notes upon a Change of Control. See "Description of
Exchange Notes -- Offer to Purchase Upon Change of Control."
IMPACT OF ENVIRONMENTAL REGULATION
The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations,
among other things, impose limitations on the discharge of pollutants and
establish standards for management of waste. As is the case with manufacturers
in general, if a release or threat of release of hazardous materials occurs on
or from the Company's properties or any associated offsite disposal location, or
if contamination from prior activities is discovered at any properties owned or
operated by the Company, the Company may be held liable for response costs and
damages to natural resources. There can be no assurance that the amount of any
such liability would not be material.
15
<PAGE> 20
LIMITED USE OF COLEMAN BRAND NAME
The Company has an exclusive, royalty-free license to use the name
"Coleman" on its products for a period of 50 years ending in 2041. Such license
automatically renews for another 50 years provided the Company is in compliance
with all material terms of the trademark license agreement. The Company's
license to use the "Coleman" brand name on a standalone basis expired on April
30, 1997. As a result, the Company must use a name or product name in
conjunction with the "Coleman" brand name; thus, there can be no assurance that
this will not have an adverse effect on the Company.
PENDING PATENT LITIGATION
Crispaire has been named a defendant in a lawsuit claiming that Crispaire
infringes certain trademarks and patents with respect to certain of its air
conditioning and heating products. No assurance can be given as to the ultimate
outcome of this matter. See "Business -- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team. The loss of such key personnel could have a material adverse effect on the
Company. The Company maintains key-person insurance for Melvin L. Adams, and
George D. Wyers. See "Management."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Notes (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company is required to file a Shelf
Registration Statement with respect to such Notes. The Exchange Notes are new
securities for which there currently is no market. The Initial Purchasers are
not obligated to make a market in the Exchange Notes and any such market making
may be discontinued at any time without notice in the sole discretion of the
Initial Purchasers. In addition, such market making activity may be limited
during the pendency of the Exchange Offer or the effectiveness of a shelf
registration statement in lieu thereof. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Exchange Notes. The
Exchange Notes are eligible for trading by qualified buyers in the Private
Offerings, Resale and Trading though Automated Linkages (PORTAL) market. The
Company does not intend to apply for listing of the Exchange Notes, on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
The Exchange Notes generally will be permitted to be resold or otherwise
transferred (subject to the restrictions described under "Exchange and
Registration Rights Agreement" and "Transfer Restrictions") by each holder
without the requirement of further registration. The Exchange Notes, however,
will also constitute a new issue of securities with no established trading
market. The Exchange Offer will not be conditioned upon any minimum or maximum
aggregate principal amount of Notes being tendered for exchange. No assurance
can be given as to the liquidity of the trading market for the Exchange Notes,
or, in the case of non-exchanging holders of Notes, the trading market for the
Notes following the Exchange Offer.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such liquidity
and trading markets independently of the financial performance of, and prospects
for, the Company.
16
<PAGE> 21
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, certain
registration rights under the Exchange and Registration Rights Agreement will
terminate. In addition, any holder of Notes who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transactions. Each Participating
Broker-Dealer that receives Exchange Notes for its own account in exchange for
Notes, where such Notes were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Notes could be adversely affected. See "The Exchange Offer."
17
<PAGE> 22
THE TRANSACTIONS
CRISPAIRE ACQUISITION:
Pursuant to an Asset Purchase Agreement dated as of October 17, 1997 among
Holdings, Airxcel and Crispaire, Airxcel purchased substantially all of the net
assets, properties and rights and assumed certain related liabilities of
Crispaire. Crispaire received, as part of the consideration for the Acquisition,
$5.3 million of PIK Notes of Holdings. A cash equity investment was made in
Holdings in connection with the financing of the Crispaire Acquisition through
the purchase of common stock and preferred stock of Holdings by the management
of Crispaire for an aggregate purchase price of approximately $3.1 million. The
PIK Notes, as well as the cash equity investment in Holdings, were contributed
by Holdings to Airxcel. The contributions to Airxcel are collectively referred
to herein as the "Contributions."
Concurrently, the Company consummated the Offering, and a portion of the
net proceeds from the Offering together with the proceeds from the sale of
securities to certain affiliates of Crispaire, including management, were used
to finance the Crispaire Acquisition and the repayment of certain indebtedness.
A portion of the indebtedness repaid was held by a mezzanine investment fund
managed by an affiliate of Citicorp. The remainder of the indebtedness repaid
was under a credit facility for which The Chase Manhattan Bank, an affiliate of
Chase Securities Inc., received its proportionate share of any repayment. The
Company entered into an agreement with The Chase Manhattan Bank to provide for a
Revolving Credit Facility. Consummation of the Offering was conditioned upon the
concurrent consummation of the Crispaire Acquisition and the Contributions.
The Exchange Offer results in no sources or uses of cash to the Company.
The estimated sources and uses of cash which occurred in connection with the
closing of the Crispaire Acquisition on November 10, 1997, are set forth below
(dollars in thousands):
<TABLE>
<S> <C>
SOURCES:
Proceeds from sale of the Notes............................. $90,000
Contributions from Holdings................................. 8,354
-------
Total sources..................................... $98,354
=======
USES:
Repayment of KODA borrowings................................ $42,539
Consideration paid for Crispaire............................ 43,400
Working capital............................................. 7,415
Estimated fees and expenses................................. 5,000
-------
Total uses........................................ $98,354
=======
</TABLE>
KODA ACQUISITION:
Pursuant to a Stock Purchase Agreement dated March 8, 1998, between Airxcel
and William S. Karol, Airxcel acquired 100% of the outstanding common stock of
KODA Enterprises Group, Inc. (the "Stock Purchase") and repaid certain KODA
obligations. A cash equity investment was made in Holdings in connection with
the financing of the Stock Purchase through the sale of common stock for
approximately $4 million. The cash equity investment was contributed to Airxcel.
In conjunction with the Stock Purchase, Airxcel amended and restated the
Credit Facility with The Chase Manhattan Bank to provide for borrowings in an
aggregate principal amount of up to $38 million (the "New Credit Facility".) The
New Credit Facility consists of a $28 million revolving credit facility (the
"Senior Revolving Credit Facility") and a $10 million term loan (the "Senior
Term Loan"). Airxcel used the Senior Term Loan plus a portion of the Senior
Revolving Credit Facility (approximately $15 million) to partially finance the
Stock Purchase.
18
<PAGE> 23
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes in
the Exchange Offer. The net proceeds of $90 million to the Company from the sale
and issuance of the Notes on November 10, 1997, together with the approximately
$3.1 million cash contribution made to the Company by Holdings, were used to
fund the cash portion of the consideration for the Crispaire Acquisition, to
refinance an existing credit facility (the "Old Credit Facility"), to repay
certain subordinated indebtedness, and to pay related fees and expenses.
Out of the proceeds of the Offering, the Company repaid its Tranche A and
Tranche B term loan commitments under the Old Credit Facility. The Tranche A
Term Loan (as defined under the Old Credit Facility) bore interest at a rate per
annum equal to the Alternate Base Rate plus one and one-half percent (1 1/2%),
and was to mature on January 1, 2002. The Tranche B term loan thereunder bore
interest at a rate per annum equal to the Alternate Base Rate plus two percent
(2%), and was to mature on July 1, 2003. As defined therein, the Alternate Base
Rate means, for any day, a rate per annum equal to the greater of (a) the Prime
Rate (as defined therein) in effect on such day, (b) the Base CD Rate (as
defined therein) in effect on such day plus 1%, and (c) the Federal Funds
Effective Rate (as defined therein) in effect on such day plus 1/2 of 1%.
The Company also used proceeds from the Offering to repay certain
subordinated indebtedness, which bore interest on the unpaid principal amount
thereof from August 22, 1996 through maturity on August 22, 2005 at a rate equal
to 12.00% per annum.
19
<PAGE> 24
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of December 31, 1997 (i) on a historical basis, and (ii) on a pro forma
combined basis after giving effect to the KODA Acquisition assuming it was
consummated on such date. This table should be read in conjunction with the
"Selected Consolidated Financial and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Financial Information" and the consolidated financial statements
and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
PRO FORMA PRO FORMA
AIRXCEL KODA ADJUSTMENTS AS ADJUSTED
-------- ------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 9,691 $ 645 $ (8,930) $ 1,406
======== ======= ======== ========
Debt:
Senior Subordinated Notes due 2007......... $ 90,000 $ -- $ $ 90,000
Term Loan.................................. -- 6,321 (6,321) --
Revolving Credit........................... -- 6,441 (6,441) --
Senior Term Loan due 2005.................. -- -- 10,000 10,000
Senior Revolving Credit Facility(1)........ -- -- 15,000 15,000
Other debt................................. 355 655 (655) 355
-------- ------- -------- --------
Total debt......................... 90,355 13,417 11,583 115,355
Total stockholders' equity (deficiency)...... (25,009) 11,204 (7,204) (21,009)
-------- ------- -------- --------
Total capitalization............... $ 65,346 $24,621 $ 4,379 $ 94,346
======== ======= ======== ========
</TABLE>
- ---------------
(1) On a pro forma basis, the Company's unused availability under the New Credit
Facility would be up to $13.0 million based on eligible receivables and
inventory. See "Description of the Revolving Credit Facility."
20
<PAGE> 25
SELECTED FINANCIAL AND OTHER DATA
AIRXCEL (FORMERLY KNOWN AS RECREATION VEHICLE PRODUCTS, INC. ("RVP")
The following table sets forth the selected historical financial and other
data of Airxcel as of and for each of the fiscal years in the five-year period
ended December 31, 1997. The selected historical financial and other data as of
December 31, 1993, 1994 and 1995 and for each of the fiscal years in the
two-year period ended December 31, 1994 have been derived from audited
historical consolidated financial statements of Airxcel Holdings Corporation,
formerly known as RV Products Holding Corp. and Subsidiary not included herein.
The selected historical financial and other data as of December 31, 1996 and
1997 and for each of the fiscal years in the three-year period ended December
31, 1997 have been derived from the historical financial statements of Airxcel,
audited by Coopers & Lybrand, L.L.P., and included elsewhere herein. The
information contained in the following table should also be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Financial
Information," and the historical financial statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $50,743 $56,162 $55,788 $ 58,169 $ 58,323
Cost of sales........................................... 38,338 41,614 42,257 43,803 44,732
------- ------- ------- -------- --------
Gross profit............................................ 12,405 14,548 13,531 14,366 13,591
Selling, general and administrative expenses(1)......... 7,646 5,555 8,627 4,558 4,223
Amortization of intangible assets and computer
software.............................................. 2,333 2,331 2,332 1,422 639
------- ------- ------- -------- --------
Operating income........................................ 2,426 6,662 2,572 8,386 8,729
Interest expense(2)..................................... 2,273 1,282 1,097 2,273 4,619
Other nonoperating expense, net......................... 15 28 92 145 23
------- ------- ------- -------- --------
Income from continuing operations before income taxes
and extraordinary item................................ 138 5,352 1,383 5,968 4,087
Income tax expense...................................... (48) (2,071) (831) (2,411) (1,553)
------- ------- ------- -------- --------
Income from continuing operations before extraordinary
item.................................................. 90 3,281 552 3,557 2,534
Loss from discontinued Faulkner manufacturing
division.............................................. 731 601 960 2,299 1,880
Loss on disposal of discontinued Faulkner manufacturing
division, including operating losses.................. -- -- -- -- 3,571
------- ------- ------- -------- --------
Income (loss) before extraordinary item................. (641) 2,680 (408) 1,258 (2,917)
Extraordinary loss on early extinguishment of debt, net
of tax................................................ 1,237 64 45 184 1,631
------- ------- ------- -------- --------
Net income (loss)....................................... $(1,878) $ 2,616 $ (453) $ 1,074 $ (4,548)
======= ======= ======= ======== ========
OTHER DATA:
Gross margin............................................ 24.4% 25.9% 24.3% 24.7% 23.3%
EBITDA(3)............................................... 5,422 9,683 5,554 10,369 9,850
EBITDA margin........................................... 10.7% 17.2% 10.0% 17.8% 16.9%
Cash provided by operating activities................... 4,201 6,472 857 4,249 7,229
Cash used in investing activities....................... (619) (821) (1,183) (434) (44,083)
Cash (used in) provided by financing activities......... (3,444) (5,395) 553 (4,210) 46,319
Depreciation and amortization(4)........................ 2,996 3,021 2,982 1,983 1,144
Capital expenditures.................................... 621 843 356 459 716
Cash interest expense(2)................................ 2,087 1,267 1,083 2,170 4,311
Ratio of earnings to fixed charges(5)................... 1.1x 4.9x 2.2x 3.5x 1.9x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(6)...................................... $ 7,131 $ 9,301 $ 8,819 $ 5,632 $ 23,186
Total assets(7)......................................... 26,920 24,753 26,561 24,748 76,933
Total debt.............................................. 20,907 15,581 24,824 48,240 90,355
Total stockholders' equity (deficiency)................. 735 3,718 (4,255) (28,701) (25,009)
</TABLE>
- ---------------
(1) Selling, general and administrative expense for 1995 includes $4,279 of
nonrecurring expenses related to costs incurred to cover the tax
consequences of certain individuals who exercised stock options.
(2) Excludes interest expense related to the discontinued Faulkner manufacturing
division.
(3) EBITDA represents earnings before interest expense, net, other nonoperating
expense, net, income tax expense, depreciation and amortization. EBITDA, as
calculated by the Company,
21
<PAGE> 26
may not be similar to the method used by other companies. Airxcel has
included information concerning EBITDA because it is relevant for covenant
analysis under the Indenture, which defines EBITDA as set forth above for
the periods shown, and is presented because it is used by certain investors
as a measure of a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(4) Excludes depreciation and amortization related to the discontinued Faulkner
manufacturing division.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
include income from continuing operations before income taxes and
extraordinary item, plus fixed charges. Fixed charges consist of interest
expense, amortization of debt issuance costs and a portion of rental expense
deemed representative of the interest factor.
(6) Working capital represents current assets less current liabilities,
including net assets (liabilities) of the discontinued Faulkner
manufacturing division of $4,789, $3,704, $5,634, $6,421 and ($466) as of
December 31, 1993, 1994, 1995, 1996 and 1997, respectively.
(7) Total assets include net assets held for sale of $4,789, $3,704, $5,634, and
$6,421 as of December 31, 1993, 1994, 1995 and 1996, respectively and
exclude net liabilities of the discontinued Faulkner manufacturing division
of $466 as of December 31, 1997.
22
<PAGE> 27
CRISPAIRE
The following table sets forth the selected historical financial and other
data of Crispaire as of and for each of the fiscal years in the five-year period
ended October 31, 1997. The selected historical financial and other data as of
and for the year ended October 31, 1997 are derived from financial statements of
Crispaire, audited by Coopers & Lybrand, L.L.P., independent accountants, and
are included elsewhere herein. The selected historical financial and other data
for each fiscal year in the three-year period ended October 31, 1996 are derived
from the financial statements of Crispaire, audited by Mauldin & Jenkins, LLC,
independent accountants, and included elsewhere herein. The selected historical
financial and other data as of October 31, 1993 and 1994 and the year ended
October 31, 1993 are derived from audited financial statements of Crispaire, not
included herein. The information contained in the following table should also be
read in conjunction with "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Unaudited Pro Forma
Financial Information," and the historical financial statements and related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $17,701 $24,152 $27,304 $34,138 $39,114
Cost of sales................................ 13,667 18,143 20,104 24,758 28,161
------- ------- ------- ------- -------
Gross profit................................. 4,034 6,009 7,200 9,380 10,954
Engineering, research and development........ 580 537 752 878 1,111
Selling, general and administrative
expenses................................... 2,632 3,547 4,089 5,129 5,857
Other operating income, net.................. 21 64 22 65 --
------- ------- ------- ------- -------
Operating income............................. 843 1,989 2,381 3,438 3,986
Interest expense, net........................ 194 160 94 146 125
Income tax expense........................... -- -- -- -- --
------- ------- ------- ------- -------
Net income................................... $ 649 $ 1,829 $ 2,287 $ 3,292 $ 3,861
======= ======= ======= ======= =======
OTHER DATA:
Gross margin................................. 22.8% 24.9% 26.4% 27.5% 28.0%
EBITDA(1).................................... 994 2,150 2,571 3,668 4,266
EBITDA margin................................ 5.6% 8.9% 9.4% 10.7% 10.9%
Cash provided by operating activities........ 10 3,140 1,646 2,671 3,713
Cash used in investing activities............ (42) (515) (512) (1,452) (498)
Cash (used in) provided by financing
activities................................. 36 (2,561) (1,133) (1,165) (3,211)
Depreciation and amortization................ 151 161 190 231 280
Capital expenditures......................... 42 565 393 1,419 504
Cash interest expense........................ 194 160 94 146 125
Ratio of earnings to fixed charges(2)........ 4.3x 6.6x 14.0x 17.7x 19.7x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(3)........................... $ 2,902 $ 4,286 $ 4,800 $ 6,213 $ 7,811
Total assets................................. 8,000 9,007 10,647 14,106 16,081
Total debt................................... 550 758 595 1,242 471
Total stockholders' equity................... 3,133 4,731 5,717 8,298 10,249
</TABLE>
- ---------------
(1) EBITDA represents earnings before interest expense, net, income tax expense,
depreciation and amortization. EBITDA, as calculated by Crispaire, may not
be similar to the method used by other companies. The Company has included
information concerning EBITDA because it is relevant for covenant analysis
under the Indenture, which defines EBITDA as set forth above for the periods
shown, and is presented because it is used by certain investors as a measure
of a company's ability to service debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other
consolidated income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
include net income, plus fixed charges. Fixed charges consist of interest
expense and a portion of rental expense deemed representative of the
interest factor.
(3) Working capital represents current assets less current liabilities.
23
<PAGE> 28
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
(the "Unaudited Pro Forma Financial Information") give effect to the
Transactions. The Crispaire Acquisition occurred simultaneously with the closing
of the Offering and the KODA Acquisition occurred on March 17, 1998. Both of the
Acquisitions will be accounted for using the purchase method of accounting.
These unaudited pro forma condensed combined financial statements are based on
the historical financial statements of Airxcel, Crispaire and KODA included
elsewhere in this Prospectus, and the estimates and assumptions set forth below,
and in the notes to the Unaudited Pro Forma Financial Information.
The unaudited pro forma condensed combined balance sheet gives effect to
the KODA Acquisition as if it occurred on December 31, 1997. The unaudited pro
forma condensed combined statements of operations give effect to the
Transactions as if they occurred on January 1, 1997. The Unaudited Pro Forma
Statements of Operations presented herein are not necessarily indicative of the
combined results that would have been obtained had the Transactions occurred at
the beginning of the period, as assumed, or of the future results of the
combined companies. The Unaudited Pro Forma Financial Information should be read
in conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
The pro forma adjustments are based on preliminary estimates, currently
available information and certain assumptions that management believes are
appropriate. For the KODA Acquisition, the aggregate purchase price has been
allocated to the tangible and identifiable intangible assets and liabilities of
the acquired business based upon the Company's preliminary estimates of their
fair value, with the remainder allocated to goodwill. In management's opinion,
the preliminary estimates regarding allocation of the purchase price of KODA are
not expected to materially differ from the final allocations. Adjustments to the
allocation of the purchase price will be finalized and will include the effect
of the finalized results of asset appraisals.
The purchase price paid for the KODA Acquisition was subject to reduction
to the extent that working capital of KODA upon the closing of the Acquisition,
as defined, is less than the average working capital of KODA, as defined, during
the twelve months ended February 28, 1998 ("Working Capital Adjustment").
24
<PAGE> 29
AIRXCEL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AIRXCEL KODA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 9,691 $ 645 $(8,930)(a) $ 1,406
Marketable Securities......................... -- 2,336 -- 2,336
Accounts receivable, net...................... 8,310 5,032 -- 13,342
Inventories................................... 13,129 9,104 -- 22,233
Other current assets.......................... 3,307 2,456 -- 5,763
-------- ------- ------- --------
Total current assets.................. 34,437 19,573 (8,930) 45,080
Property, plant and equipment, net.............. 8,693 3,660 1,954(b) 14,307
Other assets, net............................... 20 4,028 -- 4,048
Identifiable intangible assets, net............. 24,532 4,022 9,117(b) 37,671
Loan financing costs, net....................... 3,244 -- 285(c) 3,529
Goodwill........................................ 6,007 -- 1,953(b) 7,960
-------- ------- ------- --------
Total assets.................................... $ 76,933 $31,283 $ 4,379 $112,595
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............. $ 27 $ 1,482 $(1,482)(d) $ 27
Accounts payable.............................. 6,197 4,363 -- 10,560
Accrued warranty.............................. 1,052 -- -- 1,052
Accrued vacation.............................. 343 -- -- 343
Net liabilities of discontinued operations.... 466 -- -- 466
Other current liabilities..................... 3,166 1,272 -- 4,438
-------- ------- ------- --------
Total current liabilities............. 11,251 7,117 (1,482) 16,886
Long-term debt, net of current maturities....... 90,328 11,935 13,065(e) 115,328
Other liabilities............................... 363 1,027 -- 1,390
-------- ------- ------- --------
Total liabilities..................... 101,942 20,079 11,583 133,604
-------- ------- ------- --------
Stockholders' equity(deficiency)................ (25,009) 11,204 (7,204)(f) (21,009)
-------- ------- ------- --------
Total liabilities and stockholders' equity...... $ 76,933 $31,283 $ 4,379 $112,595
======== ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
25
<PAGE> 30
AIRXCEL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
1. HISTORICAL FINANCIAL STATEMENTS
The historical balance sheets present the financial position of Airxcel and
KODA as of December 31, 1997 and were derived from the historical balance sheets
of Airxcel and KODA. Airxcel has a December 31 fiscal year-end, KODA has an
April 30 fiscal year-end and, prior to the acquisition by Airxcel, Crispaire had
an October 31 fiscal year-end. The audited historical financial statements of
Airxcel, Crispaire and KODA have been included elsewhere in this Prospectus. The
financial statements of KODA as of December 31, 1997 and for the eight months
then ended which have also been included elsewhere in this Prospectus are
unaudited.
The Crispaire Acquisition was consummated on November 10, 1997, and
therefore the Airxcel historical balance sheet as of December 31, 1997 includes
the effect of this transaction.
2. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the KODA
Acquisition as if it occurred on December 31, 1997, as follows:
<TABLE>
<S> <C> <C>
(a) Reflects the changes in the Company's cash due to the
Acquisition:
Proceeds from term and revolving debt....................... $ 25,000
Cash contributed by Holdings................................ 4,000
Retirement of the KODA debt................................. (13,417)
Cash paid to purchase KODA.................................. (23,228)
Loan financing costs........................................ (285)
Direct acquisition costs.................................... (1,000)
--------
Net decrease in cash........................................ $ (8,930)
========
</TABLE>
(b) The Acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, Business Combinations (ABP
16). The purchase price is being allocated first to the identifiable
assets and liabilities of KODA based upon preliminary estimates of
their fair market values, with the remainder allocated to goodwill.
The total purchase price is as follows:
<TABLE>
<S> <C> <C>
Cash paid to purchase KODA.................................. $23,228
Direct acquisition costs.................................... 1,000
-------
Total purchase price........................................ 24,228
-------
Book value of net assets of KODA at the Acquisition date.... 11,204
-------
Increase in basis of net assets purchased................... $13,024
=======
Allocation of increase in basis:
Amount allocated to identifiable intangible assets.......... $ 9,117
Increase in fair value of property, plant and equipment..... 1,954
Amount allocated to goodwill................................ 1,953
-------
$13,024
=======
(c) Reflects loan financing costs:
Deferred financing fees and expenses incurred with the new
term and revolving debt..................................... $ 285
=======
</TABLE>
26
<PAGE> 31
AIRXCEL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET -- (CONTINUED)
<TABLE>
<S> <C> <C> <C>
(d) Reflects retirement of existing short-term debt:
Retirement of the KODA short-term debt using the proceeds from
new term and revolving debt...................................... $ (1,482)
========
(e) Reflects net change in long-term debt:
Issuance of new term and revolving debt............................ $ 25,000
========
Retirement of KODA long-term debt using the proceeds from the new
term and revolving debt............................................ (11,935)
--------
Net increase in long-term debt..................................... $ 13,065
========
(f) Reflects net changes in stockholders' equity (deficiency):
Elimination of KODA equity......................................... $(11,204)
Cash Contribution of capital from Holdings to Airxcel.............. 4,000
--------
Net decrease in stockholders' equity (deficiency).................. $ (7,204)
========
</TABLE>
27
<PAGE> 32
AIRXCEL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AIRXCEL CRISPAIRE KODA CRISPAIRE KODA PRO
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS FORMA
---------- ---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $58,323 $33,739 $43,465 -- -- $135,527
Cost of sales........... 44,732 13,856 33,897 $ 187(a) $ 109(a) 102,781
------- ------- ------- ------- ------- --------
Gross profit............ 13,591 9,883 9,568 187 109 32,746
Selling, general and
administrative
expenses.............. 4,862 4,894 8,257 1,001(a)(b) 610(a) 19,624
Engineering, research
and development....... -- 1,139 -- -- -- 1,139
------- ------- ------- ------- ------- --------
Operating income........ 8,729 3,850 1,311 (1,188) (719) 11,983
Interest expense, net... 4,619 3 1,159 4,163(c) 1,108(c) 11,052
Other nonoperating
expense (income),
net................... 23 (256) (484) -- -- (717)
------- ------- ------- ------- ------- --------
Income from continuing
operations before
income taxes.......... $ 4,087 $ 4,103 $ 636 $(5,351) $(1,827) $ 1,648
======= ======= ======= ======= ======= ========
Ratio of earnings to
fixed charges(1)...... 1.1x
</TABLE>
- ---------------
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
include income from continuing operations before income taxes plus fixed
charges. Fixed charges consist of interest expense, amortization of debt
issuance costs and a portion of rental expense assumed representative of the
interest factor.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Statements of
Operations
28
<PAGE> 33
AIRXCEL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
1. HISTORICAL FINANCIAL STATEMENTS
Airxcel has a December 31 fiscal year-end. The historical statements of
operations of Airxcel for the year ended December 31, 1997 were derived from the
audited financial statements included elsewhere herein. Prior to the acquisition
by Airxcel, Crispaire had an October 31 fiscal year-end. KODA has an April 30
fiscal year-end. The unaudited historical financial statements of Crispaire and
KODA for the year ended December 31, 1997 were derived from unaudited financial
statements not included herein.
2. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(a) Reflects amortization of identifiable intangible assets over periods
ranging from five to 40 years; amortization of goodwill over 40 years and
depreciation of the increase in the carrying value of certain property, plant,
and equipment related to the Acquisition on a straight-line basis over periods
ranging from five to 20 years. Eighty percent of depreciation is allocated to
cost of sales; 20 percent of depreciation is allocated to selling, general and
administrative expenses.
<TABLE>
<CAPTION>
CRISPAIRE KODA
--------- ----
<S> <C> <C>
Amortization of identifiable intangible assets............ $1,146 $534
Amortization of goodwill.................................. 101 49
Increase in depreciation expense allocated to selling,
general and administrative expenses..................... 46 27
------ ----
$1,293 $610
====== ====
Increase in depreciation expense allocated to cost of
sales................................................... $ 187 $109
====== ====
</TABLE>
(b) In connection with the Crispaire Acquisition, the President of
Crispaire agreed to modify his employment and compensation agreements such that
his continuing compensation was reduced. Adjustment reflects the resulting
decrease in the President's compensation of $292 for the year ended December 31,
1997.
29
<PAGE> 34
AIRXCEL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(c) Reflects the net change in interest expense:
<TABLE>
<CAPTION>
CRISPAIRE KODA
--------- ----
<S> <C> <C> <C>
Interest expense related to Interest expense related to
the Notes issued pursuant new debt incurred in
to the Offering.......... $ 8,248 connection with the KODA
Acquisition at an assumed
rate of 8%............... $ 2,215
Elimination of historical Elimination of historical
interest expense related interest expense of KODA
to Airxcel's debt retired for debt retired as part
using the proceeds of the of the KODA
Offering and elimination Acquisition.............. (1,159)
of historical interest
expense of Crispaire for
debt not assumed as part
of the Crispaire
Acquisition.............. (4,099)
Amortization of deferred Amortization of deferred
financing costs incurred financing cost incurred
in the Offering, over the with the new debt, over
10-year term of the the average term of the
Notes.................... 312 debt, 66 months.......... 52
Elimination of historical
amortization of financing
costs related to the
Company's debt retired
using the proceeds of the
Offering................. (298)
------- -------
Net increase in interest
expense.................. $ 4,163 $ 1,108
======= =======
</TABLE>
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations covers periods before completion of the KODA Acquisition. The
following discussion and analysis should be read in conjunction with "Selected
Financial and Other Data" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus. Except for the historical information
contained herein, the discussion in this Prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and in the section entitled "Risk Factors," as
well as those discussed elsewhere in this Prospectus.
GENERAL
The Company is a designer, manufacturer and marketer of RV air
conditioners, specialty wall mount air conditioners, ECUs and heat pumps for
various applications. The combination of RVP and Crispaire is the first step in
the Company's strategy to establish itself as the leading designer, manufacturer
and marketer of specialty heating, air conditioning and water heating products.
The Company believes that it is well positioned to effectively pursue this
strategy with a leading position in each of its principal markets and a range of
products serving separate customer bases. The Company will conduct its business
through two distinct operating divisions: The Recreation Vehicle Products
Division ("RVP") and the Crispaire Division ("Crispaire"). Each of the divisions
will continue to maintain its own sales, marketing, engineering, manufacturing
and accounting personnel. The Company does not anticipate significant savings
from consolidation of functions. However, the Company does expect improved
volume discounts on similar component purchases through master contracts with
suppliers.
The combination of RVP and Crispaire creates a diversified specialty air
conditioning company with a strong market presence. By combining the major
supply purchasing contracts, it is anticipated that at least a 1% or $700,000
savings in the annual purchases of raw materials and components of the combined
Company would be achieved. Management believes that the Company will benefit
from RVP's low variable cost structure and its cost controlling culture, and
that the Company will be able to streamline Crispaire's operations to achieve
additional cost savings. Additionally, management believes that the Company will
be able to leverage off of Crispaire's proven success in identifying new,
emerging markets and customizing its products to suit the needs of its
customers.
In certain of the niche markets in which the Company competes, OEMs and
other customers (as is sometimes the case with the telecommunications shelters)
often rely on the Company to design, engineer, manufacture and conduct quality
control testing in order to create or adapt a product to meet certain
engineering or other industry specifications. The Company believes its ability
to satisfy these demands on a consistent, timely and economical manner is a
reason that the Company enjoys strong relationships with its customers. In
addition, the price of the Company's units represent a small portion of the cost
of the customer's end product. For instance, the cost of a unit which provides
environmental control for telecommunication shelters represents a very small
percentage of the cost of the circuitry and service which the unit protects, and
the cost of an RV air conditioning unit to OEMs represents a small percentage of
the entire cost of the vehicle. The Company believes its customers value its
strong reputation, dependability, innovative product design and engineering and
make purchasing decisions on these merits in addition to system price. The
Company believes that these factors protect it from competition as well as
protect the Company's operating margin.
31
<PAGE> 36
The Company is a diversified specialty air conditioning company of a
significant size and diversified product mix such that the impact of any
industry cyclical effects and some general economic effects are minimized.
Additionally, RVP and Crispaire have a limited international presence and will
utilize common international sales representatives (unless other agreements are
in place) and strategy to improve its presence.
RESULTS OF OPERATIONS -- AIRXCEL
GENERAL
RVP is a manufacturer of RV air conditioners. RVP has sold over two million
units under the brand name "Coleman". RVP sells to OEMs and aftermarket
distributors. OEMs produce RVs year round with only minor fluctuations due to
seasonality. RV sales are, however, sensitive to general economic conditions and
have shown significant correlation to the movements in consumer borrowing rates.
RVP sells aftermarket products through distributors who, in turn, may sell to
retailers. The aftermarket experiences seasonality with higher sales in the late
spring and early summer months. Aftermarket sales and, to a much lesser degree,
RV sales are negatively impacted by weather characterized as cold-wet springs.
Aftermarket sales are not as affected as the sales to OEMs by adverse general
economic conditions because this market generates sales from the existing base
of RVs and does not rely on new RV sales.
Future sales from aftermarket replacements and from favorable demographic
changes appear positive. There are currently 8.6 million RVs in use, and
management expects the historic trend of 100,000 new households purchasing RVs
per year since 1980 to continue. The average age of an RV owner is 48 years old,
and as baby boomers continue to enter such age group at increasing rates over
the next 10 to 15 years, the RV industry should experience above average growth.
In addition, there is a strong population growth in the South and West regions
of the U.S., where the RV lifestyle is more popular. The U.S. Census Bureau
projects over 71% growth for the 45-64 year old age group in the West by the
year 2010, compared to the projected national growth rate of 51% for this age
group.
RVP manufactures and sells five models of RV air conditioners. RVP builds
aerodynamically designed units which the Company believes are more attractive
and functional than the standard box style sold by RVP's competitors. The
Company also believes that RVP leads the industry in producing units which
combine quiet operation and high cooling capacity. In addition, RVP manufactures
air conditioning units for elevators and heavy duty applications such as oil
logging trucks.
The following table sets forth, for the periods indicated, selected items
from Airxcel's statement of operations expressed as a percentage of net sales.
Any trends reflected by the following table may not be indicative of futures
results:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of goods sold......................................... 75.8 75.3 76.7
Gross profit............................................... 24.2 24.7 23.3
Selling, general and administrative expenses............... 19.6 10.3 8.3
Operating income........................................... 4.6 14.4 15.0
Interest expense........................................... 2.0 3.9 7.9
Income from continuing operations before income taxes...... 2.5 10.3 7.0
Net income (loss).......................................... (0.8) 1.9 (7.8)
</TABLE>
32
<PAGE> 37
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales. Net sales increased 0.2% from $58.2 million in 1996 to $58.3
million in 1997. Net sales increased primarily due to the $4.0 million of
additional sales related to the acquisition of the Crispaire Corporation on
November 10, 1997, offset by the decrease in volume of motor home and after
market sales, which the Company believes was the result of unseasonably cold
weather.
Gross profit. Gross profit decreased 5.4% from $14.4 million in 1996 to
$13.6 million in 1997. The decrease was principally attributable to weaker motor
home and aftermarket sales, which the Company believes was the result of
unseasonably cold weather. Gross margin percentages also decreased from 24.7% to
23.3% in 1996 and 1997, respectively.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expense decreased 18.7% from $6.0 million in 1996 to $4.9 million in 1997.
Selling, general and administrative expenses as a percentage of net sales
decreased from 10.3% in 1996 to 8.3% in 1997. The decrease was primarily due to
$458,000 of compensation expense incurred in 1996 related to stock compensation
and a decrease in amortization of intangibles of $783,000 due to the fact that
the carrying value of certain intangibles were fully amortized by the end of
1996.
Interest expense. Interest expense, net increased 103.2% from $2.3 million
in 1996 to $4.6 million in 1997, primarily as a result of the issuance of $90.0
million of senior subordinated debt in November, 1997, although $47.0 million of
the proceeds from this debt was used to repay existing debt. The increase in
interest expense was also partially due to an increase in borrowings under the
Company's existing credit agreement.
EBITDA. EBITDA was $10.4 million in 1996 and $9.9 million in 1997,
primarily due to the decrease in gross profit attributable to weaker motor home
and after market sales offset by lower compensation expense as noted above.
Income from continuing operations before income tax expense and
extraordinary item. Income from continuing operations before income tax expense
and extraordinary item decreased 31.5% from $6.0 million in 1996 to $4.1 million
in 1997 primarily due to lower gross profit and higher interest expense offset
by lower selling, general and administrative expense as described above. In
addition, the net sales and gross profit of Crispaire, included in the Company's
fourth quarter 1997 operations, were both lower than anticipated by management
due to what management believes are temporary integration issues. These
integration issues caused Crispaire's contribution to operating income to be at
levels below those expected by management.
Net income (loss). Net income decreased from $1.1 million in 1996 to a net
loss of $4.5 million in 1997 primarily as a result of the $1.0 million decrease
in income from continuing operations before extraordinary loss as previously
noted, a $3.2 million increase in losses from operations of the discontinued
Faulkner manufacturing division ("Faulkner"), including a $1.7 million increase
in estimated losses from disposal of Faulkner recorded in the fourth quarter of
1997, and a $1.4 million increase in extraordinary loss on early extinguishment
of debt.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales. Net sales increased 4.3%, from $55.8 million in 1995 to $58.2
million in 1996. Net sales increased primarily due to the increase in shipments
to Fleetwood and shipments of aftermarket product related to the Coast
distribution agreement. During 1995, Airxcel entered into an exclusive
distribution agreement with a major customer. The agreement disallowed sales to
competitors of this major customer, therefore, a significant amount of product
of the competitors was returned to the Company prior to December 31, 1995.
Gross profit. Gross profit increased 6.2%, from $13.5 million in fiscal
1995 to $14.4 million in fiscal 1996. Gross margin remained relatively unchanged
at 24.2% and 24.7% for the years ended
33
<PAGE> 38
December 31, 1995 and 1996, respectively. The increase in gross profit was due
primarily to the increase in shipments to Fleetwood and shipments of aftermarket
product related to the Coast distribution agreement.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses decreased 45.4% from $11.0 million in 1995 to $6.0 million in 1996
primarily due to $4.3 million of expenses incurred in 1995 related to costs
associated with compensating certain option holders for their personal tax
liabilities incurred when such options were exercised. Selling, general and
administrative expense as a percentage of net sales decreased from 19.6% in 1995
to 10.3% in 1996 primarily due to this $4.3 million compensation expense.
Interest expense. Interest expense, net increased from $1.1 million in
1995 to $2.3 million in 1996, primarily as a result of the issuance of $14
million of subordinated debt in August of 1996.
EBITDA. EBITDA increased 86.7%, from $5.6 million in 1995 to $10.4 million
in 1996. EBITDA adjusted in 1995 for a one-time expense related to $4.3 million
of expenses incurred in 1995 related to costs associated with compensating
certain option holders for their personal tax liabilities incurred when such
options were exercised increased 5.2% from $9.9 million in 1995 to $10.4 in
1996. The increase in this adjusted EBITDA was principally a result of the
increase in net sales in 1996 and the stability of Airxcel's gross margin.
Income from continuing operations before income tax expense and
extraordinary item. Income from continuing operations before income tax expense
and extraordinary item increased 331.3% from $1.4 million in 1995 to $6.0
million in 1996. This increase of $4.6 million despite only a $900,000 increase
in gross profit reflects the fact that 1995 operations included a $4.3 million
charge to compensate certain option holders as described above.
Net income (loss). Net income (loss) improved from $500,000 net loss in
1995 to net income of $1.1 million in 1996 primarily as a result of the one-time
$4.3 million compensation expense in 1995 mitigated by a $1.6 million tax
benefit related to net operating losses and a $1.3 million increase in net
losses from operations of the discontinued Faulkner Manufacturing division.
34
<PAGE> 39
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data for the twelve quarters ended December 31, 1997, as well as such data
expressed as a percentage of Airxcel's net sales for the period indicated. This
data has been derived from unaudited financial statements that, in the opinion
of Airxcel, include all adjustments (consisting of normal recurring adjustments
except for adjustments related to the discontinued Faulkner manufacturing
division) necessary for fair presentation of such information when read in
conjunction with Airxcel's Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $15,257 $15,029 $14,351 $11,151 $14,726 $18,298 $14,187 $10,958 $13,532 $15,428
Cost of goods
sold............... 11,575 11,421 11,111 8,150 11,111 13,583 10,824 8,285 10,241 11,456
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 3,682 3,608 3,240 3,001 3,615 4,715 3,363 2,673 3,291 3,972
Selling, general and
administrative
expenses(1)........ 1,777 1,719 1,527 5,936 1,815 1,460 1,487 1,218 1,227 905
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.... 1,905 1,889 1,713 (2,935) 1,800 3,255 1,876 1,455 2,064 3,067
Interest expense.... 288 319 257 233 363 366 432 1,112 564 944
Income (loss) from
continuing
operations before
income taxes....... 1,576 1,546 1,408 (3,147) 1,397 2,815 1,459 297 1,480 2,138
Net income (loss)... $ 573 $ 405 $ 986 $(2,417) $ 483 $ 1,080 $ 81 $ (570) $ 132 $ 705
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
------------------
SEPT. 30, DEC. 31,
1997 1997
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales........... $14,947 $14,416
Cost of goods
sold............... 11,792 11,243
------- -------
Gross profit........ 3,155 3,173
Selling, general and
administrative
expenses(1)........ 930 1,800
------- -------
Operating income.... 2,225 1,373
Interest expense.... 928 2,183
Income (loss) from
continuing
operations before
income taxes....... 1,291 (822)
Net income (loss)... $(1,668) $(3,717)
======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods
sold............... 75.9 76.0 77.4 73.1 75.5 74.2 76.3 75.6 75.7 74.3
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 24.1 24.0 22.6 26.9 24.5 25.8 23.7 24.4 24.3 25.7
Selling, general and
administrative
expenses(1)........ 11.6 11.4 10.6 53.2 12.3 8.0 10.5 11.1 9.1 5.9
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.... 12.5 12.6 11.9 (26.3) 12.2 17.8 13.2 13.3 15.3 19.9
Interest expense.... 1.9 2.1 1.8 2.1 2.5 2.0 3.0 10.1 4.2 6.1
Income (loss) from
continuing
operations before
income taxes....... 10.3 10.3 9.8 (28.2) 9.4 15.4 10.3 2.8 10.9 13.9
Net income (loss)... 3.8% 2.7% 6.9% (21.7)% 3.3% 5.9% 0.6% (5.2)% 1.0% 4.6%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
PERCENTAGE OF NET SALES
-----------------
<S> <C> <C>
Net sales........... 100.0% 100.0%
Cost of goods
sold............... 78.9 78.0
------- -------
Gross profit........ 21.1 22.0
Selling, general and
administrative
expenses(1)........ 6.2 12.5
------- -------
Operating income.... 14.9 9.5
Interest expense.... 6.2 15.1
Income (loss) from
continuing
operations before
income taxes....... 8.6 (5.7)
Net income (loss)... (11.2)% (25.8)%
======= =======
</TABLE>
- ---------------
(1) Selling, general and administrative expenses for the quarter ended December
31, 1995 includes $4,279 of nonrecurring expenses related to costs incurred
to compensate certain option holders for their personal tax liabilities
incurred when such options were exercised.
35
<PAGE> 40
The Company's business is subject to seasonal fluctuations. Given the
Company's historical results, management anticipates that the majority of the
Company's net sales will be during the second and third quarters. As a result,
the Company expects its sales and results of operations generally to be lower in
the first and fourth quarters. The Company believes that this seasonality will
continue in the future. The Company's quarterly results may fluctuate as a
result of various factors, including factors beyond the Company's control, such
as general economic conditions and actions of competitors. Accordingly, results
of operations in any quarter will not necessarily be indicative of the results
that may be achieved for full fiscal year or any future quarters.
RESULTS OF OPERATIONS -- CRISPAIRE
GENERAL
Crispaire is a designer, manufacturer and marketer of specialty heating,
air conditioning and water heating products primarily for industrial and
commercial uses. Crispaire's products are marketed under the "Marvair" trade
name to three industry segments -- telecommunications, school and construction.
Crispaire sells vertical wall mount air conditioners and heat pumps, specialty
heat pumps, ECUs, heat pump water heaters and various applied products. The
majority of such products range in capacity from a half ton to five tons.
Crispaire's products are sold worldwide primarily by its internal sales force
and independent sales agents, as well as international distributors for overseas
sales. Crispaire's main product lines are targeted towards two primary industry
segments: telecommunications and schools.
Revenues. Crispaire's net revenues increased at an average compound annual
growth rate ["CAGR"] of 25% from fiscal 1993-1996. A large portion of this
growth is attributed to Crispaire's success in new and progressive product lines
and an increased customer base as they have moved aggressively into the
telecommunications market. This growth resulted from Crispaire's leading
positions in the supply of HVAC units to two major markets -- telecommunication
shelters and schools. Crispaire's gross margin increased from 26.4% in 1995 to
27.5% in 1996. The gross margin improvement reflects the efforts of Crispaire's
management to de-emphasize modular expansion and emphasize the telecommunication
and school markets in which the margins are greater and more opportunities
exist. With the substantial volume increases in Crispaire's core product lines,
gross profit rose to almost $9.4 million in 1996 from $7.2 million in 1995.
The telecommunications industry has experienced rapid growth due to
deregulation and continued rapid growth is anticipated. Such growth is expected
to result in an increased demand for telecommunication facilities such as
shelters and cabinets as new wireless networks are constructed and old networks
are overlaid with digital technology. Suppliers of wireless communications
equipment should continue to benefit from the expected acceleration in the
deployment of wireless networks. Beginning in the 1970's, many schools,
primarily in the Sunbelt region of the U.S., began installing air conditioners
to their facilities. Today, one-third of the nation's schools, serving more than
14 million students, need extensive repair or renovation. According to the U.S.
General Accounting Office for School Facilities, 20,104 public elementary
schools nationwide are in need of HVAC repair with an estimated cost of $3
billion. In addition, it is estimated that school districts need to build 6,000
schools by the year 2005 to meet the growing student population. The public
elementary school HVAC new construction market is estimated to be $315 million
annually through the year 2005.
36
<PAGE> 41
The following table sets forth, for the periods indicated, selected items
from Crispaire's statement of operations expressed as a percentage of net sales.
Any trends reflected by the following table may not be indicative of future
results.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEAR ENDED
OCTOBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100% 100% 100%
Cost of goods sold.......................................... 73.6% 72.5% 72.0%
Gross profit................................................ 26.4% 27.5% 28.0%
Selling, general and administrative expenses................ 17.7% 17.6% 17.8%
Operating income............................................ 8.7% 10.1% 10.2%
Interest expense, net....................................... 0.3% 0.4% 0.3%
Net income.................................................. 8.4% 9.6% 9.9%
</TABLE>
COMPARISON OF FISCAL YEARS 1996 AND 1997
Net Sales. Net sales increased 14.6%, from $34.1 million in 1996 to $39.1
million in 1997. Net sales increased primarily due to an increase in sales in
the telecommunications market, particularly driven by sales of ECUs which are
mainly purchased for use in PCS cabinets and other wireless services. Management
expects that the Company will continue to generate increasing sales from this
sector as it has in previous periods and anticipates continued significant
growth for the foreseeable future in the telecommunications segment due to the
continuing expansion and acceptance of all types of communications and
information systems, including cellular, satellite and PCS. Another contributing
factor to the increase in sales was the successful introduction of new products
for the school market, including the new package terminal heat pump type.
Gross profit. Gross profit increased 16.8% from $9.4 million in 1996 to
$11.0 million in 1997. Gross margin increased 0.5% from 27.5% to 28.0% over the
same periods. Gross margin improved primarily due to a continuing shift in the
mix of products sold away from lower margin products and toward higher margin
products. This contributing trend of improving gross margin is due to
management's decision over the past five years to dedicate more time and
resources to higher margin product lines such as interior classroom heat pumps,
namely the Scholar and the Graduate, as well as the majority of products sold to
the telecommunications industry.
Operating expenses. Operating expenses, consisting primarily of selling,
general and administrative expenses, increased 16.0% from $6.0 million in 1996
to $7.0 million in 1997. Operating expenses as a percentage of sales remained
approximately the same at 17.8%. Operating expenses increased due to the
additional expenses associated with additional staffing in sales and
engineering. These additional selling costs were a result of an increase in the
number of sales people and support personnel and facilities associated with
them. The increased engineering expenses were incurred to support the
development of new product initiatives in both the telecommunications and school
industries and included additional engineers, support personnel and facilities
associated with them. In addition, during the fourth quarter of 1997, Crispaire
incurred approximately $0.3 million of legal and other general and
administrative expenses, primarily in connection with the acquisition by
Airxcel.
Interest expense. Interest expense decreased 14.5% from $146,000 in 1996
to $125,000 in 1997. Interest expense decreased primarily as a result of the
retirement of $0.8 million of long term debt in September, 1997.
EBITDA. EBITDA increased 16.3% from $3.7 million in 1996 to $4.3 million
in 1997, principally a result of the increase in sales and improvement in gross
margin partially offset by the increase in operating expenses.
37
<PAGE> 42
Net income. Net income increased 17.3% from $3.3 million in fiscal 1996 to
$3.9 million in fiscal 1997 due to the increase in sales and improvement in
gross margin partially offset by the increase in operating expenses.
COMPARISON OF FISCAL YEARS 1995 AND 1996
Net sales. Net sales increased 25.0%, from $27.3 million in fiscal 1995 to
$34.1 million in fiscal 1996. Net sales increased primarily due to an increase
in sales in the telecommunications market, following similar trends discussed in
the comparison of the nine month periods ended July 31st. More specifically, the
Company generated significant sales from its first full year of supplying ECUs
to Motorola for their PCS wireless telecommunication shelters. Management feels
that these sales further support the expectation of significant growth in the
telecommunications market. In addition, the Company generated international
sales from sale of ECUs to the Spanish telecommunications market as they
continue their cellular build-out.
Gross profit. Gross profit increased 30.3% from $7.2 million in fiscal
1995 to $9.4 million in fiscal 1996. Gross margin increased 1.1% from 26.4% in
fiscal 1995 to 27.5% in fiscal 1996. The improvement was primarily due to a
continuing trend toward a product mix more heavily focused on the
telecommunications and school markets, both higher margin products, as discussed
in the comparison of the nine month periods ended July 31, 1996 and 1997.
Operating expenses. Operating expenses increased 24.1% from $4.8 million
in fiscal 1995 to $6.0 million in fiscal 1996. Selling, general and
administrative expenses as a percentage of net sales remained approximately the
same at 17.8% in fiscal 1995 and 17.6% in fiscal 1996. Operating expenses in
fiscal 1996 included non-recurring expenses, including excess executive
management compensation associated with the exercise of management options and
certain legal expenses.
Interest expense. Interest expense increased 55.9%, from $93,500 in fiscal
1995 to $145,700 in fiscal 1996, primarily as a result of interest paid on plant
expansion financing.
EBITDA. EBITDA increased 42.7% from $2.6 million in fiscal 1995 to $3.7
million in fiscal 1996. EBITDA margin improved 1.3% from 9.4% in fiscal 1995 to
10.7% in fiscal 1996. EBITDA adjusted for non-recurring expenses, as discussed
in operating expenses, would have increased 47.1% from $3.4 million in fiscal
1995 to $5.0 million in fiscal 1996. EBITDA margin adjusted for non-recurring
expenses increased 2.1% from 12.5% in fiscal 1995 to 14.6% in fiscal 1996,
principally a result of the increase in sales and the improvement in gross
margin and operating expenses as a percentage of sales.
Net income. Net income increased 43.9% from $2.3 million in fiscal 1995 to
$3.3 in fiscal 1996 principally due primarily to the increase in sales and
improvements in gross margin.
38
<PAGE> 43
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data for the twelve quarters ended October 31, 1997, as well as such data
expressed as a percentage of Crispaire's net sales for the periods indicated.
This data has been derived from unaudited financial statements that, in the
opinion of Crispaire, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of such information when
read in conjunction with Crispaire's Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $5,827 $6,683 $7,562 $7,232 $7,018 $8,628 $8,978 $9,514 $8,275 $9,220
Cost of goods sold.. 4,362 4,914 5,493 5,335 5,049 6,092 6,473 7,144 6,015 6,473
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........ 1,465 1,769 2,069 1,897 1,969 2,536 2,505 2,370 2,260 2,747
Selling, general and
administrative
expenses........... 918 1,267 1,464 1,192 1,174 1,539 1,566 1,728 1,298 1,534
Operating income.... 559 498 618 705 811 1,023 937 666 979 1,227
Interest expense
(income), net...... (5) (3) 7 94 49 42 36 18 18 39
Net income.......... $ 564 $ 501 $ 611 $ 611 $ 762 $ 981 $ 901 $ 648 $ 961 $1,188
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTER ENDED
-------------------
JULY 31, OCT 31,
1997 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales........... $11,050 $10,569
Cost of goods sold.. 7,574 8,099
------- -------
Gross profit........ 3,476 2,470
Selling, general and
administrative
expenses........... 1,725 2,410
Operating income.... 1,753 27
Interest expense
(income), net...... 49 19
Net income.......... $ 1,704 $ 8
======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.. 74.8% 73.5% 72.6% 73.8% 71.9% 70.6% 72.1% 75.1% 72.7% 70.2%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........ 25.2% 26.5% 27.4% 26.2% 28.1% 29.4% 27.9% 24.9% 27.3% 29.8%
Selling, general and
administrative
expenses........... 15.8% 19.0% 19.4% 16.5% 16.7% 17.8% 17.4% 18.2% 15.7% 16.6%
Operating income.... 9.6% 7.4% 8.2% 9.7% 11.6% 11.9% 10.5% 7.0% 11.8% 13.3%
Interest expense
(income), net...... (0.1)% (0.1)% 0.1% 1.3% 0.7% 0.5% 0.4% 0.2% 0.2% 0.4%
Net income.......... 9.7% 7.5% 8.1% 8.4% 10.9% 11.4% 10.1% 6.8% 11.6% 12.9%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
PERCENTAGE OF NET SALES
--------------------
<S> <C> <C>
Net sales........... 100.0% 100.0%
Cost of goods sold.. 68.5% 76.4%
------- -------
Gross profit........ 31.5% 23.4%
Selling, general and
administrative
expenses........... 15.6% 22.8%
Operating income.... 15.8% 0.3%
Interest expense
(income), net...... 0.4% 0.2%
Net income.......... 15.4% 0.1%
======= =======
</TABLE>
In the early 1970's, the management of Crispaire left Muncie Gear Works to
form Crispaire, at which time the majority of revenues were derived from HVAC
renovation of existing classrooms during the months of May through September.
Approximately 50% of sales to the school markets occurred during the months of
June, July and August. October 31 was the optimum time for financial reporting
due to lower inventory and receivables levels, a strong liquidity position and
slower sales during the months of October and November which resulted in the
ability to dedicate greater time to financial reporting.
As Crispaire entered and grew its telecommunications business segment, its
operations became less seasonal. Today, Crispaire's operating performance
demonstrates minimal seasonality. In 1996, sales were spread out fairly evenly
throughout the year with 61% of total revenues to the telecommunications
industry and 23% to the school industry including new construction which is less
seasonal than renovation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations through a combination of
funds generated from operations, bank credit facilities and the private sales of
debt and equity securities. The Company experienced an increase in inventory
during fiscal 1997 as compared to fiscal 1996
39
<PAGE> 44
primarily as a result of $6.6 million of inventories acquired in connection with
the acquisition of Crispaire Corporation. Working capital requirements generally
precede the realization of net sales. The Company's liquidity needs will arise
primarily from debt service for indebtedness incurred in connection with the
Acquisition and the funding of planned capital expenditures. The Company
incurred substantial indebtedness in connection with the Acquisitions. As of
December 31, 1997, on a pro forma basis, after giving effect to the Acquisitions
and adjusting for the Offering (including the application of the net proceeds
therefrom), the Company would have had outstanding $115.4 million of
indebtedness, consisting of $90 million of the Notes, $10 million Senior Term
Loan, $15 million under the Senior Revolving Credit Facility and approximately
$400,000 of other debt.
As of December 31, 1997, Holdings has preferred stock plus accrued
dividends of $10,657,263 and $10,217,764 of junior subordinated notes
outstanding. Although the preferred stock is not subject to redemption until
August, 2006 and no cash payments are required on the notes until November 2008,
Holdings is entirely dependent upon Airxcel for its cash requirements (see Note
1 to Airxcel historical financial statements). In fiscal 1995, the Company paid
$4.4 million of cash in order to fund Holdings' repurchase of common stock from
one of its shareholders. This cash payment was recorded as a return of capital
from the Company to Holdings.
Interest payments under the Credit Facility and interest payments on the
Senior Subordinated Notes will represent significant liquidity requirements for
the Company. The borrowings under the Credit Facility will bear interest at
floating rates based upon the interest rate option selected by the Company. For
a description of the Credit Facility, See "Description of the Revolving Credit
Facility."
The Company's capital expenditures were $355,990, $458,549 and $716,220 in
fiscal 1995, 1996 and 1997, respectively. The Company may seek to make selective
acquisitions although the Company currently has no commitments with respect to
such. Future acquisitions may require third party financing and there can be no
assurance that such financing could be obtained. Expected capital expenditures
for 1998 are expected to be $1.1 million and to be used primarily for
maintenance.
The Company estimates its principal source of cash to fund its liquidity
needs will be net cash provided by operating activities and from availability
under the Credit Facility. The Company believes that net cash expected to be
generated from operations, together with the 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. The Company's future operating
performance and ability to service or refinance the Senior Subordinated Notes
and to extend or refinance the Credit Facility will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. The Company may be required to seek additional
sources of funds in the future, and there can be no assurance that such funds
will be available on satisfactory terms or at all. Failure to obtain such
financing on a timely basis could have a material adverse effect on the
Company's business, financial condition and results of operations.
DERIVATIVES
The Company uses noncancelable contracts and forward contracts in its
purchasing cycle. These instruments are all used to purchase Copper and Aluminum
for the Company's internal needs, and to manage purchase prices and inventory
values. All such contracts have determinable market values. Unrealized gains and
losses are deferred until the copper and aluminum costs flow through cost of
goods sold. The net gains and losses recorded are immaterial. At December 31,
1996 and 1997, the aggregate fair value of the Company's copper and aluminum
position was approximately $1.7 million and $6.7 million, respectively.
40
<PAGE> 45
YEAR 2000
In response to the upcoming Year 2000 issue, the Company is in the process
of hiring an MIS director who will be primarily responsible for devising a
company-wide strategy for addressing the issues. Management believes that all
KODA and Crispaire systems have achieved complete Year 2000 compliance.
Management believes that Airxcel systems will be able to achieve Year 2000
compliance by the fourth quarter of fiscal 1998 without material cost to the
Company. The Company is also devising a plan to address the Year 2000 compliance
of its vendor and customer systems.
INFLATION
Results of operations have not been significantly affected by inflation
since inception. The Company, in the normal course of business, has been able to
offset the impact of increased costs through operating efficiencies and selected
price increases.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective at year-end 1998, the Company will adopt Statement of Financial
Accounting Standards No. 131 (SFAS No. 131), "Disclosure About Segments of an
Enterprise and Related Information," which requires disclosure of segment data
in a manner consistent with that used by an enterprise for internal management
reporting and decision making. The Company believes that it will report separate
segment information for its Airxcel, Crispaire and KODA operations in accordance
with SFAS No. 131.
41
<PAGE> 46
INDUSTRY
RECREATION VEHICLES
RVs encompass a wide variety of mobile means of transportation and
temporary dwelling, from the largest motor coaches to small towables. In 1996,
according to the RVIA, RV manufacturers shipped units (excluding van conversion
vehicles) with an aggregate retail value of approximately $6.3 billion. RVs are
used for a variety of purposes such as camping, travel, vacation, retirement
activities and outdoor activities.
According to a 1993 University of Michigan study sponsored by the RVIA,
approximately 8.2 million households owned RVs in 1993, an increase from 7.7
million in 1988 and 5.8 million in 1980. RV ownership has grown by an average of
100,000 units per year over the last 17 years. Management currently estimates
that one out of every eleven households in the U.S. owns an RV.
RVs are broadly classified as "motor homes" and "towables." The Company
typically provides air conditioning units to motor homes and larger towables.
Motor homes are self-propelled and grouped into three main classes: A, B, and C.
Towables are mobile living spaces that are attached to a mobile vehicle and
include fifth wheel trailers, truck campers, and folding camper trailers, are
smaller and less expensive than motor homes. The following table(1) summarizes
the various classes and types of RVs and the relative characteristics of each:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AVG. UNITS
RETAIL SOLD AVERAGE
NUMBER OF PRICE (000'S) MEDIAN INCOME AVERAGE
TYPE A/CS (1996) 1996 AGE (OWNER) (000'S) SIZES DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[MOTOR HOME Class A Motor home 2 standard $78,965 36.5 63 $39.0 30'-35' Self-propelled,
GRAPHIC] temporary living for
recreational,
travel, or camping
[MOTOR HOME Class B Motor home 1 standard $42,953 4.1 63 $39.0 18' Self-propelled, van-
GRAPHIC] chassis
[MOTOR HOME Class C Motor home 1 standard $47,060 14.7 63 $39.0 20'-24' Self-propelled mini,
GRAPHIC] 28'-30' built on van frame
and RV manufacturer
adds the living area
[TRAVEL TRAILER Conventional Travel 1 standard $14,213 75.4 52 $41.0 20'-35' Towed by bumper or
GRAPHIC] Trailer frame hitch
[FIFTH WHEEL Fifth-wheel Travel 1 or 2 standard $22,673 48.5 52 $41.0 25'-35' Towed by a vehicle
TRAILER GRAPHIC] trailer with a "fifth wheel
hitch" on top
[FOLDING CAMPING Folding Camping 0 standard (30% $4,957 57.3 43 $36.0 10'+ Towable with
TRAILER GRAPHIC] Trailer buy in collapsible partial
aftermarket) sidewalls which
unfold at campsite
[TRUCK CAMPER Truck camper 0 standard $11,083 11.0 38 $34.0 8'-9'5" A Portable mounted
GRAPHIC] (40% buy in into a pickup truck
aftermarket)
</TABLE>
- --------------------------------------------------------------------------------
(1) The University of Michigan demographic study of the RV consumer, authored by
Richard T. Curtin, did not distinguish between Class A, B and C type motor
homes or between Conventional v. Fifth Wheel Travel trailers. These
classifications have been developed by the Company to identify the air
conditioner usage of the RV consumer. As a result, the median age and income
as derived from the University of Michigan study does not vary between such
classes.
42
<PAGE> 47
The consistent growth in the RV industry is attributable to the general
maturing of the industry and several key factors including (i) the overall
increasing number of RV owners, (ii) the growth in the number of potential
consumers, as baby boomers begin entering the typical demographic profile for
premium RV owners (iii) the changing lifestyle of the U.S. population on
average, which is aging and devoting more time to recreational activities, (iv)
an increase in population in states such as California, Florida and Texas, where
RVs are common, (v) a favorable economic environment, and (vi) the availability
of gasoline.
The average RV owner historically has been 48 years old, married with no
children living at home, with an average income of $39,000. According to the
U.S. Census Bureau, the baby boomers or the population of 45 to 64 year olds,
(the age of the average historical buyer of an RV), is expected to grow from
53.7 million in 1996 to 78.9 million in 2010, or increase by approximately
46.9%. This trend results in a large increase in the number of consumers with
significant disposable incomes and increasing amounts of leisure time.
Historically, older Americans who generally have had more disposable income have
chosen the Class A or fifth wheel trailers and recently premium motorhomes have
grown in popularity.
Throughout the United States, there are thousands of campgrounds and RV
parks that offer the RV user a variety of settings. In addition, there are RV
clubs such as the Good Sam Club and in the Family Motor Coach Association that
have over 900,000 and 100,000 members, respectively, and they sponsor RV
"rallies", offer emergency road side services, publish magazines and offer a
host of other benefits.
Traditionally, the largest group of RV buyers in the United States, with a
15.1% ownership rate, has been located in the West. Recently, there has been an
increase in population in states like California, Florida and Texas where RVs
are more common. According to the Statistical Abstract of the U.S., by 2010, the
population of 45 to 64 year olds in the Pacific, Mountain and South Atlantic
regions is expected to increase 52.4%, 63.5% and 58.4%, respectively, while the
increase in population of the same segment in the nation as a whole is expected
to be 46.9%. In addition, according to the U.S. Bureau of the Census, the 45 and
older age group, which accounted for approximately 31.1% of the U.S. population
in 1990, is expected to grow to 39.8% of the U.S. population by 2010.
The Company believes as the demographics and economic factors continue to
improve, the growth in the RV industry will positively impact the sales of RV
air conditioners. The sales of RVs have historically fluctuated in accordance
with interest rates, consumer confidence and the general economy. A stable
interest rate environment is ideal in generating sales.
HVAC INDUSTRY
According to the Air Conditioning and Refrigeration Institute, the
worldwide air-conditioning market is currently estimated at $40 to $45 billion
and is expected to grow to $50 billion by 2005. While markets in Asia, Latin
America, and Eastern Europe are expanding rapidly, significant growth is also
expected in North America and Western Europe. In 1995, the US HVAC market was
estimated to be $19.2 billion and is forecasted to grow by approximately 6.8% to
reach a value of $20.5 billion by 2000. The HVAC industry grew 11% in units sold
from 1995 to 1996. In 1996, the U.S. market for the products in which Crispaire
principally competes was $950 million.
Telecommunications. The telecommunications industry has experienced rapid
growth over the past several years which is expected to continue. The number of
telecommunications sites constructed has increased from 2,305 in 1987 to 30,045
in 1996. It is estimated that the number of subscribers for wireless
communications is approximately 58.3 million and is expected to grow to 160.6
million by 2007. It is estimated that the wireless data services market will
rise to about $2.7 billion, serving approximately 62.5 million voice and data
customers by 2001. In addition, new wireless phone systems such as PCS is
expanding the wireless telecommunication sites as cellular networks serve the
same geographic area. According to an article published in Mobile Phone News,
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the Wireless Communications Bureau indicates that during the last 15 years, the
cellular phone industry has built approximately 22,000 antenna tower sites
across the U.S., and it is anticipated that up to 100,000 more sites may be
required to accommodate the rising number of PCS users in the next few years and
the expansion of PCS networks in the domestic and international markets. The PCS
infrastructure requires about five times as many sites as cellular networks to
serve the same area. The increasing popularity of PCS will result in more
shelters and more HVAC units. Currently 10% of U.S. companies use cellular voice
services, and 53% plan to do so within three years. According to the Cellular
Telecommunications Industry Association as published in the Financial Times,
revenues have grown by over 20% per year, topping $23 billion in 1996.
As the demand for wireless components, shelters, cabinets and towers
increase, manufacturing of shelters and cabinets is likely to expand as new
wireless networks are constructed and old networks are replaced with digital
technologies.
Schools. The Company estimates that approximately one third of the schools
in the U.S. serving more than 14 million students, need extensive repair or
renovation of one or more buildings, with replacement or repair of the HVAC
system being the most frequently reported needed repair. According to the U.S.
General Accounting Office for School Facilities, HVAC replacement is needed for
classrooms in 20,104 elementary schools, representing approximately $3 billion
in replacements and repairs. The Company focuses on schools which currently have
cooling or ventilation units in each classroom or need cooling or ventilation
units, including most elementary, middle and high schools and certain secondary
schools, but excluding larger schools with central air conditioning. For
September 1996, the seasonally adjusted rate of construction of public education
buildings was $29.1 billion, up from $27.1 billion in September of 1995. The
main goals of such new construction are to increase health and safety for
students by improving air quality and to increase energy efficiency. In
addition, it is estimated that by the year 2005, U.S. student enrollment in
elementary and secondary schools will increase significantly with the rising
number of annual births since 1977, or the "echo boom". The 30 year growth in
population of 5 to 13 year olds is projected by the U.S. Department of Education
to be 18.1%. Demographics indicate that the regions of highest growth are in the
warmer climates. Approximately 6,000 new schools will be needed by the year 2005
to meet such increased enrollment. In addition, many schools are adding air
conditioning as part of renovation projects. Two hundred and eighty six schools
in Los Angeles, for example, must now install or update air conditioning due to
the passing of Proposition BB of Los Angeles. The push for air conditioning in
these schools comes on the news of the expansion of the school year to a full
year in some school districts to accommodate the greater number of students.
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THE BUSINESS
OVERVIEW
The Company is a designer, manufacturer and marketer of RV air conditioners
and specialty wall mount air conditioners, ECUs and heat pumps for various
applications. The combination of RVP and Crispaire is the first step in the
Company's strategy to establish itself as the leading designer, manufacturer and
marketer of specialty heating, air conditioning and water heating products. The
Company believes that it is well positioned to effectively pursue this strategy
with strong positions in each of its principal markets and a range of products
serving separate customer bases. The combination of RVP's low cost, high volume
manufacturing expertise with Crispaire's ability to provide customized products
will allow the Company to capitalize on the growing opportunities presented in
each of its markets. The Company's pro forma net sales and EBITDA were
approximately $135.5 million and $16.8 million in fiscal 1997.
Airxcel, Inc. was formed in May, 1991 as Recreational Vehicle Products,
Inc. In November, 1995, the Company acquired Carter Shades, Inc., which was
merged with Faulkner Manufacturing. In October, 1997, the Company changed its
name to Airxcel, Inc. and the Company's board of directors adopted a formal plan
to dispose of the Faulkner Manufacturing division.
RVP supplies a variety of air conditioners to several of the world's
largest RV original equipment manufacturers ("OEMs"), marketing these products
under the popular and well-established "Coleman" brand name. RVP believes that
its air conditioners are superior to those of its competitors due to greater air
flow capacity, cooling efficiency and more aerodynamic design. RVP's reputation
as a dependable source of high-quality, durable products has resulted in its
long term relationships with leading RV manufacturers such as Fleetwood,
Winnebago, Gulf Stream and Jayco, who have relied on RVP for substantially all
of their RV air conditioner needs for each of the past six years. Sales to such
OEMs provide RVP with a large installed base of products which generates a
significant recurring stream of revenue through sales of parts and replacement
units in the aftermarket. Aftermarket sales to customers such as RV dealers,
supply and service centers are achieved primarily through an agreement with
Coast, the largest wholesale distributor of aftermarket products in the RV
industry. RVP believes that Coast's extensive market penetration and large sales
force provide broad aftermarket coverage and distribution capabilities which
enhance its substantial aftermarket business. In fiscal 1996, as a percentage of
Airxcel's net sales, OEM sales represented 66.3%, and aftermarket sales
represented 33.7%. In addition to serving the RV industry, RVP designs,
manufactures and markets air conditioners for marine applications, the cooling
and heating of elevators, petroleum "logging" trucks and for a wide variety of
small-space cooling applications.
Crispaire is a designer, manufacturer and marketer of specialty wall mount
air conditioners, ECUs and heat pumps for various applications. Crispaire's
customers are principally telecommunications companies, manufacturers of
telecommunication shelters in the cellular, cable, wireless, satellite and PCS
markets, wholesale distributors for foreign telecommunications sales, school
districts and construction companies. The Company believes that Crispaire is the
largest provider of environmental control equipment for the U.S.
telecommunication shelter market, through sales to both telecommunications
companies and manufacturers of telecommunication shelters. The Company also
believes that it is well-positioned to benefit from growth in cellular, wireless
and PCS telecommunications markets and the resulting demand for
telecommunication shelters. Crispaire's focus on customer service and quality
control and its strong reputation for its ability to offer a broad and
innovative line of products in a timely manner has attracted significant
customers, including MCI, Motorola, AT&T Wireless, Lucent Technologies and other
wireless communication providers. The Company also believes that it will benefit
from an increasing need for cooling units in the nation's schools due to new
state regulations and certain building codes that mandate fresh air requirements
in classrooms, the rebuilding of school system infrastructure and the steadily
growing student population. Crispaire supplies wall mount air conditioners to
multiple school districts throughout the country, including the Los Angeles
Unified School District. Crispaire has a leading
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position in each of its principal markets, through solid relationships with its
customers who generally require tailored products and a high level of customer
service. Crispaire's ability to customize products without interruption of its
larger production lines allows it to work closely with customers to develop and
produce equipment that meets their specific needs quickly and efficiently. In
fiscal 1996, sales to the telecommunication shelter industry and school industry
represented 61% and 23%, of Crispaire's total net sales, respectively.
COMPETITIVE ADVANTAGES
The Company attributes its success and its continued opportunities for
growth and profitability to the following competitive advantages:
Strong Market Position in Principal Niche Markets. RVP has a large share
of the total North American RV air conditioning market and Crispaire believes it
is the largest provider of environmental control equipment for the U.S.
telecommunications market, through sales to both telecommunications companies
and manufacturers of telecommunication shelters. The Company believes that its
strong market shares enable it to maintain significant competitive advantages in
serving its customers, including manufacturing efficiencies and greater product
development and marketing resources. Success in such markets has historically
been driven by areas in which the Company believes it compares favorably with
its competitors such as strong customer relationships, industry expertise,
product quality and speed and reliability of service.
Existing Long-Term Customer Relationships. The Company has long-term
relationships with most of its customers, including several of the largest OEMs,
major telecommunications companies and equipment manufacturers and school
districts. RVP has supplied leading OEMs such as Fleetwood, Winnebago, Gulf
Stream and Jayco substantially all of their air conditioner needs for each of
the past six years. The Company believes that such customer loyalty coupled with
RVP's focused product line and reputation for meeting high volume production
demands have led to its success in the seasonal RV air conditioning industry and
provide a significant advantage over competitors. Crispaire has worked closely
with its telecommunications customers such as MCI, Motorola, AT&T Wireless and
Lucent Technologies, in some cases for as long as 15 years, to develop equipment
to meet such customers' specialized requirements. To support such equipment,
Crispaire has an extensive network of service dealers across the U.S. The recent
proliferation of shelters for telecommunications equipment and the importance of
protecting such equipment through the use of cooling units and ECUs has
generated an increasing demand for Crispaire's customized products and has
strengthened such relationships. In addition, Crispaire has worked with multiple
school districts throughout the country, such as the Los Angeles Unified School
District, for as long as seven years, to develop products which are designed to
meet the unique heating and cooling needs of the classroom such as achieving
certain industry ventilation standards and addressing other concerns such as
architectural design and ease of servicing considerations. The Company believes
that customization provides a high level of customer satisfaction and will
foster the continued development of significant customer relationships.
Strong Brand Name Recognition. RVP markets its products using the well
established and recognized "Coleman" brand name. The "Coleman" brand name,
established in the early part of the twentieth century, is well recognized as a
leading brand name for a variety of products related to the outdoor recreation
industry. Coleman brand air conditioners have been the leading RV air
conditioners since they were introduced into the market and are recognized by
customers to represent high quality and reliability. Crispaire, with leading
positions in most of its niche markets, benefits from strong brand name
recognition of its "Marvair" name in the telecommunication shelter market and
its "Scholar" name in the school market.
High Quality Products, Customer Service and Product Design
Capabilities. The Company believes it is recognized as a leader in the
industries its serves due to its high product quality and customer service. The
Company believes that its efficient manufacturing and assembly processes
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enable it to offer competitively priced products while maintaining high product
quality. Because of the seasonal nature of the RV industry, timely delivery of
products to OEMs and aftermarket customers has played a critical role in RVP's
long-standing success. Similarly, Crispaire has developed a strong reputation
with its customers for its ability to develop unique solutions to customers'
environmental control needs, respond to short lead times and to deliver its
products in a timely manner. Unlike most of its competitors, Crispaire separates
its volume manufacturing from specialty manufacturing with a second plant that
is ideally suited for customization. Crispaire pursues a three-tiered product
approach, producing i) standard products ii) "fast track" products which involve
a small amount of customization and iii) highly customized products that are
tailored to individual specifications. Crispaire is able to customize products
to the specifications of a given customer without interrupting its larger
production lines. The Company will seek to maintain its reputation for high
quality, reliable products, superior customer service and product design
capabilities which should assist in its efforts to further penetrate markets for
existing products and improve its market position.
