<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1999
REGISTRATION NO. 333-79071
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
GENERAC PORTABLE PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3621 13-4006887
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Identification Number)
Code Number)
</TABLE>
--------------------------
1 GENERAC WAY
JEFFERSON, WISCONSIN 53549
(920) 674-3750
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
DORRANCE J. NOONAN, JR.
GENERAC PORTABLE PRODUCTS, INC.
1 GENERAC WAY
JEFFERSON, WISCONSIN 53549
(920) 674-3750
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
<TABLE>
<S> <C>
MARK ZVONKOVIC, ESQ. ALAN DEAN, ESQ.
KING & SPALDING DAVIS POLK & WARDWELL
1185 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10017
(212) 556-2100 (212) 450-4000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement. If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 9,200,000 shares $15.00 $138,000,000 $38,364
</TABLE>
(1) Includes 1,200,000 shares issuable upon exercise of the underwriters'
overallotment option.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
(3) $35,167 of this fee was previously paid in connection with the filing of the
Registration Statement on May 21, 1999.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 11, 1999
8,000,000 SHARES
[GENERAC LOGO]
COMMON STOCK
-----------------
GENERAC PORTABLE PRODUCTS, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS
OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR
SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$13.00 AND $15.00 PER SHARE.
-------------------
WE HAVE FILED AN APPLICATION FOR THE COMMON STOCK TO BE LISTED ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL "GPP."
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP
TO AN ADDITIONAL 1,200,000 SHARES TO COVER OVER-ALLOTMENTS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON
, 1999.
-------------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
SALOMON SMITH BARNEY
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.............................. 5
Risk Factors.................................... 11
Special Note Regarding Forward-Looking
Statements.................................... 17
Use of Proceeds................................. 18
Dividend Policy................................. 18
Capitalization.................................. 19
Dilution........................................ 20
Unaudited Pro Forma Consolidated Financial
Information................................... 21
Selected Historical and Pro Forma Financial
Data.......................................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................. 32
<CAPTION>
PAGE
-----
<S> <C>
Business........................................ 45
Management...................................... 59
Principal and Selling Stockholders.............. 65
Certain Relationships and Related
Party Transactions............................ 67
Description of the Amended Credit Facility and
the Indenture................................. 69
Description of Capital Stock.................... 72
Shares Eligible for Future Sale................. 74
Underwriters.................................... 75
Experts......................................... 78
Legal Matters................................... 78
Where You Can Find More
Information................................... 78
Index to Financial Statements................... F-1
</TABLE>
Our principal executive offices are located at 1 Generac Way, Jefferson,
Wisconsin 53549, and our telephone number is (920) 674-3750. Our web site is
"www.generac-portables.com". The information in the web site is not incorporated
by reference into this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
Until , 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Unless otherwise indicated, all information in this prospectus (1) reflects
a 1,250 for one stock split of our common stock that occurred on May 20, 1999
and a 1.189 for one stock split of our common stock that occurred on May 28,
1999 and (2) assumes that the underwriters' over-allotment option will not be
exercised.
3
<PAGE>
(This page has been left blank intentionally.)
4
<PAGE>
PROSPECTUS SUMMARY
THIS SECTION HIGHLIGHTS SOME OF THE INFORMATION IN THIS PROSPECTUS AND
SUMMARIZES THE MATERIAL TERMS OF THIS OFFERING. IT IS NOT COMPLETE AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE
COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION AND THE FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS.
GENERAC PORTABLE PRODUCTS
We are a leading designer, manufacturer and marketer of engine-powered tools
for use in both consumer and commercial applications. Our two principal product
lines are portable generators and pressure washers. We estimate that in 1998, as
measured by net sales, we were:
- the largest U.S. manufacturer of portable generators, with an overall
domestic market share of approximately 29%, and
- the second largest U.S. manufacturer of consumer pressure washers, with an
overall domestic market share of approximately 33%.
Over the past three years, our net sales have grown at a compounded annual
rate of approximately 38%, increasing from $104.8 million in 1995 to $276.4
million in 1998. In both our product categories, we offer one of the broadest
lines of innovative products across all major price points. Our products are
well represented in multiple channels of retail distribution, including the
leading home center chains, mass merchants and warehouse clubs, as well as
independent dealers. We have been the major supplier of portable generators to
Sears since 1961, and the largest supplier to Sears of consumer pressure washers
since Sears established itself in that category in 1994. We are also a core
supplier of portable generators and consumer pressure washers to Home Depot, the
largest and one of the fastest growing retail home center chains in the U.S.
We believe that our strength in each product category is the result of our
engineering and manufacturing capabilities which emphasize delivering superior
customer value through innovation in product development and focus on product
quality. We have been successful in improving manufacturing flexibility and
operating profitability through the strategic vertical integration of our
manufacturing processes, the streamlining of our production processes and the
standardization of our components.
The strength of our product offerings has enabled us to take advantage of
the strong growth in the engine-powered tools market as well as of favorable
demographic trends. Growth in demand for our products is driven by increasing
consumer awareness of the uses of portable generators and pressure washers in
consumer applications, the continuing momentum of national retailers, improving
affordability and performance, and an expanding middle-aged segment of the
population which historically has been the dominant purchaser of our products.
In 1959, Robert Kern founded Generac Corporation, the former parent of
Generac Portable Products, Inc. and an integrated manufacturer of engines and
generators. In July 1998, The Beacon Group III--Focus Value Fund, L.P., certain
members of management and certain other investors, including Robert Kern,
acquired the Portable Products Division of Generac Corporation for a purchase
price of $305.5 million. We have exclusive supply rights until 2007 to Generac
Corporation's current family of engines for use in portable generators and
pressure washers. The same dedicated management team that built the Portable
Products Division of Generac Corporation into a leader in the portable
engine-powered tools industry continues to lead our company.
5
<PAGE>
COMPETITIVE STRENGTHS
LEADING MARKET POSITIONS. In 1998, as measured by net sales, we believe we
were the largest U.S. supplier of portable generators and the second largest
U.S. supplier of consumer pressure washers.
WELL-ESTABLISHED AND GROWING DISTRIBUTION CHANNELS. We sell our products
under the Craftsman-Registered Trademark- and Companion-Registered Trademark-
labels through Sears and under the Generac-Registered Trademark- name through
Home Depot and other leading retailers, including B.J.'s Wholesale Club, Costco,
HomeBase, Lowe's and True Value hardware stores.
INNOVATIVE DESIGN AND ENGINEERING EXPERTISE. Our product design efforts are
focused on anticipating trends in consumer preferences and on engineering our
products to incorporate these preferences.
LOW COST MANUFACTURING OPERATIONS AND COMPONENTS. Our strategic vertical
integration and focus on using standardized components in our manufacturing
processes enable us to realize savings through reduced inventory levels, greater
leverage with suppliers and improved production flexibility. We have increased
our total annual production of units from approximately 120,000 in 1995 to over
675,000 in 1998, a compounded annual growth rate of 78%. Our low cost structure
is further enhanced by our effective sourcing strategies based on worldwide
supply relationships, as well as by our exclusive access to lower cost engines
manufactured by Generac Corporation.
ESTABLISHED BRAND NAME AND REPUTATION. The Generac brand name has a 40-year
heritage in the engine-powered tools industry. We established our leading brand
name primarily by providing high-quality, innovative and reliable products as
well as a high level of customer service and product support.
SUPERIOR CUSTOMER SERVICE AND COMMITMENT TO QUALITY. We support our strong
relationships with retailers through our "program sales approach" which provides
innovative sales and marketing programs to educate end-users and increase
retailers' effectiveness in selling our full line of products. We maintain
strict quality inspection procedures throughout the manufacturing process and a
comprehensive independent dealer network which facilitates after-sales
servicing.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY
INCENTIVE. Our management team has over 100 years of collective experience in
the engine-powered tools industry. Our senior managers have a substantial
financial interest in our continued success through their direct investment in
our common stock and participation in our stock option program.
BUSINESS STRATEGY
GROWING MARKET SHARE THROUGH ALLIANCES WITH STRONG, FAST-GROWING
RETAILERS. Our strong strategic relationships with Sears, Home Depot and other
leading retailers will position us to gain market share as these retailers grow.
EXPANDING THROUGH STRATEGICALLY MANAGED PRODUCT LINES. Our strategy is to
develop a continuous stream of innovative products that deliver the highest
quality and best overall value in the industry. We also offer one of the
broadest selections of portable generators and pressure washers which is
attractive to leading retailers who use a "good, better, best" merchandising
strategy.
CONTINUING PRODUCT INNOVATION AND DIVERSIFICATION INTO NEW AND RELATED
PRODUCTS. High level engineering capabilities, a dedicated research and
development group and efficient manufacturing operations provide us with
significant resources for continued product innovations and new product
development. Our current product development program includes mobile back-up
power generators and pressure washers incorporating a new Dial-A-Cleaner-TM-
cleaning system.
CONTINUING COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. We seek to
continually improve profitability, productivity and product quality. We strive
to maintain our low cost operations by taking advantage of our engineering and
manufacturing capabilities to either manufacture or purchase
6
<PAGE>
components. This strategy enables us to lower costs, better control product
quality, shorten supply lead times, maintain lower inventory levels and achieve
greater overall manufacturing flexibility.
PURSUING INTERNATIONAL MARKET OPPORTUNITIES. Our strategy is to accelerate
European sales growth by taking advantage of our product line breadth and brand
name recognition to gain shelf space and placements in new and existing European
markets. We currently offer our portable generators throughout Europe to leading
retailers such as B&Q (U.K.), Der Praktiker (Germany), Bauhaus (Germany), BRICO
(Belgium), Continente (Spain), Carrefour (France) and Jumbo (Switzerland).
INDUSTRY OVERVIEW
We estimate that the U.S. portable generator market was $492 million in 1998
and that it has grown at a 16% compounded annual rate from $230 million since
1993. We believe that this market will continue to grow at a 16% compounded
annual rate to reach approximately $900 million in 2002. Our research indicates
that sales of the four largest manufacturers accounted for approximately 85% of
the total market in 1998.
We estimate that the U.S. consumer pressure washer market was $300 million
in 1998 and has grown at a 43% compounded annual rate from $50 million since
1993. We believe that this market will grow at a 15% compounded annual rate to
reach approximately $527 million in 2002. In addition, the U.S. commercial
pressure washer market was approximately $120 million in 1998. While the
commercial pressure washer market is still highly fragmented, the consumer
market is consolidating. Our research indicates that sales of the four largest
manufacturers accounted for an estimated 80% of the consumer pressure washer
market in 1998.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered: 8,000,000 shares
Common stock to be outstanding after the 20,633,125 shares
offering...................................
Over-allotment option........................ 1,200,000 shares
Use of proceeds.............................. We intend to use the net proceeds from the
offering, together with borrowings under the
amended credit facility, to repurchase $110
million aggregate principal amount of our
outstanding 11 1/4% Senior Subordinated
Notes. See "Use of Proceeds."
Dividend policy.............................. We do not anticipate paying any cash
dividends in the foreseeable future. Any
future determination to pay dividends will be
at the discretion of our board of directors
and will be dependent upon existing
conditions such as our financial condition,
results of operations, contractual
restrictions, capital requirements, business
prospects and other factors our board of
directors deems relevant.
Proposed New York Stock Exchange symbol...... GPP
</TABLE>
The number of shares of our common stock to be outstanding after the
offering listed above does not take into account 1,955,122 shares of our common
stock that may be issuable upon exercise of outstanding options granted as of
March 31, 1999 under our stock option plan.
8
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary historical and pro forma financial data
of our company. Prior to July 10, 1998, we operated as the Portable Products
Division of Generac Corporation. In 1996, Generac Corporation began to
separately identify the assets and liabilities specific to its portable products
business, which enabled the preparation of separate financial statements for the
year ended December 31, 1996. We made estimates and allocations in preparing
these separate financial statements. From January 1997 to July 9, 1998, the
Portable Products Division reported financial information separately from
Generac Corporation.
The data presented in the following table are derived from "Unaudited Pro
Forma Consolidated Financial Information" and the consolidated financial
statements and related notes which are included elsewhere in this prospectus.
You should read those sections for a further explanation of the financial data
summarized here.
The summary unaudited "Acquisition Pro Forma" consolidated financial data
give effect to:
- the July 2, 1998 issuance and sale of our 11 1/4% Senior Subordinated
Notes and borrowings under the credit facility, and
- our July 9, 1998 acquisition of the Portable Products Division of Generac
Corporation,
as if these events had occurred on January 1, 1998.
The summary unaudited "Offering Pro Forma" consolidated financial data
reflect the Acquisition Pro Forma adjusted to reflect the offering of common
stock and borrowings under our amended credit facility and the application of
the estimated net proceeds and these borrowings as described under "Use of
Proceeds."
Prior to July 10, 1998, our taxable income was included in Generac
Corporation's taxable income. Generac Corporation and its stockholders elected
to be treated as an S Corporation for federal and state income tax purposes.
Accordingly, no provision for income taxes is included in our financial
statements for periods prior to July 10, 1998. We have been subject to state and
federal income taxes since July 10, 1998.
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
ACQUISITION OFFERING PRO
FOR THE YEAR COMPANY PRO FORMA FORMA
--------------- --------------- ---------------
ENDED JULY 10, 1998 FOR THE YEAR FOR THE YEAR
DECEMBER 31, JANUARY 1, 1998 THROUGH ENDED ENDED
-------------------- THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 JULY 9, 1998 1998 1998 1998
--------- --------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales.................. $ 122.6 $ 178.0 $ 139.6 $ 136.9 $ 276.4 $ 276.4
Gross profit............... 27.3 46.9 35.0 38.6 73.8 73.8
Selling and service
expense.................. 13.9 21.7 16.6 16.9 33.6 33.6
General and administrative
expense.................. 4.4 4.2 2.4 2.9 5.3 5.3
Intangible asset
amortization............. -- -- -- 2.5 5.3 5.3
--------- --------- ------ ------ ------ ------
Income from operations..... 9.0 21.0 16.0 16.3 29.6 29.6
Interest expense........... 2.2 2.1 1.4 9.7 20.0 10.1
Deferred financing cost
amortization............. -- -- -- .4 .8 .6
Other (income) expense..... -- .2 .1 (.2) (.1) (.1)
Income taxes............... -- -- -- 2.2 3.1 6.6
--------- --------- ------ ------ ------ ------
Net income................. $ 6.8 $ 18.7 $ 14.5 $ 4.2 $ 5.8 $ 12.4
--------- --------- ------ ------ ------ ------
--------- --------- ------ ------ ------ ------
Earnings Per Share:
Basic earnings per common
share.................... $ .33 $ .46 $ .60
Basic weighted average
common shares outstanding
(in thousands)........... 12,633 12,633 20,633
Diluted earnings per common
share.................... $ .33 $ .46 $ .59
Diluted weighted average
common shares outstanding
(in thousands)........... 12,752 12,694 21,058
<CAPTION>
PREDECESSOR COMPANY
------------- -------------
FOR THE THREE MONTHS
ENDED
MARCH 31,
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales.................. $ 59.5 $ 92.9
Gross profit............... 15.1 24.1
Selling and service
expense.................. 7.0 11.2
General and administrative
expense.................. 1.0 2.0
Intangible asset
amortization............. -- 1.3
------ ------
Income from operations..... 7.1 9.6
Interest expense........... .5 5.1
Deferred financing cost
amortization............. -- .2
Other (income) expense..... -- --
Income taxes............... -- 1.5
------ ------
Net income................. $ 6.6 $ 2.8
------ ------
------ ------
Earnings Per Share:
Basic earnings per common
share.................... $ .22
Basic weighted average
common shares outstanding
(in thousands)........... 12,633
Diluted earnings per common
share.................... $ .22
Diluted weighted average
common shares outstanding
(in thousands)........... 12,912
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH
31, 1999
(UNAUDITED)
-----------
<S> <C> <C>
ACTUAL
-----------
<CAPTION>
(IN
MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................................... $ 77.0
Total assets............................................................................................ 370.2
Total debt, including current portion................................................................... 214.7
Stockholders' equity.................................................................................... 105.2
<CAPTION>
<S> <C>
OFFERING PRO
FORMA
---------------
<S> <C>
BALANCE SHEET DATA:
Working capital......................................................................................... $ 88.3
Total assets............................................................................................ 376.8
Total debt, including current portion................................................................... 134.7
Stockholders' equity.................................................................................... 192.5
</TABLE>
10
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES THAT
WE FACE. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE
TO BE IMMATERIAL MAY ALSO ADVERSELY AFFECT OUR BUSINESS. OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY
OF THE RISKS DESCRIBED BELOW. IN THAT CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE A LIMITED HISTORY OF INDEPENDENT OPERATIONS AND WE CANNOT PREDICT
WHETHER WE WILL BE AS SUCCESSFUL AS AN INDEPENDENT COMPANY
We began independent operations in July 1998 when a group of investors led
by Beacon purchased our business and assets. Prior to that date we operated our
business as the Portable Products Division of Generac Corporation. Therefore, we
have only a limited history of operating as an independent company and we cannot
offer you assurance from prior experience that our future operating results will
be as good as our historical results.
OUR OPERATING RESULTS MAY SUFFER IF WE CANNOT OBTAIN A SUFFICIENT SUPPLY OF
THE GENERAC ENGINE OR IF WE LOSE THE EXCLUSIVE RIGHT TO USE THE GENERAC ENGINE
IN OUR PRODUCTS
We have used the Generac overhead valve industrial engine in our higher
performance products since 1992. In 1998, 32% of our sales were attributable to
products that incorporated the Generac engine. At the time we purchased the
Portable Products Division of Generac Corporation, we entered into an engine
supply agreement with Generac Corporation. This agreement provides that Generac
Corporation will supply us with the Generac engine on an exclusive basis for use
in portable generators and pressure washers as long as we make minimum annual
purchases of the engines until 2007. Although we believe the terms of the engine
supply agreement are fair and reasonable, we cannot assure you that the engine
supply agreement will adequately cover our future engine requirements. On the
one hand, Generac Corporation may not be able to supply all the engines we may
require, and on the other, the annual minimum purchases required to maintain our
exclusive rights to the Generac engine may be more engines than we need in any
given year. Our inability to obtain all of the engines we need or our purchase
of more engines than we need in order to maintain our exclusive right to the
engine could adversely affect our financial performance. While this agreement is
not a "take or pay" contract, which would require us to pay for certain minimum
annual purchases whether or not we took delivery of the engines, our purchases
in any year of fewer engines than the annual minimum purchase exclusivity
threshold would allow Generac Corporation to supply the Generac engine to our
competitors, which could also adversely affect our financial performance. Please
read the section entitled "Business--Agreements with Generac Corporation--Engine
Supply and Non-Compete Agreements" later in this prospectus for additional
information.
OUR OPERATING RESULTS MAY SUFFER IF WE CANNOT OBTAIN A SUFFICIENT SUPPLY OF
ENGINES FROM OUR OTHER SUPPLIERS
We also use Briggs & Stratton and Tecumseh Products gasoline engines as
components of some of our products. A failure by either of these suppliers to
satisfy our orders could adversely affect our business.
11
<PAGE>
OUR OPERATING RESULTS DEPEND ON OUR RELATIONSHIP WITH OUR TWO LARGEST
CUSTOMERS
In 1998, Home Depot accounted for approximately 37% of our total sales and
Sears accounted for approximately 27% of our total sales. We do not have
contractual agreements with either of these customers for the supply of our
products. Our customers, including these two largest customers, place orders for
our products on an as-needed basis. As a result, we are particularly dependent
upon a continuing flow of new orders from these large, high volume customers,
and our future growth depends in part on their ability to increase the volume of
our products they sell. The loss of any of these customers or a significant
decrease in the volume of products supplied to any of these customers would have
a material adverse affect on our financial performance.
ANY DISRUPTION IN OUR MANUFACTURING FACILITIES COULD ADVERSELY AFFECT US
We produce substantially all of our products for North America in our
manufacturing facility located in Jefferson, Wisconsin. We produce substantially
all of the products required for our European operations at our manufacturing
facility located in Cheshire, England. Our manufacturing processes are highly
complex and require sophisticated and costly equipment. As a result, any
prolonged interruption in the operations of either of our manufacturing
facilities could result in delays or cancellations of shipments. A number of
factors could cause interruptions, including equipment failures, labor
difficulties or damage to a facility due to natural disasters or otherwise. We
cannot assure you that alternative qualified capacity would be available on a
timely basis or at all. Interruptions could result in a loss of customers and
could adversely affect our financial performance.
OUR FUTURE GROWTH COULD BE SLOWED IF WE ARE UNABLE TO COMPLETE THE EXPANSION
OF OUR MANUFACTURING CAPACITY AS SCHEDULED
As a result of the recent growth of our business, our manufacturing facility
in Jefferson, Wisconsin is currently operating at capacity with respect to
portable generators. Therefore, our future growth is dependent upon our
successful and timely expansion of this manufacturing facility. We have recently
added approximately 72,000 square feet to this facility, which brings the total
to 250,000 square feet. We expect to have manufacturing equipment installed by
the end of the second quarter of 1999 and to be fully operational by the end of
the third quarter of 1999. The successful completion of this facility expansion
is dependent upon a number of factors, including: timely delivery of materials
and equipment, the availability of labor and the hiring and training of new
personnel. If we are unable to complete the expansion of our manufacturing
facility on a timely basis, we may not be able to achieve our planned growth or
sustain our financial performance.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR FUTURE GROWTH
Over the past three years, our sales have experienced strong growth and we
have significantly expanded our operations. We are currently in the process of
expanding our operations and we expect that further expansion will be required
to realize our growth strategy. This rapid growth places a significant demand on
our management, operational, financial and other resources. In order to manage
our growth effectively, we must implement and improve our operational systems,
procedures and controls. In this regard, we are currently in the process of
installing a new enterprise resource planning system which will integrate
manufacturing, resource planning and financial accounting. If we are
unsuccessful or experience delays in implementing our new systems, our business
may be adversely affected. We cannot guarantee that we will be able to manage
our growth effectively or that we will be able to grow in the future at the same
rate we have in the past.
WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND UNTIL 2007 WE MAY
BE RESTRICTED BY OUR AGREEMENTS WITH GENERAC CORPORATION FROM MARKETING CERTAIN
NEW PRODUCTS
Part of our strategy is to increase our sales through the development of new
products and product innovations. We cannot assure you that we will be able to
develop, market and distribute new products that
12
<PAGE>
will enjoy market acceptance. In addition, we are subject to agreements with
Generac Corporation under which we agreed not to, prior to 2007, manufacture or
market products of a type manufactured and sold by Generac Corporation's
industrial division at the time of the acquisition. Also, we may not incorporate
the Generac engine in our new products without Generac Corporation's approval.
Please see "Business-- Agreements with Generac Corporation--Engine Supply and
Non-Compete Agreements" for additional information. The failure to develop new
products that gain market acceptance could have an adverse impact on our growth
and materially adversely affect us.
OUR PERFORMANCE DEPENDS ON THE STRENGTH OF THE RETAIL ECONOMY
Since we only have two major product lines, both of which we sell through
retailers, our performance and our growth are particularly dependent upon the
strength of the U.S. retail economy. Weakness in consumer confidence and in
sales at retail outlets, including the financial weakness or bankruptcy of
retail outlets, especially the major home center chains, mass merchandisers and
wholesale clubs, can be expected to adversely impact our future financial
results.