Extensive Distribution Network and Experienced Sales Force. The Company
believes that RVP's sales force includes some of the most experienced sales
people in the industry who are located in close proximity to and actively work
with many of the largest OEMs regarding product design issues and estimated
future orders. In addition, RVP provides Coast, the largest wholesale
distributor of replacement parts, supplies and RV accessories, serving more than
15,000 customers throughout the U.S. and Canada, with 100% of its RV air
conditioning products. RVP believes that Coast provides broad aftermarket
coverage and distribution capabilities. Crispaire's sales effort is organized by
industry segments with representatives of its sales force covering the U.S.
telecommunications, school, and construction industries and international sales.
In addition, independent sales agents actively market Crispaire's products,
particularly to school districts, in which sales agents have developed
relationships. Crispaire sells and distributes its products in the U.S. through
a variety of channels, including wholesale distributors, factory direct dealers,
non-stocking representatives, as well as direct to manufacturers and to end
users and in the International market through distributors.
Recurring Revenues from Installed Base. RVP's sales to OEMs have provided
a large installed base of RV air conditioning equipment that generates a
significant recurring stream of revenue through sales of parts and replacement
units in the aftermarket. Such aftermarket sales consist primarily of sales of
replacement parts and new units through RV dealers and supply and service
centers. RV air conditioner units are typically replaced every five to seven
years, which is the expected life of the unit's compressor. Because the cost to
replace the unit is only slightly higher than the cost to repair the compressor,
most owners opt to purchase new units from the original supplier. With the
largest market share in the industry, RVP is well positioned to continue to
recognize revenue from aftermarket sales. In fiscal 1996, aftermarket sales
represented 33.7% of Airxcel's total net sales. Similarly, the Company expects
to generate revenue through the sales of replacement parts and units to
customers of Crispaire. The Company believes that when its customers repair or
replace such equipment, they tend to remain with the original manufacturer who
has the technical expertise to provide compatible and reliable replacement
parts, products and related services.
Experienced Management. The Company's management has over 287 years of
combined experience in the RV air conditioning, specialty HVAC and water heating
industries. Management believes that it has the depth, experience and motivation
to manage the Company's internal and external growth. Assuming all available
options are exercised under an executive stock plan, in the aggregate,
management would own approximately 44.2% of the capital stock of Holdings on a
fully-diluted basis, of which 16% will vest upon the achievement of certain
performance thresholds.
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BUSINESS STRATEGY
The key elements of the Company's business strategy to maintain its
leadership position are to:
Capitalize on Anticipated Industry Growth. With strong positions in its
principal markets, the Company believes that it is well positioned to capitalize
on the anticipated growth in such markets. The Company anticipates that over the
next ten years, baby boomers will begin entering the typical demographic profile
for RV owners, including age, income, family status and location of home.
Because RVP serves several of the largest and best positioned OEMs which
collectively serve over 55% of the RV market, the Company believes that this
anticipated growth will present significant revenue generating opportunities.
The Company also anticipates that the number of telecommunication shelters in
North America will grow in tandem, with the telecommunications industry at an
annual rate of 20% for the next five years. Additionally, the international
cellular market, especially in Latin America, is expected to grow at a high rate
due to limited land lines and a strong demand for wireless telecommunications.
The Company expects to retain its leading position in the telecommunications
industry and benefit from its growth by focusing on new product development and
applications to meet such industry's future needs. In addition, the Company
views the school market as a growth market due to several factors, including (i)
the number of new state regulations and certain building codes that mandate
fresh air requirements in classrooms (ii) the increasing number of students and
required number of new schools and (iii) the number of mandated restorations of
existing school system infrastructures. Based on an analysis prepared by the
U.S. General Accounting Office for School Facilities and the Department of
Education, the replacement HVAC school market is $3 billion and the annual new
construction HVAC school market is $314 million.
Generate Growth Through New Product Development. The Company intends to
continue to emphasize new product development in order to provide
technologically advanced products to its customers and reinforce its market
leadership. In its principal market, RVP works closely with OEMs to design new
types of air conditioners to meet OEM specifications. Crispaire consults closely
with key individuals in the telecommunications industry to develop new product
offerings for customers that are tailored to their particular needs, including
the development of monitoring systems designed to signal the operator when
equipment is in need of repair or when temperature varies from safety
parameters. The Company intends to continue developing new product applications
for use in various markets such as the institutional school, hotel, and elevator
markets.
Pursue Growth Through Acquisitions. In addition to the growth the Company
expects to come from the development of new, differentiated products and product
lines and expanding sales of existing products and product lines, the Company
intends to actively evaluate acquisition candidates. Future strategic
acquisitions may be undertaken to broaden the Company's product lines, expand
its manufacturing capacity, and strengthen its presence within the various
channels of distribution.
PRODUCTS AND SERVICES
The Company provides its customers with a broad array of specialty heating,
air conditioning and water heating products, including RV air conditioners,
vertical wall mount air conditioners and heat pumps, specialty heat pumps, ECUs,
residential and commercial heat pump water heaters and various applied products
such as pool heating dehumidifiers. In addition, the Company provides upgrade,
maintenance and repair services for its products, as well as for those supplied
by other manufacturers.
RVP
RV Air Conditioners. RVP designs and manufactures a variety of air
conditioners for most types of RVs. RVP offers its customers several models of
air conditioners with a nominal cooling capacity between 7,100 and 15,000 BTUs.
The most popular products are 115 volt systems that are installed on the roof of
a vehicle. RVP also produces a line of 115 volt air conditioners that are
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installed in the underframe storage area of motorhomes and travel trailers in
both one and two ton sizes. In addition, RVP produces a complete line of 220
volt systems for the European and Australian RV markets and specialty air
conditioners for several smaller markets including the oil, marine and elevator
industries.
CRISPAIRE
Crispaire offers an innovative line of vertical wall mount air conditioners
and heat pumps under the "Marvair" brand name. Crispaire's product lines include
three types of vertical wall mount air conditioning units, six types of heat
pumps, five types of environmental control units and various applied products.
All of the vertical wall mount units comply with Underwriters Laboratory ("UL")
certifications for safety and are all rated in accordance with the Air
Conditioning & Refrigeration Institute ("ARI") to ensure that advertised
capacities and efficiencies are delivered. All of the models share a high degree
of commonality in certain design and component features in order to maximize
production efficiencies. The products offer a unique advantage to the modular
construction industry as they can be installed in relocatable structures such as
modular homes at the structural assembly point and can travel easily with the
structure. In addition, the units can also be used in certain projects to easily
upgrade facilities with the addition of air conditioning as the units require no
interior floor space and can be installed on an exterior wall. The major markets
for vertical wall mount equipment are telecommunication shelters, institutional
schools and modular facilities.
Vertical Wall Mount Air Conditioning Units. The Marvair line of vertical
wall mount air conditioning units includes three standard products available in
sizes typically ranging from one to five tons in capacity, including the ModPac,
Compac I and Compac II. The ModPac unit is designed for use in modular
buildings. The Compac I and Compac II units are designed for use in
telecommunication shelters and allow operation in cold weather and notification
in the event of failure. The Compac II unit has a standard built-in economizer
for increased energy efficiency and reliability.
Heat Pumps. Crispaire offers six types of heat pumps, including the
Marvair Scholar (the "Scholar") and the Marvair Graduate (the "Graduate"), a
line of heat pumps to be installed in the interior of classrooms. Introduced in
1990, Crispaire believes that the Scholar is an affordable, quiet and efficient
heat pump which does not detract from the exterior architectural style of most
school buildings and is easy to service. The Scholar allows each classroom to
control its room temperature and has an optional Marvair heat recovery
ventilator which provides fresh air to meet certain ventilation standards with
respect to the amount of fresh air required per student. Crispaire recently
developed and introduced the Graduate for cooling and heating classrooms. The
Graduate is a horizontal HVAC console which is installed inside the classroom
that has the appearance and function of a cabinet. It contains two independent
heat pump chassis which it allows it to achieve greater energy efficiency,
giving it one of the highest Energy Efficiency Ratings in the industry. The
Graduate utilizes the heat recovery ventilator system to achieve industry
ventilation standards.
Environmental Control Units for Telecommunication Shelters. Crispaire's
ECUs are designed exclusively for the telecommunications industry to fit inside
a special cabinet and are designed to operate over a wide temperature range. The
units are designed with special controls that allow the system to reliably cool
the telecommunication shelter for long periods of time regardless of the outside
temperature. Some units contain an economizer mechanism which utilizes outside
air during lower temperature days to cool the shelter. Depending upon the
climate, the economizer cycle can reduce the running time of the unit's
compressor, thereby extending the life of the unit. In response to the growing
presence of "walk-in" cabinets in the telecommunications industry, Crispaire
designed the Marvair SlimPac ECU which mounts easily on the exterior of the
walk-in cabinets and provides optimum cooling.
Applied Products. Crispaire offers various applied products, including
custom made products, to its customers in the telecommunications industry. Such
customization involves variations to the design of a product such as its
dimensions or construction material in order to meet the customer's
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specific needs. Crispaire's applied products also include a line of residential
heat pump water heaters marketed under the brand name "E-Tech." The E-Tech water
heater takes heat from the air, transfers it into water, and produces chilled,
dry air. The products are used primarily in single family residences to provide
a cost effective alternative to electric resistance water heaters particularly
in markets such as Hawaii where there are few natural gas alternatives. In
addition, Crispaire offers a similar line of heat pump water heaters that are
sold to the commercial market. Crispaire also offers E-Tech pool heating
dehumidifiers ("PhDs") which are used in an indoor pool to heat the water as
well as dehumidify the air. Crispaire believes that PhDs save energy both by
reducing the cost of heating an indoor pool and controlling the humidity level
of the enclosure.
SALES, DISTRIBUTION AND MARKETING
The Company markets and sells its broad range of products to a wide variety
of customers through full time sales representatives and through distributors.
RVP
RVP has seven full time salesmen who focus on sales to OEMs, the top four
of whom are among the most experienced in the industry. RVP's sales force is
highly proactive, work closely with the largest OEMs and inquire regularly about
their design interests, product issues and estimated future orders. The Company
believes that this has helped foster RVP's long-standing relationships with its
key OEM customers. In addition, RVP has completed two years of a five year
distribution agreement with the Coast Distribution System, the largest wholesale
distributor of replacement parts, supplies and accessories for RVs to primarily
RV dealers, supply and service centers. Coast supplies more than 25,000 products
and serves more than 15,000 customers throughout the U.S. and Canada from 14
regional distribution centers in the U.S., and RVP provides Coast with 100% of
the RV air conditioning products which it distributes. RVP believes that its
relationship with Coast relieves it of a portion of the costs associated with
the distribution of its products while providing geographically dispersed
selling, order processing and delivery capabilities which provides broad
aftermarket coverage. RVP believes that it has benefitted and will continue to
benefit from this distribution relationship.
CRISPAIRE
Crispaire's sales effort is organized by industry segments with two full
time salesmen who focus on sales to the U.S. telecommunications industry, one
salesman for the international telecommunications market, one full time manager
working with 30 independent sales agents for the institutional school market.
Crispaire has nine sales and marketing personnel and 66 independent trade
representatives and distributors. Crispaire markets it products by attending
annual industry and trade shows, as well as through promotions and advertisement
in trade publications. It distributes its products through a variety of
channels, including wholesale distributors, factory direct dealers, as well as
direct to manufacturers and to end users. Crispaire is continually working with
the members of these various channels to increase the efficiency of the
distribution process, thereby reducing lead times and inventory holding costs.
CUSTOMERS
RVP
RVP's customers are principally OEMs and include several of the largest
OEMs in the world, including its top five customers, Fleetwood, Coast, Jayco,
Winnebago and Damon representing an aggregate 47% of the market share of the RV
market. RVP supplies each of these customers with 100% of their RV air
conditioning requirements, and these customers accounted for approximately 56%
of Airxcel's total revenues in 1996. In addition, RVP's aftermarket customers
include (i) RV dealers, which primarily purchase RVP's products for new RVs and
replacement and repair parts for
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their service departments, and (ii) RV supply stores and service centers which
purchase parts for their service centers and for resale to RV owners. RVP
reaches such customers primarily through its distribution relationship with
Coast.
CRISPAIRE
Crispaire's principal customers are telecommunications companies,
manufacturers of telecommunication shelters in the cellular, cable, wireless,
satellite and PCS industries, wholesale distributors for foreign
telecommunications sales, school districts and construction companies. Such
customers include MCI, Motorola, AT&T Wireless and Lucent Technologies and
multiple school districts, including the Los Angeles Unified School District.
RAW MATERIALS AND SUPPLIERS
RVP
RVP purchases most of the major component parts for its products such as
compressors, coils and motors preassembled from its suppliers. RVP also
purchases significant amounts of steel and plastics. RVP customarily orders
relatively standardized products from its suppliers and has a variety of sources
from which it can obtain necessary supplies. RVP has not had difficulties in
procuring raw materials or supplies, and does not expect to encounter any
difficulties in the future. RVP does not account for more than 10% of any of its
major suppliers' total business.
CRISPAIRE
A principal raw material used in Crispaire's products is copper, which is
principally purchased in the form of copper tubing. Crispaire also purchases
various component parts for its products such as compressors, coils, electrical
parts, and motors. Crispaire has strong relationships with its suppliers and
does not rely on any one supplier for any one category of supplies. Crispaire is
offered pricing terms by all of its suppliers and annually confirms existing
pricing with competitive bids. Crispaire customarily obtains its supplies
through purchase orders which are generally for one year. Crispaire selects
among available supply vendors by comparing cost, consistent quality and timely
delivery as well as compliance with ISO-9001 standards.
MANUFACTURING PROCESS
RVP
RVP's manufacturing operations are directed towards high product quality
and efficient manufacturing and assembly processes. The manufacturing operations
utilized by the Company include metal cutting, bending, welding, assembly and
packaging, thermal forming and stamping. RVP utilizes a computer aided design
system ("CAD") for a small portion of its stamping operation. RVP designs, tests
and qualifies all of its air conditioners with in house support of CAD, modeling
shop, environmental test cells and quality test lab. RVP utilizes material
requirements planning ("MRP") for its factory scheduling and procurement of
materials, several just-in-time ("JIT") inventory control methods are in place.
RVP purchases most major component parts preassembled from its suppliers. RVP
performs all of its manufacturing operations in its owned Wichita, Kansas
facility. This facility currently produces over 700 air conditioning units per
day and has the capacity to expand to 900 to 1,000 units without major
expenditures. Finished air conditioners are stored and shipped from a 50,000
square foot warehouse in Wichita. RVP has created a variable cost structure that
has allowed it to operate profitably under a wide range of manufacturing output.
Since purchased materials represent 85% of standard product costs, RVP is able
to achieve a high proportion of variable costs to fixed costs. RVP's strategy is
to manufacture only those components that enhance quality and the competitive
advantage of its products.
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CRISPAIRE
Crispaire's manufacturing operations include fabricating sheet metal, metal
cutting, bending, stamping, welding, and the manufacturing of major
sub-assemblies, assembly and packaging. All units are subject to comprehensive
performance testing and quality inspection. A large portion of Crispaire's major
assembly and production is performed at its 113,000 square foot production
facility in Cordele, Georgia. Assembly and production are also performed at the
37,000 square foot facility in Norcross, Georgia. Crispaire performs most
manufacturing and assembly at these facilities, but also outsources certain
processes depending on the capabilities and capacities of the plants and cost
considerations. Products manufactured at the Cordele plant are generally
designed and built to Crispaire specifications and industry standards, and
products manufactured at the Norcross plant are generally special application or
customized products.
Both facilities utilize a variety of labor-saving automated equipment such
as computer-controlled punch presses and a copper tubing fabricator. In
addition, Crispaire uses computer and managing software to control its
operations, and utilizes an updated management information system that provides
controls into all of the material flow, fabrication assembly and test operations
conducted at the facilities. The Company believes that this production process
improves quality control in the manufacturing and assembly process. The Cordele
facility runs two primary production lines and has operating flexibility to run
different product lines based on product demand. The Company estimates that 60%
of production is done on an order by order basis and 40% is done for inventory.
In addition to the production lines, the facility contains a model shop where
engineers and designers build prototypes and test new products. Computer
monitored and controlled psychrometic chambers are used to simulate different
indoor and outdoor temperatures. Such system assures that new products will meet
the National Appliance Energy Conservation Act standards and other industry
standards. The Norcross facility runs three shorter production lines than the
Cordele plant, and 90% of production in Norcross is for customized products. Due
to its shorter production lines, the Norcross plant is an ideal custom
manufacturing center that provides quick turnaround and flexibility to change
the specifications of the products being manufactured.
Crispaire expects to attain ISO-9001 certification during the first quarter
of 1998, for both facilities and strives to establish quality procedures at each
of its facilities in order to manufacture the highest quality products possible.
COMPETITION
RVP
The RV air conditioning market is highly competitive with competition based
largely on a company's ability to provide name brand high quality products at
competitive prices and to manufacture and deliver products on a timely basis.
Due to the size of market, the RV air conditioning industry has not typically
attracted large air conditioning manufacturers, and there has been considerable
consolidation in the industry. Historically, the business has been driven by
strong relationships and brand name recognition, which has forced several
players out of the industry and has served as a barrier to new entrants. RVP
competes principally on the basis of quality, product performance, price and
service. RVP's principal competitor for RV air conditioning is Dometic, owned by
Electrolux. See "Risk Factors -- Competition."
CRISPAIRE
Broadly defined, the HVAC industry is relatively fragmented with hundreds
of small to medium-sized companies with various niche markets and several large,
well-capitalized, highly diversified industrial corporations with major market
shares of standard residential and commercial HVAC product lines. Within the
more limited air conditioning industry, Crispaire has targeted smaller niche
markets and competes with several manufacturers in such markets. Moreover,
Crispaire encounters different competitors in each of its product lines.
Crispaire competes principally on the basis of its
52
<PAGE> 57
reputation for reliability, quality, service and flexibility. Crispaire's direct
competitors in the vertical wall mount and ECU markets include Bard
Manufacturing ("Bard"), Sun Manufacturing and Eubanks Manufacturing. In the
school heat pump market, Crispaire principally competes with Bard, Trane and
American Air Filter. Crispaire attempts to distinguish itself from its
competitors through technological innovation and customization. See "Risk
Factors -- Competition."
INTELLECTUAL PROPERTY
The Company seeks trademark protection for all of its product line trade
names. The Company presently holds trademarks covering designs, symbols and
trade names used in connection with its products. The Company has a royalty-free
license for the exclusive use of the "Coleman" trade name for its products for
50 years. The Company is a party to certain patent litigation involving
competitors of the Company see "Legal Proceedings."
EMPLOYEES
As of June 30, 1997, Airxcel and Crispaire employed approximately 187 and
240 employees, respectively, none of whom was represented by a union or covered
by a collective bargaining agreement. Of the 427 total employees, 134 were
salaried, 293 were hourly and none were part time.
PROPERTIES AND FACILITIES
As of June 30, 1997, Airxcel had these principal facilities, where it
leased or owned an aggregate of approximately 165,000 square feet of space,
while Crispaire had two principal facilities, where it leased or owned an
aggregate of approximately 150,000 square feet of space. The following table
describes the principal facilities and indicates the location, function and
approximate size of each:
<TABLE>
<CAPTION>
FACILITIES
- ----------------------------------------------------------------------------------------
APPROXIMATE
LOCATION SQUARE FEET OWNED/LEASED LEASE EXPIRATION
-------- ----------- ------------ ----------------
<S> <C> <C> <C>
Norcross, Georgia...................... 37,000 Leased 8/31/00
Cordele, Georgia....................... 113,000 Owned --
Elkhart, Indiana....................... 15,000 Leased 4/18/00
Wichita, Kansas........................ 50,000 Leased 5/31/98
Wichita, Kansas........................ 100,000 Owned --
</TABLE>
Airxcel's principal facilities will be pledged as collateral under the
Credit Facility. In addition, Airxcel has a lease for a 60,000 square foot
facility in Malden, Massachusetts that was used in its discontinued awnings
business. Such lease expires on November 1, 1997.
LEGAL PROCEEDINGS
In February 1995, Bard commenced an action against Crispaire in the United
States District Court for the Northern District of Ohio, Western Division. Bard
alleges that Crispaire violates Bard's trade dress, infringes a Bard patent,
infringed Bard's trademark (under state and federal law), and violates the Ohio
Deceptive Trade Practices Act in certain of Crispaire's air conditioning and
heating unit products. In addition to Bard, Airxchange Corp. ("Airxchange") has
joined as a plaintiff against Crispaire, alleging that Crispaire infringes an
Airxchange patent. Crispaire has denied all material allegations and has
asserted a number of affirmative defenses and counterclaims.
Both Bard and Airxchange seek an injunction and monetary damages in an
unspecified amount. Although discovery in the lawsuit is nearly complete and
trial is tentatively set for March 31, 1998, the parties have not engaged in
damages discovery because the proceedings have been bifurcated as to damages and
liability. Discovery as to damages will be undertaken only if there is an
adverse
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<PAGE> 58
finding against Crispaire at trial. If successful in the action, Bard and
Airxchange could be entitled to recovery of a reasonable royalty or lost profits
together with other consequential damages. In addition, if Crispaire is found to
have acted willfully, Bard and Airxchange could recover treble damages and
attorneys' fees.
The Company believes that the claims against Crispaire are unfounded and
that Crispaire should prevail at trial. No assurances can be given as to the
ultimate outcome of this matter.
The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations,
among other things, impose limitations on the discharge of pollutants and
establish standards for management of waste. While there can be no assurance
that the Company is at all times in complete compliance with all such
requirements, the Company believes that any such noncompliance is unlikely to
have a material adverse effect on the Company. As is the case with manufacturers
in general, if a release or threat of release of hazardous materials occurs on
or from the Company's properties or any associated offsite disposal location, or
if contamination from prior activities is discovered at any properties owned or
operated by the Company, the Company may be held liable for response costs and
damages to natural resources. There can be no assurance that the amount of any
such liability would not be material.
The Company's facility at St. Frances Avenue, Wichita, Kansas is within an
area undergoing investigation and remediation of contaminated groundwater. The
Company has been identified as a potentially responsible party with respect to a
portion of the area under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, which imposes strict, and in certain
cases, joint and several liability. The Company is one of three parties to a
Consent Decree entered into with the Environmental Protection Agency requiring
remediation. The Company does not expect to incur any material expenditures in
conjunction with this matter both because the former owner of this facility has
entered an Indemnification and Clean Up Agreement with the Company providing
coverage for specified environmental issues existing on the property at the time
of purchase, and because the facility does not appear to be a source of the
groundwater contamination.
RVP has decided to address a potential problem that exists with
approximately 35,000 air conditioning units produced between September 1, 1996
and February 22, 1997. The units were shipped to OEMs which installed them on
RVs that were in turn shipped to retail dealers for sale in the fourth quarter
of 1996 and first quarter of 1997. The units contain a P.C. control board
designed and manufactured for RVP by one of its suppliers. In some instances,
this component could fail in the event of improper or poor wiring connections by
the OEM installer or in the event of inadequate low control voltage. The Company
estimates that the total cost to correct the problem is approximately $2.4
million. The Company has reached an agreement with the supplier pursuant to
which the supplier has agreed to cover substantially all of the potential costs
associated with this problem. The Company recorded a $500,000 reserve during
1997 for the estimated costs to be incurred by the Company.
Although experience and third party failure analysis indicate that the
number of actual failures is minimal, the Company believes it best to address
the situation now to avoid any future failures and customer dissatisfaction.
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<PAGE> 59
MANAGEMENT
The following sets forth certain information with respect to the persons
who are members of the Board of Directors or executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Melvin L. Adams..................... 51 President and Chief Executive Officer, Director
Gregory G. Guinn.................... 49 Vice President -- Airxcel Sales and Marketing
Richard L. Schreck.................. 45 Chief Financial Officer, Secretary, Treasurer and
Director
T.K. Sellers, Jr.................... 45 Vice President -- Administrative Crispaire
David L. Shuford.................... 46 Vice President -- Crispaire Sales and Marketing
Lonnie L. Snook..................... 62 Vice President -- Airxcel Manufacturing and
Engineering
George D. Wyers..................... 65 President -- Crispaire, Director
Dean DuCray......................... 57 Director
Lawrence Jones...................... 66 Director
Thomas F. McWilliams................ 54 Director
James A. Urry....................... 43 Director
</TABLE>
Melvin L. Adams. Mr. Adams has been a Director, the Chief Executive
Officer and President of Airxcel since 1991. From 1989 until 1991, he served as
Vice President of Coleman. From 1979 through 1984, he served as General Manager
of the Coleman Company's Camping Trailer Division. In 1984, he was promoted to
Corporate Vice President & General Manager of Coleman's RV Group. In 1991, he
and three officers of RVP led the buy out of Coleman RV Products with Berkshire
Partners from MacAndrews and Forbes.
Gregory G. Guinn. Mr. Guinn has been the Vice President of Sales and
Marketing of RVP since 1989. Prior to that, Mr. Guinn held various positions
with the Coleman Company, including National Sales Manager and Marketing Manager
of RV Products and Corporate Vice President and General Manager of RV Products.
Mr. Guinn handles all of RVP's major accounts and its internal sales force.
Richard L. Schreck. Mr. Schreck has been a Director, the Chief Financial
Officer and Secretary of Airxcel since 1991. Beginning in 1981, Mr. Schreck held
various positions at the Coleman Company, including the RV Group Controller and
Controller/Administrative Manager for RV Products. Mr. Schreck is responsible
for all financial and MIS functions at Airxcel.
T.K. Sellers, Jr. Mr. Sellers has been Chief Financial Officer of
Crispaire since 1991. Prior to joining Crispaire, he was employed as controller
for ACC Distributors. Upon completion of the Acquisition, he will serve as Vice
President-Administrative of the Crispaire Division of the Company. From 1981 to
1986, Mr. Sellers was controller for a manufacturing passenger and truck line
company. From 1976 through 1981, he served as assistant controller for Palmyra
Park Hospital in Albany, Georgia.
David L. Shuford. Mr. Shuford has been the Vice President of Sales and
Marketing of Crispaire since 1989. Upon completion of the Acquisition, he will
serve as Vice President-Sales and Marketing of the Crispaire Division of the
Company. From 1980 to 1986, Mr. Shuford held various sales and marketing
positions at E-Tech, including Government Marketing Manager. Prior to that, he
was vice president of a speciality construction company based in Atlanta for
five years.
Lonnie L. Snook. Mr. Snook has been Vice President-Manufacturing and
Engineering of RVP since 1989. Prior to that, Mr. Snook held various positions
at the Coleman Company, including Industrial Engineer, Manager of Industrial
Engineering and Production Superintendent and Factory Manager of RV Products.
55
<PAGE> 60
George D. Wyers. Mr. Wyers has been the President and Chief Executive
Officer of Crispaire since 1988. Upon completion of the Acquisition, he will
serve as President of the Crispaire Division of Airxcel. Prior to joining
Crispaire, Mr. Wyers spent twelve years as a General Manager of a leading air
conditioning equipment distributor based in Dallas, Texas.
Dean T. DuCray. Mr. DuCray has been a director of the Company since 1996.
Since 1987, Mr. DuCray has been Chief Financial Officer and Vice President of
York International Corporation, a manufacturer of heating and air conditioning
equipment.
Lawrence Jones. Mr. Jones has been a director of the Company since 1991.
Mr. Jones retired from The Coleman Company February 1, 1994 having served as its
Chairman and CEO since 1989. Mr. Jones served as Chairman of the Executive
Committee at The Coleman Company from 1994 to 1995. From 1995-1997, Mr. Jones
served as consultant and Chairman of Roller Blade (in line skates) and Prince
Sports (tennis rackets). Mr. Jones currently serves as a Director to Union
Pacific Resources (gas exploration) and The Coleman Company (outdoor sporting
goods). Mr. Jones retired from the Fleming Company's (food distribution) Board
of Directors on January 1, 1998.
Thomas F. McWilliams. Mr. McWilliams has been a director of the Company
since 1996. Mr. McWilliams has been affiliated with Citicorp Venture Capital,
Ltd. ("CVC"), a private equity investment company, since 1983 and presently
serves as managing director of CVC as well as a member of CVC's investment
committee. From 1978 until 1983, Mr. McWilliams served as an executive officer,
including as vice president, president and chief operating officer, of Shelter
Resources Corporation, a publicly-held company with operating subsidiaries in
the manufactured housing industry. From 1967 until 1978, Mr. McWilliams served
in various corporate finance and management positions at Citibank, N.A. Mr.
McWilliams is currently a director of each of Chase Brass Industries, Inc., Ergo
Science Corporation and various privately owned companies.
James A. Urry. Mr. Urry has been a director of the Company since 1996. Mr.
Urry has been with Citibank, N.A. since 1981, serving as a vice president since
1986. He has been a vice president of CVC since 1989. He is a director of
AmeriSource Health Corporation, CLARK Material Handling Corporation, CORT
Business Services Corporation, Hancor Holding Corporation, International Knife
and Saw Corporation, Palomar Technologies, Inc. and York International
Corporation.
COMPENSATION OF DIRECTORS
Directors of the Company who are officers, employees of the Company or its
affiliates are presently not expected to receive compensation for their services
as directors. Directors of the Company who are not officers or employees of the
Company or any of its affiliates receive $1,000 per Board meeting attended. In
addition, directors of the Company will be entitled to reimbursement of their
reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the board of directors or committees thereof.
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<PAGE> 61
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company is determined by the
Board of the Directors of the Company. The following table sets forth
information concerning compensation received by the five most highly compensated
officers of the Company for services rendered in the fiscal year ended December
31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------------------------
NAME AND -------------------- OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION SALARY BONUS SAR(#) PAYOUTS COMPENSATION(1)
- ------------------ --------- -------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Melvin L. Adams........................ $218,826 $ -- -- -- $3,822
President and Chief Executive Officer
Gregory G. Guinn....................... $100,543 $ -- -- -- $ 535
Vice President -- RVP Sales and
Marketing
Richard L. Schreck..................... $100,363 $ -- -- -- $ 355
Chief Financial Officer, Secretary and
Treasurer
Lonnie L. Snook........................ $100,958 $ -- -- -- $ 950
Vice President -- RVP Manufacturing and
Engineering
</TABLE>
- ---------------
(1) The named officers have participated in the Company's profit sharing, 401(k)
match, deferred compensation and excess benefit programs. The aggregate
payments made by the Company pursuant to such programs are listed as All
Other Compensation.
EMPLOYMENT AGREEMENTS
In connection with the Crispaire Acquisition, the Company entered into
employment agreements with each of Messrs. Sellers, Shuford and Wyers on
November 10, 1997. Each agreement is for a term that expires upon the earlier of
October 31, 2000, the executive's death, voluntary termination, termination by
resolution by the Board of Directors, or at the Company's option, the
executive's disability. Mr. Sellers' base salary is $60,840 per year. Mr.
Shuford's base salary is $93,095.20 per year. Mr. Wyers' base salary is $200,000
per year. Each executive is eligible for an annual performance bonus. Each
agreement contains a nonsolicitation provision, and Mr. Wyers' agreement
contains a noncompetition provision.
STOCK OPTION PLAN
The Board of Directors will adopt a stock plan (the "Stock Plan"), which
provides for the grant to certain key employees and/or directors of the Company
of stock options that are non-qualified options for federal income tax purposes.
The total number of shares of common stock of the Company expected to be granted
pursuant to the Stock Plan will represent 16% of the total number of issued and
outstanding shares of the Company. The Stock Plan will be administered by the
Compensation Committee of the Board of Directors. The Compensation Committee has
broad powers under the Stock Plan, including exclusive authority (except as
otherwise provided in the Stock Plan) to determine (i) who will receive awards,
(ii) the type, size and terms of awards, (iii) the time when awards will be
granted, and (iv) vesting criteria, if any, of the awards.
401(k) PLAN
Substantially all employees of the Company are eligible to participate in
the Company's 401(k) plan. Subject to certain conditions, the Company matches
30% of the employees' contributions up to a maximum of 6% of the employees'
annual salary. In addition, the Company can make an additional contribution
determined at the discretion of the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Board of Directors comprise the members of the
Compensation Committee.
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<PAGE> 62
SECURITY OWNERSHIP
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to the
common and preferred equity interests of Holdings. See "The Transactions."
<TABLE>
<CAPTION>
COMMON STOCK PERCENTAGE OF AGGREGATE
BENEFICIALLY COMMON VOTING
NAME OF BENEFICIAL OWNER OWNED STOCK POWER
------------------------ ------------ ------------- ---------
<S> <C> <C> <C>
Citicorp Venture Capital, Ltd.(1)......................... 901,029.05 58.35(2) 40.46
399 Park Avenue
New York, New York 10043
Melvin L. Adams........................................... 141,637.30 9.17 13.22
George D. Wyers........................................... 138,331.53 8.96 12.91
Gregory G. Guinn.......................................... 76,348.75 4.94 7.13
Richard L. Schreck........................................ 76,348.75 4.94 7.13
Lonnie L. Snook........................................... 61,583.75 3.99 5.75
David L. Shuford.......................................... 30,740.35 1.99 2.87
T.K. Sellers, Jr. ........................................ 15,370.17 .99 1.44
</TABLE>
- ---------------
* Less than one-percent.
(1) Includes shares held by employees and affiliates of CVC.
(2) Includes shares of (i) voting Class A Common Stock representing 40.46% of
outstanding voting Class A Common Stock and (ii) non-voting Class B Common
Stock.
STOCKHOLDERS AGREEMENT
In connection with the Crispaire Acquisition, Holdings, CVC and its
affiliates, and affiliates of Airxcel and Crispaire entered into an amended
stockholders agreement (the "Stockholders Agreement") which contains certain
agreements among such parties with respect to the equity interests and corporate
governance of Holdings and the Company. The Board of Directors of each of
Holdings and the Company is initially comprised of three (3) or five (5)
directors. CVC has the right to appoint one (1) or two (2) directors. Pursuant
to the Stockholders Agreement, the disposition of Common Stock and Preferred
Stock is restricted. The Stockholders Agreement also contains certain
participation rights, approval rights and rights of first offer exercisable by
certain stockholders in the event of certain sales or proposed sales of equity
interests.
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<PAGE> 63
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
Concurrently with the consummation of the Transactions, the Company entered
into an agreement with The Chase Manhattan Bank to provide for a Revolving
Credit Facility (the "Credit Facility") which provided for borrowings in an
aggregate principal amount of up to $15 million. In connection with the KODA
Acquisition, the Company amended and restated the Credit Facility to provide for
borrowings in an aggregate principal amount of up to $38 million, consisting of
a $28 million Senior Revolving Credit Facility and a $10 million Senior Term
Loan. The following summary of the New Credit Facility contains all material
terms of the Credit Facility, but does not purport to be complete and is subject
to, and qualified in its entirety by reference thereto.
Borrowing Base. The Borrowing Base shall equal the sum of agreed upon
percentages of Eligible Receivables of the Company and Eligible Inventory of the
Company and cash collateral of the Company.
Security. In addition, the obligations of the Company under the New Credit
Facility are secured by substantially all of the assets of, and all of the
inventory and receivables of Airxcel.
Interest. The Credit Facility is a five-year facility and bears interest
at a rate per annum equal (at the Company's option) to: (i) the Agent's
Eurodollar rate plus an applicable margin or (ii) an alternate base rate plus an
applicable margin. Obligations of the Company under the Credit Facility not paid
when due shall bear interest at a default rate equal to 2% per annum above the
otherwise applicable rate. The Company is required to pay the lenders, on a
quarterly basis, commitment and other similar fees.
Prepayments. Voluntary prepayments of borrowings under the Credit Facility
and voluntary reductions of the unutilized portions of the Credit Facility are
permitted at any time in minimum principal amounts to be agreed upon.
Covenants. The Credit Facility contains a number of covenants that, among
other things, restricts the ability of the Company and its subsidiaries, subject
to certain exceptions, to dispose of assets, incur additional indebtedness,
incur guarantee obligations, prepay other indebtedness or amend other debt
instruments, make distributions or pay dividends on partnership interests or
capital stock, redeem and repurchase partnership interests or capital stock,
create liens on assets, enter into sale and leaseback transactions, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, change the business conducted by the Company or its subsidiaries
or engage in certain transactions with affiliates and otherwise restrict certain
business activities. In addition, the Company is required to maintain compliance
with minimum interest coverage ratio and maximum leverage ratio.
The Credit Facility also contains provisions that prohibit any modification
of the Indenture without the consent of such lender.
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<PAGE> 64
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an Indenture (the "Indenture")
dated as of November 10, 1997 between the Company and the United States Trust
Company of New York, as trustee (the "Trustee"). The following summary of
includes a discussion of the material provisions of the Indenture, but does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions." References in this "Description of
Exchange Notes" section and the "Exchange and Registration Rights Agreement,"
"Transfer Restrictions," and "Plan of Distribution" sections to "the Company"
mean only Airxcel, Inc.
GENERAL
The Notes are, and the Exchange Notes will be unsecured, senior
subordinated obligations of the Company. The Exchange Notes will be issued only
in registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. Pursuant to the Indenture, the Trustee, initially, will
serve as registrar and paying agent. No service charge will be made for any
registration of transfer or exchange of the Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
Initially, the Trustee will act as paying agent and registrar for the
Exchange Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Notes (which they replace) except that (i) the Exchange
Notes bear a Series B designation, (ii) the Exchange Notes have been registered
under the Securities Act and, therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of Exchange Notes will not be entitled
to certain rights under the Exchange and Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Notes in certain circumstances relating to the timing of the Exchange Offer,
which rights will terminate when the Exchange Offer is consummated.
RANKING
The Senior Subordinated Notes will rank junior to, and be subordinated in
right of payment to, all existing and future Senior Indebtedness of the Company,
pari passu in right of payment with all senior subordinated Indebtedness of the
Company and senior in right of payment to all Subordinated Indebtedness of the
Company. At December 31, 1997, on a pro forma basis after giving effect to the
Acquisitions, the Company would have approximately $25.4 million of Senior
Indebtedness outstanding and no senior subordinated Indebtedness, other than the
Notes. All debt incurred under the Senior Revolving Credit Facility will be
Senior Indebtedness of the Company and is secured by substantially all of the
assets of the Company and its Subsidiaries.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes will be limited to $125 million aggregate
principal amount (of which $90 million was issued in the Offering) and will
mature on November 15, 2007. Cash interest on the Senior Subordinated Notes will
accrue at a rate of 11% per annum and will be payable semi-annually in arrears
on each May 15 and November 15, commencing on May 15, 1998, to the holders of
record of Senior Subordinated Notes at the close of business on May 1 and
November 1, respectively, immediately preceding such interest payment date.
Interest will accrue from the most recent interest payment date to which
interest has been paid or, if no interest has been paid, from the date of
issuance. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
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<PAGE> 65
OPTIONAL REDEMPTION
The Senior Subordinated Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2002, at the
redemption prices (expressed as a percentage of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the Redemption Date
(subject to the right of holders of record on the relevant Interest Record Date
to receive interest due on the relevant Interest Payment Date), if redeemed
during the 12-month period commencing on November 15, of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2002........................................................ 105.500%
2003........................................................ 103.667%
2004........................................................ 101.833%
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to November 15,
2000, the Company may redeem in the aggregate up to 35% of the originally issued
aggregate principal amount of the Senior Subordinated Notes with the net cash
proceeds of one or more Public Equity Offerings by the Company or Holdings at a
redemption price in cash equal to 111% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Redemption Date (subject to
the right of Holders of record on the relevant Interest Record Date to receive
interest due on the relevant Interest Payment Date); provided, however, that at
least $60 million of the Senior Subordinated Notes must remain outstanding
immediately after giving effect to each such redemption (excluding any Senior
Subordinated Notes held by the Company or any of its Affiliates). Notice of any
such redemption must be given within 60 days after the date of the closing of
the relevant Public Equity Offering of the Company or Holdings.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Senior Subordinated Notes are to be
redeemed at any time pursuant to an optional redemption, selection of such
Senior Subordinated Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Subordinated Notes are listed or, if the Senior
Subordinated Notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Senior Subordinated Notes of a principal
amount of $1,000 or less shall be redeemed in part; provided, further, however,
that if a partial redemption is made with the net cash proceeds of a Public
Equity Offering by the Company or Holdings, selection of the Senior Subordinated
Notes or portions thereof for redemption shall be made by the Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable (subject to
the procedures of the Depository), unless such method is otherwise prohibited.
Notice of redemption shall be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Senior
Subordinated Notes to be redeemed at such holder's registered address. If any
Senior Subordinated Note is to be redeemed in part only, the notice of
redemption that relates to such Senior Subordinated Note shall state the portion
of the principal amount thereof to be redeemed. A new Senior Subordinated Note
in a principal amount equal to the unredeemed portion thereof will be issued in
the name of the Holder thereof upon cancellation of the original Senior
Subordinated Note. On and after the Redemption Date, interest will cease to
accrue on Senior Subordinated Notes or portions thereof called for redemption as
long as the Company has deposited with the paying agent for the Senior
Subordinated Notes funds in satisfaction of the applicable redemption price
pursuant to the Indenture.
SUBORDINATION OF THE SENIOR SUBORDINATED NOTES
The payment of the principal of, premium, if any, and interest on the
Senior Subordinated Notes is subordinated in right of payment, to the extent and
in the manner provided in the Indenture, to the prior payment in full in cash of
all Senior Indebtedness.
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<PAGE> 66
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from funds deposited in accordance with, and held in trust for the benefit of
Holders pursuant to, "Legal Defeasance and Covenant Defeasance" (a "Defeasance
Trust Payment")), upon any dissolution or winding-up or total liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness then due shall first be paid in full in cash before the Holders of
the Senior Subordinated Notes or the Trustee on behalf of such Holders shall be
entitled to receive any payment by the Company of the principal of, premium, if
any, or interest on the Senior Subordinated Notes, or any payment by the Company
to acquire any of the Senior Subordinated Notes for cash, property or
securities, or any distribution by the Company with respect to the Senior
Subordinated Notes of any cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment). Before any payment may be made by, or on behalf of, the Company of the
principal of, premium, if any, or interest on the Senior Subordinated Notes upon
any such dissolution or winding-up or total liquidation or reorganization,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment), to which the Holders of the Senior
Subordinated Notes or the Trustee on their behalf would be entitled, but for the
subordination provisions of the Indenture, shall be made by the Company or by
any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders) or their representatives or to the
trustee or trustees or agent or agents under any agreement or indenture pursuant
to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Company of principal of, premium, if any, or interest on the
Senior Subordinated Notes, whether pursuant to the terms of the Senior
Subordinated Notes, upon acceleration, pursuant to an Offer to Purchase or
otherwise, shall be made if, at the time of such payment, there exists a default
in the payment of all or any portion of the obligations on any Designated Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of the
holders of such Designated Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be immediately
accelerated, and upon receipt by the Trustee of written notice (a "Payment
Blockage Notice") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of the holders of such
Designated Senior Indebtedness, then, unless and until such non-payment event of
default has been cured or waived or has ceased to exist or such Designated
Senior Indebtedness has been discharged or repaid in full in cash or the
benefits of these provisions have been waived by the holders of such Designated
Senior Indebtedness, no direct or indirect payment (excluding any payment or
distribution of Permitted Junior Securities and excluding any Defeasance Trust
Payment) will be made by or on behalf of the Company of principal of, premium,
if any, or interest on the Senior Subordinated Notes, whether pursuant to the
terms of the Senior Subordinated Notes, upon acceleration, pursuant to an Offer
to Purchase or otherwise, to such Holders, during a period (a "Payment Blockage
Period") commencing on the date of receipt of such notice by the Trustee and
ending 179 days thereafter. Notwithstanding anything in the Indenture or in
Senior Subordinated Notes to the contrary, (x) in no event will a Payment
Blockage
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Period extend beyond 179 days from the date the Payment Blockage Notice in
respect thereof was given, (y) there shall be a period of at least 181
consecutive days in each 360-day period when no Payment Blockage Period is in
effect and (z) not more than one Payment Blockage Period may be commenced with
respect to the Senior Subordinated Notes during any period of 360 consecutive
days. No non-payment event of default that existed or was continuing on the date
of commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period (to the extent the
holder of Designated Senior Indebtedness, or trustee or agent, giving notice
commencing such Payment Blockage Period had knowledge of such existing or
continuing event of default) may be, or be made, the basis for the commencement
of any other Payment Blockage Period by the holder or holders of such Designated
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such non-payment event of default has been cured or waived for a period
of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Senior Subordinated Notes by reason of the provisions of the Indenture described
under this "Subordination of the Senior Subordinated Notes" heading will not be
construed as preventing the occurrence of any Event of Default in respect of the
Senior Subordinated Notes. See "Events of Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Senior Subordinated Notes will be paid to the holders of Senior Indebtedness
to the extent necessary to pay the Senior Indebtedness in full in cash, and the
Company may be unable to meet fully or at all its obligations with respect to
the Senior Subordinated Notes.
Subject to the restrictions set forth in the Indenture, in the future the
Company may issue Senior Indebtedness, including borrowings under the Credit
Facility.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Senior Subordinated Notes at a purchase price
in cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the Purchase Date (subject to the right of Holders of
record on the relevant Interest Record Date to receive interest due on the
relevant Interest Payment Date), pursuant to the offer described below and the
other procedures set forth in the Indenture:
(a) prior to the earlier to occur of the first public offering of
Voting Equity Interests of Holdings or the Company, the Permitted Holders
ceased to be entitled (by "beneficial ownership" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of Voting Equity Interests, contract or
otherwise) to elect or cause the election of directors of the Company
having a majority of the total voting power of the Board of Directors of
the Company, whether as a result of issuance of securities of the Company,
any merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (a), the Permitted Holders shall be
deemed to beneficially own any Voting Equity Interests of a corporation
(the "specified corporation") held by any other corporation (the "parent
corporation") so long as one or more of the Permitted Holders beneficially
own (as so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent corporation);
(b) after the first public offering of Voting Equity Interests of
Holdings or the Company, any person or group (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more of
the Permitted Holders, is or becomes the beneficial owner (as defined in
clause (a) above), directly or indirectly, of Voting Equity Interests that
represents more than 50% of the aggregate ordinary voting power of all
classes of the Voting Equity Interests of Holdings or the Company voting
together as a single class, and either (x) the Permitted Holders
beneficially own (as defined in clause (a) above), directly or indirectly,
in the
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aggregate Voting Equity Interests that represents a lesser percentage of
the aggregate ordinary voting power of all classes of the Voting Equity
Interests of Holdings or the Company, as the case may be, voting together
as a single class, than such other person or group and are not entitled (by
voting power, contract or otherwise) to elect directors of Holdings or the
Company having a majority of the total voting power of the board of
directors of Holdings or the Company, as the case may be, or (y) such other
person or group is entitled to elect directors of Holdings or the Company
having a majority of the total voting power of the board of directors of
Holdings or the Company;
(c) after the first public offering of Voting Equity Interests of
Holdings or the Company, during any period of not greater than two
consecutive years beginning after the Issue Date, individuals who at the
beginning of such period constituted the board of directors of Holdings or
the Company, as the case may be (together with any new directors whose
election by such board of directors, or whose nomination for election by
shareholders was approved by the Permitted Holders or by such board of
directors, in each case by a vote of a majority of the directors of
Holdings or the Company, as the case may be, then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any reason
to have a majority of the total voting power of the board of directors of
Holdings or the Company, as the case may be; or
(d) any sale, lease, or other transfer (in one transaction or in a
series of related transactions) is made by the Company of all or
substantially all of the consolidated assets of the Company to any Person.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating, among other things:
(1) that a Change of Control has occurred and that such Holder has the right to
require the Company to purchase all or any portion of such Holder's Senior
Subordinated Notes at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase (subject to the right of Holders of record on a Interest Record Date
to receive interest on the relevant Interest Payment Date); (2) the
circumstances and relevant facts and financial information regarding such Change
of Control; (3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes or any portion thereof purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Senior Subordinated Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations described above by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company or Holdings would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions or other recapitalizations, that
would not constitute a Change of Control under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under the
Credit Facility. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Senior Subordinated Notes could cause a default under such Senior
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the
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Company. Finally, the Company's ability to pay cash to the Holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any repurchases require in connection with a Change of Control. The
Company's failure to purchase the Senior Subordinated Notes in connection with a
Change of Control would result in the default under the Indenture.
CERTAIN COVENANTS
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Subsidiary to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness; provided,
however, that the Company may Incur Indebtedness if, at the time of and
immediately after giving pro forma effect to such Incurrence of Indebtedness and
the application of the proceeds therefrom, the Consolidated Coverage Ratio would
be greater than 2.0 to 1.0 if incurred prior to the second anniversary of the
Issue Date and 2.25 to 1.0 if incurred thereafter.
The limitations contained in the preceding paragraph will not apply to the
Incurrence of any of the following (collectively, "Permitted Indebtedness"),
each of which shall be given independent effect:
(a) Indebtedness outstanding on the Issue Date, including Indebtedness
under the Notes;
(b) Indebtedness of the Company Incurred under the Credit Facility in
an aggregate principal amount at any one time outstanding not to exceed the
greater of (I) $15 million and (II) the sum of (x) 60% of the book value of
inventory of the Company and its Subsidiaries and (y) 85% of the book value
of the accounts receivable of the Company and its Subsidiaries, in each
case determined in accordance with GAAP;
(c) Indebtedness of any Subsidiary of the Company owed to and held by
the Company or any Wholly Owned Subsidiary, and Indebtedness of the Company
owed to and held by any Wholly Owned Subsidiary that is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, the Indenture and the
Senior Subordinated Notes; provided, however, that an Incurrence of
Indebtedness that is not permitted by this clause (c) shall be deemed to
have occurred upon (i) any sale or other disposition of any Indebtedness of
the Company or any Subsidiary of the Company referred to in this clause (c)
to a Person (other than the Company or a Wholly Owned Subsidiary), (ii) any
sale or other disposition of Equity Interests of any Subsidiary which holds
Indebtedness of the Company or another Subsidiary;
(d) Interest Rate Protection Obligations; provided, however, that such
Interest Rate Protection Obligations have been entered into for bona fide
business purposes and not for speculation;
(e) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company or any Subsidiary of the Company and other Indebtedness of the
Company, in an aggregate principal amount at any one time outstanding not
to exceed the greater of (a) $5 million or (b) 5% of Total Assets;
(f) Indebtedness of the Company under Currency Agreements; provided,
however, (i) that such Currency Agreements have been entered into for bona
fide business purposes and not for speculation and (ii) that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(g) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness (other than Indebtedness
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Incurred under clauses (b), (c), (d), (e), (f), (h), (i), (j) or (l) of
this covenant); provided, however, that (i) any such refinancing shall not
exceed the sum of the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of the Indebtedness being refinanced, plus
the amount of accrued interest thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and
such reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness other than Senior
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced; (iii) Indebtedness that is pari passu with the Notes may
only be refinanced with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness; and (iv)
Indebtedness of the Company may only be refinanced by Indebtedness of the
Company and Indebtedness of a Subsidiary of the Company may only be
refinanced by Indebtedness of Subsidiaries or by the Company;
(h) guarantees by a Subsidiary of the Company of Senior Indebtedness
Incurred by the Company or in respect of letters of credit provided to
support such Indebtedness so long as the Incurrence of such Indebtedness is
otherwise permitted by the terms of the Indenture;
(i) Indebtedness in respect of judgment, appeal, surety, performance
and other like bonds, bankers' acceptances and letters of credit provided
by the Company and its Subsidiaries in the ordinary course of business;
(j) Indebtedness of the Company or any Subsidiary consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments, in connection with the acquisition or disposition of any
business, assets or Subsidiary of the Company permitted under the
Indenture;
(k) Indebtedness of the Company or the Subsidiaries, to the extent the
proceeds thereof are immediately used after the incurrence thereof to
purchase Senior Subordinated Notes tendered in an offer to purchase made as
a result of a Change of Control;
(l) Indebtedness of the Company or the Subsidiaries owed to (including
obligations in respect of letters of credit for the benefit of) any Person
in connection with liability insurance provided by such Person to the
Company or any Subsidiary or pursuant to reimbursement or indemnification
obligations to such Person, in each case incurred in the ordinary course of
business; and
(m) Indebtedness of the Company or the Subsidiaries not to exceed $5
million in aggregate principal amount at any time outstanding, which
Indebtedness may be incurred pursuant to clause (b) above.
Limitation on Senior Subordinated Indebtedness. The Company shall not,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Senior Subordinated Notes and subordinate
in right of payment to any other Indebtedness of the Company.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guaranty of such Guarantor and expressly
rank subordinate in right of payment to any Guarantor Senior Indebtedness.
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Subsidiary of the Company to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Subsidiary of the Company or make
any payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any
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Subsidiary of the Company (other than any dividends, distributions and
payments made to the Company or any Wholly Owned Subsidiary of the Company
(and, if such Subsidiary has shareholders other than the Company or another
Subsidiary, to its other shareholders on a pro rata basis or on a basis
that results in the receipt by the Company or a Subsidiary of dividends or
distributions of equal or greater value) and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Subsidiary of the Company (other
than any such Equity Interests owned by the Company or any Subsidiary of
the Company); or
(iii) make any Investment in any Person (other than Permitted
Investments)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii) or (iii) referred to as a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of "Limitation on Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the beginning of the first fiscal quarter commencing after the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available (or if such
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss), plus (2) 100% of the aggregate net cash proceeds received by the
Company either (x) as capital contributions to the Company after the Issue
Date or (y) from the issue and sale (other than to a Subsidiary of the
Company) of its Qualified Equity Interests after the Issue Date (excluding
the net proceeds from any issuance and sale of Qualified Equity Interests
financed, directly or indirectly, using funds borrowed from the Company or
any Subsidiary of the Company until and to the extent such borrowing is
repaid), plus (3) the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of any Indebtedness of the Company or any
Subsidiary of the Company Incurred after the Issue Date which has been
converted into or exchanged for Qualified Equity Interests of the Company
(minus the amount of any cash or property distributed by the Company or any
Subsidiary of the Company upon such conversion or exchange), plus (4) in
the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date, an amount equal to 100% of
the net cash proceeds thereof (or dividends, distributions or interest
payments received in cash thereon).
The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent issue and sale (other than to a Subsidiary of
the Company) of, Qualified Equity Interests of the Company; provided, however,
that any such net cash proceeds and the value of any Qualified Equity Interests
issued in exchange for such retired Equity Interests are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time);
(iii) the purchase, redemption,
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retirement or other acquisition of Disqualified Equity Interests made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Disqualified Equity Interests; (iv) payments in lieu of fractional shares in
amount not in excess of $250,000 in the aggregate; (v) payments by the Company
to Holdings to pay Federal, state and local taxes to the extent such taxes are
attributable to the Company and its Subsidiaries; (vi) in each case to the
extent such payments by Holdings are attributable to the Company and its
Subsidiaries, payments by the Company to Holding not to exceed an amount
necessary to permit Holdings to (A) make payments in respect to its
indemnification obligations owing to directors, officers or other Persons under
Holdings' charter or by-laws or pursuant to written agreements with any such
Person, (B) make payments in respect of its other operational expenses (other
than taxes) incurred in the ordinary course of business (it being understood
that management fees or other similar fees or arrangements shall not be deemed
as incurred in the ordinary course of business), or (C) make payments in respect
of indemnification obligations and costs and expenses incurred by Holdings in
connection with any offering of Common Stock of Holdings;(vii) the purchase,
redemption or other acquisition for value of Equity Interests of the Company or
Holdings (other than Disqualified Equity Interests) or options on such shares
held by officers or employees or former officers or employees (or their estates
or beneficiaries under their estates) upon the death, disability, retirement or
termination of employment of such current or former officers or employees
pursuant to the terms of an employee benefit plan or any other agreement
pursuant to which such Equity Interests or options were issued or pursuant to a
severance, buy-sell or right of first refusal agreement with such current or
former officer or employee or payments to Holdings to make such purchase,
redemption or other acquisition of such Equity Interests or options; provided,
however, that the aggregate cash consideration paid, or distributions made,
pursuant to this clause (vii) do not in any one fiscal year exceed $500,000; and
(viii) Investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant to and in
compliance with "-- Disposition of Proceeds of Asset Sales" below; provided
however, that in the case of each of clauses (ii) through (viii), no Default or
Event of Default shall have occurred and be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (vi), (vii) and (viii) of
the immediately preceding paragraph shall be included as Restricted Payments.
The amount of any non-cash Restricted Payment shall be deemed to be equal to the
Fair Market Value thereof at the date of the making of such Restricted Payment.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and shall not cause or permit any
Subsidiary of the Company to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Subsidiary of the Company to (a) pay dividends or make any
other distributions to the Company or any other Subsidiary of the Company on its
Equity Interests or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Subsidiary of the Company, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, or make any Investment in, the Company or
any other Subsidiary of the Company or (c) transfer any of its properties or
assets to the Company or any other Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of (i) the Credit
Facility as in effect on the Issue Date, any other agreement of the Company or
its Subsidiaries outstanding from time to time governing Senior Indebtedness
provided that such encumbrances or restrictions are no more adverse to the
Company than those contained in the Credit Facility as in effect on the Issue
Date, and any other agreement of the Company or its Subsidiaries outstanding on
the Issue Date as in effect on the Issue Date and any amendments, restatements,
renewals, replacements or refinancings thereof; provided, however, that any such
amendment, restatement, renewal, replacement or refinancing is no more
restrictive with respect to such encumbrances or restrictions than those
contained in the agreement being amended, restated, reviewed, replaced or
refinanced; (ii) applicable law; (iii) any instrument governing Indebtedness or
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Equity Interests of an Acquired Person acquired by the Company or any Subsidiary
of the Company as in effect at the time of such acquisition (except to the
extent such Indebtedness was Incurred by such Acquired Person in connection
with, as a result of or in contemplation of such acquisition); provided,
however, that such encumbrances and restrictions are not applicable to the
Company or any Subsidiary of the Company, or the properties or assets of the
Company or any Subsidiary of the Company, other than the Acquired Person; (iv)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices; (v) Purchase Money
Indebtedness for property acquired in the ordinary course of business that only
imposes encumbrances and restrictions on the property so acquired; (vi) any
agreement for the sale or disposition of the Equity Interests or assets of any
Subsidiary of the Company; provided, however, that such encumbrances and
restrictions described in this clause (vi) are only applicable to such
Subsidiary or assets, as applicable, and any such sale or disposition is made in
compliance with "Disposition of Proceeds of Asset Sales" below to the extent
applicable thereto; (vii) refinancing Indebtedness permitted under clause (g) of
the second paragraph of "Limitation on Indebtedness" above; provided, however,
that such encumbrances and restrictions contained in the agreements governing
such Indebtedness are no more restrictive in the aggregate than those contained
in the agreements governing such Indebtedness being refinanced immediately prior
to such refinancing; (viii) security agreements or mortgages securing
Indebtedness of a Subsidiary which are not prohibited by the covenant described
under "-- Limitation on Liens" to the extent such encumbrances or restrictions
restrict the transfer of the property or assets subject to such security
agreements or mortgages; or (ix) the Indenture.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Subsidiary of the Company to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made to secure the Senior Subordinated Notes and all
other amounts due under the Indenture, equally and ratably with such
Indebtedness (or, in the event that such Indebtedness is subordinated in right
of payment to the Senior Subordinated Notes prior to such Indebtedness) with a
Lien on the same properties and assets securing such Indebtedness for so long as
such Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness and (ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Subsidiary of the Company to, directly or indirectly,
make any Asset Sale, unless (i) the Company or such Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets sold or otherwise disposed of and (ii) at least
75% of such consideration consists of (A) cash or Cash Equivalents or (B)
properties and capital assets that replace the properties and assets that were
the subject of such Asset Sale or in properties and capital assets that will be
used in the business of the Company and its Subsidiaries as existing on the
Issue Date or in businesses reasonably related thereto (as determined in good
faith by the Company's Board of Directors) ("Replacement Assets"), provided that
if the property or assets subject to such Asset Sale were directly owned by the
Company such Replacement Assets also shall be so directly owned. Each of (w) the
amount of any Indebtedness (other than any Subordinated Indebtedness) of the
Company or any Subsidiary of the Company that is actually assumed by the
transferee in such Asset Sale and from which the Company and its Subsidiaries
are fully and unconditionally released, (x) securities received by the Company
or any Subsidiary from the transferee that are immediately converted by the
Company or such Subsidiary into cash or Cash Equivalents, (y) Indebtedness of
any Subsidiary that is no longer a Subsidiary as a result of such Asset Sale, to
the extent that the Company and each other Subsidiary is released from any
guarantee of such Indebtedness in connection with such Asset Sale, and (z)
consideration consisting of Indebtedness of the Company or any Subsidiary, shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or its Subsidiaries.
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The Company or such Subsidiary of the Company, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof
to reduce Senior Indebtedness or (ii) make an Investment in Replacement Assets.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied as described in clause (i) or (ii) of the immediately preceding
paragraph within the time periods set forth therein (the "Net Proceeds
Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"),
the Company shall, within 30 days after such Net Proceeds Utilization Date, make
an Offer to Purchase all outstanding Senior Subordinated Notes up to a maximum
principal amount (expressed as a multiple of $1,000) of Notes equal to such
Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the Purchase Date; provided, however, that the Offer to Purchase may be deferred
until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of
$5 million, at which time the entire amount of such Unutilized Net Cash
Proceeds, and not just the amount in excess of $5 million, shall be applied as
required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Senior Subordinated Notes, to the extent the aggregate principal
amount of Senior Subordinated Notes tendered pursuant to such Offer to Purchase
exceeds the Unutilized Net Cash Proceeds to be applied to the repurchase
thereof, such Senior Subordinated Notes shall be purchased pro rata based on the
aggregate principal amount of such Senior Subordinated Notes tendered by each
Holder. To the extent the Unutilized Net Cash Proceeds exceed the aggregate
amount of Senior Subordinated Notes tendered by the Holders of the Senior
Subordinated Notes pursuant to such Offer to Purchase, the Company may retain
and utilize any portion of the Unutilized Net Cash Proceeds not required to be
applied to repurchase Senior Subordinated Notes tendered pursuant to such Offer
for any purpose consistent with the other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Senior
Subordinated Notes, the Company shall comply with any applicable securities laws
and regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act, and any violation of the provisions of the
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
Each Holder shall be entitled to tender all or any portion of the Senior
Subordinated Notes owned by such Holder pursuant to the Offer to Purchase,
subject to the requirement that any portion of Note tendered must be tendered in
an integral multiple of $1,000 principal amount and subject to any proration
among tendering Holders as described above.
Merger, Sale of Assets, etc. The Indenture will provide that the Company
shall not consolidate with or merge with or into any other entity and the
Company shall not and shall not cause or permit any Subsidiary to, sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all of the
Company's and its Subsidiaries' properties and assets (determined on a
consolidated basis for the Company and its Subsidiaries) to any entity in a
single transaction or series of related transactions, unless: (i) either (x) the
Company shall be the Surviving Person or (y) the Surviving Person (if other than
the Company) shall be a corporation organized and validly existing under the
laws of the United States of America or any State thereof or the District of
Columbia, and shall, in any such case, expressly assume by a supplemental
indenture, the due and punctual payment of the principal of, premium, if any,
and interest on all the Notes and the performance and observance of every
covenant of the Indenture and the Exchange and Registration Rights Agreement to
be performed or observed on the part of the Company; and (ii) immediately
thereafter, no Default or Event of Default shall have occurred and be
continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Subsidiaries of the
Company the Equity Interests of which constitutes all or substantially all the
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properties and assets of the Company shall be deemed to be the transfer of all
or substantially all the properties and assets of the Company.
Transactions with Affiliates. The Company shall not, and shall not cause
or permit any Subsidiary of the Company to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates (each an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms which are no
less favorable to the Company or such Subsidiary, as the case may be, than would
be available in a comparable transaction with an unaffiliated third party and
(ii) if such Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments or other consideration having a Fair Market Value in
excess of $1 million, a majority of the disinterested members of the Board of
Directors of the Company shall have approved such Affiliate Transaction and
determined that such Affiliate Transaction complies with the foregoing
provisions. In addition, any Affiliate Transaction involving aggregate payments
or other consideration having a Fair Market Value in excess of $7.5 million will
also require a written opinion from an Independent Financial Advisor stating
that the terms of such Affiliate Transaction are fair, from a financial point of
view, to the Company or its Subsidiaries involved in such Affiliate Transaction,
as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Wholly
Owned Subsidiary or between or among Wholly Owned Subsidiaries; (ii) reasonable
fees and compensation paid to and indemnity provided on behalf of, officers,
directors, employees or agents of the Company, Holdings or any Subsidiary of the
Company as determined in good faith by the Company's Board of Directors; (iii)
any transactions undertaken pursuant to any contractual obligations in existence
on the Issue Date (as in effect on the Issue Date); (iv) any Restricted Payments
or Permitted Investments made in compliance with "Limitation on Restricted
Payments" above; (v) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by the
Board of Directors to employees of the Company or its Subsidiaries who are not
otherwise Affiliates of the Company; and (vi) loans or advances to employees
that are Affiliates of the Company in the ordinary course of business, but in
any event not to exceed $750,000 in the aggregate outstanding at any one time.
Limitation on the Sale or Issuance of Equity Interests of
Subsidiaries. The Company shall not sell any Equity Interest of a Subsidiary of
the Company, and shall not cause or permit any Subsidiary of the Company,
directly or indirectly, to issue or sell any Equity Interests (other than
directors' qualifying shares, to the extent mandated by applicable law), except
to the Company or a Wholly Owned Subsidiary. Notwithstanding the foregoing, the
Company is permitted to sell all the Equity Interest of a Subsidiary of the
Company as long as the Company is in compliance with the terms of the covenant
described under "Disposition of Proceeds of Asset Sales" and, if applicable,
"Merger, Sale of Assets, Etc." above.
Restriction on Transfer of Assets to Subsidiaries. The Indenture will
provide that if the Company transfers or causes to be transferred, in one or a
series of related transactions, assets to any one or more Subsidiaries of the
Company so that, after giving effect to such transfer, either (x) more than 15%
of the Company's consolidated total assets are owned by Subsidiaries of the
Company or (y) more than 15% of the Company's Consolidated EBITDA is derived
from Subsidiaries of the Company, the Company shall cause such Subsidiaries to
(i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Subsidiaries shall
unconditionally guarantee, on a senior subordinated basis, all the Company's
obligations under the Notes and (ii) deliver to the Trustee an Opinion of
Counsel that such supplemental indenture has been duly executed and delivered by
such Subsidiaries; provided that if no Default or Event of Default shall have
occurred or be continuing, and neither condition (x) or (y) is then met, such
guarantees will automatically, with no action required on behalf of the Company
or its Subsidiaries be released.
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Provision of Financial Information. Following the effectiveness of the
Exchange Offer Registration Statement, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the SEC (if permitted by SEC practice and applicable
law and regulations) the annual reports, quarterly reports and other documents
which the Company would have been required to file with the SEC pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
subject, such documents to be filed with the SEC on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so subject. The Company
shall also in any event (a) within 15 days of each Required Filing Date (whether
or not permitted or required to be filed with the SEC) (i) transmit (or cause to
be transmitted) by mail to all Holders, as their names and addresses appear in
the Note register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the SEC pursuant to the preceding sentence, or,
if such filing is not so permitted, information and data of a similar nature,
and (b) if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Senior Subordinated Notes remain
outstanding and prior to the later of the consummation of the Exchange Offer and
the filing of the Initial Shelf Registration Statement, if required, the Company
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of
Notes, if not obtainable from the SEC, information of the type that would be
filed with the SEC pursuant to the foregoing provisions, upon the request of any
such Holder.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture: (a) failure to pay principal of (or premium, if
any, on) any Senior Subordinated Note when due (whether or not prohibited by the
provisions of the Indenture described under "Subordination of the Senior
Subordinated Notes" above); (b) failure to pay any interest on any Senior
Subordinated Note when due, continued for 30 days or more (whether or not
prohibited by the provisions of the Indenture described under "Subordination of
the Senior Subordinated Notes" above); (c) default in the payment of principal
of or interest on any Senior Subordinated Note required to be purchased pursuant
to any Offer to Purchase required by the Indenture when due and payable or
failure to pay on the Purchase Date the Purchase Price for any Senior
Subordinated Note validly tendered pursuant to any Offer to Purchase (whether or
not prohibited by the provisions of the Indenture described under "Subordination
of the Senior Subordinated Notes" above); (d) failure to perform or comply with
any of the provisions described under "Certain Covenants -- Merger, Sale of
Assets, etc." above; (e) failure to perform any other covenant, warranty or
agreement of the Company under the Indenture or in the Senior Subordinated
Notes, continued for 30 days or more after written notice to the Company by the
Trustee or Holders of at least 25% in aggregate principal amount of the
outstanding Senior Subordinated Notes; (f) default or defaults under the terms
of one or more instruments evidencing or securing Indebtedness of the Company or
any of its Subsidiaries having an outstanding principal amount of $5.0 million
or more individually or in the aggregate that has resulted in the acceleration
of the payment of such Indebtedness or failure by the Company or any of its
Subsidiaries to pay principal when due at the stated maturity of any such
Indebtedness and such default or defaults shall have continued after any
applicable grace period and shall not have been cured or waived; (g) the
rendering of a final judgment or judgments (not subject to appeal) against the
Company or any of its Subsidiaries in an amount of $5.0 million or more (net of
any amounts covered by reputable and creditworthy insurance companies) which
remains undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired; or (h) certain events of bankruptcy, insolvency
or reorganization affecting the Company or any of its Significant Subsidiaries.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Senior
Subordinated Notes, unless such Holders shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Senior Subordinated Notes will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on such Trustee.
If an Event of Default with respect to the Senior Subordinated Notes (other
than an Event of Default described in clause (h) of the preceding paragraph)
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Senior Subordinated Notes, by
notice in writing to the Company may declare the unpaid principal of (and
premium, if any) and accrued interest to the date of acceleration on all the
outstanding Senior Subordinated Notes to be due and payable immediately and,
upon any such declaration, such principal amount (and premium, if any) and
accrued interest, notwithstanding anything contained in the Indenture or the
Senior Subordinated Notes to the contrary, shall become immediately due and
payable. If an Event or Default specified in clause (h) of the preceding
paragraph occurs under the Indenture, the Senior Subordinated Notes will ipso
facto become immediately due and payable without any declaration or other act on
the part of the Trustee or any Holder of the Senior Subordinated Notes.
Any such declaration with respect to the Senior Subordinated Notes may be
rescinded and annulled by the Holders of a majority in aggregate principal
amount of the outstanding Senior Subordinated Notes upon the conditions provided
in the Indenture. For information as to waiver of defaults, see "Modification
and Waiver" below.
The Indenture will provide that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Senior
Subordinated Notes outstanding becomes known to it, give the Holders of the
Senior Subordinated Notes thereof notice of all uncured Defaults or Events of
Default thereunder known to it; provided, however, that, except in the case of a
Default or an Event of Default in payment with respect to the Senior
Subordinated Notes or a Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Senior Subordinated Notes.
No Holder of any Senior Subordinated Note will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default thereunder and unless the Holders of at least 25%
of the aggregate principal amount of the outstanding Senior Subordinated Notes
shall have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding, and the Trustee shall have not have
received from the Holders of a majority in aggregate principal amount of such
outstanding Senior Subordinated Notes a direction inconsistent with such request
and shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a Holder of such a Senior
Subordinated Note for enforcement of payment of the principal of and premium, if
any, or interest on such Senior Subordinated Note on or after the respective due
dates expressed in such Senior Subordinated Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MANAGER
AND STOCKHOLDERS
No director, officer, employee, incorporator, manager or stockholder of the
Company or any of its Affiliates, as such, shall have any liability for any
obligations of the Company under the Senior Subordinated Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of Senior Subordinated Notes by accepting a Senior
Subordinated Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Senior Subordinated Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Subordinated Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Senior Subordinated Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Senior Subordinated Notes when such payments are due, (ii) the Company's
obligations with respect to the Senior Subordinated Notes concerning issuing
temporary Senior Subordinated Notes, registration of Senior Subordinated Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Senior Subordinated Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Subordinated
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, United States Government Obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Senior Subordinated Notes on
the stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
Senior Subordinated Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default with respect to
the Indenture resulting from the Incurrence of Indebtedness, all or a portion of
which will be used to defease the Senior Subordinated Notes concurrently with
such Incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under the Indenture
or any other material agreement or instrument to which the Company or
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any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Indebtedness,
including, without limitation, those arising under the Indenture and (B)
assuming no intervening bankruptcy of the Company between the date of deposit
and the 91st day following the date of the deposit and that no Holder is an
insider of the Company, after the 91st day following the date of the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the Opinion of Counsel required by clause (ii)
above need not be delivered if all Senior Subordinated Notes not theretofore
delivered to the Trustee for cancellation (x) have become due and payable, (y)
will become due and payable on the maturity date within one year or (z) are to
be called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company.