WE FACE SIGNIFICANT COMPETITION FROM FINANCIALLY STRONG COMPETITORS THAT MAY
CAUSE US TO LOSE OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE
We operate in a highly competitive environment with numerous domestic and
foreign competitors which are financially strong and capable of competing
effectively with us in the marketplace. The introduction of new products or
other activities by our competitors could limit our growth, reduce our market
share and harm our financial performance. In the manufacture and sale of
portable generators, we compete primarily with Honda Engine Company and Coleman
Powermate, a division of The Coleman Company, Inc. Honda has significantly
greater financial and operating resources and name recognition than we do. In
the manufacture and sale of pressure washers, we compete primarily with
DeVilbiss Air Power Company, a subsidiary of Falcon Building Products, Inc.,
and, to a lesser extent, with Alfred Karcher GmBH & Co. and Campbell Hausfeld,
an affiliate of Scott Fetzer Company. Some of our competitors may be willing to
reduce prices and accept lower margins to compete with us. Any of our
competitors may be more successful at developing new products and product
innovations. In addition, we compete with these competitors not only for
consumer acceptance but also to establish and maintain relationships with the
major home center chains, mass merchandisers, wholesale clubs and other
retailers, many of which distribute one or two of our competitors' products.
INCREASED SALES GROWTH OF PORTABLE GENERATORS DUE TO YEAR 2000 CONCERNS MAY
NOT BE SUSTAINABLE
We may experience an increase in our sales of portable generators as a
result of consumer concerns relating to Year 2000 power outages. We cannot
assure you that any sales growth attributable to Year 2000 consumer concerns
will be sustainable or that our sales will not decline in 2000 from 1999 levels.
In addition, we cannot assure you that we will not experience an increase in
returns of our products after January 1, 2000.
WE MAY FACE ADDITIONAL COSTS AND OTHER ADVERSE EFFECTS DUE TO YEAR 2000
COMPUTER PROBLEMS
Year 2000 issues exist when years in dates are recorded in computers using
two digits (rather than four) and are then used for arithmetic operations,
comparisons or sorting. The two digit year "00" may be recognized as 1900 rather
than 2000, which could cause our computer systems to perform inaccurate
computations. We have adopted a three phase approach of assessment, correction
and testing. We have completed the assessment phase relating to our internal
software, hardware and other operating systems and are currently in the
correction and testing phases. We are completing our assessment of the
non-information technology systems and the risk to the business from vendors and
other parties. Furthermore, we have completed the assessment of our products,
noting that the Year 2000 will not impact our products as the products do not
contain date sensitive sub-systems. Although we have not yet fully completed our
Year 2000 project, management estimates that approximately 40% of our
information sub-systems are currently Year 2000 compliant. Approximately 60% of
our systems are currently being
13
<PAGE>
modified or replaced, with all significant systems targeted for Year 2000
compliance by September 1, 1999. You should be aware that Year 2000 issues
relate not only to our systems, but also to those used by our suppliers. We
anticipate that system replacements and modifications will resolve any Year 2000
issues that may exist with our systems or our suppliers' systems. However, we
cannot guarantee to you that such replacements or modifications will be
completed successfully or on time and, as a result, any failure to complete such
modification on time may materially harm our financial and operating results.
You should read the section "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000" later in this prospectus for
additional information.
QUARTERLY FLUCTUATIONS IN OUR BUSINESS COULD AFFECT THE PRICE OF OUR COMMON
STOCK
Our revenues and operating results may vary from quarter to quarter. Such
variations are likely to be caused by certain factors that are outside our
control, including weather (in particular, storm activity), the seasonality of
pressure washer sales and the product mix of our sales. These quarterly
fluctuations may not match the expectations of securities analysts and
investors. This could cause the trading price of our common stock to fluctuate.
IF WE LOSE KEY PERSONNEL, OUR ABILITY TO MANAGE WILL BE WEAKENED
Our continued success is highly dependent upon the personal efforts and
abilities of our senior management, including Dorrance J. Noonan, Jr., our
President and Chief Executive Officer, Gary J. Lato, our Chief Financial
Officer, James H. Deneffe, our Senior Vice President of Sales, Wesley C.
Sodemann, our Vice President of Engineering and Jay C. Sugar, our Vice President
of Operations. We do not have employment contracts with any of these officers
and the loss of any one of them could have an adverse impact on our business.
INCREASES IN RAW MATERIAL OR COMPONENT COSTS WOULD HAVE AN ADVERSE EFFECT ON
OUR FINANCIAL PERFORMANCE
A significant portion of the cost of goods manufactured by us is the cost of
raw materials and components. The future success of our purchasing may be
affected by many factors beyond our control, such as commodity pricing generally
and higher prices for the specific materials that we require. Although there are
numerous suppliers available for the materials and components we need, any
unanticipated change in suppliers could be disruptive and costly to us.
WE MAY INCUR MATERIAL PRODUCT WARRANTY COSTS
Generally we provide a one-year warranty on portable generators and on
pressure washers. While costs associated with providing warranties for our
products have not been material to our financial results in the past, we cannot
assure you that such costs will not be material in the future.
WE WILL CONTINUE TO HAVE SUBSTANTIAL DEBT AFTER THE OFFERING WHICH COULD
ADVERSELY AFFECT US
After this offering, we expect to have approximately $134.7 million of debt
outstanding. The fact that we have a significant amount of debt has important
consequences to you as a stockholder. The material risks include the following:
- We may be unable to obtain additional funds needed for working capital,
capital expenditures and general corporate purposes.
- A portion of our cash flow from operations is dedicated to debt service,
which reduces the amount of cash we have available for other purposes.
- Our ability to adjust to changing market conditions and our ability to
withstand competition may be hampered by the amount of debt we owe. We are
more vulnerable in a market downturn or a recession than our competitors
with less debt.
14
<PAGE>
WE MAY NOT REPURCHASE ALL OF OUR 11 1/4% SENIOR SUBORDINATED NOTES WHICH
WOULD RESULT IN OUR INCURRING HIGHER INTEREST EXPENSE
We intend to commence a tender offer for all of our $110.0 million principal
amount 11 1/4% Senior Subordinated Notes. It is impossible for us to predict the
exact aggregate principal amount of notes that may be tendered in the tender
offer and therefore we may purchase less than all of the outstanding notes. In
addition, if for any reason the tender offer is not completed and no notes are
repurchased pursuant to the tender offer, we intend to use the net proceeds from
this offering to redeem $38.5 million principal amount of these notes and the
remainder of the net proceeds to reduce the amounts outstanding under the term
loans under our credit facility. In either case, our interest expense will be
higher, and our net income lower, than if we had repurchased all of the notes.
See "Unaudited Pro Forma Consolidated Financial Information" for additional
information. In addition, if we only redeem $38.5 million of the notes, we will
not be able to eliminate, and we will continue to be subject to, covenants and
other restrictions in the notes and the indenture relating to the notes.
INTANGIBLES REPRESENT A SUBSTANTIAL PERCENTAGE OF OUR ASSETS, THE
AMORTIZATION OF WHICH WILL ADVERSELY AFFECT OUR EARNINGS
At March 31, 1999, our balance sheet reflected $210.1 million of intangible
assets, a substantial portion of our $370.2 million of total assets at such
date. The intangible assets consist of goodwill and other identifiable
intangibles relating to our recent acquisition of the Portable Products Division
of Generac Corporation. Amortization of these intangibles will have a negative
impact on earnings. In addition, we continuously evaluate whether events and
circumstances have occurred that indicate the remaining balance of intangible
assets may not be recoverable. When factors indicate that assets should be
evaluated for possible impairment, we may be required to reduce the carrying
value of our intangible assets, which could have a material adverse effect on
our results during the periods in which such a reduction is recognized. There
can be no assurance that we will not be required to write down intangible assets
in future periods.
RISK FACTORS RELATING TO THE CONTROL OF GENERAC PORTABLE PRODUCTS
THE BEACON GROUP III--FOCUS VALUE FUND, L.P., WHICH CONTROLS APPROXIMATELY
33.8% OF OUR VOTING POWER, MAY HAVE INTERESTS WHICH ARE ADVERSE TO YOURS
You should be aware that Beacon will control a total of approximately 33.8%
of our voting stock immediately following the completion of this offering, or
approximately 30.5% if the underwriters exercise their over-allotment option in
full. As a result, Beacon will have substantial influence over the outcome of
actions requiring the approval of our stockholders, including elections of our
board of directors. Beacon may make decisions which are adverse to your
interests.
OUR CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW MAY MAKE A TAKEOVER OF
GENERAC PORTABLE PRODUCTS MORE DIFFICULT, WHICH COULD ADVERSELY AFFECT THE PRICE
OF OUR COMMON STOCK
Our certificate of incorporation and bylaws contain provisions that may make
the acquisition of control of our company more difficult, including provisions:
- authorizing the issuance of preferred stock, the terms of which may be
determined at the sole discretion of the board of directors,
- establishing advance notice requirements for the nomination for election,
and removal of, directors and for proposing matters that can be acted on
by stockholders at meetings, and
- prohibiting stockholders from acting by written consent without a meeting.
In addition, Delaware corporate law contains provisions that could
discourage, delay or prevent a change in control, which could adversely affect
the price of our common stock.
15
<PAGE>
RISK FACTORS RELATING TO SECURITIES MARKETS
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT
Prior to this offering, there has been no public market for our common
stock. Although we intend to list our common stock on the New York Stock
Exchange, an active public market may not develop or may not be sustained after
this offering. Investors may not be able to sell our common stock should they
desire to do so. The initial public offering price will be determined by
negotiations among representatives of the underwriters, the selling stockholders
and us based upon several factors and may not be indicative of the market price
for our common stock after the offering. The trading price of our common stock
could be subject to wide fluctuations in response to a number of factors,
including:
- changes in our operating results,
- differences between our actual financial and operating results, and those
expected by investors and securities analysts,
- changes in financial estimates or recommendations by securities analysts,
and
- conditions or trends in the engine-powered tools market.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations, which often have been unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of our common stock.
FUTURE SALES BY EXISTING STOCKHOLDERS COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE
Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price for our
common stock or impair our ability to raise capital through an offering of
equity securities. The number of shares of common stock available for sale in
the public market is limited by legal and contractual restrictions. The holders
of 12,633,125 shares of common stock have agreed not to sell their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters.
After this offering, we will have outstanding 20,633,125 shares of our common
stock and will have reserved an additional 2,406,310 shares of common stock for
issuance under our stock option plan. All of the shares sold in this offering
will be freely tradeable without restriction or further registration under the
federal securities laws.
Shortly after the completion of this offering, we intend to file a
registration statement under the federal securities laws to permit the 2,406,310
shares reserved for issuance under our stock option plan to be sold in the
public market.
In addition, upon expiration of the 180-day period referred to above,
holders of approximately 12,277,093 shares of common stock will be entitled to
require us to register their shares under the securities laws to permit the sale
of their shares in the public market. If these holders, by exercising these
"registration rights," cause a large number of shares to be registered and sold
in the public market, the market price for our common stock could decline. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale."
PURCHASERS IN THE OFFERING WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL
DILUTION IN THE VALUE OF THEIR COMMON STOCK
The initial public offering price per share of common stock exceeds the
current net tangible book value per share of common stock, which is determined
by dividing our total net tangible book value (which is total tangible assets
minus total liabilities) by the number of shares of our common stock currently
outstanding. As a result, assuming an initial public offering price of $14 per
share, purchasers of shares of
16
<PAGE>
common stock will experience an immediate and substantial dilution of
approximately $14.99 per share in the net tangible book value. See "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
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<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $102.8 million from this
offering at an assumed initial public offering price of $14.00 per share. Net
proceeds are computed by deducting the underwriting discount and our estimated
offering expenses of $1.4 million from the total public offering price.
We intend to use all of the net proceeds from this offering, together with
borrowings under the amended credit facility, to repurchase all $110.0 million
principal amount of our 11 1/4% Senior Subordinated Notes due 2006. We intend to
commence a tender offer for all of our outstanding notes. If for any reason the
tender offer is not completed, we intend to use the net proceeds from this
offering to redeem $38.5 million principal amount of these notes and the
remainder of the net proceeds to reduce the amounts outstanding under the term
loans under our credit facility. As of June , 1999, the aggregate amount
required to repurchase all of the notes is expected to be $ . In addition
to the estimated $102.8 million of net proceeds from this offering, we intend to
borrow an additional $30.0 million under the amended credit facility to fund the
repurchase of the notes.
The proceeds from the sale of these notes and the borrowings under the term
loans were used to fund, in part, the acquisition of the Portable Products
Division of Generac Corporation. See "Description of the Amended Credit Facility
and the Indenture" for additional information about the terms of this
indebtedness.
DIVIDEND POLICY
We have never paid any dividends on our common stock, and the board of
directors currently intends to retain all earnings for use in our business. Our
amended credit facility contains covenants restricting the payment of dividends.
Any future payment of dividends will depend upon our results of operations,
financial condition, cash requirements and other factors deemed relevant by the
board of directors. In addition, if we only redeem $38.5 million of our 11 1/4%
Senior Subordinated Notes due 2006, our ability to pay dividends will be limited
by the terms of the indenture under which the notes were issued.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Generac
Portable Products as of March 31, 1999: (1) on an historical basis and (2) as
adjusted to give effect to the offering of common stock and borrowings under our
amended credit facility and the application of the estimated net proceeds from
this offering and these borrowings as described under "Use of Proceeds." The pro
forma capitalization amounts presented below are adjusted for (a) the issuance
and sale of shares of common stock by Generac Portable Products at an assumed
initial public offering price of $14.00, the midpoint of the range set forth on
the cover page of this prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses, (b) borrowings under the amended
credit facility, and (c) the anticipated use of net proceeds from these
transactions to repurchase all of our 11 1/4% Senior Subordinated Notes due
2006, as if such issuances, borrowings and repurchases had occurred on March 31,
1999.
The pro forma retained earnings balance is adjusted for a non-cash
extraordinary expense of $5.1 million for the write-off of previously
capitalized debt issuance costs and a cash extraordinary expense of $18.7
million for prepayment costs assumed to have been paid in connection with the
repurchase of all of the outstanding notes. Such extraordinary expenses are
reflected as a decrease of pro forma retained earnings, net of a pro forma tax
benefit of $8.3 million.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
<S> <C> <C>
ACTUAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT, INCLUDING CURRENT PORTION:
Revolving credit facility............................................................... $ 19,000 $ 19,000
Term loans.............................................................................. 83,450 113,450
11 1/4% Senior Subordinated Notes due 2006.............................................. 110,000 --
Capital lease obligations............................................................... 2,265 2,265
---------- -----------
Total long-term debt.................................................................. 214,715 134,715
---------- -----------
STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital............................................. 110,000 212,800
Retained earnings (accumulated deficit)................................................. 7,027 (8,429)
Accumulated other comprehensive loss.................................................... (179) (179)
Excess of purchase price over book value of net assets acquired from entities partially
under common control.................................................................. (11,658) (11,658)
---------- -----------
Total stockholders' equity............................................................ 105,190 192,534
---------- -----------
Total capitalization.................................................................. $ 319,905 $ 327,249
---------- -----------
---------- -----------
</TABLE>
If the tender offer for the notes is not completed, we intend to use the net
proceeds from this offering to redeem $38.5 million principal amount of notes
and to repay $58.2 million of term loans. In this case, on a pro forma basis,
$25.3 million would be outstanding under the term loans, $71.5 million would be
outstanding under the notes and retained earnings would be $2.5 million.
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<PAGE>
DILUTION
The net tangible book deficit of Generac Portable Products as of March 31,
1999 was approximately $(111.7) million, or $(8.84) per share of common stock.
Net tangible book deficit per share is determined by dividing our total net
tangible book value, which is total tangible assets less our total liabilities,
by the number of shares of our common stock outstanding. After giving effect to
the sale of 8,000,000 shares of common stock in this offering (at an assumed
initial public offering price of $14.00, the midpoint of the range set forth on
the cover page of this prospectus) and the application of the estimated net
proceeds as described under "Use of Proceeds," our adjusted net tangible book
deficit as of March 31, 1999 would have been approximately $(20.4) million or
$(.99) per share. This represents an immediate increase in net tangible book
value to existing stockholders of $7.85 per share and an immediate dilution to
new investors of $14.99 per share. The following table illustrates this per
share dilution as of March 31, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 14.00
Net tangible book value per share......................... $ (8.84)
Increase per share attributable to new investors.......... $ 7.85
---------
Net tangible book value per share after this offering....... (.99)
---------
Dilution per share to new investors......................... $ 14.99
---------
---------
</TABLE>
The following table summarizes, as of March 31, 1999, the differences
between the number of shares of common stock, the total consideration paid and
the average price per share paid by existing stockholders and by the investors,
before deducting the underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ($ IN THOUSANDS) AVERAGE
----------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 12,633,125 61.2% $ 110,000 49.5% $ 8.71
New investors.................. 8,000,000 38.8 112,000 50.5 14.00
------------ --------- ---------- --------- -----------
Total.......................... 20,633,125 100.0% $ 222,000 100.0%
------------ --------- ---------- ---------
------------ --------- ---------- ---------
</TABLE>
If the underwriters exercise their over-allotment option in full, sales of
shares of common stock by the selling stockholders in this offering will reduce
the number of shares of common stock held by existing stockholders to 11,433,125
or approximately 55.4% of the total number of shares of common stock outstanding
after this offering, and the number of shares held by new public investors will
be 9,200,000 or approximately 44.6% of the total number of shares of common
stock outstanding after this offering.
As of March 31, 1999, there were options outstanding to purchase a total of
1,955,122 shares of our common stock, with a weighted average exercise price of
$9.19 per share. To the extent that the outstanding options, or any options
issued in the future, are exercised, there will be further dilution to new
investors.
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Financial Information of Generac
Portable Products for the year ended December 31, 1998 labeled "Acquisition Pro
Forma" was prepared to reflect:
- the offer and sale of the 11 1/4% Senior Subordinated Notes and borrowings
under the credit facility, and
- the acquisition of the Portable Products Division of Generac Corporation,
as if these events had occurred on January 1, 1998 using the purchase method of
accounting.
The Unaudited Pro Forma Consolidated Financial Information of Generac
Portable Products for the year ended December 31, 1998 labeled "Offering Pro
Forma" presents the Acquisition Pro Forma information adjusted to reflect the
offering of common stock and borrowings under our amended credit facility and
the application of the estimated net proceeds of the offering and these
borrowings as described under "Use of Proceeds." The Unaudited Pro Forma
Consolidated Financial Information as of and for the three months ended March
31, 1999 reflects the offering of common stock and the application of the
estimated net proceeds of the offering as described under "Use of Proceeds."
The Unaudited Pro Forma Consolidated Financial Information may not be
indicative of what our operating results or financial position would have been
if the transactions described above had occurred as of and for the dates and
periods presented. In addition, our results for the three months ended March 31,
1999 are not necessarily indicative of results that may be expected for the
entire year.
The pro forma adjustments as described in the Notes to Unaudited Pro Forma
Consolidated Financial Information are based on available information and upon
assumptions that management believes are reasonable. The Unaudited Pro Forma
Consolidated Financial Information should be read in conjunction with the
financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing later in
this prospectus.
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<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
OFFERING
HISTORICAL ADJUSTMENTS(A) PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.............................................. $ 1,407 $ 2,997(a) $ 4,404
Accounts receivable (less allowance of $263)........................... 70,899 -- 70,899
Inventories............................................................ 58,955 -- 58,955
Deferred income taxes.................................................. 139 7,531(b) 7,670
Prepaid expenses and other current assets.............................. 1,004 -- 1,004
---------- ------- -----------
Total current assets................................................. 132,404 10,528 142,932
Property, plant and equipment, net....................................... 20,659 -- 20,659
Intangible assets, net................................................... 210,065 -- 210,065
Deferred financing costs................................................. 6,808 (3,976)(c) 2,832
Other.................................................................... 262 -- 262
---------- ------- -----------
Total assets......................................................... $ 370,198 $ 6,552 $ 376,750
---------- ------- -----------
---------- ------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt...................................... $ 8,381 $ -- $ 8,381
Trade accounts payable................................................. 32,199 -- 32,199
Accrued employee compensation, benefits and payroll withholdings....... 1,666 -- 1,666
Other accrued liabilities.............................................. 13,156 (792)(b) 12,364
---------- ------- -----------
Total current liabilities............................................ 55,402 (792) 54,610
Long-term debt obligations............................................... 206,334 (80,000)(d) 126,334
Other long-term obligations.............................................. 1,011 -- 1,011
Deferred income taxes.................................................... 2,261 -- 2,261
Stockholders' Equity:
Common stock........................................................... 126 80(a) 206
Additional paid-in capital............................................. 109,874 102,720(a) 212,594
Retained earnings (accumulated deficit)................................ 7,027 (15,456)(e) (8,429)
Accumulated other comprehensive loss................................... (179) -- (179)
Excess of purchase price over book value of net assets acquired from
entities partially under common control.............................. (11,658) -- (11,658)
---------- ------- -----------
Total stockholders' equity........................................... 105,190 87,344 192,534
---------- ------- -----------
Total liabilities and stockholders' equity........................... $ 370,198 $ 6,552 $ 376,750
---------- ------- -----------
---------- ------- -----------
</TABLE>
See notes to unaudited pro forma financial information.
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<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(a) Adjusted for (i) the issuance and sale of shares of common stock by Generac
Portable Products (assuming net proceeds of $102,800) and (ii) borrowings
under the amended credit facility, and the anticipated use of net proceeds
from such transactions to repurchase all of the outstanding 11 1/4% Senior
Subordinated Notes as if such transactions had occurred as of March 31,
1999. If the tender offer for the 11 1/4% Senior Subordinated Notes is not
completed, we intend to use the net proceeds from this offering to redeem
$38,500 principal amount of the 11 1/4% Senior Subordinated Notes at a
redemption price of 111.25% of their principal amount and to repay $58,169
of term loans under our credit facility. For additional information, see
"Capitalization."
(b) Reflects the decrease in accrued income taxes and the increase in deferred
tax assets associated with the extraordinary expense of $23,779 assumed to
be recognized in connection with the repurchase of the 11 1/4% Senior
Subordinated Notes.
(c) Reflects the write-off of $5,060 of previously capitalized deferred
financing costs associated with the 11 1/4% Senior Subordinated Notes and
the capitalization of $1,084 of additional costs estimated to be incurred in
connection with the amendment of the credit facility.
(d) Reflects borrowings of $30,000 under the amended credit facility and the
repurchase of all $110,000 principal amount of our 11 1/4% Senior
Subordinated Notes.
(e) The pro forma retained earnings balance is adjusted for a non-cash
extraordinary expense of $5,060 for previously capitalized debt issuance
costs and a cash extraordinary expense of $18,719 for prepayment costs
assumed to have been paid in connection with the repurchase of all of the
outstanding 11 1/4% Senior Subordinated Notes. Such extraordinary expenses
are reflected as a decrease of pro forma retained earnings, net of a pro
forma tax benefit of $8,323.