GOVERNING LAW
The Indenture and the Senior Subordinated Notes will be governed by the
laws of the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the outstanding Senior Subordinated Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Notes); provided, however, that no such modification or amendment to the
Indenture may, without the consent of the Holder of each Senior Subordinated
Note affected thereby, (a) change the Stated Maturity of the principal of or any
installment of interest on any such Senior Subordinated Note or alter the
optional redemption or repurchase provisions of any such Senior Subordinated
Note or the Indenture in a manner adverse to the Holders of the Senior
Subordinated Notes; (b) reduce the principal amount of (or the premium of) any
such Senior Subordinated Note; (c) reduce the rate of or extend the time for
payment of interest on any such Senior Subordinated Note; (d) change the place
or currency of payment of principal of (or premium) or interest on any such
Senior Subordinated Note; (e) modify any provisions of the Indenture relating to
the waiver of past defaults (other than to add sections of the Indenture or the
Senior Subordinated Notes subject thereto) or the right of the Holders of Senior
Subordinated Notes to institute suit for the enforcement of any payment on or
with respect to any such Senior Subordinated Note or the modification and
amendment provisions of the Indenture and the Senior Subordinated Notes (other
than to add sections of the Indenture or the Senior Subordinated Notes which may
not be modified, amended, supplemented or waived without the consent of each
Holder affected); (f) reduce the percentage of the principal amount of
outstanding Senior Subordinated Notes necessary for amendment to or waiver of
compliance with any provision of the Indenture or the Senior Subordinated Notes
or for waiver of any Default in respect thereof; (g) waive a Default in the
payment of principal of, interest on, or redemption payment with respect to, the
Senior Subordinated Notes (except a rescission of acceleration of the Senior
Subordinated Notes by the Holders thereof as provided in the Indenture and a
waiver of the payment default that resulted from such acceleration); (h) modify
the ranking or priority of any Senior Subordinated Note or the Guaranty in
respect of any Guarantor or modify the definition of Senior Indebtedness or
Guarantor Senior Indebtedness or
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amend or modify the subordination provisions of the Indenture in any manner
adverse to the Holders of the Senior Subordinated Notes; (i) release any
Guarantor from any of its obligations under its Guaranty or the Indenture
otherwise than in accordance with the Indenture or (j) modify the provisions of
any covenant (or the related definitions) in the Indenture requiring the Company
to make an Offer to Purchase in a manner materially adverse to the Holders of
Senior Subordinated Notes affected thereby otherwise than in accordance with the
Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Senior Subordinated Notes, on behalf of all Holders of Senior Subordinated
Notes, may waive compliance by the Company with certain restrictive provisions
of the Indenture. Subject to certain rights of the Trustee, as provided in the
Indenture, the Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes, on behalf of all Holders, may waive any past default under
the Indenture (including any such waiver obtained in connection with a tender
offer or exchange offer for the Notes), except a default in the payment of
principal, premium or interest or a default arising from failure to purchase any
Senior Subordinated Notes tendered pursuant to an Offer to Purchase, or a
default in respect of a provision that under the Indenture cannot be modified or
amended without the consent of the Holder of each Senior Subordinated Note that
is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or any other obligor upon the Senior
Subordinated Notes, to obtain payment of claims in certain cases or to realize
on certain property received by it in respect of any such claim as security or
otherwise. The Trustee is permitted to engage in other transactions with the
Company or an Affiliate of the Company; provided, however, that if it acquires
any conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Subsidiary of the Company or is merged or consolidated with or
into the Company or any Subsidiary of the Company.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Subsidiary of the
Company to any other Person, or any acquisition or purchase of Equity Interests
of any other Person by the Company or any Subsidiary of the Company, in either
case pursuant to which such Person shall become a Subsidiary of the Company or
shall be consolidated with or merged into the Company or any Subsidiary of the
Company or (ii) any acquisition by the Company or any Subsidiary of the Company
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
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"Additional Interest" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company in one transaction or a series of related
transactions, of (i) any Equity Interest of any Subsidiary of the Company (other
than directors' qualifying shares, to the extent mandated by applicable law);
(ii) any assets of the Company or any Subsidiary of the Company which constitute
substantially all of an operating unit or line of business of the Company or any
Subsidiary of the Company; or (iii) any other property or asset of the Company
or any Subsidiary of the Company outside of the ordinary course of business
(including the receipt of proceeds paid on account of the loss of or damage to
any property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings). For the purposes of this
definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "Certain Covenants -- Merger, Sale of Assets,
etc." above and the creation of any Lien not prohibited by "Certain
Covenants -- Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Subsidiary of the Company, as
the case may be; and (c) any transaction consummated in compliance with "Certain
Covenants -- Limitation on Restricted Payments" above. In addition, solely for
purposes of "Certain Covenants -- Disposition of Proceeds of Asset Sales" above,
any sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions, involving
assets with a Fair Market Value not in excess of $500,000 in any fiscal year,
shall be deemed not to be an Asset Sale.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value (discounted according
to GAAP at the cost of indebtedness implied in the lease) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
"Board of Directors" means the Board of Directors of Holdings, the Company,
any Guarantor or Person, as the case may be, or any authorized committee of such
Board of Directors.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof or any state government having maturities of not more
than one year from the date of acquisition; (c) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $250 million; (d) repurchase obligations with a
term of not more than seven days for underlying
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securities of the types described in clauses (b) and (c) above entered into with
any financial institution meeting the qualifications specified in clause (c)
above; (e) commercial paper rated P-1, A-1 or the equivalent thereof by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively, and in
each case maturing within one year after the date of acquisition; (f)
Investments in mutual funds which invest substantially all of their assets in
securities of the types described in clauses (a) through (e) above and (g) in
the case of any Subsidiary of the Company whose jurisdiction of incorporation is
not the United States or any state thereof or the District of Columbia,
Investments: (i) in direct obligations of the sovereign nation (or any agency
thereof) in which such foreign Subsidiary is organized and is conducting
business or in obligations fully and unconditionally guaranteed by such
sovereign nation (or any agency thereof) or (ii) of the type and maturity
described in clauses (a) and (b) above of foreign obligors, which Investment or
obligors (or the parents of such obligors) have ratings described in such
clauses or equivalent ratings from comparable foreign rating agencies.
"Citicorp" means Citicorp, a Delaware corporation.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter Period") to (ii) Consolidated Net
Interest Expense for such Four Quarter Period; provided, however, that (1) if
the Company or any Subsidiary of the Company has incurred any Indebtedness since
the beginning of such Four Quarter Period that remains outstanding on such date
of determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Net Interest Expense for such Four Quarter Period shall
be calculated after giving effect on a pro forma basis to such Indebtedness and
the application of the proceeds thereof as if such Indebtedness had been
Incurred on the first day of such Four Quarter Period and the discharge of any
other Indebtedness repaid, repurchased or otherwise discharged with the proceeds
of such new Indebtedness as if such discharge had occurred on the first day of
such Four Quarter Period, (2) if since the beginning of such Four Quarter Period
the Company or any Subsidiary of the Company shall have made any Asset Sale, the
Consolidated EBITDA for such Four Quarter Period shall be reduced by an amount
equal to the Consolidated EBITDA (if positive) directly attributable to the
assets that are the subject of such Asset Sale for such Four Quarter Period or
increased by an amount equal to the Consolidated EBITDA (if negative) directly
attributable thereto for such Four Quarter Period and Consolidated Net Interest
Expense for such Four Quarter Period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Subsidiary of the Company repaid, repurchased or otherwise
discharged with respect to the Company and its continuing Subsidiaries in
connection with such Asset Sale for such Four Quarter Period (or, if the Equity
Interests of any Subsidiary of the Company are sold, the Consolidated Net
Interest Expense for such Four Quarter Period directly attributable to the
Indebtedness of such Subsidiary to the extent the Company and its continuing
Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if
since the beginning of such Four Quarter Period the Company or any Subsidiary of
the Company (by merger or otherwise) shall have made an Investment in any
Subsidiary of the Company (or any Person that becomes a Subsidiary of the
Company) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, Consolidated EBITDA and Consolidated Net Interest Expense for such
Four Quarter Period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period and (4) if
since the beginning of such Four Quarter Period any Person (that subsequently
became a Subsidiary or was merged with or into the Company or any Subsidiary of
the Company since the beginning of such Four Quarter Period) shall have made any
Asset Sale or any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (2) or (3) above if made by the Company or a
Subsidiary of the Company during such Four
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Quarter Period, Consolidated EBITDA and Consolidated Net Interest Expense for
such Four Quarter Period shall be calculated after giving pro forma effect
thereto as if such Asset Sale, Investment or acquisition of assets occurred on,
with respect to any Investment or acquisition, the first day of such Four
Quarter Period and, with respect to any Asset Sale, the day prior to the first
day of such Four Quarter Period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Net Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in accordance with Regulation S-X under the
Securities Act as in effect on the date of such calculation. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any agreement under which Interest Rate Protection
Obligations are outstanding applicable to such Indebtedness if such agreement
under which such Interest Rate Protection Obligations are outstanding has a
remaining term as at the date of determination in excess of 12 months);
provided, however, that the Consolidated Net Interest Expense of the Company
attributable to interest on any Indebtedness Incurred under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the Four Quarter Period.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated
Non-cash Charges for such period less all non-cash items increasing Consolidated
Net Income for such period.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and its Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (e) all capitalized interest and (f) interest on Indebtedness of
another Person that is guaranteed by the Company or any Subsidiary of the
Company actually paid by the Company or any Subsidiary of the Company, and (ii)
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such person is not a Subsidiary of the Company, except the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income (loss)
of any person acquired by the Company or a Subsidiary of the Company in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (but not loss) of any Subsidiary of the
Company if such Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such Subsidiary,
directly or indirectly, to the Company to the extent of such restrictions; (iv)
any gain or loss realized upon the sale or other disposition of any asset of the
Company or its Subsidiaries (including pursuant to any sale/leaseback
transaction) outside of the ordinary course of business including, without
limitation, on or with respect to Investments (and excluding dividends,
distributions or interest thereon);
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(v) any extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles after the Issue Date; and (vii) any restoration to income
of any contingency reserve of an extraordinary, non-recurring or unusual nature,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date.
"Consolidated Net Interest Expense" means, with respect to the Company for
any period, Consolidated Interest Expense for such period reduced by the sum of
(x) consolidated interest income of the Company and its Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP and (y) the
amortization of any premiums, fees and other similar expenses incurred in
connection with any financings or any other permitted Incurrence of Indebtedness
for such period to the extent included in Consolidated Interest Expense for such
period.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period the sum of (A) depreciation, (B) amortization and (C) other non-cash
expenses of such Person and its Subsidiaries reducing Consolidated Net Income of
such Person and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP (excluding, for purposes of clause (C) only, such
charges which require an accrual of or a reserve for cash charges for any future
period.)
"Credit Facility" means the Credit Facility, dated as of November 10, 1997,
between the Company, the lenders named therein, and The Chase Manhattan Bank, as
Administrative Agent, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor, whether by or with
the same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantee and note agreements and other instruments
and agreements executed in connection therewith.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in currency
values.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Depository" means, with respect to the Notes issued in the form of one or
more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency under
the Exchange Act.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Credit Facility and (b) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $15 million, if the
instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Notes or the date on which no Notes remain
outstanding.
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"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset shall be determined conclusively by the Board of
Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. The term "guarantee" used as
a verb has a corresponding meaning.
"Guarantor" means each Subsidiary, formed, created or acquired after the
Issue Date, required to be a Guarantor pursuant to "Certain
Covenants -- Restriction on Transfer of Assets to Subsidiaries" above.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (a) all Interest Rate Protection Obligations of such Guarantor; (b)
all Obligations of such Guarantor under stand-by letters of credit; and (c) all
other Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness unless the instrument under which such Indebtedness of such
Guarantor for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment to
such Guarantor's Guaranty, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Guarantor
Senior Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for Federal, state, local or other taxes; (b) any
Indebtedness between or among such Guarantor and any Subsidiary of the Company;
(c) to the extent that it may constitute Indebtedness, any Obligation in respect
of any trade payable Incurred for the purchase of goods or materials, or for
services obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the Indenture; provided, however,
that such Indebtedness shall be deemed not to have been Incurred in violation of
the Indenture for purposes of this clause (d) if the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of independent legal counsel unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an Officers' Certificate of the Company) to the effect that the
Incurrence of such Indebtedness does not violate the provisions of this
Indenture; (e) Indebtedness evidenced by such Guarantor's Guaranty; (f)
Indebtedness of such Guarantor that is expressly subordinate or junior in right
of payment to any other Indebtedness of such
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Guarantor; (g) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations) or management
agreements; (h) any obligation that by operation of law is subordinate to any
general unsecured obligations of such Guarantor; and (i) any existing
indebtedness.
"Holders" means the registered holders of the Notes.
"Holdings" means Airxcel Holdings Corporation, a Delaware corporation.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Subsidiary of
the Company (or is merged into or consolidated with the Company or any
Subsidiary of the Company), whether or not such Indebtedness was Incurred in
connection with, as a result of, or in contemplation of, such Acquired Person
becoming a Subsidiary of the Company (or being merged into or consolidated with
the Company or any Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Subsidiary or merges into or consolidates with the
Company or any Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business); (e)
every Capital Lease Obligation of such Person; (f) every net obligation under
Interest Rate Protection Obligations or similar agreements or Currency
Agreements of such Person; (g) Attributable Indebtedness; (h) every obligation
of the type referred to in clauses (a) through (g) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise; and (i) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a) through
(h) above. Indebtedness (i) shall not be calculated taking into account any cash
and Cash Equivalents held by such Person; (ii) shall not include obligations of
any Person (x) arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business, provided that such
obligations are extinguished within two Business Days of their incurrence, (y)
resulting from the endorsement of negotiable instruments for collection in the
ordinary course of business and consistent with past business practices and (z)
under stand-by letters of credit to the extent collateralized by cash or Cash
Equivalents; (iii) which provides that an amount less than the principal amount
thereof shall be due upon any declaration of acceleration thereof shall be
deemed to be Incurred or outstanding in an amount equal to the accreted value
thereof at the date of determination; and (iv) shall not include obligations
under performance bonds, performance guarantees, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal, investment banking firm or consultant which, in the judgment of the
Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
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"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Senior Subordinated Notes, the sum of
any cash interest and any Additional Interest on the Senior Subordinated Notes.
"Interest Payment Date" means each semiannual interest payment date on May
15 and November 15 of each year commencing May 15, 1998.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Interest Record Date" for the interest payable on any Interest Payment
Date (except a date for payment of defaulted interest) means May 1 or November 1
(whether or not a Business Day), as the case may be, immediately preceding such
Interest Payment Date.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. In determining the
amount of any Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its fair market value at the time of
such transfer, as determined in good faith by the Board of Directors (or
comparable body) of the Person making such transfer.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Management Investors" means Melvin L. Adams, Gregory G. Guinn, Paul
Mechler, Richard L. Schreck, T. K. Sellers, Jr., David L. Shuford, Lonnie L.
Snook and George D. Wyers.
"Maturity Date" means the date, which is set forth on the face of the
Senior Subordinated Notes, on which the Senior Subordinated Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Subsidiary of the Company in
respect of any Asset Sale, including all cash or Cash Equivalents received upon
any sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale;
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(d) amounts deemed, in good faith, appropriate by the Board of Directors of the
Company to be provided as a reserve, in accordance with GAAP, against any
liabilities associated with such assets which are the subject of such Asset
Sale; including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale (provided that
the amount of any such reserves shall be deemed to constitute Net Cash Proceeds
at the time such reserves shall have been released or are not otherwise required
to be retained as a reserve); and (e) with respect to Asset Sales by
Subsidiaries, the portion of such cash payments attributable to Persons holding
a minority interest in such Subsidiary.
"Net Proceeds Utilization Date" has the meaning set forth in the second
paragraph under "Certain Covenants Disposition of Proceeds of Asset Sales"
above.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Senior Subordinated Notes on the
date of the Offer offering to purchase up to the principal amount of Senior
Subordinated Notes specified in such Offer at the purchase price specified in
such Offer (as determined pursuant to the Indenture). Unless otherwise required
by applicable law, the Offer shall specify an expiration date (the "Expiration
Date") of the Offer to Purchase, which shall be not less than 20 Business Days
nor more than 60 days after the date of such Offer, and a settlement date (the
"Purchase Date") for purchase of Senior Subordinated Notes to occur no later
than five Business Days after the Expiration Date. The Company shall notify the
Trustee at least 5 Business Days (or such shorter period as is acceptable to the
Trustee) prior to the mailing of the Offer of the Company's obligation to make
an Offer to Purchase, and the Offer shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the Company.
The Offer shall contain all the information required by applicable law to be
included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Senior Subordinated Notes pursuant to
the Offer to Purchase. The Offer shall also state: (1) the Section of the
Indenture pursuant to which the Offer to Purchase is being made; (2) the
Expiration Date and the Purchase Date; (3) the aggregate principal amount of the
outstanding Senior Subordinated Notes offered to be purchased by the Company
pursuant to the Offer to Purchase (including, if less than 100%, the manner by
which such amount has been determined pursuant to the Section of the Indenture
requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price
to be paid by the Company for each $1,000 aggregate principal amount of Senior
Subordinated Notes accepted for payment (as specified pursuant to the Indenture)
(the "Purchase Price"); (5) that the Holder may tender all or any portion of the
Senior Subordinated Notes registered in the name of such Holder and that any
portion of a Note tendered must be tendered in an integral multiple of $1,000
principal amount; (6) the place or places where Senior Subordinated Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Senior Subordinated Note not tendered or tendered but not purchased by
the Company pursuant to the Offer to Purchase will continue to accrue; (8) that
on the Purchase Date the Purchase Price will become due and payable upon each
Senior Subordinated Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date; (9) that each Holder electing to tender all or any portion of a
Senior Subordinated Note pursuant to the Offer to Purchase will be required to
surrender such Senior Subordinated Note at the place or places specified in the
Offer prior to the close of business on the Expiration Date (such Senior
Subordinated Note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing); (10) that
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Holders will be entitled to withdraw all or any portion of Senior Subordinated
Notes tendered if the Company (or its Paying Agent) receives, not later than the
close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Senior Subordinated Note the Holder tendered, the certificate
number of the Senior Subordinated Note the Holder tendered and a statement that
such Holder is withdrawing all or a portion of his tender; (11) that (a) if
Senior Subordinated Notes in an aggregate principal amount less than or equal to
the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase all such Senior Subordinated Notes and (b)
if Senior Subordinated Notes in an aggregate principal amount in excess of the
Purchase Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase Senior Subordinated Notes having an
aggregate principal amount equal to the Purchase Amount on a pro rata basis
(with such adjustments as may be deemed appropriate so that only Senior
Subordinated Notes in denominations of $1,000 principal amount or integral
multiples thereof shall be purchased); and (12) that in the case of any Holder
whose Senior Subordinated Note is purchased only in part, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder of such
Senior Subordinated Note without service charge, a new Senior Subordinated Note
or Senior Subordinated Notes, of any authorized denomination as requested by
such Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Senior Subordinated Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Officer" means the Chairman, any Vice Chairman, the President, any Vice
President, the Chief Financial Officer, the Treasurer or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer of Assistant Secretary of the Company
complying with certain provisions of the Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means (i) CVC and its Affiliates; (ii) the Management
Investors; and (iii) their respective Permitted Transferees.
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants-Limitation on Indebtedness" above.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) Interest
Rate Protection Obligations and Currency Agreements; (d) Investments received in
connection with the bankruptcy or reorganization of suppliers and customers and
in settlement of delinquent obligations of, and other disputes with, customers
and suppliers, in each case arising in the ordinary course of business; (e)
Investments in the Company or a Subsidiary of the Company and Investments in a
Person that, as a result of or in connection with such Investment, is merged
with or into or consolidated with the Company or a Subsidiary; (f) Investments
paid for in Common Stock of the Company; (g) loans or advances to officers or
employees of the Company and its Subsidiaries in the ordinary course of business
for bona fide business purposes of the Company and its Subsidiaries (including
travel and moving expenses) not in excess of $500,000 in the aggregate at any
one time outstanding and (h) other Investments that do not exceed $5 million in
the aggregate at any one time.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
debt securities expressly subordinated in right of payment to all Senior
Indebtedness or Guarantor Senior Indebtedness, as the case may be, that may at
the time be outstanding, to substantially the same extent as, or to a greater
extent than,
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the Senior Subordinated Notes or the Guaranties, as the case may be, are
subordinated as provided in the Indenture, in any event pursuant to a court
order so providing and as to which (a) the rate of interest on such securities
shall not exceed the effective rate of interest on the Senior Subordinated Notes
on the date of the Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Senior Subordinated
Notes on the date of the Indenture and (c) such securities shall not provide for
amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness or Guarantor Senior Indebtedness, as the case
may be, (as modified by the plan of reorganization of readjustment pursuant to
which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company; provided, however, that such Liens were in existence
prior to such merger or consolidation and were not incurred in contemplation of
such merger or consolidation and do not secure any property or assets of the
Company or any Subsidiary of the Company other than the property or assets
subject to the Liens prior to such merger or consolidation; (b) Liens imposed by
law such as carriers', warehousemen's and mechanics' Liens and other similar
Liens arising in the ordinary course of business which secure payment of
obligations not more than 30 days past due or which are being contested in good
faith and by appropriate proceedings; (c) Liens existing on the Issue Date and
Liens in favor of the lenders under the Credit Facility; (d) Liens securing only
the Notes; (e) Liens in favor of the Company or any Subsidiary of the Company;
(f) Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided, however,
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (g) easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties, or minor imperfections of title that in
the aggregate are not material in amount and do not in any case materially
detract from the properties subject thereto or interfere with the ordinary
conduct of the business of the Company and its Subsidiaries; (h) Liens resulting
from the deposit of cash or notes in connection with contracts, tenders or
expropriation proceedings, or to secure workers' compensation, surety or appeal
bonds, costs of litigation when required by law and public and statutory
obligations or obligations under franchise arrangements entered into in the
ordinary course of business; (i) Liens securing Indebtedness consisting of
Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage financings,
industrial revenue bonds or other monetary obligations, in each case incurred
solely for the purpose of financing all or any part of the purchase price or
cost of construction or installation of assets used in the business of the
Company or its Subsidiaries, or repairs, additions or improvements to such
assets, provided, however, that (I) such Liens secure Indebtedness in an amount
not in excess of the original purchase price or the original cost of any such
assets or repair, addition or improvements thereto (plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (II) such Liens do not extend to any other assets of the Company
or its Subsidiaries (and, in the case of repair, addition or improvements to any
such assets, such Lien extends only to the assets (and improvements thereto or
thereon) repaired, added to or improved), (III) the Incurrence of such
Indebtedness is permitted by "Certain Covenants-Limitation on Indebtedness"
above and (IV) such Liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement; and (j) Liens to secure any
refinancings, renewals, extensions, modifications or replacements (collectively,
"refinancings") (or successive refinancings), in whole or in part, of any
Indebtedness secured by Liens referred to in the clauses above so long as such
Lien does not extend to any other property (other than improvements thereto).
"Permitted Transferee" means (a) with respect to CVC (i) Citicorp, any
direct or indirect wholly owned subsidiary of Citicorp, and any officer,
director or employee of CVC, Citicorp or any wholly owned subsidiary of
Citicorp, (ii) any spouse or lineal descendent (including by adoption
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and stepchildren) of the officers, directors and employees to, in clause (a)(i)
above or (iii) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of one or more of the
persons described in clause (a)(i) or (ii) above and (b) with respect to any
officer or employee of Holdings or the Company or a subsidiary of the Company
(i) any spouse or lineal descendent (including by adoption and stepchildren) of
such officer or employee and (ii) any trust, corporation or partnership 100% in
interest of the beneficiaries, stockholders or partners of which consists of
such officer or employee or any of the persons described in clause (b)(i) above
or any combination thereof.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company or
Holdings pursuant to an effective registration statement filed under the
Securities Act (excluding registration statements filed on Form S-8); provided,
however, that if any such offering is the Offering of Qualified Equity Interests
of Holdings, only the net proceeds that are contributed to the Company shall be
taken into consideration for purposes of this definition.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Subsidiary of the Company Incurred for the purpose of financing in the ordinary
course of business all or any part of the purchase price or the cost of
construction or improvement of any property related to the business of the
Company (including Equity Interests and the assets of an ongoing business);
provided, however, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Redemption Date" when used with respect to any Senior Subordinated Note to
be redeemed, means the date fixed for such redemption pursuant to the Indenture.
"Replacement Assets" has the meaning set forth in the first paragraph under
"Certain Covenants -- Disposition of Proceeds of Asset Sales" above.
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"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal Property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Credit Facility; (b) all Interest Rate Protection Obligations
of the Company and all Obligations of the Company under Currency Agreements; (c)
all Obligations of the Company under stand-by letters of credit; and (d) all
other Indebtedness of the Company, including principal, premium, if any, and
interest (including Post-Petition Interest) on such Indebtedness, unless the
instrument under which such Indebtedness of the Company is Incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to the Senior Subordinated Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) to the extent that it may
constitute Indebtedness, any Obligation for Federal, state, local or other
taxes; (b) any Indebtedness among or between the Company and any Subsidiary of
the Company or any Affiliate of the Company or any of such Affiliate's
Subsidiaries; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
that portion of any Indebtedness that is Incurred in violation of the Indenture;
(e) Indebtedness evidenced by the Senior Subordinated Notes; (f) Indebtedness of
the Company that is expressly subordinate or junior in right of payment to any
other Indebtedness of the Company; (g) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; and (h) any obligation that by operation
of law is subordinate to any general unsecured obligations of the Company. No
Indebtedness shall be deemed to be subordinated to other Indebtedness solely
because such other Indebtedness is secured.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Stated Maturity" means, when used with respect to any Senior Subordinated
Note or any installment of interest thereon, the date specified in such Senior
Subordinated Note as the fixed date on which the principal of such Senior
Subordinated Note or such installment of interest is due and payable.
"Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Senior
Subordinated Notes or such Guarantor's Guaranty, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Total Assets" means, at any date of determination, the total consolidated
assets of the Company and its Subsidiaries, as determined in accordance with
GAAP.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
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"Unutilized Net Cash Proceeds" has the meaning set forth in the third
paragraph under "Certain Covenants Disposition of Proceeds of Asset Sales"
above.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means any Subsidiary of the Company all of the
outstanding Voting Equity Interests (other than directors" qualifying shares) of
which are owned, directly or indirectly, by the Company.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on November 10, 1997 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. As a condition to the Purchase Agreement, the Company
entered into the Exchange and Registration Rights Agreement with the Initial
Purchaser pursuant to which the Company has agreed to: (i) file with the
Commission on or prior to 45 days after the date of issuance of the Notes (the
"Issue Date") a registration statement on Form S-1 or Form S-4, if the use of
such form is then available (the "Exchange Offer Registration Statement")
relating to a registered exchange offer (the "Exchange Offer") for the Notes
under the Securities Act and (ii) use its reasonable best efforts to cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act within 150 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of Transfer Restricted Securities (as defined
below) who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Transfer
Restricted Securities for the Exchange Notes that are identical in all material
respects to the Notes (except that the Exchange Notes will not contain terms
with respect to transfer restrictions) and that would be registered under the
Securities Act. The Company will keep the Exchange Offer open for not less than
30 days (or longer, if required by applicable law) after the date on which
notice of the Exchange Offer is mailed to the holders of the Notes. For each
Note surrendered to the Company pursuant to the Exchange Offer, the holder of
such Note will receive an Exchange Note having a principal amount equal to that
of the surrendered Note. Interest on each Exchange Note will accrue from the
date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Company believes that the
Exchange Notes would in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser of
Notes who is an "affiliate" of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) will not
be able to rely on the interpretation of the staff of the Commission, (ii) will
not be able to tender its Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes, unless such sale or transfer
is made pursuant to an exemption from such requirements.
If (i) because of any change in law or applicable interpretations thereof
by the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated hereby, (ii) any Securities validly tendered
pursuant to the Exchange Offer are not exchanged for Exchange Securities within
195 days after the Issue Date, (iii) any Initial Purchaser so requests with
respect to Notes not eligible to be exchanged for Exchange Notes in the Exchange
Offer, (iv) any applicable law or interpretations do not permit any holder of
Notes to participate in the Exchange Offer, (v) any holder of Notes that
participates in the Exchange Offer does not receive freely transferable Exchange
Notes in exchange for tendered Notes, or (vi) the Company so elects, then the
Company will file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities by
such holders who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such Note has been exchanged for a freely transferable Exchange
Note in the Exchange Offer; (ii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such
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Note is distributed to the public pursuant to Rule 144 under the Securities Act
or is salable pursuant to Rule 144(k) under the Securities Act.
The Company will use its reasonable best efforts to have the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement
(each, a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will commence
the Exchange Offer and will use its reasonable best efforts to consummate the
Exchange Offer as promptly as practicable, but in any event prior to 195 days
after the Issue Date. If applicable, the Company will use its reasonable best
efforts to keep the Shelf Registration Statement effective for a period of two
years after the Issue Date.
If (i) the applicable Registration Statement is not filed with the
Commission on or prior to 45 days after the Issue Date; (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 150 days after the Issue Date; (iii) the
Exchange Offer is not consummated on or prior to 195 days after the Issue Date
or (iv) the Shelf Registration Statement is filed and declared effective within
150 days after the Issue Date but shall thereafter cease to be effective (at any
time that the Company is obligated to maintain the effectiveness thereof)
without being succeeded within 30 days by an additional Registration Statement
filed and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default"), the Company will be obligated to pay liquidated
damages to each holder of Transfer Restricted Securities, during the period of
one or more such Registration Defaults, in an amount equal to $0.192 per week
per $1,000 principal amount of the Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed, the Exchange Offer Registration Statement is declared effective and the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective or again becomes effective, as the case may be. All accrued liquidated
damages shall be paid to holders in the same manner as interest payments on the
Notes on semi-annual payment dates which correspond to interest payment dates
for the Notes. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
The Company (i) shall make available for a period of 180 days after the
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale of any
such Exchange Notes and (ii) shall pay all expenses incident to the Exchange
Offer (including the expense of one counsel to the holders of the Notes) and
will indemnify certain holders of the Notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act. A
broker-dealer which delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Exchange and
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in the Exchange Offer will be required to make representations in the Letter of
Transmittal that (i) any Exchange Notes to be received by it will be acquired in
the ordinary course of its business; (ii) it has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes and
(iii) it is not an "affiliate" (as defined in Rule 405 under the Securities Act)
of the Company, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. The Commission has taken the position and the Company
believes that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Exchange and
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
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If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market-making activities or other trading activities (an "Exchanging
Dealer"), it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
Holders of the Notes will be required to make certain representations to
the Company (as described above) in order to participate in the Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells Notes pursuant
to the Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Exchange and Registration Rights Agreement
contains a discussion of all material elements thereof, but does not purport to
be complete and is qualified in its entirety by reference to all provisions of
the Exchange and Registration Rights Agreement. The Company will provide a copy
of the Exchange and Registration Rights Agreement to prospective purchasers of
Notes identified to the Company by an Initial Purchaser upon request.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes bear a Series B designation and
a different CUSIP Number from the Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Exchange and Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Notes in certain circumstances relating to the timing of the Exchange Offer, all
of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Notes and will be entitled to
the benefits of the Indenture.
As of the date of this Prospectus, $90,000,000 aggregate principal amount
of Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
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The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Notwithstanding the
foregoing, the Company will not extend the Expiration Date beyond ,
1998.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the Exchange Notes. Such
interest will be paid with the first interest payment on the Exchange Notes on
May 15, 1998. Interest on the Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 15 and
November 15, commencing on May 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes may
be
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<PAGE> 98
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the Notes
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery
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<PAGE> 99
procedures described below are complied with, within the time period provided
under such procedures. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Notes to the Depositary in accordance with DTC's ATOP
procedures for transfer. DTC will then send an Agent's Message to the
Depositary.
The term "Agent's Message" means a message transmitted by DTC, received by
the Depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Pen-Tab may enforce such agreement
against such participant. In the case of an Agent's Message relating to
guaranteed delivery, the term means a message transmitted by DTC and received by
the Depositary, which states that DTC has received an express acknowledgment
from the participant in DTC tendering Notes that such participant has received
and agrees to be bound by the Notice of Guaranteed Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC participant
using ATOP must also properly complete and duly execute the applicable Letter of
Transmittal and deliver it to the Depositary. Pursuant to authority granted by
DTC, any DTC participant which has Notes credited to its DTC account at any time
(and thereby held of record by DTC's nominee) may directly provide a tender as
though it were the registered holder by so completing, executing and delivering
the applicable Letter of Transmittal to the Depositary. DELIVERY OF DOCUMENTS TO
DTC DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Company shall determine. Although the Company
intends, to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the
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<PAGE> 100
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Notes in the Exchange Offer, a telegram, telex, letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes, or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
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<PAGE> 101
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Notes and return all
tendered Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
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<PAGE> 102
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with person to participate, in the distribution
of the Exchange Notes, will be allowed to resell the Exchange Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale
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<PAGE> 103
of the Exchange Notes and cannot rely on those no-action letters. As indicated
above, each Participating Broker-Dealer that receives an Exchange Note for its
own account in exchange for Notes must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-Dealers,
see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel
described below) is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. The Company recommends that
each holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
Kirkland & Ellis, special counsel to the Company, has advised the Company
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ materially
in kind or extent from the Notes. Rather, the Exchange Notes received by a
holder will be treated as a continuation of the Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging Notes for Exchange Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998, all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes
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<PAGE> 104
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
offered hereby will be passed upon for the Company by Kirkland & Ellis, New
York, New York.
EXPERTS
The balance sheets of Airxcel, Inc., (formerly known as Recreational
Vehicle Products, Inc.) as of December 31, 1996 and 1997 and the statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997, included in this Prospectus and
Exchange Offer Registration, have been included herein in reliance on the report
of Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The balance sheet of Crispaire Corporation as of October 31, 1997 and the
statements of operations, changes in stockholders' equity and cash flows for the
year then ended, included in this Prospectus and Exchange Offer Registration,
have been included herein in reliance on the report of Coopers & Lybrand,
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The balance sheets of Crispaire Corporation as of October 31, 1995 and 1996
and the statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended October 31, 1996, included in
this Prospectus and Exchange Offer Registration, have been included herein in
reliance on the report of Maudlin & Jenkins, LLC, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The consolidated balance sheets of KODA Enterprises Group, Inc. as of April
30, 1996 and 1997 and the consolidated statements of operations and cash flows
for each of the three years in the period ended April 30, 1997 included in this
Prospectus and Exchange Offer Registration, have been audited by Arthur Andersen
LLP, independent accountants, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
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<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AIRXCEL PAGE
- ------- ----
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... F-2
Balance Sheets as of December 31, 1996, and 1997............ F-3
Statements of Operations for the years ended December 31,
1995, 1996, and 1997...................................... F-4
Statements of Changes in Stockholder's Equity (Deficiency)
for the years ended December 31, 1995, 1996, and 1997..... F-5
Statements of Cash Flows for the years ended December 31,
1995, 1996, and 1997...................................... F-6
Notes to Financial Statements............................... F-8
CRISPAIRE
- ----------
Report of Mauldin & Jenkins, LLC, Independent Accountants... F-20
Balance Sheets as of October 31, 1995 and 1996.............. F-21
Statements of Income for the years ended October 31, 1994,
1995 and 1996............................................. F-22
Statements of Stockholders' Equity for the years ended
October 31, 1994, 1995 and 1996........................... F-23
Statements of Cash Flows for the years ended October 31,
1994, 1995 and 1996....................................... F-24
Notes to Financial Statements............................... F-25
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... F-30
Balance Sheet as of October 31, 1997........................ F-31
Statement of Operations for the year ended October 31,
1997...................................................... F-32
Statement of Changes in Stockholders' Equity for the year
ended October 31, 1997.................................... F-33
Statement of Cash Flows for the year ended October 31,
1997...................................................... F-34
Notes to Financial Statements............................... F-35
KODA
Report of Arthur Andersen LLP, Independent Accountants...... F-39
Balance Sheets as of April 30, 1996, 1997 and December 31,
1997 (unaudited).......................................... F-40
Statements of Operations for the years ended April 30, 1995,
1996, 1997, and for the eight months ended December 31,
1996 and 1997 (unaudited)................................. F-41
Statements of Cash Flows for the years ended April 30, 1995,
1996, 1997, and for the eight months ended December 31,
1996 and 1997 (unaudited)................................. F-42
Notes to Financial Statements............................... F-43
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Airxcel, Inc.
We have audited the accompanying balance sheets of Airxcel, Inc. (formerly
known as Recreational Vehicle Products, Inc.) as of December 31, 1996 and 1997,
and the related statements of operations, changes in stockholder's equity
(deficiency) and cash flows for each of the three years in the period ended
December 31, 1997. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Airxcel, Inc. as of December
31, 1996 and 1997 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Kansas City, Missouri
January 30, 1998
F-2
<PAGE> 107
AIRXCEL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 226,431 $ 9,691,097
Accounts receivable, net of allowances for doubtful
accounts of $20,000 and $39,846, respectively.......... 3,693,910 8,309,674
Inventory................................................. 6,421,396 13,128,909
Prepaid expenses.......................................... 90,372 127,816
Income taxes receivable................................... 1,209,263 175,545
Deferred income taxes..................................... 427,035 3,004,385
Net assets of discontinued operations held for sale....... 6,421,293 --
------------ ------------
Total current assets.............................. 18,489,700 34,437,426
------------ ------------
Property, plant and equipment, net.......................... 3,058,227 8,692,566
Computer software, net...................................... 30,365 19,890
Intangible assets, net...................................... 1,586,163 30,538,783
Loan financing costs, net................................... 1,583,674 3,244,533
------------ ------------
Total assets...................................... $ 24,748,129 $ 76,933,198
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt......................... $ 7,933,087 $ 27,346
Accounts payable.......................................... 2,746,016 6,196,438
Warranty reserve.......................................... 488,000 1,052,000
Accrued vacation expense.................................. 324,863 342,624
Accrued interest.......................................... 963,259 1,430,000
Upgrade reserve........................................... -- 500,000
Other accrued expenses.................................... 402,105 1,236,278
Net liabilities of discontinued operations................ -- 466,424
------------ ------------
Total current liabilities......................... 12,857,330 11,251,110
Long-term debt, less current portion........................ 40,346,854 90,328,328
Deferred income taxes....................................... 245,068 362,890
------------ ------------
Total liabilities................................. 53,449,252 101,942,328
------------ ------------
Commitments and contingencies (see Notes 1, 10 and 15)...... -- --
Stockholder's equity (deficiency):
Common stock, par value $1; authorized 1,000 shares; 1,000
shares issued and outstanding.......................... 1,000 1,000
Additional paid-in capital................................ 13,846,332 22,085,967
Accumulated deficit....................................... (42,548,455) (47,096,097)
------------ ------------
Total stockholder's equity (deficiency)........... (28,701,123) (25,009,130)
------------ ------------
Total liabilities and stockholder's equity
(deficiency).................................... $ 24,748,129 $ 76,933,198
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 108
AIRXCEL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................................... $55,787,855 $58,168,823 $58,322,540
Cost of goods sold.................................. 42,256,789 43,802,980 44,731,499
----------- ----------- -----------
Gross profit................................... 13,531,066 14,365,843 13,591,041
----------- ----------- -----------
Operating expenses:
Selling, general and administrative............... 8,626,877 4,558,164 4,222,843
Amortization of intangible assets and computer
software....................................... 2,331,766 1,421,368 638,910
----------- ----------- -----------
Total operating expenses....................... 10,958,643 5,979,532 4,861,753
----------- ----------- -----------
Income from operations......................... 2,572,423 8,386,311 8,729,288
Interest expense.................................... 1,096,646 2,273,318 4,618,981
Other expense, net.................................. 92,291 145,089 22,950
----------- ----------- -----------
Income from continuing operations before income
tax expense and extraordinary item........... 1,383,486 5,967,904 4,087,357
Income tax expense.................................. 831,448 2,411,275 1,553,196
----------- ----------- -----------
Income from continuing operations before
extraordinary item........................... 552,038 3,556,629 2,534,161
Discontinued operations:
Loss from operations of Faulkner Manufacturing,
less applicable income tax benefit of $603,000,
$1,446,638 and $1,152,567, respectively........ 960,257 2,299,189 1,880,340
Loss on disposal of Faulkner Manufacturing
including provision of $1,000,000 for operating
losses during phase-out period, less applicable
income tax benefit of $2,079,200............... -- -- 3,570,800
----------- ----------- -----------
Income (loss) before extraordinary item........ (408,219) 1,257,440 (2,916,979)
Extraordinary losses on early extinguishments of
debt, less applicable income tax benefits of
$28,000, $115,000 and $641,558, respectively...... 44,880 183,821 1,630,663
----------- ----------- -----------
Net income (loss).............................. $ (453,099) $ 1,073,619 $(4,547,642)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 109
AIRXCEL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL EQUITY
------ ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995.......... 1,000 1,000 9,437,203 (5,719,787) 3,718,416
Dividends paid................... -- -- -- (4,151,790) (4,151,790)
Return of capital................ -- -- (4,355,069) -- (4,355,069)
Common stock options............. -- -- 122,946 -- 122,946
Tax benefit from common stock
options....................... -- -- 863,448 -- 863,448
Net loss......................... -- -- -- (453,099) (453,099)
----- ------ ----------- ------------ ------------
Balances, December 31, 1995........ 1,000 1,000 6,068,528 (10,324,676) (4,255,148)
Common stock options............. -- -- 457,744 -- 457,744
Dividends paid................... -- -- -- (33,297,398) (33,297,398)
Capital contribution............. -- -- 7,320,060 -- 7,320,060
Net income....................... -- -- -- 1,073,619 1,073,619
----- ------ ----------- ------------ ------------
Balances, December 31, 1996........ 1,000 1,000 13,846,332 (42,548,455) (28,701,123)
Capital contribution............. -- -- 8,239,635 -- 8,239,635
Net loss......................... -- -- -- (4,547,642) (4,547,642)
----- ------ ----------- ------------ ------------
Balances, December 31, 1997........ 1,000 $1,000 $22,085,967 $(47,096,097) $(25,009,130)
===== ====== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 110
AIRXCEL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ (453,099) $ 1,073,619 $ (4,547,642)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 741,863 736,291 726,343
Amortization of intangible assets and computer
software............................................. 2,578,940 1,594,384 739,252
Amortization of financing costs........................ 12,840 103,657 330,158
Provision for bad debts................................ -- -- 19,846
Provision for writedowns of inventory.................. 40,000 307,000 --
Provision for loss on disposal of discontinued
operations........................................... -- -- 5,650,000
Deferred income taxes.................................. 838,534 142,849 (2,205,766)
Benefit of state income tax NOL carryforward........... (225,000) -- --
Stock option compensation.............................. 122,946 457,744 --
Gain (loss) on sale of fixed assets.................... (6,067) (8,623) 21,534
Extraordinary losses on early extinguishments of
debt................................................. 44,880 183,821 1,630,663
Changes in assets and liabilities:
Accounts receivable.................................. (2,027,786) 602,216 (1,766,312)
Inventory............................................ 467,954 (1,346,929) 861,709
Prepaid expenses..................................... (92,924) 119,627 17,189
Income taxes receivable/payable...................... (1,567,702) 1,200,201 1,033,718
Accounts payable..................................... 902,156 (1,905,061) 952,402
Accrued expenses..................................... (521,030) 988,093 233,780
------------ ------------ ------------
Net cash provided by operating activities......... 856,505 4,248,889 7,229,498
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets............................. 28,003 24,306 2,274
Capital expenditures..................................... (355,990) (458,549) (716,228)
Payment for purchase of Carter Shades, Inc. net of cash
received of $11,402.................................... (854,983) -- --
Payment for purchase of Crispaire net assets............. -- -- (43,369,380)
------------ ------------ ------------
Net cash used in investing activities............. (1,182,970) (434,243) (44,083,334)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term obligations...................... 38,488,000 87,135,243 90,108,904
Principal payments on long-term debt..................... (29,245,500) (63,695,348) (48,527,705)
Financing costs incurred................................. (182,500) (1,672,106) (3,502,332)
Capital contribution from parent company (return of
capital)............................................... (4,355,069) 7,320,060 8,239,635
Dividends paid........................................... (4,151,790) (33,297,398) --
------------ ------------ ------------
Net cash provided by (used in) financing
activities...................................... 553,141 (4,209,549) 46,318,502
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 226,676 (394,903) 9,464,666
Cash and cash equivalents, beginning of period............. 394,658 621,334 226,431
------------ ------------ ------------
Cash and cash equivalents, end of period................... $ 621,334 $ 226,431 $ 9,691,097
============ ============ ============
</TABLE>
F-6
<PAGE> 111
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for:
Interest............................................... $ 1,413,046 $ 2,039,514 $ 6,419,458
Income taxes, net...................................... 1,029,600 (493,413) 1,233,629
Supplemental disclosure of noncash investing and financing
activities:
Tax benefit from stock options........................... 863,448 -- --
Land acquired with debt, net of cash payment of
$337,838............................................... -- -- 375,186
The Company purchased certain assets and liabilities of
Carter Shades, Inc., for $866,385. In conjunction with
the acquisition, liabilities were assumed as follows:
Fair value of assets acquired.......................... $ 1,382,065
Less cash paid......................................... (866,385)
------------
Liabilities assumed............................... $ 515,680
============
Airxcel, Inc. purchased certain assets and liabilities of
Crispaire Corporation for $43,369,380 as follows:
Tangible assets.......................................... $ 17,916,072
Liabilities assumed...................................... (4,092,233)
Intangible assets........................................ 29,545,541
------------
Fair value of assets acquired..................... $ 43,369,380
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 112
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Airxcel, Inc., formerly known as Recreation Vehicle Products, Inc. (the
Company) is engaged in designing, manufacturing and marketing recreation vehicle
air conditioning equipment in the United States, Canada and certain
international markets. As described in Note 9, on November 10, 1997, the Company
acquired substantially all of the net assets, properties and rights and assumed
certain related liabilities of Crispaire Corporation ("Crispaire") which
designs, manufactures and markets air conditioning units and heat pump water
heaters. Crispaire markets its products to companies involved in modular
construction, telecommunications and other utilities located throughout the
United States and selected foreign markets. The Crispaire acquisition was
accounted for as a purchase and, accordingly, the financial statements include
the accounts and results of operations of Crispaire since November 10, 1997.
The Company is a wholly-owned subsidiary of Airxcel Holdings Corporation,
formerly known as RV Holdings Corporation (Holdings). The Company is the only
subsidiary of Holdings and Holdings has no operating activities and Holdings has
no material assets other than its investment in the Company. Accordingly,
Holdings is dependent upon the Company for any cash requirements. However,
Holdings does have 300,128 and 341,929 shares of $.01 par value common stock and
7,984,615 and 8,984,615 shares of $1 par value Series A and Series B
exchangeable preferred stock outstanding as of December 31, 1996 and 1997,
respectively. The Preferred stock which is exchangeable at the stockholders'
option for junior subordinated notes issued by Holdings, is also subject to
mandatory redemption by Holdings on August 31, 2006 for an amount equal to the
original proceeds from sale of the stock plus accrued but unpaid dividends which
accrue at 14 percent annually. Total proceeds plus accrued and unpaid dividends
were $8,360,846 and $10,657,263 as of December 31, 1996 and 1997, respectively.
All proceeds generated from the sale of such common and preferred shares have
been contributed to the Company. However, the Company is not required to fund
the mandatory redemption of these preferred shares. During 1996, Holdings also
issued $4,015,385 of junior subordinated notes to the parent company of a major
stockholder in exchange for cash. All proceeds from the issuance of these notes
have been contributed to the Company. These notes, which are due in August,
2006, bear interest at 14% payable semiannually in the form of additional junior
subordinated notes or cash at the election of Holdings. Such notes, plus accrued
interest totaled $4,219,947 and $4,826,419 as of December 31, 1996 and 1997,
respectively. As part of the November 10, 1997, Airxcel acquisition of
Crispaire, Holdings issued $5,304,000 of junior subordinated notes (the "PIK
Notes") to Crispaire. The PIK Notes and $3.1 million of cash received by
Holdings through the sale of its common and purchase of stock to the management
of Crispaire, was contributed by Holdings to the Company. The PIK notes, which
are due in November, 2008, bear interest at 11.4% payable annually in the form
of additional junior subordinated notes or cash at the election of Holdings.
Such notes, plus accrued interest, totaled $5,391,345 as of December 31, 1997.
All of the notes described above are uncollateralized and are not guaranteed by
the Company. Although, Holdings is entirely dependent upon the Company to
service its note obligations and the mandatory redemption provisions of the
Preferred Stock, the Company has no cash requirement to fund Holdings until at
least 2006 based upon the stated intent of Holdings' management to elect to make
interest payments due on all such notes in the form of additional junior
subordinated notes.
During October 1997, the Company's board of directors adopted a formal plan
to dispose of its awning business (see Note 8 and Note 13).
On August 22, 1996 (the "closing date"), RV Products Holding Corporation
and Subsidiary consummated exchange offers and adopted amendments to its
Restated Certificate of Incorporation pursuant to which the outstanding debt and
common stock were restructured (the "Recapitali-
F-8
<PAGE> 113
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
zation"). The objective of the Recapitalization was to refinance existing
indebtedness and pay fees and expenses associated with the Recapitalization.
The significant components of the Recapitalization on the Company are as
follows:
- The Company issued new debt with interest rates ranging from 9.75% to
12.0% as of December 31, 1996 as follows:
<TABLE>
<S> <C>
Revolver.............................................. $ 7,222,177
Term loan A........................................... 12,750,000
Term loan B........................................... 15,250,000
Senior subordinate note............................... 14,000,000
-----------
Total....................................... $49,222,177
===========
</TABLE>
The senior subordinate note was issued with detachable stock warrants to
purchase 65,882 shares of Class B Common Stock of Holdings at $.02 per share at
any time on or before August 22, 2006. The exercise price is subject to
adjustment from time to time in order to prevent dilution of the rights granted
under the warrants. The holders of these warrants are entitled to receive
dividend payments as if the warrants were exercised immediately prior to the
date of record for such dividends. The estimated fair value of the warrants at
the date of issuance has been recognized as a reduction of the note payable (as
debt discount) in the amount of $218,194 with the offset to additional paid-in
capital.
The total proceeds from the debt were used to pay $1.7 million in financing
costs relating to the recapitalization and to repay $21.3 million of existing
debt. The repayment of debt was accounted for as an early extinguishment of debt
whereby the Company recognized a charge of $183,821 as an extraordinary loss,
net of tax. The remaining proceeds of the new debt, amounting to $26.2 million,
were distributed as part of a $33.3 million dividend to Holdings that was used
by Holdings to retire all remaining shares of Common Stock outstanding at that
time.
2. SIGNIFICANT ACCOUNTING POLICIES:
a. Management's Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
b. Revenue Recognition: Revenue and related direct expenses are recognized
when the merchandised is shipped. Other operating expenses are recognized as
incurred.
c. Cash and cash equivalents: The Company classifies as cash and cash
equivalents amounts on deposit in banks and cash invested temporarily in various
instruments with maturities of three months or less at time of purchase.
d. Inventories: Inventories are stated at the lower of cost or market.
Costs are based on standards which approximate the first-in, first-out (FIFO)
method.
e. Property, Plant and Equipment: Property, plant and equipment are
recorded at cost and depreciated on a straight-line basis over their estimated
useful lives as follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements.................. 15-45 years
Furniture and fixtures................................ 4-10 years
Machinery and equipment............................... 3-15 years
</TABLE>
F-9
<PAGE> 114
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for repairs and maintenance are charged to operations as
incurred. The cost of an asset and the related accumulated depreciation is
removed from the appropriate accounts upon sale of the asset. The resulting gain
or loss from the sale is included in operations.
f. Computer Software: All computer software acquisition and development
costs, including applicable internal labor, are capitalized and subsequently
reported at the lower of unamortized cost or net realizable value. The cost of
capitalized software is amortized over its estimated useful lives (generally 5
years). Accumulated amortization as of December 31, 1995, 1996 and 1997 was
$548,600, $624,458 and $634,933, respectively. Amortization for the years ended
December 31, 1995, 1996 and 1997 was $127,386, $75,858 and $10,475,
respectively.
g. Intangible Assets: Intangible assets, excluding those associated with
discontinued operations (see Note 13), are amortized on a straight-line basis
over their estimated economic lives as follows:
<TABLE>
<CAPTION>
AMORTIZATION DECEMBER 31, DECEMBER 31,
PERIOD 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Non-compete agreement............................. 5 years $ -- $ --
Trademarks and contract........................... 1-50 years 6,777,624 13,457,624
Patents........................................... 5 years -- 3,000,000
Assembled work force.............................. 10 years -- 1,000,000
Customer base..................................... 20 years -- 7,500,000
Goodwill.......................................... 40 years -- 6,032,000
---------- -----------
6,777,624 30,989,630
Less accumulated amortization..................... 5,191,461 450,847
---------- -----------
$1,586,163 $30,538,783
========== ===========
</TABLE>
h. Loan Financing Costs: Loan financing costs are amortized using the
effective yield method over the contracted terms of the related debt.
i. Income Taxes: The Company and its parent file a consolidated federal
income tax return. Deferred income taxes are recorded to reflect the tax
consequences in future years of operating loss carryforwards and temporary
differences between the tax basis of assets and liabilities and their financial
reporting amounts using enacted tax rates for the years in which these items are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
j. Allocation of Interest to Discontinued Operations: Interest expense is
allocated to discontinued operations based on the ratio of net assets of the
discontinued operations to the sum of total net assets of the Company plus debt.
k. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 1995, 1996 and 1997 approximate fair market
value. Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair values of existing debt.
l. Recently Issued Accounting Standards: Effective at year-end 1998, the
Company will adopt Statement of Financial Accounting Standards No. 131 (SFAS No.
131), "Disclosure About Segments of an Enterprise and Related Information,"
which requires disclosure of segment data in a manner consistent with that used
by an enterprise for internal management reporting and decision
F-10
<PAGE> 115
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
making. The Company's management believes that it will report separate segment
information for its Airxcel, Crispaire and Koda (see Note 14) operations in
accordance with SFAS No. 131.
m. Derivatives: The Company uses derivative financial instruments to
manage commodity market volatility. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company is not a
party to leveraged derivatives. Realized and unrealized gains and losses are
deferred until the underlying transactions are realized. These gains and losses
generally are recognized as an adjustment to cost of goods. Cash flows
attributable to these financial instruments are included with the cash flows of
the associated hedged items.
3. SUMMARY BALANCE SHEET DATA:
Inventory, excluding that associated with discontinued operations (see Note
13), consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Raw materials................................. $1,868,183 $ 6,078,233
Work-in-process............................... 368,740 1,056,797
Finished goods................................ 4,184,473 5,993,879
---------- -----------
$6,421,396 $13,128,909
========== ===========
</TABLE>
Property, plant and equipment, excluding that associated with discontinued
operations (see Note 13), consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Land and land improvements................... $ 17,358 $ 753,482
Buildings and building improvements.......... 1,477,008 2,845,446
Machinery and equipment...................... 4,149,915 7,730,872
Furniture and fixtures....................... 580,838 782,739
Construction in process...................... 35,465 261,840
----------- -----------
6,260,584 12,374,379
Less accumulated depreciation................ (3,202,357) (3,681,813)
----------- -----------
Net................................ $ 3,058,227 $ 8,692,566
=========== ===========
</TABLE>
F-11
<PAGE> 116
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
On November 5, 1997, the Company issued $90,000,000 of 11% senior
subordinated debt. Substantially all of the proceeds were used by the Company to
finance its acquisition of substantially all of the net assets of the Crispaire
Corporation (see Note 9), to repay certain indebtedness and to pay financing
costs associated with the offering.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Senior subordinated notes, with interest at 11% payable
semiannually on May 15 and November 15, commencing on May
15, 1998. The Company may redeem the notes, in whole or in
part, at any time on or after November 15, 2002, at
redemption prices ranging from 100 to 105.5% of the
principal being paid based on the redemption periods
defined in the agreement. The aforementioned notes are
uncollateralized and contain, among other things, certain
financial covenants and restrictive provisions pertaining
to the use of funds, payment of dividends and ability to
incur obligations. The senior subordinated notes are
subject to an Exchange and Registration Rights Agreement
whereby Airxcel is required to file a Registration
Statement (and a Shelf-Registration Statement at the
Company's election) with the Securities and Exchange
Commission. .............................................. $ -- $90,000,000
Note payable to bank under a $14,000,000 revolving line of
credit that was repaid through the debt offering on
November 5, 1997.......................................... 6,495,587 --
Note payable (tranche A) to bank under a $12,750,000 term
loan that was repaid through the debt offering on November
5, 1997................................................... 12,750,000 --
Note payable (tranche B) to bank under a $15,250,000 term
loan that was repaid through the debt offering on November
5, 1997................................................... 15,250,000 --
Senior subordinated note payable that was repaid through the
debt offering on November 5, 1997......................... 13,784,354 --
Note payable to individual for land purchase, 7.6%, due in
monthly principal and interest payments of $4,479 through
April 1, 2007, collateralized by the land................. -- 355,674
----------- -----------
48,279,941 90,355,674
Current portion of long term debt........................... (7,933,087) (27,346)
----------- -----------
$40,346,854 $90,328,328
=========== ===========
</TABLE>
F-12
<PAGE> 117
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt, including minimum required reductions in the
revolving line of credit commitments based on balances outstanding at December
31, 1997 for each of the five succeeding years are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 27,346
1999.................................................. 29,509
2000.................................................. 31,845
2001.................................................. 34,364
2002.................................................. 37,084
Thereafter............................................ 90,195,526
-----------
$90,355,674
===========
</TABLE>
The Company has an unused $15,000,000 revolving note as of December 31,
1997. The aggregate principal amount of revolving credit loans is limited to the
lesser of the $15 million revolving credit commitment or 85% of eligible
receivables (as defined in the credit agreement) plus the lesser of $7.5 million
or 60% of eligible inventory (as defined in the credit agreement) plus cash and
cash equivalents. The revolver will mature on October 31, 2002, bears interest
at prime (8.50% at December 31, 1997) plus 1.0% or a LIBOR base rate plus 2.5%
(type of rate based on election of the Company), payable quarterly and is
collateralized by accounts receivable, equipment, general intangibles,
inventory, and investment property. The aforementioned note contains, among
other terms, certain financial covenants and restrictive provisions pertaining
to the use of funds, payment of dividends and ability to incur obligations.
5. STOCK OPTION PLANS:
On May 1, 1991, Holdings granted options to three employees of the Company
to purchase 25,098 shares of common stock at $.01 per share. During 1995, all
25,098 options were exercised.
In addition, Holdings adopted a Performance Stock Option Plan and granted
stock options to several employees of the Company to purchase 120,000 shares of
common stock at $.01 per share. The stock options expire at the earlier of 20
years from date of grant or the date the employee ceases to be an employee of
the Company. In 1995, 118,400 of these options were exercised under this Plan.
In 1994, Holdings adopted its second Performance Stock Option Plan (the
1994 Option Plan) and granted stock options to several employees of the Company
to purchase 30,500 shares of common stock at $12.92 per share. These stock
options may be exercised beginning December 31, 1996 or earlier if there is a
change in control of Holdings, as defined by the plan agreement, and will expire
at the earlier of 20 years from date of grant or the date the employee ceases to
be an employee of the Company.
The options granted under the 1994 Option Plan vested based on the Company
achieving certain earnings and debt reduction goals during 1994, 1995, and 1996
as set forth in the plan agreement. Compensation expense is being charged to
operations over the vesting period of three years for the difference between the
estimated fair value of the stock options and the option exercise price of
$12.92 per share. Compensation expense of $122,946 and $457,744 was recorded
during the years ended December 31, 1995 and 1996, respectively. During 1996,
all 30,500 shares were exercised as part of the Recapitalization.
As part of the Recapitalization, Holdings adopted a new Stock Option Plan
and granted stock options to key employees and/or directors of the Company to
purchase up to 75,032 shares of
F-13
<PAGE> 118
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Class A Common Stock of Holdings at $1 per share. The stock options may be
exercised after the "trigger date", and will expire at the earlier of 10 years
from date of grant or the date the employee ceases to be an employee of the
company. As defined in the 1996 Stock Option Plan, the "trigger date" is the
date on which the majority shareholder has disposed of all the securities (i.e.
common stock, preferred stock and notes purchased by the majority shareholder)
for cash and/or marketable securities. The number of stock options that may be
exercised is based on the estimated annual interest rate of return as of the
trigger date as set forth in the plan agreement. No compensation expense
relating to this stock option plan will be recorded until the trigger date.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options granted to the Company's employees is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
If the Company had elected to recognize compensation expense for options granted
in 1996 based on the fair value of the options granted at the date of grant as
prescribed by SFAS No. 123, the Company's net income (loss) would not have been
materially different from that reported.
6. INCOME TAXES:
The significant components of the net deferred income tax asset (liability)
recognized in the accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Accrued warranty............................................ $ 185,000 $ 216,000
Accrued vacation............................................ 97,000 86,000
Accrued self-insurance...................................... 36,000 53,000
Provision for discontinued operations....................... -- 2,079,200
Accrued reserves and liabilities............................ 28,000 200,000
Depreciation................................................ (334,000) (418,000)
State income tax net operating loss carryforwards,
expiring in 2010.......................................... 180,000 187,000
AMT credits................................................. -- 162,000
Other....................................................... (10,033) 76,295
--------- ----------
181,967 2,641,495
Less current deferred income tax............................ 427,035 3,004,385
--------- ----------
Total noncurrent deferred income tax........................ $(245,068) $ (362,890)
========= ==========
</TABLE>
F-14
<PAGE> 119
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax expense before discontinued operations and
extraordinary item are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current........................................... $ 222,916 $2,026,491 $1,933,524
Deferred.......................................... 833,532 384,784 (380,328)
Benefit of state income tax net operating loss
carryforwards................................... (225,000) -- --
--------- ---------- ----------
Total income tax expense before discontinued
operations and extraordinary item............ $ 831,448 $2,411,275 $1,553,196
========= ========== ==========
</TABLE>
Total income tax expense before discontinued operations and extraordinary
item differed from the amounts computed by applying the federal statutory rate
to pretax income as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense before discontinued
operations and extraordinary item computed by
applying the federal statutory rate........... $ 484,220 $2,088,766 $1,430,575
Adjustment to prior year expense................ 284,773 143,000 (83,234)
State income taxes, net of federal income tax
benefit....................................... 56,000 181,000 156,000
Effect of graduated rates....................... (4,939) (55,645) (34,000)
Other........................................... 11,394 54,154 83,855
--------- ---------- ----------
Total income tax expense before discontinued
operations and extraordinary item.......... $ 831,448 $2,411,275 $1,553,196
========= ========== ==========
</TABLE>
Net deferred income tax assets are recognized based on the expected timing
of the reversal of taxable temporary differences and future taxable income of
the Company.
7. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT:
In 1995, the Company amended its credit agreement associated with its two
revolving lines of credit and retired its senior subordinated notes payable. The
related unamortized loan financing costs of $72,880 was recorded as an
extraordinary loss on early extinguishment of debt of $44,880 (net of income tax
benefit of $28,000).
As stated in Note 1, the Company extinguished $21.3 million of debt as part
of the August 22, 1996 Recapitalization. The related unamortized loan financing
costs of $167,275 and the prepayment penalty of $131,546 were recorded as an
extraordinary loss on early extinguishment of debt of $183,821 (net of a
$115,000 income tax benefit).
In 1997, the Company extinguished $48.3M of debt as part of the November 5,
1997 debt offering (see Note 4). The related unamortized loan financing costs of
$1,712,221 and prepayment penalty of $560,000 were recorded as an extraordinary
loss on early extinguishment of debt of $1,630,663 (net of a $641,558 income tax
benefit).
8. ACQUISITION OF CARTER SHADES, INC.:
In 1995, the Company acquired Carter Shades, Inc., which is engaged in
manufacturing and selling awnings for recreational vehicles and included the
results of operations of its newly acquired
F-15
<PAGE> 120
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subsidiary in the Company's statement of operations from the date of
acquisition. The Company acquired Carter Shades, Inc. for $866,385 and accounted
for the transaction as a purchase. During 1997, the Company's Board of Directors
adopted a plan to discontinue the awning business. The discontinued operations
of the Faulkner operating division described in Note 13 include Carter Shades,
Inc.
9. ACQUISITION OF CRISPAIRE CORPORATION:
On November 10, 1997, the Company completed the acquisition of the business
of Crispaire Corporation, a designer, manufacturer and marketer of air
conditioning units and heat pump water heaters. Pursuant to the purchase
agreement, the Company acquired certain assets and liabilities of the Crispaire
Corporation for a total purchase price of approximately $43.4 million. The
acquisition was funded with a portion of the cash proceeds from the $90.0
million senior subordinated note (see Note 4), issuance of $5.3 million of
junior subordinated notes by Holdings and the sale of $2.05 million of common
stock and $1.0 million of preferred stock by Holdings. The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated to
the underlying assets and liabilities based on their respective fair values at
the date of the acquisition. (See Note 2(g))
The following reflects the operating results of the Company for the years
ended December 31, 1997 and 1996 assuming the acquisitions occurred as of the
beginning of each of the respective periods:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales................................................ $92,062,000 $93,469,000
Loss before extraordinary item........................... (3,691,000) (1,861,000)
Net loss................................................. (5,322,000) (2,045,000)
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or the results which may occur in the
future.
10. COMMITMENTS:
The Company leases buildings and machinery and equipment which are
accounted for as operating leases. Total rental expense was $525,950, $407,002
and $448,301 for the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum lease payments under noncancellable leases as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $282,685
1999........................................................ 237,114
2000........................................................ 121,509
2001........................................................ 3,387
--------
$644,695
========
</TABLE>
F-16
<PAGE> 121
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As part of the Crispaire acquisition, the Company entered into certain
management and employment agreements. Compensation expense related to these
agreements was $51,124 for year ended December 31, 1997. Under the agreements,
future management fees are as follows:
<TABLE>
<S> <C>
1998........................................................ $353,935
1999........................................................ 353,935
2000........................................................ 294,946
</TABLE>
11. BENEFIT PLAN:
Substantially all employees of the Company and Crispaire are eligible to
participate in the 401(k) plans offered by each company. Subject to certain
conditions, the Company and Crispaire may match up to 30% and 25% of the
employees' contributions, respectively, up to a maximum of 6% of the employees'
annual salary. In addition, the Company and Crispaire can make an additional
contribution determined at the discretion of the Company's Board of Directors.
The Company's contribution to its plan for the years ended December 31, 1995,
1996 and 1997, and Crispaire's 1997 contribution to its plan, totaled $207,657,
$262,553 and $260,744, respectively.
12. SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
The Company's ten largest customers accounted for approximately 80%, 93%
and 85% of sales for the years ended December 31, 1995, 1996 and 1997,
respectively, and approximately 76%, 85% and 33% of accounts receivable at
December 31, 1995, 1996 and 1997, respectively. The credit risk on trade
receivables is controlled through credit approvals, limits and monitoring
procedures. Sales to customers in excess of 10% of consolidated net revenues are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31
CUSTOMER 1995 1996 1997
-------- ------------ ------------ ------------
<S> <C> <C> <C>
A........................................... $ -- $22,465,434 $15,553,142
B........................................... 17,017,302 18,979,863 18,985,456
C........................................... 11,121,645 -- --
D........................................... 7,956,757 8,377,324 7,110,347
</TABLE>
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 1997 that exceeded FDIC
insurance limits by $9,458,560.
13. DISCONTINUED OPERATIONS:
During September 1997, the Company adopted a plan to discontinue its
Faulkner manufacturing division and plans to liquidate the assets and settle the
liabilities and anticipates that the business will be disposed of by June 30,
1998. Accordingly, Faulkner is reported as a discontinued operation for the
years ended December 31, 1995, 1996 and 1997.
Net sales from Faulkner were $9,894,703, $12,003,155 and $7,964,029 for the
years ended December 31, 1995, 1996 and 1997, respectively. Interest expense
allocated to discontinued operations was $329,240, $1,012,686 and $1,493,989 for
the years ended December 31, 1995, 1996 and 1997, respectively.
F-17
<PAGE> 122
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net assets (liabilities) of the discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Accounts receivable, net................................ $ 960,796 $ 700,881
Inventory............................................... 4,142,874 789,925
Other current assets.................................... 358,270 34,551
---------- ----------
Total current assets.......................... 5,461,940 1,525,357
Property, plant and equipment, net...................... 892,290 243,213
Intangible assets, net.................................. 1,223,856 --
---------- ----------
Total assets.................................. 7,578,086 1,768,570
LIABILITIES
Account payable......................................... 288,475 303,385
Other accrued expenses.................................. 801,202 1,931,609
---------- ----------
Total current liabilities..................... 1,089,677 2,234,994
Other noncurrent liabilities............................ 67,116 --
---------- ----------
Total liabilities............................. 1,156,793 2,234,994
---------- ----------
Net assets (liabilities) held for sale.................. $6,421,293 $ (466,424)
========== ==========
</TABLE>
Components of the $5.65 million loss on disposal of Faulkner are as
follows:
<TABLE>
<S> <C>
Reduction in carrying value of inventories................ $2,400,000
Write-off of intangible assets............................ 1,100,000
Accrued holding period loss............................... 1,000,000
Reduction in carrying value of property, plant and
equipment.............................................. 450,000
Accrued employee severance costs.......................... 150,000
Accrued sales returns..................................... 250,000
Other accrued expenses.................................... 300,000
----------
$5,650,000
==========
</TABLE>
14. ACQUISITION OF SUBURBAN MANUFACTURING CORPORATION:
During December 1997 Holdings entered into a letter of intent to acquire,
subject to obtaining financing, the business of Suburban Manufacturing
Corporation ("Suburban") by purchasing 100% of the capital stock of the parent.
KODA Enterprises Group, Inc. ("KODA"), and repaying certain KODA obligations for
approximately $36 million. Suburban is engaged in the manufacture and sale of
specialty products consisting of gas heating to the recreational vehicle
industry as well as other heating and cooling equipment.
15. CONTINGENCY:
During September 1997, the Company made a decision to upgrade certain air
conditioning units which were sold in previous years. The range of estimated
costs to complete the upgrade is $500,000 to $2,400,000. Management has an
agreement with the vendor that supplied the component to be upgraded and the
vendor will bear a substantial portion of these costs. The Company's portion of
the costs to complete the upgrade is estimated to be $500,000 and, accordingly,
it has recorded a charge to cost of goods sold for this amount for the year
ended December 31, 1997.
F-18
<PAGE> 123
AIRXCEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. LITIGATION:
The Company is a defendant in a lawsuit seeking monetary damages in an
unspecified amount for an alleged patent, trademark and trade dress infringement
by Crispaire. Management of the Company believes that the ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
17. DERIVATIVES:
The Company uses noncancelable contracts and forward contracts in its
purchasing cycle. These instruments are all used to purchase copper and aluminum
for the Company's internal needs, and to manage purchase prices and inventory
values. All such contracts have determinable market values. Unrealized gains and
losses are deferred until the copper and aluminum costs flow through cost of
goods sold. The net gains and losses recorded are immaterial. At December 31,
1996 and 1997, the aggregate fair value of the Company's copper and aluminum
position was $1.7 million and $6.7 million, respectively.
The Company has contractual agreements to purchase certain quantities of
copper and aluminum from two suppliers at specified amounts as follows:
<TABLE>
<CAPTION>
CONTRACT CONTRACTED TOTAL
CONTRACT QUANTITY PRICE PER CONTRACTED
PERIOD (IN POUNDS) POUND PURCHASE PRICE
------------------ ----------- ---------- --------------
<S> <C> <C> <C> <C>
As of December 31, 1996:
Copper 1/1/97 -- 12/31/97 707,000 $ 1.03 $ 728,210
Aluminum 1/1/97 -- 12/31/97 723,000 1.22 882,060
----------
Total $1,610,270
----------
As of December 31, 1997:
Copper 1/1/98 -- 12/31/98 100,000 0.975 97,500
1/1/98 -- 12/31/98 825,000 1.01 833,250
1/1/98 -- 12/31/98 600,000 0.99 594,000
Aluminum 1/1/98 -- 12/31/98 840,000 1.23 1,033,200
1/1/98 -- 12/31/98 575,000 1.26 724,500
Copper 1/1/99 -- 12/31/99 825,000 0.95 783,750
1/1/99 -- 12/31/99 675,000 0.94 634,500
Aluminum 1/1/99 -- 12/31/99 840,000 1.22 1,024,800
----------
Total $5,725,500
----------
</TABLE>
F-19
<PAGE> 124
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Crispaire Corporation
Cordele, Georgia
We have audited the accompanying balance sheets of Crispaire Corporation as
of October 31, 1996 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended October 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crispaire Corporation as of
October 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1996, in conformity
with generally accepted accounting principles.
Mauldin & Jenkins, LLC
Albany, Georgia
December 4, 1996, except for Notes 11 and 12
as to which the date is October 16, 1997
F-20
<PAGE> 125
CRISPAIRE CORPORATION
BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS ----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 63,140 $ 9,268
Trade accounts receivable, less allowance for doubtful
accounts of $132,252 and $165,373, respectively........ 5,489,706 3,606,239
Inventories............................................... 5,954,364 5,627,858
Prepaid expenses.......................................... 43,523 55,046
----------- -----------
Total current assets.............................. 11,550,733 9,298,411
----------- -----------
Other investments, at cost.................................. 33,952 32,201
----------- -----------
Property, plant and equipment
Land...................................................... 18,000 18,000
Buildings and improvements................................ 1,016,441 816,840
Machinery and equipment................................... 2,160,456 858,092
Furniture and fixtures.................................... 246,688 196,853
Construction and equipment installations in progress...... -- 180,861
----------- -----------
3,441,585 2,070,646
Less accumulated depreciation............................. 1,109,153 902,068
----------- -----------
2,332,432 1,168,578
----------- -----------
Other assets................................................ 189,136 148,142
----------- -----------
$14,106,253 $10,647,332
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable............................................. $ -- $ 618,349
Current maturities of long-term debt...................... 771,591 162,600
Excess of outstanding checks over bank balance............ 127,331 315,320
Accounts payable.......................................... 2,295,418 1,859,426
Accrued bonuses........................................... 1,295,753 844,920
Warranty reserve.......................................... 390,000 310,000
Other current liabilities................................. 457,659 387,199
----------- -----------
Total current liabilities......................... 5,337,752 4,497,814
----------- -----------
Long-term debt, less current maturities..................... 470,588 432,200
----------- -----------
Stockholders' Equity
Common stock, par value $1 per share, authorized 250,000
shares; issued 190,588 shares.......................... 190,588 190,588
Additional paid-in capital................................ 6,003,815 5,775,866
Less deferred compensation for nonvested stock............ (271,614) (526,359)
----------- -----------
5,922,789 5,440,095
Retained earnings......................................... 3,681,470 1,583,569
----------- -----------
9,604,259 7,023,664
Less cost of common shares acquired for the treasury,
44,958 shares.......................................... (1,306,346) (1,306,346)
----------- -----------
8,297,913 5,717,318
----------- -----------
$14,106,253 $10,647,332
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE> 126
CRISPAIRE CORPORATION
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales....................................... $34,138,581 $27,304,265 $24,151,596
Cost of sales................................... 24,758,248 20,104,240 18,142,826
----------- ----------- -----------
Gross profit............................... 9,380,333 7,200,025 6,008,770
----------- ----------- -----------
Other operating income, net..................... 64,190 22,112 63,683
----------- ----------- -----------
Operating expenses
Engineering, including research and
development costs of $231,692, $188,177 and
$63,529, respectively...................... 877,737 752,323 536,844
Selling....................................... 1,684,987 1,373,503 1,126,680
General and administrative.................... 3,444,005 2,715,585 2,178,815
Provision for doubtful accounts............... -- -- 241,275
----------- ----------- -----------
6,006,729 4,841,411 4,083,614
----------- ----------- -----------
Income from operations..................... 3,437,794 2,380,726 1,988,839
----------- ----------- -----------
Nonoperating expense
Interest expense, net......................... 145,727 93,458 159,628
----------- ----------- -----------
Net income................................. $ 3,292,067 $ 2,287,268 $ 1,829,211
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE> 127
CRISPAIRE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
ADDITIONAL FOR RETAINED
COMMON PAID-IN NONVESTED EARNINGS TREASURY
STOCK CAPITAL STOCK (DEFICIT) STOCK
-------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, October 31,
1993.................... $190,588 $5,645,243 $(698,161) $ (721,137) $(1,283,696)
Net income.............. -- -- -- 1,829,211 --
Purchase of 1,700 shares
of common stock for
the treasury......... -- -- -- -- (45,900)
Dividends paid.......... -- -- -- (185,382) --
-------- ---------- --------- ----------- -----------
Balance, October 31,
1994.................... 190,588 5,645,243 (698,161) 922,692 (1,329,596)
Net income.............. -- -- -- 2,287,268 --
Sale of 800 shares of
treasury stock....... -- 14,134 -- -- 23,250
Vesting of 6,363 shares
of common stock under
terms of deferred
compensation stock
agreement............ -- 116,489 171,802 -- --
Dividends paid.......... -- -- -- (1,626,391) --
-------- ---------- --------- ----------- -----------
Balance, October 31,
1995.................... 190,588 5,775,866 (526,359) 1,563,569 (1,306,346)
Net income.............. -- -- -- 3,292,067 --
Vesting of 9,435 shares
of common stock under
terms of deferred
compensation stock
agreement............ -- 227,949 254,745 -- --
Dividends paid.......... -- -- -- (1,194,166) --
-------- ---------- --------- ----------- -----------
Balance, October 31,
1996.................... $190,588 $6,003,815 $(271,614) $ 3,681,470 $(1,306,346)
======== ========== ========= =========== ===========
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE> 128
CRISPAIRE CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers......................... $ 32,070,270 $ 27,111,379 $ 23,947,286
Cash paid to suppliers and employees................. (29,516,957) (25,531,491) (20,844,650)
Other operating cash receipts........................ 266,630 162,231 199,303
Interest paid........................................ (149,432) (95,881) (162,343)
------------ ------------ ------------
Net cash provided by operating activities.......... 2,670,511 1,646,238 3,139,596
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment................... (1,418,793) (393,379) (564,506)
Proceeds from sale of property and equipment......... 10,035 10,250 --
Increase in investment............................... (1,751) (20,634) (11,567)
Increase in other asset, tax deposit................. (40,584) (107,807) (40,335)
------------ ------------ ------------
Net cash used in investing activities.............. (1,451,503) (511,570) (515,408)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit
agreements......................................... (618,349) 618,349 (2,537,189)
Proceeds from long-term borrowings................... 1,732,661 -- 400,000
Principal payments on long-term borrowings........... (1,085,282) (152,600) (192,159)
Proceeds from the sale of treasury stock............. -- 37,384 --
Purchase of common stock for the treasury............ -- -- (45,900)
Cash dividends paid.................................. (1,194,166) (1,626,391) (185,382)
------------ ------------ ------------
Net cash used in financing activities.............. (1,165,136) (1,133,258) (2,560,610)
------------ ------------ ------------
Net increase (decrease) in cash........................ 53,872 1,410 (37,422)
Cash:
Beginning............................................ 9,268 7,858 45,280
------------ ------------ ------------
Ending............................................... $ 63,140 $ 9,268 $ 7,858
============ ============ ============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income........................................... $ 3,292,067 $ 2,287,268 $ 1,829,211
Noncash expenses included in net income:
Depreciation....................................... 231,013 184,216 156,365
Amortization....................................... -- 6,150 4,836
Provision for doubtful accounts.................... -- -- 241,275
Loss on disposal of machinery and equipment........ 13,891 11,546 2,033
Changes in assets and liabilities:
Increase in trade receivables.................... (1,883,467) (68,335) (70,723)
Increase in inventories.......................... (326,506) (1,261,463) (775,745)
Increase (decrease) in excess of outstanding
checks over bank balance...................... (187,989) 19,222 296,098
Increase in accounts payable and accrued
expenses...................................... 1,519,979 466,789 1,442,618
Other prepaids and deferrals, net................ 11,523 845 13,628
------------ ------------ ------------
Net cash provided by operating activities..... $ 2,670,511 $ 1,646,238 $ 3,139,596
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Vesting of common stock under terms of deferred
compensation stock agreement of 9,435 shares and
6,363 shares, respectively......................... $ 482,694 $ 288,291 $ --
============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE> 129
CRISPAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Crispaire Corporation (the "Company") designs, manufactures and markets air
conditioning units and heat pump water heaters. The Company's manufacturing
facilities are located in Cordele and Atlanta, Georgia. The Company markets its
products to companies involved in modular construction, telecommunications and
other utilities located throughout the continental United States and selected
foreign markets.
Basis of presentation
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within their industry. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
The principles which significantly affect the determination of financial
position, results of operations and cash flows are summarized below.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and in banks as well as highly liquid investments and repurchase
agreements, which are convertible to a known amount of cash and carry an
insignificant risk in change in value.
The Company maintains deposits in banks which, at times, may exceed FDIC
insured limits. The Company has not experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of standard cost (which includes
material, labor and manufacturing overhead) or market. Cost is determined by the
first-in, first-out (FIFO) method.
Property, plant and equipment
Property, plant and equipment are stated at cost. Expenditures for repairs
and maintenance are charged to expense as incurred, and additions and
improvements that significantly extend the lives of assets are capitalized. Upon
disposition, cost and accumulated depreciation are eliminated from the related
accounts and any gain or loss is reflected in other income or expense. The
Company provides depreciation using the straight-line method over the estimated
useful lives of the assets.
Revenue recognition
Revenue from the sale of products is recorded at the time of passage of
title, generally when the products are shipped.
Fair value of financial instruments
Financial Accounting Standards Board Statement No. 107, "Disclosure About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which is practicable to estimate that value.
F-25
<PAGE> 130
CRISPAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Carrying amounts approximated fair values for the following instruments:
<TABLE>
<S> <C>
Cash and cash items Notes payable
Trade accounts receivable Long-term debt
Other investments Accounts payable
</TABLE>
The fair value of patents owned by the Company, which are fully amortized,
has not been determined.
For other financial instruments, the determination of a fair value was not
practical for disclosures as they do not represent a significant value to the
Company and any differences from the carrying value of these instruments would
also be insignificant.
NOTE 2. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts for the years ended October
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Balance, beginning of year..................... $165,373 $167,500 $ 190,000
Provision for doubtful accounts.............. -- -- 241,275
Accounts charged off, net of recoveries...... (33,121) (2,127) (263,775)
-------- -------- ---------
Balance, end of year........................... $132,252 $165,373 $ 167,500
======== ======== =========
</TABLE>
NOTE 3. INVENTORIES
Inventories at October 31, 1996 and 1995 were composed of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Component parts and subassemblies......................... $4,677,898 $3,812,188
Work-in-process........................................... 240,757 172,717
Finished units............................................ 1,035,709 1,642,953
---------- ----------
$5,954,364 $5,627,858
========== ==========
</TABLE>
NOTE 4. NOTES PAYABLE
Notes payable at October 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
$5,000,000 ($4,000,000 in 1995) line of credit to
NationsBank........................................ $ -- $618,349
======== ========
</TABLE>
The line of credit is secured by accounts receivable, inventories,
equipment and real estate and is guaranteed by certain officers and stockholders
of the Company. Terms of the loan agreement provide that the Company may borrow
against eligible inventory and receivables based on formulas in the agreement.
Maximum borrowings against inventories are further limited to $2,000,000.
The loan agreement also requires that the Company meet certain specific
financial covenants. The Company is in compliance with all such covenants at
October 31, 1996.
Interest on borrowings is due monthly at a variable rate (7.15% and 8.75%
at October 31, 1996 and 1995, respectively), while principal is due on demand.
F-26
<PAGE> 131
CRISPAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
All interest incurred during the years ended October 31, 1996, 1995 and
1994 was expensed.
NOTE 5. PLEDGED ASSETS AND LONG-TERM DEBT
At October 31, 1996 and 1995, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
NationsBank, variable rate (7.56% at October 31, 1996) note
payable, due in monthly installments of $29,412 plus
interest through March 1999, collateralized by trade
accounts receivable, inventories, equipment and real
estate and guaranteed by certain stockholders of the
Company. Subject to the terms of the loan agreement
discussed in Note 4. .................................... $ 823,529 $ --
NationsBank, 7.15% note payable, due in monthly
installments of $13,550 plus interest through November
1996, final installment of all unpaid principal and
interest, due December 1996, collateralized by accounts
receivable, inventories, equipment and real estate and
guaranteed by certain stockholders of the Company.
Subject to the terms of the loan agreement discussed in
Note 4. ................................................. 418,650 594,800
---------- --------
1,242,179 594,800
Less current portion....................................... 771,591 162,600
---------- --------
Long-term portion.......................................... $ 470,588 $432,200
========== ========
</TABLE>
Aggregate maturities required on long-term debt at October 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................ $ 771,591
1998........................................................ 352,941
1999........................................................ 117,647
----------
Total............................................. $1,242,179
==========
</TABLE>
NOTE 6. INCOME TAX MATTERS
For the years ended October 31, 1996, 1995 and 1994, the Company, with the
consent of the stockholders, has elected to be taxed under sections of Federal
and Georgia income tax law, which provides that, in lieu of corporation income
taxes, the stockholders separately account for their pro rata shares of the
Company's items of income, deduction, loss and credits. As a result of this
election, no income tax liability or expense has been recorded.
The Company, with the consent of its stockholders, has elected to retain
its fiscal year ending October 31, rather than an otherwise required December 31
year end, in accordance with Section 444 of the Internal Revenue Code. To do so
requires a deposit to be placed with the Internal Revenue Service which cannot
be refunded unless the election is terminated. For the year ended October 31,
1996, the Company has the required payment of $189,136 on deposit with the
Internal Revenue Service.
NOTE 7. PROFIT-SHARING PLAN
The Company has a defined contribution plan (the "plan") which adheres to
the provisions of Internal Revenue Code Section 401(k). All full-time employees,
once they have reached age 21 and have completed one full year of service, are
eligible to participate. Under the provisions of the plan, the Company must make
contributions based on a percentage of employee contributions. The
F-27
<PAGE> 132
CRISPAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
amounts charged to operations by the Company were $37,188, $30,147 and $30,536
for the years ended October 31, 1996, 1995 and 1994, respectively.
NOTE 8. LEASES
The Company has entered into leases for a warehouse and various equipment
under noncancelable leases. Future minimum payments for all noncancelable
operating leases with initial or remaining terms of one year or more are
summarized as follows:
<TABLE>
<S> <C>
Years Ending October 31,
1997...................................................... $158,209
1998...................................................... 154,909
1999...................................................... 141,645
2000...................................................... 116,091
2001...................................................... 4,431
--------
$575,285
========
</TABLE>
Rental expense for operating leases for the years ended October 31, 1996,
1995 and 1994 was $243,535, $174,193 and $136,595, respectively.
NOTE 9. EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION STOCK AGREEMENT
The Company has entered into an employment contract with its president. The
contract establishes his base salary and benefits and provides for a cash bonus
to be paid based on a formula contained in the agreement. The bonus was
$501,863, $247,581 and $155,235 for the years ended October 31, 1996, 1995 and
1994, respectively. The agreement expires December 31, 1997.
The Company has also entered into a deferred compensation stock agreement
with its president. In accordance with the terms of the agreement, 30,000 shares
of the Company's common stock was issued to the president. The issued stock has
been restricted by the agreement and, while the president has all cash dividend
and voting rights with respect to the stock, his ownership interest in the stock
was not vested at the time of issuance.
Each fiscal year a bonus is computed based on a formula contained in the
agreement. Subsequent to October 31 of each year, the president will vest in a
portion of the restricted stock based on the accrued bonus and a stock valuation
formula contained in the agreement. Shares not vested at the termination of
employment or at the expiration of the agreement shall be canceled and returned
to the Company and the president shall have no further rights or interest with
respect to those shares.
The agreement contains provisions concerning the Company's acquisition of
the vested stock at the termination of employment. The agreement also provides
the president an option to purchase an additional 20,000 shares of the Company's
stock at a price based on a valuation formula contained in the agreement. This
option expires at the termination of employment or the expiration of the
agreement.
The deferred compensation stock agreement expires October 31, 1997. The
bonus accrued and expensed in accordance with this agreement for the years ended
October 31, 1996, 1995 and 1994 totaled $659,010, $482,694 and $288,291,
respectively.
The total bonus accrual included in accrued expenses and general and
administrative expenses for both of the above agreements totaled $1,160,873,
$730,275 and $443,526 at October 31, 1996, 1995 and 1994, respectively.
F-28
<PAGE> 133
CRISPAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
During the year ended October 31, 1996, the president vested in 9,435
shares of the restricted common stock based on the October 31, 1995 bonus
accrual and the stock valuation formula.
NOTE 10. CONCENTRATIONS OF SALES
Approximately 61%, 61% and 59% of the Company's sales for the years ended
October 31, 1996, 1995 and 1994 were concentrated within the telecommunications
industry. The Company grants credit to distributors throughout the world and
generally does not require collateral to secure the accounts receivable. The
company's credit is concentrated within the telecommunications industry
accounting for 53% and 55% of accounts receivable as of October 31, 1996 and
1995, respectively.
NOTE 11. SUBSEQUENT EVENTS
On August 27, 1997, the Company executed a letter of intent with Recreation
Vehicle Products, Inc. ("RVP"), a manufacturer of air conditioning equipment for
recreational vehicles located in Wichita, Kansas, whereby RVP would acquire
substantially all of the assets and assume certain liabilities of the Company.
NOTE 12. LITIGATION
The Company is a defendant in a lawsuit wherein substantial amounts are
claimed. In the opinion of the Company's legal counsel, this suit is without
substantial merit and should not result in a judgment which would have a
material adverse effect on the Company's financial statements.
F-29
<PAGE> 134
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Airxcel, Inc.
We have audited the accompanying balance sheet of Crispaire Corporation,
Inc. as of October 31, 1997, and the related statements of operations, changes
in stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 11 to the financial statements on November 10, 1997,
substantially all operating assets and liabilities of the Company were acquired
by Airxcel, Inc. pursuant to a purchase agreement.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crispaire Corporation, Inc.
as of October 31, 1997 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand, L.L.P.
Atlanta, Georgia
March 2, 1998
F-30
<PAGE> 135
CRISPAIRE CORPORATION, INC.
BALANCE SHEET
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 67,518
Trade accounts receivable, less allowance for doubtful
accounts of $323,973................................... 6,770,967
Inventories............................................... 6,335,436
Prepaid expenses.......................................... 85,744
Other current assets...................................... 265,181
-----------
Total current assets.............................. 13,524,846
Property, plant and equipment, net of depreciation of
$1,381,435................................................ 2,556,019
-----------
Total assets...................................... $16,080,865
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 352,941
Accounts payable.......................................... 3,122,595
Accrued expenses.......................................... 1,981,440
Bank overdrafts........................................... 257,084
-----------
Total current liabilities......................... 5,714,060
-----------
Long-term debt, less current maturities..................... 117,647
-----------
Total liabilities................................. 5,831,707
-----------
Commitments and contingencies (see Notes 7 and 12)
Stockholders' equity:
Common stock, par value $1 per share; 250,000 shares
authorized; 190,588 shares issued...................... 190,588
Additional paid-in capital................................ 6,391,211
Retained earnings......................................... 5,774,727
Less cost of common shares acquired for the treasury
55,571 shares.......................................... (2,107,368)
-----------
Total stockholders' equity........................ 10,249,158
-----------
Total liabilities and stockholders' equity........ $16,080,865
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 136
CRISPAIRE CORPORATION, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
Net sales................................................... $39,114,185
Cost of goods sold.......................................... 28,160,508
-----------
Gross profit........................................... 10,953,677
Operating expenses:
Selling................................................... 1,954,388
General and administrative................................ 3,902,925
Engineering............................................... 932,177
Research and development.................................. 178,573
-----------
Income from operations................................. 3,985,614
Interest expense............................................ 124,616
-----------
Net income............................................. $ 3,860,998
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 137
CRISPAIRE CORPORATION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------ DEFERRED
PAR ADDITIONAL COMPENSATION TOTAL
VALUE PAID-IN FOR NONVESTED RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS STOCK EQUITY
------- -------- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1996...................... 190,588 $190,588 $6,003,815 $(271,614) $ 3,681,470 $(1,306,346) $ 8,297,913
Repurchase of 10,663
shares of common stock
for treasury............ (801,022) (801,022)
Payment of cash
dividends............... (1,767,741) (1,767,741)
Vesting of 10,052 shares
of common stock under
terms of deferred
compensation stock
agreement............... 387,396 271,614 659,010
Net income................ 3,860,998 3,860,998
------- -------- ---------- --------- ----------- ----------- -----------
Balance at October 31,
1997...................... 190,588 $190,588 $6,391,211 $ -- $ 5,774,727 $(2,107,368) $10,249,158
======= ======== ========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 138
CRISPAIRE CORPORATION, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 3,860,998
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 280,016
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,281,261)
Inventories.......................................... (381,072)
Other assets......................................... (76,045)
Prepaid expenses..................................... (8,269)
Accounts payable..................................... 827,177
Accrued expenses..................................... 497,038
-----------
Net cash provided by operating activities......... 3,718,582
-----------
Cash flows from investing activities:
Capital expenditures...................................... (503,603)
-----------
Net cash used in investing activities............. (503,603)
-----------
Cash flows from financing activities:
Payment of long-term debt................................. (771,591)
Dividends paid............................................ (1,767,741)
Change in bank overdrafts................................. 129,753
Repurchase of treasury stock.............................. (801,022)
-----------
Net cash used in financing activities............. (3,210,601)
-----------
Net increase in cash and equivalents........................ 4,378
Cash and equivalents at beginning of period................. 63,140
-----------
Cash and equivalents at end of period....................... $ 67,518
===========
Supplemental noncash investing and financing activities:
Vesting of 10,052 shares of common stock under terms of
deferred compensation stock agreement.................. $ 659,010
===========
Supplement disclosure of cash flow information:
Cash paid for:
Interest............................................... $ 124,062
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 139
CRISPAIRE CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company is involved in the manufacturing and sale of air conditioning
units and heat pump water heaters. Sales are primarily to companies involved in
modular construction, telecommunications, and other utilities located throughout
the United States and selected foreign markets. On November 10, 1997,
substantially all operating assets and liabilities of the Company were acquired
by Airxcel, Inc. pursuant to a purchase agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales are recorded at the time products are shipped to customers.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
CASH AND EQUIVALENTS
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 7-40
Machinery and equipment..................................... 3-40
Furniture and fixtures...................................... 5-7
</TABLE>
Gains and losses related to retirements or other disposals are included in
the statement of operations. Maintenance and repairs are charged to expense as
incurred; renewals and betterments are capitalized.
2. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<S> <C>
Raw materials and sub-assemblies............................ $3,924,413
Work-in-process............................................. 121,731
Finished goods.............................................. 2,289,292
----------
$6,335,436
==========
</TABLE>
F-35
<PAGE> 140
CRISPAIRE CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<S> <C>
Land........................................................ $ 18,000
Buildings and Improvements.................................. 1,138,934
Machinery and equipment..................................... 2,478,202
Furniture and fixtures...................................... 302,318
-----------
3,937,454
Less: accumulated depreciation.............................. (1,381,435)
-----------
$ 2,556,019
===========
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<S> <C>
Warranties.................................................. $ 490,000
Payroll..................................................... 124,184
Commissions................................................. 126,612
Bonus....................................................... 664,234
Vacation.................................................... 118,912
Miscellaneous............................................... 457,498
----------
$1,981,440
==========
</TABLE>
5. NOTE PAYABLE AND LONG-TERM DEBT:
At October 31, 1997, the Company had a $5 million line of credit available
through NationsBank (the "loan agreement"). At October 31, 1997, the Company had
no amounts outstanding with respect to this line of credit. The line of credit
was collateralized by accounts receivable, inventories, equipment and real
estate and was guaranteed by certain officers and stockholders of the Company.
Terms of the loan agreement provided that the Company could borrow against
eligible inventories and accounts receivable, as defined. Maximum borrowings
against inventories were further limited to $2,000,000. Interest on borrowings
was due monthly at a variable rate (7.41% at October 31, 1997), while any
principal was due on March 31, 1998.
The loan agreement also requires that the Company meet certain specific
financial covenants.
At October 31, 1997, the Company had long-term debt consisting of a
variable rate (7.56% at October 31, 1997) note payable to NationsBank, due in
monthly installments of $29,412 plus interest through March 1999. The note was
collateralized by accounts receivable, inventories, equipment and real estate
and was guaranteed by certain officers and stockholders of the Company. The
total principal balance outstanding on the note at October 31, 1997 was
$470,588, consisting of a current portion of $352,941 and a long-term portion of
$117,647.
Subsequent to October 31, 1997, the line of credit was terminated and the
note payable was paid in full pursuant to the purchase agreement discussed in
Note 11 to the financial statements.
6. INCOME TAXES:
For the year ended October 31, 1997, the Company, with the consent of its
stockholders, elected to be taxed under sections of Federal and Georgia income
tax law, which provide that, in lieu
F-36
<PAGE> 141
CRISPAIRE CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of corporation income taxes, the stockholders separately account for their pro
rata shares of the Company's items of income, deduction, loss and credits. As a
result of this election, no income tax liability or expense was recorded.
The Company, with the consent of its stockholders, elected to retain its
fiscal year ending October 31, rather than an otherwise required December 31
year end, in accordance with Section 444 of the Internal Revenue Code. To do so
required a deposit to be placed with the Internal Revenue Service which cannot
be refunded unless the election is terminated. For the year ended October 31,
1997, the Company had the required payment of $265,181 on deposit with the
Internal Revenue Service.
The stockholders of the Company intend to terminate this election during
fiscal 1998.
7. LEASES:
The Company leases a warehouse and various equipment under noncancelable
operating leases with periods ranging from three to five years. The total
minimum rental commitment at October 31, 1997, under these leases was as
follows:
<TABLE>
<S> <C>
1998........................................................ $154,909
1999........................................................ 141,645
2000........................................................ 116,091
2001........................................................ 4,431
2002........................................................ --
--------
$417,076
========
</TABLE>
The total rental expense including short-term rentals recorded in the
statement of operations was $247,524 for the year ended October 31, 1997.
8. BENEFIT PLAN:
The Company has a 401(k) defined contribution plan (the "plan"). All
full-time employees, once they have reached age 21 and have completed one year
of service, are eligible to participate. Under the provisions of the plan, the
Company must make contributions based on a percentage of employee contributions.
The amount of Company contributions charged to operations was $39,628 for the
year ended October 31, 1997.
9. EMPLOYMENT CONTRACT AND DEFERRED COMPENSATION STOCK AGREEMENT:
The Company had an employment contract with its president that established
the president's base salary and benefits and provided for a cash bonus based on
a formula contained in the agreement. The bonus was $487,000 for the year ended
October 31, 1997.
The Company also had a deferred compensation stock agreement with its
president under which 30,000 restricted shares of the Company's common stock
were issued to the president. Each fiscal year since the issuance, the president
vested in a portion of the restricted stock based on a stock valuation formula
contained in the agreement. During the year ended October 31, 1997, the
president vested in 10,052 shares of the restricted common stock resulting in
all shares being fully vested.
F-37
<PAGE> 142
CRISPAIRE CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
- Cash and cash equivalents, accounts receivable, and accounts
payable -- The carrying amount is a reasonable estimate of the fair value
because of the short maturity of these instruments.
- Long-term debt -- Because the note payable was primarily a variable rate
loan, the carrying amount was a reasonable estimate of fair value.
11. SUBSEQUENT EVENT:
On November 10, 1997, substantially all operating assets and liabilities of
the Company were acquired by Airxcel, Inc. for $43.4 million pursuant to a
purchase agreement. The Company's line of credit and term loan were paid in full
and terminated, and were not assumed by Airxcel. In conjunction with the
transaction, certain officers of the Company entered into employment agreements
with Airxcel.
12. LITIGATION:
The Company is a defendant in a lawsuit seeking monetary damages in an
unspecified amount for an alleged patent, trademark and trade dress infringement
by Crispaire. Management of the Company believes that the ultimate resolution of
this matter will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
F-38
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To KODA Enterprises Group, Inc.
We have audited the accompanying consolidated balance sheets of KODA
Enterprises Group, Inc. (a Delaware corporation) and subsidiaries as of April
30, 1996 and 1997, and the related consolidated statements of operations and
cash flows for each of the three years in the period ended April 30, 1997. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KODA
Enterprises Group, Inc. and subsidiaries as of April 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1997, in conformity with generally accepted
accounting principles.
Boston, Massachusetts Arthur Andersen LLP
February 3, 1998
F-39
<PAGE> 144
KODA ENTERPRISES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 3,110,648 $ 97,319 $ 644,748
Marketable securities............................... 1,826,327 3,964,008 2,335,689
Accounts receivable, net (Note 3)................... 4,771,427 5,068,902 5,031,936
Notes receivable -- related parties (Note 4)........ 840,000 840,000 1,864,800
Due from Affiliate, net............................. -- 23,979 208,469
Inventories (Note 5)................................ 6,171,061 8,621,463 9,104,395
Deferred tax and other current assets (Note 2)...... 412,511 405,162 383,262
----------- ----------- -----------
Total current assets...................... 17,131,974 19,020,833 19,573,299
Property, plant and equipment, net (Note 6)......... 2,712,436 3,164,747 3,660,387
Intangible assets, net (Note 7)..................... 4,486,349 4,207,437 4,021,728
Notes receivable -- related parties (Note 4)........ 2,334,634 2,373,746 2,649,480
Other assets........................................ 1,098,330 1,278,988 1,378,200
----------- ----------- -----------
$27,763,723 $30,045,751 $31,283,094
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt (Note 8)........ 1,856,515 1,970,267 1,481,713
Accounts payable.................................. 3,873,418 4,180,282 4,362,817
Accrued liabilities (Note 9)...................... 2,102,354 2,185,533 1,272,155
Due to Affiliate, net............................. 112,993 -- --
----------- ----------- -----------
Total current liabilities................. 7,945,280 8,336,082 7,116,685
Long-term debt, less current portion (Note 8)....... 9,384,202 10,377,540 11,935,249
Deferred tax liability (Note 12).................... 375,731 369,026 369,026
Other long-term liabilities (Note 15)............... 454,951 589,390 658,258
Commitments and contingencies (Notes 14 and 15)..... -- -- --
Stockholder's equity:
Common stock ($1 par, 1,000 shares authorized, 100
shares issued and outstanding)................. 100 100 100
Additional paid-in capital........................ 8,817,620 8,817,620 8,817,620
Retained earnings................................. 785,839 1,555,993 2,386,156
----------- ----------- -----------
Total stockholder's equity................ 9,603,559 10,373,713 11,203,876
----------- ----------- -----------
Total liabilities and stockholder's
equity.................................. $27,763,723 $30,045,751 $31,283,094
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE> 145
KODA ENTERPRISES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS EIGHT MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales..................... $40,168,174 $37,696,702 $42,222,952 $27,711,811 $28,953,787
Cost of goods sold........ 31,450,322 28,965,076 32,477,060 20,842,595 22,261,962
----------- ----------- ----------- ----------- -----------
Gross profit.... 8,717,852 8,731,626 9,745,892 6,869,216 6,691,825
Selling, general and
administrative
expenses................ 6,782,323 7,165,508 8,148,863 5,315,460 5,423,836
----------- ----------- ----------- ----------- -----------
Operating
profit........ 1,935,529 1,566,118 1,597,029 1,553,756 1,267,989
Other income (expense):
Interest expense,
net................ (905,815) (935,394) (1,046,425) (704,558) (817,227)
Other, net........... 747,982 30,589 292,351 188,257 379,961
----------- ----------- ----------- ----------- -----------
Income before
income
taxes......... 1,777,696 661,313 842,955 1,037,455 830,723
Income tax (benefit)
expense (Note 12)....... (32,993) 456,135 72,802 512,000 560
----------- ----------- ----------- ----------- -----------
Net income...... $ 1,810,689 $ 205,178 $ 770,153 $ 525,455 $ 830,163
=========== =========== =========== =========== ===========
Retained earnings,
beginning of period..... $(1,230,028) $ 580,661 $ 785,839 $ 785,839 $ 1,555,993
=========== =========== =========== =========== ===========
Retained earnings,
end of period........... $ 580,661 $ 785,839 $ 1,555,993 $ 1,311,294 $ 2,386,156
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE> 146
KODA ENTERPRISES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED ---------------------------
APRIL 30, APRIL 30, APRIL 30, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 1,810,689 $ 205,178 $ 770,153 $ 525,455 $ 830,163
Adjustments used to reconcile net
income to net cash provided (used)
by operating activities:
Depreciation and amortization....... 1,044,193 1,003,163 941,206 551,380 665,472
Provision for doubtful accounts..... (8,157) 57,627 50,000 -- --
Gain on sale of assets.............. (643) (2,101) (6,488) -- (196,014)
Deferred income taxes............... (103,811) 294,692 26,107 (14,169) --
(Increase) decrease in accounts
receivable........................ (348,870) (369,336) (294,548) 471,524 68,380
(Increase) decrease in
inventories....................... (1,185,081) 2,380,493 (2,450,402) (2,040,706) (482,932)
Decrease (increase) in prepaid
expenses and other................ (196,838) (329,147) 307,482 90,812 20,491
(Increase) decrease in due from
affiliates, net................... -- -- -- (601,560) (184,494)
Increase (decrease) in accounts
payable........................... (535,125) 390,746 240,497 (467,626) 182,535
Increase (decrease) in accrued
liabilities....................... 395,041 (157,076) 83,179 8,396 (913,378)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
operating activities......... 871,398 3,474,239 (332,814) (1,476,494) (9,777)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and
equipment........................... (598,661) (854,534) (696,767) (340,915) (975,404)
Proceeds from sale of assets.......... 2,550 2,101 13,804 -- 196,014
(Increase) decrease in intangible and
other assets........................ (569,497) (66,173) (369,632) 200,641 (30,344)
(Increase) decrease in marketable
securities.......................... (351,542) (1,303,783) (2,137,681) (1,590,143) 1,628,319
(Increase) decrease in notes
receivable -- related parties....... 441,000 205,000 (17,000) (22,000) (1,330,534)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities................... (1,076,150) (2,017,389) (3,207,276) (1,752,417) (511,949)
Cash flows from financing activities:
Net increase (decrease) in revolving
line of credit...................... 1,650,338 (4,374,675) 1,892,889 1,536,710 1,892,890
Proceeds from issuance of long-term
debt................................ 200,000 6,596,137 190,391 -- --
Payments of long-term debt............ (1,710,245) (1,294,687) (1,690,961) (517,322) (823,735)
Net increase in other liabilities..... -- 454,951 134,440 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities................... 140,093 1,381,726 526,759 1,019,388 1,069,155
Net (decrease) increase in cash
and cash equivalents......... (64,659) 2,838,576 (3,013,331) (2,209,523) 547,429
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at beginning
of period............................. 331,731 272,072 3,110,648 3,110,648 97,319
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................ $ 267,072 $ 3,110,648 $ 97,317 $ 901,125 $ 644,748
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.............................. $ 1,065,163 $ 1,012,308 $ 1,243,774 $ 817,041 $ 1,001,372
Income taxes.......................... 63,358 54,141 238,943 30,000 612,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE> 147
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) ORGANIZATION
KODA Enterprises Group, Inc. ("KODA" or the "Company") is a holding company
which, through its ultimate subsidiary Suburban Manufacturing Company, is
engaged in the manufacture and sale of specialty products consisting of gas
heating to the recreational vehicle industry, both in the United States and
Canada. The Company also sells other heating and cooling equipment.
On December 23, 1997, the Company executed an agreement in principal to
sell the Company to Airxcel Holdings, Inc. for approximately $36 million.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- These consolidated financial statements
include the accounts of the Company, its subsidiary KODA Industries of
Tennessee, Inc. and its ultimate subsidiary Suburban Manufacturing Company. All
material intercompany transactions and balances have been eliminated in
consolidation. Prior to completing the transaction discussed in Note 1, the
Company expects to divest its ownership in J.T. Nelson Company, Inc. and
T.E.H.S. LLC d/b/a Monson/Shurtleff Industrial ("MSI"). Both of these entities
are expected to be transferred to an entity owned 100% by the sole stockholder
of KODA. These consolidated financial statements present the financial position,
results of operations and cash flows of the Company as if the spin-offs
discussed above occurred prior to all periods presented.
Interim Financial Statements -- The accompanying consolidated financial
statements as of December 31, 1997 and for the eight-month periods ended
December 31, 1996 and December 31, 1997 are unaudited, but in the opinion of
management, include all adjustments consisting of normal recurring adjustments
necessary for a fair presentation of results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted although the Company believes that the disclosures included are adequate
to make the information presented not misleading. Results for the eight months
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ending April 30, 1998.
Inventories -- Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method. Work in process and
finished goods consist of materials, labor and manufacturing overhead.
Marketable Securities -- Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. The Company's marketable securities consist primarily of equity
securities and mutual fund investments and are stated at cost, which
approximates market.
Property, Plant and Equipment -- Property, plant and equipment are recorded
at cost. For financial reporting purposes, depreciation is computed principally
using the straight-line method over the estimated useful lives of the assets.
The cost for maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized.
Intangible Assets -- Intangible assets are stated at cost and are amortized
over their estimated useful lives. The Company continually evaluates whether
events or circumstances have occurred
F-43
<PAGE> 148
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that may warrant revision of the remaining useful lives of intangibles or which
would indicate the remaining balances may not be recoverable in accordance with
SFAS No. 121.
Income Taxes -- The Company's income taxes are accounted for under the
method prescribed by SFAS No. 109, Accounting for Income Taxes. This method
requires that deferred tax assets and liabilities be recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on the deferred tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the enactment date.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Investments -- The Company accounts for certain minority investments in
limited partnerships and limited liability companies on the cost basis of
accounting. The aggregate fair market value of these investments approximates
cost.
Revenue Recognition -- The Company recognizes revenue when shipments are
made. In addition, the Company grants credit to its customers on defined payment
terms based on their credit worthiness and generally does not secure collateral.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, requires that the Company disclose estimates of
the fair value of all classes of financial instruments. The carrying amounts
reported on the accompanying balance sheets for cash, marketable securities,
accounts receivable, notes receivable and accounts payable approximate fair
value due to the short-term nature of these instruments. Based on current market
conditions, management believes that the carrying value of its debt approximates
fair value at April 30, 1996 and 1997.
Impairment of Long Lived Assets -- During 1995, the Financial Accounting
Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of, effective for fiscal years
beginning after December 15, 1995, which requires the determination of whether
an impairment has occurred based on undiscounted cash flows. If it is determined
that an impairment has occurred, the impaired asset must be written down to fair
value less the cost to sell. While SFAS No. 121 specifically applies to the
Company's long-lived property, equipment and intangibles, its adoption or
subsequent following of the provision has not had a material impact on the
accompanying financial statements.
F-44
<PAGE> 149
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
<TABLE>
<CAPTION>
APRIL 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Trade............................................... $4,870,501 $4,178,999
Employees/Officer/Shareholders...................... 56,034 602,573
Interest............................................ 136,416 189,344
Other............................................... 6,331 197,986
---------- ----------
5,069,282 5,168,902
Less -- allowance for doubtful accounts............. (297,855) (100,000)
---------- ----------
$4,771,427 $5,068,902
========== ==========
</TABLE>
(4) NOTES RECEIVABLE -- RELATED PARTIES
The Company has a note receivable from KODA Industries of Kentucky. No
interest is charged on this note. The Company has a note receivable from HMK
Enterprises, Inc., a related party, which bears interest at 9 percent. Also, the
sole stockholder of KODA has issued demand and promissory notes to KODA
aggregating $2,410,000. As of April 30, 1996, April 30, 1997 and December 31,
1997, $874,044, $913,156 and $913,156 remains outstanding. These notes bear
interest at the rate of 6 to 6.5 percent. Notes receivable -- related parties
are classified as follows:
<TABLE>
<CAPTION>
APRIL 30, 1996
----------------------------------
CURRENT LONG-TERM TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
KODA Industries of Kentucky...................... $ -- $1,875,924 $1,875,924
Officer -- Suburban.............................. -- 75,000 75,000
HMK Enterprises, Inc............................. -- 349,666 349,666
Sole stockholder................................. 840,000 34,044 874,044
-------- ---------- ----------
$840,000 $2,334,634 $3,174,634
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1997
----------------------------------
CURRENT LONG-TERM TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
KODA Industries of Kentucky...................... $ -- $1,875,924 $1,875,924
Officer -- Suburban.............................. -- 75,000 75,000
HMK Enterprises, Inc............................. -- 349,666 349,666
Sole stockholder................................. 840,000 73,156 913,156
-------- ---------- ----------
$840,000 $2,373,746 $3,213,746
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
CURRENT LONG-TERM TOTAL
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
KODA Industries of Kentucky.................... $ -- $1,836,812 $1,836,812
Officer -- Suburban............................ -- 75,000 75,000
HMK Enterprises, Inc........................... -- 664,512 664,512
Various........................................ 24,800 -- 24,800
KODA Enterprises Group, LLC.................... 1,000,000 -- 1,000,000
Sole stockholder............................... 840,000 73,156 913,156
---------- ---------- ----------
$1,864,800 $2,649,480 $4,514,280
========== ========== ==========
</TABLE>
F-45
<PAGE> 150
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
KODA Industries of Kentucky, Inc. was the intermediate holding company
owning 100% of J.T. Nelson Co. Inc. This entity was owned 98% by KODA
Enterprises Group, Inc. prior to the spin off of the Company to the Company's
shareholder.
HMK Enterprises, Inc. is a strategic investment and management company
founded in 1978 that acquires companies and provides them with management
expertise in reaching their performance potential. The sole shareholder of KODA
Enterprises Group, Inc. is a shareholder of HMK Enterprises, Inc.
KODA Enterprises Group, LLC is owned 95% by the sole shareholder of KODA
Enterprises Group, Inc. KODA Enterprises Group LLC is a holding company for a
subsidiary that is a manufacturer and installer of air conditioning and heating
units primarily to the van conversion industry.
All of the above related party receivables and the additional amounts
disclosed in footnote 4 will be repaid prior to the sale of the Company to
Airxseel Holdings, Inc.
(5) INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Raw materials..................................... $2,278,847 $2,865,556
Work-in-process................................... 1,407,214 1,176,040
Finished goods.................................... 2,680,556 4,775,423
---------- ----------
$6,366,617 $8,817,019
========== ==========
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
APRIL 30, LIVES
-------------------------- ----------------
1996 1997
----------- -----------
<S> <C> <C> <C>
Land.................................. $ 76,898 $ 76,898
Buildings............................. 1,455,584 1,503,824 20 to 40 years
Machinery and equipment............... 4,664,931 4,848,862 5 to 10 years
Dies and patterns..................... 4,791,654 4,841,861 5 to 8 years
Furniture and fixtures................ 725,225 818,303 3 to 8 years
Automotive equipment.................. 368,521 348,450 4 to 5 years
Construction in progress.............. 10,000 288,496
Equipment capital lease............... 0 359,137
----------- -----------
12,092,813 13,085,831
Less accumulated depreciation and
amortization........................ (9,380,377) (9,921,084)
----------- -----------
$ 2,712,436 $ 3,164,747
=========== ===========
</TABLE>
Depreciation of property, plant and equipment charged to operations during
the years ended April 30, 1997, 1996 and 1995 and the eight months ended
December 31, 1997 and 1996 was $662,644, $599,051, $632,873, $479,764 and
$365,672, respectively.
F-46
<PAGE> 151
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included above in machinery and equipment is property under capital leases:
<TABLE>
<CAPTION>
APRIL 30, 1997
--------------
<S> <C>
Office equipment............................................ $359,137
Less -- accumulated amortization............................ (25,653)
--------
$333,484
========
</TABLE>
(7) INTANGIBLE ASSETS
The components of intangible assets are as follows:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- PERIOD OF
1996 1997 AMORTIZATION
----------- ----------- -----------------
<S> <C> <C> <C>
Non-compete agreements............. $ 779,000 $ 779,000 5 to 7 years
Customer lists and contracts....... 1,568,338 1,568,338 11 to 40 years
Patents and trade names............ 200,000 200,000 11 to 40 years
Excess of cost over net assets
acquired......................... 2,915,315 2,915,315 5.5 to 40 years
Acquired supply and other
agreements....................... 2,733,000 2,733,000 3 to 5 years
Engineering drawings............... 78,000 78,000 10 to 11 years
----------- -----------
8,273,653 8,273,653
Less -- accumulated amortization... (3,787,304) (4,066,216)
----------- -----------
$ 4,486,349 $ 4,207,437
=========== ===========
</TABLE>
Amortization of intangibles charged to operations during the years ended
April 30, 1997, 1996 and 1995 and the eight months ended December 31, 1997 and
1996 was $278,562, $404,112, $412,753, $185,708 and $185,708, respectively.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
(a) Bank term notes.................................... $8,428,571.. $ 7,178,572
(b) Revolving line of credit........................... 2,171,558 4,064,448
(c) Subordinated seller note........................... 513,334 513,334
(d) Capital leases (Note 13)........................... 0 344,720
(e) Other.............................................. 127,254 246,733
Less -- current portion........................... (1,856,515) (1,970,267)
----------- -----------
$ 9,384,202 $10,377,540
=========== ===========
</TABLE>
- ---------------
(a) Bank term notes at rates ranging from prime plus .75 percent to prime plus
2.5 percent LIBOR plus 3.25 to 3.75 percent, or a fixed rate of 12.5
percent, secured by substantially all assets of the operating company,
payable through May 2003. The prime and LIBOR rates at April 30, 1997 were
8.5 percent and 5.6875 percent, respectively.
(b) Revolving line of credit providing up to $20,500,000 in borrowings, bearing
interest at rates from prime plus .75 percent to prime plus 1.0 percent or
LIBOR plus 3.25 percent, due between April 1998 and February 1999, secured
by substantially all assets of the operating company.
F-47
<PAGE> 152
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Subordinated note financed the purchase of a product line and is secured by
substantially all the assets of the Company, subject to an intercreditor
agreement with a bank.
(d) Various capital leases payable through fiscal 2000.
(e) Bank, government and trade notes, bearing interest at a fixed rate of 9.25
to 10.5 percent, payable through 2003, secured by certain real and personal
property.
The terms of the loan agreements applicable to the revolving line of credit
and bank term notes include requirements of the operating company to maintain
certain levels of earnings before interest, taxes, depreciation and amortization
(EBITDA) and certain other financial ratios; to restrict the ability to incur
additional indebtedness; to pay cash dividends or make certain other restricted
payments; to incur capital expenditures in excess of certain amounts; to sell
fixed assets; and to achieve certain cash flows. Substantially all of the
operating company assets are secured by debt agreements.
The Company is in compliance with or has received waivers for all covenants
through April 30, 1997. However, at April 30, 1997, Suburban was not in
compliance with respect to the payment of the subordinated note. On August 20,
1997, a judgment was awarded to the party holding the disputed subordinated
note. The court awarded the plaintiff principal, interest and attorney's fees
aggregating to approximately $770,000, resulting in a charge to operations in
fiscal 1998 of approximately $100,000.
Aggregate maturities of long-term debt for the next five years and
thereafter are as follows: 1998 - $1,970,267; 1999 - $5,524,646;
2000 - $1,450,520; 2001 - $1,350,456; 2002 - $1,296,416; and
thereafter - $755,502.
(9) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Compensation...................................... $ 784,107 $ 990,200
Insurance......................................... 446,375 394,868
Taxes, other than income taxes.................... 80,370 110,505
Employee benefits................................. 214,063 180,938
Interest.......................................... 173,862 164,024
Pension........................................... 159,778 94,942
Other............................................. 243,799 250,056
---------- ----------
$2,102,354 $2,185,533
========== ==========
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
Suburban sponsors two contributory defined benefit pension plans, the
Suburban Manufacturing Company Retirement Plan and the Suburban Manufacturing
Company Retirement Plan for Bargaining Employees, which cover substantially all
Suburban Manufacturing Company employees meeting certain eligibility
requirements. Assets of the plans consist of various marketable securities and
investments in bond funds. The Company's funding policy is to contribute amounts
that are sufficient, when added to participants' contributions, to fund the
retirement benefits of all participants in accordance with the requirements of
the Internal Revenue Code.
F-48
<PAGE> 153
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense for fiscal 1996 and 1997 included the following components
(in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Service cost................................................ $ 188 $ 236
Interest cost on projected benefit obligation............... 183 220
Actual return on plan assets................................ (254) (366)
Net amortization and deferral............................... 22 93
----- -----
Net pension expense......................................... $ 139 $ 183
===== =====
</TABLE>
The following table sets forth the funded status of the plans as of April
30, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation................................. $1,888 $2,170
Nonvested benefit obligation.............................. 88 125
------ ------
Accumulated benefit obligation.............................. $1,976 $2,295
====== ======
Projected benefit obligation................................ $2,703 $3,133
Plan assets at fair value................................... 2,334 2,912
------ ------
Projected benefit obligation in excess of plan assets at
fair value................................................ (369) (221)
Unrecognized net loss....................................... 273 160
Unrecognized prior service cost............................. (36) (32)
Unrecognized transition liability........................... (29) (25)
------ ------
Net pension liability recognized on the balance sheet....... $ (161) $ (118)
====== ======
</TABLE>
The following assumptions were used to measure the net periodic pension
income and the projected benefit obligation:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Discount rate used to determine the projected benefit
obligation................................................ 8.0% 8.0%
Rate of increase in future compensation levels used to
determine the projected benefit obligation................ 4.5% 4.5%
Expected long-term rate of return on plan assets used to
determine net periodic pension income..................... 8.5% 8.5%
</TABLE>
The Company's subsidiary maintains a defined contribution savings plans
covering substantially all employees. Employees may contribute up to 15 percent
of their compensation not to exceed the maximum allowed by the Internal Revenue
Service as a before-tax deduction. The Company matches various percentages of
employees' contributions. Contributions by the Company under this plan amounted
to $66,000, $56,000 and $58,000 in 1997, 1996, and 1995 respectively.
F-49
<PAGE> 154
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) RELATED PARTY TRANSACTIONS
The Company had numerous transactions with HMK, a company in which the sole
stockholder of KODA has a minority interest. The following related party
transactions or balances with HMK are included in these consolidated financial
statements:
<TABLE>
<CAPTION>
APRIL 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Interest receivable............................... $ 2,586 $ 5,114
Interest income................................... 32,780 31,220
Consulting fees to HMK shareholders............... 105,000 105,000
Consulting fees payable........................... 8,500 8,500
Management fee expense............................ 148,800 149,800
Insurance expense................................. 1,226,000 1,189,000
</TABLE>
The Company participates in an insurance program with other affiliated
companies for which it paid $1,430,000, $1,226,000 and $1,189,000 in 1995, 1996,
and 1997, respectively. Management believes insurance rates are substantially
the same as what could be obtained by the Company independently on an
arm's-length basis.
(12) INCOME TAXES
The consolidated group files a consolidated income tax return comprised of
KODA Enterprises Group, Inc. and its subsidiaries.
Income tax (benefit) expense attributed to pre-tax income consists of the
following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended April 30, 1995:
U.S. federal...................................... 71 (156) (85)
State and local................................... 109 (57) 52
Year ended April 30, 1996:
U.S. federal...................................... 161 230 391
State and local................................... 125 (60) 65
Year ended April 30, 1997:
U.S. federal...................................... (62) 26 (36)
State and local................................... 166 (57) 109
</TABLE>
Total income tax (benefit) expense differed from the amount computed by
applying the U.S. federal income tax rate of 34 percent to income before income
taxes as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------
1995 1996 1997
----- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense............................. $ 604 $225 $ 287
Increase (reduction) in income taxes results from:
State income tax, net of federal income tax benefit....... 34 43 72
Other..................................................... 37 221 (53)
Decrease in valuation allowance........................... (706) (33) (233)
----- ---- -----
$ (33) $456 $ 73
===== ==== =====
</TABLE>
F-50
<PAGE> 155
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at April 30, 1996
and 1997 are presented below:
<TABLE>
<CAPTION>
1996 1997
------ -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts...................................... $ 116 $ 39
Inventories, principally due to additional costs
inventoried for tax purposes........................... 145 166
Accrued wages for financial reporting purposes............ 86 90
Warranty reserve for financial reporting purposes......... 29 49
Stock appreciation rights for financial reporting
purposes............................................... 177 230
Federal net operating loss carryforward................... 466 161
Investment tax credit carryforward........................ 60 60
AMT credit carryforward................................... 53 72
------ -----
Total deferred tax assets......................... 1,132 867
Less valuation allowance.......................... (756) (524)
------ -----
Deferred tax assets............................... 376 343
Deferred tax liabilities:
Property, plant and equipment, principally due to
difference in depreciation and capitalized interest.... 336 327
Intangible assets, principally due to differences in
amortization methods................................... 40 42
------ -----
Total deferred tax liabilities.................... 376 369
------ -----
Net deferred tax asset (liability)................ $ -- $ (26)
====== =====
</TABLE>
Deferred income taxes include the impact of net operating loss
carryforwards. Realization of these assets is contingent of future taxable
earnings. The net change in the total valuation allowance was a decrease of
$706,000, $33,000 and $233,000 for the years ended April 30, 1995, 1996, and
1997, respectively. Management considers it more likely than not that the
benefits of these assets will ultimately be realized.
At April 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $473,000, subject to review by
taxing authorities, which are available to offset future taxable income through
2010.
At April 30, 1997, the Company has an alternative minimum tax credit
carryforward of $212,000, which is available to offset future income tax
liabilities. The credit may be used to the extent that the Company's regular tax
liability exceeds its alternative minimum tax liability. The credit may be
carried forward indefinitely.
KODA has investment tax credit carryforwards approximating $60,000 for U.S.
tax and financial reporting purposes available to reduce future federal income
taxes payable. These carryforwards begin to expire in 1998 and continue through
2000. These credits are subject to additional utilization limitations, as they
arose during separate return years.
(13) LEASES
The Company leases certain office equipment and vehicles used in the
operation of its business under leases that expire in various years through
2005. Rental payments include amounts for
F-51
<PAGE> 156
KODA ENTERPRISES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating expenses and taxes in excess of base-year values established within
the leases. Rental expense for all operating leases amounted to approximately
$84,893, $95,439 and $102,587 for the years ended April 30, 1995, 1996 and 1997,
respectively.
The following is a schedule by years of the present value of future minimum
capital lease payments and future minimum rental payments required under
noncancelable operating leases as of April 30, 1997 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING APRIL 30, LEASES LEASES
--------------------- -------- ---------
<S> <C> <C>
1998...................................................... $138,287 $ 71,096
1999...................................................... 138,287 24,991
2000...................................................... 123,871 13,138
2001...................................................... 0 491
2002...................................................... 0 0
Thereafter................................................ 0 0
-------- --------
Total minimum lease payments required..................... $400,445 $109,716
========
Less -- amount representing interest........................ 55,725
Present value of net minimum capital lease payments......... 344,720
Less -- current installments of obligations under capital
leases.................................................... 119,712
--------
Obligations under capital leases, excluding current
installments.............................................. $225,008
========
</TABLE>
(14) CONTINGENCIES
The Company's operating company is a defendant in various product liability
lawsuits and claims. In the opinion of management and legal counsel, these suits
and claims should not result in final judgments or settlements which, in the
aggregate, would have a material adverse effect on the consolidated financial
position or consolidated results of operations of the Company.
(15) STOCK APPRECIATION RIGHTS
KODA Industries of Tennessee, Inc. has issued stock appreciation rights
(SARs) to certain management employees. The formula price is calculated using
the difference of the exercise book value and the initial book value as stated
in the individual SAR agreements. The difference is divided by the total number
of shares of all classes of KODA Industries of Tennessee, Inc. outstanding on
the exercise date plus that individual's total SARs granted. The SARs are
subject to automatic vesting and may be automatically exercised in connection
with certain significant corporate events. The Company has recorded obligations
of $589,390, $454,951 and $658,258 at April 30, 1996, 1997 and December 31,
1997, respectively. Compensation expense, included in selling, general and
administrative expenses, has been recorded by the Company in the amounts of
$454,951 and $134,439 for the years ended April 30, 1996 and 1997, respectively.
In the period ended December 31, 1997, $68,868 in compensation expense has been
recorded.
F-52
<PAGE> 157
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
<TABLE>
<CAPTION>
- --------------------------------------------
TABLE OF CONTENTS
<S> <C>
Summary................................ 1
Risk Factors........................... 13
The Transactions....................... 18
Use of Proceeds........................ 19
Capitalization......................... 20
Selected Financial and Other Data...... 21
Unaudited Pro Forma Financial
Information.......................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 31
Industry............................... 42
The Business........................... 45
Management............................. 55
Security Ownership..................... 58
Description of the Revolving Credit
Facility............................. 59
Description of Exchange Notes.......... 60
The Exchange Offer..................... 90
Certain Federal Income Tax
Consequences......................... 99
Plan of Distribution................... 99
Legal Matters.......................... 100
Experts................................ 100
Index to Financial Statements.......... F-1
</TABLE>
PROSPECTUS
AIRXCEL, INC.
[AIRXCEL INC. LOGO]
OFFER TO EXCHANGE ITS
11% SERIES B SENIOR
SUBORDINATED NOTES
DUE 2007 FOR ANY AND
ALL OF ITS OUTSTANDING
SERIES A SENIOR
SUBORDINATED NOTES
DUE 2007
MARCH , 1998
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties 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 such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include 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, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as it currently exists or may
hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Company maintains and has in effect insurance policies covering all of
the Company's directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
II-1
<PAGE> 159
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of Airxcel, Inc., as amended.*
3.2 Amended and Restated By-laws of Airxcel, Inc.*
4.1 Indenture dated as of November 10, 1997 between Airxcel,
Inc. and United States Trust Company of New York.*
4.2 Purchase Agreement dated as of November 5, 1997 among
Airxcel, Inc., Chase Securities Inc. and NationsBanc
Montgomery Securities, Inc.*
4.3 Exchange and Registration Rights Agreement dated as of
November 10, 1997 among Airxcel, Inc., Chase Securities Inc.
and NationsBanc Montgomery Securities, Inc.*
5.1 Opinion and consent of Kirkland & Ellis.*
8 Tax opinion and consent of Kirkland & Ellis.*
10.1 Amended and Restated Credit Agreement dated as of November
10, 1997 among Airxcel, Inc. and The Chase Manhattan Bank,
as Agent.*
10.2 Security Agreement dated as of August 22, 1996 among
Recreation Vehicle Products, Inc. and The Chase Manhattan
Bank, as agent.*
10.3 Security Agreement and Mortgage -- Trademarks and Patents
dated as of August 22, 1996 among Recreation Vehicle
Products, Inc. and The Chase Manhattan Bank, as agent.*
10.4 Pledge Agreement dated as of August 22, 1996 among
Recreation Vehicle Products, Inc. and The Chase Manhattan
Bank, as agent.*
10.5 Executive Securities Purchase Agreement dated as of November
10, 1997 by and between Airxcel Holdings, Inc. and the
Purchasers.*
10.6 Registration Rights Agreement dated as of August 22, 1996 by
and among RV Products Holding Corp., Citicorp Venture
Capital, Ltd., Citicorp Mezzanine Partners, L.P., CCT III
Partners, L.P., the Executives, and the Individual
Investors.*
10.7 Joinder to Registration Rights Agreement dated as of
November 10, 1997 by and among Airxcel Holdings, Inc.,
Citicorp Venture Capital, Ltd., the Existing Stockholders,
and the New Executives.*
10.8 Stockholders Agreement dated as of August 22, 1996, as
amended by and among RV Products Holding Corp., Citicorp
Venture Capital, Ltd., Citicorp Mezzanine Partners, L.P.,
CCT III Partners, L.P., the Executives and the Individual
Investors.*
10.9 Stock Purchase Warrant dated as of August 22, 1996.*
10.10 Asset Purchase Agreement effective as of October 17, 1997 by
and among Crispaire Corporation, Airxcel, Inc. and Airxcel
Holdings, Inc.*
10.11 Distribution Agreement dated as of October 11, 1995 by and
between The Coast Distribution System and Recreation Vehicle
Products, Inc.*
10.12 Agreement dated as of October 6, 1997 by and between
Crispaire Corporation and the Los Angeles Unified School
District.*
10.13 Agreement dated as of October 6, 1997 by and between
Crispaire Corporation and the Los Angeles Unified School
District.*
10.14 Agreement dated as of October 6, 1997 by and between
Crispaire Corporation and the Los Angeles Unified School
District.*
10.15 Executive Employment Agreement dated as of November 10, 1997
by and among Airxcel, Inc. and T.K. Sellers, Jr.*
</TABLE>
II-2
<PAGE> 160
<TABLE>
<S> <C>
10.16 Executive Employment Agreement dated as of November 10, 1997
by and among Airxcel, Inc. and George D. Wyers.*
10.17 Executive Employment Agreement dated as of November 10, 1997
by and among Airxcel, Inc. and David Shuford.*
10.18 Trademark License Agreement by and between the Coleman
Company, Inc. and Coleman R.V. Products, Inc. dated as of
May 1, 1991.*
10.19 Trademark License Agreement by and between the Canadian
Coleman Company, Ltd. and Coleman R.V. Products, Inc. dated
as of May 1, 1997.*
10.20 Second Amended and Restated Credit Agreement dated as of
March 17, 1998 among Airxcel, Inc., KODA Enterprises Group,
Inc., the Guarantors at any time party thereto, the Lenders
named thereto and The Chase Manhattan Bank, as Agent.
10.21 Stock Purchase Agreement among William S. Karol and Airxcel,
Inc. dated March 17, 1998.
12.1 Statement of Computation of Ratios.*
21.1 Subsidiaries of Airxcel, Inc.*
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Mauldin & Jenkins, L.L.C.
23.3 Consent of Arthur Anderson LLP, Independent Accountants.
23.4 Consent of Kirkland & Ellis (included in Exhibits 5.1 and
8).*
24.1 Powers of Attorney (included in signature page).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- ---------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedules not included in the Prospectus
appear on the following pages of this Registration Statement:
<TABLE>
<S> <C>
THE COMPANY
Report of Independent Public Accountants S-1
Schedule II -- Valuation and Qualifying Accounts S-2
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually
II-3
<PAGE> 161
or in the aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of the chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
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
II-4
<PAGE> 162
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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 of 1933, 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wichita, State of Kansas,
on April 1, 1998.
AIRXCEL, INC.
By: /s/ *
------------------------------------
Name: Melvin L. Adams
Title: Chief Executive Officer,
President
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated on April 1, 1998:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chief Executive Officer, President and
- -------------------------------------------------------- Director (principal executive officer)
Melvin L. Adams
/s/ RICHARD L. SCHRECK Chief Financial Officer, Secretary,
- -------------------------------------------------------- Treasurer (principal financial officer and
Richard L. Schreck accounting officer) and Director
* President -- Crispaire, Director
- --------------------------------------------------------
George D. Wyers
* Director
- --------------------------------------------------------
Dean DuCray
* Director
- --------------------------------------------------------
Lawrence Jones
* Director
- --------------------------------------------------------
Thomas F. McWilliams
* Director
- --------------------------------------------------------
James A. Urry
*By: /s/ RICHARD L. SCHRECK
---------------------------------------------------
As Attorney-in-fact.
</TABLE>
II-6
<PAGE> 164
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of Airxcel, Inc.
(formerly known as Recreational Vehicle Products, Inc.) as of December 31, 1996
and 1997, and for each of the three years in the period ended December 31, 1997,
which financial statements are included in the Prospectus, we have audited the
financial statement schedule listed in Item 21(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material aspects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 30, 1998
S-1
<PAGE> 165
AIRXCEL, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------
BALANCE AT CHARGED CHARGED BALANCE
BEGINNING TO TO OTHER (1) AT END
DESCRIPTION OF YEAR EXPENSE ACCOUNTS DEDUCTIONS OF YEAR
----------- ---------- ------- -------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31-
1995....................................... $20 $14 $ -- $(14) $ 20
1996....................................... 20 63 -- (63) 20
1997....................................... 20 43 -- (23) 40
</TABLE>
- ---------------
(1) Deduction for purposes for which reserve was created.
S-2
<PAGE> 166
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C> <C>
3.1 Certificate of Incorporation of Airxcel, Inc., as amended.*
3.2 Amended and Restated By-laws of Airxcel, Inc.*
4.1 Indenture dated as of November 10, 1997 between Airxcel,
Inc. and United States Trust Company of New York.*
4.2 Purchase Agreement dated as of November 5, 1997 among
Airxcel, Inc., Chase Securities Inc. and NationsBanc
Montgomery Securities, Inc.*
4.3 Exchange and Registration Rights Agreement dated as of
November 10, 1997 among Airxcel, Inc., Chase Securities Inc.
and NationsBanc Montgomery Securities, Inc.*
5.1 Opinion and consent of Kirkland & Ellis.*
8 Tax opinion and consent of Kirkland & Ellis.*
10.1 Amended and Restated Credit Agreement dated as of November
10, 1997 among Airxcel, Inc. and The Chase Manhattan Bank,
as Agent.*
10.2 Security Agreement dated as of August 22, 1996 among
Recreation Vehicle Products, Inc. and The Chase Manhattan
Bank, as agent.*
10.3 Security Agreement and Mortgage -- Trademarks and Patents
dated as of August 22, 1996 among Recreation Vehicle
Products, Inc. and The Chase Manhattan Bank, as agent.*
10.4 Pledge Agreement dated as of August 22, 1996 among
Recreation Vehicle Products, Inc. and The Chase Manhattan
Bank, as agent.*
10.5 Executive Securities Purchase Agreement dated as of November
10, 1997 by and between Airxcel Holdings, Inc. and the
Purchasers.*
10.6 Registration Rights Agreement dated as of August 22, 1996 by
and among RV Products Holding Corp., Citicorp Venture
Capital, Ltd., Citicorp Mezzanine Partners, L.P., CCT III
Partners, L.P., the Executives, and the Individual
Investors.*
10.7 Joinder to Registration Rights Agreement dated as of
November 10, 1997 by and among Airxcel Holdings, Inc.,
Citicorp Venture Capital, Ltd., the Existing Stockholders,
and the New Executives.*
10.8 Stockholders Agreement dated as of August 22, 1996, as
amended by and among RV Products Holding Corp., Citicorp
Venture Capital, Ltd., Citicorp Mezzanine Partners, L.P.,
CCT III Partners, L.P., the Executives and the Individual
Investors.*
10.9 Stock Purchase Warrant dated as of August 22, 1996.*
10.10 Asset Purchase Agreement effective as of October 17, 1997 by
and among Crispaire Corporation, Airxcel, Inc. and Airxcel
Holdings, Inc.*
10.11 Distribution Agreement dated as of October 11, 1995 by and
between The Coast Distribution System and Recreation Vehicle
Products, Inc.*
10.12 Agreement dated as of October 6, 1997 by and between
Crispaire Corporation and the Los Angeles Unified School
District.*
10.13 Agreement dated as of October 6, 1997 by and between
Crispaire Corporation and the Los Angeles Unified School
District.*
10.14 Agreement dated as of October 6, 1997 by and between
Crispaire Corporation and the Los Angeles Unified School
District.*
</TABLE>
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C> <C>
10.15 Executive Employment Agreement dated as of November 10, 1997
by and among Airxcel, Inc. and T.K. Sellers, Jr.*
10.16 Executive Employment Agreement dated as of November 10, 1997
by and among Airxcel, Inc. and George D. Wyers.*
10.17 Executive Employment Agreement dated as of November 10, 1997
by and among Airxcel, Inc. and David Shuford.*
10.18 Trademark License Agreement by and between the Coleman
Company, Inc. and Coleman R.V. Products, Inc. dated as of
May 1, 1991.*
10.19 Trademark License Agreement by and between the Canadian
Coleman Company, Ltd. and Coleman R.V. Products, Inc. dated
as of May 1, 1997.*
10.20 Second Amended and Restated Credit Agreement dated as of
March 17, 1998 among Airxcel, Inc., KODA Enterprises Group,
Inc., the Guarantors at any time party thereto, the Lenders
named thereto and The Chase Manhattan Bank, as Agent.
10.21 Stock Purchase Agreement among William S. Karol and Airxcel,
Inc. dated March 17, 1998.
12.1 Statement of Computation of Ratios.*
21.1 Subsidiaries of Airxcel, Inc.*
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Mauldin & Jenkins, L.L.C.
23.3 Consent of Arthur Anderson LLP, Independent Accountants.
23.4 Consent of Kirkland & Ellis (included in Exhibits 5.1 and
8).*
24.1 Powers of Attorney (included in signature page).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 10.20
EXECUTION COPY
================================================================================
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 17, 1998
Among
AIRXCEL, INC.,
KODA ENTERPRISES GROUP, INC.
(which, on the Closing Date, will merge with its subsidiaries,
Koda Industries of Tennessee, Inc. and Suburban Manufacturing Company,
and will change its name to Suburban Manufacturing Company),
THE GUARANTORS AT ANY TIME PARTY HERETO,
THE LENDERS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK, AS AGENT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
I. DEFINITIONS..........................................................-6-
SECTION 1.01. Certain Defined Terms...............................-6-
SECTION 1.02. Accounting Terms...................................-18-
II. THE LOANS...........................................................-19-
SECTION 2.01. Term Loan Commitments and
Revolving Credit Commitments....................-19-
SECTION 2.02. Loans..............................................-19-
SECTION 2.03. Notice of Loans....................................-21-
SECTION 2.04. Notes: Repayment of Loans..........................-22-
SECTION 2.05. Interest on Loans..................................-24-
SECTION 2.06. Fees...............................................-24-
SECTION 2.07. Termination and Reduction of Revolving Credit
Commitments and Term Loan Commitments...........-25-
SECTION 2.08. Interest on Overdue Amounts: Alternate Rate
of Interest.....................................-25-
SECTION 2.09. Prepayment of Loans................................-26-
SECTION 2.10. Reserve Requirements: Change in Circumstances......-29-
SECTION 2.11. Change in Legality.................................-30-
SECTION 2.12. Indemnity..........................................-31-
SECTION 2.13. Pro Rata Treatment: Assumption by and
Delegation of Authority to the Agent............-32-
SECTION 2.14. Sharing of Setoffs.................................-33-
SECTION 2.15. Taxes..............................................-33-
SECTION 2.16. Payments and Computations..........................-36-
SECTION 2.17. Issuance of Letters of Credit......................-36-
SECTION 2.18. Payment of Letters of Credit: Reimbursement........-37-
SECTION 2.19. Agent's Actions with respect to Letters of Credit..-38-
SECTION 2.20. Letter of Credit Fees..............................-38-
III. COLLATERAL SECURITY.................................................-39-
SECTION 3.01. Security Documents.................................-39-
SECTION 3.02. Filing and Recording...............................-39-
IV. REPRESENTATIONS AND WARRANTIES......................................-40-
SECTION 4.01. Organization, Legal Existence......................-40-
SECTION 4.02. Authorization......................................-40-
SECTION 4.03. Governmental Approvals.............................-40-
SECTION 4.04. Binding Effect.....................................-40-
SECTION 4.05. Material Adverse Change............................-41-
SECTION 4.06. Litigation: Compliance with Laws: etc..............-41-
SECTION 4.07. Financial Statements...............................-41-
SECTION 4.08. Federal Reserve Regulations........................-42-
SECTION 4.09. Taxes..............................................-42-
SECTION 4.10. Employee Benefit Plans.............................-43-
-i-
<PAGE> 3
SECTION 4.11. No Material Misstatements..........................-44-
SECTION 4.12. Investment Company Act:
Public Utility Holding Company Act..............-44-
SECTION 4.14. Use of Proceeds....................................-44-
SECTION 4.15 Subsidiaries.......................................-45-
SECTION 4.16. Title to Properties: Possession Under Leases:
Trademarks......................................-45-
SECTION 4.17. Solvency...........................................-45-
SECTION 4.18. Permits, etc.......................................-46-
SECTION 4.19. Compliance with Environmental Laws.................-46-
SECTION 4.20. No Change in Credit Criteria or Collection
Policies........................................-47-
SECTION 4.21. Acquisition........................................-47-
SECTION 4.22. Bank Accounts......................................-48-
V. CONDITIONS OF CREDIT EVENTS.........................................-48-
SECTION 5.01. All Credit Events..................................-48-
SECTION 5.02. First Borrowing....................................-48-
VI. AFFIRMATIVE COVENANTS...............................................-52-
SECTION 6.01. Legal Existence....................................-52-
SECTION 6.02. Businesses and Properties..........................-52-
SECTION 6.03. Insurance..........................................-53-
SECTION 6.04. Taxes..............................................-53-
SECTION 6.05. Financial Statements...............................-53-
SECTION 6.06. Litigation and Other Notices.......................-56-
SECTION 6.07. ERISA..............................................-56-
SECTION 6.08. Maintaining Records: Access to
Properties and Inspections: Right to Audit......-57-
SECTION 6.09. Use of Proceeds....................................-57-
SECTION 6.10. Fiscal Year-End....................................-57-
SECTION 6.11. Further Assurances.................................-57-
SECTION 6.12. Additional Grantors and Guarantors.................-58-
SECTION 6.13. Environmental Laws.................................-58-
SECTION 6.14. Pay Obligations to Lenders and
Perform Other Covenants.........................-60-
SECTION 6.15. Maintain Operating Accounts........................-60-
SECTION 6.16. Amendments.........................................-60-
SECTION 6.17. Landlords' Waivers.................................-60-
SECTION 6.18. Interest Rate Protection...........................-60-
SECTION 6.19. Post Closing Matters...............................-60-
VII. NEGATIVE COVENANTS..................................................-61-
SECTION 7.01. Liens..............................................-61-
SECTION 7.02. Sale and Lease-Back Transactions...................-63-
SECTION 7.03. Indebtedness.......................................-63-
SECTION 7.04. Dividends..........................................-63-
SECTION 7.05. Consolidations. Mergers and Sales of Assets........-63-
-ii-
<PAGE> 4
SECTION 7.06. Investments........................................-64-
SECTION 7.07. Capital Expenditures...............................-64-
SECTION 7.08. Debt Service Coverage Ratio........................-65-
SECTION 7.09. Leverage Ratio: EBITDA.............................-65-
SECTION 7.10. Interest Coverage Ratio............................-66-
SECTION 7.11. Business...........................................-66-
SECTION 7.12. Sales of Receivables...............................-66-
SECTION 7.13. Use of Proceeds....................................-66-
SECTION 7.14. ERISA..............................................-67-
SECTION 7.15. Accounting Changes.................................-67-
SECTION 7.16. Prepayment or Modification of Indebtedness:
Modification of Charter Documents...............-67-
SECTION 7.17. Transactions with Affiliates.......................-67-
SECTION 7.18. Consulting Fees. Pay any management, consulting
or other fees of any ...........................-68-
SECTION 7.19. Negative Pledges...................................-68-
VIII. EVENTS OF DEFAULT...................................................-68-
IX. AGENT...............................................................-71-
SECTION 10.01. Collection of Receivables: Management of
Collateral......................................-74-
SECTION 10.02. Receivables Documentation..........................-76-
SECTION 10.03. Status of Receivables and Other Collateral.........-76-
SECTION 10.04. Monthly Statement of Account.......................-77-
SECTION 10.05. Collateral Custodian...............................-77-
XI. MISCELLANEOUS.......................................................-77-
SECTION 11.01. Notices............................................-77-
SECTION 11.02. Survival of Agreement..............................-78-
SECTION 11.03. Successors and Assigns: Participations.............-78-
SECTION 11.04. Expenses: Indemnity................................-81-
SECTION 11.05. Applicable Law.....................................-82-
SECTION 11.06. Right of Setoff....................................-82-
SECTION 11.07. Payments on Business Days..........................-83-
SECTION 11.08. Waivers: Amendments................................-83-
SECTION 11.09. Severability.......................................-84-
SECTION 11.10. Entire Agreement: Waiver of Jury Trial. etc........-84-
SECTION 11.11. Confidentiality....................................-85-
SECTION 11.12. Submission to Jurisdiction.........................-85-
SECTION 11.13. Counterparts: Facsimile Signature..................-86-
SECTION 11.14. Headings...........................................-86-
XII. GUARANTEES..........................................................-77-
XIII. MISCELLANEOUS.......................................................-77-
-iii-
<PAGE> 5
SCHEDULES
SCHEDULE 2.01(a) Term Loan Commitments
SCHEDULE 2.01(b) Revolving Credit Commitments
SCHEDULE 2.02 Domestic Lending Offices
SCHEDULE 2.03 Eurodollar Lending Offices
SCHEDULE 2.20 Letter of Credit Fee Schedule
SCHEDULE 4.01 Qualified Jurisdictions
SCHEDULE 4.05 Material Adverse Change
SCHEDULE 4.06(a) Litigation
SCHEDULE 4.06(b) Compliance with Laws
SCHEDULE 4.15 Subsidiaries
SCHEDULE 4.16(a) Defects in Title
SCHEDULE 4.16(c) Pending Claims
SCHEDULE 4.19 Environmental Law Compliance
SCHEDULE 4.22 Bank Accounts
SCHEDULE 6.05(g) Inventory Designations
SCHEDULE 6.05(j) Borrowing Base Certificate
SCHEDULE 6.19(d) Post Closing Environmental Matters
SCHEDULE 7.01 Existing Liens
SCHEDULE 7.03 Existing Indebtedness
SCHEDULE I Management Investors
-iv-
<PAGE> 6
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 17,
1998, among AIRXCEL, INC. (formerly known as Recreation Vehicle
Products, Inc.), a Delaware corporation ("Airxcel" or a "Borrower"),
and KODA ENTERPRISES GROUP, INC. (which, on the Closing Date, will
merge with its subsidiaries, Koda Industries of Tennessee, Inc. and
Suburban Manufacturing Company, and will change its name to Suburban
Manufacturing Company), a Delaware corporation ("SMC" or a
"Borrower" and, together with Airxcel, the "Borrowers"), the
Guarantors at any time party hereto, the lenders named in Schedules
2.01(a) and 2.01(b) annexed hereto (collectively, the "Lenders"),
and THE CHASE MANHATTAN BANK, as agent for the Lenders (in such
capacity, the "Agent").
The Borrowers have applied to the Lenders for Loans (such term and all
other capitalized terms used in this paragraph having the respective meanings
ascribed to such terms above or hereinafter) up to an aggregate principal amount
of $38,000,000 in the form of (a) a Term Loan to the Borrowers in an aggregate
principal amount not in excess of $10,000,000 outstanding and (b) Revolving
Credit Loans to the Borrowers at any time and from time to time prior to the
Revolving Credit Termination Date in an aggregate principal amount not in excess
of $28,000,000 at any time outstanding. The proceeds of the Term Loan shall be
used to partially finance the acquisition of SMC pursuant to the Acquisition
Agreement. The proceeds of the Revolving Credit Loans shall be used to partially
finance the acquisition of SMC, and for working capital and general corporate
purposes. The Grantors will provide Collateral in accordance with the provisions
of this Agreement and the Security Documents. The Lenders are severally, and not
jointly, willing to extend such Loans to the Borrowers subject to the terms and
conditions hereinafter set forth. Accordingly, the Borrowers, the Guarantors,
the Lenders and the Agent hereby agree as follows:
I. DEFINITIONS
SECTION 1.01. Certain Defined Terms. For purposes hereof, the following
terms shall have the meanings specified below:
"Acquisition" shall mean the purchase by Airxcel of 100% of the issued and
outstanding stock of SMC pursuant to the provisions of the Acquisition
Agreement.
"Acquisition Agreement" shall mean the Stock Purchase Agreement dated as
of March 17, 1998, between William S. Karol, as seller, and Airxcel, as buyer.
"Acquisition Documents" shall mean the Acquisition Agreement and all
agreements, documents and instruments executed and delivered pursuant thereto or
in connection therewith including, without limitation, any shareholders'
agreement, in each case as in effect on the Closing Date.