23
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
OFFERING
HISTORICAL ADJUSTMENTS(G) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales................................................................. $ 92,887 $ -- $ 92,887
Cost of goods sold........................................................ 68,730 -- 68,730
----------- ------- -----------
Gross profit.............................................................. 24,157 24,157
----------- ------- -----------
Operating expenses:
Selling and service expense............................................. 11,152 -- 11,152
General and administrative expense...................................... 2,001 -- 2,001
Intangible asset amortization........................................... 1,341 -- 1,341
----------- ------- -----------
Total operating expenses................................................ 14,494 -- 14,494
----------- ------- -----------
Income from operations.................................................... 9,663 -- 9,663
----------- ------- -----------
Other expense:
Interest expense........................................................ 5,096 (2,537)(h) 2,559
Deferred financing cost amortization.................................... 213 (73)(i) 140
Other................................................................... 5 -- 5
----------- ------- -----------
5,314 (2,610) 2,704
----------- ------- -----------
Income before income taxes................................................ 4,349 2,610 6,959
Provision for income taxes................................................ 1,524 914(f) 2,438
----------- ------- -----------
Net income before extraordinary item(j)................................... $ 2,825 $ 1,696 $ 4,521
----------- ------- -----------
----------- ------- -----------
Earnings per share before extraordinary item:
Basic................................................................... $ .22 $ .22
Diluted................................................................. $ .22 $ .21
Weighted average shares outstanding(k):
Basic................................................................... 12,633 20,633
Diluted................................................................. 12,912 21,061
</TABLE>
See notes to unaudited pro forma consolidated financial information.
24
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREDECESSOR
JANUARY 1 JULY 10
THROUGH JULY THROUGH
9, DECEMBER 31,
1998 1998
-------------- ------------ ACQUISITION ACQUISITION OFFERING OFFERING
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(G) PRO FORMA
-------------- ------------ ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales......................... $ 139,551 $ 136,862 $ -- $ 276,413 $ -- $ 276,413
Cost of goods sold................ 104,537 98,245 (162)(a) 202,620 -- 202,620
-------------- ------------ ----------- ----------- -------------- -----------
Gross profit...................... 35,014 38,617 162 73,793 -- 73,793
-------------- ------------ ----------- ----------- -------------- -----------
Operating expenses:
Selling and service expense..... 16,624 16,935 -- 33,559 -- 33,559
General and administrative
expense....................... 2,380 2,865 -- 5,245 -- 5,245
Intangible asset amortization... -- 2,531 2,813(b) 5,344 -- 5,344
-------------- ------------ ----------- ----------- -------------- -----------
Total operating expenses........ 19,004 22,331 2,813 44,148 -- 44,148
-------------- ------------ ----------- ----------- -------------- -----------
Income from operations............ 16,010 16,286 (2,651) 29,645 -- 29,645
-------------- ------------ ----------- ----------- -------------- -----------
Other (income) expense:
Interest expense................ 1,409 9,674 10,314(c) 19,988 (9,895)(h) 10,093
(1,409)(d)
Deferred financing cost
amortization.................. -- 401 424(e) 825 (271)(i) 554
Other........................... 108 (171) -- (63) -- (63)
-------------- ------------ ----------- ----------- -------------- -----------
1,517 9,904 9,329 20,750 (10,166) 10,584
-------------- ------------ ----------- ----------- -------------- -----------
Income before income taxes........ 14,493 6,382 (11,980) 8,895 10,166 19,061
Provision for income taxes........ -- 2,180 880(f) 3,060 3,558(f) 6,618
-------------- ------------ ----------- ----------- -------------- -----------
Net income before extraordinary
item(j)......................... $ 14,493 $ 4,202 ($ 12,860) $ 5,835 $ 6,608 $ 12,443
-------------- ------------ ----------- ----------- -------------- -----------
-------------- ------------ ----------- ----------- -------------- -----------
Earnings per share before
extraordinary item:
Basic........................... $ .33 $ .46 $ .60
Diluted......................... $ .33 $ .46 $ .59
Weighted average shares
outstanding(k):
Basic........................... 12,633 12,633 20,633
Diluted......................... 12,752 12,694 21,058
</TABLE>
See notes to unaudited pro forma consolidated financial information.
25
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
The acquisition of the Portable Products Division of Generac Corporation was
accounted for under the purchase method of accounting. The unaudited pro forma
consolidated results of operations were determined based on the fair value of
the assets acquired and liabilities assumed and associated amortization of
goodwill and other acquired intangibles. Prior to July 9, 1998, certain costs
and expenses were allocated to Generac Portable Products from Generac
Corporation. Management believes that the allocation of these costs and expenses
approximate the equivalent costs expected to be incurred on a stand alone basis.
(a) Reflects the effect on cost of sales of the recognition of a capital lease
obligation as part of the acquisition arising from certain equipment leases:
<TABLE>
<S> <C>
Actual lease expense incurred........................................ $ (336)
Amortization of assets under capital lease obligations............... 174
---------
$ (162)
---------
---------
</TABLE>
(b) Reflects the amortization of goodwill of $213,738 over a 40 year period and
the non-compete agreement of $100 and trademarks and patents of $100 over a
10 year period. Goodwill was calculated as the purchase price of $306,865
(including acquisition costs of $1,385) less the fair value of net assets
acquired and liabilities assumed of $81,469 and less the excess of purchase
price over book value of net assets acquired from entities partially under
common control of $11,658. Other intangible assets are comprised of patents,
trademarks and a non-compete agreement with Generac Corporation which have a
remaining life and/or contractual term of approximately 10 years.
(c) Interest expense reflects the following:
<TABLE>
<S> <C>
Credit Facility.................................................... $ 3,754
11 1/4% Senior Subordinated Notes.................................. 6,462
Interest on capitalized leases..................................... 98
---------
$ 10,314
---------
---------
</TABLE>
Borrowings under the credit facility bear interest at the eurodollar rate,
plus an applicable percentage, as defined. For purposes of the pro forma
interest expense adjustment, the eurodollar rate is estimated to be 5.76%
for the period January 1 through July 9, 1998. The rate approximates the
average eurodollar rate during the period. A 1/8% variance in eurodollar
rates for the credit facility would change assumed interest expense by
approximately $106. A commitment fee of .5% per annum is charged on the
unused portion of the credit facility.
(d) Reflects the elimination of historical interest expense allocated from
Generac Corporation.
(e) The deferred financing costs are amortized using the effective interest rate
and straight line methods over the term of the associated debt as follows:
<TABLE>
<S> <C>
Credit Facility...................................................... $ 201
11 1/4% Senior Subordinated Notes.................................... 223
---------
$ 424
---------
---------
</TABLE>
26
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(IN THOUSANDS)
(f) Reflects adjustments for income tax expense to provide taxes on pro forma
offering adjustments at a pro forma effective tax rate of 35% and to adjust
the Acquisition Pro Forma tax provision based upon the pro forma annual
effective tax rate. Historically, Generac Portable Products's taxable income
was included in Generac Corporation's taxable income. Generac Corporation
and its stockholders elected to be treated as an S Corporation for federal
and state income tax purposes. Accordingly, no provision for income taxes is
included in the historical financial statements prior to July 9, 1998.
(g) Adjusted for (1) the issuance and sale of 8,000 shares of common stock by
Generac Portable Products at an assumed initial public offering price of
$14.00, the midpoint of the range set forth on the cover page of this
prospectus (assuming net proceeds of $102,800) and (2) borrowings under the
amended credit facility, and (3) the anticipated use of net proceeds from
such transactions to repurchase all of the outstanding 11 1/4% Senior
Subordinated Notes as if such transactions had occurred at the beginning of
the periods presented. We intend to commence a tender offer for all of our
outstanding 11 1/4% Senior Subordinated Notes. It is impossible for us to
predict the exact aggregate principal amount of the 11 1/4% Senior
Subordinated Notes that may be tendered in the tender offer. If for any
reason the tender offer is not completed, we intend to use the net proceeds
from this offering to redeem $38,500 principal amount of the 11 1/4% Senior
Subordinated Notes at a redemption price of 111.25% of their principal
amount and to repay $58,169 of the term loans under our credit facility.
(h) Represents the adjustment of interest expense, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------- -----------------
<S> <C> <C>
Estimated interest expense on new borrowings under
the amended credit facility........................ $ 598 $ 2,480
Elimination of interest on the 11 1/4% Senior
Subordinated Notes................................. (3,135) (12,375)
------- -------
Net change....................................... $ (2,537) $ (9,895)
------- -------
------- -------
</TABLE>
The actual level of our interest expense is dependent on several factors,
including the overall level of interest rates and the actual amount of the
11 1/4% Senior Subordinated Notes repurchased, and other indebtedness
repaid, by us.
Borrowings under the amended credit facility bear interest at the eurodollar
rate, plus an applicable percentage, as defined. For purposes of the
offering adjustments, the eurodollar rate is estimated to be 5.6% and 5.3%
for the year ended December 31, 1998 and for the three months ended March
31, 1999, respectively. The rate approximates the average eurodollar rate
during such periods. Including the applicable margin percentage, the pro
forma interest rate for the year ended December 31, 1998 and for the three
months ended March 31, 1999 is 8.1% and 7.8%, respectively. A 1/8% variance
in eurodollar rates would change annual interest expense by approximately
$38. A commitment fee of .5% per annum is charged on the unused portion of
the credit facility.
If we do not complete the tender offer for the 11 1/4% Senior Subordinated
Notes but instead redeem $38,500 principal amount of the 11 1/4% Senior
Subordinated Notes at a redemption price of 111.25% of their principal
amount and repay $58,169 of term loans, the pro forma interest expense would
be $10,945 for the year ended December 31, 1998 and $2,879 for the three
months ended March 31, 1999. For every $10,000 reduction in principal amount
of the 11 1/4% Senior Subordinated Notes repurchased
27
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(IN THOUSANDS)
and increase in term loans repaid, interest expense on an annualized basis
for the year ended December 31, 1998 will be higher than that reflected in
the pro forma statement of income by approximately $200.
(i) Represents the adjustment of deferred financing cost amortization, as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
--------------------- -------------------
<S> <C> <C>
Amortization of additional deferred financing
costs.............................................. $ 39 $ 155
Elimination of amortization of deferred financing
costs related to the 11 1/4% Senior Subordinated
Notes.............................................. (112) (426)
--- -----
Net change....................................... $ (73) $ (271)
--- -----
--- -----
</TABLE>
(j) The pro forma statements of operations do not reflect non-cash extraordinary
expense of $5,375 and $5,060 for the write-off of previously capitalized
debt issuance costs for the year ended December 31, 1998 and for the three
months ended March 31, 1999, respectively, and a cash extraordinary expense
of $18,719 during both periods for prepayment costs assumed to have been
paid in connection with repurchase of all of the outstanding 11 1/4% Senior
Subordinated Notes. The extraordinary expense is assumed to be recorded net
of a tax benefit of approximately $8,433 and $8,323 during the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively.
The basic and diluted per share amounts of this extraordinary item for the
pro forma periods would be $.76 and $.74, respectively, for the year ended
December 31, 1998 and $.75 and $.73, respectively, for the three months
ended March 31, 1999. If the tender offer for the 11 1/4% Senior
Subordinated Notes is not completed and we instead redeem $38,500 in
principal amount of the 11 1/4% Senior Subordinated Notes and repay $58,169
of term loans, the non-cash extraordinary expense would be $2,675, the cash
extraordinary expense would be $4,331 and the tax benefit would be $2,452
for the year ended December 31, 1998.
(k) The average shares outstanding and per share amounts give effect to Generac
Portable Products's 1,250-for-1 stock split effective as of May 20, 1999 and
1.189-for-1 stock split effective as of May 28, 1999.
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Our selected historical financial information for July 10, 1998 through
December 31, 1998 and for the three months ended March 31, 1999 was derived
from, and should be read in conjunction with, our historical financial
statements, including the related notes, appearing elsewhere in this prospectus.