<PAGE> 7
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Loan for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the product of (i) the LIBO Rate in effect for
such Interest Period and (ii) Statutory Reserves. For purposes hereof,
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves)
expressed as a decimal established by the Board and any other banking authority
to which any Lender is subject with respect to the Adjusted LIBO Rate for
Eurocurrency Liabilities (as defined in Regulation D). Such reserve percentages
shall include, without limitation, those imposed under Regulation D. Eurodollar
Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall
be deemed to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets which may be available from time to
time to any Lender under Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Affiliate" of any person shall mean any other person which, directly or
indirectly, controls or is controlled by or is under common control with such
person and, without limiting the generality of the foregoing, includes (i) any
person which beneficially owns or holds 5% or more of any class of voting
securities of such person or 5% or more of the equity interest in such person,
(ii) any person of which such person beneficially owns or holds 5% or more of
any class of voting securities or in which such person beneficially owns or
holds 5% or more of the equity interest in such person and (iii) any director or
officer of such person. For the purposes of this definition, the term "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Agent" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Airxcel" shall mean Airxcel, Inc., a Delaware corporation.
"Alternate Base Loan" shall mean a Loan based on the Alternate Base Rate
in accordance with Article II hereof.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1%, and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. "Prime Rate" shall mean the rate of interest per annum publicly announced
from time to time by the Agent at its principal office in New York City as its
prime rate in effect at such time. "Base CD Rate" shall mean the sum of (a) the
product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and
(b) the Assessment Rate. "Three-Month Secondary CD Rate" shall mean, for any
day, the secondary market rate for three-month certificates of deposit reported
as
-2-
<PAGE> 8
being in effect on such day (or, if such day shall not be a Business Day, the
next preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate shall
not be so reported on such day or such next preceding Business Day, the average
of the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00 a.m.,
New York City time, on such day (or, if such day shall not be a Business Day, on
the next preceding Business Day) by the Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected by it.
"Statutory Reserves" shall mean a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the maximum reserve percentage (including any marginal, special,
emergency or supplemental reserves) expressed as a decimal, established by the
Board and any other banking authority to which the Agent is subject with respect
to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of
over $100,000 with maturities approximately equal to three months. Statutory
Reserves shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage. "Assessment Rate" shall mean the annual
assessment rate (net of refunds and rounded upwards, if necessary, to the next
1/16 of 1%) estimated by the Agent (in good faith, but in no event in excess of
statutory or regulatory maximums) to be payable by the Agent to the Federal
Deposit Insurance Corporation (or any successor) for insurance by such
Corporation (or such successor) of time deposits made in dollars at the Agent's
domestic offices during the current calendar year. "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate,
or both, for any reason, including, the inability or failure of the Agent to
obtain sufficient quotations in accordance with the terms hereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Applicable Lending Office" shall mean, with respect to each Lender, such
Lender's Domestic Lending Office in the case of an Alternate Base Loan and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Loan.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee and accepted by the Agent, in
substantially the form of Exhibit F annexed hereto.
-3-
<PAGE> 9
"Assignment of Contract" shall mean, collectively, (i) the Assignment of
Contract, dated as of the date hereof, between Airxcel and the Agent, for its
own benefit and for the benefit of the Lenders, (ii) the Assignment of Contract,
dated as of the First Amendment Closing Date, between Airxcel and the Agent, for
its own benefit and for the benefit of the Lenders and (iii) the Assignment of
Contract, dated as of the Original Closing Date, between Holdings and the Agent,
for its own benefit and for the benefit of the Lenders, each substantially in
the form of Exhibit I annexed hereto, each as amended, modified or supplemented
from time to time.
"Availability" shall mean at any time (i) the lesser at such time of (x)
the Total Revolving Credit Commitment and (y) the Borrowing Base as set forth in
the most recent certificate delivered pursuant to Section 6.05(j), minus (ii)
the sum at such time of (x) the unpaid principal balance of the Revolving Credit
Loans together with all reserves established pursuant to this Agreement
including, without limitation, Sections 2.01 and 7.01(c) hereof, and (y) the
Letter of Credit Usage.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States.
"Borrowers" shall have the meaning assigned to such term in the preamble
to this Agreement.
"Borrowing Base" shall have the meaning assigned to such term in Section
2.01(b) hereof.
"Business Day" shall mean any day, other than a Saturday, Sunday or legal
holiday in the State of New York, on which banks are open for substantially all
their banking business in New York City except that, if any determination of a
"Business Day" shall relate to a Eurodollar Loan, the term "Business Day" shall
in addition exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Capitalized Lease Obligation" shall mean an obligation to pay rent or
other amounts under any lease of (or other arrangement conveying the right to
use) real and/or personal property which obligation is required to be classified
and accounted for as a capital lease on a balance sheet prepared in accordance
with GAAP, and for purposes hereof the amount of such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"Cash Interest Expense" shall mean, with respect to any person for any
period, the Interest Expense of such person for such period less all non-cash
items constituting Interest Expense during such period (including, without
limitation, amortization of debt discounts and payments of interest on
Indebtedness by issuance of Indebtedness or by accrual), determined on a
Consolidated basis in accordance with GAAP.
"Change of Control" shall mean either (i) Holdings shall cease to own 100%
of all classes of Airxcel's outstanding capital stock, free and clear of any
Liens (other than Liens created pursuant to this Agreement), (ii) Airxcel shall
cease to own 100% of all classes of
-4-
<PAGE> 10
SMC's outstanding capital stock, free and clear of any Liens (other than Liens
created pursuant to this Agreement) or (iii) the Investor Group shall cease to
own common stock of Holdings representing not less than 65% of the common equity
interest, whether voting or non-voting, in Holdings on a fully diluted basis
assuming the exercise of all securities exercisable, convertible or exchangeable
for or into common stock equity interests and (B) after a registered initial
public offering of the common stock of Holdings, the Investor Group shall cease
to own common stock of Holdings representing not less than 51% of the common
equity interest, whether voting or non-voting, in Holdings on a fully diluted
basis assuming the exercise of all securities exercisable, convertible or
exchangeable for or into common stock interests.
"Closing Date" shall mean the date of the first borrowing under this
Agreement, but in no event later than March 17, 1998.
"Coast" shall mean The Coast Distribution Systems, Inc., a California
corporation.
Coast Distribution Agreement" shall mean the Distribution Agreement dated
as of October 11, 1995 between Airxcel and Coast.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean all collateral and security as described in the
Security Documents.
"Commitment" shall mean, with respect to each Lender, the sum of the Term
Loan Commitment of such Lender as set forth in Schedule 2.01(a), and the
Revolving Credit Commitment of such Lender as set forth in Schedule 2.01(b), as
each may be adjusted from time to time pursuant to this Agreement including,
without limitation, Section 2.07 hereof.
"Consolidated" shall mean, in respect of any person, as applied to any
financial or accounting term, such term determined on a consolidated basis in
accordance with GAAP (except as otherwise required herein) for the person and
all consolidated subsidiaries thereof.
"Credit Event" shall mean each borrowing and each issuance of a Letter of
Credit hereunder.
"Credits" shall mean each Loan and each Letter of Credit.
"Crispaire Acquisition Documents" shall mean the Asset Purchase Agreement
dated as of October 17, 1997, among Crispaire Corporation, as seller, and
Airxcel, as buyer, and Holdings, and all agreements, documents and instruments
executed and delivered pursuant thereto or in connection therewith, in each case
as in effect on the First Amendment Closing Date.
-5-
<PAGE> 11
"Customer" shall mean and include the account debtor or obligor with
respect to any Receivable.
"Debt Service Coverage Ratio" shall mean, with respect to any person for
any period, the ratio of (i) Funds from Operations minus capital expenditures
paid in cash (including, without limitation, the principal component of
Capitalized Lease Obligations paid in cash during such period) for such period
to (ii) the aggregate Debt Service Expense of such person for such period.
"Debt Service Expense" shall mean, with respect to any person for any
period, the aggregate of regularly scheduled principal payments of all long-term
Indebtedness (including, without limitation, Subordinated Indebtedness) made or
to be made by such person during such period on a Consolidated basis in
accordance with GAAP; provided, however, that solely for the purposes of
determining the Debt Service Coverage Ratio, Debt Service Expense shall exclude
the principal component of Capitalized Lease Obligations.
"Default" shall mean any condition, act or event which, with notice or
lapse of time or both, would constitute an Event of Default.
"dollars" or the symbol "$" shall mean dollars in lawful currency of the
United States of America.
"Domestic Lending Office" shall mean, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" opposite its
name in Schedule 2.02 annexed hereto, or such other office of such Lender as
such Lender may from time to time specify to the Borrowers and the Agent.
"Domestic Subsidiary" means, with respect to any person, any subsidiary of
such person which is incorporated or organized under the laws of the United
States, any State or the District of Columbia or the Commonwealth of Puerto
Rico.
"EBITDA" shall mean with respect to any person for any period the sum of
(i) Net Income, (ii) Interest Expense, (iii) depreciation and amortization of
intangible assets and (iv) federal, state and local income taxes, in each case
of such person for such period, in each case, determined on a Consolidated basis
in accordance with GAAP; provided, however, that for the purposes of determining
the Interest Margin or the Unutilized Fee Margin, EBITDA for any person shall be
calculated as though such person and its Consolidated subsidiaries were
"Consolidated" for the twelve calendar month period immediately preceding the
date of determination; provided, further, that in determining EBITDA with
respect the Borrowers for each of the first four fiscal quarters ending after
the Closing Date, EBITDA for such persons shall be adjusted for nonrecurring and
unrelated items such as expenses related to assets or operations not part of
such person or compensation paid to the former owners of such persons, in each
case as consented to by the Agent.
"Environmental Claim" shall mean any written notice of violation, claim,
demand, abatement or other order by any governmental authority or any person for
personal injury
-6-
<PAGE> 12
(including sickness, disease or death), tangible or intangible property damage,
damage to the environment, nuisance, pollution, contamination or other adverse
effects on the environment, or for fines, penalties or deed or use restrictions,
resulting from or based upon (i) the existence, or the continuation of the
existence, of a Release (including, without limitation, sudden or non-sudden,
accidental or nonaccidental Releases), of, or exposure to, any Hazardous
Material at, in, by or from any of the properties of the Borrowers or their
subsidiaries, (ii) the environmental aspects of the transportation, storage,
treatment or disposal of Hazardous Materials in connection with the operation of
any of the properties of the Borrowers or their subsidiaries or (iii) the
violation, or alleged violation by the Borrowers or any of their subsidiaries,
of any statutes, ordinances, orders, rules, regulations, Permits or licenses of
or from any governmental authority, agency or court relating to environmental
matters connected with any of the properties of the Borrowers or their
subsidiaries, under any applicable Environmental Law.
"Environmental Laws" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Oil Pollution Act of
1990 (33 U.S.C. ss.2701 et seq.), the Safe Drinking Water Act (42 U.S.C. ss.
300f, et seq.), the Clear Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), as such laws
have been and hereafter may be amended or supplemented, and any applicable
related or analogous present or future Federal, state or local, statutes, rules,
regulations, ordinances, licenses, permits and orders of regulatory and
administrative bodies.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder, as in effect from
time to time.
"ERISA Afffiliate" shall mean any trade or business (whether or not
incorporated) which together with any Borrower or any subsidiary thereof would
be treated as a single employer under the provisions of Title I or Title IV of
ERISA.
"Eurodollar Lending Office" shall mean, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite its
name in Schedule 2.03 annexed hereto (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender as such Lender may
from time to time specify to the Borrowers and the Agent.
"Eurodollar Loan" shall mean a Loan based on the Adjusted LIBO Rate in
accordance with Article II hereof.
"Event of Default" shall have the meaning assigned to such term in Article
VIII hereof.
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<PAGE> 13
"Excess Cash Flow" shall mean, with respect to any person for any period,
the amount, if any, by which Net Cash Flow of such person and its subsidiaries
on a Consolidated basis for such period exceeds the Debt Service Expense of such
person and its subsidiaries on a Consolidated basis for such period.
"Final Maturity Date" shall mean March 31, 2005.
"Financial Officer" shall mean, with respect to any person, the chief
financial officer or the chief accounting officer of such person.
"First Amended Agreement" shall mean the First Amended and Restated Credit
Agreement, dated as of November 10, 1997, among Airxcel, the Guarantors at any
time party thereto, the Lenders named therein and the Agent.
"First Amendment Closing Date" shall mean November 10, 1997.
"Fiscal Year" for the purposes of the Loan Documents, shall mean on a
combined pro forma basis for the Borrowers, December 31 of each year.
"Foreign Subsidiary" means, with respect to any person, any subsidiary of
such Person which is not a Domestic Subsidiary of such Person. On the Closing
Date, Airxcel's sole Foreign Subsidiary is RVPI.
"Funds from Operations" shall mean, with respect to any person for any
period, without duplication of addition or subtraction of items, the sum for
such person for such period of (i) Net Income plus (ii) depreciation and
amortization plus (iii) other noncash items properly deducted in arriving at
pre-tax income (or loss) plus (iv) increases in deferred taxes plus (v) losses
from discontinued operations.
"GAAP" shall have the meaning assigned to such term in Section 1.02
hereof.
"Grantor" shall mean any Grantor, Pledgor or Debtor, as such terms are
defined in any of the Security Documents.
"Guarantee" shall mean any obligation, contingent or otherwise, of any
person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or obligation of any other person in any manner, whether directly
or indirectly, and shall in any event include the Holdings Guarantee, and shall
include, without limitation, any obligation of such person, direct or indirect,
to (i) purchase or pay (or advance or supply funds for the purchase or payment
of such Indebtedness or obligation or to purchase (or to advance or supply funds
for the purchase of any security for the payment of such Indebtedness or
obligation, (ii) purchase property, securities or services for the purpose of
assuring the owner of such Indebtedness or obligation of the payment of such
Indebtedness or obligation, or (iii) maintain working capital, equity capital,
available cash or other financial condition of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or obligation; provided,
however, that the term Guarantee shall not include
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<PAGE> 14
endorsements for collection or collections for deposit, in either case in the
ordinary course of business.
"Guarantor" shall mean, collectively, Holdings and any Domestic Subsidiary
of any Borrower which becomes a guarantor of the Obligations after the date
hereof.
"Hazardous Material" shall mean any pollutant, contaminant, or hazardous,
toxic or dangerous waste, substance or material, defined or regulated as such in
(or for purposes of) any Environmental Law and any other toxic, reactive, or
flammable chemicals, including (without limitation) any asbestos, any petroleum
(including crude oil or any fraction), any radioactive substance and any
polychlorinated biphenyls; provided, in the event that any Environmental Law is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment; and
provided, further, to the extent that the applicable laws of any state establish
a meaning for "hazardous material," "hazardous substance," "hazardous waste,"
"solid waste" or "toxic substance" which is broader than that specified in any
Federal Environmental Law, such broader meaning shall apply.
"Holdings" shall mean Airxcel Holdings, Inc., a Delaware corporation,
together with its successors and assigns.
"Holdings Guarantee" shall mean the Guarantee by Holdings of the
Obligations, dated as of the Closing Date, substantially in the form of Exhibit
H annexed hereto, as amended, modified or supplemented from time to time.
"Indebtedness" shall mean, with respect to any person, (a) all obligations
of such person for borrowed money or with respect to deposits or advances of any
kind, (b) all obligations of such person evidenced by bonds, debentures, notes
or other similar instruments or upon which interest charges are customarily
paid, (c) all obligations of such person for the deferred purchase price of
property or services, except current accounts payable arising in the ordinary
course of business and not overdue beyond such period as is commercially
reasonable for such person's business, or, if overdue, the validity of which are
being contested in good faith by appropriate proceedings by such person, (d) all
obligations of such person under conditional sale or other title retention
agreements relating to property purchased by such person and all Capitalized
Lease Obligations, (e) all payment obligations of such person with respect to
interest rate or currency protection agreements, (f) all obligations of such
person as an account party under any letter of credit or in respect of bankers'
acceptances, (g) all obligations of any third party secured by property or
assets of such person (regardless of whether or not such person is liable for
repayment of such obligations), (h) all Guarantees of such person and (i) the
redemption price of all redeemable preferred stock of such person, but only to
the extent that such stock is redeemable at the option of the holder or requires
sinking fund or similar payments at any time prior to the Final Maturity Date.
"Indemnitees" shall have the meaning assigned to such term in Section
11.04(c) hereof.
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<PAGE> 15
"Information" shall have the meaning assigned to such term in Section
11.11 hereof.
"Interest Coverage Ratio" shall mean, with respect to any person for any
four quarter period, the ratio of (i) EBITDA for the four (or such lesser number
of quarters as shall have elapsed since the Closing Date) most recent
consecutive fiscal quarters ending on or prior to the date of determination, to
(ii) the Cash Interest Expense of such person for such four (or such lesser
number of quarters as shall have elapsed since the Closing Date) quarter period,
in each case, determined on a Consolidated basis in accordance with GAAP.
"Interest Expense" shall mean, with respect to any person for any period,
the interest expense of such person during such period determined on a
Consolidated basis in accordance with GAAP, and shall in any event include,
without limitation, (i) the amortization of debt discounts, (ii) the
amortization of all fees payable in connection with the incurrence of
Indebtedness to the extent included in interest expense, (iii) the portion of
any Capitalized Lease Obligation allocable to interest expense, (iv) all fixed
and all calculable dividend payments on preferred stock, and (v) payments of
interest expense in kind.
"Interest Margin" or "Unutilized Fee Margin" shall mean, at any time, with
respect to any Loan, the amount set forth below as corresponds to the Leverage
Ratio set forth below, determined on the Closing Date and adjusted thereafter,
within ten (10) Business Days after the delivery of the financial statements to
the Agent required pursuant to Section 6.05(a) or (b) hereof, as applicable,
together with the corresponding compliance certificates required pursuant to
Section 6.05(e) hereof, commencing with the financial statements and
certificates for the period ending September 30, 1998, or if the Borrowers shall
fail to timely deliver such statements and certificates for any such period,
then at the highest Interest Margin or Unutilized Fee Margin, as applicable,
provided for herein:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Alternate
LIBO Rate Base Rate Unutilized
Leverage Ratio Interest Margin Interest Margin Fee Margin
- -------------- --------------- --------------- ----------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 3.00:1.00 2.50% 1.25% 0.50%
- --------------------------------------------------------------------------------
Equal to or less than 3.00:1.00
but greater than 2.00:1.00 2.25% 1.00% 0.50%
- --------------------------------------------------------------------------------
Equal to or less than 2.00:1.00
but greater than 1.00:1.00 2.00% 0.75% 0.375%
- --------------------------------------------------------------------------------
Less than or equal to 1.00:1.00 1.75% 0.50% 0.25%
- --------------------------------------------------------------------------------
</TABLE>
On the Closing Date and until the day the adjustment, if any, is made to
the Interest Margin and the Unutilized Fee Margin following the receipt by the
Agent of the financial statements required under Section 6.05(b) for the period
ending September 30, 1998 and the related compliance certificates, the LIBO Rate
Interest Margin shall be 2.25%, the Alternate Base Rate Interest Margin shall be
1.00% and the Unutilized Fee Margin shall be 0.50%; each shall thereafter be
adjusted in accordance with the provisions hereof.
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<PAGE> 16
"Interest Payment Date" shall mean (i) in the case of an Alternate Base
Loan, the first Business Day of each January, April, July and October,
commencing April 1, 1998 (which shall cover the period from January 2, 1998 for
Loans outstanding under the Original Credit Agreement and which are being
continued and extended under this Agreement), and (ii) with respect to any
Eurodollar Loan (which shall include those outstanding under the First Amended
Agreement and which are being continued and extended under this Agreement), the
last day of the Interest Period applicable thereto, and, in addition, in respect
of any Eurodollar Loan of more than three (3) months' duration, each earlier day
which is three (3) months after the first day of such Interest Period.
"Interest Period" shall mean, as to any Eurodollar Loan, the period
commencing on the date of such Eurodollar Loan and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is one (1), two (2), three (3) or six (6) months
thereafter, as the Borrowers may elect with respect to their Eurodollar Loans;
provided, however, that (x) if an Interest Period would end on a day that is not
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, with respect to Eurodollar Loans, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day, (y) no Interest Period
shall end later than the Final Maturity Date and (z) interest shall accrue from
and including the first day of an Interest Period to but excluding the last day
of such Interest Period.
"Inventory" shall mean (i) inventory of the Borrowers and their
subsidiaries comprised of raw materials and finished goods which is not
obsolete, slow-moving or unmerchantable, (ii) inventory of the Borrowers and
their subsidiaries comprised of work-in process, excluding any work-in-process
relating to the assembly of awning products, which is not obsolete, slow-moving
or unmerchantable.
"Investor Group" shall mean Citicorp Venture Capital, Ltd., its
Affiliates, their respective employees and the Management Investors.
"Lender" shall have the meaning assigned to such term in the preamble to
this Agreement.
"Letter of Credit" shall have the meaning assigned such term in Section
2.17 hereof.
"Letter of Credit Usage" shall mean at any time, (i) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (ii) the
unreimbursed drawings at such time under all such Letters of Credit.
"Leverage Ratio" with respect to any person at the end of any fiscal
quarter shall mean the ratio of (i) Senior Funded Debt as at the date of
determination to (ii) EBITDA of such person for the four most recent consecutive
fiscal quarters ending on or prior to the date of determination, in each case,
determined on a Consolidated basis in accordance with GAAP.
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<PAGE> 17
"LIBO Rate" shall mean, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal in principal amount to the Eurodollar Loan of the Agent and for a maturity
equal to the applicable Interest Period are offered in immediately available
funds to the London branch of the Agent by leading banks in the London interbank
market for Eurodollars at approximately 11:00 a.m., London time, two (2)
Business Days prior to the first day of such Interest Period.
"Lien" shall mean, with respect to any asset, (i) any mortgage, lien,
pledge, encumbrance, charge or security interest in or on such asset, (ii) the
interest of a vendor or a lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset, (iii) in the
case of securities, any purchase option, call or similar right of a third party
with respect to such securities or (iv) any other right of or arrangement with
any creditor to have such creditor's claim satisfied out of such assets, or the
proceeds therefrom, prior to the general creditors of the owner thereof.
"Loan" shall mean any Term Loan or any Revolving Credit Loan.
"Loan Documents" shall mean this Agreement, each Security Document, each
Guarantee executed and delivered at any time with respect to the Obligations,
the Notes and each other document, instrument, or agreement now or hereafter
delivered to the Agent or any Lender in connection herewith or therewith.
"Loan Party" shall mean each Borrower, each Grantor, each Guarantor, and
each subsidiary thereof.
"Management Investors" shall mean the individual investors listed on
Schedule I attached hereto.
"Mandatory Prepayment" shall mean an amount equal to 25% of the first
$5,000,000 of Excess Cash Flow, plus 15% of the second $5,000,000 of Excess Cash
Flow, plus 7.5% of the third $5,000,000 of Excess Cash Flow; provided that for
the Fiscal Year ended December 31,1998, the Mandatory Prepayment shall not
exceed $750,000 and shall be calculated based on the period from the Closing
Date through December 31, 1998.
"Margin Stock" shall have the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
business, assets, prospects, operations or financial or other condition of any
Loan Party, (ii) the ability of any Loan Party to perform or pay the Obligations
in accordance with the terms hereof or of any other Loan Document, (iii) the
rights of, or benefits available to, the Lenders or the Agent under any Loan
Document or (iv) the Agent's Lien on any material portion of the Collateral or
the priority of such Lien.
"Mortgages" shall mean, collectively, (i) the real property mortgage,
dated as March 31, 1997, recorded June 20, 1997, relating to Airxcel's real
property located in Wichita, Kansas, (ii) the real property mortgage, dated as
of the Closing Date, relating to
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<PAGE> 18
SMC's real property located in Dayton, Tennessee and (iii) the real property
mortgage, dated as of the Closing Date, relating to SMC's real property located
in Elkhart, Indiana, each of which having been executed by the Grantor(s) in
favor of the Agent, for its own benefit and for the benefit of the Lenders, as
amended, modified or supplemented from time to time.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Net Amount of Inventory" shall mean, at any time, the aggregate value,
computed at the lower of cost (on a FIFO basis) and current market value of
Inventory.
"Net Amount of Receivables" shall mean and include at any time, without
duplication, the gross amount of Receivables at such time less (i) sales, excise
or similar taxes and (ii) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed.
"Net Cash Flow" shall mean, with respect to any person for any period,
without duplication of addition or subtraction of items, (A) the sum for such
period of (i) Net Income, (ii) depreciation and amortization and (iii) other
non-cash items properly deducted in arriving at Net Income minus (B) all capital
expenditures during such period, in each case, determined on a Consolidated
basis in accordance with GAAP.
"Net Income" shall mean, with respect to any person for any period, the
aggregate income (or loss) of such person for such period which shall be an
amount equal to net revenues and other proper items of income for such person
less the aggregate for such person of any and all items that are treated as
expenses under GAAP, less Federal, state and local income taxes, plus, to the
extent deducted or added in determining net income, non-cash expenses associated
with Holdings' stock option plans, but excluding any extraordinary gains or
losses or any gains or losses from the sale or disposition of assets other than
in the ordinary course of business, in each case, determined on a Consolidated
basis in accordance with GAAP.
"Notes" shall mean the Term Notes and the Revolving Credit Notes.
"Obligations" shall mean all obligations, liabilities and Indebtedness of
the Borrowers to the Lenders and the Agent under or in connection with the Loan
Documents, whether now existing or hereafter created, direct or indirect, due or
not, whether created directly or acquired by assignment, participation or
otherwise, including without limitation all obligations, liabilities and
Indebtedness of the Borrowers with respect to the Security Documents and other
Loan Documents, the principal of and interest on the Revolving Credit Loans, the
Term Loans and the payment or performance of all other obligations, liabilities,
and Indebtedness of the Borrowers to the Lenders and the Agent hereunder, under
the Letters of Credit or under any one or more of the other Loan Documents
(including the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, and interest
that, but for the filing of a petition in bankruptcy with respect to any
Borrower, would accrue on such
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<PAGE> 19
obligations, whether or not a claim is allowed against such Borrower for such
interest in the related bankruptcy proceeding), including without limitation all
fees, costs, expenses and indemnity obligations hereunder and thereunder.
"Original Closing Date" shall mean August 22, 1996.
"Original Credit Agreement" shall mean the Credit Agreement, dated as of
August 22, 1996, as amended to the First Amendment Closing Date, among Airxcel,
the lenders and guarantors named therein, and the Agent.
"Other Taxes" shall have the meaning assigned to such term in Section
2.15(b) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any Plan which is subject to the provisions of
Title IV of ERISA.
"Permits" shall have the meaning assigned to such term in Section 4.18
hereof.
"person" shall mean any natural person, corporation, limited liability
company, business trust, association, company, joint venture, partnership or
government or any agency or political subdivision thereof.
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA and which is maintained (in whole or in part) for employees of the
Borrowers, any subsidiary or any ERISA Affiliate.
"Pledge Agreement" shall mean the Pledge Agreement dated as of the
Original Closing Date, as amended and restated as of the date hereof, between
the Grantor(s) and the Agent, for its own benefit and for the benefit of the
Lenders, in substantially the form of Exhibit D annexed hereto, as amended,
modified or supplemented from time to time.
"Pledged Stock" shall have the meaning assigned to such term in the Pledge
Agreement.
"Qualified Sale" shall mean any sale or other disposition by any Loan
Party or any of their respective subsidiaries, other than in the ordinary course
of business, of any equipment or property (other than inventory or Receivables)
for (x) cash equal to at least 90% of the fair market value thereof determined
in good faith by the Board of Directors of such Loan Party, (y) "trade-in" or
(z) "trade-up", in each case, of all of the net cash proceeds thereof (a) within
twelve months after the date of such sale shall be applied to the purchase of
capital equipment or property, such purchased equipment or property to be used
in the ordinary course of business of such Loan Party or subsidiary, and to have
a fair market value in the aggregate of not less than the amount of such net
cash proceeds, or (b) shall be applied to the payment of Indebtedness incurred
in connection with the purchase of any equipment or property described in clause
(a) above, and (c) in the case
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<PAGE> 20
of clause (a) above, pending such application, shall be deposited into a cash
collateral account maintained with the Agent, pursuant to agreements in form,
scope and substance reasonably satisfactory to the Agent.
"Receivables" shall mean and include all of the Borrowers' and their
subsidiaries' accounts, instruments, documents, chattel paper and general
intangibles, whether secured or unsecured, whether now existing or hereafter
created or arising, and whether or not specifically assigned to the Agent for
its own benefit and/or the ratable benefit of the Lenders.
"Register" shall have the meaning assigned to such term in Section
11.03(e) hereof.
"Regulation D" shall mean Regulation D of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation T" shall mean Regulation T of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board, as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"Release" shall mean any releasing, spilling, leaking, seepage, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping, in each case as defined in Environmental Law, and shall
include any "Threatened Release," as defined in Environmental Law.
"Remedial Work" shall mean any investigation, site monitoring,
containment, cleanup, removal, restoration or other remedial work of any kind or
nature with respect to any property of the Borrowers or their subsidiaries
(whether such property is owned, leased, subleased or used), including, without
limitation, with respect to Hazardous Materials and the Release thereof.
"Repayment Date" shall have the meaning set forth in Section 2.04(f)
hereof.
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<PAGE> 21
"Reportable Event" shall mean a Reportable Event as defined in Section
4043(c) of ERISA.
"Required Lenders" shall mean Lenders having 51% of the Total Commitment.
"Responsible Officer" shall mean, with respect to any person, any vice
president or president, or the chief financial officer or controller, of such
person.
"Revolving Credit Alternate Base Loan" shall mean a Revolving Credit Loan
that is an Alternate Base Loan.
"Revolving Credit Commitment" shall mean, with respect to any Lender, the
Revolving Credit Commitment of such Lender as set forth in Schedule 2.01(b)
annexed hereto, as the same may be reduced from time to time pursuant to this
Agreement including, without limitation, Section 2.07 hereof.
"Revolving Credit Commitment Fee" shall have the meaning set forth in
Section 2.06(a) hereof.
"Revolving Credit Eurodollar Loan" shall mean a Revolving Credit Loan that
is a Eurodollar Loan.
"Revolving Credit Loan" shall mean a Revolving Credit Loan made pursuant
to Section 2.01 and 2.02 hereof.
"Revolving Credit Notes" shall mean the Revolving Credit Notes of the
Borrowers, executed and delivered as provided in Section 2.04 hereof, in
substantially the form of Exhibit B annexed hereto, as amended, modified or
supplemented from time to time.
"Revolving Credit Termination Date" shall mean the earlier to occur of (i)
March 31, 2003 and (ii) such date as the Revolving Credit Loans shall otherwise
be payable in full and the Revolving Credit Commitment shall terminate, expire
or be canceled in accordance with the terms of this Agreement.
"RVPI" shall mean RVP International Sales Corporation, a Barbados
corporation.
"Security Agreement" shall mean the Security Agreement dated as of the
Original Closing Date, between the Grantor(s) and the Agent, for its own
benefit and for
16
<PAGE> 22
the benefit of the Lenders, substantially in the form of Exhibit E annexed
hereto, as amended, modified or supplemented from time to time.
"Security Agreement - Patents and Trademarks" shall mean the Amended and
Restated Security Agreement and Mortgage - Patents and Trademarks, dated as of
the Closing Date, between the Debtor(s), as such term is defined therein, and
the Agent, for its own benefit and for the benefit of the Lenders, substantially
in the form of Exhibit G annexed hereto, as amended, modified or supplemented
from time to time.
"Security Documents" shall mean the Pledge Agreement, the Security
Agreement, the Security Agreement - Patents and Trademarks, the Assignment of
Contract, the Mortgages and each other agreement now existing or hereafter
created providing collateral security for the payment or performance of any
Obligations.
"Senior Funded Debt" shall mean with respect to any person as of the date
of determination thereof, all Indebtedness of such person and its subsidiaries
on a Consolidated basis outstanding at such time which matures more than one
year after the date of calculation, and any such Indebtedness maturing within
one year from such date of calculation which is renewable or extendable at the
option of the obligor to a date more than one year from such date and including
in any event the Revolving Credit Loans, but excluding Subordinated Indebtedness
of such person.
"SMC" shall mean Koda Enterprises Group, Inc., a Delaware corporation
which, on the Closing Date, will merge with its subsidiaries, Koda Industries of
Tennessee, Inc. and Suburban Manufacturing Company, and will change its name to
Suburban Manufacturing Company.
"Subordinated Indebtedness" shall mean, with respect to any Borrower,
Indebtedness subordinated in right of payment to such person's monetary
obligations under this Agreement upon terms satisfactory to and approved in
writing by the Agent, to the extent it does not by its terms (except as
otherwise approved in writing by the Agent) mature or become subject to any
mandatory prepayment or amortization of principal prior to the Final Maturity
Date, and shall in any event include the Indebtedness of Airxcel pursuant to the
Subordinated Notes.
"Subordinated Notes" shall mean the $125,000,000 principal amount of
Senior Subordinated Notes due 2007, Series A and Series B, of which $90,000,000
is outstanding as of the Closing Date.
"subsidiary" shall mean, with respect to any person, any corporation,
association or other business entity of which securities or other ownership
interests representing more than 50% of the ordinary voting power are, at the
time as of which any determination is being made, owned or controlled, directly
or indirectly, by the parent of such person or one or more subsidiaries of the
parent of such person.
"Taxes" shall have the meaning assigned to such term in Section 2.15(a)
hereof.
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<PAGE> 23
"Term Alternate Base Loan" shall mean a Term Loan that is an Alternate
Base Loan.
"Term Eurodollar Loan" shall mean a Term Loan that is a Eurodollar Loan.
"Term Loan" shall mean the Term Loan made pursuant to Sections 2.01 and
2.02.
"Term Loan Commitment" shall mean, with respect to any Lender, the Term
Loan Commitment of such Lender as set forth in Schedule 2.01(a).
"Term Notes" shall mean the Term Notes executed and delivered as provided
in Section 2.04, in substantially the form of Exhibit A hereto, as amended,
modified or supplemented from time to time.
"Total Commitment" shall mean the sum of the Lenders' Total Term Loan
Commitment and Total Revolving Credit Commitment, as the same may be reduced
from time to time pursuant to this Agreement including, without limitation,
Section 2.07 hereof.
"Total Revolving Credit Commitment" shall mean the sum of the Lenders'
Revolving Credit Commitments, as the same may be reduced from time to time
pursuant to this Agreement including, without limitation, Section 2.07 hereof.
"Total Term Loan Commitment" shall mean the sum of the Lenders' Term Loan
Commitments, as the same may be reduced from time to time pursuant to this
Agreement including, without limitation, Section 2.07 hereof.
"Transactions" shall have the meaning assigned to such term in Section
4.02 hereof.
SECTION 1.02. Accounting Terms. Unless otherwise expressly provided
herein, each accounting term used herein shall have the meaning given it under
generally accepted accounting principles in effect from time to time in the
United States applied on a basis consistent with those used in preparing the
financial statements referred to in Section 6.05 hereof ("GAAP"); provided,
however, that each reference to GAAP in Article VII hereof, in the definition of
any term used in Article VII hereof shall mean GAAP as in effect on the date
hereof. In determining compliance with any of the financial ratios which include
the payment of interest on the Notes, payment of interest on the Notes
(excluding fees and expenses payable in connection with this Agreement) (i) made
on or about January 1 in any Fiscal Year shall be deemed to have been made in
the fourth fiscal quarter of the prior Fiscal Year, (ii) made on or about April
1 of any Fiscal Year shall be deemed to have been made in the first fiscal
quarter of such Fiscal Year, (iii) made on or about July 1 in any Fiscal Year
shall be deemed to have been made in the second fiscal quarter of such Fiscal
Year and (iv) made on or about October 1 in any Fiscal Year shall be deemed to
have been made in the third fiscal quarter of such Fiscal Year. In calculating
the financial covenants contained in Sections 7.09 and 7.10, such calculations
shall be made for the Borrowers and their subsidiaries on a Consolidated basis
in accordance with GAAP.
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<PAGE> 24
II. THE LOANS
SECTION 2.01. Term Loan Commitments and Revolving Credit Commitments.
(a) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each Lender, severally and not
jointly, agrees to make a Term Loan to the Borrowers on the Closing Date, in a
principal amount not to exceed the amount of such Lender's Term Loan Commitment
set forth opposite its name in Schedule 2.01(a) hereto.
(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, each Lender, severally and not
jointly, agrees to make Revolving Credit Loans to the Borrowers, at any time and
from time to time from the date hereof to the Revolving Credit Termination Date,
in an aggregate principal amount at any time outstanding not to exceed the
amount of such Lender's Revolving Credit Commitment set forth opposite its name
in Schedule 2.01(b) annexed hereto, as such Revolving Credit Commitment may be
reduced from time to time in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the aggregate principal amount of Revolving
Credit Loans outstanding at any time to the Borrowers shall not exceed (1) the
lesser of (A) the Total Revolving Credit Commitment (as such amount may be
reduced pursuant to this Agreement including, without limitation, Section 2.07
hereof) and (B) an amount equal to the sum of (i) up to eighty-five percent
(85%) of the Net Amount of Receivables, plus (ii) the lesser of (x) $16,000,000
or (y) up to sixty percent (60%) of the Net Amount of Inventory, plus (iii) cash
and equivalents thereof maintained with the Agent on terms satisfactory to the
Agent and in which the Agent shall have a first priority perfected Lien (this
clause 1(B) referred to herein as the "Borrowing Base") minus (2) the Letter of
Credit Usage at such time (not to exceed $500,000 at any time). The Borrowing
Base will be computed monthly and a compliance certificate from a Responsible
Officer of each of the Borrowers presenting its computation will be delivered to
the Agent in accordance with Section 6.050(j) hereof.
Subject to the foregoing and within the foregoing limits, the Borrowers
may borrow, repay (or, subject to the provisions of Section 2.09 hereof, prepay)
and reborrow Revolving Credit Loans, on and after the date hereof and prior to
the Revolving Credit Termination Date, subject to the terms, provisions and
limitations set forth herein, including, without limitation, the requirement
that no Revolving Credit Loan shall be made hereunder if the amount thereof
exceeds the Availability as set forth in the most recent certificate delivered
to the Agent pursuant to Section 6.050(j) hereof.
SECTION 2.02. Loans. (a) The Revolving Credit Loans made by the Lenders on
any date shall be in integral multiples of $50,000; provided, however, that the
Eurodollar Loans made on any date shall be in a minimum aggregate principal
amount equal to the product of $500,000 times the number of Lenders on such
date.
(b) Loans shall be made ratably by the Lenders in accordance with their
respective Term Loan Commitments or Revolving Credit Commitments, as the case
may be; provided, however, that the failure of any Lender to make any Loan shall
not in itself
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<PAGE> 25
relieve any other Lender of its obligation to lend hereunder. The Term Loans to
be made on the Closing Date shall be made by the Lenders on the Closing Date
against delivery of Term Notes, payable to the order of the Lenders, as referred
to in Section 2.04. The initial Revolving Credit Loans shall be made by the
Lenders against delivery of Revolving Credit Notes, payable to the order of the
Lenders, as referred to in Section 2.04 hereof.
(c) Each Loan shall be either an Alternate Base Loan or a Eurodollar Loan
as the Borrowers may request pursuant to Section 2.03 hereof. Each Lender may
fulfill its obligations under this Agreement by causing its Applicable Lending
Office to make such Loan; provided, however, that the exercise of such option
shall not affect the obligation of the Borrowers to repay such Loan in
accordance with the term of the applicable Note. Not more than five (5)
Eurodollar Loans may be outstanding at any one time.
(d) Subject to the provisions of paragraph (e) below, each Lender shall
make its Term Loans and Revolving Credit Loans on the proposed dates thereof by
paying the amount required to the Agent in New York, New York in immediately
available funds not later than 12:00 noon, New York City time, and the Agent
shall as soon as practicable, but in no event later than 3:00 p.m., New York
City time, credit the amounts so received to the general deposit account(s) of
the Borrowers with the Agent in immediately available funds or, if Loans are not
to be made on such date because any condition precedent to a borrowing herein
specified is not met, return the amounts so received to the respective Lenders.
(e) The Borrowers shall have the right at any time upon prior irrevocable
written, telex or facsimile notice (promptly confirmed in writing) to the Agent
given in the manner and at the times specified in Section 2.03 with respect to
the Loans into which conversion or continuation is to be made, to convert all or
any portion of Eurodollar Loans into Alternate Base Loans, to convert all or any
portion of Alternate Base Loans into Eurodollar Loans (specifying the Interest
Period to be applicable thereto), to convert the Interest Period with respect to
all or any portion of any Eurodollar Loans to another permissible Interest
Period, and to continue all or any portion of any Loans into a subsequent
Interest Period of the same duration, subject to the terms and conditions of
this Agreement (including the last sentence of Section 2.02(c) hereof) and to
the following:
(i) in the case of a conversion or continuation of fewer than
all the Loans, the aggregate principal amount of Loans converted or
continued shall not be less than $50,000 in the case of Alternate
Base Loans or $500,000 times the number of Lenders on such date in
the case of Eurodollar Loans and shall be an integral multiple of
$100,000;
(ii) accrued interest on a Loan (or portion thereof being
converted or continued shall be paid by the Borrowers at the time of
conversion or continuation;
(iii) if any Eurodollar Loan is converted at any time other
than the end of an Interest Period applicable thereto, the Borrowers
shall make such payments associated therewith as are required
pursuant to Section 2.12;
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<PAGE> 26
(iv) any portion of a Revolving Credit Loan which is subject
to an Interest Period ending on a date that is less than one month
prior to the Revolving Credit Termination Date may not be converted
into, or continued as, a Eurodollar Loan and shall be automatically
converted at the end of such Interest Period into an Alternate Base
Loan;
(v) any portion of a Term Eurodollar Loan required to be paid
on any Repayment Date occurring less than one month after the end of
the then current Interest Period applicable to such Loan, may not be
converted into, or continued as, a Term Eurodollar Loan and shall be
automatically converted at the end of such Interest Period into a
Term Alternate Base Loan; and
(vi) no unwaived Default or Event of Default shall have
occurred and be continuing.
The Interest Period applicable to any Eurodollar Loan resulting from
a conversion shall be specified by the Borrowers in the irrevocable notice of
conversion delivered pursuant to this Section; provided, however, that if no
such Interest Period shall be specified, the Borrowers shall be deemed to have
selected an Interest Period of one month's duration; provided, further, that no
such Interest Period may be for more than one month's duration for the period
commencing on the Closing Date and ending on the earlier of (A) the 1 20th day
following the Closing Date and (B) the satisfactory completion by The Chase
Manhattan Bank of the syndication of its Commitment and Loans (as determined by
The Chase Manhattan Bank). If the Borrowers shall not have given timely notice
to continue any Eurodollar Loan into a subsequent Interest Period (and shall not
otherwise have given notice to convert such Loan), such Loan (unless repaid or
required to be repaid pursuant to the terms hereof) shall, subject to (iv) and
(v) above, automatically be converted into an Alternate Base Loan. The Agent
shall promptly advise the Lenders of any notice given pursuant to this Section
and of each Lender's portion of the continuation or conversion hereunder.
SECTION 2.03. Notice of Loans. The Borrowers shall, through a Responsible
Officer of any of the Borrowers, give the Agent irrevocable written, telex or
facsimile notice (promptly confirmed in writing) of each borrowing (including,
without limitation, a conversion as permitted by Section 2.02(e) hereof) not
later than 11:00 a.m., New York City time, (i) three (3) Business Days before a
proposed Eurodollar Loan borrowing or conversion and (ii) on the Business Day of
an Alternate Base Loan borrowing or conversion (except that no such confirmation
will be required, unless requested by the Agent, to the extent that the proceeds
of such borrowing are requested to be disbursed to the Borrowers' controlled
disbursement account(s) maintained with the Agent). Such notice shall specify
(w) whether the Loans then being requested are to be Alternate Base Loans or
Eurodollar Loans, (x) the date of such borrowing (which shall be a Business Day)
and amount thereof and (y) if such Loans are to be Eurodollar Loans, the
Interest Period with respect thereto. If no election as to the type of Loan is
specified in any such notice, all such Loans shall be Alternate Base Loans. If
no Interest Period with respect to any Eurodollar Loan is specified in any such
notice, then an Interest Period of three (3) months' duration shall be deemed
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<PAGE> 27
to have been selected; provided, however, that no such Interest Period may be
for more than one month's duration for the period commencing on the Closing Date
and ending on the earlier of (i) the 120th day following the Closing Date and
(ii) the satisfactory completion by The Chase Manhattan Bank of the syndication
of its Commitment and Loans (as determined by The Chase Manhattan Bank). The
Agent shall promptly advise the Lenders of any notice given pursuant to this
Section 2.03 and of each Lender's portion of the requested borrowing.
SECTION 2.04. Notes: Repayment of Loans. (a) The Term Loan made by a
Lender on the Closing Date shall be evidenced by a single Term Note, duly
executed on behalf of the Borrowers, dated the Closing Date, in substantially
the form of Exhibit A annexed hereto, delivered and payable to such Lender in a
principal amount equal to its Term Loan Commitment on the Closing Date.
(b) All Revolving Credit Loans made by a Lender to the Borrowers shall be
evidenced by a single Revolving Credit Note, duly executed on behalf of the
Borrowers, dated the Closing Date, in substantially the form of Exhibit B
annexed hereto, delivered and payable to such Lender in a principal amount equal
to its Revolving Credit Commitment on such date.
(c) Each Revolving Credit Note shall bear interest from its date on the
outstanding principal balance thereof, as provided in Section 2.05 hereof.
(d) Each Term Note shall bear interest from its date on the outstanding
principal balance thereof, as provided in Section 2.05. All principal payments
in respect of the Term Loan shall be accompanied by accrued interest on the
principal amount being repaid to the date of payment. No scheduled payment of
principal in respect of the Term Loan shall be made to the extent that a lesser
principal payment would result in the payment in full of the outstanding amount
of the Term Loan, and such lesser amount is paid.
(e) Each Lender, or the Agent on its behalf, shall, and is hereby
authorized by the Borrowers to, endorse on the schedule attached to a Term Note
or Revolving Credit Note, as applicable, of such Lender (or on a continuation of
such schedule attached to such Note and made a part thereof) an appropriate
notation evidencing the date and amount of each Loan to the Borrowers from such
Lender, as well as the date and amount of each payment and prepayment with
respect thereto; provided, however, that the failure of any person to make such
a notation on a Note shall not affect any obligations of the Borrowers under
such Note. Any such notation shall be conclusive and binding as to the date and
amount of such Loan or portion thereof, or payment or prepayment of principal or
interest thereon, absent manifest error.
(f) The aggregate principal amount of the Term Loan as evidenced by the
Term Notes, shall be payable in 25 consecutive quarterly installments (the date
of each such installment, a "Repayment Date") in the amounts set forth below,
and such payments shall be distributed ratably among the Lenders in accordance
with their respective Term Loan Commitments:
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<PAGE> 28
<TABLE>
<CAPTION>
Date Payment
- ---- -------
<S> <C>
March 31, 1999, June 30, 1999, September 30, 1999 $312,500
and December 31, 1999
March 31, 2000, June 30, 2000, September 30, 2000 $312,500
and December 31, 2000
March 31, 2001, June 30, 2001, September 30, 2001 $375,000
and December 31, 2001
March 31, 2002, June 30, 2002, September 30, 2002 $375,000
and December 31, 2002
March 31, 2003, June 30, 2003, September 30, 2003 $500,000
and December 31, 2003
March 31, 2004, June 30, 2004, September 30, 2004 $500,000
and December 31, 2004
Final Maturity Date $500,000
</TABLE>
To the extent not previously paid, the Term Loan shall be due and payable
on the Final Maturity Date.
(g) Each of the Borrowers shall be jointly and severally liable with the
other Borrower for the Obligations, and each of the Obligations shall be secured
by all of the Collateral. Each of the Borrowers acknowledges that it is a
co-borrower hereunder and is jointly and severally liable under this Agreement
and the other Loan Documents. Al1 Credits extended to any of the Borrowers or
requested by any of the Borrowers shall be deemed to be Credits extended for
each of the Borrowers, and each of the Borrowers hereby authorizes each other of
the Borrowers to effectuate Credits on its behalf. Notwithstanding anything to
the contrary contained in this Agreement or any of the other Loan Documents, the
Agent and the Lenders shall be entitled to rely upon any request, notice or
other communication received by them from any of the Borrowers on behalf of all
Borrowers, and shall be entitled to treat their giving of any notice hereunder
to any of the Borrowers as notice to each and all Borrowers.
Each of the Borrowers agrees that the joint and several liability of the
Borrowers provided for in this subsection (g) shall not be impaired or affected
by any modification, supplement, extension or amendment or any contract or
agreement to which the other Borrower may hereafter agree (other than an
agreement signed by the Agent and the Lenders specifically releasing such
liability), nor by any delay, extension of time, renewal, compromise or other
indulgence granted by the Agent or any Lender with respect to any of the
Obligations, nor by any other agreements or arrangements whatsoever with the
other Borrower or with any other person, each of the Borrowers hereby waiving
all notice of such delay, extension, release, substitution, renewal, compromise
or other
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<PAGE> 29
indulgence, and hereby consenting to be bound thereby as fully and effectually
as if it had expressly agreed thereto in advance. The liability of each of the
Borrowers is direct and unconditional as to all of the Obligations, and may be
enforced without requiring the Agent or any Lender first to resort to any other
right, remedy or security. Each of the Borrowers hereby expressly waives
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Obligations, the Notes, this Agreement or any other Loan Document and
any requirement that the Agent or any Lender protect, secure, perfect or insure
any Lien or any property subject thereto or exhaust any right or take any action
against any of the Borrowers or any other person or any collateral.
Each of the Borrowers hereby irrevocably waives and releases each other of
the Borrowers from all "claims" (as defined in Section 101(5) of the Bankruptcy
Code) to which such Borrowers are or would be entitled by virtue of the
provisions of the first paragraph of this subsection (g) or the performance of
such Borrower's obligations thereunder including, without limitation, any right
of subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration or similar right, or
indemnity, or any right of recourse to security for any of the Obligations.
SECTION 2.05. Interest on Loans. (a) Subject to the provisions of Section
2.05(c) and Section 2.08 hereof, each Alternate Base Loan shall bear interest at
a rate per annum equal to the Alternate Base Rate plus the applicable Interest
Margin.
(b) Subject to the provisions of Section 2.05(c) and Section 2.08 hereof,
each Eurodollar Loan shall bear interest at a rate per annum equal to the
Adjusted LIBO Rate plus the applicable Interest Margin.
(c) Interest on each Loan shall be payable in arrears on each applicable
Interest Payment Date and on the Final Maturity Date. Interest on each Alternate
Base Loan and Eurodollar Loan shall be computed based on the number of days
elapsed in a year of 360 days. The Agent shall determine each interest rate
applicable to the Loans and shall promptly advise the Borrowers and the Lenders
of the interest rate so determined.
SECTION 2.06. Fees. (a) The Borrowers shall pay each Lender, through the
Agent, (i) on the first Business Day of each January, April, July and October
commencing April 1, 1998, (ii) on the date of any reduction of the Revolving
Credit Commitments pursuant to this Agreement including, without limitation,
Section 2.07 hereof and (iii) on the Revolving Credit Termination Date, in
immediately available funds, a commitment fee (the "Revolving Credit Commitment
Fee") equal to the Unutilized Fee Margin on the average daily unused amount of
the Revolving Credit Commitment of such Lender, during the quarter (or shorter
period commencing with the date hereof or ending with the Revolving Credit
Termination Date in the case of the Revolving Credit Commitment) ending on such
date; provided, however, that with respect to the period January 2, 1998 to the
Closing Date, the Borrowers shall pay to each Lender, through the Agent, on
April 1, 1998, the "Revolving Credit Commitment Fee" under the First Amended
Agreement of 1/2 of 1% per annum on the average daily unused amount of such
Lender's "Revolving Credit Commitment" thereunder. The Revolving Credit
Commitment Fee due to each Lender under this Section 2.06 shall commence to
accrue on the date hereof and cease to accrue on the earlier of (i) the
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<PAGE> 30
Revolving Credit Termination Date and (ii) the termination of the Revolving
Credit Commitment of such Lender pursuant to this Agreement including, without
limitation, pursuant to Section 2.07 hereof. The Revolving Credit Commitment Fee
shall be calculated on the basis of the actual number of days elapsed in a year
of 360 days.
(b) The Borrowers shall pay to the Agent for its own account an
administration fee as follows: (x) $10,000 on the Closing Date for the period
commencing on the Closing Date through and including December 31, 1998 and (y)
thereafter, $25,000 per annum, payable on the first Business Day of each Fiscal
Year prior to the Final Maturity Date, commencing January 2, 1999.
(c) In addition to the fees provided for in subsections (a) and (b) above,
the Borrowers shall pay to the Agent, for the account of the Agent, such other
fees as are provided for in a fee letter, at the times and in the manner set
forth therein.
SECTION 2.07. Termination and Reduction of Revolving Credit Commitments
and Term Loan Commitments. (a) Upon at least three (3) Business Days' prior
irrevocable written notice (or facsimile notice promptly confirmed in writing)
to the Agent, the Borrowers may at any time in whole permanently terminate, or
from time to time in part permanently reduce, the Total Revolving Credit
Commitment, ratably among the Lenders in accordance with the amounts of their
Revolving Credit Commitments; provided, however, that the Total Revolving Credit
Commitment shall not be reduced at any time to an amount less than the Revolving
Credit Loans outstanding under the Revolving Credit Commitments and the Letter
of Credit Usage at such time. Each partial reduction of the Total Revolving
Credit Commitment shall be in a minimum of $500,000 or an integral multiple of
$100,000. (b) Simultaneously with any termination or reduction of the Total
Revolving Credit Commitment pursuant to paragraph (a) of this Section 2.07, the
Borrowers shall pay to each Lender, through the Agent, the Revolving Credit
Commitment Fee due and owing through and including the date of such termination
or reduction on the amount of the Revolving Credit Commitment of such Lender so
terminated or reduced.
SECTION 2.08. Interest on Overdue Amounts: Alternate Rate of Interest. (a)
If the Borrowers shall default in the payment of the principal of or interest on
any Loan or any other amount becoming due hereunder, by acceleration or
otherwise, the Borrowers shall on demand from time to time pay interest, to the
extent permitted by law, on all Obligations outstanding up to the date of actual
payment of such defaulted amount (after as well as before judgment) at a rate
per annum equal to two percent (2%) in excess of the rates otherwise applicable
thereto.
(b) In the event, and on each occasion, that on the day two (2) Business
Days prior to the commencement of any Interest Period for a Eurodollar Loan the
Agent shall have determined that dollar deposits in the amount of each
Eurodollar Loan are not generally available in the London interbank market, or
that the rate at which dollar deposits are being offered will not reflect
adequately and fairly the cost to any Lender of making or maintaining such
Eurodollar Loan during such Interest Period, or that reasonable means do not
exist for ascertaining the Adjusted LIBO Rate, the Agent shall as soon as
practicable thereafter give written notice (or facsimile notice promptly
confirmed in writing) of such
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<PAGE> 31
determination to the Borrowers and the Lenders, and any request by the Borrowers
for the making of a Eurodollar Loan pursuant to Section 2.03 hereof or
conversion or continuation of any Loan into a Eurodollar Loan pursuant to
Section 2.02 hereof shall, until the circumstances giving rise to such notice no
longer exist, be deemed to be a request for an Alternate Base Loan. Each
determination by the Agent made hereunder shall be conclusive absent manifest
error.
SECTION 2.09. Prepayment of Loans. (a) Subject to the terms and conditions
contained in this Section 2.09 and elsewhere in this Agreement, the Borrowers
shall have the right to prepay any Loan at any time in whole or from time to
time in part (except in the case of a Eurodollar Loan only on the last day of an
Interest Period) without penalty (except as otherwise provided for herein);
provided, however, that each such partial prepayment of a Loan shall be in an
integral multiple of $100,000.
(b) On the date of any termination or reduction of the Total Revolving
Credit Commitment pursuant to Section 2.07(a) hereof or elsewhere in this
Agreement, the Borrowers shall pay or prepay so much of the Revolving Credit
Loans as shall be necessary in order that the Availability equals or exceeds
zero following such termination or reduction. Any prepayments required by this
paragraph (b) shall be applied to outstanding Revolving Credit Alternate Base
Loans up to the full amount thereof before they are applied to outstanding
Revolving Credit Eurodollar Loans; provided, however, that the Borrowers shall
not be required to make any prepayment of any Eurodollar Loan pursuant to this
Section until the last day of the Interest Period with respect thereto so !12ng
as an amount equal to such prepayment is deposited by the Borrowers in a cash
collateral account with the Agent to be held in such account on terms
satisfactory to the Agent.
(c) The Borrowers shall make prepayments of the Revolving Credit Loans
from time to time such that the Availability equals or exceeds zero at all
times. Any prepayments required by this paragraph (c) shall be applied to
outstanding Revolving Credit Alternate Base Loans up to the full amount thereof
before they are applied to outstanding Revolving Credit Eurodollar Loans;
provided, however, that the Borrowers shall not be required to make any
prepayment of any Eurodollar Loan pursuant to this Section until the last day of
the Interest Period with respect thereto so long as an amount equal to such
prepayment is deposited by the Borrowers in a cash collateral account with the
Agent to be held in such account on terms satisfactory to the Agent.
(d) Within three days of (i) the sale of any assets subject to Section
7.05 hereof of any Loan Party aggregating for any of the Borrowers or their
subsidiaries in excess of $25,000 in any Fiscal Year (excluding sales of
inventory in the ordinary course of business, Qualified Sales, sales or other
dispositions of obsolete equipment and the license of trademarks and other
intellectual property for fair value in the ordinary course of business to third
parties, or of the capital stock of any of the Borrowers (subject to Section
7.05 hereof or sales of any stock of Holdings (other than to members of the
Investor Group where the proceeds are invested in any of the Borrowers), or (ii)
the consummation of the issuance of any debt securities of any Loan Party (other
than Indebtedness permitted under Section 7.03 (except subsection (viii)
thereof), the Borrowers shall make a mandatory
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<PAGE> 32
prepayment of the Loans in an amount equal to 100% of the cash proceeds (or
non-cash proceeds when converted to cash) received (net of taxes due and any
reasonable expenses of sale), which proceeds shall be applied as set forth in
paragraph (g) below. Nothing contained in this paragraph (d) shall be or be
deemed to be a consent to the sale of any assets or stock or the issuance of any
stock or debt securities.
(e) Within 90 days of the end of each Fiscal Year of Airxcel, commencing
with the Fiscal Year ending December 31, 1998, the Borrowers shall make a
mandatory prepayment of the Loans in an amount equal to the Mandatory Prepayment
for the Fiscal Year then ended, such prepayment to be applied as set forth in
paragraph (9) below.
(f) (i) Except as provided in clause (ii) below, promptly and in any event
not more than two (2) Business Days following the receipt by the Agent or any of
the Borrowers or any subsidiary of any of the Borrowers of any net cash proceeds
of (x) any casualty insurance required to be maintained pursuant to Section 6.03
hereof on account of each separate loss, damage or injury (each, a "Casualty
Event") in excess of $500,000 (or, if there shall be continuing a Default or an
Event of Default, of the full amount of net proceeds) to any asset of such
Borrower or such subsidiary (including, without limitation, any Collateral), or
(y) any business interruption insurance required to be maintained pursuant to
Section 6.03 hereof on account of any business interruption event (each, a "Bl
Event") in excess of $500,000 (or, if there shall be continuing a Default or
Event of Default, of the full amount of net proceeds), such Borrower or
subsidiary shall notify the Agent of such receipt in writing or by telephone
promptly confirmed in writing, and not later than two (2) Business Days
following receipt by the Agent or such Borrower or subsidiary of any such
proceeds, there shall become due and payable a prepayment of the Loans in an
amount equal to 100% of such proceeds. Prepayments from such net proceeds shall
be applied as set forth in paragraph (9) below.
(ii) In the case of the receipt of net cash proceeds described in
clause (i) above with respect to a Casualty Event or Bl Event, the Borrowers may
elect, by written notice delivered to the Agent not later than the day on which
a prepayment would otherwise be required under clause (i), (x) in the case of
proceeds received with respect to a Bl Event, to use such proceeds in the
ordinary course of the Borrowers' business and (y) in the case of proceeds
received with respect to any Casualty Event, to apply all or a portion of such
net proceeds for the purpose of replacing, repairing, restoring or rebuilding
(referred to herein as a "Rebuilding") the relevant tangible property, and, in
any such event, any required prepayment under clause (i) above shall be reduced
dollar for dollar by the amount of such election under clause (x) or clause (y)
of this sentence. An election under this clause (ii) shall not be effective
unless: (x) at the time of such election there is continuing no Default or Event
of Default; (y) the Borrowers shall have certified to the Agent that: (i) the
net proceeds of the insurance adjustment with respect to a Casualty Event,
together with other funds available to the Borrowers, shall be sufficient to
complete such proposed Rebuilding in accordance with all applicable laws,
regulations and ordinances; and (ii) no Default or Event of Default has arisen
or will arise as a result of such Bl Event, Casualty Event or Rebuilding; and
(z) if the amount of net proceeds in question exceeds $500,000, the Borrowers
shall have obtained the written consent of the Required Lenders to such
election.
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<PAGE> 33
(iii) In the event of an election under clause (ii) above, pending
application of the net proceeds to business operations with respect to a Bl
Event or to Rebuilding with respect to a Casualty Event, the Borrowers shall not
later than the time at which prepayment would have been, in the absence of such
election, required under clause (i) above, apply such net proceeds to the
prepayment of the outstanding principal balance, if any, of the Revolving Credit
Loans (not in permanent reduction of the Revolving Credit Commitment), and
deposit (the "Special Deposit") with the Agent, the balance, if any, of such net
proceeds remaining after such application, pursuant to agreements in form, scope
and substance reasonably satisfactory to the Agent. The Special Deposit,
together with all earnings on such Special Deposit, shall be available to the
Borrowers solely for the applicable Rebuilding or ordinary course business
operations, as the case may be; provided, however, that at such time as a
Default or Event of Default shall occur, the balance of the Special Deposit and
earnings thereon may be applied by the Agent to repay the Obligations in such
order as the Agent shall elect. The Agent shall be entitled to require
reasonable proof, as a condition to the making of any withdrawal from the
Special Deposit, that the proceeds of such withdrawal are being applied for the
purposes permitted hereunder.
(g) When making a prepayment, whether mandatory or otherwise, pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above, the Borrowers shall furnish to
the Agent, not later than 11:00 a.m. (New York City time) (i) three (3) Business
Days (or such shorter period of time as provided in the applicable paragraph
above) prior to the date of such prepayment of Alternate Base Loans and (ii)
five (5) Business Days (or such shorter period of time as provided in the
applicable paragraph above) prior to the date of such prepayment of Eurodollar
Loans, written, telex or facsimile notice (promptly confirmed in writing) of
prepayment which shall specify the prepayment date and the principal amount of
each Loan (or portion thereof) to be prepaid, which notice shall be irrevocable
and shall commit the Borrowers to prepay such Loan by the amount stated therein
on the date stated therein. All prepayments shall be accompanied by accrued
interest on the principal amount being prepaid to the date of prepayment.
Prepayments made pursuant to paragraph (d), (e) or (f) above shall be applied as
follows: (A) first, to outstanding Term Alternate Base Loans in the inverse
order of their maturity up to the full amount thereof and then to outstanding
Term Eurodollar Loans in the inverse order of their maturity up to the full
amount thereof; and (B) second, to outstanding Revolving Credit Alternate Base
Loans up to the full amount thereof and then to Revolving Credit Eurodollar
Loans up to the full amount thereof; provided, however, that the Borrowers shall
not be required to make any prepayment of any Term or Revolving Credit
Eurodollar Loan required pursuant to this Section 2.09(g) until the last day of
the Interest Period with respect thereto so ~ as an amount equal to such
prepayment is deposited by the Borrowers into a cash collateral account with the
Agent to be held in such account pursuant to terms satisfactory to the Agent.
(h) All prepayments under this Section 2.09 shall be subject to Section
2.12 hereof.
(i) Except as otherwise expressly provided in this Section 2.09, payments
with respect to any paragraph of this Section 2.09 are in addition to payments
made or required to be made under any other paragraph of this Section 2.09.
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(j) The amount of the Term Loan prepaid may not be reborrowed.
SECTION 2.10. Reserve Requirements: Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement (or in the case of any assignee of any Lender, the date of assignment)
any change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law), or any change in GAAP or regulatory accounting principles applicable to
the Agent or any Lender shall: (i) subject the Agent or any Lender (which shall
for the purpose of this Section 2.10 include any assignee or lending office of
the Agent or any Lender) to any charge, fee, deduction or withholding of any
kind or to any tax with respect to any amount paid or to be paid by either the
Agent or any Lender with respect to any Eurodollar Loans made by a Lender to the
Borrowers or with respect to the obligations of any Lender under Sections 2.17
through 2.20 hereof or under any Letter of Credit (other than (x) taxes imposed
on the overall net income of the Agent or such Lender and (y) franchise taxes
imposed on the Agent or such Lender, in either case by the jurisdiction in which
such Lender or the Agent has its principal office or its lending office with
respect to such Eurodollar Loan or any political subdivision or taxing authority
of either thereof); (ii) change the basis of taxation of payments to any Lender
or the Agent of the principal of or interest on any Eurodollar Loan or any other
fees or amounts payable with respect to any Letter of Credit or otherwise
hereunder (other than taxes imposed on the overall net income of such Lender or
the Agent by the jurisdiction in which such Lender or the Agent has its
principal office or by any political subdivision or taxing authority therein);
(iii) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or loans or
loan commitments extended by, or Letters of Credit issued and maintained by,
such Lender; or (iv) impose on any Lender or, with respect to Eurodollar Loans,
the London interbank market, any other condition affecting this Agreement,
Letters of Credit issued and maintained by or Eurodollar Loans made by such
Lender; and the result of any of the foregoing shall be to increase the cost to
any such Lender of making or maintaining any Eurodollar Loan or Letter of
Credit, or to reduce the amount of any payment (whether of principal, interest,
fee, compensation or otherwise) receivable by such Lender or to require such
Lender to make any payment in respect of any Eurodollar Loan or Letter of
Credit, then the Borrowers shall pay to such Lender or the Agent, as the case
may be, upon such Lender's or the Agent's demand, such additional amount or
amounts as will compensate such Lender or the Agent for such additional costs or
reduction. The Agent and each Lender agree to give notice to the Borrowers of
any such change in law, regulation, interpretation or administration with
reasonable promptness after becoming actually aware thereof and of the
applicability thereof to the Transactions. Notwithstanding anything contained
herein to the contrary, nothing in clause (i) or (ii) of this Section 2.1 O(a)
shall be deemed to (x) permit the Agent or any Lender to recover any amount
thereunder which would not be recoverable under Section 2.15 hereof or (y)
require the Borrowers to make any payment of any amount to the extent that such
payment would duplicate any payment made by the Borrowers pursuant to Section
2.15 hereof.
(b) If at any time and from time to time after the date of this Agreement,
any Lender shall determine that the adoption of any applicable law, rule,
regulation or guideline
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regarding capital adequacy, or any change in any applicable law, rule,
regulation or guideline regarding capital adequacy, including, without
limitation, the July 1988 report of the Basie Committee on Banking Regulations
and Supervisory Practices entitled "International Convergence of Capital
Measurement and Capital Standards", or any change in the interpretation or
administration of any thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Lender (or its lending office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or will have the effect of
reducing the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of its obligations hereunder
to a level below that which such Lender could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's policies
and the policies of such Lender's holding company with respect to capital
adequacy), then from time to time the Borrowers shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
Each Lender agrees to give notice to the Borrowers of any adoption of, change
in, or change in interpretation or administration of, any such law, rule,
regulation or guideline with reasonable promptness after becoming actually aware
thereof and of the applicability thereof to the Transactions.
(c) A statement of any Lender or the Agent setting forth such amount or
amounts, supported by calculations in reasonable detail, as shall be necessary
to compensate such Lender (or the Agent) as specified in paragraphs (a) and (b)
above shall be delivered to the Borrowers and shall be conclusive absent
manifest error. The Borrowers shall pay each Lender or the Agent the amount
shown as due on any such statement within ten (10) days after its receipt of the
same.
(d) Failure on the part of any Lender or the Agent to demand compensation
for any increased costs, reduction in amounts received or receivable with
respect to any Interest Period or any Letter of Credit or reduction in the rate
of return earned on such Lender's capital, shall not constitute a waiver of such
Lender's or the Agent's rights to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in rate of return in
such Interest Period or in any other Interest Period or with respect to such
Letter of Credit. The protection under this Section 2.10 shall be available to
each Lender and the Agent regardless of any possible contention of the
invalidity or inapplicability of any law, regulation or other condition which
shall give rise to any demand by such Lender or the Agent for compensation.
(e) Any Lender claiming any additional amounts payable pursuant to this
Section 2.10 agrees to use reasonable efforts (consistent with legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, any such additional amounts and would not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender.
SECTION 2.11. Change in Legality. (a) Notwithstanding anything to the
contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall
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make it unlawful for any Lender to make or maintain any Eurodollar Loan or to
give effect to its obligations to make Eurodollar Loans as contemplated hereby,
then, by written notice to Borrowers and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by such
Lender hereunder, whereupon the Borrowers shall be prohibited from requesting
Eurodollar Loans from such Lender hereunder unless such declaration is
subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by such Lender be
converted to Alternate Base Loans, in which event (A) all such Eurodollar Loans
shall be automatically converted to Alternate Base Loans as of the effective
date of such notice as provided in paragraph (b) below and (B) all payments of
principal which would otherwise have been applied to repay the converted
Eurodollar Loans shall instead be applied to repay the Alternate Base Loans
resulting from the conversion of such Eurodollar Loans.
(b) For purposes of Section 2.11(a) hereof, a notice to the Borrowers by
any Lender shall be effective, if lawful, on the last day of the then current
Interest Period or, if there are then two or more current Interest Periods, on
the last day of each such Interest Period, respectively; otherwise, such notice
shall be effective with respect to the Borrowers on the date of receipt by the
Borrowers.
SECTION 2.12. Indemnity. The Borrowers shall indemnify the Agent and each
Lender against any loss or reasonable expense (including, but not limited to,
any loss or reasonable expense sustained or incurred or to be sustained or
incurred by reason of or in connection with the execution and delivery or
assignment of, or payment under, any Letter of Credit, or in liquidating or
employing deposits from third parties acquired to affect or maintain any Loan or
part thereof as a Eurodollar Loan) which the Agent or such Lender may sustain or
incur as a consequence of the following events (regardless of whether such
events occur as a result of the occurrence of an Event of Default or the
exercise of any right or remedy of the Agent or the Lenders under this Agreement
or any other agreement, or at law): any failure of the Borrowers to fulfill on
the date of any Credit Event the applicable conditions set forth in Article V
hereof applicable to it; any failure of the Borrowers to borrow hereunder after
irrevocable notice of borrowing pursuant to Section 2.03 hereof has been given;
any payment, prepayment or conversion of a Eurodollar Loan on a date other than
the last day of the relevant Interest Period; any default in payment or
prepayment of the principal amount of any Loan or any part thereof or interest
accrued thereon, or with respect to any Letter of Credit, in each case as and
when due and payable (at the due date thereof, by irrevocable notice of
prepayment or otherwise); or the occurrence of an Event of Default. Such loss or
reasonable expense shall include, without limitation, an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
principal or other amount so paid, prepaid or converted or not borrowed for the
period from the date of such payment, prepayment or conversion or failure to
borrow to, in the case of a Loan, the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date of such failure to borrow), at the
applicable rate of interest for such Loan provided for herein over (ii) the
amount of interest (as reasonably determined by such Lender) that would be
realized by such Lender in reemploying the funds so paid, prepaid
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or converted or not borrowed for such period or Interest Period, as the case may
be. Any such Lender shall provide to the Borrowers a statement, signed by an
officer of such Lender, explaining any loss or expense and setting forth, if
applicable, the computation pursuant to the preceding sentence, and such
statement shall be conclusive absent manifest error. The Borrowers shall pay
such Lender the amount shown as due on any such statement within ten (10) days
after the receipt of the same. The indemnities contained herein shall survive
the expiration or termination of this Agreement and of the Letters of Credit.
SECTION 2.13. Pro Rata Treatment: Assumption by and Delegation of
Authority to the Agent. (a) Except as permitted under Sections 2.10, 2.11 and
2.15 hereof, each borrowing, each payment or prepayment of principal of the
Notes, each payment of interest on the Notes, each payment of any fee or other
amount payable hereunder and each reduction of the Total Revolving Credit
Commitment and Total Term Loan Commitment shall be made pro rata among the
Lenders in the proportions that their Revolving Credit Commitments bear to the
Total Revolving Credit Commitment or that their Term Loan Commitments bears to
the Total Term Loan Commitment, as the case may be.
(b) Notwithstanding the occurrence or continuance of a Default or Event of
Default or other failure of any condition to the making of Loans or occurrence
of other Credit Events hereunder subsequent to the Credit Events on the Closing
Date, unless the Agent shall have been notified in writing by any Lender in
accordance with the provisions of paragraph (c) below prior to the date of a
proposed Credit Event that such Lender will not make the amount that would
constitute its pro rata share of the applicable Credits on such date available
to the Agent, the Agent may assume that such Lender has made such amount
available to the Agent on such date, and the Agent may, in reliance upon such
assumption, make available to the Borrowers a corresponding amount. If such
amount is made available to the Agent on a date after such Credit Event date,
such Lender shall pay to the Agent on demand an amount equal to the product of
(i) the daily average Federal funds rate during such period as quoted by the
Agent, times (ii) the amount of such Lender's pro rata share of such Credits,
times (iii) a fraction the numerator of which is the number of days that elapse
from and including such Credit Event date to the date on which such Lender's pro
rata share of such Credits shall have become immediately available to the Agent
and the denominator of which is 360. A certificate of the Agent submitted to any
Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's pro rata share of
such Credits is not in fact made available to the Agent by such Lender within
three Business Days of such Credit Event date, the Agent shall be entitled to
recover such amount with interest thereon at the rate per annum applicable to
the Loans hereunder, on demand, from the Borrowers.
(c) Unless and until the Agent shall have received written notice from the
Required Lenders as to the existence of a Default, an Event of Default or some
other circumstance which would relieve the Lenders of their respective
obligations to extend Credits hereunder, which notice shall be in writing and
shall be signed by the Required Lenders and shall expressly state that the
Required Lenders do not intend to make available to the Agent such Lenders'
ratable share of Credits extended after the effective date of such notice, the
Agent shall be entitled to continue to make the assumptions described in Section
2.13(b) above. After receipt of the notice described in the preceding
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sentence, which shall become effective on the third Business Day after receipt
of such notice by the Agent (unless otherwise agreed by the Agent), the Agent
shall be entitled to make the assumptions described in Section 2.13(b) above as
to any Credits as to which it has not received a written notice to the contrary
prior to 11:00 a.m. (New York time) on the Business Day next preceding the day
on which such Credits are to be extended. The Agent shall not be required to
extent any Credits as to which it shall have received notice by a Lender of such
Lender's intention not to make its ratable portion of such Credits available to
the Agent. Any withdrawal of authorization as described under this Section 2.1
3(c) shall not affect the validity of any Credits extended prior to the
effectiveness thereof.
SECTION 2.14. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrowers, including, but not limited to, a secured claim under Section 506
of Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, obtain
payment (voluntary or involuntary) in respect of a Note held by it as a result
of which the unpaid principal portion of the Notes held by it shall be
proportionately less than the unpaid principal portion of the Notes held by any
other Lender, it shall be deemed to have simultaneously purchased from such
other Lender a participation in the Notes held by such other Lender, so that the
aggregate unpaid principal amount of the Notes and participations in Notes held
by it shall be in the same proportion to the aggregate unpaid principal amount
of all Notes then outstanding as the principal amount of the Notes held by it
prior to such exercise of banker's lien, setoff or counterclaim was to the
principal amount of all Notes outstanding prior to such exercise of banker's
lien, setoff or counterclaim; provided, however, that if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.14 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustments restored without interest. The
Borrowers expressly consent to the foregoing arrangements and agree that any
Lender holding a participation in a Note deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrowers to such Lender as fully as
if such Lender held a Note in the amount of such participation.
SECTION 2.15. Taxes. (a) Any and all payments by the Borrowers hereunder
shall be made, in accordance with Section 2.16 hereof, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings in any such case imposed by the United
States or any political subdivision thereof, excluding:
(i) in the case of the Agent and each Lender, taxes imposed or
based on its net income, and franchise or capital taxes imposed on
it, (A) if the Agent or such Lender is organized under the laws of
the United States or any political subdivision thereof and (B) if
the Agent or such Lender is not organized under the laws of the
United States or any political subdivision thereof, and its
principal office or Applicable Lending Office is located in the
United States, and in the case of both (A) and (B), withholding
taxes payable with respect to payments to the Agent or
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such Lender at its principal office or Applicable Lending Office
under laws (including, without limitation, any treaty, ruling,
determination or regulation) in effect on the date hereof, but not
any increase in withholding tax resulting from any subsequent change
in such laws (other than withholding with respect to taxes imposed
or based on its net income or with respect to franchise or capital
taxes), and
(ii) taxes (including withholding taxes) imposed by reason of
the failure of the Agent or any Lender, in either case that is
organized outside the United States, to comply with Section 2.15(f)
hereof (or the inaccuracy at any time of the certificates, documents
and other evidence delivered thereunder)
(all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the Borrowers
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders or the Agent, (x) the sum payable shall be
increased by the amount necessary so that after making all required deductions
(including without limitation deductions applicable to additional sums payable
under this Section 2.15) such Lender or the Agent (as the case may be) receives
an amount equal to the sum it would have received had no such deductions been
made, (y) the Borrowers shall make such deductions and (z) the Borrowers shall
pay the full amount deducted to the relevant tax authority or other authority in
accordance with applicable law.
(b) In addition, the Borrowers agree to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
(c) The Borrowers will indemnify each Lender and the Agent for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction (except as specified in clauses (a)(i)
and (ii)) on amounts payable under this Section 2.15) paid by such Lender or the
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Agent (as the case may
be) makes written demand therefor. If any Lender receives a refund in respect of
any Taxes or Other Taxes for which such Lender has received payment from the
Borrowers hereunder, such Lender shall promptly notify the Borrowers of such
refund and such Lender shall, within 30 days of receipt of a request by the
Borrowers, repay such refund to the Borrowers, provided that the Borrowers, upon
the request of such Lender, agree to return such refund (plus any penalties,
interest or other charges) to such Lender in the event such Lender is required
to repay such refund.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by the Borrowers in respect of any payment to any Lender, the Borrowers
will furnish to the Agent, at its address referred to in Section 11.01 hereof,
such certificates, receipts and other documents as may be reasonably required to
evidence payment thereof.
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(e) Without prejudice to the survival of any other agreement hereunder,
the agreements and obligations contained in this Section 2.15 shall survive the
payment in full of principal and interest hereunder.
(f) Each Lender that is organized outside of the United States shall
deliver to the Borrowers on the date hereof (or, in the case of an assignee, on
the date of the assignment) and from time to time as required for renewal under
applicable law duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 (or any successor or additional forms), as appropriate,
indicating in each case that such Lender is entitled to receive payments under
this Agreement without any deduction or withholding of any United States federal
income taxes. The Agent (if the Agent is an entity organized outside the United
States) and each Lender that is organized outside the United States shall
promptly notify the Borrowers and the Agent of any change in its Applicable
Lending Office and upon written request of the Borrowers such Lender shall,
prior to the immediately following due date of any payment by the Borrowers or
any Guarantor hereunder or under any other Loan Document, deliver to the
Borrowers or such Guarantor, as the case may be (with copies to the Agent), such
certificates, documents or other evidence, as required by the Code or Treasury
Regulations issued pursuant thereto, including without limitation Internal
Revenue Service Form 4224, Form 1001 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-4(a) or Section
1.1441-6(c) or any subsequent version thereof, properly completed and duly
executed by such Lender establishing that such payment is (i) not subject to
withholding under the Code because such payment is effectively connected with
the conduct by such Lender of a trade or business in the United States or (ii)
totally exempt from United States tax under a provision of an applicable tax
treaty. The Borrowers shall be entitled to rely on such forms in their
possession until receipt of any revised or successor form pursuant to this
Section 2.1 5(f). If the Agent or a Lender fails to provide a certificate,
document or other evidence required pursuant to this Section 2.15(f), then (i)
the Borrowers shall be entitled to deduct or withhold on payments to the Agent
or such Lender as a result of such failure, as required by law, and (ii) the
Borrowers shall not be required to make payments of additional amounts with
respect to such withheld Taxes pursuant to clause (x) of Section 2.15(a) to the
extent such withholding is required solely by reason of the failure of the Agent
or such Lender to provide the necessary certificate, document or other evidence.
(g) Each Lender and the Agent shall use reasonable efforts to avoid or
minimize any amounts which might otherwise be payable pursuant to this
subsection 2.15 (including seeking refunds of any amounts that are reasonably
believed not to have been correctly or legally asserted); provided, however,
that such efforts shall not include the taking of any actions by such Lender or
the Agent that would result in any tax, costs or other expense to such Lender or
the Agent (other than a tax, cost or other expense for which such Lender or the
Agent shall have been reimbursed or indemnified by the Borrowers pursuant to
this Agreement or otherwise) or any action which would or might in the
reasonable opinion of such Lender or the Agent have an adverse effect upon its
business, operations or financial condition or otherwise be disadvantageous to
such Lender or the Agent.
SECTION 2.16. Payments and Computations. (a) The Borrowers shall make each
payment hereunder and under any instrument delivered hereunder not later than
12:00
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noon (New York City time) on the day when due in lawful money of the United
States (in freely transferable dollars) to the Agent at its offices at 600 Fifth
Avenue, 4th Floor, New York, New York 10020 for the account of the Lenders, in
immediately available funds. The Agent may charge, when due and payable, the
Borrowers' account(s) with the Agent for all interest, principal and Commitment
Fees or other fees owing to the Agent or the Lenders on or with respect to this
Agreement and/or the Loans and other Loan Documents. If at any time there is not
sufficient Availability to cover any of the payments referred to in the prior
sentence, and in any event upon the occurrence of any Default, the Borrowers
shall make any such payments upon demand.
(b) If the 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 the
Agent from the Borrowers and such related payment is not received by the Agent,
then the Agent will be entitled to recover such amount from such Lender without
setoff, counterclaim or deduction of any kind. If the Agent determines at any
time that any amount received by the Agent under this Agreement must be returned
to the Borrowers or paid to any other person pursuant to any solvency law or
otherwise, then, notwithstanding any other term or condition of this Agreement,
the Agent will not be required to distribute any portion thereof to any Lender.
In addition, each Lender will repay to the Agent on demand any portion of such
amount that the Agent has distributed to such Lender, together with interest at
such rate, if any, as the Agent is required to pay to the Borrowers or such
other person, without setoff, counterclaim or deduction of any kind.
SECTION 2.17. Issuance of Letters of Credit. Upon the request of the
Borrowers, and subject to the conditions set forth in Article V hereof and such
other conditions to the opening of Letters of Credit as the Agent requires of
its customers generally, the Agent shall from time to time open commercial and
standby letters of credit (each, a "Letter of Credit") for the account of the
Borrowers, the aggregate undrawn amount of all outstanding Letters of Credit not
at any time to exceed $500,000; provided, however, that the Borrowers may not
request the Agent to open a Letter of Credit if after giving effect thereto
(measured by the face amount of such Letter of Credit) Availability would be
less than zero. The issuance of each Letter of Credit shall be made on at least
three (3) Business Days' prior written notice from the Borrowers to the Agent,
at its Domestic Lending Office, which written notice shall be an application for
a Letter of Credit on the Agent's customary form completed to the satisfaction
of the Agent, together with the proposed form of the Letter of Credit (which
shall be satisfactory to the Agent) and such other certificates, documents and
other papers and information as the Agent may reasonably request. The Agent
shall not at any time be obligated to issue any Letter of Credit if such
issuance would conflict with, or cause the Agent or any Lender to exceed any
limits imposed by, any applicable requirements of law. The expiration date of
any (i) commercial Letter of Credit shall not be later than 90 days from the
date of issuance thereof and (ii) any standby Letter of Credit shall not be
later than 360 days from the date of issuance thereof, and, in any event, no
Letter of Credit shall have an expiration date later than the Revolving Credit
Termination Date. The Letters of Credit shall be issued with respect of
transactions occurring in the ordinary course of business of the Borrowers.
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SECTION 2.18. Payment of Letters of Credit: Reimbursement. Upon the
issuance of any Letter of Credit, the Agent shall notify each Lender of the
principal amount, the number, and the expiration date thereof and the amount of
such Lender's participation therein. By the issuance of a Letter of Credit
hereunder and without further action on the part of the Agent or the Lenders,
each Lender hereby accepts from the Agent a participation (which participation
shall be no recourse to the Agent) in such Letter of Credit equal to such
Lender's pro rata (based on its Revolving Credit Commitment) share of such
Letter of Credit, effective upon the issuance of such Letter of Credit. Each
Lender hereby absolutely and unconditionally assumes, as primary obligor and not
as a surety, and agrees to pay and discharge, and to indemnify and hold the
Agent harmless from liability in respect of, such Lender's pro rata share of the
amount of any drawing under a Letter of Credit. Each Lender acknowledges and
agrees that its obligation to acquire participations in each Letter of Credit
issued by the Agent and its obligation to make the payments specified herein,
and the right of the Agent to receive the same, in the manner specified herein,
are absolute and unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, the occurrence and continuance of a
Default or an Event of Default hereunder, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever. The
Agent shall review, on behalf of the Lenders, each draft and any accompanying
documents presented under a Letter of Credit and shall notify each Lender of any
such presentment. Promptly after it shall have ascertained that any draft and
any accompanying documents presented under such Letter of Credit appear on their
face to be in substantial conformity with the terms and conditions of the Letter
of Credit, the Agent shall give telephonic or facsimile notice to the Lenders
and the Borrowers of the receipt and amount of such draft and the date on which
payment thereon will be made, and the Lenders shall, by 11:00 a.m., New York
City time on the date such payment is to be made, pay the amounts required to
the Agent in New York, New York in immediately available funds, and the Agent,
not later than 3:00 p.m. on such day, shall make the appropriate payment to the
beneficiary of such Letter of Credit. If in accordance with the prior sentence
the Lenders shall pay any draft presented under a Letter of Credit, then the
Agent, on behalf of the Lenders, shall charge the general deposit account of the
Borrowers with the Agent for the amount thereof, together with the Agent's
customary overdraft fee in the event the funds available in such account shall
not be sufficient to reimburse the Lenders for such payment and the Borrowers
shall not otherwise have discharged such reimbursement obligation by 11:00 a.m.,
New York City time, on the date of such payment. If the Lenders have not been
reimbursed with respect to such drawing as provided above, the Borrowers shall
pay to the Agent, for the account of the Lenders, the amount of the drawing
together with interest on such amount at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to the
Alternate Base Rate plus two percent (2%), payable on demand. The obligations of
the Borrowers under this Section 2.18 to reimburse the Lenders and the Agent for
all drawings under Letters of Credit shall be joint and several, absolute,
unconditional and irrevocable and shall be satisfied strictly in accordance with
their terms, irrespective of:
(a) any lack of validity or enforceability of any Letter of Credit;
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(b) the existence of any claim, setoff, defense or other right which
the Borrowers or any other person may at any time have against the
beneficiary under any Letter of Credit, the Agent or any Lender (other
than the defense of payment in accordance with the terms of this Agreement
or a defense based on the gross negligence or willful misconduct of the
Agent or any Lender) or any other person in connection with this Agreement
or any other transaction;
(c) any draft or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(d) payment by the Agent or any Lender under any Letter of Credit
against presentation of a draft or other document which does not comply
with the terms of such Letter of Credit; and
(e) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing.
It is understood that in making any payment under any Letter of Credit (x)
the Agent's and any Lender's exclusive reliance on the documents presented to it
under such Letter of Credit as to any and all matters set forth therein,
including, without limitation, reliance on the amount of any draft presented
under such Letter of Credit, whether or not the amount due to the beneficiary
equals the amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be insufficient in any respect, if
such document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever and (y) any noncompliance in any immaterial
respect of the documents presented under such Letter of Credit with the terms
thereof shall, in each case, not be deemed willful misconduct or gross
negligence of the Agent or any Lender.
SECTION 2.19. Agent's Actions with respect to Letters of Credit. Any
Letter of Credit may, in the discretion of the Agent or its correspondents, be
interpreted by them (to the extent not inconsistent with such Letter of Credit)
in accordance with the Uniform Customs and Practice for Documentary Credits of
the International Chamber of Commerce, as adopted or amended from time to time,
or any other rules, regulations and customs prevailing at the place where any
Letter of Credit is available or the drafts are drawn or negotiated. The Agent
and its correspondents may accept and act upon the name, signature, or act of
any party purporting to be the executor, administrator, receiver, trustee in
bankruptcy, or other legal representative of any party designated in any Letter
of Credit in the place of the name, signature, or act of such party.
SECTION 2.20. Letter of Credit Fees. The Borrowers agree to pay to the
Agent (a) with respect to each commercial Letter of Credit, (i) for the ratable
benefit of the Lenders, a letter of credit fee equal to the Interest Margin
applicable to Eurodollar Loans from time to time of the face amount thereof per
annum payable to the Agent at its Domestic Lending Office quarterly in advance
in immediately available funds, and (ii) an issuance fee and
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other related fees charged by the Agent for transactions of this nature and, if
applicable, an amendment fee, in each case payable to the Agent for its own
account at its Domestic Lending Office on the date of issuance or amendment, as
applicable, of such Letter of Credit in immediately available funds in
accordance with Schedule 2.20 hereto and (b) with respect to standby Letters of
Credit, (i) for the ratable benefit of the Lenders, a letter of credit fee equal
to the Interest Margin applicable to Eurodollar Loans from time to time of the
face amount thereof per annum payable to the Agent at its Domestic Lending
Office quarterly in advance in immediately available funds, plus (ii) an
issuance fee charged by the Agent for transactions of this nature and, if
applicable, an amendment fee, in each case payable to the Agent for its own
account at its Domestic Lending Office on the date of issuance or amendment, as
applicable, of such Letter of Credit in immediately available funds in
accordance with Schedule 2.20 hereto. The Agent shall disburse to each Lender
such Lender's pro rata share of any payment of the Letter of Credit fees
referred to in clauses (a)(i) and (b)(i) of the first sentence of this paragraph
in immediately available funds within two (2) Business Days of the Agent's
receipt of such payment.
III. COLLATERAL SECURITY
SECTION 3.01. Security Documents. The Obligations shall be secured by the
Collateral described in the Security Documents and are entitled to the benefits
thereof. The Borrowers shall duly execute and deliver the Security Documents,
all consents of third parties necessary to permit the effective granting of the
Liens created in such agreements, financing statements pursuant to the Uniform
Commercial Code and other documents, all in form and substance satisfactory to
the Agent, as may be reasonably required by the Agent to grant to the Lenders a
valid, perfected and enforceable first priority Lien on and security interest in
(subject only to the Liens permitted under Section 7.01 hereof) the Collateral,
except to the extent permitted by the Security Documents.
SECTION 3.02. Filing and Recording. The Borrowers shall, at their sole
cost and expense, cause all instruments and documents given as evidence of
security pursuant to this Agreement to be duly recorded and/or filed or
otherwise perfected in all places necessary, in the opinion of the Agent, and
take such other actions as the Agent may reasonably request, in order to perfect
and protect the Liens of the Agent and Lenders in the Collateral. The Borrowers,
to the extent permitted by law, hereby authorize the Agent to file any financing
statement in respect of any Lien created pursuant to the Security Documents
which may at any time be required or which, in the opinion of the Agent, may at
any time be desirable although the same may have been executed only by the Agent
or, at the option of the Agent, to sign such financing statement on behalf of
the Borrowers and file the same, and the Borrowers hereby irrevocably designate
the Agent, its agents, representatives and designees as their agent and
attorney-in-fact for this purpose. In the event that any re-recording or
refiling thereof (or the filing of any statements of continuation or assignment
of any financing statement) is required to protect and preserve such Lien, the
Borrowers shall, at the Borrowers' cost and expense, cause the same to be
recorded and/or refiled at the time and in the manner requested by the Agent.
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IV. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants to each of the Lenders that
both before and after giving effect to the consummation of the Transactions
(including, without limitation, under the Acquisition Documents):
SECTION 4.01. Organization. Legal Existence. Each of the Borrowers and
their subsidiaries is a legal entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, has the
requisite power and authority to own its property and assets and to carry on its
business as now conducted and as currently proposed to be conducted and is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure to so qualify would not have a Material
Adverse Effect (all such jurisdictions being listed in Schedule 4.01 annexed
hereto). Each of the Borrowers has the corporate power to execute, deliver and
perform its obligations under this Agreement and the other Loan Documents to
which it is a party, and to borrow hereunder and to execute and deliver the
Notes.
SECTION 4.02. Authorization. The execution, delivery and performance by
each of the Borrowers of this Agreement and each of the other Loan Documents to
which it is a party, the borrowings hereunder by the Borrowers, the execution
and delivery by the Borrowers of the Notes, the grant of security interests in
the Collateral created by the Security Documents and the transactions
contemplated to occur under or in connection with the Acquisition Documents
(collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not (i)
violate (A) any provision of law, statute, rule or regulation or the certificate
or articles of incorporation or other applicable constitutive documents or the
by-laws of the Borrowers, or their respective subsidiaries, as the case may be,
(B) any order of any court, or any rule, regulation or order of any other agency
of government binding upon the Borrowers, or their respective subsidiaries, or
(C) any provisions of any material indenture, agreement or other instrument to
which the Borrowers, or their respective subsidiaries, or any of their
respective properties or assets are or may be bound (which violation would not
have a Material Adverse Effect), (ii) be in conflict with, result in a breach of
or constitute (alone or with notice or lapse of time or both) a default under
any material indenture, agreement or other instrument referred to in (b)(i)(C)
above (which conflict, breach or default would have a Material Adverse Effect)
or (iii) result in the creation or imposition of any Lien of any nature
whatsoever (other than in favor of the Agent, for its own benefit and for the
benefit of the Lenders, as contemplated by this Agreement and the Security
Documents) upon any property or assets of the Borrowers, or their respective
subsidiaries.
SECTION 4.03. Governmental Approvals. No registration or filing (other
than the filings necessary to perfect the Liens created by the Security
Documents) with consent or approval of, or other action by, any Federal, state
or other governmental agency, authority or regulatory body is or will be
required in connection with the Transactions, other than any which have been
made or obtained or will be made or obtained.
SECTION 4.04. Binding Effect. This Agreement and each of the other Loan
Documents to which it is a party constitutes, and each of the Notes when duly
executed
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and delivered will constitute, a legal, valid and binding obligation of the
Borrowers enforceable in accordance with its terms, subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and the application of general principles
of equity.
SECTION 4.05. Material Adverse Change. Except as set forth in Schedule
4.05 annexed hereto, there has been no material adverse change in the business,
assets, operations or financial condition of any Borrower or any of their
respective subsidiaries since December 31, 1996 or with respect to the Crispaire
Corporation since October 31, 1996 or with respect to SMC since April 30, 1997.
SECTION 4.06. Litigation: Compliance with Laws: etc. (a) Except as set
forth in Schedule 4.06(a) annexed hereto, there are not any actions, suits or
proceedings at law or in equity or by or before any governmental instrumentality
or other agency or regulatory authority now pending or, to the knowledge of any
Responsible Officer of any Borrower, threatened against or affecting any of the
Borrowers or any of their subsidiaries or the businesses, assets or rights of
any of the Borrowers or any of their subsidiaries (i) which involve any of the
Transactions or (ii) as to which it is probable (within the meaning of Statement
of Financial Accounting Standards No. 5) that there will be an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, materially impair the ability of any of the Borrowers to conduct
business substantially as now conducted, or have a Material Adverse Effect.
(b) Except as set forth in Schedule 4.06(b) annexed hereto, no Borrower or
subsidiary thereof is in violation of any law, or in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court or
governmental agency or instrumentality, except where such non-compliance, either
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 4.07. Financial Statements. (a) The Borrowers have heretofore
furnished to the Agent Consolidated balance sheets and statements of income and
cash flows of SMC's subsidiary prior to the Closing Date, Suburban Manufacturing
Company, as of the fiscal years ended April 30, 1995, 1996 and 1997 (audited by
and accompanied by the opinion of independent public accountants) and November
30, 1997 (unaudited for the seven-month period ended on such date). Such balance
sheets and statements of income and cash flows present fairly the Consolidated
financial condition and results of operations of Suburban Manufacturing Company
as of the dates and for the periods indicated, and such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of
Suburban Manufacturing Company, as of the dates thereof.
(b) The Borrowers have heretofore furnished to the Agent projected income
statements, balance sheets and cash flows of the Borrowers on a Consolidated
basis on a quarterly basis for the Fiscal Years ending December 31, 1998 and
December 31, 1999 and on an annual basis thereafter through the Final Maturity
Date, together with a schedule confirming the ability of the Borrowers to
consummate the Transactions and demonstrating prospective compliance with all
financial covenants contained in this Agreement, such projections disclosing all
assumptions made by the Borrowers in formulating such
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projections and giving effect to the Transactions. The projections are based
upon reasonable estimates and assumptions, all of which are reasonable in light
of the conditions which existed at the time the projections were made, have been
prepared on the basis of the assumptions stated therein, and reflect as of the
Closing Date the reasonable estimate of the Borrowers of the results of
operations and other information projected therein.
(c) The Borrowers have heretofore furnished to the Agent a Consolidated
pro forma balance sheet of the Borrowers and which sets forth information before
and after giving effect to the Transactions.
(d) The financial statements referred to in this Section 4.07 have been
prepared in accordance with GAAP.
SECTION 4.08. Federal Reserve Regulations. (a) No Borrower or subsidiary
thereof is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying Margin
Stock.
(b) No part of the proceeds of the Loans will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to purchase
or carry Margin Stock or to extend credit to others for the purpose of
purchasing or carrying Margin Stock or to refund indebtedness originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of the Regulations of the Board,
including, without limitation, Regulation G, T, U or X thereof. If requested by
any Lender, the Borrowers or any subsidiary of any thereof shall furnish to such
Lender a statement on Federal Reserve Form U-1 referred to in said Regulation .
SECTION 4.09. Taxes. The Borrowers and each of their respective
subsidiaries have filed or caused to be filed all Federal, state, local and
foreign tax returns which are required to be filed by them, on or prior to the
date hereof, other than tax returns in respect of taxes that (x) are not
franchise, capital or income taxes, (y) in the aggregate are not material and
(z) would not, if unpaid, result in the imposition of any material Lien on any
property or assets of any Borrower or any of their subsidiaries. Each Borrower
and each of their respective subsidiaries has paid or caused to be paid all
taxes shown to be due and payable on such filed returns or on any assessments
received by it, other than (i) any taxes or assessments the validity of which
such Borrower or such subsidiary is contesting in good faith by appropriate
proceedings, and with respect to which such Borrower or such subsidiary shall,
to the extent required by GAAP have set aside on its books adequate reserves and
(ii) taxes other than income, capital or franchise taxes that in the aggregate
are not material and which would not, if unpaid, result in the imposition of any
material Lien on any property or assets of any Borrower or any of their
respective subsidiaries. No Federal income tax returns of any Borrower or any of
their subsidiaries have been audited by the United States Internal Revenue
Service and no Borrower or subsidiary thereof has as of the date hereof
requested or been granted any extension of time to file any Federal, state,
local or foreign tax return.
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SECTION 4.10. Employee Benefit Plans. With respect to the provisions of
ERISA:
(i) No Reportable Event has occurred or is continuing with respect to any
Pension Plan.
(ii) No prohibited transaction (within the meaning of Section 406 of ERISA
or Section 4975 of the Code) has occurred with respect to any Plan subject to
Part 4 of Subtitle B of Title I of ERISA.
(iii) None of the Borrowers or any ERISA Affiliate is now, or has been
during the preceding five years, obligated to contribute to a Pension Plan or a
Multiemployer Plan. None of the Borrowers or any ERISA Affiliate has (A) ceased
operations at a facility so as to become subject to the provisions of Section
4062(e) of ERISA, (B) withdrawn as a substantial employer so as to become
subject to the provisions of Section 4063 of ERISA, (C) ceased making
contributions to any Pension Plan subject to the provisions of Section 4064(a)
of ERISA to which the Borrowers, any subsidiary or any ERISA Affiliate made
contributions, (D) incurred or caused to occur a "complete withdrawal" (within
the meaning of Section 4203 of ERISA) or a "partial withdrawal" (within the
meaning of Section 4205 of ERISA) from a Multiemployer Plan that is a Pension
Plan so as to incur withdrawal liability under Section 4201 of ERISA (without
regard to subsequent reduction or waiver of such liability under Section 4207 or
4208 of ERISA), or (E) been a party to any transaction or agreement under which
the provisions of Section 4204 of ERISA were applicable.
(iv) No notice of intent to terminate a Pension Plan has been filed, nor
has any Plan been terminated pursuant to the provisions of Section 4041 (e) of
ERISA.
(v) The PBGC has not instituted proceedings to terminate (or appoint a
trustee to administer) a Pension Plan and no event has occurred or condition
exists which might constitute grounds under the provisions of Section 4042 of
ERISA for the termination of (or the appointment of a trustee to administer) any
such Plan.
(vi) With respect to each Pension Plan that is subject to the provisions
of Title I, Subtitle B, Part 3 of ERISA, the funding method used in connection
with such Plan is acceptable under ERISA, and the actuarial assumptions and
methods used in connection with funding such Pension Plan satisfy the
requirements of Section 302 of ERISA. The assets of each such Pension Plan
(other than the Multiemployer Plans) are at least equal to the present value of
the greater of (i) accrued benefits (both vested and non-vested) under such
Plan, or (ii) "benefit liabilities" (within the meaning of Section 4001(a)(16)
of ERISA) under such Plan, in each case as of the latest actuarial valuation
date for such Plan (determined in accordance with the same actuarial assumptions
and methods as those used by the Plan's actuary in its valuation of such Plan as
of such valuation date). No such Pension Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code), whether or not
waived.
(vii) There are no actions, suits or claims pending (other than routine
claims for benefits) or, to the knowledge of the Borrowers or any ERISA
Affiliate, which could
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reasonably be expected to be asserted, against any Plan or the assets of any
such Plan. No civil or criminal action brought pursuant to the provisions of
Title I, Subtitle B, Part 5 of ERISA is pending or threatened against any
fiduciary or any Plan. None of the Plans or any fiduciary thereof (in its
capacity as such) has been the direct or indirect subject of any audit,
investigation or examination by any governmental or quasi-governmental agency.
(viii) All of the Plans comply in all material respects currently, and
have complied in the past, both as to form and operation, with their terms and
with the provisions of ERISA and the Code, and all other applicable laws, rules
and regulations; all necessary governmental approvals for the Plans have been
obtained and a favorable determination as to the qualification under Section 401
(a) of the Code of each of the Plans which is an employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) has been made by the Internal
Revenue Service and a recognition of exemption from federal income taxation
under Section 501 (c) of the Code of each of the funded employee welfare benefit
plans (within the meaning of Section 3(1) of ERISA) has been made by the
Internal Revenue Service, and nothing has occurred since the date of each such
determination or recognition letter that would adversely affect such
qualification.
SECTION 4.11. No Material Misstatements. No information, report, financial
statement, exhibit or schedule prepared or furnished by or on behalf of the
Borrowers to the Agent or any Lender in connection with any of the Transactions
or this Agreement, the Security Documents, the Notes or any other Loan Documents
or included therein contained or contains any material misstatement of fact or
omitted or omits to state any material fact known to the Borrowers necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
SECTION 4.12. Investment Company Act: Public Utility Holding Company Act.
No Borrower or subsidiary thereof is an "investment company" as defined in, or
is otherwise subject to regulation under, the Investment Company Act of 1940. No
Borrower or subsidiary thereof is a "holding company" as that term is defined in
or is otherwise subject to regulation under, the Public Utility Holding Company
Act of 1935.
SECTION 4.13. Security Interest. Each of the Security Documents creates
and grants to the Agent, for its own benefit and for the benefit of the Lenders,
a security interest in the Collateral identified therein and, upon the due
filing of the financing statements, the due filing and recording of assignments
for security in the United States Patent and Trademark Office, the Canadian
Patent Office and the Canadian Trademarks Office and the delivery to the Agent
of the Pledged Stock, will grant to the Agent, for its own benefit and for the
benefit of the Lenders, a legal, valid and perfected first (except as permitted
pursuant to Section 7.01 hereof) priority security interest in the collateral
identified therein, except to the extent permitted by such Security Documents.
Such collateral or property is not subject to any other Liens whatsoever, except
Liens permitted by Section 7.01 hereof and except where releases of such Liens
have been delivered to the Agent.
SECTION 4.14. Use of Proceeds. (a) All proceeds of the borrowing under the
Total Term Loan Commitment shall be used to partially finance the consideration
required under the Acquisition Agreement.
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(b) All proceeds of each borrowing under the Revolving Credit Commitment
on the Closing Date, if any, shall be used to partially finance the acquisition
of SMC. All proceeds of each subsequent borrowing under the Revolving Credit
Commitment after the Closing Date shall be used to provide for working capital
and general corporate purposes of the Borrowers.
SECTION 4.15. Subsidiaries. As of the Closing Date, Schedule 4.15 annexed
hereto sets forth each subsidiary of each Borrower, its jurisdiction of
incorporation, its capitalization and ownership of capital stock of each such
subsidiary.
SECTION 4.16. Title to Properties: Possession Under Leases: Trademarks.
(a) Each of the Borrowers and each subsidiary has good and marketable title to,
or valid leasehold interest in, all of their respective properties and assets
shown on the most recent balance sheet referred to in Section 4.07(a) hereof and
all assets and properties acquired since the date of such balance sheet, except
for such properties as are no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of business, and
except as set forth on Schedule 4.16(a) annexed hereto and for minor defects in
title, which scheduled defects do not interfere with the ability of any Borrower
or any subsidiary thereof to conduct its business as now conducted. All such
assets and properties are free and clear of all Liens other than those permitted
by Section 7.01 or as described on Schedule 4.16(a) hereto.
(b) Each Borrower and each subsidiary has complied with all material
obligations under all leases to which they are a party and under which they are
in occupancy, and all such leases are in full force and effect and each of the
Borrowers and each subsidiary enjoys peaceful and undisturbed possession under
all such leases.
(c) Each Borrower and each subsidiary owns or has a valid license to use
all material trademarks, trademark rights, trade names, trade name rights,
copyrights, patents and patent rights which are necessary for the conduct of the
business of such Borrower and such subsidiary. No Borrower nor any subsidiary
thereof is infringing upon or otherwise acting adversely to any of such
trademarks, trademark rights, trade names, trade name rights, copyrights, patent
rights or licenses owned by any other person or persons, which infringements or
actions could reasonably be expected to have a Material Adverse Effect. Except
as set forth in Schedule 4.16(c) annexed hereto, there is no claim or action by
any such other person pending, or to the knowledge of any Responsible Officer of
any Borrower or any subsidiary thereof, threatened, against the Borrowers or any
subsidiary thereof with respect to any of the rights or property referred to in
this Section 4.1 6(c).
SECTION 4.17. Solvency. (a) The fair salable value of the assets of each
Borrower and its Consolidated subsidiaries is not less than the amount that will
be required to be paid on or in respect of the probable liability on the
existing debts and other liabilities (including contingent liabilities) of such
Borrower and its Consolidated subsidiaries, as they become absolute and mature.
(b) The assets of each Borrower and its Consolidated subsidiaries do not
constitute unreasonably small capital for such Borrower and its Consolidated
subsidiaries
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to carry out their business as now conducted and as proposed to be conducted
including the capital needs of such Borrower and its Consolidated subsidiaries,
taking into account the particular capital requirements of the business
conducted by such Borrower and its Consolidated subsidiaries and projected
capital requirements and capital availability thereof.
(c) No Borrower nor any subsidiary thereof intends to incur debts beyond
its ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be received by such Borrower and such subsidiary, and of
amounts to be payable on or in respect of debt of such Borrower and such
subsidiary). The cash flow of each Borrower and its Consolidated subsidiaries,
after taking into account all anticipated uses of the cash of such Borrower and
its Consolidated subsidiaries, will at all times be sufficient to pay all such
amounts on or in respect of debt of such Borrower and its Consolidated
subsidiaries when such amounts are required to be paid.
(d) No Borrower nor any subsidiary thereof believes that final judgments
against it in actions for money damages presently pending will be rendered at a
time when, or in an amount such that, it will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash flow of
such Borrower and its Consolidated subsidiaries, after taking into account all
other anticipated uses of the cash of such Borrower and its Consolidated
subsidiaries (including the payments on or in respect of debt referred to in
paragraph (c) of this Section), will at all times be sufficient to pay all such
judgments promptly in accordance with their terms.
SECTION 4.18. Permits, etc. Each Borrower and each of their subsidiaries
possesses all licenses, permits, approvals and consents, including, without
limitation, all environmental, health and safety licenses, permits, approvals
and consents (collectively, "Permits") of all Federal, state and local
governmental authorities as required to conduct properly its business, except
for those the absence of which could not reasonably be expect to have a Material
Adverse Effect; each such Permit is and will be in full force and effect, each
Borrower and each of their subsidiaries is in compliance in all material
respects with all such Permits, and no event (including, without limitation, any
violation of any law, rule or regulation) has occurred which would reasonably be
expected to result in the revocation or termination of any such Permit or any
restriction thereon.
SECTION 4.19. Compliance with Environmental Laws. Except as disclosed in
Schedule 4.19 hereto: (i) the operations of the Borrowers and their subsidiaries
comply with all applicable Environmental Laws, except as such would not
reasonably be likely to result in liability, either individually or in the
aggregate, to the Borrowers or their subsidiaries in excess of $100,000; (ii)
the Borrowers and their subsidiaries and all of their present facilities or
operations, as well as to the knowledge of the Borrowers and their subsidiaries
their past facilities or operations, are not subject to any judicial proceeding
or administrative proceeding or any outstanding written order or agreement with
any governmental authority or private party respecting (a) any Environmental
Law, (b) any Remedial Work, or (c) any Environmental Claims arising from the
Release of a Hazardous Material into the
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environment; (iii) to the best of the knowledge of the Borrowers and their
subsidiaries, none of their operations is the subject of any Federal or state
investigation evaluating whether any Remedial Work is needed to respond to a
Release of any Hazardous Material into the environment in violation of any
Environmental Law; (iv) none of the Borrowers nor to the best knowledge of the
Borrowers, any subsidiaries of the Borrowers nor any predecessor of the
Borrowers or any subsidiaries of the Borrowers has filed any notice under any
Environmental Law indicating past or present treatment, storage, or disposal of
a Hazardous Material or reporting a spill or Release of a Hazardous Material
into the environment; (v) to the best of the knowledge of the Borrowers and
their subsidiaries, none of the Borrowers or their subsidiaries has any
contingent liability in connection with any Release of any Hazardous Material
into the environment, except as such would not reasonably be likely to result in
liability, either individually or in the aggregate, to the Borrowers or any
subsidiary thereof in excess of $100,000; (vi) none of the operations of the
Borrowers or their subsidiaries involve the generation, transportation,
treatment or disposal of Hazardous Materials; (vii) neither the Borrowers nor
their subsidiaries have disposed of any Hazardous Material by placing it in or
on the ground or waters of any premises owned, leased or used by any of them and
to the knowledge of the Borrowers and their subsidiaries, neither has any
lessee, prior owner, or other person, except as such would not reasonably be
likely to result in liability, either individually or in the aggregate, to the
Borrowers or any subsidiary thereof in excess of $100,000; (viii) no underground
storage tanks or surface impoundments are on any property of the Borrowers and
their subsidiaries; and (ix) no Lien in favor of any governmental authority for
(A) any liability under any Environmental Law or regulation, or (B) damages
arising from or costs incurred by such governmental authority in response to a
Release of a Hazardous Material into the environment, has been filed or attached
to the property of the Borrowers and their subsidiaries.
SECTION 4.20. No Change in Credit Criteria or Collection Policies. There
has been no material change in credit criteria or collection policies concerning
account receivables of any Borrower since December 31, 1996. Without
duplication, all Receivables at the time of their classification as a
Receivable) of the Borrowers are valid, binding and enforceable obligations of
account debtors and are not subject to any claims, defenses or setoffs, subject
to applicable laws of bankruptcy, insolvency and similar laws affecting
creditors' rights generally.
SECTION 4.21. Acquisition. (a)(i) The execution, delivery and performance
by Airxcel of the Acquisition Documents have been duly authorized by all
necessary corporate action on the part of Airxcel, (ii) the Acquisition
Documents constitute the valid, binding and enforceable obligation of each such
party thereto, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, and are in full force and effect without default or waiver of any of
the conditions thereunder and (iii) there are no governmental consents, filings,
approvals or notices required to be made or obtained in connection with the
execution, delivery and performance of the Acquisition Documents except such as
have been duly made, obtained or delivered or will be obtained, made or
delivered.
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(b) To the best of Airxcel's knowledge, each of the representations and
warranties made by the sellers in the Acquisition Documents is true and correct
in all material respects.
SECTION 4.22. Bank Accounts. Schedule 4.22 hereto sets forth as of the
Closing Date a list of all of the Borrowers' bank accounts.
V. CONDITIONS OF CREDIT EVENTS
The obligation of each Lender to make Loans and extend other Credits
hereunder shall be subject to the following conditions precedent:
SECTION 5.01. All Credit Events. On each date on which a Credit Event is
to occur:
(a) The Agent shall have received a notice of borrowing as required by
Section 2.03 hereof or a request for the issuance of a Letter of Credit pursuant
to Section 2.17 hereof.
(b) The representations and warranties set forth in Article IV hereof and
in any documents delivered herewith, including, without limitation, the Loan
Documents, shall be true and correct in all material respects with the same
effect as though made on and as of such date (except insofar as such
representations and warranties relate expressly to an earlier date).
(c) Each of the Borrowers shall be in compliance with all the terms and
provisions contained herein on its part to be observed or performed, and at the
time of and immediately after such Credit Event no Default or Event of Default
shall have occurred and be continuing.
(d) The Agent shall have received a certificate signed by the Financial
Officer of each of the Borrowers (i) as to the compliance with (b) and (c) above
and (ii) with respect to each Revolving Credit Loan and each Letter of Credit,
demonstrating that after giving effect thereto Availability is zero or greater.
SECTION 5.02. First Borrowing. The obligations of the Lenders in respect
of the first Credit Event hereunder is subject to the following additional
conditions precedent:
(a) The Lenders shall have received the favorable written opinion of
counsel for the Borrowers and each of the Guarantors and Grantors, substantially
in the form of Exhibit C hereto, dated the Closing Date, addressed to the
Lenders and satisfactory to the Agent.
(b) The Lenders shall have received (i) a copy of the certificate or
articles of incorporation or constitutive documents, in each case as amended to
date, of each of the Borrowers, the Grantors and the Guarantors, certified as of
a recent date by the Secretary of State or other appropriate official of the
state of its organization, and a certificate as to the good standing of each
from such Secretary of State or other official, in each case dated
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as of a recent date; (ii) a certificate of the Secretary of each of the
Borrowers, Grantor and Guarantor, dated the Closing Date and certifying (A) that
attached thereto is a true and complete copy of such person's By-laws as in
effect on the date of such certificate and at all times since a date prior to
the date of the resolution described in item (B) below, (B) that attached
thereto is a true and complete copy of a resolution adopted by such person's
Board of Directors authorizing the execution, delivery and performance of this
Agreement, the Security Documents, the Notes, the other Loan Documents and the
Credit Events hereunder, as applicable, and that such resolution has not been
modified, rescinded or amended and is in full force and effect, (C) that such
person's certificate or articles of incorporation or constitutive documents has
not been amended since the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to (i) above, and (D) as to the
incumbency and specimen signature of each of such person's officers executing
this Agreement, the Notes, each Security Document or any other Loan Document
delivered in connection herewith or therewith, as applicable; (iii) a
certificate of another of such person's offficers as to incumbency and signature
of its Secretary; and (iv) such other documents as the Agent or any Lender may
reasonably request.
(c) The Agent shall have received a certificate, dated the Closing Date
and signed by the Financial Officer of each of the Borrowers, confirming
compliance with the conditions precedent set forth in paragraphs (b) and (c) of
Section 5.01 hereof and the conditions set forth in this Section 5.02.
(d) Each Lender shall have received its Term Note and Revolving Credit
Note (which Notes shall replace the Revolving Credit Notes issued in connection
with the First Amended Agreement, such replaced Notes to be returned to Airxcel
by the Lenders holding same, marked "canceled" promptly after the Closing Date),
each duly executed by the Borrowers, payable to its order and otherwise
complying with the provisions of Section 2.04 hereof.
(e) The Agent shall have received (x) such amendments or confirmations (as
requested by the Agent) of the Security Documents existing as of the Closing
Date, (y) such additional Security Documents (as requested by the Agent,
including, but not limited to, an Assignment of Contract relating to the
Acquisition Documents and the Mortgages, together with title insurance in form,
scope and amount satisfactory in all respects to the Agent) to be executed and
delivered in connection with the Transactions and (z) certificates evidencing
the Pledged Stock to be pledged on the Closing Date, together with undated stock
powers executed in blank, each duly executed by the applicable Grantors.
(f) Each document (including, without limitation, each Uniform Commercial
Code financing statement) required by law or reasonably requested by the Agent
to be filed, registered or recorded in order to create in favor of the Agent for
its own benefit and for the benefit of the Lenders a first priority perfected
security interest in the Collateral (including, without limitation, Collateral
acquired pursuant to the Acquisition), except to the extent permitted by the
Security Documents, shall have been properly filed, registered or recorded in
each jurisdiction in which the filing, registration or recordation thereof is so
required or requested. The Agent shall have received an acknowledgment copy, or
other evidence satisfactory to it, of each such filing, registration or
recordation.
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(g) The Agent shall have received the results of a search of tax and other
Liens, and judgments and of the Uniform Commercial Code filings made with
respect to each of the Borrowers and each Grantor in the jurisdictions in which
the Borrowers are doing business and/or in which any Collateral acquired
pursuant to the Acquisition is located, and in which Uniform Commercial Code
filings have been made against each Borrower, each Guarantor and each Grantor
pursuant to paragraph (f) above. With respect to any Liens not permitted
pursuant to Section 7.01 hereof, the Agent shall have received termination
statements in form and substance satisfactory to it.
(h) The Lenders and the Agent shall have received the results of a Phase
One environmental study with respect to the properties located in Dayton,
Tennessee and Elkhart, Indiana conducted by a firm satisfactory to the Agent and
the Lenders, and the scope, methodology and results of such environmental audit
shall be satisfactory to the Agent in all respects.
(i) The Lenders and the Agent shall have received and determined to be in
form and substance satisfactory to them.
(i) schedules listing (w) the stock ownership of each Loan Party,
(x) all contingent liabilities of the Borrowers and their subsidiaries, as
reportable under GAAP, (y) all pending litigation involving the Borrowers
or their respective subsidiaries or any of their respective businesses,
assets or rights and (z) all operating and capital leases;
(ii) a copy of a field examination of the books and records of SMC;
(iii) evidence of the compliance by the Borrowers with Section 6.03
hereof;
(iv) the financial statements described in Section 4.07 hereof;
(v) evidence that the Transactions are in compliance with all
applicable laws and regulations;
(vi) evidence that the Borrowers and their subsidiaries are in
compliance with all Environmental Laws;
(vii) evidence of payment of all fees owed to the Agent and the
Lenders by the Borrowers under this Agreement or otherwise;
(viii) evidence that all requisite third party consents (including,
without limitation, consents with respect to the Borrowers and each of the
Grantors and Guarantors) to the Transactions have been received;
(ix) evidence that there has been no material adverse change in the
business, assets, operations or financial condition of (x) Airxcel and its
subsidiaries
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since December 31, 1996, (y) Crispaire Corporation and its subsidiaries
since October 31, 1996 or (z) SMC and its subsidiaries since April 30,
1997;
(x) evidence that there are no actions, suits or proceedings at law
or in equity or by or before any governmental instrumentality or other
agency or regulatory authority now pending or threatened against or
affecting any Borrower or any subsidiary thereof or any of their
respective businesses, assets or rights which involve any of the
Transactions;
(xi) evidence that the Investor Group, Larry Jones and Dean DuCray
have made an equity investment in Holdings in an aggregate amount not less
than $3,996,000; and
(xii) evidence of the repayment in full of existing credit
arrangements with NationsBank, N.A. and the termination of all
commitments to lend thereunder, and the termination of all security
interests securing such indebtedness.
(j) The Agent and the Lenders shall have had the opportunity, if they so
choose, to examine the books of account and other records and files related to
SMC and to make copies thereof, and the results of such examination and audit
shall have been satisfactory to the Agent and Lenders in all respects.
(k) Messrs. Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to the
Agent, shall have received payment in full for all legal fees charged, and all
costs and expenses incurred, by such counsel through the Closing Date in
connection with the transactions contemplated under this Agreement, the Security
Documents and the other Loan Documents and instruments in connection herewith
and therewith.
(l) The Agent and the Lenders shall have:
(i) received copies of each of the Acquisition Documents, including
all amendments and schedules thereto, each certified by a Responsible
Officer of Airxcel;
(ii) received evidence that the Acquisition Agreement is in full
force and effect and all consents, filings and approvals required by
applicable law in connection therewith shall have been obtained and made;
(iii) received evidence that simultaneously with the occurrence of
the Credit Events on the Closing Date, the Acquisition has been duly and
validly consummated, without modification, amendment or waiver (except for
such as shall have been approved in writing by the Agent), in accordance
with the terms, conditions and provisions of the Acquisition Agreement and
the other Acquisition Documents; and
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(iv) determined that the terms and provisions of all agreements and
documents in connection with the Acquisition, including without limitation
the Acquisition Documents, are satisfactory in form and substance and the
Agent shall have received such legal opinions, certificates and copies of
necessary governmental filings and consents as the Agent shall have
requested in connection therewith, and shall have determined to its
satisfaction that the consummation of the Acquisition and other
transactions contemplated by the Acquisition Documents are in compliance
with all applicable laws and regulations.
(m) The corporate structure and capitalization of the Borrowers shall be
satisfactory to the Lenders in all respects.
(n) All legal matters in connection with the Transactions shall be
satisfactory to the Agent, the Lenders and their respective counsel in their
sole discretion.
(o) The Borrowers shall have executed and delivered to the Agent a
disbursement authorization letter with respect to the disbursement of the
proceeds of the Credit Events made on the Closing Date, in form and substance
satisfactory to the Agent.
(p) The Agent and the Lenders shall have received a fully executed copy of
the Holdings Guarantee.
(q) The Agent shall have received such other documents as the Lenders or
the Agent or Agent's counsel shall reasonably deem necessary.
VI. AFFIRMATIVE COVENANTS
Each of the Borrowers covenants and agrees with each Lender that until the
principal and interest on all Notes delivered hereunder are paid in full and all
fees, expenses or amounts then being due and payable hereunder or in connection
with any of the Transactions shall be paid in full and the Total Commitment
shall be terminated, it will, and will cause each of its subsidiaries, to:
SECTION 6.01. Legal Existence. Do or cause to be done all things necessary
to preserve, renew and keep in full force and effect its legal existence.
SECTION 6.02. Businesses and Properties. At all times do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
the rights, licenses, Permits, franchises, patents, copyrights, trademarks and
trade names material to the conduct of its businesses; maintain and operate such
businesses in the same general manner in which they are presently conducted and
operated; comply with all laws, rules, regulations and governmental orders
(whether Federal, state or local) applicable to the operation of such businesses
whether now in effect or hereafter enacted (including, without limitation, all
applicable laws, rules, regulations and governmental orders relating to public
and employee health and safety and all Environmental Laws) and with any and all
other applicable laws, rules, regulations and governmental orders, the lack of
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compliance with which would have a Material Adverse Effect; take all actions
which may be required to obtain, preserve, renew and extend all Permits and
other authorizations which are material to the operation of such businesses; and
at all times maintain, preserve and protect all property material to the conduct
of such businesses and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 6.03. Insurance. (a) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers, (b) maintain
such other insurance, to such extent and against such risks, including fire and
other risks insured against by extended coverage, as in effect and approved by
the Agent on the Closing Date; provided, however, that such insurance shall
insure the property of the Borrowers against all risk of physical damage,
including, without limitation, loss by fire, explosion, theft, fraud and such
other casualties as may be reasonably satisfactory to the Agent, but in no event
at any time in an amount less than the replacement value of the Collateral, (c)
maintain in full force and effect public liability insurance against claims for
personal injury or death or property damage occurring upon, in, about or in
connection with the use of any properties owned, occupied or controlled by any
Borrower or any of their subsidiaries, in such amount as the Agent shall
reasonably deem necessary, (d) maintain business interruption insurance to such
extent as in effect and approved by the Agent on the Closing Date, and (e)
maintain such other insurance as may be required by law or as may be reasonably
requested by the Agent for purposes of assuring compliance with this Section
6.03. All insurance covering tangible personal property subject to a Lien in
favor of the Agent for its own benefit and for the benefit of the Lenders
granted pursuant to the Security Documents shall provide that, in the case of
each separate loss the full amount of insurance proceeds shall be payable to the
Agent and shall further provide for at least 30 days' prior written notice to
the Agent of the cancellation or substantial modification thereof.
SECTION 6.04. Taxes. Pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property before the same shall become
delinquent or in default, except those which are being diligently contested in
good faith by appropriate proceedings and as to which adequate cash reserves
therefor have been established in an amount at least equal to the Lien permitted
by Section 7.01(c), as well as all lawful claims for labor, materials and
supplies or otherwise, which, if unpaid, might give rise to Liens upon such
properties or any part thereof.
SECTION 6.05. Financial Statements. Reports. etc. Furnish to the Agent,
with copies for each of the Lenders:
(a) within 90 days after the end of each Fiscal Year, (i) Consolidated and
consolidating balance sheets and Consolidated and consolidating income
statements showing the financial condition of the Borrowers and their
subsidiaries as of the close of such Fiscal Year and the results of their
operations during such year, and (ii) a Consolidated and consolidating statement
of shareholders' equity and a Consolidated and
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consolidating statement of cash flow, as of the close of such Fiscal Year,
comparing such financial condition and results of operations to such financial
condition and results of operations for the comparable period during the
immediately preceding Fiscal Year, all the foregoing Consolidated financial
statements to be audited by a "Big Six" accounting firm or other independent
public accountants acceptable to the Agent (which report shall not contain any
qualification except with respect to new accounting principles mandated by the
Financial Accounting Standards Board), and to be in form and substance
acceptable to the Agent;
(b) within 45 days after the end of each of the first three (3) fiscal
quarters of each Fiscal Year of Airxcel, (i) unaudited Consolidated and
consolidating balance sheets and Consolidated and consolidating income
statements showing the financial condition and results of operations of the
Borrowers and their subsidiaries as of the end of each such quarter, (ii) a
Consolidated and consolidating statement of shareholders' equity and (iii) a
Consolidated and consolidating statement of cash flow, in each case for the
fiscal quarter just ended and for the period commencing at the end of the
immediately preceding Fiscal Year and ending with the last day of such quarter,
and comparing such financial condition and results of operations to the
projections for the applicable period provided under paragraph (h) below and to
the results for the comparable period during the immediately preceding Fiscal
Year, in each case prepared and certified by the Financial Officer of each of
the Borrowers as presenting fairly the financial condition and results of
operations of the Borrowers and their subsidiaries and as having been prepared
in accordance with GAAP, in each case subject to normal year-end audit
adjustments;
(c) within 30 days after the end of each month, (i) unaudited Consolidated
and consolidating balance sheets and income statements showing the financial
condition and results of operations of the Borrowers and their subsidiaries as
of the end of each such month, (ii) a Consolidated and consolidating statement
of shareholders' equity and (iii) a Consolidated and consolidating statement of
cash flow, in each case for the month just ended and for the period commencing
at the end of the immediately preceding Fiscal Year and ending with the last day
of such month, and comparing such financial condition and results of operations
to the projections for the applicable period provided under paragraph (h) below
and to the results for the comparable period during the immediately preceding
Fiscal Year, prepared and certified by the Financial Officer of each of the
Borrowers as presenting fairly the financial condition and results of operations
of the Borrowers and their subsidiaries and as having been prepared in
accordance with GAAP, in each case subject to normal year-end audit adjustments;
(d) promptly after the same become publicly available, copies of such
registration statements, annual, periodic and other reports, and such proxy
statements and other information, if any, as shall be filed by the Borrowers or
any subsidiaries with the Securities and Exchange Commission pursuant to the
requirements of the Securities Act of 1933 or the Securities Exchange Act of
1934;
(e) concurrently with any delivery under (a) or (b) above, a certificate
of the firm or person referred to therein (x) which certificate shall, in the
case of the certificate of the Financial Officer of each of the Borrowers,
certify that to the best of his or her knowledge
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no Default or Event of Default has occurred (including calculations
demonstrating compliance, as of the dates of the financial statements being
furnished, with the covenants set forth in Sections 7.07, 7.08, 7.09 and 7.10
hereof and, if such a Default or Event of Default has occurred, specify the
nature and extent thereof and any corrective action taken or proposed to be
taken with respect thereto and (y) which certificate, in the case of the
certificate furnished by the independent public accountants referred in
paragraph (a) above, may be limited to accounting matters and disclaim
responsibility for legal interpretations, but shall in any event certify that to
the best of such accountants' knowledge, as of the dates of the financial
statements being furnished no Default or Event of Default has occurred under any
of the covenants set forth in Sections 7.07, 7.08, 7.09 and 7.10 hereof (such
certificate to include calculations demonstrating compliance with such
covenants), and shall in addition certify that in the course of preparing the
audit and the certificate referred to herein, such accountants have not become
aware of the occurrence of any other Default or Event of Default and, if such a
Default or Event of Default has occurred, specify the nature thereof; provided,
however, that any certificate delivered concurrently with (a) above shall be
signed by the Financial Officer of each of the Borrowers;
(f) concurrently with any delivery under (a) above, a management letter
prepared by the independent public accountants who reported on the financial
statements delivered under (a) above, with respect to the internal audit and
financial controls of any Borrower and their subsidiaries;
(g) within 15 days of the end of each fiscal month, an aging schedule of
the Receivables substantially in the form of the aging schedule of Receivables
dated January 31, 1998 previously furnished to the Agent and a certificate
substantially in the form of Schedule 6.05(g) hereto executed by the Financial
Officer of each of the Borrowers with respect to inventory designations;
(h) within 30 days prior to the beginning of each Fiscal Year, a summary
of business plans and financial operation projections (including, without
limitation, with respect to capital expenditures) for the Borrowers and their
respective subsidiaries for such Fiscal Year (including monthly balance sheets,
statements of income and of cash flow) and annual projections through the Final
Maturity Date prepared by management and in form, substance and detail
(including, without limitation, principal assumptions) satisfactory to the
Agent;
(i) as soon as practicable, copies of all reports, forms, filings, loan
documents and financial information submitted to governmental agencies and/or
its shareholders or the holders of any of the Borrowers' Subordinated
Indebtedness;
(j) within 15 days after the end of each fiscal month, a certificate
substantially in the form of Schedule 6.05(j) hereto executed by the Financial
Officer of each of the Borrowers demonstrating compliance as at the end of each
month with the Availability requirements;
(k) immediately upon becoming aware thereof, notice to the Agent of the
breach by any party of any material agreement with any of the Borrowers; and
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(l) such other information as the Agent or any Lender may reasonably
request.
SECTION 6.06. Litigation and Other Notices. Give the Agent prompt written
notice of the following:
(a) the issuance by any court or governmental agency or authority of any
injunction, order, decision or other restraint prohibiting, or having the effect
of prohibiting, the making of the Loans or occurrence of other Credit Events, or
invalidating, or having the effect of invalidating, any provision of this
Agreement, the Notes or the other Loan Documents, or the initiation of any
litigation or similar proceeding seeking any such injunction, order, decision or
other restraint;
(b) the filing or commencement of any action, suit or proceeding against
any Borrower or any of their subsidiaries, whether at law or in equity or by or
before any court or any Federal, state, municipal or other governmental agency
or authority, (i) which is material and is brought by or on behalf of any
governmental agency or authority, or in which injunctive or other equitable
relief is sought or (ii) as to which it is probable (within the meaning of
Statement of Financial Accounting Standards No. 5) that there will be an adverse
determination and which, if adversely determined, would (A) reasonably be
expected to result in liability of one or more Borrowers or a subsidiary thereof
in an aggregate amount of $250,000 or more, not reimbursable by insurance, or
(B) materially impair the right of any Borrower or a subsidiary thereof to
perform its obligations under this Agreement, any Note or any other Loan
Document to which it is a party;
(c) any Default or Event of Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto; and
(d) any development in the business or affairs of any Borrower or any of
their subsidiaries which has had or which is likely to have, in the reasonable
judgment of any Responsible Officer of such Borrower, a Material Adverse Effect.
SECTION 6.07. ERISA. (a) Pay and discharge promptly any liability imposed
upon it pursuant to the provisions of Title IV of ERISA; provided, however, that
neither the Borrowers nor any ERISA Affiliate shall be required to pay any such
liability if (1 ) the amount, applicability or validity thereof shall be
diligently contested in good faith by appropriate proceedings, and (2) such
person shall have set aside on its books reserves which, in the opinion of the
independent certified public accountants of such person, are adequate with
respect thereto.
(b) Deliver to the Agent, promptly, and in any event within 30 days, after
(i) the occurrence of any Reportable Event, a copy of the materials that are
filed with the PBGC, or the materials that would have been required to be filed
if the 30-day notice requirement to the PBGC was not waived, (ii) any Borrower
or any ERISA Affiliate or an administrator of any Pension Plan files with
participants, beneficiaries or the PBGC a notice of intent to terminate any such
Plan, a copy of any such notice, (iii) the receipt of notice by any Borrower or
any ERISA Afffiliate or an administrator of any Pension Plan from the PBGC of
the PBGC's intention to terminate any Pension Plan or to appoint a trustee to
administer
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any such Plan, a copy of such notice, (iv) the filing thereof with the Internal
Revenue Service, copies of each annual report that is filed on Treasury Form
5500 with respect to any Plan, together with certified financial statements (if
any) for the Plan and any actuarial statements on Schedule B to such Form 5500,
(v) any Borrower or any ERISA Affiliate knows or has reason to know of any event
or condition which might constitute grounds under the provisions of Section 4042
of ERISA for the termination of (or the appointment of a trustee to administer)
any Pension Plan, an explanation of such event or condition, (vi) the receipt by
any Borrower or any ERISA Affiliate of an assessment of withdrawal liability
under Section 4201 of ERISA from a Multiemployer Plan, a copy of such
assessment, (vii) any Borrower or any ERISA Afffiliate knows or has reason to
know of any event or condition which might cause any one of them to incur a
liability under Section 4062, 4063, 4064 or 4069 of ERISA or Section 412(n) or
4971 of the Code, an explanation of such event or condition, and (viii) any
Borrowers or any ERISA Affiliate knows or has reason to know that an application
is to be, or has been, made to the Secretary of the Treasury for a waiver of the
minimum funding standard under the provisions of Section 412 of the Code, a copy
of such application, and in each case described in clauses (i) through (iii) and
(v) through (vii) together with a statement signed by the Financial Officer
setting forth details as to such Reportable Event, notice, event or condition
and the action which any Borrower or such ERISA Afffiliate proposes to take with
respect thereto.
SECTION 6.08. Maintaining Records: Access to Properties and Inspections:
Right to Audit. Maintain financial records in accordance with accepted financial
practices and, upon reasonable notice (which may be telephonic), at all
reasonable times and as often as any Lender may request, permit any authorized
representative designated by such Lender to visit and inspect the properties and
financial records of the Borrowers and their subsidiaries and to make extracts
from such financial records at such Lender's expense, and permit any authorized
representative designated by such Lender to discuss the affairs, finances and
condition of the Borrowers and their subsidiaries with the appropriate Financial
Officer and such other officers as the Borrowers shall deem appropriate and the
Borrowers' independent public accountants, as applicable. The Agent agrees that
it shall schedule any meeting with any such independent public accountant
through the Borrowers and a Responsible Officer of one or more Borrowers shall
have the right to be present at any such meeting. At the Borrowers' expense, the
Agent shall have the right to audit, during any twelve-month period, not more
often than once during such period (unless a Default or an Event of Default has
occurred and is continuing in which case as often as the Agent may request), the
existence and condition of the accounts receivables, inventory, books and
records of the Borrowers and their subsidiaries and to review their compliance
with the terms and conditions of this Agreement and the other Loan Documents.
SECTION 6.09. Use of Proceeds. Use the proceeds of the Credit Events only
for the purposes set forth in Section 4.14 hereof.
SECTION 6.10. Fiscal Year-End. Cause its Fiscal Year to end on December 31
in each year.
SECTION 6.11. Further Assurances. Execute any and all further documents
and take all further actions which may be required under applicable law, or
which the Agent may
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reasonably request, to grant, preserve, protect and perfect the first priority
security interest created by the Security Documents in the Collateral.
SECTION 6.12. Additional Grantors and Guarantors. Promptly inform the
Agent of the creation or acquisition of any direct or indirect subsidiary
(subject to the provisions of Section 7.06 hereof) and cause each direct or
indirect subsidiary not in existence on the date hereof (except any Foreign
Subsidiary), to enter into a Guarantee in form and substance satisfactory to the
Agent, and to execute the Security Documents, as applicable, as a Grantor, and
cause the direct parent of each such subsidiary to pledge all of the capital
stock of such subsidiary (or, in the case of a Foreign Subsidiary, 65%) pursuant
to the Pledge Agreement and cause each such subsidiary to pledge its accounts
receivable and all other assets pursuant to the Security Agreement (except any
Foreign Subsidiary).
SECTION 6.13. Environmental Laws. (a) Comply, and cause each of their
subsidiaries to comply, in all material respects with the provisions of all
Environmental Laws, and shall keep their properties and the properties of their
subsidiaries free of any Lien imposed pursuant to any Environmental Law. The
Borrowers shall not cause or suffer or permit, and shall not suffer or permit
any of their subsidiaries to cause or suffer or permit, the property of the
Borrowers or their subsidiaries to be used for the generation, production,
processing, handling, storage, transporting or disposal of any Hazardous
Material, except for Hazardous Materials used in the ordinary course of business
of the Borrowers and in material compliance with Environmental Laws.
(b) Supply to the Agent copies of all material submissions by the
Borrowers or any of their subsidiaries to any governmental body and of the
reports of all environmental audits and of all other environmental tests,
studies or assessments (including the data derived from any sampling or survey
of asbestos, soil, or subsurface or other materials or conditions) that have
been conducted or performed (by or on behalf of the Borrowers or any of their
subsidiaries) on or regarding the properties owned, operated, leased or occupied
by the Borrowers or any of their subsidiaries in response to violations of
Environmental Law or Releases of Hazardous Materials that would reasonably be
expected to give rise to an Environmental Claim in excess of $100,000. The
Borrowers shall also permit and authorize, and shall cause their subsidiaries to
permit and authorize, the consultants, attorneys or other persons that prepare
such submissions or reports or perform such audits, tests, studies or
assessments to discuss such submissions, reports or audits with the Agent and
the Lenders.
(c) Promptly (and in no event more than ten Business Days after the
Borrowers become aware or are otherwise informed of such event) provide oral and
written notice to the Agent upon the happening of any of the following:
(i) any Borrower, any subsidiary of any Borrower, or any tenant or
other occupant of any property of such Borrower or such subsidiary
receives written notice of any claim, complaint, charge or notice of a
violation or potential violation of any Environmental Law that would
reasonably be expected to give rise to a liability or cost in excess of
$30,000;
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(ii) there has been a spill or other Release of Hazardous Materials
upon, under or about or affecting any of the properties owned, operated,
leased or occupied by any Borrower or any subsidiary of any Borrower, in
amounts that may have to be reported under Environmental Law or Hazardous
Materials at levels or in amounts that may have to be reported, remedied
or responded to under Environmental Law are detected on or in the soil or
groundwater such that would reasonably be expected to give rise to a
liability or cost in excess of $30,000;
(iii) any Borrower or any of their subsidiaries are or may be liable
for any costs of cleaning up or otherwise responding to a Release of
Hazardous Materials such that would reasonably be expected to give rise to
a liability or cost in excess of $30,000;
(iv) any part of the properties owned, operated, leased or occupied
by any Borrower or any subsidiary of any Borrower is or may be subject to
a Lien under any Environmental Law; or
(v) any Borrower or any subsidiary of any Borrower undertakes any
Remedial Work with respect to any Hazardous Materials such that would
reasonably be expected to give rise to a liability or cost in excess of
$30,000.
(d) Without in any way limiting the scope of Section 11.04(c) and in
addition to any obligations thereunder, each of the Borrowers hereby indemnifies
and agrees to hold the Agent and the Lenders harmless from and against any
liability, loss, damage, suit, action or proceeding arising out of its business
or the business of its subsidiaries pertaining to Hazardous Materials,
including, but not limited to, claims of any governmental body or any third
person arising under any Environmental Law or under tort, contract or common
law, except to the extent any such liability or loss is found by a court of
final adjudication to have been due to the gross negligence or willful
misconduct of the Agent or any Lender. To the extent laws of the United States
or any applicable state or local law in which property owned, operated, leased
or occupied by any Borrower or any subsidiary of any Borrower is located provide
that a Lien upon such property of such Borrower or such subsidiary may be
obtained for the removal of Hazardous Materials which have been or may be
Released, no later than sixty days after notice that a Release has occurred is
given by the Agent to such Borrower or such subsidiary, such Borrower or such
subsidiary shall deliver to the Agent a report issued by a qualified third party
engineer assessing the existence and extent of any Hazardous Materials located
upon or beneath the specified property. To the extent any Hazardous Materials
located therein or thereunder either subject the property to Lien or require
removal to safeguard the health of any persons, the removal thereof shall be an
affirmative covenant of the Borrowers hereunder.
(e) In the event that any Remedial Work is required to be performed by any
Borrower or any subsidiaries of any Borrower under any applicable Environmental
Law, any judicial order, or by any governmental entity, such Borrower or such
subsidiary shall commence all such Remedial Work at or prior to the time
required therefor under such Environmental Law or applicable judicial orders and
thereafter diligently prosecute to
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completion all such Remedial Work in accordance with and within the time allowed
under such applicable Environmental Laws or judicial orders.
SECTION 6.14. Pay Obligations to Lenders and Perform Other Covenants. (a)
Make full and timely payment of the Obligations, whether now existing or
hereafter arising, (b) duly comply with all the terms and covenants contained in
this Agreement (including, without limitation, the borrowing limitations and
mandatory prepayments in accordance with Article II hereof) in each of the other
Loan Documents, all at the times and places and in the manner set forth therein,
and (c) except for the filing of continuation statements and the making of other
filings by the Agent as secured party or assignee, at all times take all actions
necessary to maintain the Liens and security interests provided for under or
pursuant to this Agreement and the Security Documents as valid and perfected
first Liens on the property intended to be covered thereby (subject only to
Liens expressly permitted hereunder) and supply all information to the Agent
necessary for such maintenance.
SECTION 6.15. Maintain Operating Accounts. Maintain their principal
disbursement accounts, operating accounts and other depository accounts as set
forth on Schedule 4.22 or as otherwise contemplated by Section 10.01, and notify
the Agent promptly of the closing of any account specified in Schedule 4.22 and
the opening up of any new accounts, in detail satisfactory to the Agent and with
respect to any such new account, provide the Agent with such agreements, in form
and substance satisfactory to the Agent, as the Agent shall request. The
Borrowers agree that if at any time the outstanding balance of the account
maintained by RVPI with the Royal Bank of Canada (or any financial institution
with an office in Barbados) exceeds $10,000.00, the Borrowers will provide, or
will cause to be provided. to the Agent such agreements, in form and substance
satisfactory to the Agent, as the Agent shall request.
SECTION 6.16. Amendments. Promptly supply to the Agent certified copies of
any amendments to the Acquisition Documents or the Crispaire Acquisition
Documents.
SECTION 6.17. Landlords' Waivers. To the extent any Inventory is now or
becomes located on any of the Borrowers' leased real property, obtain landlords'
waivers, to the extent a landlord's waiver has not previously been delivered to
the Agent with respect to such leased real property, within 30 days of Inventory
becoming located on any such real property, pursuant to documentation
satisfactory in form and substance to the Agent.
SECTION 6.18. Interest Rate Protection. Within 60 days after the Closing
Date, enter into an interest rate cap (i) covering a notional principal amount
of at least $10,000,000, (ii) with a term ending no earlier then three (3) years
from the Closing Date and (iii) on such other terms and conditions as shall be
reasonably satisfactory to the Agent.
SECTION 6.19. Post Closing Matters. (a) Within 30 days after the Closing
Date, obtain bailees' letters pursuant to documentation satisfactory in form and
substance to the Agent.
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(b) Within 60 days after the Closing Date, enter into Lockbox or other
cash management arrangements with respect to accounts opened at The Chase
Manhattan Bank in connection with the Acquisition pursuant to documentation
satisfactory in form and substance to the Agent.
(c) Within 30 days after the Closing Date, the Borrowers shall cause to be
delivered to the Agent (x) a reliance letter from Strata in form and substance
satisfactory to the Agent, with respect to the Phase I Environmental Site
Assessment for the Dayton, Tennessee real property, and (y) a copy of Strata's
current certificate of insurance.
(d) Within 90 days after the Closing Date, the Borrowers shall take the
actions described on Schedule 6.19(d) hereto.
(e) Within 30 days after the Closing Date, the Borrowers shall cause to be
delivered to the Agent (x) a reliance letter from Adirondack Environmental, in
form and substance satisfactory to the Agent, with respect to the Elkhart,
Indiana real property, (y) a copy of Adirondack Environmental's current
certificate of insurance and (z) a copy of Adirondack Environmental's statement
of qualifications.
(f) Within 60 days after the Closing Date, the Agent and the Lenders shall
have had the opportunity, if they so choose, to conduct customer and supplier
checking and to conduct an audit which shall include, without limitation,
verification of Receivables related to SMC.
(g) Within 45 days after the Closing Date, the Borrowers shall provide to
the Agent real property appraisals in respect of SMC's real property located in
Dayton, Tennessee and Elkhart, Indiana, in form and substance satisfactory to
the Agent.
(h) Within 30 days after the Closing Date, the Borrowers shall provide, in
form and substance satisfactory to the Agent, a blocked account letter relating
to Airxcel's concentration account at NationsBank, N.A.
VII. NEGATIVE COVENANTS
Each of the Borrowers covenants and agrees with each Lender that until the
principal and interest on all Notes delivered hereunder are paid in full and all
fees, expenses or amounts then being due and payable hereunder or in connection
with any of the Transactions shall be paid in full and the Total Revolving
Credit Commitment shall be terminated, it will not and will not cause or permit
any of its subsidiaries to, either directly or indirectly:
SECTION 7.01. Liens. Incur, create, assume or permit to exist any Lien on
any of its property or assets (including the stock of any direct or indirect
subsidiary), whether owned at the date hereof or hereafter acquired, or assign
or convey any rights to or security interests in any future revenues, except:
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(a) Liens incurred and pledges and deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance,
old-age pensions and other social security benefits (not including any lien
described in Section 412(m) of the Code);
(b) Liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens and other similar liens, incurred in good faith
in the ordinary course of business and securing obligations which are not
overdue for a period of more than 15 days or which are being contested in good
faith by appropriate proceedings as to which any Borrower or any of their
subsidiaries, as the case may be, shall, to the extent required by GAAP, have
set aside on its books adequate reserves;
(c) Liens securing the payment of taxes, assessments and governmental
charges or levies, that are not delinquent or are being diligently contested in
good faith by appropriate proceedings and as to which adequate reserves have
been established in accordance with GAAP; provided, however, that in no event
shall the aggregate amount of such reserves be less than the aggregate amount
secured by such Liens;
(d) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests, mortgages,
obligations, liens and other encumbrances incurred, created, assumed or
permitted to exist and arising by, through or under a landlord or owner of the
leased property, with or without consent of the lessee) which do not in the
aggregate materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business;
(e) Liens upon any equipment acquired through the purchase or lease
(including Capitalized Lease Obligations) by any Borrower or any of their
subsidiaries which are created or incurred contemporaneously with such
acquisition to secure or provide for the payment of any part of the purchase
price of, or lease payments on, such equipment and expenses relating thereto
(but no other amounts and not in excess of the purchase price or lease
payments); provided, however, that any such Lien shall not apply to any other
property of the Borrowers or any of their subsidiaries; and provided, further,
that after giving effect to such purchase or lease, compliance is maintained
with Section 7.07 hereof;
(f) Liens existing on the date of this Agreement and set forth in Schedule
7.01 annexed hereto but not the extension, renewal or refunding of the
Indebtedness secured thereby;
(g) Liens created in favor of the Agent for its own benefit and for the
benefit of the Lenders;
(h) Liens securing the performance of bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory obligations, surety,
customs and appeal bonds and other obligations of like nature, incurred as an
incident to and in the ordinary course of business; or
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(i) Liens securing Indebtedness permitted under clause (x) of Section 7.03
hereof; provided, that such Lien shall be promptly disclosed to the Agent.
SECTION 7.02. Sale and Lease-Back Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby any Borrower or any
of their subsidiaries shall sell or transfer any property, real or personal, and
used or useful in its business, whether now owned or hereafter acquired, and
thereafter rent or lease such property or other property which such Borrower or
such subsidiary intends to use for substantially the same purpose or purposes as
the property being sold or transferred.