The selected historical financial information of our predecessor from January 1,
1998 through July 9, 1998, for the three months ended March 31, 1998 and for
each of the years in the two year period ended December 31, 1997 were derived
from, and should be read in conjunction with, the audited historical financial
statements of Generac Corporation's Portable Products Division, including the
related notes, appearing elsewhere in this prospectus. The selected historical
financial information for the years ended December 31, 1995 and 1994 has been
derived from our predecessor's unaudited financial statements and includes, in
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the data for such periods. The pro
forma financial information for the year ended December 31, 1998 was derived
from and should be read in conjunction with the "Unaudited Pro Forma
Consolidated Financial Information" appearing elsewhere in this prospectus. The
following table should also be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------------------------- ---------------
JULY 10, 1998
FOR THE YEAR ENDED DECEMBER 31, JANUARY 1, 1998 THROUGH
-------------------------------------------------- THROUGH DECEMBER 31,
1994(A) 1995 (A) 1996 1997 JULY 9, 1998 1998
------------- ------------- --------- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales................... $ 72.3 $ 104.8 $ 122.6 $ 178.0 $ 139.6 $ 136.9
Gross profit................ N/A N/A 27.3 46.9 35.0 38.6
Selling and service
expense................... N/A N/A 13.9 21.7 16.6 16.9
General and administrative
expense................... N/A N/A 4.4 4.2 2.4 2.9
Intangible asset
amortization.............. N/A N/A -- -- -- 2.5
Direct expenses (b)......... 69.1 98.5
------ ------ --------- --------- ------ ------
Income from operations...... N/A N/A 9.0 21.0 16.0 16.3
Interest expense............ N/A N/A 2.2 2.1 1.4 9.7
Deferred financing cost
amortization.............. N/A N/A -- -- -- .4
Other (income) expense...... N/A N/A -- .2 .1 (.2)
Income taxes (c)............ N/A N/A -- -- -- 2.2
Excess of revenues over
direct expenses (b)....... $ 3.2 $ 6.3
------ ------ --------- --------- ------ ------
Net income.................. N/A N/A $ 6.8 $ 18.7 $ 14.5 $ 4.2
------ ------ --------- --------- ------ ------
------ ------ --------- --------- ------ ------
Basic earnings per common
share..................... $ .33
Basic weighted average
common shares
outstanding............... 12.6
Diluted earnings per common
share..................... $ .33
Diluted weighted average
common shares
outstanding............... 12.8
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. N/A N/A $ 29.3 $ 40.5 $ 68.5 $ 57.5
Total assets................ N/A N/A 53.1 65.3 105.8 332.0
Divisional assets (d)....... N/A $ 57.4
Total debt, including
current portion........... N/A N/A -- -- -- 197.8
Stockholders' equity (e).... N/A N/A 41.6 52.8 81.9 103.3
OTHER FINANCIAL DATA:
EBITDA (f).................. N/A N/A $ 10.5 $ 22.3 $ 16.7 $ 20.0
Depreciation and
amortization.............. $ .9 $ 1.0 1.5 1.5 .8 3.9
Interest expense............ N/A N/A 2.2 2.1 1.4 9.7
Capital expenditures........ 5.9 4.0 2.3 1.4 1.6 3.8
CASH FLOW DATA:
Net cash provided by (used
in) operating
activities................ N/A N/A $ 17.3 $ 8.2 $ (13.6) $ 16.2
Net cash provided by (used
in) investing
activities................ N/A N/A (2.3) (1.4) (1.6) (3.8)
Net cash provided by (used
in) financing
activities................ N/A N/A (14.2) (6.8) 14.8 (11.5)
<CAPTION>
OFFERING PREDECESSOR COMPANY
PRO FORMA ------------- -------------
---------------
FOR THE THREE MONTHS ENDED
FOR THE YEAR
ENDED DECEMBER MARCH 31,
31, ----------------------------
1998 1998 1999
--------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales................... $ 276.4 $ 59.5 $ 92.9
Gross profit................ 73.8 15.1 24.1
Selling and service
expense................... 33.6 7.0 11.2
General and administrative
expense................... 5.3 1.0 2.0
Intangible asset
amortization.............. 5.3 -- 1.3
Direct expenses (b).........
------ ------ ------
Income from operations...... 29.6 7.1 9.6
Interest expense............ 10.1 .5 5.1
Deferred financing cost
amortization.............. .6 -- .2
Other (income) expense...... (.1) -- --
Income taxes (c)............ 6.6 -- 1.5
Excess of revenues over
direct expenses (b).......
------ ------ ------
Net income.................. $ 12.4 $ 6.6 $ 2.8
------ ------ ------
------ ------ ------
Basic earnings per common
share..................... $ .60 $ .22
Basic weighted average
common shares
outstanding............... 20.6 12.6
Diluted earnings per common
share..................... $ .59 $ .22
Diluted weighted average
common shares
outstanding............... 21.1 12.9
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. $ 58.3 $ 77.0
Total assets................ 91.2 370.2
Divisional assets (d).......
Total debt, including
current portion........... -- 214.7
Stockholders' equity (e).... 71.0 105.2
OTHER FINANCIAL DATA:
EBITDA (f).................. $ 7.4 $ 11.6
Depreciation and
amortization.............. $ 7.9 .3 2.2
Interest expense............ 10.1 .5 5.1
Capital expenditures........ 5.4 .5 1.9
CASH FLOW DATA:
Net cash provided by (used
in) operating
activities................ $ (11.1) $ (15.1)
Net cash provided by (used
in) investing
activities................ (.5) (1.9)
Net cash provided by (used
in) financing
activities................ 11.7 16.9
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
(a) During 1995, a dedicated manufacturing facility was completed to accommodate
the portable products business. In connection with its move to this new
facility, Generac Corporation began to separately identify the assets and
liabilities specific to its portable products business which enabled the
preparation of carve out financial statements as of and for the year ended
December 31, 1996, on a basis that includes certain estimates and
allocations that, in the opinion of management, are considered to be
reasonable. Prior to 1996, all financial information of our predecessor was
commingled with that of Generac Corporation and, therefore, Generac Portable
Products's selected data as of and for the years ended December 31, 1995 and
1994 are limited and certain historical financial data are not available.
(b) Direct expenses are those expenses that are directly related to the
revenue-producing activities of the Portable Products Division of Generac
Corporation.
30
<PAGE>
(c) Historically, our predecessor's taxable income was included in Generac
Corporation's taxable income. Generac Corporation and its stockholders
elected to be treated as an S Corporation for federal and certain state
income tax purposes. Accordingly, no provision for income taxes is included
in our predecessor's financial statements. Generac Portable Products has
been subject to state and federal income taxes since July 9, 1998.
(d) Divisional assets include property, plant and equipment, cash, accounts
receivable and inventories.
(e) Stockholders' equity represents business unit investment for all predecessor
periods shown and represents common stock, paid-in-capital, retained
earnings, accumulated other comprehensive income and excess of purchase
price over book value of net assets acquired from entities partially under
common control for periods subsequent to the acquisition of the Portable
Products Division of Generac Corporation.
(f) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measure of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating performance computed in accordance with generally accepted
accounting principles or as a substitute for operating income, net income,
cash flows from operations, or other statements of income or cash flow data
prepared in conformity with generally accepted accounting principles, or as
a measure of profitability or liquidity. In addition, EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA may not
be indicative of the historical operating results of Generac Portable
Products or our predecessor, nor is it meant to be predictive of future
results of operations or cash flows. See also the statement of cash flows
contained within the historical financial statements included elsewhere in
this document.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS, THE
NOTES TO OUR FINANCIAL STATEMENTS, AND THE OTHER FINANCIAL INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING
STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. SEE "RISK FACTORS."
REFERENCES TO "GENERAC PORTABLE PRODUCTS" MEANS GENERAC PORTABLE PRODUCTS, INC.
AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AND, AS THE CONTEXT REQUIRES,
GENERAC PORTABLE PRODUCTS'S PREDECESSOR. OUR "PREDECESSOR" REFERS TO THE
PORTABLE PRODUCTS DIVISION OF GENERAC CORPORATION.
OVERVIEW
We are a leading designer, manufacturer and marketer of engine-powered tools
for use in both consumer and commercial applications. In 1998, we generated
$276.4 million in net sales, $29.6 million in pro forma operating income and
$37.0 million in pro forma EBITDA. In 1998, domestic sales of portable
generators represented 52.7% of net sales and domestic sales of pressure washers
represented 36.5% of net sales. We have experienced strong growth from 1996
through 1998 (pro forma), with net sales increasing at a compounded annual
growth rate of 50%, operating income increasing at a rate of 81% and EBITDA
increasing at a rate of 88%.
The table below sets forth our results of operations for the periods
indicated. Included in the table is a presentation of EBITDA which represents
earnings before interest, taxes, depreciation and amortization. EBITDA is a
widely recognized financial indicator of a company's ability to service or incur
debt. EBITDA is not a measure of operating performance computed in accordance
with generally accepted accounting principles and should not be considered as a
substitute for operating performance computed in accordance with generally
accepted accounting principles or as a substitute for operating income, net
income, cash flows from operations, or other statement of operations or cash
flow data prepared in accordance with generally accepted accounting principles,
or as a measure of profitability or liquidity. In addition, EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA may not be
indicative of our historical operating results or our predecessor's, nor is it
meant to be predictive of future results of operations or cash flows. See also
the statement of cash flows contained within the historical financial statements
included elsewhere in this document.
<TABLE>
<CAPTION>
ACQUISITION
PREDECESSOR PRO FORMA
------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 % OF SALES 1997 % OF SALES 1998 % OF SALES
------------- ----------- ------------- ----------- ------------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. $ 122.6 100.0% $ 178.0 100.0% $ 276.4 100.0%
Gross profit............................... 27.3 22.3 46.9 26.3 73.8 26.7
Operating expenses
Selling and service...................... 13.9 11.3 21.7 12.2 33.6 12.2
General and administrative............... 4.4 3.6 4.2 2.3 5.3 1.9
Intangible asset amortization............ -- -- -- -- 5.3 1.9
------ ----- ------ ----- ------ -----
Total operating expenses................... 18.3 14.9 25.9 14.5 44.2 16.0
Operating income........................... 9.0 7.4 21.0 11.8 29.6 10.7
Net income................................. 6.8 5.5 18.7 10.5 5.8 2.1
EBITDA..................................... 10.5 8.6 22.3 12.5 37.0 13.4
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION
PREDECESSOR PRO FORMA
-------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1,
SIX MONTHS SIX MONTHS 1998 SIX MONTHS
ENDED ENDED THROUGH ENDED
JUNE 30, % OF DECEMBER % OF JULY 9, % OF DECEMBER
1997 SALES 31, 1997 SALES 1998 SALES 31, 1997
------------- ----- ------------- ----- ----------- ----- ---------------
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 98.8 100.0% $ 79.2 100.0% $ 139.6 100.0% $ 79.2
Gross profit.................. 24.4 24.7 22.5 28.4 35.0 25.1 22.6
Operating expenses:
Selling and service......... $ 10.8 11.0% $ 10.9 13.7% $ 16.6 11.9% $ 10.9
General and
administrative............ 2.0 2.0 2.2 2.8 2.4 1.7 2.2
Intangible asset
amortization.............. -- -- -- -- -- -- 2.7
----- ----- ----- ----- ----------- ----- -----
Total operating expenses...... 12.8 13.0 13.1 16.5 19.0 13.6 15.8
Operating income.............. 11.6 11.7 9.4 11.9 16.0 11.5 6.8
Net income.................... 10.4 10.5 8.3 10.5 14.5 10.4 (2.4)
EBITDA........................ 12.2 12.3 10.1 12.8 16.7 12.0 10.3
<CAPTION>
COMPANY PREDECESSOR COMPANY
---------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE THREE
JULY 10, 1998 MONTHS MONTHS
THROUGH ENDED ENDED
% OF DECEMBER 31, % OF MARCH 31, % OF MARCH 31, % OF
SALES 1998 SALES 1998 SALES 1999 SALES
----- --------------- ----- ------------- ----- ------------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... 100.0% $ 136.9 100.0% $ 59.5 100.0% $ 92.9 100.0%
Gross profit.................. 28.5 38.6 28.2 15.1 25.4 24.1 25.9
Operating expenses:
Selling and service......... 13.7% $ 16.9 12.4% $ 7.0 11.8% $ 11.2 12.0%
General and
administrative............ 2.8 2.9 2.1 1.0 1.7 2.0 2.2
Intangible asset
amortization.............. 3.4 2.5 1.8 -- -- 1.3 1.4
----- ------ ----- ----- ----- ----- -----
Total operating expenses...... 19.9 22.3 16.3 8.0 13.5 14.5 15.6
Operating income.............. 8.6 16.3 11.9 7.1 11.9 9.6 10.3
Net income.................... (3.0) 4.2 3.1 6.6 11.1 2.8 3.0
EBITDA........................ 13.0 20.0 14.6 7.4 12.4 11.6 12.5
</TABLE>
We sell our portable generators, pressure washers and other products
primarily to home center chains, mass merchants and warehouse clubs as well as
to independent dealers. Our three largest customers, Home Depot, Sears and
Costco, accounted for approximately 74% of our sales for 1998 and 1997. Our
international sales represented approximately 8% of our total sales in 1998.
Cost of sales consists of the cost of engines and raw materials and costs to
manufacture and package our products. These costs may vary based on the volume
of production for any given period. Historically, physical inventories have been
taken during the fourth quarter to supplement our count procedures during the
year. As a result, cost of sales and gross margins may be affected by
adjustments recorded after physical inventories to reflect variances between
actual and estimated costs. Operating expenses consist of costs incurred to sell
and distribute our products, including volume, promotional and other sales
incentives, shipping, commissions and warranty costs. These costs are impacted
by sales volume as other sales and service support costs, including personnel
and training, research and development costs and general and administrative
costs are usually not impacted by incremental volume changes in the short run.
Our business dates back to 1959, when we were part of Generac Corporation.
In 1997, we became a separately identifiable division of Generac Corporation
with separate financial reporting. The financial statements for 1996 present our
results of operations and cash flows separated from those of Generac
Corporation, based on estimates and allocations made by management. Generac
Portable Products, Inc. was formed on April 29, 1998 as a Delaware corporation.
The primary business activity of Generac Portable Products, Inc. consists of its
indirect ownership of 100% of the limited liability company interests in Generac
Portable Products, LLC, a Delaware limited liability company.
On July 9, 1998, Generac Portable Products, LLC acquired the production,
marketing, sales, engineering, research and development (and in the U.K., Spain
and Germany, importation) and administrative operations of Generac Corporation's
Portable Products Division located at its facilities in Wisconsin, England,
Spain and Germany. The purchase price was $314.2 million in cash, including $8.7
million in fees and expenses, after post-closing adjustments estimated to total
$1.0 million. This was funded primarily through the issuance of $110.0 million
of 11 1/4% Senior Subordinated Notes, borrowings of $94.2 million under a new
bank credit facility and the issuance of $110.0 million of common stock of
Generac Portable Products, Inc., constituting 100% of the outstanding Generac
Portable Products, Inc. common stock, to Beacon, members of management and other
investors.
As a result of purchase accounting in connection with the acquisition,
goodwill of approximately $214 million was recorded, which is being amortized on
a straight-line basis over a period of 40 years. In addition, since the
acquisition, our net income has been affected by an increase in interest expense
as a result of our borrowings in connection with the acquisition, including the
sale of our notes. We intend to apply the net proceeds of this offering,
together with borrowings under an amended credit facility, to repurchase all of
our notes. As a result, an extraordinary expense net of a tax benefit of
approximately $15.5 million will be recorded in the period in which the
repurchase of our notes occurs. If we do not
33
<PAGE>
complete the repurchase of all of our notes, but instead redeem $38.5 million
principal amount of our notes at a redemption price of 111.25% of their
principal amount and repay $58.2 million of term loans, the extraordinary
expense net of a tax benefit will be approximately $4.6 million.
The discussion of our results for the year ended December 31, 1998 combines
the results of the predecessor for the period from January 1, 1998 through July
9, 1998 with our results for the period from July 10, 1998 through December 31,
1998. As a result of the use of purchase accounting for the acquisition, our
results since July 10, 1998 reflect increased goodwill and intangible asset
amortization. In addition, borrowings incurred in connection with the
acquisition have increased interest expense since July 10, 1998. Accordingly,
our results are not comparable with those of our predecessor in all material
respects.
Prior to July 10, 1998, our taxable income was included in Generac
Corporation's taxable income. Generac Corporation and its stockholders elected
to be treated as an S Corporation for federal and state income tax purposes.
Accordingly, no provision for income taxes is included in our financial
statements for periods prior to July 10, 1998. We have been subject to state and
federal income taxes since July 10, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 (NEW BASIS) COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998 (PREDECESSOR BASIS)
NET SALES. Net sales increased $33.4 million, or 56.1%, to $92.9 million
for the three months ended March 31, 1999 from $59.5 million for the three
months ended March 31, 1998.
Domestic sales of portable generators increased $22.7 million, or 80.5%, to
$50.9 million for the three months ended March 31, 1999 from $28.2 million for
the three months ended March 31, 1998. This increase was reflective of our
customers' continued strong demand following storm activity in 1998.
Additionally, a portion of the increased demand may relate to consumer concerns
relating to possible Year 2000 power outages.
Domestic sales of pressure washers increased $10.2 million, or 43.4%, to
$33.7 million for the three months ended March 31, 1999 from $23.5 million for
the three months ended March 31, 1998. This increase was reflective of expanded
pressure washer product offerings by Sears.
International and other sales increased $.5 million, or 6.4%, to $8.3
million for the three months ended March 31, 1999 from $7.8 million for the
three months ended March 31, 1998. This increase was reflective of increased
domestic sales of service parts and accessories to support both main product
categories.
GROSS PROFIT. Gross profit increased $9.0 million, or 59.6%, to $24.1
million for the three months ended March 31, 1999 from $15.1 million for the
three months ended March 31, 1998. This increase was reflective of increased
overall sales as described above and improved gross profit margins due to a
greater mix of higher margin generators, partially offset by higher costs
incurred for certain engines. Gross profit margin increased slightly to 25.9%
for the three months ended March 31, 1999 from 25.4% for the three months ended
March 31, 1998.
OPERATING EXPENSES. Operating expenses increased $6.5 million, or 81.3%, to
$14.5 million for the three months ended March 31, 1999 from $8.0 million for
the three months ended March 31, 1998.
Selling and service expenses increased $4.2 million, or 60.0%, to $11.2
million for the three months ended March 31, 1999 from $7.0 million for the
three months ended March 31, 1998. This increase was directly attributable to an
increase in selling and distribution costs that are impacted by sales volume and
increases in sales force personnel, promotional expenses for new pressure washer
product offerings, and incentives for sales into home centers in Germany.
Selling and service expenses increased to 12.0% of net sales for the three
months ended March 31, 1999 from 11.8% for the three months ended March 31,
1998.
34
<PAGE>
General and administrative expenses increased $1.0 million, or 100.0%, to
$2.0 million for the three months ended March 31, 1999 from $1.0 million for the
three months ended March 31, 1998. This increase was reflective of increases in
personnel to support research and development initiatives, improve the
management information system infrastructure and support certain finance,
accounting and human resource functions which had previously been shared with
Generac Corporation. Additionally, during 1999 we incurred training costs
related to our new business software implementation. General and administrative
expenses increased to 2.2% of net sales for the three months ended March 31,
1999 from 1.7% for the three months ended March 31, 1998.
During the three months ended March 31, 1999, Generac Portable Products
recognized $1.3 million in intangible asset amortization, resulting from the
effects of the acquisition of the Portable Products Division of Generac
Corporation. No amortization expense was recognized during the three months
ended March 31, 1998.
NET INCOME. Net income decreased $3.8 million, or 57.6%, to $2.8 million
for the three months ended March 31, 1999 from $6.6 million for the three months
ended March 31, 1998. This decrease in net income was primarily due to increases
in certain expenses resulting from the effects of the acquisition of the
Portable Products Division of Generac Corporation, including an increase in
interest expense of $4.6 million, intangible asset and deferred financing cost
amortization totaling $1.5 million and a provision for income tax of $1.5
million. The decrease was partially offset by an increase in operating income,
net of intangible asset amortization, of $3.8 million, resulting primarily from
the increase in sales volume. As a percentage of sales, net income decreased to
3.0% for the three months ended March 31, 1999 from 11.1% for the three months
ended March 31, 1998.
EBITDA. EBITDA increased $4.2 million, or 56.8%, to $11.6 million for the
three months ended March 31, 1999 from $7.4 million for the three months ended
March 31, 1998. This increase was due to the increased sales volume and improved
gross margins as described above. As a percentage of sales, EBITDA increased
slightly to 12.5% for the three months ended March 31, 1999 from 12.4% for the
three months ended March 31, 1998.
YEAR ENDED DECEMBER 31, 1998 (PRO FORMA) COMPARED TO YEAR ENDED DECEMBER 31,
1997 (PREDECESSOR BASIS)
NET SALES. Net sales increased $98.4 million, or 55.3%, to $276.4 million
for 1998 pro forma from $178.0 million for 1997.
Domestic sales of portable generators increased $55.5 million, or 61.5%, to
$145.8 million for 1998 pro forma from $90.3 million for 1997. This increase was
reflective of store growth for existing customers and strong overall consumer
demand due to winter and summer storm activity.
Domestic sales of pressure washers increased $31.6 million, or 45.6%, to
$100.9 million for 1998 pro forma from $69.3 million for 1997. This increase was
reflective of store growth for existing customers and expanded pressure washer
product offerings to Home Depot.
International and other sales increased $11.3 million, or 61.4%, to $29.7
million for 1998 pro forma from $18.4 million for 1997. This increase was
primarily due to increased penetration into home center accounts in Germany and
the United Kingdom.
GROSS PROFIT. Gross profit increased $26.9 million, or 57.4%, to $73.8
million for 1998 pro forma from $46.9 million for 1997. This increase was
primarily due to increased sales volume as described above and improved gross
margins. Gross profit margin increased to 26.7% in 1998 pro forma from 26.3% in
1997 as a result of the improved mix of higher margin generator sales and
improved gross margins for international sales offset in part by lower margin
pressure washer sales.
35
<PAGE>
OPERATING EXPENSES. Operating expenses increased $18.3 million, or 70.7%,
to $44.2 million for 1998 pro forma from $25.9 million for 1997.
Selling and service expenses increased $11.9 million, or 54.8%, to $33.6
million for 1998 pro forma from $21.7 million for 1997. This increase was
attributable to increased sales activity as described above combined with
increased selling and distribution expenses related to the shift of domestic
sales distribution into national home center markets, and increased sales
distribution costs into German home centers. The higher volume, promotional and
other sales incentives which were incurred for home centers were offset by
improved coverage of selling and service support costs; accordingly, as a
percentage of sales, selling and service expenses remained consistent at 12.2%
for 1998 pro forma and 1997.
General and administrative expenses increased $1.1 million, or 26.2%, to
$5.3 million for 1998 pro forma from $4.2 million for 1997. This increase was
required to support the increased sales volume and related production activity.
General and administrative expenses decreased to 1.9% of net sales for 1998 pro
forma from 2.3% for 1997.
During 1998 pro forma, Generac Portable Products recognized $5.3 million in
goodwill and other intangible asset amortization, resulting from the effects of
the acquisition of the Portable Products Division of Generac Corporation. No
amortization expense was recognized during 1997.
NET INCOME. Net income decreased $12.9 million, or 69.0%, to $5.8 million
for 1998 pro forma from $18.7 million for 1997. This decrease in net income was
primarily due to increases in certain expenses resulting from effects of the
acquisition of the Portable Products Division of Generac Corporation including
interest expense; amortization of goodwill, deferred financing costs and other
intangibles assets; and provision for income taxes. These expenses decreased
1998 pro forma net income by an additional $27.1 million (9.8% as a percentage
of sales--a $17.9 million increase in interest expense, a $6.1 million increase
in intangible assets and deferred amortization and a $3.1 million increase in
income tax expense) as compared to 1997. As a percentage of sales, net income
decreased to 2.1% in 1998 pro forma from 10.5% in 1997.