SECTION 7.03. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness other than (i) Indebtedness secured by Liens permitted under
Section 7.01, (ii) Indebtedness (including, without limitation, Guarantees)
existing on the date hereof and listed in Schedule 7.03 annexed hereto, but not
the extension, renewal or refunding thereof, (iii) Indebtedness incurred
hereunder, (iv) Indebtedness to trade creditors incurred in the ordinary course
of business, (v) Guarantees constituting the endorsement of negotiable
instruments for deposit or collection in the ordinary course of business, (vi)
Guarantees of the Obligations, (vii) purchase money Indebtedness to the extent
permitted by Sections 7.01 (e) and 7.07 hereof, (viii) Subordinated
Indebtedness, (ix) Indebtedness for judgments which do not constitute a Default
or an Event of Default under article Vl11(j), (x) contingent obligations (fully
reimbursable by insurance) incurred in respect of product warranties which are
provided to customers of any Borrower or any subsidiary in the ordinary course
of business and (xi) other Indebtedness not to exceed $100,000 in the aggregate
at any time outstanding.
SECTION 7.04. Dividends, Distributions and Payments. Declare or pay,
directly and indirectly, any cash dividends or make any other distribution,
whether in cash, property, securities or a combination thereof, with respect to
(whether by reduction of capital or otherwise) any shares of its capital stock
or directly or indirectly redeem, purchase, retire or otherwise acquire for
value (or permit any subsidiary to purchase or acquire) any shares of any class
of its capital stock or set aside any amount for any such purpose, except that
(i) any subsidiary of any Borrower may pay cash dividends to such Borrower, (ii)
so long as no Default or Event of Default shall have occurred and be continuing,
any Borrower may pay cash dividends to Holdings solely for the purpose of paying
taxes not otherwise immediately payable pursuant to tax sharing arrangements and
which arise from consolidated return filings by Holdings but only as and when
due and payable, and (iii) so long as no Default or Event of Default shall have
occurred and be continuing, the Borrowers may pay cash dividends to Holdings to
repurchase shares pursuant to written shareholders agreements or employment
arrangements relating to the death, disability, resignation or termination of
employment of any officer or employee; provided, that the aggregate amount
expended for such repurchases during the term of this Agreement shall not,
without the consent of the Required Lenders, exceed $500,000.
SECTION 7.05, Consolidations. Mergers and Sales of Assets. Consolidate
with or merge into any other person, or sell, lease, transfer or assign to any
persons or otherwise dispose of (whether in one transaction or a series of
transactions) any portion of its assets (whether now owned or hereafter
acquired), or sell any of its inventory, aggregating in
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excess of $50,000 in any Fiscal Year, other than (i) sales of inventory in the
ordinary course of business, (ii) sales or other dispositions of obsolete
equipment, (iii) the license of trademarks and other intellectual property for
fair value in the ordinary course of business to third parties and (iv)
Qualified Sales, or permit another person to merge into it, or acquire all or
substantially all the capital stock or assets of any other person.
SECTION 7.06. Investments. Own, purchase or acquire any stock,
obligations, assets (not in the ordinary course of business) or securities of,
or any interest in, or make any capital contribution or loan or advance to, any
other person, or make any other investments, except:
(a) certificates of deposit in dollars of any commercial banks registered
to do business in any state of the United States (i) having capital and surplus
in excess of $1,000,000,000 and (ii) whose long-term debt rating is at least
investment grade as determined by either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.;
(b) readily marketable direct obligations of the United States government
or any agency thereof which are backed by the full faith and credit of the
United States;
(c) investments in money market mutual funds having assets in excess of
$2,500,000,000;
(d) commercial paper at the time of acquisition having the highest rating
obtainable from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.;
(e) federally tax exempt securities rated A or better by either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc.;
(f) loans and advances to officers and employees for business purposes in
an aggregate amount not to exceed $50,000 in the aggregate outstanding at any
time for all loans and advances under this clause (f);
(g) investments in the stock of RVPI existing on the Original Closing
Date, but not any additional investments therein; and
(h) current assets arising from the sale or lease of goods or the
rendition of services in the ordinary course of business of the Borrowers;
provided that, in each case mentioned in (a), (b), (d), (e) and (9) above, such
obligations shall mature not more than one year from the date of acquisition
thereof.
SECTION 7.07. Capital Expenditures. Permit the aggregate amount of
payments made for capital expenditures, including Capitalized Lease Obligations
and Indebtedness secured by Liens permitted under Section 7.01(e) hereof, in
each of the periods indicated below to exceed the following amounts for the
Borrowers and their subsidiaries:
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Period Maximum Amount
------ --------------
- --------------------------------------------------------------------------------
<S> <C>
Fiscal Year ending December 31, 1998 $1,700,000
- --------------------------------------------------------------------------------
Fiscal Year ending December 31, 1999 $1,700,000
- --------------------------------------------------------------------------------
Fiscal Year ending December 31, 2000 $3,000,000
- --------------------------------------------------------------------------------
Fiscal Year ending December 31, 2001
and each Fiscal Year thereafter $1,700,000
- --------------------------------------------------------------------------------
</TABLE>
provided, however, that so long as no Default or Event of Default shall have
occurred and be continuing, if capital expenditures made in any Fiscal Year are
less than such amounts set forth above for such period, then an amount equal to
the unused portion may be carried forward and added to the amount of capital
expenditures permitted for the immediately succeeding Fiscal Year (but not any
other Fiscal Year).
Notwithstanding the foregoing, capital expenditures permitted to be made under
this Section 7.07 shall be deemed made as follows: first, from the amount
otherwise permitted to be paid for capital expenditures pursuant to this Section
7.07 and second, from any amounts permitted to be carried forward pursuant
thereto.
SECTION 7.08. Debt Service Coverage Ratio. Permit the Debt Service
Coverage Ratio of the Borrowers and their subsidiaries to be less than 2.00:1.00
for each four consecutive fiscal quarter period ending on the last day of each
fiscal quarter, commencing with the fiscal quarter ending March 31, 1999.
SECTION 7.09. Leverage Ratio: EBITDA. (a) Permit the Leverage Ratio of the
Borrowers and their subsidiaries to be greater than the respective ratios set
forth below at the end of the fiscal quarters indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal Quarter Ending Ratio
--------------------- -----
- --------------------------------------------------------------------------------
<S> <C>
March 31, 1999 1.00:1.00
- --------------------------------------------------------------------------------
June 30, 1999 and September 30, 1999 0.85:1.00
- --------------------------------------------------------------------------------
December 31, 1999 0.75:1.00
- --------------------------------------------------------------------------------
March 31, 2000 and each
fiscal quarter thereafter 0.50:1.00
- --------------------------------------------------------------------------------
</TABLE>
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(b) Permit EBITDA of the Borrowers and their subsidiaries as at the end of
the periods set forth below to be less than:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Period Amount
------ ------
- --------------------------------------------------------------------------------
<S> <C>
Fiscal quarter ending June 30, 1998 $5,400,000
- --------------------------------------------------------------------------------
Two fiscal quarters ending
September 30, 1998 $10,650,000
- --------------------------------------------------------------------------------
Three fiscal quarters ending
December 31, 1998 $14,500,000
- --------------------------------------------------------------------------------
</TABLE>
SECTION 7.10. Interest Coverage Ratio. Permit the Interest Coverage Ratio
of the Borrowers and their subsidiaries to be less than the respective ratios
set forth below at the end of the fiscal quarters indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal Quarter Ending Ratio
--------------------- -----
- --------------------------------------------------------------------------------
<S> <C>
June 30, 1998, September 30, 1998,
December 31, 1998 and March 31, 1999 1.70:1.00
- --------------------------------------------------------------------------------
June 30, 1999 1.80:1.00
- --------------------------------------------------------------------------------
September 30, 1999 1.90:1.00
- --------------------------------------------------------------------------------
December 31, 1999, March 31, 2000,
June 30, 2000, September 30, 2000,
December 31, 2000, March 31, 2001,
June 30, 2001 and September 30, 2001 2.00:1.00
- --------------------------------------------------------------------------------
December 31, 2001 and
each fiscal quarter thereafter 2.25:1.00
- --------------------------------------------------------------------------------
</TABLE>
SECTION 7.11. Business. Alter the nature of its business as operated on
the date of this Agreement other than any businesses or activities substantially
similar or related thereto.
SECTION 7.12. Sales of Receivables. Sell, assign, discount, transfer, or
otherwise dispose of any accounts receivable, promissory notes, drafts or trade
acceptances or other rights to receive payment held by it, with or without
recourse, except (i) for the purpose of collection or settlement in the ordinary
course of business or (ii) the sale of any such accounts to The Chase Manhattan
Bank.
SECTION 7.13. Use of Proceeds. Permit the proceeds of any Credit Event to
be used for any purpose which entails a violation of, or is inconsistent with,
Regulation G,
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T, U or X of the Board, or for any purpose other than those set forth in Section
4.14 hereof.
SECTION 7.14. ERISA. (a) Engage in any transaction in connection with
which the Borrowers or any ERISA Affiliate could be subject to either a material
civil penalty assessed pursuant to the provisions of Section 502 of ERISA or a
material tax imposed under the provisions of Section 4975 of the Code.
(b) Terminate any Pension Plan in a "distress termination" under Section
4041 of ERISA, or take any other action which could result in a material
liability of the Borrowers or any ERISA Affiliate to the PBGC.
(c) Fail to make payment when due of all amounts which, under the
provisions of any Plan, the Borrowers or any ERISA Affiliate are required to pay
as contributions thereto, or, with respect to any Pension Plan, permit to exist
any material "accumulated funding deficiency" (within the meaning of Section 302
of ERISA and Section 412 of the Code), whether or not waived, with respect
thereto.
(d) Adopt an amendment to any Pension Plan requiring the provision of
security under Section 307 of ERISA or Section 401 (a)(29) of the Code.
SECTION 7.15. Accounting Changes. Make, or permit any subsidiary to make,
any change in their accounting treatment or financial reporting practices except
as required or permitted by GAAP.
SECTION 7.16. Prepayment or Modification of Indebtedness: Modification of
Charter Documents. (a) Other than Indebtedness incurred hereunder, directly or
indirectly prepay, redeem, purchase or retire any Indebtedness, including,
without limitation, any Subordinated Indebtedness.
(b) Modify, amend or otherwise alter the terms and provisions of any
Subordinated Indebtedness.
(c) Modify, amend or alter their certificates or articles of
incorporation.
(d) Modify, amend or otherwise alter in any material respect the terms and
provisions of the Coast Distribution Agreement without the consent of the Agent.
SECTION 7. 17. Transactions with Affiliates. Except as otherwise
specifically set forth in this Agreement, including the transactions
contemplated by the Acquisition Documents and the Subordinated Notes, directly
or indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or enter into any other transaction with, any
stockholder, Affiliate or agent of any Borrower, except at prices and on terms
not less favorable to it than that which would have been obtained in an arm's
length transaction with a non-affiliated third party.
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SECTION 7.18. Consulting Fees. Pay any management, consulting or other
fees of any kind to Holdings, any subsidiary thereof or any subsidiary of any
Borrower, or to any Affiliate of Holdings, any of its subsidiaries or of the
Borrowers or any of the Borrowers' subsidiaries.
SECTION 7.19. Negative Pledges. Etc. Enter into any agreement (other than
this Agreement, any other Loan Document) which (a) prohibits the creation or
assumption of any Lien upon any of the Collateral, including, without
limitation, any hereafter acquired property, or (b) specifically prohibits the
amendment or other modification of this Agreement or any other Loan Document.
VIII. EVENTS OF DEFAULT
In case of the happening of any of the following events (herein called
"Events of Default"):
(a) any representation or warranty made or deemed made in or in connection
with this Agreement, any of the Security Documents, the Notes or other Loan
Documents or any Credit Events hereunder, shall prove to have been incorrect in
any material respect when made or deemed to be made;
(b) default shall be made in the payment of any principal of any Note when
and as the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Note, or
any fee or any other amount payable hereunder, or under the Notes, Letters of
Credit, or any other Loan Document or in connection with any other Credit Event
or the Transactions when and as the same shall become due and payable, and such
default shall continue for five (5) consecutive days;
(d) default shall be made in the due observance or performance of any
covenant, condition or agreement to be observed or performed on the part of any
Loan Party pursuant to the terms of this Agreement, any of the Notes, any of the
Security Documents or any other Loan Document (and with respect to defaults
under Sections 6.04, 6.06 and 6.07, such default shall continue for ten (10)
consecutive days);
(e) any Loan Party shall (i) voluntarily commence any proceeding or file
any petition seeking relief under Title 11 of the United States Code or any
other Federal, state or foreign bankruptcy, insolvency, liquidation or similar
law, (ii) consent to the institution of, or fail to contravene in a timely and
appropriate manner, any such proceeding or the filing of any such petition,
(iii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator or similar official for any Loan Party or for a substantial part of
its property or assets, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi) become unable, admit in writing
its inability
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or fail generally to pay its debts as they become due or (vii) take corporate
action for the purpose of effecting any of the foregoing;
(f) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of any Loan Party, or of a substantial part of the property or assets
of any Loan Party, under Title 11 of the United States Code or any other Federal
state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator or similar official
for any Loan Party or for a substantial part of the property of any Loan Party
or (iii) the winding-up or liquidation of any Loan Party; and such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving
or ordering any of the foregoing shall continue unstayed and in effect for 60
days;
(g) default shall be made with respect to any Indebtedness (other than
Subordinated Indebtedness) or obligations under a capitalized lease of any Loan
Party (excluding Indebtedness outstanding hereunder), whose unpaid principal
amount exceeds (together with all other Indebtedness or capitalized leases in
default under this clause (g) $250,000 in the aggregate at any time, or default
shall be made with respect to any Subordinated Indebtedness, in either case, if
the effect of any such default shall be to accelerate, or to permit the holder
or obligee of any such Indebtedness or obligations under a capitalized lease (or
any trustee on behalf of such holder or obligee) at its option to accelerate,
the maturity of such Indebtedness or obligations under a capitalized lease;
(h) (i) a Reportable Event shall have occurred with respect to a Pension
Plan, (ii) the filing by any Loan Party, any ERISA Affiliate, or an
administrator of any Plan of a notice of intent to terminate such a Plan in a
"distress termination" under the provisions of Section 4041 of ERISA, (iii) the
receipt of notice by any Loan Party, any ERISA Affiliate, or an administrator of
a Plan that the PBGC has instituted proceedings to terminate (or appoint a
trustee to administer) such a Pension Plan, (iv) any other event or condition
exists which might, in the opinion of the Agent, constitute grounds under the
provisions of Section 4042 of ERISA for the termination of (or the appointment
of a trustee to administer) any Pension Plan by the PBGC, (v) a Pension Plan
shall fail to maintain the minimum funding standard required by Section 412 of
the Code for any plan year or a waiver of such standard is sought or granted
under the provisions of Section 412(d) of the Code, (vi) any Loan Party or any
ERISA Affiliate has incurred, or is likely to incur, a liability under the
provisions of Section 4062,4063, 4064 or 4201 of ERISA, (vii) any Loan Party or
any ERISA Affiliate fails to pay the full amount of an installment required
under Section 412(m) of the Code, (viii) the occurrence of any other event or
condition with respect to any Plan which would constitute an event of default
under any other agreement entered into by any Loan Party or any ERISA Affiliate,
and in each case in clauses (i) through (viii) of this subsection (h), such
event or condition, together with all other such events or conditions, if any,
could subject any Loan Party or any ERISA Affiliate to any taxes, penalties or
other liabilities which, in the opinion of the Agent, could have a Material
Adverse Effect on the financial condition of any Loan Party or any ERISA
Affiliate;
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(i) any Loan Party or any ERISA Affiliate (i) shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred any material withdrawal
liability to such Multiemployer Plan, and (ii) does not have reasonable grounds
for contesting such withdrawal liability and is not in fact contesting such
withdrawal liability in a timely and appropriate manner;
(j) a judgment (not reimbursed by insurance policies of any Loan Party) or
decree for the payment of money, a fine or penalty which when taken together
with all other such judgments, decrees, fines and penalties shall exceed
$500,000 shall be rendered by a court or other tribunal against any Loan Party
and (i) shall remain undischarged or unbonded for a period of 60 consecutive
days during which the execution of such judgment, decree, fine or penalty shall
not have been stayed effectively or (ii) any judgment creditor or other person
shall legally commence actions to collect on or enforce such judgment, decree,
fine or penalty;
(k) this Agreement, any Note, any of the Security Documents, any Guarantee
or other Loan Documents shall for any reason cease to be, or shall be asserted
by any Loan Party not to be, a legal, valid and binding obligation of any Loan
Party, enforceable in accordance with its terms, or the security interest or
Lien purported to be created by any of the Security Documents shall for any
reason cease to be, or be asserted by any Loan Party not to be, a valid, first
priority perfected security interest in any Collateral (except to the extent
otherwise permitted under this Agreement or any of the Security Documents); or
(l) a Change of Control shall occur;
then, and in any such event (other than an event described in paragraph (e) or
(0 above), and at any time thereafter during the continuance of such event, the
Agent may, and upon the written request of the Required Lenders shall, by
written notice (or facsimile notice promptly confirmed in writing) to the
Borrowers, take any or all of the following actions at the same or different
times: (i) terminate forthwith all or any portion of the Total Commitment and
the obligations of the Lenders to issue Letters of Credit hereunder; (ii)
declare the Notes and any amounts then owing to the Lenders on account of
drawings under any Letters of Credit to be forthwith due and payable, and (iii)
require that the Borrowers remit to the Agent cash collateral in an amount equal
to the aggregate undrawn amount of all outstanding Letters of Credit at such
time, such cash collateral to be held by the Agent for its own benefit and the
benefit of the Lenders in a cash collateral account on terms and conditions
satisfactory to the Agent, whereupon the principal of such Notes, together with
accrued interest and fees thereon and any amounts then owing to the Lenders on
account of drawings under any Letters of Credit and other liabilities of the
Borrowers accrued hereunder, shall become forthwith due and payable both as to
principal and interest, without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived by the Borrowers, anything
contained herein or in the Notes to the contrary notwithstanding; provided,
however, that with respect to a default described in paragraph (e) or (f) above,
the Total Commitment and the obligation of the Lenders to issue Letters of
Credit shall automatically terminate and the principal of the Notes,
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together with accrued interest and fees thereon and any amounts then owing to
the Lenders on account of drawings under any Letters of Credit and any other
liabilities of the Borrowers accrued hereunder shall automatically become due
and payable, both as to principal and interest, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Borrowers, anything contained herein or in the Notes to the contrary
notwithstanding.
IX. AGENT
In order to expedite the transactions contemplated by this Agreement, The
Chase Manhattan Bank is hereby appointed to act as Agent on behalf of the
Lenders. Each of the Lenders and each subsequent holder of any Note or issuer of
any Letter of Credit by its acceptance thereof, irrevocably authorizes the Agent
to take such action on its behalf and to exercise such powers hereunder and
under the Security Documents and other Loan Documents as are specifically
delegated to or required of the Agent by the terms hereof and the terms thereof
together with such powers as are reasonably incidental thereto. Neither the
Agent nor any of its directors, officers, employees or agents shall be liable as
such for any action taken or omitted to be taken by it or them hereunder or
under any of the Security Documents and other Loan Documents or in connection
herewith or therewith (a) at the request or with the approval of the Required
Lenders (or, if otherwise specifically required hereunder or thereunder, the
consent of all the Lenders) or (b) in the absence of its or their own gross
negligence or willful misconduct.
The Agent is hereby expressly authorized on behalf of the Lenders, without
hereby limiting any implied authority, (a) to receive on behalf of each of the
Lenders any payment of principal of or interest on the Notes outstanding
hereunder and all other amounts accrued hereunder paid to the Agent, and
promptly to distribute to each Lender its proper share of all payments so
received, (b) to distribute to each Lender copies of all notices, agreements and
other material as provided for in this Agreement or in the Security Documents
and other Loan Documents as received by such Agent and (c) to take all actions
with respect to this Agreement and the Security Documents and other Loan
Documents as are specifically delegated to the Agent.
In the event that (a) any Borrower fails to pay when due the principal of
or interest on any Note, any amount payable under any Letter of Credit, or any
fee payable hereunder or (b) the Agent receives written notice of the occurrence
of a Default or an Event of Default, the Agent within a reasonable time shall
give written notice thereof to the Lenders, and shall take such action with
respect to such Event of Default or other condition or event as it shall be
directed to take by the Required Lenders; provided, however, that, unless and
until the Agent shall have received such directions, the Agent may take such
action or refrain from taking such action hereunder or under the Security
Documents or other Loan Documents with respect to a Default or Event of Default
as it shall deem advisable in the best interests of the Lenders.
The Agent shall not be responsible in any manner to any of the Lenders for
the effectiveness, enforceability, perfection, value, genuineness, validity or
due execution of
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this Agreement, the Notes or any of the other Loan Documents or Collateral or
any other agreements or certificates, requests, financial statements, notices or
opinions of counsel or for any recitals, statements, warranties or
representations contained herein or in any such instrument or be under any
obligation to ascertain or inquire as to the performance or observance of any of
the terms, provisions, covenants, conditions, agreements or obligations of this
Agreement or any of the other Loan Documents or any other agreements on the part
of the Borrowers and, without limiting the generality of the foregoing, the
Agent shall, in the absence of knowledge to the contrary, be entitled to accept
any certificate furnished pursuant to this Agreement or any of the other Loan
Documents as conclusive evidence of the facts stated therein and shall be
entitled to rely on any note, notice, consent, certificate, affidavit, letter,
telegram, teletype message, statement, order or other document which it believes
in good faith to be genuine and correct and to have been signed or sent by the
proper person or persons. It is understood and agreed that the Agent may
exercise its rights and powers under other agreements and instruments to which
it is or may be a party, and engage in other transactions with the Borrowers, as
though it were not Agent of the Lenders hereunder.
The Agent shall promptly give notice to the Lenders of the receipt or
sending of any notice, schedule, report, projection, financial statement or
other document or information pursuant to this Agreement or any of the other
Loan Documents and shall promptly forward a copy thereof to each Lender.
Neither the Agent nor any of its directors, officers, employees or agents
shall have any responsibility to the Borrowers on account of the failure or
delay in performance or breach by any Lender other than the Agent of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrowers of any of their
respective obligations hereunder or in connection herewith.
The Agent may consult with legal counsel selected by it in connection with
matters arising under this Agreement or any of the other Loan Documents and any
action taken or suffered in good faith by it in accordance with the opinion of
such counsel shall be full justification and protection to it. The Agent may
exercise any of its powers and rights and perform any duty under this Agreement
or any of the other Loan Documents through agents or attorneys.
The Agent and the Borrowers may deem and treat the payee of any Note as
the holder thereof until written notice of transfer shall have been delivered as
provided herein by such payee to the Agent and the Borrowers.
With respect to the Loans made hereunder, the Notes issued to it and any
other Credit Event applicable to it, the Agent in its individual capacity and
not as an Agent shall have the same rights, powers and duties hereunder and
under any other agreement executed in connection herewith as any other Lender
and may exercise the same as though it were not the Agent, and the Agent and its
affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrowers or other affiliate thereof as if it were not
the Agent. Each of the Lenders
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hereby acknowledges that the Agent and/or one or more Affiliates of the Agent
may at any time and from time to time be a holder of equity interests in a Loan
Party.
Each Lender agrees (i) to reimburse the Agent in the amount of such
Lender's pro rata share (based on its Commitment hereunder) of any expenses
incurred for its own benefit and for the benefit of the Lenders by the Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, not reimbursed by the Borrowers and
(ii) to indemnify and hold harmless the Agent and any of its directors,
officers, employees or agents, on demand, in the amount of its pro rata share,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against it in its capacity as the Agent or any of them in any way relating to or
arising out of this Agreement or any of the other Loan Documents or any action
taken or omitted by it or any of them under this Agreement or any of the other
Loan Documents, to the extent not reimbursed by the Borrowers; provided,
however, that no Lender shall be liable to the Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgment, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Agent or any of its directors, officers, employees or agents.
Each Lender acknowledges that it has, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement and any other Loan Document to which such Lender is party.
Each Lender also acknowledges that it will, independently and without reliance
upon the Agent or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any other Loan
Document, any related agreement or any document furnished hereunder.
Subject to the appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by notifying the Lenders and the
Borrowers. Upon any such resignation, the Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
such Lenders and shall have accepted such appointment within 30 days after the
retiring Agent gives notice of its resignation, then the retiring Agent may, on
behalf of the Lenders, appoint a successor Agent which shall be a bank with an
office (or an affiliate with an office) in New York, New York, having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor bank, such successor 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 hereunder and under each of the other Loan Documents.
After any Agent's resignation hereunder, the provisions of this Article shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
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The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by the Agent pursuant to the
provisions of this Agreement or any of the other Loan Documents unless it shall
be requested in writing to do so by the Required Lenders. The Lenders hereby
further acknowledge that the Agent is not acting as the fiduciary of, or the
trustee for, any of the Lenders.
X. MANAGEMENT, COLLECTION AND STATUS OF RECEIVABLES AND OTHER COLLATERAL
SECTION 10.01. Collection of Receivables: Management of Collateral.
(a) At the request of the Agent, upon the occurrence and continuance of an
Event of Default, the Borrowers will, at their own cost and expense, (i) arrange
for remittances on Receivables to be made directly to lockboxes designated by
the Agent or in such other manner as the Agent may direct, and (ii) promptly
deposit all payments received by the Borrowers on account of Receivables,
whether in the form of cash, checks, notes, drafts, bills of exchange, money
orders or otherwise, in one or more accounts designated by the Agent in
precisely the form received (but with any endorsements of the Borrowers
necessary for deposit or collection), subject to withdrawal by the Agent only,
as hereinafter provided, and until such payments are deposited, such payments
shall be deemed to be held in trust by the Borrowers for and as the Lenders'
property and shall not be commingled with the Borrowers' other funds. All
remittances and payments that are deposited in accordance with the foregoing
will, after two Business Days (or three Business Days in the case of deposits
that are made after 1:00 p.m. (New York time), be applied by the Agent to reduce
the outstanding balance of the Revolving Credit Loans, subject to final
collection in cash of the item deposited.
Upon the occurrence and continuance of an Event of Default, the Agent may
send a notice of assignment and/or notice of the Agent's security interest to
any and all Customers or any third party holding or otherwise concerned with any
of the Collateral, and thereafter the Agent shall have the sole right to collect
the Receivables and/or take possession of the Collateral and the books and
records relating thereto. The Borrowers shall not, without the Agent's prior
written consent, grant any extension of the time of payment of any Receivable,
compromise or settle any Receivable for less than the full amount thereof,
release, in whole or in part, any person or property liable for the payment
thereof, or allow any credit or discount whatsoever thereon except, prior to the
occurrence and continuance of an Event of Default, as permitted by Section 10.03
hereof.
(b) (i) Each of the Borrowers hereby constitutes the Agent or the Agent's
designee as such Borrower's attorney-in-fact with power to endorse such
Borrower's name upon any notes, acceptances, checks, drafts, money orders or
other evidences of payment or Collateral that may come into its possession; upon
the occurrence and continuance of an Event of Default, to sign such Borrower's
name on any invoice or bill of lading relating to any Receivables, drafts
against Customers, assignments and
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verifications of Receivables and notices to Customers; to send verifications of
Receivables; upon the occurrence of an Event of Default, to notify the Postal
Service authorities to change the address for delivery of mail addressed to such
Borrower to such address as the Agent may designate; and to do all other acts
and things necessary to carry out this Agreement. All acts of said attorney or
designee are hereby ratified and approved, and said attorney or designee shall
not be liable for any acts of omission or commission, for any error of judgment
or for any mistake of fact or law, provided that the Agent or its designee shall
not be relieved of liability to the extent it is determined by a final judicial
decision that its act, error or mistake constituted gross negligence or willful
misconduct. This power of attorney being coupled with an interest is irrevocable
until all of the Obligations are paid in full and this Agreement and the Total
Commitment is terminated.
(ii) The Agent, without notice to or consent of the Borrowers, upon the
occurrence and during the continuance of an Event of Default, (A) may sue upon
or otherwise collect, extend the time of payment of, or compromise or settle for
cash, credit or otherwise upon any terms, any of the Receivables or any
securities, instruments or insurance applicable thereto and/or release the
obligor thereon; (B) is authorized and empowered to accept the return of the
goods represented by any of the Receivables; and (C) shall have the right to
receive, endorse, assign and/or deliver in its name or the name of any Borrower
any and all checks, drafts and other instruments for the payment of money
relating to the Receivables, and the Borrowers hereby waive notice of
presentment, protest and non-payment of any instrument so endorsed.
(c) Nothing herein contained shall be construed to constitute any Borrower
as agent of the Agent for any purpose whatsoever, and the Agent shall not be
responsible or liable for any shortage, discrepancy, damage, loss or destruction
of any part of the Collateral wherever the same may be located and regardless of
the cause thereof (except to the extent it is determined by a final judicial
decision that the Agent's or a Lender's act or omission constituted gross
negligence or willful misconduct). The Agent and the Lenders shall not, under
any circumstances or in any event whatsoever, have any liability for any error
or omission or delay of any kind occurring in the settlement, collection or
payment of any of the Receivables or any instrument received in payment thereof
or for any damage resulting therefrom (except to the extent it is determined by
a final judicial decision that the Agent's or such Lender's error, omission or
delay constituted gross negligence or willful misconduct). The Agent and the
Lenders do not, by anything herein or in any assignment or otherwise, assume any
of the Borrowers' obligations under any contract or agreement assigned to the
Agent or the Lenders, and the Agent and the Lenders shall not be responsible in
any way for the performance by the Borrowers of any of the terms and conditions
thereof.
(d) If any of the Receivables includes a charge for any tax payable to any
governmental tax authority, the Agent is hereby authorized (but in no event
obligated) in its discretion to pay the amount thereof to the proper taxing
authority for the account of the applicable Borrower and to charge the
Borrowers' account therefor. The Borrowers shall notify the Agent if any
Receivables include any tax due to any such taxing authority and, in the absence
of such notice, the Agent shall have the right to retain the full
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proceeds of such Receivables and shall not be liable for any taxes that may be
due from any Borrower by reason of the sale and delivery creating such
Receivables.
SECTION 10.02. Receivables Documentation. The Borrowers will, in addition
to the monthly Receivables aging delivered pursuant to this Agreement, at such
intervals as the Agent may require, furnish such further schedules and/or
information as the Agent may require relating to the Receivables, including,
without limitation, sales invoices. In addition, the Borrowers shall notify the
Agent of any non-compliance in respect of the representations, warranties and
covenants contained in Section 10.03 hereof. The items to be provided under this
Section 10.02 are to be in form satisfactory to the Agent and are to be executed
and delivered to the Agent from time to time solely for its convenience in
maintaining records of the Collateral; the Borrowers' failure to give any of
such items to the Agent shall not affect, terminate, modify or otherwise limit
the Agent's Lien or security interest in the Collateral.
SECTION 10.03. Status of Receivables and Other Collateral. Each Borrower
covenants, represents and warrants that: (a) it shall be the sole owner, free
and clear of all Liens except in favor of the Agent or otherwise permitted
hereunder, of and fully authorized to sell, transfer, pledge and/or grant a
security interest in each and every item of said Collateral owned by it; (b)
each Receivable shall be a good and valid account representing an undisputed
bona fide indebtedness incurred or an amount indisputably owed by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto with
respect to an absolute sale and delivery upon the specified terms of goods sold
by a Borrower, or work, labor and/or services theretofore rendered by a
Borrower; (c) no Receivable is or shall be subject to any defense, offset,
counterclaim, discount or allowance (as of the time of its creation) except as
may be stated in the invoice relating thereto or discounts and allowances as may
be customary in such Borrower's business; (d) none of the transactions
underlying or giving rise to any Receivable shall violate any applicable state
or federal laws or regulations, and all documents relating to any Receivable
shall be legally sufficient under such laws or regulations and shall be legally
enforceable in accordance with their terms; (e) all documents and agreements
relating to Receivables shall be true and correct and in all respects what they
purport to be; (0 to the best of its knowledge, all signatures and endorsements
that appear on all documents and agreements relating to Receivables shall be
genuine and all signatories and endorsers with respect thereto shall have full
capacity to contract; (9) it shall maintain books and records pertaining to the
Collateral in such detail, form and scope as the Agent shall require; (h) it
will immediately notify the Agent if any accounts arise out of contracts with
the United States or any department, agency or instrumentality thereof, and will
execute any instruments and take any steps required by the Agent in order that
all monies due or to become due under any such contract shall be assigned to the
Agent and notice thereof given to the United States Government under the Federal
Assignment of Claims Act; (i) it will, immediately upon learning thereof, report
to the Agent any material loss or destruction of, or substantial damage to, any
of the Collateral, and any other matters affecting the value, enforceability or
collectability of any of the Collateral; 0) if any amount payable under or in
connection with any Receivable is evidenced by a promissory note or other
instrument, as such terms are defined in the Uniform Commercial Code, such
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promissory note or instrument shall be immediately pledged, endorsed, assigned
and delivered to the Agent as additional collateral; (k) it shall not re-date
any invoice or sale or make sales on extended dating beyond that customary in
the industry; (I) it shall conduct a physical count of its inventory at such
intervals as the Agent may request and promptly supply the Agent with a copy of
such counts accompanied by a report of the value (based on the lower of cost (on
a FIFO basis) or market value) of such inventory; provided, that the Agent shall
not request a physical count for any twelve-month period, more frequently than
once during such period (unless a Default or an Event of Default has occurred
and is continuing in which case as often as the Agent may request) and (m) it is
not nor shall it be entitled to pledge the Lenders' credit on any purchases or
for any purpose whatsoever.
SECTION 10.04. Monthly Statement of Account. The Agent shall render to the
Borrowers each month a statement of the Borrowers' account, which shall
constitute an account stated and shall be deemed to be correct and accepted by
and be binding upon the Borrowers unless the Agent receives a written statement
of the Borrowers' exceptions within 30 days after such statement was rendered to
the Borrowers.
SECTION 10.05. Collateral Custodian. Upon the occurrence and continuance
of an Event of Default, the Agent may at any time and from time to time employ
and maintain in the premises of the Borrowers a custodian selected by the Agent
who shall have full authority to do all acts necessary to protect the Agent's
and Lenders' interests and to report to the Agent thereon. The Borrowers hereby
agree to cooperate with any such custodian and to do whatever the Agent may
reasonably request to preserve the Collateral. All costs and expenses incurred
by the Agent by reason of the employment of the custodian shall be charged to
the Borrowers' account and added to the Obligations.
Xl. MISCELLANEOUS
SECTION 11.01. Notices. Notices, consents and other communications
provided for herein shall be in writing and shall be delivered or mailed (or in
the case of telex or facsimile communication, delivered by telex, graphic
scanning, telecopier or other telecommunications equipment, with receipt
confirmed) addressed,
(a) if to all or any of the Borrowers, Guarantors, or Grantors, at 3050
St. Francis, Wichita, Kansas 67204, Attention: Melvin L. Adams, Chief Executive
Officer, with a copy to Kirkland & Ellis, 153 East 53rd Street, New York, New
York 10022, Attention: Kirk A. Radke, Esq.
(b) if to the Agent, at The Chase Manhattan Bank, Middle Market Structured
Finance Division, 600 Fifth Avenue, 4th Floor, New York, New York 10020,
Attention: Credit Executive, with a copy to Kaye, Scholer, LLP, et al., at 425
Park Avenue, New York, New York 10022, Attention: Jeffrey M. Epstein, Esq.; and
(c) if to any Lender, at the address set forth below its name in Schedule
2.01 annexed hereto.
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All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt if hand delivered or three days after being sent by
registered or certified mail, postage prepaid, return receipt requested, if by
mail, or upon receipt if by any telex, facsimile or other telecommunications
equipment, in each case addressed to such party as provided in this Section
11.01 or in accordance with the latest unrevoked direction from such party.
SECTION 11.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Borrower or any subsidiary thereof
herein and in the certificates or other instruments prepared or delivered in
connection with this Agreement, any of the Security Documents, any Guarantee or
any other Loan Document, shall be considered to have been relied upon by the
Lenders and shall survive the making by the Lenders of the Loans and the
execution and delivery to the Lenders of the Notes and occurrence of any other
Credit Event and shall continue in full force and effect as long as the
principal of or any accrued interest on the Notes or any other fee or amount
payable under the Notes or this Agreement or any other Loan Document is
outstanding and unpaid and so long as the Total Commitment has not been
terminated.
SECTION 11.03. Successors and Assigns: Participations. (a) Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and permitted assigns of such party; and all
covenants, promises and agreements by or on behalf of any Borrower, any
Guarantor, any Grantor, any ERISA Affiliate, any subsidiary of any thereof, the
Agent or the Lenders, that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns. Without limiting the
generality of the foregoing, the Borrowers specifically confirm that any Lender
may at any time and from time to time pledge or otherwise grant a security
interest in any Loan or any Note (or any part thereof) to any Federal Reserve
Bank. No Borrower may assign or transfer any of their rights or obligations
hereunder without the written consent of all the Lenders.
(b) Each Lender, without the consent of the Borrowers or the Agent, may
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Revolving Credit Commitment or Term Loan
Commitment) and the Loans owing to it and undrawn Letters of Credit and the
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement (including, without limitation, its Revolving Credit Commitment
and Term Loan Commitment) shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the banks or other entities buying participations shall be
entitled to the cost protection provisions contained in Sections 2.10, 2.12 and
2.15 hereof, but only to the extent any of such Sections would be available to
the Lender which sold such participation, and (iv) the Borrowers, the Agent and
the other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement;
provided, further, however, that each Lender shall retain the sole right and
responsibility to enforce the obligations of the Borrowers,
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Grantors and the Guarantors relating to the Loans, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement, other than amendments, modifications or waivers
with respect to decreasing any fees payable hereunder or the amount of principal
or the rate of interest payable on, or the dates fixed for any payment of
principal of or interest on, the Loans or changing or extending the Commitments
or the release of all Collateral.
(c) Each Lender may assign by novation, to any one or more banks or other
entities with the prior written consent of the Borrowers (such consent not to be
unreasonably withheld) and with the prior written consent of the Agent, all or a
portion of its interests, rights and obligations under this Agreement and the
other Loan Documents (including, without limitation, all or a portion of its
Revolving Credit Commitment and Term Loan Commitment and the same portion of the
Loans and undrawn Letters of Credit at the time owing to it and the Note or
Notes held by it), provided, however, that (i) each such assignment shall be of
a constant, and not a varying, percentage of all of the assigning Lender's
rights and obligations under this Agreement, which shall include the same
percentage interest in the Loans, Letters of Credit and Notes, (ii) the amount
of the Revolving Credit Commitment and Term Loan Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date the Assignment and Acceptance with respect to such assignment is delivered
to the Agent) shall be in a minimum principal amount of $5,000,000 in the
aggregate for the Revolving Credit Commitment and Term Loan Commitment of such
Lender and the amount of the Revolving Credit Commitment and Term Loan
Commitment of such Lender shall not be less than $5,000,000 or shall be zero,
(iii) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with any Note subject to such assignment and
a processing and recordation fee of $3,500 and (iv) the assignee, if it shall
not be a Lender, shall deliver to the Agent an Administrative Questionnaire in
the form provided to such assignee by the Agent. Upon such execution, delivery,
acceptance and recording and after receipt of the written consent of the Agent,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least five (5) Business Days after the
execution thereof, (x) the assignee thereunder shall be a party hereto and, to
the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and under the other Loan Documents and (y) the
Lender which is assignor thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto but shall continue to be entitled
to the benefits of Sections 2.10, 2.12, 2.15 and 11.04, as well as any fees
accrued for its account hereunder and not yet paid).
(d) By executing and delivering an Assignment and Acceptance, the Lender
which is assignor thereunder and the assignee thereunder confirm to, and agree
with, each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereunder free and clear of any adverse claim, and that
its Commitment and the
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outstanding balance of its Loans and participations in Letters of Credit, in
each case without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance, such Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, perfection,
genuineness, sufficiency or value of this Agreement, the other Loan Documents or
any Collateral with respect thereto or any other instrument or document
furnished pursuant hereto or thereto; (ii) such Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of any Borrower, or any Grantor or Guarantor or the performance or
observance by any Borrower or any Grantor or Guarantor of any of their
respective obligations under this Agreement, any Guarantees or any of the other
Loan Documents or any other instrument or document furnished pursuant hereto or
thereto; (iii) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance and confirms that it has
received a copy of this Agreement, any Guarantees and of the other Loan
Documents, together with copies of financial statements and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee appoints and authorizes the Agent
to take such action as the Agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and (vi) such assignee agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of this Agreement are required to be performed by it as a Lender.
(e) The Agent shall maintain at its address referred to in Section 11.01
hereof a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Lenders and the Revolving
Credit Commitment or Term Loan Commitment, as the case may be, of, and principal
amount of the Loans owing to, each Lender from time to time (the "Register").
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrowers, the Agent and the Lenders may treat each person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee together with any Note or Notes subject to such
assignment, any processing and recordation fee and, if required, an
Administrative Questionnaire and the written consent to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is
precisely in the form of Exhibit F annexed hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Lenders and the Borrowers. Within
five (5) Business Days after receipt of such notice, the Borrowers,
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at their own expense, shall execute and deliver to the Agent in exchange for
each surrendered Note or Notes a new Note or Notes to the order of such assignee
in an amount equal to its portion of the Term Loan Commitment and Revolving
Credit Commitment, assumed by it pursuant to such Assignment and Acceptance and,
if the assigning Lender has retained any Term Loan Commitment and Revolving
Credit Commitment hereunder, a new Note or Notes to the order of the assigning
Lender in an amount equal to the Term Loan Commitment and Revolving Credit
Commitment, retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, or, with respect to the Term Notes, the principal
amount of the Term Notes outstanding at such time as evidenced by the Term Note
or Notes, shall be dated the effective date of such Assignment and Acceptance
and shall otherwise be in substantially the form of Exhibit A and Exhibit B.
Notes surrendered to the Borrowers shall be canceled by the Borrowers.
Notwithstanding any other provision herein, any Lender may, in connection
with any assignment or participation or proposed assignment or participation
pursuant to this Section 11.03, disclose to the assignee or participant or
proposed assignee or participant, any information, including, without
limitation, any Information, relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers in connection with this Agreement; provided,
however, that prior to any such disclosure, each such assignee or participant or
proposed assignee or participant shall agree to preserve the confidentiality of
any confidential Information relating to the Borrowers received from such
Lender.
SECTION 11.04. Expenses: Indemnity. (a) Each of the Borrowers agrees to
pay all reasonable out-of-pocket expenses incurred by the Agent in connection
with due diligence and the preparation, execution and delivery of this Agreement
and the other Loan Documents or with any amendments, modifications, waivers,
extensions, renewals, renegotiations or "workouts" of the provisions hereof or
thereof (whether or not the transactions hereby contemplated shall be
consummated) or incurred by the Agent or any of the Lenders in connection with
the enforcement or protection of its rights in connection with this Agreement or
any of the other Loan Documents or with the Loans made or the Notes or Letters
of Credit issued hereunder, or in connection with any pending or threatened
action, proceeding, or investigation relating to the foregoing, including but
not limited to the reasonable fees, charges and disbursements of counsel for the
Agent and ongoing field examination expenses and charges, and, in connection
with such enforcement or protection, the reasonable fees and disbursements of
counsel for the Lenders. Each of the Borrowers further indemnifies the Lenders
from and agrees to hold them harmless against any documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement or the Notes.
(b) Each of the Borrowers indemnifies the Agent and each Lender and their
respective directors, officers, employees and agents against, and agrees to hold
the Agent, each Lender and each such person harmless from, any and all losses,
claims, damages, liabilities and related expenses, including reasonable counsel
fees and
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expenses, incurred by or asserted against the Lender or any such person arising
out of, in any way connected with, or as a result of (i) the use of any of the
proceeds of the Loans, (ii) this Agreement, the Guarantees, any of the Security
Documents, Acquisition Documents, the Crispaire Acquisition Documents or the
other documents contemplated hereby or thereby, (iii) the performance by the
parties hereto and thereto of their respective obligations hereunder and
thereunder (including but not limited to the making of the Total Commitment) and
consummation of the transactions contemplated hereby and thereby, (iv) breach of
any representation or warranty, or (v) any claim, litigation, investigation or
proceedings relating to any of the foregoing, whether or not the Agent, any
Lender or any such person is a party thereto; provided, however, that such
indemnity shall not, as to the Agent or any Lender, apply to any such losses,
claims, damages, liabilities or related expenses to the extent that they result
from the gross negligence or willful misconduct of the Agent or any Lender.
(c) Each of the Borrowers indemnifies, and agrees to defend and hold
harmless the Agent and the Lenders and their respective officers, directors,
shareholders, agents and employees (collectively, the "Indemnitees") from and
against any loss, cost, damage, liability, lien, deficiency, fine, penalty or
expense (including, without limitation, reasonable attorneys' fees and
reasonable expenses for investigation, removal, cleanup and remedial costs)
arising from a violation of, or failure to comply with any Environmental Law and
to remove any Lien arising therefrom except to the extent caused by the gross
negligence or willful misconduct of any Indemnitee, which any of the Indemnitees
may incur or which may be claimed or recorded against any of the Indemnitees by
any person.
(d) The provisions of this Section 11.04 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or the Notes, or any investigation made by or on
behalf of the Agent or any Lender. All amounts due under this Section 11.04
shall be payable on written demand therefor.
SECTION 11.05. Applicable Law. THIS AGREEMENT AND THE NOTES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK
(OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF).
SECTION 11.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, upon the request of the Required Lenders each Lender shall
and is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the
account of any Borrower against any and all of the obligations of the Borrowers
now or hereafter existing under this Agreement and the Notes held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement or the Notes and although such obligations may be
unmatured. Each Lender agrees to notify promptly the Agent and the Borrowers
after
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any such setoff and application made by such Lender, but the failure to give
such notice shall not affect the validity of such setoff and application. The
rights of each Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which may be
available to such Lender.
SECTION 11.07. Payments on Business Days. (a) Should the principal of or
interest on the Notes or any fee or other amount payable hereunder become due
and payable on other than a Business Day, payment in respect thereof may be made
on the next succeeding Business Day (except as otherwise specified in the
definition of "Interest Period"), and such extension of time shall in such case
be included in computing interest, if any, in connection with such payment.
(b) All payments by any Borrower hereunder and all Loans made by the
Lenders hereunder shall be made in lawful money of the United States of America
in immediately available funds at the office of the Agent set forth in Section
11.01 hereof.
SECTION 11.08. Waivers: Amendments. (a) No failure or delay of any Lender
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. The rights and remedies of the Lenders hereunder are cumulative and not
exclusive of any rights or remedies which they may otherwise have. No waiver of
any provision of this Agreement or the Notes nor consent to any departure by any
Borrower therefrom shall in any event be effective unless the same shall be
authorized as provided in paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Borrower in any case shall entitle it to
any other or further notice or demand in similar or other circumstances. Each
holder of any of the Notes shall be bound by any amendment, modification, waiver
or consent authorized as provided herein, whether or not such Note shall have
been marked to indicate such amendment, modification, waiver or consent.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrowers and the Required Lenders; provided, however, that no such
agreement shall (i) change the principal amount of, or extend or advance the
maturity of or the dates for the payment of principal of or interest on, any
Note or reduce the rate of interest on any Note, (ii) increase the Revolving
Credit Commitment or Term Loan Commitment of any Lender or amend or modify the
provisions of this Section, Section 2.06, Section 2.13, Section 4.14 or Section
11.04 hereof or the definition of "Required Lenders," or (iii) release any
material portion of Collateral (except permitted dispositions provided for in
Section 7.05 hereof), in each case without the prior written consent of each
Lender affected thereby and provided, further, however, that no such agreement
shall amend, modify or otherwise affect the rights or duties of the Agent under
this Agreement or the other Loan Documents without the written consent of the
Agent. Each Lender and holder of any Note shall be bound by any modification or
amendment authorized by this Section regardless of whether its Notes shall be
marked to make reference thereto, and
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any consent by any Lender or holder of a Note pursuant to this Section shall
bind any person subsequently acquiring a Note from it, whether or not such Note
shall be so marked.
(c) In the event that the Borrowers request, with respect to this
Agreement or any other Loan Document, an amendment, modification or waiver and
such amendment, modification or waiver would require the unanimous consent of
all of the Lenders in accordance with Section 11.08(b) above, and such
amendment, modification or waiver is agreed to in writing by the Borrowers and
the Required Lenders but not by all of the Lenders, then notwithstanding
anything to the contrary in Section 11.08(b) above, with the written consent of
the Borrowers and such Required Lenders, the Borrowers and Required Lenders may,
but shall not be obligated to, amend this Agreement without the consent of the
Lender or Lenders who did not agree to the proposed amendment, modification or
waiver (the "Minority Lenders") solely to provide for (i) the termination of the
Revolving Credit Commitment and Term Loan Commitment of each Minority Lender,
(ii) the assignment in accordance with Section 11.03 hereof to one or more
persons of each Minority Lender's interests, rights and obligations under this
Agreement (including, without limitation, all of such Minority Lender's
Revolving Credit Commitment and Term Loan Commitment as well as its portion of
all outstanding Loans and the Note or Notes held by such Minority Lender) and
the other Loan Documents and/or an increase in the Revolving Credit Commitment
and Term Loan Commitment of one or more Required Lenders, in each case so that
after giving effect thereto the Total Revolving Credit Commitment and Total Term
Loan Commitment shall be in the same amounts as prior to the events described in
this paragraph, (iii) the repayment to the Minority Lenders in full of all Loans
outstanding and accrued interest thereon at the time of the assignment and/or
increase in Commitments described in clause (ii) above with the proceeds of
Loans made by such persons who are to become Lenders by assignment or with the
proceeds of Loans made by Required Lenders who have agreed to increase their
Revolving Credit Commitment and/or Term Loan Commitment, (iv) the payment to the
Minority Lenders by the Borrowers of all fees and other compensation due and
owing such Minority Lenders under the terms of this Agreement and the other Loan
Documents and (v) such other modifications as the Required Lenders and the
Borrowers shall deem necessary in order to effect to changes specified in
clauses (i) through (iv) hereof.
SECTION 11.09. Severability. In the event any one or more of the
provisions contained in this Agreement or in the Notes should be held invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein or therein shall not
in any way be affected or impaired thereby.
SECTION 11.10. Entire Agreement: Waiver of Jury Trial. etc. (a) This
Agreement, the Notes and the other Loan Documents constitute the entire contract
between the parties hereto relative to the subject matter hereof. Any previous
agreement among the parties hereto with respect to the Transactions is
superseded by this Agreement, the Notes and the other Loan Documents. Except as
expressly provided herein or in the Notes or the Loan Documents (other than this
Agreement),
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nothing in this Agreement, the Notes or in the other Loan Documents, expressed
or implied, is intended to confer upon any party, other than the parties hereto,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, the Notes or the other Loan Documents.
(b) Except as prohibited by law, each party hereto hereby waives any right
it may have to a trial by jury in respect of any litigation directly or
indirectly arising out of, under or in connection with this Agreement, the
Notes, any of the other Loan Documents or the Transactions.
(c) Except as prohibited by law, each party hereto hereby waives any right
it may have to claim or recover in any litigation referred to in paragraph (b)
of this Section 11.10 any special, exemplary, punitive or consequential damages
or any damages other than, or in addition to, actual damages.
(d) Each party hereto (i) certifies that no representative, agent or
attorney of any Lender has represented, expressly or otherwise, that such Lender
would not, in the event of litigation, seek to enforce the foregoing waivers and
(ii) acknowledges that it has been induced to enter into this Agreement, the
Notes or the other Loan Documents, as applicable, by, among other things, the
mutual waivers and certifications herein.
SECTION 11.11. Confidentiality. The Agent and the Lenders agree to keep
confidential (and to cause their respective officers, directors, employees,
agents and representatives to keep confidential) all information, materials and
documents furnished to the Agent or any Lender (the "Information").
Notwithstanding the foregoing, the Agent and each Lender shall be permitted to
disclose Information (i) to such of its officers, directors, employees, agents
and representatives as need to know such Information in connection with its
participation in any of the Transactions or the administration of this Agreement
or the other Loan Documents (subject to confidentiality obligations equivalent
to those set forth herein); (ii) to the extent required by applicable laws and
regulations or by any subpoena or similar legal process, or requested by any
governmental agency or authority; (iii) to the extent such Information (A)
becomes publicly available other than as a result of a breach of this Agreement,
(B) becomes available to the Agent or such Lender on a non-confidential basis
from a source other than any Borrower, any Guarantor, any Grantor or any of
their respective subsidiaries or (C) was available to the Agent or such Lender
on a non-confidential basis prior to its disclosure to the Agent or such Lender
by any Borrower, any Guarantor, any Grantor or any of their respective
subsidiaries; (iv) to the extent any Borrower, any Guarantor or any of their
respective subsidiaries shall have consented to such disclosure in writing; (v)
in connection with the sale of any Collateral pursuant to the provisions of any
of the other Loan Documents; or (vi) pursuant to Section 11.03(g) hereof.
SECTION 11.12. Submission to Jurisdiction. (a) Any legal action or
proceeding with respect to this Agreement or the Notes or any other Loan
Document may be brought in the courts of the State of New York or of the United
States of America for the Southern District of New York, and, by execution and
delivery of this Agreement, each
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of the Borrowers and each of the Guarantors hereby accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts.
(b) Each of the Borrowers and each of the Guarantors hereby irrevocably
waives, in connection with any such action or proceeding, any objection,
including, without limitation, any objection to the laying of venue or based on
the grounds of forum non conveniens, which they may now or hereafter have to the
bringing of any such action or proceeding in such respective jurisdictions.
(c) Each of the Borrowers and each of the Guarantors hereby irrevocably
consents to the service of process of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to each such person, as the case may be, at its
address set forth in Section 11.01 hereof.
(d) Nothing herein shall affect the right of the Agent or any Lender to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any Borrower or any Guarantor in any
other jurisdiction.
SECTION 11.13. Counterparts: Facsimile Signature. This Agreement may be
executed in counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective when copies hereof which, when taken together, bear the signatures of
each of the parties hereto shall be delivered to the Agent. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed signature page hereto.
SECTION 11.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only and are not to affect
the construction of, or to be taken into consideration in interpreting, this
Agreement.
XII. GUARANTEES
Each Guarantor unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor, the due and
punctual payment of the principal of and interest on each of the Notes, when and
as due, whether at maturity, by acceleration, by notice of prepayment or
otherwise, and the due and punctual performance of all other Obligations. Each
Guarantor further agrees that the Obligations may be extended and renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound upon its guarantee notwithstanding any extension or renewal of any
Obligations.
Each Guarantor waives presentment to, demand of payment from and protest
to the Borrowers of any of the Obligations, and also waives notice of acceptance
of its guarantee and notice of protest for nonpayment. The obligations of a
Guarantor hereunder shall not be affected by (a) the failure of any Lender or
the Agent to assert any claim or demand or to enforce any right or remedy
against the Borrowers or any
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other Guarantor under the provisions of this Agreement, the Notes or any of the
other Loan Documents or otherwise; (b) any rescission, waiver, amendment or
modification of any of the terms or provisions of this Agreement, the Notes, any
of the other Loan Documents, any guarantee or any other agreement; (c) the
release of any security held by the Agent for the Obligations or any of them; or
(d) the failure of any Lender to exercise any right or remedy against any other
Guarantor of the Obligations.
Each Guarantor further agrees that its guarantee constitutes a guarantee
of payment when due and not of collection, and waives any right to require that
any resort be had by any Lender to any security (including, without limitation,
any Collateral) held for payment of the Obligations or to any balance of any
deposit account or credit on the books of any Lender in favor of the Borrowers
or any other person.
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the Agent
or any Lender to assert any claim or demand or to enforce any remedy under this
Agreement, the Notes or under any other Loan Document, any guarantee or any
other agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or omission which may or might in any manner or
to any extent vary the risk of such Guarantor or otherwise operate as a
discharge of such Guarantor as a matter of law or equity.
Each Guarantor further agrees that its guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be returned by the Agent or any Lender upon the bankruptcy or
reorganization of any Borrower or otherwise.
Each Guarantor hereby waives and releases all rights of subrogation
against the Borrowers and their property and all rights of indemnification,
contribution and reimbursement from the Borrowers and their property, in each
case in connection with this guarantee and any payments made hereunder, and
regardless of whether such rights arise by operation of law, pursuant to
contract or otherwise.
XIII. CONFIRMATION OF SECURITY DOCUMENTS
Each of the Loan Parties hereby irrevocably and unconditionally confirms
in favor of the Agent that it consents to the terms and conditions of this
Agreement as it has been amended and restated as of the date hereof, and that
each Security Document to
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which such Loan Party is a party shall continue in full force and effect and is
and shall continue to be applicable to all of the Obligations and to this
Agreement.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, the Borrowers, the Guarantors, the Agent and the Lenders
have caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
AIRXCEL, INC., as a Borrower
By:
----------------------------------
Name: Richard L. Schreck
Title: Vice President
KODA ENTERPRISES GROUP, INC. (which,
on the Closing Date, will merge with its
subsidiaries, Koda Industries of Tennessee,
Inc. and Suburban Manufacturing Company,
and will change its name to Suburban
Manufacturing Company), as a Borrower
By:
----------------------------------
Name: Richard L. Schreck
Title: Vice President
THE CHASE MANHATTAN BANK, as Lender
By:
----------------------------------
Name: Carol Edkins
Title: Vice President
THE CHASE MANHATTAN BANK, as Agent
By:
----------------------------------
Name: Carol Edkins
Title: Vice President
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Exhibit 10.21
STOCK PURCHASE AGREEMENT
among
WILLIAM S. KAROL
as Seller,
and
AIRXCEL, INC.
as Buyer
March 17, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
SECTION I
DEFINITIONS AND CONSTRUCTION.......................................... 1
1.1 Certain Definitions............................................. 1
1.2 Accounting Principles........................................... 6
1.3 Interpretation.................................................. 7
SECTION II
ACQUISITION OF STOCK AND PURCHASE PRICE............................... 7
2.1 Purchase of Stock............................................... 7
2.2 Purchase Price.................................................. 7
2.3 Reduction of Purchase Price..................................... 7
2.4 Closing......................................................... 8
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................... 9
3.1 Organization and Qualification.................................. 9
3.2 Validity and Execution of Agreement............................. 9
3.3 No Conflict..................................................... 9
3.4 Capitalization of the Company and its Subsidiaries.............. 9
3.5 Books and Records............................................... 10
3.6 Financial Statements............................................ 10
3.7 Undisclosed Liabilities......................................... 11
3.8 No Material Adverse Change...................................... 11
3.9 Tax Matters..................................................... 11
3.10 Litigation...................................................... 12
3.11 Contracts and Other Agreements.................................. 12
3.12 Real Estate..................................................... 14
3.13 Transactions with Affiliates.................................... 15
3.14 Accounts Receivable and Inventory............................... 15
3.15 Compensation Arrangements....................................... 16
3.16 Operations...................................................... 16
3.17 Intellectual Property........................................... 18
3.18 Employees....................................................... 18
3.19 Employee Benefits............................................... 19
3.20 Environmental Matters........................................... 20
3.21 Insurance....................................................... 21
3.22 Permits......................................................... 21
3.23 Title; Liens.................................................... 22
3.24 Compliance with Laws............................................ 22
3.25 Substantial Customers and Suppliers............................. 22
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3.26 Banks and Proxies............................................... 22
3.27 Brokers......................................................... 22
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER........................... 23
4.1 Organization and Capitalization................................. 23
4.2 Validity and Execution of Agreement............................. 23
4.3 No Conflict..................................................... 23
4.4 Brokers......................................................... 23
SECTION V
PRE-CLOSING COVENANTS................................................. 23
5.1 Corporate Examinations and Investigations....................... 23
5.2 Conduct of Business............................................. 24
5.3 Notice of Events................................................ 24
5.4 [INTENTIONALLY OMITTED]......................................... 24
5.5 Mutual Assistance............................................... 24
5.6 Public Announcements............................................ 24
SECTION VI
CONDITIONS PRECEDENT TO THE CLOSING................................... 25
6.1 Conditions Precedent to the Obligations of the Buyer............ 25
6.2 Conditions Precedent to the Obligations of the Seller........... 26
SECTION VII
POST-CLOSING COVENANTS................................................ 27
7.1 Further Information............................................. 27
7.2 Record Retention................................................ 27
7.3 Transfer Taxes.................................................. 27
7.4 Post-Closing Assistance......................................... 28
7.5 Non-Compete and Confidentiality................................. 29
7.6 Name Changes; Covenant Not to Use Name.......................... 30
7.7 Certain Matters Regarding Workers' Compensation Claims.......... 30
7.8 Further Assurances.............................................. 31
SECTION VIII
SURVIVAL; INDEMNIFICATION............................................. 31
8.1 Survival of Representations, Warranties, Covenants and
Agreements...................................................... 31
8.2 Indemnification of the Buyer.................................... 31
8.3 Indemnification of the Seller................................... 32
8.4 Method of Asserting Claims...................................... 32
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8.5 Limitations on Indemnification.................................. 33
SECTION IX
TERMINATION OF AGREEMENT.............................................. 34
9.1 Termination..................................................... 34
9.2 Survival........................................................ 34
9.3 Expenses........................................................ 34
9.4 Notices......................................................... 34
9.5 Entire Agreement................................................ 35
9.6 Waivers and Amendments.......................................... 35
9.7 Governing Law................................................... 35
9.8 Binding Effect; No Assignment................................... 36
9.9 Severability of Provisions...................................... 36
9.10 Counterparts.................................................... 36
9.11 Specific Performance............................................ 36
9.12 Remedies Cumulative............................................. 36
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STOCK PURCHASE AGREEMENT
This Agreement is dated as of March __, 1998, and made between
William S. Karol (the "Seller") and AIRXCEL, INC., a Delaware corporation (the
"Buyer").
RECITALS:
WHEREAS, KODA Enterprises Group, Inc., a Delaware corporation (the
"Company"), through its Subsidiaries KODA Industries of Tennessee,
Inc.("KODA-Tenn") and Suburban Manufacturing Company ("Suburban") is engaged in
the business of designing, manufacturing, selling and installing specialized
heating and air conditioning products (the "Business");
WHEREAS, the Seller wishes to sell, and the Buyer wishes to
acquire the Business by purchasing 100% of the outstanding capital stock of the
Company upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual terms, conditions
and other agreements set forth herein the Buyer and the Seller hereby agree as
follows:
SECTION I
DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
"Accounts Receivable" means all trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales made by or services performed by the Company or
any of its Subsidiaries and any security agreements related thereto, including
any rights of the Company with respect to any third party collection proceedings
or any other Actions which have been commenced in connection therewith.
"Action" means any action, suit, proceeding or arbitration by any
Person or any investigation or audit by any Governmental Body.
"Affiliate" of any Person means any other Person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such first Person and includes any individual related
by blood, marriage or adoption to that Person. For purposes of this definition,
the term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlled" and "controlling" have meanings correlative thereto.
<PAGE> 6
"Base Rate" means the rate of interest announced from time to time
by The Chase Manhattan Bank at its prime commercial lending rate.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records in the possession or control of that
Person relating to the business, operations, conditions of (financial or other),
results of operations and assets and properties of such Person, including
without limitation financial statements, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, contracts and other agreements, licenses, customer and supplier lists,
employee information, computer files and programs, retrieval programs, operating
data and plans and environmental studies and plans.
"Business Day" means any day other than a Saturday, Sunday or day
on which commercial banks are authorized or required by law to close in New
York.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" has the meaning specified in Section 2.4.
"Closing Balance Sheet" has the meaning specified in Section
2.3(a).
"Closing Date" has the meaning specified in Section 2.4.
"COBRA" means the requirements set forth in Section 4980B of the
Code and Sections 601 et. seq. of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all executory contracts, agreements,
understandings, indentures, notes, bonds, loans, instruments, leases, mortgages,
franchises, plans, licenses, commitments or other legally binding arrangements
(whether written or oral).
"Divestiture" means the sale of the outstanding shares of J.T.
Nelson Company by KODA Industries of Kentucky, Inc. (formerly a wholly-owned
subsidiary of KODA Enterprises Group, Inc.) and the subsequent merger of KODA
Industries of Kentucky, Inc. with and into KODA Industries of Tennessee, Inc.,
which occurred on March 10, 1998.
"Environmental Lien" shall mean a Lien, either recorded or
unrecorded, in favor of any Governmental Body, relating to any Liability of the
Company or any of its Subsidiaries arising under Environmental Requirements.
"Environmental Requirements" shall mean all federal, state, local
and foreign statutes, regulations, ordinances and similar provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning
pollution or protection of the environment, including without limitation all
those relating
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<PAGE> 7
to the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
Release, threatened Release, control, or cleanup of any hazardous materials,
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Financial Statements" means the financial statements delivered
pursuant to Section 3.6(a).
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
"Governmental Body" means any court, tribunal, arbitrator or any
government or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority, official or instrumentality of any
such government or political subdivision or any entity exercising executive
legislative, judicial, regulatory or administrative function of government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Improvements" means all buildings, structures, facilities,
fixtures and other improvements.
"Indebtedness" means indebtedness for borrowed money incurred or
accrued before the Closing Date including bank lines of credit, the current
portions of any long-term debt, capitalized lease obligations, overdrafts,
principal, interest, premium and penalties and includes any guarantee of or
indemnity obligation for any of the foregoing. Without limiting the foregoing,
the term "Indebtedness" does not include indebtedness with respect to items
other than borrowed money, such as trade accounts payable.
"Intellectual Property" means all patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); all trademarks, service marks, logos, slogans, trade
dress, trade names and corporate names and all goodwill associated therewith;
all copyrights; all registrations, applications and renewals for any of the
foregoing; all product formulations, trade secrets, confidential information,
research information, technical and computer data, documentation and software,
financial, business and marketing plans, customer and supplier lists, training
materials (including films, brochures and printed materials, catalogs and other
advertising and promotional material) and related information and all other
proprietary rights; and all copies and tangible embodiments of the foregoing,
along with all income, royalties, damages and payments due or payable as of the
Closing Date or thereafter (including damages and payments for past, present or
future infringements or misappropriations thereof), the right to sue and recover
for past infringements and misappropriations thereof, and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world, in each case together with all books, records, drawings, recipes,
application or other indicia thereof, and in each case together with goodwill
associated therewith.
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"Inventory" means inventory, raw materials, work-in-process,
finished goods, consigned goods, merchandise, products under research and
development, demonstration equipment, packaging materials and other accessories
related thereto which are held at, or are in transit from or to, the locations
at which the Business is conducted, or located at suppliers' premises or
customers' premises on consignment, in each case, which are used or held for use
in the conduct of the Business, including any of the foregoing purchased subject
to any conditional sales or title retention agreement in favor of any other
Person, together with all rights against suppliers of such inventories.
"IRS" means the Internal Revenue Service.
"Knowledge", when used with respect to the Seller, means the
actual knowledge of the Seller and the actual knowledge of James Peden, William
Leaver, Jane Wilkey, Bobby Vincent, Frank Blair, Roger Panoz and Steven Drake,
who are the individuals directly and significantly involved on behalf of the
Seller in the operation of the Business and negotiation and consummation of the
transactions contemplated by this Agreement.
"Law" means any law, statute, rule, regulation, ordinance and
other pronouncement having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental Body.
"Latest Balance Sheet" has the meaning specified in Section
3.6(b).
"Leased Real Property" means the real property that is the subject
of the Real Property Leases.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encroachment, encumbrance or any other restriction, limitation or defect in
title whatsoever.
"Losses" has the meaning specified in Section 8.2.
"Material Adverse Effect" means, in the case of any Person, any
change or changes or effect or effects that individually or in the aggregate are
materially adverse to (i) the business, assets, or condition (financial or
otherwise) of such Person or the transactions contemplated by this Agreement or
(ii) the ability of such Person to perform its obligations under this Agreement.
"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental Body, in each case whether preliminary or final.
"Owned Property" means all real property owned by the Company and
each of its Subsidiaries, together with all easements, licenses, interests and
all of the rights arising out of the ownership thereof or appurtenant thereto,
and Improvements thereon.
"Permits" means all licenses, permits, franchises, approvals,
authorizations, orders, registrations, certificates, variances, consents and
similar rights (including applications therefor), utilized in the conduct of the
Business (other than state or local business or similar licenses required
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<PAGE> 9
of businesses generally) and the rights to all data and records held by any
Governmental Body or other agency with respect thereto.
"Permitted Liens" means (i) purchase money security interests in
supplies and equipment, (ii) precautionary liens filed by lessors with respect
to leased equipment, and (iii) encumbrances which are not substantial in amount,
do not materially detract from the value of the property subject thereto and do
not materially impair the use of the property subject thereto or the operation
of the Business.
"Person" means any individual, corporation, partnership, firm,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Body or other entity.
"Plan" means any (i) employee benefit plan (as defined in Section
3(3) of ERISA), whether or not funded or terminated, (ii) employment agreement
or (iii) personnel policy, fringe benefit plan, program or arrangement, whether
or not subject to ERISA, funded or terminated, including any stock bonus,
deferred compensation, pension, severance, bonus, incentive and health, life,
disability or other welfare plan covering any employee of the Company or any of
its Subsidiaries or pursuant to which the Company or any of its Subsidiaries may
have any obligation or liability.
"Property Plans" means all site plans, surveys, soil substratus
studies, architectural drawings, plans and specifications, engineering,
electrical and mechanical plans and studies, floor plans, landscape plans,
appraisals, feasibility studies, and other plans and studies of any kind if
existing and in the possession or control of the Company relating to the Real
Estate.
"Purchase Price" has the meaning specified in Section 2.2.
"Purchase Price Adjustment" has the meaning specified in Section
2.3(b).
"RCRA" means the Federal Resource Conservation and Recovery Act,
as amended.
"Real Estate" means the Owned Property and the Leased Real
Property and all Improvements thereon.
"Real Property Leases" means all leases and subleases of real
property as to which the Company or any of its Subsidiaries is the lessee or
sublessee, together with any options to purchase the underlying property and
leasehold improvements thereon set forth on Schedule 3.12(b) hereto, and in each
case all other rights, subleases, licenses, permits, deposits and profits
appurtenant to or related to such leases and subleases.
"Release" shall have the meaning set forth in CERCLA.
"SARs" means the stock appreciation rights agreements, as amended,
entered into with certain employees of Suburban, as more specifically described
on Schedule 3.4 hereto.
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"Shares" means the 100 outstanding shares of the Company's common
stock, par value $1.00 per share.
"Subsidiary" means, with respect to any Person, any Person of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership, membership
or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in another Person if such Person or
Persons shall be allocated a majority of the gains or losses of or shall be or
control the managing director or a general partner of such other Person.
"Tax Return" means any return, report, information return, or
other document (including any related or supporting information) filed or
required to be filed with any federal, state, local, or foreign governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on the Company) or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing authority,
whether disputed or not, including, without limitation, income, capital,
estimated, excise, property, sales, transfer, withholding, employment, payroll,
and franchise taxes and such terms shall include any interest, penalties or
additions attributable to or imposed on or with respect to such assessments.
"Working Capital" means the current assets minus the current
liabilities (excluding the current portion of long-term debt) of Suburban, but
shall exclude from current assets any refund or other benefit in respect of
Taxes created by the payment of the SARs.
1.2 Accounting Principles. Each accounting term used herein shall
have the meaning that is applied thereto in accordance with GAAP and each
account included in the Closing Balance Sheet shall be calculated in accordance
with GAAP and shall be consistent with the books and records of the Company
(which books and records shall be correct and complete in all material
respects); provided, that all known errors and adjustments shall be taken into
account in the calculation of each account set forth above, regardless of their
materiality. With respect to the calculation of the levels of the accounts set
forth in Section 2, no change in accounting principles shall be made from those
utilized in preparing the Financial Statements, (without regard to materiality)
including, without limitation, with respect to the nature or classification of
accounts, closing proceedings, levels of reserves or levels of accruals other
than as a result of objective changes in the underlying business. For purposes
of the preceding sentence, "changes in accounting principles" includes all
changes in accounting principles, policies, practices, procedures or
methodologies with respect to financial statements, their classification or
their display, as well as all changes in practices, methods, conventions or
assumptions utilized in making accounting estimates.
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<PAGE> 11
1.3 Interpretation. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement. All
pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require. References to statutes and
agreements include all amendments, extensions, restatements and waivers thereof.
The Exhibits and Schedules are a part of this Agreement as if fully set forth
herein. All references herein to Sections, subsections, clauses, Exhibits and
Schedules shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require.
SECTION II
ACQUISITION OF STOCK AND PURCHASE PRICE
2.1 Purchase of Stock. On the terms and subject to the conditions
set forth in this Agreement, on the Closing Date, the Seller agrees to sell,
transfer, assign, convey and deliver to the Buyer, and the Buyer agrees to
purchase, acquire and accept from the Seller, all of the right, title and
interest as of the Closing Date of the Seller in and to the Shares.
2.2 Purchase Price. Subject to adjustment pursuant to Section 2.3
the aggregate purchase price (the "Purchase Price") for the Shares shall be the
sum of: (i) $36,000,000, plus (ii) the aggregate amount of cash and cash
equivalents (treating obligations of the Seller for monies due to the Company or
KODA-Tenn as cash equivalents) held by the Company and KODA-Tenn as of 12:01
a.m. on the Closing Date (excluding those amounts covering liabilities as
referred to in the last sentence of Section 2.3(a) below), which shall be net
the amount of $3,070,316.44 previously paid in full and final satisfaction of
the SARs, less (iii) the aggregate amount of Indebtedness of the Company and its
Subsidiaries on the Closing Date. The Purchase Price shall be paid to the Seller
by the Buyer on the Closing Date by wire transfer of immediately available funds
to an account designated by the Seller not less than three (3) Business Days
prior to Closing by notice to the Buyer.
2.3 Reduction of Purchase Price. (a) As promptly as practicable,
but in any event not later than sixty (60) days after the Closing the Seller
shall cause to be prepared and delivered to the Buyer, an audited, balance sheet
of Suburban as of 12:01 a.m. on the Closing Date (the "Closing Balance Sheet"),
setting forth the Working Capital of Suburban as at the Closing Date and the
monthly average Working Capital for the twelve months ended February 28, 1998
(the "Statement of Working Capital"). The Closing Balance Sheet shall be
prepared in accordance with Section 1.2, other than non-GAAP items specifically
required by this Agreement (such as treatment of workers' compensation reserves
and liabilities pursuant to Section 7.7), and shall be audited by the Seller's
independent certified public accountants but shall contain no assets, accruals
or reserves relating to the entities the subject of the Divestiture or otherwise
relating to the Company or any Affiliate of the Company other than Suburban. The
Seller represents and warrants to the Buyer that as at the Closing Date the
Company and its Subsidiaries other than Suburban have no liabilities which are
not fully covered by cash and cash equivalents (which include for this purpose,
any obligation of the Seller for money owed to the Company or any of its
Subsidiaries) held by the Company and its Subsidiaries other than Suburban on
and after the Closing Date.
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<PAGE> 12
(b) Subject to subsection (c) below, within fifteen (15) days
after delivery to the Buyer of the Closing Balance Sheet and the Statement of
Working Capital pursuant to subsection (a) above, the Seller agrees to pay to
the Buyer (i) the amount, if any, by which average Working Capital for the
twelve months ended February 28, 1998 exceeds the Working Capital on the Closing
Balance Sheet, plus (ii) interest on the amounts computed pursuant to clause (i)
above at the Base Rate for the period from the Closing Date to the date of
payment in full of such amount (the amounts payable pursuant to clauses (i) and
(ii) are hereinafter referred to collectively as the "Purchase Price
Adjustment"). Payments, if any, by the Seller pursuant to the preceding sentence
shall be made by wire transfer of immediately available funds to an account or
accounts designated by the Buyer. The parties shall treat any payment made
pursuant to this Section 2.3(b) as an adjustment to the Purchase Price for all
purposes.
(c) If the Buyer in good faith disagrees with the Closing Balance
Sheet or the Statement of Working Capital, then the Buyer shall notify the
Seller in writing (the "Notice of Disagreement") of such disagreement within
twenty (20) days after delivery of the Closing Balance Sheet and the Statement
of Working Capital to the Seller. Thereafter, the Buyer and the Seller shall
attempt in good faith to resolve and finally determine the Closing Balance Sheet
and the Statement of Working Capital. If the Buyer and the Seller are unable to
resolve the disagreement within twenty (20) days after delivery of the Notice of
Disagreement, then the Buyer and the Seller shall select a mutually acceptable,
nationally recognized independent accounting firm (such accounting firm being
hereinafter referred to as the "Independent Accountant") to resolve the disputed
items and make a determination with respect thereto. Such determination will be
made, and written notice thereof given to the Buyer and the Seller, within
thirty (30) days after such selection. The determination by the Independent
Accountant shall be final, binding and conclusive upon the parties hereto. The
scope of such firm's engagement (which shall not be an audit) shall be limited
to the resolution of the items contained in the Notice of Disagreement, and the
recalculation, if any, of the Closing Balance Sheet and the Statement of Working
Capital in light of such resolution and shall be conducted in accordance with
the provisions of this Agreement and will use the definitions contained herein.
The fees, costs and expenses of the Seller and the Independent Accountant, if
any, in connection with the preparation of the Closing Balance Sheet and the
Statement of Working Capital shall be shared equally by the Buyer, on the one
hand, and the Seller, on the other hand. Within ten (10) days of delivery of a
notice of determination by the Independent Accountant as described above, any
adjustment shall be paid as provided in Section 2.3(b). Any portion of the
Purchase Price Adjustment not in dispute shall be paid when due.
2.4 Closing. The consummation of the transactions contemplated
hereby (the "Closing") shall be held at 10:00 a.m. (E.S.T.) on the first
Business Day after all conditions to respective obligations of the parties have
been satisfied or waived or at such other time and date as shall be mutually
agreed to by the parties (such date and time of the Closing being herein
referred to as the "Closing Date") at the offices of Kirkland & Ellis, 153 East
53rd Street, New York, NY 10022.
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SECTION III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows.
3.1 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to (i) own, lease and operate its
properties and assets as they are now owned, leased and operated and (ii) carry
on its business as now presently conducted and as proposed to be conducted. Each
of the Company and its Subsidiaries is duly qualified to do business in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary, except where the failure to do so would not have a
Material Adverse Effect on the Company. The jurisdictions in which each of the
Company and its Subsidiaries is so qualified are set forth on Schedule 3.1.
3.2 Validity and Execution of Agreement. The Seller has the full
legal right, capacity and power required to enter into, execute and deliver this
Agreement and to perform fully his obligations hereunder and to deliver the
Shares in accordance herewith. This Agreement has been duly executed and
delivered by the Seller and constitutes the valid and binding obligation of the
Seller enforceable against him in accordance with its terms.
3.3 No Conflict. Except as set forth on Schedule 3.3, neither the
execution, delivery nor performance by the Seller of this Agreement nor the
transactions contemplated hereby will: (a) violate or conflict with any of the
provisions of the Certificate of Incorporation or By-Laws (or similar governing
documents) of the Company or any of its Subsidiaries; (b) violate, conflict
with, result in the acceleration of, or entitle any party to accelerate the
maturity or the cancellation of the performance of any obligation under, or
result in the creation or imposition of any Lien in or upon any of the
properties or assets of the Company or any of its Subsidiaries or constitute a
default (or an event which might, with the passage of time or the giving of
notice, or both, constitute a default) under any mortgage, indenture, deed of
trust, lease, contract, loan or credit agreement, license or other instrument to
which the Company or any of its Subsidiaries is a party or by which they or any
of their properties or assets may be bound or affected; or (c) violate or
conflict with any provision of any Law applicable to the Company or any of its
Subsidiaries, or require any consent or approval of or filing or notice with any
Governmental Body.
3.4 Capitalization of the Company and its Subsidiaries. (a) The
Company's authorized capital stock consists of 1,000 shares of common stock, par
value $1.00 per share, of which 100 shares are issued and outstanding and held
of record by the persons and in the amounts set forth on Schedule 3.4(a). Except
as set forth on Schedule 3.4(a), neither the Company nor any of its Subsidiaries
has (i) any shares of common stock or preferred stock reserved for issuance, or
(ii) any outstanding or authorized option, warrant, right, call or commitment
relating to its capital stock or any outstanding securities or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire from it, any shares of its capital stock. Except for
the SARs, there are no (i) outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any securities described
in the preceding sentence or (ii) stock appreciation, phantom stock, profit
participation or similar rights with respect to the
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<PAGE> 14
Company or any of its Subsidiaries. The amount set forth in Section 2.2(iv) is
the amount necessary to satisfy in full the SARs. Except as set forth on
Schedule 3.4(a), there are no preemptive or other subscription rights with
respect to any shares of the Company's or any of its Subsidiaries' capital stock
and all of the issued and outstanding shares of capital stock of the Company and
each of its Subsidiaries have been duly authorized, validly issued, are fully
paid and are nonassessable. Except as set forth on Schedule 3.4(a), there are no
voting trusts, proxies or any other agreements or understandings with respect to
the voting of the capital stock of the Company or any of its Subsidiaries.
(b) All Subsidiaries of the Company are listed on Schedule 3.4(b).
Except as otherwise disclosed on Schedule 3.4(b), neither the Company nor any of
its Subsidiaries own any shares of stock of any corporation or any equity
interest in a partnership, joint venture or other business entity, and neither
the Company nor any of its Subsidiaries controls any other corporation,
partnership, joint venture or other business entity by means of ownership,
management contract or otherwise. All of the outstanding capital stock of, or
other ownership interests in, each Subsidiary of the Company is owned
beneficially and of record by the Company, directly or indirectly, is validly
issued, fully paid and nonassessable and free and clear of any preemptive
rights, restrictions on transfer or Taxes, except as provided under the
Securities Act or state securities laws.
3.5 Books and Records. The Books and Records of the Company and
its Subsidiaries as supplied to the Buyer are, when viewed as a whole, true,
correct, complete and current in all material respects and, as applicable,
accurately reflect in all material respects actions taken by its board of
directors or other governing body and committees thereof, and all the signatures
contained therein are the true signatures of the Persons whose signatures they
purport to be. The Seller has heretofore delivered to the Buyer true, correct
and complete copies of the Company's Certificate of Incorporation (certified by
the Secretary of State of Delaware) and ByLaws (certified by the secretary of
the Company) as in full force and effect on the date hereof.
3.6 Financial Statements. (a) The consolidated balance sheets of
the Company and its Subsidiaries (other than those entities the subject of the
Divestiture) as of fiscal years ended April 30, 1995, 1996 and 1997, and the
related statements of income, retained earnings and cash flows for the years
then ended, including the footnotes thereto, certified by Arthur Andersen LLP,
certified public accountants (with respect to the 1996 and 1997 fiscal years),
and KPMG Peat Marwick LLP, certified public accountants (with respect to the
1995 fiscal year), true and complete copies of which are attached as Schedule
3.6(a), have been prepared from, and are in accordance with, the Books and
Records of the Company and relevant Subsidiaries, are correct and complete and
present fairly, in all material respects, the transactions, assets and
liabilities of the Company and relevant Subsidiaries and the financial position
of the Company and relevant Subsidiaries as at such dates and the results of
operations and cash flows of the Company and relevant Subsidiaries for the years
then ended, in each case, in accordance with GAAP consistently applied for the
periods covered thereby.
(b) The unaudited consolidated balance sheet of the Company and
its Subsidiaries (other than those entities the subject of the Divestiture) as
of January 31, 1998 (the "Latest Balance Sheet") and the related unaudited
statements of income, retained earnings and cash flows for the nine-month period
then ended, true and complete copies of which are attached as Schedule 3.6(b),
present fairly, in all material respects, the financial position of the Company
and relevant
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<PAGE> 15
Subsidiaries as of such date and the results of operations of the Company and
relevant Subsidiaries for the period then ended, in each case in accordance with
GAAP consistently applied for the respective monthly periods covered thereby
from the most recent fiscal year end of the Company; provided, however, that
such unaudited financial statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and lack
footnotes.
3.7 Undisclosed Liabilities. (a) Neither the Company nor any of
its Subsidiaries has any material direct or indirect indebtedness, liability,
claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise (all of the foregoing being collectively
referred to as "Liabilities" and individually as a "Liability"), whether or not
of a kind required by GAAP to be set forth on a financial statement, that is not
fully and adequately reflected or reserved against on the face of (as opposed to
in the notes to) the Financial Statements for the Company or described in the
Schedules to this Agreement, other than Liabilities incurred since the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
Liability resulting from, arising out of, relating to, in the nature of or
caused by any breach of contract, breach of warranty, tort, infringement, claim
or lawsuit) without violation of Sections 3.16 and 5.2, and fully reflected as
Liabilities on the Company's Books and Records, none of which individually or in
the aggregate, is material to the business, operations, income, condition
(financial or otherwise), assets or properties of the Company.
(b) The representations and warranties in Sections 3.6 and 3.7
shall not be considered breached by acts, omissions, facts or circumstances
which (i) do not cause a breach of any other specific representation or warranty
which directly addresses such acts, omissions, facts or circumstances or (ii)
any other specific representation or warranty expressly disclaims.
3.8 No Material Adverse Change. Except as set forth on Schedule
3.8, since the date of the Latest Balance Sheet there has been no material
adverse change in the assets, properties, business, operations, income or
condition (financial or otherwise) of the Company, other than the Divestiture,
nor to the Seller's Knowledge is any such change threatened, nor has there been
any damage, destruction or loss to any of the assets of the Company or any of
its Subsidiaries which could have a Material Adverse Effect on the Company,
whether or not covered by insurance.
3.9 Tax Matters. Each of the Company and its Subsidiaries has
timely filed all Tax Returns required to be filed by it, which Tax Returns are
true, correct and complete in all material respects. Except as set forth on
Schedule 3.9, each of the Company and its Subsidiaries has timely paid all Taxes
due or claimed to be due from it by any taxing authority. There are no liens for
Taxes upon the assets, tangible or intangible, of the Company or any of its
Subsidiaries, including the Business. Each of the Company and its Subsidiaries
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to the Seller, any employee, independent
contractor, creditor, or other third party. The reserves for Tax liability
(rather than any reserve for deferred taxes established to reflect timing
differences between book and Tax income) shown on the face of the Company's
balance sheet dated as of December 31, 1997 (rather than in any notes thereto)
are sufficient for payment of all unpaid Taxes (whether or not currently
disputed) incurred with respect to the period ended December 31, 1997 and for
all periods ended prior thereto and will be sufficient for payment of all unpaid
Taxes of the Company and its Subsidiaries for the period commencing after such
date and ending on (and including) the Closing
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<PAGE> 16
Date, taking into account adjustments for operations and transactions through
the Closing Date (other than any payments made with respect to the SARs) made in
accordance with the Company's past custom and practice in filing Tax Returns.
Except as set forth on Schedule 3.9, there is no examination or proceeding
pending or, to the Seller's Knowledge, threatened by any authority or agency
relating to the assessment or collection of, or any delinquencies in filing
relating to, any Taxes from either the Company or any of its Subsidiaries.
Except as set forth on Schedule 3.9, (i) neither the Company nor any of its
Subsidiaries has executed or filed any consent or agreement to extend the period
of assessment or collection of any Taxes and (ii) neither the Company nor any of
its Subsidiaries is a party to any Tax allocation or sharing agreement. Neither
the Company nor any Subsidiary has filed a consent under Code Section 341(f)
concerning collapsible corporations. Neither the Company nor any Subsidiary has
made any material payments, is obligated to make any material payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any material payments that will not be deductible under Code Section 280G.
Except as set forth on Schedule 3.9, neither the Company nor any of its
Subsidiaries (i) has been a member of an affiliated group filing a consolidated
U.S. federal income Tax Return (other than a group the common parent of which
was the Company) or (ii) has any liability for the Taxes of any Person (other
than the Company and its Subsidiaries) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
3.10 Litigation. Except as set forth on Schedule 3.10, there are
no outstanding Orders by which either the Company or any of its Subsidiaries, or
any of their respective securities, assets, properties or businesses, including
the Business, are bound. Except as set forth on Schedule 3.10 and except for
workers' compensation claims for which Buyer is indemnified by Seller pursuant
to Section 7.7, there is no Action pending or, to the Seller's Knowledge,
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance) against or affecting the Company, any of its
Subsidiaries or any of their respective assets, properties or businesses, nor
are there any facts which at the time at which this representation is made,
would be likely to give rise to any such Action which if adversely decided,
could have a Material Adverse Effect on the Company.
3.11 Contracts and Other Agreements. Schedule 3.11 sets forth all
of the following types of Contracts to which the Company or any of its
Subsidiaries is a party or by or to which the Company or any of its
Subsidiaries, or their respective assets, properties or businesses, including
the Business, is bound or subject (collectively, the "Material Contracts"):
(a) all employment agreements and commitments, all consulting or
severance agreements or arrangements and all other contracts
or agreements, including indemnification agreements, with any
current or former officer, director, employee, consultant,
agent, other representative of the Company or any of its
Subsidiaries or with any Affiliate of the Company or any of
its Subsidiaries.
(b) contracts and other agreements with any labor union or
association representing any employee;
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<PAGE> 17
(c) contracts and other agreements for the sale of any of its
assets or properties or for the grant to any Person of any
preferential rights to purchase any of its assets or
properties, in each case in an amount exceeding $25,000;
(d) joint venture and partnership agreements or contracts and
other agreements relating to the acquisition by the Company
or any of its Subsidiaries of any operating business or the
capital stock of any other Person;
(e) all capitalized leases, pledges, conditional sale or title
retention agreements involving the payment of more than
$100,000;
(f) any take or pay or requirements contracts or agreements or
any other contracts or agreements requiring the Company or
any of its Subsidiaries to pay regardless of whether products
or services are received;
(g) contracts and other agreements not cancelable without penalty
by the Company or any of its Subsidiaries party thereto on
sixty (60) or fewer days' notice calling for an aggregate
purchase price or payments to or from the Company or any of
its Subsidiaries, as the case may be, in any one year of more
than $25,000 in any one case (or in the aggregate, in the
case of any related series of contracts and other
agreements);
(h) contracts and other agreements with clients, customers or any
other Person for the sharing of fees, the rebating of charges
or purchase price or other similar arrangements;
(i) contracts and other agreements containing covenants
pertaining to the right to compete or not compete in any line
of business or similarly restricting the ability to conduct
business with any Person or in any geographical area;
(j) all agreements relating to the consignment or lease of
personal property (whether the Company or any of its
Subsidiaries is lessee, sublessee, lessor, or sublessor),
other than such agreements that provide for annual payments
of less than $25,000;
(k) all licences and franchise agreements involving an amount in
excess of $25,000;
(l) all mortgages, indentures, notes, bonds, letter of credit and
other agreements relating to the borrowing of money, creation
of Liens, any indemnity, or the guarantee of the payment of
liabilities or performance of obligations to or by the
Company or any of its Subsidiaries, to or by any other
Person;
(m) any stockholder agreement, registration rights agreement or
any arrangement relating to or affecting the ownership of the
common stock or other equity interests of the Company or any
of its Subsidiaries; and
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<PAGE> 18
(n) any other contract and other agreement made outside the
ordinary course of business relating to any one or more of
the Company or any of its Subsidiaries and involving an
amount in excess of $25,000.
True and complete copies of all of the Material Contracts have
been delivered to the Buyer. Except as disclosed on Schedule 3.11, all of the
Material Contracts are to the Seller's Knowledge binding upon the parties
thereto in accordance with their terms and the Company or relevant Subsidiary
has satisfied in full or provided for all of its liabilities and obligations
thereunder requiring performance prior to the date hereof in all material
respects, is not in default under any such Material Contract, nor to the
Seller's Knowledge does any condition exist that with notice or lapse of time or
both would constitute such a default. To the Seller's Knowledge, no other party
to any such Material Contract is in default thereunder, nor does any condition
exist that with notice or lapse of time or both would constitute such a default.
None of the other parties to any such Material Contracts has given notice to the
Company or relevant Subsidiary that it intends to terminate or materially alter
the provisions of such Material Contract. Except as separately identified on
Schedule 3.11, no approval or consent of any Person is required under any
Material Contract in connection with consummation of the transactions
contemplated by this Agreement.
3.12 Real Estate.
(a) Set forth on Schedule 3.12(a) is a complete and correct legal
description of each parcel of Owned Property. Either the Company or one of its
Subsidiaries, as the case may be, has good record and marketable title to each
parcel of Owned Property. Except as set forth on Schedule 3.12(a), none of the
Owned Property is subject to any Lien.
(b) Set forth on Schedule 3.12(b) is a list of all Real Property
Leases (a true and correct copy of each applicable Real Property Lease as
currently in effect has been delivered by the Seller to the Buyer). Except as
set forth on Schedule 3.12(b), either the Company or one of its Subsidiaries, as
the case may be, has valid and enforceable leasehold interests in and to all of
the Leased Real Property, free and clear of all Liens. There exists no default
(nor any condition or event which with notice, lapse of time, or both would
constitute a default) with respect to any such Real Property Lease by any party
thereto. Each such Real Property Lease is in full force and effect.
(c) The Real Estate constitutes all of the real property owned,
leased, occupied or otherwise utilized in connection with the Business. Other
than the Company or any of its Subsidiaries, there are no parties in possession
or parties having any current or future right to occupy any of the Real Estate
(except upon termination of a Real Property Lease, the owner of the underlying
Real Estate). The Real Estate is in good condition and repair and is sufficient
for the conduct of the Business. The Real Estate and all plants, buildings and
Improvements located thereon conform in all material respects to all applicable
building, zoning and other laws, ordinances, rules and regulations. All permits,
licenses and other approvals necessary to the current occupancy and use of the
Owned Property have been obtained, are in full force and effect, and the
Business is conducted in conformity therewith. There exists no violation of any
covenant, condition, restriction, easement, agreement or order affecting any
portion of the Owned Property. All Improvements located on the Real Estate have
direct access to a public road adjoining such Real Estate. No such Improvements
or accessways encroach on land not included in the Real Estate and no such
Improvement is dependent for its access, operation or utility on any land,
building or other
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<PAGE> 19
improvement not included in the Real Estate. There is no pending or, to the
Seller's Knowledge, threatened, condemnation proceeding affecting any portion of
the Real Estate.
(d) The Seller has delivered or made available to the Buyer true,
correct and complete copies of all permits, licenses, certificates,
authorizations, certificates of occupancy, deeds, mortgages and deeds of trust,
restrictive covenants, easements and other recorded agreements relating to the
Real Estate, all surveys, Property Plans, title reports and title insurance
policies of the Company or any of its Subsidiaries, with respect thereto and all
written licenses, permits, certificates, authorizations, contracts and other
agreements listed on Schedule 3.12(b). Neither the Company nor any of its
Subsidiaries has given or received any citation, subpoena, summons or other
notice alleging a violation of any applicable Laws with respect to the Real
Estate or the Improvements or the use or condition thereof. Neither the Company
nor any of its Subsidiaries is in default under, and to the Seller's Knowledge,
no condition exists which with the giving of notice or the passage of time or
both would constitute a default under, any licenses, permits, certificates,
authorizations, contracts or other agreements listed or described on Schedule
3.12(b) and, except as separately identified on Schedule 3.12(b), no approval or
consent of any Person is needed for any of the foregoing to continue to be in
full force and effect, and such documents will not become unenforceable by the
Company or its Subsidiaries following the consummation of the transactions
contemplated by this Agreement.
3.13 Transactions with Affiliates. Except as set forth on Schedule
3.13, neither the Seller nor any director, officer or Affiliate of the Company,
any of its Subsidiaries or the Seller has: (a) borrowed money from or loaned
money to the Company or any of its Subsidiaries which remains outstanding; (b)
had any contractual or other claim, express or implied, of any kind whatsoever
against the Company or any of its Subsidiaries (other than claims for
compensation, benefits, expense reimbursement and similar matters in the
ordinary course of business); (c) owned any interest in any property or assets
(tangible or intangible) used or useful by the Company or any of its
Subsidiaries in the Business; (d) engaged in any other transaction with the
Company or any of its Subsidiaries or (e) owned, directly or indirectly, any
interest in (except not more than two percent (2%) stockholdings for investment
purposes in securities of publicly held and traded companies), or served as an
officer, director, employee or consultant of or otherwise receives remuneration
from, any Person which is, or has engaged in business as, a competitor, lessor,
lessee, customer or supplier of the Company or any of its Subsidiaries. Except
as set forth on Schedule 3.13, neither the Company nor any of its Subsidiaries
is bound by any contract or arrangement or has any obligation or liability which
would confer any direct or indirect benefit on the Seller or his Affiliates.
3.14 Accounts Receivable and Inventory. All Accounts Receivable
reflected on the Latest Balance Sheet, and all Accounts Receivable arising
subsequent to the date of the Latest Balance Sheet, (a) have arisen from bona
fide sales transactions in the ordinary course of business of the Company or any
of its Subsidiaries on ordinary trade terms, and (b) represent valid and binding
obligations due to the Company or any of its Subsidiaries, enforceable in
accordance with their terms. Schedule 3.14 lists any obligor which together with
all of its Affiliates owes uncollected amounts to the Company or any of its
Subsidiaries in an aggregate amount of $25,000 or more as of February 28, 1998.
All the Inventory consists of a quality and quantity usable and salable in the
ordinary course of business consistent with past practice, subject to normal and
customary allowances in the industry for spoilage, damage and outdated items.
Except as set forth on Schedule
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<PAGE> 20
3.14, all items included in the Inventory are the property of the Company or any
of its Subsidiaries, free and clear of any Liens (other than Permitted Liens),
have not been pledged as collateral, are not held by the Company or any of its
Subsidiaries on consignment from others and conform in all material respects to
all standards applicable to such Inventory or its use or sale imposed by any
Law.
3.15 Compensation Arrangements. Schedule 3.15 sets forth the name
and current annual salary, including any bonus or commitment to pay any other
amount or benefit in connection with a termination of employment, if applicable,
of all present officers, directors and employees of the Company or any of its
Subsidiaries whose current annual salary, including any promised, expected or
customary bonus or such other amount or benefit, equals or exceeds $75,000.
Neither the Company nor any of its Subsidiaries has made a commitment or
agreement (verbally or in writing) to increase the compensation or to modify the
conditions or terms of employment of any Person listed on Schedule 3.15 or of
any other Person if the increase would cause such Person to be required to be
listed on Schedule 3.15, other than in the ordinary course of business
consistent with past practices. To the Seller's Knowledge, none of such Persons
has made a threat or otherwise indicated any intent to the Seller or to any of
the officers or directors of the Company or any of its Subsidiaries to cancel or
otherwise terminate such Person's relationship with the Company or any of its
Subsidiaries.
3.16 Operations. Except as disclosed on Schedule 3.16 or expressly
authorized by this Agreement, from the date of the Latest Balance Sheet through
the date hereof, neither the Company nor any of its Subsidiaries has:
(a) amended its Certificate of Incorporation or By-Laws or
comparable instruments or merged with or into or consolidated
with any other Person, or changed or agreed to rearrange in
any manner the character of its business;
(b) issued, sold or purchased options or rights to subscribe to,
or entered into any contracts or commitments to issue, sell
or purchase, any shares of its capital stock or other equity
interests;
(c) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement, (ii) adopted,
entered into or amended any arrangement which is, or would
be, a Plan or (iii) made any change in any actuarial methods
or assumptions used in funding any Plan or in the assumptions
or factors used in determining benefit equivalences
thereunder;
(d) issued, incurred or assumed any Indebtedness except for
borrowings under existing lines of credit in the ordinary
course of business consistent with past practice;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to the Seller or holders
of its equity interests, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any
shares of its capital stock or other equity interests;
(f) knowingly waived any right of material value to the Business;
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<PAGE> 21
(g) made any change in its accounting methods or practices or
made any changes in depreciation or amortization policies or
rates adopted by it or made any material write-down of
Inventory or material write-off as uncollectible of Accounts
Receivable;
(h) paid or made payable or to become payable any wage or salary
increase, bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors,
employees, consultants, agents or other representatives, or
made any accrual for or commitment or agreement to make or
pay the same, other than increases made in the ordinary
course of business consistent with past practice;
(i) entered into any transactions with any of its Affiliates, the
Seller, officers, directors, employees, consultants, agents
or other representatives (other than employment arrangements
made in the ordinary course of business consistent with past
practice), or any Affiliate of the Seller, officer, director,
consultant, employee, agent or other representative;
(j) made any payment or commitment to pay any severance or
termination pay to any Person or any of its officers,
directors, employees, consultants, agents or other
representatives, other than payments or commitments to pay
such Persons or its officers, directors, employees in the
ordinary course of business consistent with past practice;
(k) (i) entered into any lease (as lessor or lessee), (ii) sold,
abandoned or made any other disposition of any of its assets
or properties other than in the ordinary course of business
consistent with past practice; (iii) granted or suffered any
Lien on any of its assets or properties (other than Permitted
Liens); or (iv) entered into or amended any contract or other
agreement to which it is a party, or by or to which it or its
assets or properties are bound or subject, or pursuant to
which it agrees to indemnify any Person or to refrain from
competing with any Person, in each case or type required to
be disclosed pursuant to Section 3.11 hereof;
(l) except for Inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part
of the assets, properties, capital stock or business of any
other Person;
(m) paid, directly or indirectly, any of its Liabilities before
the same became due in accordance with its terms or otherwise
than in the ordinary course of business, except to obtain the
benefit of discounts available for early payment;
(n) created, incurred or assumed any indebtedness for borrowed
money, or guaranteed any indebtedness for borrowed money or
any capitalized lease obligation, in each case in excess of
$25,000 individually or in the aggregate;
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<PAGE> 22
(o) made any capital expenditures or commitments for capital
expenditures other than in the ordinary course of business
consistent with past practice; or
(p) except in the ordinary course of business, terminated, failed
to renew, amended or entered into any contract or other
agreement of a type required to be disclosed pursuant to
Section 3.11.
3.17 Intellectual Property.
(a) Set forth on Schedule 3.17 is a list of all (i) patented and
registered Intellectual Property and pending patent applications and
applications for the registration of Intellectual Property, in each case owned
by each of the Company or any of its Subsidiaries; (ii) trade or corporate names
used by each of the Company or any of its Subsidiaries; (iii) computer software
and databases created or used by each of the Company or any of its Subsidiaries
(other than mass-marketed software with a license fee of less than $1,000); (iv)
material unregistered trademarks and copyrights owned or used by each of the
Company or any of its Subsidiaries; and (v) licenses and other rights granted by
each of the Company or any of its Subsidiaries to any third party or by any
third party to each of the Company or any of its Subsidiaries, in each case with
respect to Intellectual Property.
(b) Except as set forth on Schedule 3.17, (i) the Company owns or
has a valid and enforceable license to use all Intellectual Property necessary
for the operation of the Business as currently conducted free and clear of any
Liens or adverse claims, (ii) no claim by any third party contesting the
validity, enforceability, ownership or use of any of the Intellectual Property
owned or used by the Company has been made, is currently outstanding or is
threatened, and, to the Seller's Knowledge, there are no grounds for the same,
(iii) no loss or expiration of any individual Intellectual Property right or
related group of Intellectual Property rights owned or used by the Company is
threatened, pending or to the Seller's Knowledge, reasonably foreseeable, (iv)
the Company has not received any notice of, nor is the Seller or the Company
aware of any facts which indicate a likelihood of any infringement or
misappropriation by any third party with respect to the Intellectual Property
owned or used by the Company, and (v) to the Seller's Knowledge, the Company has
not infringed or misappropriated any Intellectual Property of any third party,
and neither the Seller nor the Company is aware of any infringement or
misappropriation which will occur as a result of the continued operation of the
Business as currently conducted or as currently proposed to be conducted. The
Company has taken all necessary action to maintain and protect all material
Intellectual Property owned or used by it.
3.18 Employees.
(a) Except as set forth on Schedule 3.18, neither the Company nor
any of its Subsidiaries is a party to or bound by any collective bargaining
agreement, nor has it experienced any strike, union grievance, claim of unfair
labor practice or other collective bargaining dispute relating to the Business
that remain outstanding and unresolved. Except as set forth on Schedule 3.18, to
the Seller's Knowledge there is no organizational effort being made or
threatened by or on behalf of any labor union with respect to employees of the
Company or any of its Subsidiaries relating to the Business and there is no
other question concerning representation of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has committed any
unfair
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<PAGE> 23
labor practice or violated any federal, state or local law or regulation
regulating employers or the terms and conditions of its employees' employment,
including laws regulating employee wages and hours, employment discrimination,
employee civil rights, equal employment opportunity and employment of foreign
nationals other than such practice or violations which would not cause a
Material Adverse Effect.
(b) Any notice required under any law or collective bargaining
agreement has been given, and all bargaining obligations with any employee
representative have been satisfied. Neither the Company nor any of its
Subsidiaries has implemented any "plant closing" or "mass layoff" of employees
as those terms are defined in the Worker Adjustment Retraining and Notification
("WARN") Act of 1988, as amended, or any similar state or local law or
regulation, and no layoffs that could implicate such laws or regulations will be
implemented before Closing without advance notification to the Buyer.
3.19 Employee Benefits.
(a) Set forth on Schedule 3.19 is a list of all Plans contributed
to, maintained or sponsored by the Company or any of its Subsidiaries, to which
the Company or any of its Subsidiaries is obligated to contribute or with
respect to which the Company or any of its Subsidiaries has any liability or
potential liability, whether direct or indirect, including all Plans contributed
to, maintained or sponsored by a member of a controlled group of entities,
within the meaning of Section 414 of the Code (or with respect to which any such
controlled group member has any direct or indirect liability or potential
liability), of which the Company or any of its Subsidiaries is or was a member,
to the extent the Company or any of its Subsidiaries has any liability or
potential liability with respect to such Plan. None of the Plans is a
multiemployer plan (as defined in Section 3(37) of ERISA), and none of the Plans
provides post-employment medical or life insurance benefits (except as required
by COBRA).
(b) Each Plan and all related trusts, insurance contracts and
funds have been maintained, funded, and administered in compliance in all
material respects with all applicable laws and regulations, including ERISA and
the Code. The Company and each of its Subsidiaries has complied in all material
respects with all applicable reporting and disclosure requirements with respect
to each Plan. Neither the Company or any of its Subsidiaries nor any trustee or
administrator of any Plan or other Person has engaged in any transaction with
respect to any Plan which could subject the Buyer or any trustee or
administrator of such Plan, or any party dealing with such Plan, to any material
Tax, fine, penalty or other liability (civil or otherwise) imposed by ERISA or
the Code. No material actions, suits, investigations or claims with respect to
any Plan (other than routine claims for benefits) or with respect to any
fiduciary or other person dealing with any Plan are pending or threatened and,
to the Seller's Knowledge, there are no facts which could give rise to or be
expected to give rise to any such actions, suits, investigations or claims. The
Company and each of its Subsidiaries has complied in all material respects with
the requirements of COBRA.
(c) No Plan that is subject to the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA has incurred any "accumulated
funding deficiency", as such term is defined in such Sections of ERISA and the
Code, whether or not waived. None of the assets of the Company or any of its
Subsidiaries, including the Business, is the subject of any Lien arising under
Section 302(f) of ERISA or Section 412(n) of the Code, and, to the Seller's
Knowledge there
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<PAGE> 24
are no facts which could be expected to give rise to such a Lien. Except as set
forth on Schedule 3.19, the assets of each employee pension benefit plan (as
defined in Section 3(c) of ERISA) exceed the benefit liabilities thereunder (as
determined on a plan termination basis). Neither the Company nor any of its
Subsidiaries has actual or potential liabilities under Title IV of ERISA with
respect to any Plan other than for the payment of PBGC premiums.
(d) Each Plan that is intended to be qualified under Section
401(a) of the Code, and each trust (if any) forming a part thereof, has received
a favorable determination letter from the IRS as to the qualification under the
Code of such Plan and the tax exempt status of such related trust, and nothing
has occurred since the date of such determination letter that could reasonably
be expected to have an adverse effect on the qualification of such Plan or the
tax exempt status of such related trust.
(e) With respect to each Plan relating to the Business, the Seller
has provided the Buyer with copies, to the extent applicable, of all documents
pursuant to which the Plans are maintained, funded and administered, the most
recent annual report (Form 5500 series) filed with the IRS (with attachments),
the most recent financial statement, actuarial report and all governmental
rulings, determinations and opinions (including the most recent IRS favorable
determination letter) (and pending requests for governmental rulings,
determinations and opinions).
3.20 Environmental Matters.
(a) Neither the Company nor any of its Subsidiaries has violated
in any material respect any Environmental Requirements in the operation of the
Business.
(b) Except as disclosed on Schedule 3.20, each of the Company and
its Subsidiaries has obtained and complied with, and is in compliance with, all
Permits, licenses or other authorizations that may be required pursuant to
Environmental Requirements for the occupation of its facilities and the
operation of the Business.
(c) Neither the Company nor any of its Subsidiaries has received
any claim, complaint, citation, report or other written or oral notice regarding
any liabilities, including any investigatory, remedial or corrective
obligations, arising under Environmental Requirements.
(d) Except as set forth on Schedule 3.20, none of the following
exists at any property owned or occupied by the Company or any of its
Subsidiaries:
(i) Underground storage tanks or surface impoundments;
(ii) Asbestos-containing material in any form or condition;
(iii) Materials or equipment containing polychlorinated
biphenyls; or
(iv) Landfills or similar waste disposal areas;
(e) To the Seller's Knowledge, no Environmental Lien has attached
to any property owned, leased or operated by either the Company or any of its
Subsidiaries.
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(f) Neither this Agreement nor the consummation of the
transactions contemplated hereby will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental Requirements.
(g) Neither the Company or any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any liability, including
without limitation any obligation for corrective or remedial action, of any
other person relating to Environmental Requirements.
(h) Except as set forth on Schedule 3.20, neither the Company or
any of its Subsidiaries has (i) treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance and no Owned Property or
Leased Real Property is contaminated by any such substance, or (ii) owned or
operated the Owned Property or Leased Real Property, in a manner that has given
or would give rise to liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, or any investigative, corrective or remedial
obligations, pursuant to the CERCLA or the Solid Waste Disposal Act, as amended,
or any other Environmental Requirements.
3.21 Insurance. Schedule 3.21 sets forth a list and brief
description (specifying the insurer, the policy number or covering note number
with respect to binders and the amount of any deductible, describing the pending
claims if such claims exceed applicable policy limits, setting forth the
aggregate amount paid out under each such policy through the date hereof and the
aggregate limit, if any, of the insurer's liability thereunder) of all policies
or binders of fire, liability, errors and omissions, workers' compensation,
vehicular, unemployment and other insurance held by or on behalf of each of the
Company and its Subsidiaries. Neither the Company nor any of its Subsidiaries is
in default with respect to any material provision contained in any such policy
or binder or has failed to give any notice or present any claim under any such
policy or binder in due and timely fashion. Except for claims disclosed on
Schedule 3.21, there are no outstanding unpaid claims under any such policy or
binder which have gone unpaid for more than forty-five (45) days or as to which
the carrier has disclaimed liability. All known claims or circumstances likely
to give rise to any claims, if any, made against either the Company or any of
its Subsidiaries have been disclosed and tendered to the appropriate insurance
companies and are being defended by such appropriate insurance companies in
accordance with the policy terms and limits. Neither the Seller nor the Company
or any of its Subsidiaries has received any notice of cancellation or
non-renewal of any such policy or binder or any notice from any of its insurance
carriers that any insurance premiums will be materially increased in the future
or that any insurance coverage listed on Schedule 3.21 will not be available in
the future on substantially the same terms as now in effect. Except as
separately disclosed on Schedule 3.21, all of such policies or binders in the
name of the Company or any of its Subsidiaries shall be in full force and effect
and enforceable by either the Company or one of its Subsidiaries following the
consummation of the transactions contemplated by this Agreement.
3.22 Permits. Schedule 3.22 sets forth a list of the Permits which
the Company and each of its Subsidiaries has obtained in connection with the
Business. Except as set forth on Schedule 3.22 or Schedule 3.20, no Permits are
required to be obtained by the Company or any of its Subsidiaries in connection
with its properties or the Business. All such Permits are in full force and
effect and in good standing, except as separately identified on Schedule 3.22.
Neither the Seller
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nor the Company or any of its Subsidiaries has received any notice of any claim
of revocation of any such Permits or has Knowledge of any event which might give
rise to such a claim.
3.23 Title; Liens. Either the Company or one of its Subsidiaries
owns outright and has good and, with respect to the Real Estate, marketable
title to all of its assets and properties (tangible and intangible), including,
without limitation, all of the assets and properties (except Leased Real
Property and capitalized leases) reflected on the Latest Balance Sheet, and, at
the Closing Date, either the Company or one of its Subsidiaries will have good
and, with respect to the Real Estate, marketable title to all such assets and
properties, in each case free and clear of any Lien, except for Permitted Liens
and Liens set forth on Schedule 3.23.
3.24 Compliance with Laws. Except as set forth on Schedule 3.24,
the Company and each of its Subsidiaries (a) is in compliance with all, and not
in violation of any, and has not received any claim or notice that it is not in
compliance in any material respect with, or that it is in violation in any
material respect of, any Law to which the Company or any of its Subsidiaries or
any of their respective businesses, operations, assets or properties, including
the Business (including the use and occupancy thereof) are subject and (b)
neither the Company nor any of its Subsidiaries has failed to obtain or to
adhere to the requirements of any governmental permit, license, registration and
other governmental consent or authorization necessary in connection with its
assets, properties or business, which failure could have a Material Adverse
Effect on the Company.
3.25 Substantial Customers and Suppliers. Schedule 3.25 lists the
ten (10) largest customers of the Company and its Subsidiaries, on the basis of
revenues for goods sold or services provided for the most recently-completed
fiscal year. Schedule 3.25 lists the five (5) largest suppliers of the Company
and its Subsidiaries, on the basis of cost of goods or services purchased, as of
December 31, 1997. Except as disclosed on Schedule 3.25, no such customer or
supplier has ceased or materially reduced its purchases from, use of the
services of, sales to or provision of services to the Company or any of its
Subsidiaries since the Latest Balance Sheet date, or to the Seller's Knowledge,
has threatened to cease or materially reduce such purchases, use, sales or
provision of services after the date hereof.
3.26 Banks and Proxies. Schedule 3.26 sets forth (a) the name of
each bank, trust company, securities or other broker or other financial
institution with which the Company and each of its Subsidiaries has an account,
credit line or safe deposit box or vault, or otherwise maintains relations; (b)
the name of each person authorized by the Company and each of its Subsidiaries
to draw thereon or to have access to any safe deposit box or vault; (c) the
purpose of each such account, safe deposit box or vault; and (d) the names of
all persons authorized by proxies, powers of attorney or other instruments to
act on behalf of the Company and each of its Subsidiaries in matters concerning
its business or affairs. All such accounts, credit lines, safe deposit boxes and
vaults are maintained by the Company and its Subsidiaries for normal business
purposes, and no such proxies, powers of attorney or other like instruments are
irrevocable.
3.27 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Seller directly
with the Buyer without the intervention of any Person on behalf of the Seller in
such manner as to give rise to any valid claim by any Person against the
Company, any of its Subsidiaries, or the Buyer for a finder's fee, brokerage
commission or similar payment other than to Sperry, Mitchell & Company, Inc.
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SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows.
4.1 Organization and Capitalization. The Buyer is a corporation
duly formed and validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and lawful authority to (a) enter
into this Agreement and to perform its obligations hereunder, (b) own, lease and
operate its properties and assets as they are now owned, leased and operated and
(c) carry on its business as now conducted and presently proposed to be
conducted.
4.2 Validity and Execution of Agreement. The Buyer has the full
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered by the Buyer and
constitutes the valid and binding obligation of the Buyer enforceable against
the Buyer in accordance with its terms.
4.3 No Conflict. Neither the execution and delivery of this
Agreement by the Buyer nor the performance by the Buyer of the transactions
contemplated hereby will: (a) violate or conflict with any of the provisions of
the Certificate of Incorporation or By-Laws of the Buyer; (b) violate or
conflict with any provisions of any Law applicable to the Buyer; or (c) require
any consent or approval by or filing or notice with any Governmental Body except
for: (i) filings under federal or state securities or "blue sky" laws (which
have been or will be made) and (ii) such as would not have a Material Adverse
Effect on the Buyer.
4.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Buyer directly
with the Seller without the intervention of any Person on behalf of the Buyer in
such manner as to give rise to any valid claim by any Person against the Seller
for a finder's fee, brokerage commission or similar payment.
SECTION V
PRE-CLOSING COVENANTS
The Seller and the Buyer hereby covenant and agree as follows:
5.1 Corporate Examinations and Investigations. From the date
hereof to the Closing Date, the Buyer and its financing sources shall be
entitled, through their respective representatives and agents, to make such
investigation of the assets, properties, business and operations of the Company
and its Subsidiaries and such examination of the books, records, Tax Returns,
financial condition and operations of the Company and its Subsidiaries as the
Buyer or its lenders may wish. Any such investigation and examination shall be
conducted at reasonable times and under reasonable circumstances and the Seller
and the Company and its Subsidiaries shall cooperate fully therein. No
investigation by the Buyer shall diminish or obviate any of the
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representations, warranties, covenants or agreements of the Seller under this
Agreement. Until the Closing and if the Closing shall not occur, thereafter, the
Buyer and its Affiliates shall keep confidential and shall not use in any manner
inconsistent with the transactions contemplated by this Agreement and after
termination of this Agreement, the Buyer and its Affiliates shall not disclose,
nor use for their own benefit, any information or documents obtained from the
Seller or the Company or any of its Subsidiaries unless (a) readily
ascertainable from public or published information, or trade sources, (b)
already known or subsequently developed by the Buyer independently of any
investigation of the Company or any of its Subsidiaries, (c) received from a
third party not under an obligation to the Seller or his Affiliates to keep such
information confidential or (d) required by any Law. In the event this
transaction does not close for any reason, the Buyer and its Affiliates shall
return or destroy all such confidential information and compilations thereof as
is practicable, and shall certify such destruction or return to the Seller.
5.2 Conduct of Business. From the date hereof through the Closing
Date, each of the Company and its Subsidiaries shall (a) conduct its business in
the ordinary course consistent with past custom and practice in the same manner
as it was being conducted prior to the date of the Latest Balance Sheet, (b)
without the prior written consent of the Buyer, not undertake any of the actions
specified in Section 3.16 hereof and (c) use its best efforts to preserve intact
its business and assets, keep available the services of its present officers,
employees, consultants and agents, and maintain its present suppliers and
customers and otherwise preserve its goodwill.
5.3 Notice of Events. The Seller and the Buyer shall each promptly
notify the other of (a) any event, condition or circumstance occurring from the
date hereof through the Closing Date that would constitute a violation or breach
of this Agreement, (b) any event, occurrence, transaction or other item which
would have been required to have been disclosed on any Schedule or statement
delivered hereunder had such event, occurrence, transaction or item existed on
the date hereof, other than items arising in the ordinary course of business
which would not render any representation or warranty of the disclosing party
materially misleading.
5.4 [INTENTIONALLY OMITTED]
5.5 Mutual Assistance. The Seller and the Buyer agree that they
will mutually cooperate in the expeditious filing of all notices, reports and
other filings with any Governmental Body required to be submitted jointly by the
Seller and the Buyer in connection with the execution and delivery of this
Agreement, the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby or thereby. Expenses of the Seller and his
Affiliates related to providing financial and other information requested by the
Buyer for the Buyer's securities filings under applicable Law shall be the
responsibility of the Buyer, and the Buyer shall pay directly or reimburse the
Seller for same promptly upon request. Any such expenses that have been paid by
the Company or any of its Subsidiaries, and which have not been reimbursed as of
the Closing Date, shall be treated as if they had been reimbursed to the payor
in cash for purposes of the Statement of Working Capital.
5.6 Public Announcements. Prior to the Closing Date, neither the
Seller nor the Buyer shall make, nor permit any agent or Affiliate to make, any
public statements, including, without limitation, any press releases, with
respect to this Agreement and the transactions contemplated hereby without the
prior written consent of the other, except any public disclosure (i)
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made to or by any of the Buyer's financing sources or (ii) which either party in
good faith believes is required by law (in which case the disclosing party will
consult with the other party prior to making such disclosure).
SECTION VI
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to the Obligations of the Buyer. The
obligations of the Buyer to enter into and complete the Closing are subject to
the fulfillment on the Closing Date of the following conditions, any one or more
of which may be waived by the Buyer:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Seller contained in this Agreement shall be true, complete
and correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Seller shall
have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by him on
or prior to the Closing Date.
(b) Consents, Waivers, Licenses, Filings, etc. The consents,
approvals, authorizations, licenses, registrations, declarations or filings
listed on Schedule 3.3 hereto shall have been obtained or made, as the case may
be.
(c) Third Party Consents. Except as otherwise waived by the Buyer,
all material consents, permits and approvals from parties to contracts or other
agreements with the Company or any of its Subsidiaries set forth on any Schedule
to this Agreement, and any other material consent, permit or approval that may
be required in connection with the performance by the Seller of his obligations
under this Agreement or the consummation of the transactions contemplated by
this Agreement or the continuance of the Seller's contracts or other agreements
with the Buyer after the Closing shall have been obtained.
(d) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Company or the Business to be purchased by the Buyer hereunder.
(e) Opinion of Counsel to the Seller. The Buyer shall have
received the opinion of Sutherland, Asbill & Brennan LLP, counsel to the Seller,
substantially in the form of Exhibit A hereto.
(f) Closing Certificate of the Seller. The Seller shall have
delivered to the Buyer a certificate signed by the Chief Financial Officer of
the Company, dated the Closing Date, as to the amounts described in Section
2.2(ii) and (iii) and in form and substance reasonably satisfactory to the
Buyer.
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(g) Other Agreements. James Peden shall have entered into an
employment agreement with the Buyer substantially in the form of Exhibit B.
(h) Management Agreement Termination. The Seller shall have
delivered an executed termination of the agreement referred to as item 7 of
Schedule 3.13.
(i) Conveyancing Documents. The Seller shall have executed and
delivered to the Buyer such further instruments and documents as may be
reasonably requested by the Buyer in order to complete the sale of the Shares to
the Buyer.
(j) Title Insurance. A title insurance company selected by the
Buyer (the "Title Company") shall be willing to insure at standard rates the
Company's and it's Subsidiaries marketable title in and to the Owned Property in
fee simple, the Company's and its Subsidiaries leasehold estate in any
financeable Leased Real Property (a "Financeable Leasehold"), and the Buyer's
lender's (the "Lender") mortgage lien on the Owned Property and each Financeable
Leasehold free and clear of all Liens (other than as described on Schedules
3.12(a) and (b)) and with such endorsements and affirmative coverages as the
Buyer and Lender shall reasonably require (including non-imputation
endorsements). Seller and the Company shall provide all such affidavits and
indemnities as the Title Company reasonably shall require in order to afford
such coverages.
(k) Surveys. The Buyer shall have received a survey of each Owned
Property and each Leased Real Property to which the either Company or any of its
Subsidiaries holds a Financeable Leasehold conforming to the Minimum Standard
Detail Requirements jointly established and approved in 1992 by ALTA and ACSM
certified to the Company, the Buyer, the Land and the Title Company and showing
no defects, encroachments or encumbrances other than the matters disclosed on
Schedule 3.12.
(l) Real Property Affidavits. The Buyer shall have received from
the Company or any Affiliate that owns any of the Owned Property an affidavit
(i) stating that the Seller or such Affiliate is not a "foreign person", as
defined in Section 1445(f)(3) of the Internal Revenue Code, (ii) setting forth
the Company's or such Affiliate's taxpayer identification number, (iii) stating
that the Company or such Affiliate intends to file a U.S. income tax return with
respect to the sale of such Owned Property, and (iv) granting the Buyer
permission to furnish a copy of such affidavit to the Internal Revenue Service.
(m) HSR Clearance. The applicable waiting period imposed by the
HSR Act shall have expired or been terminated.
(n) Bond. The Seller shall deliver to the Buyer the bond or letter
of credit referred to in Section 7.7(b) (or a commitment from the issuer to
deliver the same, in form satisfactory to the Buyer).
6.2 Conditions Precedent to the Obligations of the Seller. The
obligation of the Seller to enter into and complete the Closing subject to the
fulfillment on or prior to the Closing Date, of the following conditions, any
one or more of which may be waived by the Seller.
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(a) Representations, Warranties and Covenants. The
representations, warranties and covenants of the Buyer shall be true, complete
and correct in all material respects as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Buyer shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by the
Buyer on or prior to the Closing Date.
(b) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Company or the Business to be purchased by the Buyer hereunder.
(c) Delivery of Consideration. The Buyer shall have tendered to
the Seller the Purchase Price in accordance with Section 2.2 hereof.
(d) HSR Clearance. The applicable waiting period imposed by the
HSR Act shall have expired or been terminated.
(e) Opinion of Counsel to the Buyer. The Seller shall have
received the opinion of Kirkland & Ellis, counsel to the Buyer, substantially in
the form of Exhibit C hereto.
SECTION VII
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the
Closing Date:
7.1 Further Information. Following the Closing, each party will
afford to the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data of the
Company and its Subsidiaries or relating to the Business in its possession with
respect to periods prior to the Closing and the right to make copies and
extracts therefrom, to the extent that such access may be reasonably required by
the requesting party (a) to facilitate the investigation, litigation and final
disposition of any claims which may have been or may be made against any party
or its Affiliates and (b) for any other reasonable business purpose.
7.2 Record Retention. Each party agrees that for a period of not
less than seven (7) years following the Closing Date, it shall not destroy or
otherwise dispose of any of the Books and Records relating to the Business in
its possession with respect to periods prior to the Closing. Each party shall
have the right to destroy all or part of such Books and Records after the
seventh anniversary of the Closing Date or, at an earlier time by giving each
other party hereto thirty (30) days prior written notice of such intended
disposition and by offering to deliver to the other party, at the other party's
expense, custody of such Books and Records as such party may intend to destroy.
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7.3 Transfer Taxes. The Seller agrees to pay all sales, use,
transfer, real property transfer, recording, stamp, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") arising out of or in connection
with the transactions contemplated by this Agreement, and shall deliver evidence
of payment of, and indemnify, defend and hold harmless the Buyer with respect
to, such Transfer Taxes (subject to the relevant provisions of Section 8.4 and
8.5). The Seller shall file all necessary documentation and Tax Returns with
respect to such Transfer Taxes.
7.4 Post-Closing Assistance. (a) The Seller, on the one hand, and
the Buyer, on the other hand, will provide each other with such assistance as
may reasonably be requested in connection with the preparation of any Tax
Return, any audit or other examination by any taxing authority, or any judicial
or administrative proceedings relating to liability for Taxes, and each will
retain and provide the requesting party with any records or information that may
be reasonably relevant to such return, audit or examination, proceedings or
determination. The party requesting assistance shall reimburse the other party
for reasonable out-of-pocket expenses (other than salaries or wages of any
employees of the party or its Affiliates) incurred in providing such assistance.
Any information obtained pursuant to this Section 7.4 or pursuant to any other
Section hereof providing for the sharing of information or the review of any Tax
Return or other Schedule relating to Taxes shall be kept confidential by the
parties hereto. The Seller shall prepare, or cause to be prepared, in a timely
manner, all applicable Tax Returns of the Company and its Subsidiaries, or which
include the Company and its Subsidiaries, for taxable periods ending on or prior
to the Closing Date, which have not been filed as of the Closing Date. Such Tax
Returns shall be prepared on a basis consistent with those prepared for prior
taxable periods unless a different treatment of any item is required by law or
regulation. The Buyer shall have the right to review prior to filing, any such
Tax Return of the Company and its Subsidiaries and no such Tax Return shall be
filed without the prior consent of the Buyer, which shall not be unreasonably or
untimely withheld. The Buyer shall give due consideration to tax positions taken
by the Seller for which there is a reasonable and supportable basis. The Buyer
shall promptly notify the Seller in writing of the commencement of any claim,
audit, examination, or other proposed change or adjustment of which it or any of
its Affiliates has been informed by any taxing authority which may affect the
liability of Seller under Section VIII with respect to Taxes. Such notice shall
describe the claim, audit, examination or other proposed change or adjustment in
reasonable detail and shall include copies of any notices and other documents
received from any taxing authority in respect of same. The Seller shall have the
right to control any audits of or administrative or court proceedings relating
to taxable periods of the Company and its Subsidiaries ending on or prior to the
Closing Date, to employ counsel of his choice, and to settle issues and take any
other actions in connection with such audit or proceedings; provided, however,
that the Seller shall not settle any such audit or proceeding in a manner that
could reasonably be expected to have an adverse effect on the Buyer or the
Company and its Subsidiaries for a period after the Closing Date without the
prior consent of the Buyer, which consent shall not be unreasonably withheld. In
the event the Seller fails to defend any such proceedings, the Buyer and the
Company shall be permitted to control such proceedings.
(b) From and after the Closing Date, the Seller and his agents and
representatives shall be permitted to make such investigations or examinations
of the real property and facilities of Suburban as may reasonably be deemed
necessary or appropriate by the Seller in connection with obtaining and
maintaining one or more policies of insurance with respect to the Seller's
indemnification obligations hereunder as to environmental matters and otherwise
to monitor the operations of Suburban insofar as is reasonably necessary in
connection with assessing and
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managing such indemnification obligations. Without limiting the foregoing,
Seller's investigation may consist of such environmental audits and assessments
by third-party consultants as are deemed appropriate by Seller or his insurance
carrier. Any such investigation, examination or assessment shall be conducted at
reasonable times and under reasonable circumstances and the Buyer and its
Subsidiaries (including Suburban) shall cooperate fully therein. In connection
with the Seller's efforts to remain apprised of developments on the properties
and at the facilities of Suburban that could affect the Seller's environmental
indemnification obligations hereunder, the Buyer agrees, and agrees to cause
Suburban, to use all reasonable efforts to promptly communicate to the Seller
material developments at Suburban's facilities that could result in Losses to
the Buyer with respect to environmental matters, and to involve the Seller in
any meeting or negotiation with regulators that could give rise to liability for
environmental remediation, damages, fines, penalties, or other charges or
assessments. References in this paragraph to "Suburban" shall be deemed to
include Suburban's successors by operation of law, and any successor to the
properties or facilities of Suburban.
7.5 Non-Compete and Confidentiality.
(a) Covenants Against Competition. The Seller acknowledges that
the Business is national in scope, has been developed by a limited number of
persons who have received certain confidential information and trade secrets of
the Company, and would not be the subject of this Agreement but for the
covenants of the Seller contained in this Section. Accordingly, the Seller
covenants and agrees that neither he nor any of his Affiliates will, directly or
indirectly, during the period commencing on the Closing Date and terminating
three (3) years following the Closing Date (i) engage in the business of
manufacturing, distributing, marketing or selling and of any of the product
lines being sold by the Company, the Buyer or any of their respective
Subsidiaries on the date hereof, render any services to any Person (other than
the Buyer, the Company or their respective Subsidiaries) engaged in such
activities; or become interested in any such Person as a partner, member,
principal, agent, trustee, consultant or in any other similar relationship or
capacity, in each case, in the United States of America; or (ii) solicit or
encourage to leave the employment of the Company or any of its Subsidiaries, any
employee of the Company or any of its Subsidiaries or hire any employee other
than James Peden who has voluntarily left the employment of the Company or any
of its Subsidiaries after the date of this Agreement; provided, that the
prohibition in Section 7.5(a)(i) does not preclude the Seller from acquiring an
existing business which engages in the activities referred to in that Section.
(b) Confidentiality. From and after the Closing, the Seller shall
keep secret and retain in strictest confidence, and shall not use for the
benefit of itself or others or to the detriment of Buyer and its Subsidiaries
all confidential information with respect to the Company and any of its
Subsidiaries and the Business, or learned by the Seller heretofore or hereafter
directly or indirectly from its own information or the Buyer, including, without
limitation, information with respect to (a) prospective products and facilities,
(b) sales figures, (c) profit or loss figures, (d) customers, clients,
suppliers, sources of supply and customer lists (the "Confidential Company
Information"), and shall not disclose such Confidential Information except with
the Buyer's express written consent. Further, the Seller covenants not to obtain
or use or permit any of his Affiliates to obtain or use any information
concerning the Buyer and its Subsidiaries (including the Company and its
Subsidiaries) known or made available by James Peden or other employees of the
Company and its Subsidiaries on or after the Closing Date. This provision does
not prohibit legally mandated disclosure or disclosure or use of any
confidential information which becomes publicly known
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through no wrongful act of either the Buyer or any of its shareholders or the
Seller. The parties acknowledge that the confidentiality letter dated September
3, 1997 between Sperry, Mitchell & Company, Inc. (on behalf of Suburban
Manufacturing Company) and the Buyer is superseded in its entirety by the
provisions hereof.
(c) Rights and Remedies. Upon the breach or threatened breach of
any of the covenants in this section (the "Restrictive Covenants"), the Buyer
has the right to have the Restrictive Covenants specifically enforced (without
posting any bond) by any court having equity jurisdiction, including, without
limitation, the right to an entry against the Seller of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Buyer and that money damages will not provide adequate
remedy to the Buyer. The aforementioned rights and remedies are severally
enforceable and are in addition to, and not in lieu of, any other rights and
remedies available to the Buyer under law or in equity including pursuant to
Section VIII.
(d) Enforceability. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions. Further, if any of
the Restrictive Covenants, or any part thereof, is found unenforceable because
of the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provisions and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
7.6 Name Changes; Covenant Not to Use Name. Within two days after
the Closing, the Buyer shall amend the certificate of incorporation of the
Company and its Subsidiary KODA Industries of Tennessee, Inc. to change the name
of each such corporation to eliminate the use of the name "KODA," and thereafter
the Buyer shall not use, and shall cause its Affiliates not to use, the name
KODA or any confusingly similar name in connection with the operation of its
business.
7.7 Certain Matters Regarding Workers' Compensation Claims. (a)
From and after the Closing Date, the Seller will retain all liability of the
Company and its Subsidiaries with respect to workers compensation claims whose
date of loss occurred prior to the Closing Date, and will, in accordance with
the procedures set forth in Section 8.4, indemnify, defend and hold harmless the
Buyer from any Losses (as defined in Article 8) attributable to such claims. In
recognition of the Seller's retention of such workers compensation liability,
the Buyer (i) acknowledges that the Closing Balance Sheet will not reflect
reserves, liabilities, receivables or payables attributable to workers
compensation claims; (ii) agrees to cooperate with the Seller to permit the
Seller to utilize any applicable workers compensation insurance of the Buyer or
any of its Subsidiaries (including policies benefitting the Company and its
Subsidiaries prior to the Closing Date) to pay for any claims as to which the
Seller would otherwise have liability pursuant to this Section 7.7; (iii) agrees
to maintain in effect policies of workers compensation insurance with respect to
the Company and its Subsidiaries having coverages and terms no less favorable to
the insured than those maintained by the Company and its Subsidiaries
immediately prior to the Closing; and (iv) agrees to promptly forward to the
Seller any payments received by the Buyer or any of its Subsidiaries in respect
of any workers compensation claim having a date of loss prior to the Closing
Date, endorsed as payable
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to the Seller. The Buyer, on behalf of itself and its Subsidiaries (including,
as of the Closing, the Company and its Subsidiaries) appoints the Seller and
William J. Leaver, or either of them, as its attorneys-in-fact and agents, with
full power of substitution, to endorse any checks received from workers'
compensation insurance carriers in respect of workers' compensation claims whose
date of loss occurred prior to the Closing Date in the name of the payee so that
the funds represented thereby can be promptly deposited by the Seller; provided
that the relevant attorney shall advise the Buyer in writing of each such
deposit and copy to the Buyer evidence of such deposit within 2 Business Days of
the deposit being made.
(b) As security for the Seller's indemnification obligation under
this Section 7.7, the Seller agrees to maintain, from and after the Closing Date
a bond or letter of credit in favor of the Buyer issued by a reputable insurance
company or financial institution and in the amount of $1,000,000; provided that
the amount of such bond shall be reduced, on each anniversary of the Closing
Date, to the greater of the Seller's good faith estimate of the amount that
would have been reserved for outstanding workers' compensation claims in
accordance with GAAP or (i) as of the first anniversary of the Closing Date,
$750,000; (ii) as of the second anniversary, $500,000; (iii) as of the third
anniversary, $250,000; and (iv) as of the fourth anniversary and thereafter, $0
(in which event the bond or letter of credit will be terminated); and provided
further that if workers' compensation claims remain outstanding after such
fourth anniversary the Seller agrees at the Buyer's reasonable request to
maintain a further bond or letter of credit in an amount sufficient to secure
such claims.
7.8 Further Assurances. From and after the Closing, each of the
Buyer and the Seller will, and will cause their respective Affiliates to,
execute and deliver such further instruments of sale, conveyance, transfer,
assignment and delivery and such consents, assurances, powers of attorney and
other instruments and take such other action as reasonably may be necessary in
order to put the Buyer in actual possession and control of the Company and the
Business and to otherwise fully effectuate and carry out the transactions
contemplated by this Agreement. The parties shall use all reasonable commercial
efforts to fulfill or obtain the fulfillment of the conditions to the Closing,
including, without limitation, the execution and delivery of any document, the
execution and delivery of which are conditions precedent to the Closing.
SECTION VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of the
Seller and the Buyer contained in this Agreement will survive the Closing (a)
sixty (60) days after the expiration of all applicable statutes of limitation
(including all periods of extension, whether automatic or permissive) with
respect to the matters covered by the representations and warranties contained
in Sections 3.1, 3.2, 3.4, 3.9 and 3.20, (b) until fifteen (15) months after the
Closing in the case of all other representations and warranties, or (c) with
respect to each covenant or agreement contained in this Agreement, until ninety
(90) days following the last date on which such covenant or agreement is to be
performed or, if no such date is specified, indefinitely; provided, however,
that any representation, warranty, covenant or agreement that would otherwise
terminate in accordance with clause (a), (b) or (c) above
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<PAGE> 36
will continue to survive, if a Party gives notice to another Party hereunder
that it is aware of circumstances which may give rise to a Claim Notice on or
prior to such termination date, until the related claim for indemnification has
been satisfied or otherwise resolved as provided in this Section VIII.
8.2 Indemnification of the Buyer.
(a) Subject to the limitations contained in this Section VIII, the
Seller agrees to indemnify, defend and hold harmless the Buyer, its Affiliates,
and their respective directors, officers, partners, employees, successors and
assigns, from and against any and all losses, liabilities (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including fees and disbursements of counsel and expenses of investigation and
defense), claims, liens or other obligations of any nature whatsoever after
giving credit for any applicable insurance proceeds (hereinafter individually, a
"Loss" and collectively, "Losses") which directly or indirectly result from any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement, of the Seller contained in this Agreement.
(b) As a separate and independent covenant, the Seller agrees to
indemnify, defend and hold harmless the Buyer, its Affiliates and their
respective directors, officers, partners, employees, successors and assigns,
from and against all Losses which directly or indirectly result from the
Divestiture, the Subsidiaries the subject of the Divestiture and their
respective assets and businesses, and any transactions with Affiliates not
disclosed on Schedule 3.12. Further, the Seller agrees (i) to indemnify the
Buyer with respect to any penalty or liability resulting from its failure to
file a Schedule F with respect to the Form 5500 for the Educational Assistance
Plan of the Company and (ii) to pay to the Buyer any amount (A) not disclosed on
the certificate delivered pursuant to Section 6.1(f) which, if properly included
thereon, in accordance with the terms of such certificate, would have reduced
the Purchase Price and (B) disclosed on the certificate delivered pursuant to
Section 6.1(f) which should not have been disclosed thereon, in accordance with
the terms of such certificate, and which by its inclusion increased the Purchase
Price.
(c) With respect to any Loss of the Buyer as to which insurance is
or may be available, the Buyer agrees to proceed first against the applicable
insurance carrier before instituting any claim against the Seller for
indemnification hereunder. Any proceeds recovered by the Buyer or any of its
Subsidiaries with respect to such Loss shall reduce the amount to be indemnified
by the Seller. The Buyer agrees to maintain in effect commercial insurance
policies covering the Company and its Subsidiaries having coverages and terms
that are in the aggregate no less favorable than those maintained by the Company
and its Subsidiaries immediately prior to Closing.
8.3 Indemnification of the Seller. Subject to the limitations
contained in this Section VIII, the Buyer agrees to indemnify, defend and hold
harmless the Seller and his Affiliates and their respective directors, officers,
partners, employees, successors and assigns, from and against any and all Losses
which, directly or indirectly result from (a) any inaccuracy in or any breach of
any representation and warranty, or any breach of any covenant or agreement, of
the Buyer contained in this Agreement, or (b) except with respect to any matter
which is the subject of indemnification by the Seller pursuant to Section 8.2,
the operation of the Business after Closing.
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8.4 Method of Asserting Claims. The party making a claim under
this Section VIII is referred to as the "Indemnified Party" and the party
against whom such claims are asserted under this Section VIII is referred to as
the "Indemnifying Party". All claims by any Indemnified Party under this Section
VIII shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party hereunder is asserted
against or sought to be collected from such Indemnified Party by a third party,
said Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand (the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced by such failure. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party and shall pay the reasonable fees and disbursements of such counsel with
regard thereto; provided, however, that the Indemnified Party is hereby
authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose fees and
expenses shall be at the expense of the Indemnifying Party if the Indemnified
Party has delivered a Claim Notice, to file any motion, answer or other pleading
and take such other action which it reasonably shall deem necessary to protect
its interests or those of the Indemnifying Party until the date on which the
Indemnified Party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (x) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (y) the named parties of any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The Indemnifying
Party shall not, in connection with any proceedings or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one such
firm for the Indemnified Party (except to the extent the Indemnified Party
retained counsel to protect its (or the Indemnifying Party's) rights prior to
the selection of counsel by the Indemnifying Party). If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which the
Indemnifying Party defends. A claim or demand may not be settled by the
Indemnifying Party without the prior written consent of the Indemnified Party
(which consent will not be unreasonably withheld) unless, as part of such
settlement, the Indemnified Party shall receive a full and unconditional release
reasonably satisfactory to the Indemnified Party; provided, that if,
notwithstanding the full and unconditional release of the Indemnified Party from
all liability in respect of such claim or demand, the Indemnified Party refuses
to consent to such settlement, then thereafter the Indemnifying Party's
liability to the Indemnified Party in respect of such third party claim shall
not exceed the settlement amount included in such settlement offer, and the
Indemnified Party shall either assume the defense of such third party claim or
pay the Indemnifying Party's attorneys' fees and other out-of-pocket costs
incurred thereafter in continuing the defense of such thirty party claim.
(b) In the event any Indemnified Party shall have a claim against
any Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or
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<PAGE> 38
sought to be collected from it by a third party, the Indemnified Party shall
send a Claim Notice with respect to such claim to the Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Section VIII, the affected parties each
agree to retain all Books and Records related to such Claim Notice. In each
instance, the Indemnified Party shall have the right to be kept fully informed
by the Indemnifying Party and its legal counsel with respect to any legal
proceedings. Any information or documents made available to any party hereunder
and designated as confidential by the party providing such information or
documents and which is not otherwise generally available to the public and not
already within the best knowledge of the party to whom the information is
provided (unless otherwise covered by the confidentiality provisions of any
other agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third Person (except
for the representatives of the party being provided with the information, in
which event the party being provided with the information shall request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).
8.5 Limitations on Indemnification. The Seller shall have no
liability, nor be subject to any claim, under Section 8.2(a) in respect of any
inaccuracy in or any breach of any representation and warranty of the Seller
contained in this Agreement unless and until the amount of Losses exceeds
$720,000 in the aggregate, and then only to the extent of Losses in excess of
such amount; provided, however, that in no event shall the liability of the
Seller with respect to Losses exceed $10,000,000. Notwithstanding the foregoing,
the provisions of the previous sentence shall not apply with respect to the
indemnities contained in Section 8.2(b) or to any Loss arising out of any
inaccuracy in or any breach of the representations and warranties contained in
the last sentence of Section 2.3(a) or in Sections 3.1, 3.2, 3.4, 3.9 or 3.20;
provided, however, that the Seller shall have no liability, nor be subject to
any claim, under Section 8.2(a) in respect of any inaccuracy in or any breach of
the representations and warranties contained in Section 3.20 unless and until
the amount of Losses exceeds $100,000 in the aggregate, and then only to the
extent of Losses in excess of such amount and such $100,000 in Losses retained
by the Buyer shall not apply toward the $720,000 in Losses retained by the Buyer
under the preceding sentence. In no event shall either party be liable to the
other for lost profits, lost revenues, lost opportunity costs, costs of
financing, or punitive damages. If the Closing occurs, indemnification pursuant
to this Section VIII shall be the exclusive remedy of the parties for money
damages under this Agreement. No indemnification is available pursuant to this
Section VIII in respect of any liability to the extent the same is included in
the Statement of Working Capital as defined in Section 2.3.
SECTION IX
TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time
prior to the Closing by the Buyer, on the one hand, or by the Seller, on the
other hand, by written, notice to the other party hereto, in the event that the
Closing shall not have occurred on or prior to the close of business on March
17, 1998 unless the failure to close has been caused by a breach of this
Agreement by the party seeking such termination.
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9.2 Survival. In the event this Agreement is terminated pursuant
to Section 9.1, (i) this Agreement shall become null and void and of no further
force and effect, except for the provisions of Section 5.l, relating to the
obligation to keep confidential certain information, 5.4 and this Section 9.2
and (ii) there shall be no liability on the part of the Seller or the Buyer,
their Affiliates or their respective partners, officers, directors, employees or
agents, provided, however, that if such termination shall result from the wilful
breach by a party of the provisions contained in this Agreement, such party
shall be fully liable for any and all damages, costs and expenses sustained or
incurred as a result of such breach by the other parties hereto.
9.3 Expenses. Each of the parties hereto shall pay its own
expenses (including, without limitation, attorneys' and accountants' fees and
out-of-pocket expenses) incident to this Agreement and the transactions
contemplated hereby.
9.4 Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be given personally, sent by facsimile transmission or sent by prepaid
overnight air courier. Any such notice shall be deemed to have been given (a)
when received, if delivered in person, (b) the Business Day after a confirmation
has been generated, if sent by facsimile transmission, and (c) two Business Days
after dispatch, if sent by prepaid overnight air courier, in each case if
delivered, sent or addressed as follows (or to such other address or addresses
or facsimile number as a party may have advised the other in the manner provided
in this Section 9.4):
If to the Seller:
William S. Karol
KODA Enterprises Group, LLC
800 South Street
Waltham, MA 02154
Fax: (617) 891-9712
With a copy to (which shall not constitute notice):
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, GA 30309-3996
Attn: Thomas C. Herman, Esq.
Fax: (404) 853-8806
If to the Buyer:
Airxcel, Inc.
3050 N. Saint Frances Street
Wichita, KS 67219
Attn.: Mel Adams
Fax: (316) 832-3493
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<PAGE> 40
With a copy to (which shall not constitute notice):
Kirkland & Ellis
153 East 53rd Street, 39th Floor
New York, NY 10022
Attn.: Kirk A. Radke, Esq.
Fax: (212) 446-4900
9.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered on the
Closing Date in connection with this Agreement (including the funds flow
memorandum) contain as at the date hereof the entire agreement among the parties
with respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto (including without limitation
the "letter of intent" among Airxcel Holdings, Inc., the Seller and the Company
dated December 23, 1997).
9.6 Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof. The
rights and remedies of any parties based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in this Agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts upon which any claim
of any such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties as to which there is no
inaccuracy or breach).
9.7 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement hereto shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
9.8 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable by any party hereto without
the prior written consent of the other party hereto except by operation of law
after the Closing Date and any other purported assignment shall be null and
void; provided, however, that the Buyer may assign this Agreement without the
consent of the Seller to any lenders to the Buyer or any subsequent purchaser of
all or any part of the Business.
9.9 Severability of Provisions. If any provision or any portion of
any provision of this Agreement or the application of such provision or any
portion thereof to any Person or circumstance shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby.
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<PAGE> 41
9.10 Counterparts. This Agreement may be executed by the parties
hereto in one or more counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
9.11 Specific Performance. The Seller acknowledges that money
damages would not be a sufficient remedy for any breach of this Agreement and
agree that the Buyer shall be entitled to specific performance and injunctive
relief as remedies for any such breach (without any requirement of posting a
bond).
9.12 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
9.13 Waiver of Jury Trial. Each of the parties hereto waives to
the fullest extent permitted by law any right it may have to trial by jury in
respect of any claim, demand, action or cause of action based on, or arising out
of, under or in connection with this Agreement, or any course of conduct, course
of dealing, verbal or written statement or action of any party hereto, in each
case whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise. The parties to this Agreement each hereby agrees that any
such claim, demand, action or cause of action shall be decided by court trial
without a jury and that the parties to this Agreement may file an original
counterpart of a copy of this Agreement with any court as evidence of the
consent of the parties hereto to the waiver of their right to trial by jury.
* * * * *
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the date and year first above written.
AIRXCEL, INC.
By: _______________________________
Its:
______________________________________
WILLIAM S. KAROL
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-43335) of our report dated January 30, 1998, on our audits of the financial
statements of Airxcel, Inc. and our report dated March 2, 1998, on our audit of
the financial statements of Crispaire Corporation, Inc.
We also consent to the references to our firm under the captions "Experts",
"Summary Historical Financial and Other Data" and "Selected Financial and Other
Data."
/s/ COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
April 1, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 (No.
333-43335) of our report, dated December 4, 1996 and October 16, 1997, relating
to the financial statements of Crispaire Corporation. We also consent to the
reference to our Firm under the captions "Independent Accountants", "Summary
Historical Financial and Other Data" and "Selected Financial and Other Data" in
the Prospectus and Prospectus Statement.
/s/ Mauldin & Jenkins, LLC
Albany, Georgia
April 1, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated February 3, 1998, with respect to the consolidated financial
statements of KODA Enterprises Group, Inc. included in Amendment No. 2 to the
Form S-4 of AIRXCEL, Inc. and to all references to our Firm included in or made
a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
Boston, Massachusetts
April 1, 1998