EBITDA. EBITDA increased $14.7 million, or 65.9%, to $37.0 million in 1998
pro forma from $22.3 million for 1997. This increase was primarily due to
increased sales volume and improved gross margins as described above. As a
percentage of sales, EBITDA increased to 13.4% in 1998 pro forma from 12.5% in
1997.
JULY 10, 1998 THROUGH DECEMBER 31, 1998 (NEW BASIS) COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1997 (PRO FORMA)
NET SALES. Net sales increased $57.7 million, or 72.9%, to $136.9 million
for the period July 10, 1998 through December 31, 1998 from $79.2 million for
the pro forma six months ended December 31, 1997.
Domestic sales of portable generators increased $37.5 million, or 75.5%, to
$87.2 million for the period July 10, 1998 through December 31, 1998 from $49.7
million for the pro forma six months ended December 31, 1997. This increase was
primarily due to strong demand from existing customers resulting from summer
storm activity and general increased consumer awareness of the availability,
utility and economic feasibility of the product.
Domestic sales of pressure washers increased $15.6 million, or 75.0%, to
$36.4 million for the period July 10, 1998 through December 31, 1998 from $20.8
million for the pro forma six months ended December 31, 1997. This increase was
reflective of store growth for existing customers and expanded pressure washer
product offerings to Home Depot.
International and other sales increased $4.6 million, or 52.9%, to $13.3
million for the period July 10, 1998 through December 31, 1998 from $.7 million
for the pro forma six months ended December 31, 1997.
36
<PAGE>
This increase was primarily due to increased penetration into home center
accounts in Germany and the United Kingdom.
GROSS PROFIT. Gross profit increased $16.0 million, or 70.8%, to $38.6
million for the period July 10, 1998 through December 31, 1998 from $22.6
million for the pro forma six months ended December 31, 1997. This increase was
primarily due to increased sales volume as described above. Gross profit margin
decreased slightly to 28.2% for the period July 10, 1998 through December 31,
1998 from 28.5% for the pro forma six months ended December 31, 1997 as a result
of reduced gross margins on international sales due to heavy promotional pricing
into German home centers.
OPERATING EXPENSES. Operating expenses increased $6.5 million, or 41.1%, to
$22.3 million for the period July 10, 1998 through December 31, 1998 from $15.8
million for the pro forma six months ended December 31, 1997.
Selling and service expenses increased $6.0 million, or 55.0%, to $16.9
million for the period July 10, 1998 through December 31, 1998 from $10.9
million for the pro forma six months ended December 31, 1997. This increase was
attributable to increased sales volume as described above. This increase was
primarily a result of increased selling and distribution expenses related to the
shift of domestic sales distribution into national home center markets, and
increased sales distribution costs into German home centers. The higher volume,
promotional and other sales incentives which were incurred for home centers were
offset by improved coverage of selling and service support costs; accordingly,
as a percentage of sales, selling and service expenses decreased to 12.4% of net
sales for the period July 10, 1998 through December 31, 1998 from 13.7% for the
pro forma six months ended December 31, 1997.
General and administrative expenses increased $.7 million, or 31.8%, to $2.9
million for the period July 10, 1998 through December 31, 1998 from $2.2 million
for the pro forma six months ended December 31, 1997. This increase was required
to support the increased sales volume described above, and to support certain
finance, accounting and human resource functions which had previously been
shared with Generac Corporation. General and administrative expenses decreased
to 2.1% of net sales for the period July 10, 1998 through December 31, 1998 from
2.8% for the pro forma six months ended December 31, 1997.
NET INCOME. Net income increased $6.6 million for the period July 10, 1998
through December 31, 1998 to $4.2 million from a $2.4 million net loss for the
pro forma six months ended December 31, 1997. This increase was primarily due to
the availability of operating earnings from the increased sales volume to cover
certain fixed charges including interest expense; amortization of goodwill,
deferred financing costs, and other intangibles; and other operating expenses.
As a percentage of sales, net income increased to 3.1% for the period July 10,
1998 through December 31, 1998 from a net loss of 3.0% for the pro forma six
months ended December 31, 1997.
EBITDA. EBITDA increased $9.7 million or 94.2% to $20.0 million for the
period July 10, 1998 through December 31, 1998 from $10.3 million for the pro
forma six months ended December 31, 1997. This increase was due to the increased
sales volume and improved coverage of fixed operating expenses as described
above. As a percentage of sales, EBITDA increased to 14.6% for the period July
10, 1998 through December 31, 1998 from 13.0% for the pro forma six months ended
December 31, 1997.
JULY 10, 1998 THROUGH DECEMBER 31, 1998 (NEW BASIS) COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1997 (PREDECESSOR)
NET SALES. Net sales increased $57.7 million, or 72.9%, to $136.9 million
for the period July 10, 1998 through December 31, 1998 from $79.2 million for
the six months ended December 31, 1997.
Domestic sales of portable generators increased $37.5 million, or 75.5%, to
$87.2 million for the period July 10, 1998 through December 31, 1998 from $49.7
million for the six months ended December 31, 1997. This increase was primarily
due to strong demand from existing customers resulting
37
<PAGE>
from summer storm activity and general increased consumer awareness of the
availability, utility and economic feasibility of the product.
Domestic sales of pressure washers increased $15.6 million, or 75.0%, to
$36.4 million for the period July 10, 1998 through December 31, 1998 from $20.8
million for the six months ended December 31, 1997. This increase was reflective
of store growth for existing customers and expanded pressure washer product
offerings to Home Depot.
International and other sales increased $4.6 million, or 52.9%, to $13.3
million for the period July 10, 1998 through December 31, 1998 from $.7 million
for the six months ended December 31, 1997. This increase was primarily due to
increased penetration into home center accounts in Germany and the United
Kingdom.
GROSS PROFIT. Gross profit increased $16.1 million, or 71.6%, to $38.6
million for the period July 10, 1998 through December 31, 1998 from $22.5
million for the six months ended December 31, 1997. This increase was primarily
due to increased sales volume as described above. Gross profit margin decreased
slightly to 28.2% for the period July 10, 1998 through December 31, 1998 from
28.4% for the six months ended December 31, 1997 as a result of reduced gross
margins on international sales due to heavy promotional pricing into German home
centers.
OPERATING EXPENSES. Operating expenses increased $9.2 million, or 70.2%, to
$22.3 million for the period July 10, 1998 through December 31, 1998 from $13.1
million for the six months ended December 31, 1997.
Selling and service expenses increased $6.0 million, or 55.0%, to $16.9
million for the period July 10, 1998 through December 31, 1998 from $10.9
million for the six months ended December 31, 1997. This increase was
attributable to increased sales volume as described above. This increase was
primarily a result of increased selling and distribution expenses related to the
shift of domestic sales distribution into national home center markets, and
increased sales distribution costs into German home centers. The higher volume,
promotional and other sales incentives which were incurred for home centers were
offset by improved coverage of selling and service support costs; accordingly,
as a percentage of sales, selling and service expenses decreased to 12.4% of net
sales for the period July 10, 1998 though December 31, 1998 from 13.7% for the
six months ended December 31, 1997.
General and administrative expenses increased $.7 million, or 31.8%, to $2.9
million for the period July 10, 1998 though December 31, 1998 from $2.2 million
for the six months ended December 31, 1997. This increase was required to
support the increased sales volume described above, and to support certain
finance, accounting and human resource functions which had previously been
shared with Generac Corporation. General and administrative expenses decreased
to 2.1% of net sales for the period July 10, 1998 through December 31, 1998 from
2.8% for the six months ended December 31, 1997.
During the period July 10, 1998 through December 31, 1998, Generac Portable
Products recognized $2.5 million in goodwill and other intangible asset
amortization, resulting from the effects of the acquisition of the Portable
Products Division of Generac Corporation. No amortization expense was recognized
during the six months ended December 31, 1997.
NET INCOME. Net income decreased $4.1 million for the period July 10, 1998
through December 31, 1998 to $4.2 million from $8.3 million for the six months
ended December 31, 1997. This decrease in net income was primarily due to
increases in certain expenses resulting from the effects of the acquisition of
the Portable Products Division of Generac Corporation, including an increase in
interest expense of $8.6 million, intangible asset and deferred financing cost
amortization totaling $2.9 million and a provision for income tax of $2.2
million. The decrease was partially offset by an increase in operating income,
excluding intangible asset amortization, of $9.4 million, resulting primarily
from the increase in sales volume and improved coverage of fixed operating
expenses as described above. As a percentage of sales,
38
<PAGE>
net income decreased to 3.1% for the period July 10, 1998 through December 31,
1998 from 10.5% for the six months ended December 31, 1997.
EBITDA. EBITDA increased $9.9 million or 98.0% to $20.0 million for the
period July 10, 1998 through December 31, 1998 from $10.1 million for the six
months ended December 31, 1997. This increase was due to the increased sales
volume and improved coverage of fixed operating expenses as described above. As
a percentage of sales, EBITDA increased to 14.6% for the period July 10, 1998
through December 31, 1998 from 12.8% for the six months ended December 31, 1997.
JANUARY 1, 1998 THROUGH JULY 9, 1998 (PREDECESSOR BASIS) COMPARED TO SIX
MONTHS ENDED JUNE 30, 1997 (PREDECESSOR BASIS)
NET SALES. Net sales increased $40.8 million, or 41.3%, to $139.6 million
for the period January 1, 1998 through July 9, 1998 from $98.8 million for the
six months ended June 30, 1997.
Domestic sales of portable generators increased $18.0 million, or 44.3%, to
$58.6 million for the period January 1, 1998 through July 9, 1998 from $40.6
million for the six months ended June 30, 1997. This increase was primarily due
to product placements into new home center accounts and strong sales to
customers located in the northeastern United States and Canada following the
winter 1998 ice storm and subsequent prolonged power outages.
Domestic sales of pressure washers increased $16.0 million, or 33.0%, to
$64.5 million for the period January 1, 1998 through July 9, 1998 from $48.5
million for the six months ended June 30, 1997. This increase was primarily due
to product placements into new home center accounts and the expansion of
pressure washer offerings to Home Depot.
International and other sales increased $6.8 million, or 70.1%, to $16.5
million for the period January 1, 1998 through July 9, 1998 from $9.7 million
for the six months ended June 30, 1997. This increase was primarily due to
increased penetration into German home center accounts and increased sales
experienced in the parts and accessories market.
GROSS PROFIT. Gross profit increased $10.6 million, or 43.4%, to $35.0
million for the period January 1, 1998 through July 9, 1998, from $24.4 million
for the six months ended June 30, 1997. This increase was primarily due to
increased sales volume as described above and improved gross margins. Gross
profit margin increased to 25.1% for the period January 1, 1998 through July 9,
1998, from 24.7% for the six months ended June 30, 1997, as a result of the
improved mix of higher margin generator sales versus lower margin pressure
washer sales.
OPERATING EXPENSES. Operating expenses increased $6.2 million, or 48.4%, to
$19.0 million for the period January 1, 1998 through July 9, 1998, from $12.8
million for the six months ended June 30, 1997.
Selling and service expenses increased $5.8 million, or 53.7%, to $16.6
million for the period January 1, 1998 through July 9, 1998 from $10.8 million
for the six months ended June 30, 1997. This increase was attributable to
increased sales volume as described above. This increase was primarily a result
of increased selling and distribution expenses related to the shift of domestic
sales distribution into national home center markets. Home centers typically
command higher volume, promotional and other sales incentives. Selling and
service expenses increased to 11.9% of net sales for the period January 1, 1998
through July 9, 1998 from 11.0% for the six months ended June 30, 1997.
General and administrative expenses increased $.4 million, or 20.0%, to $2.4
million for the period January 1, 1998 through July 9, 1998 from $2.0 million
for the six months ended June 30, 1997. This increase was required to support
the increased sales volume described above. General and administrative expenses
decreased to 1.7% of net sales for the period January 1, 1998 through July 9,
1998 from 2.0% for the six months ended June 30, 1997.
39
<PAGE>
NET INCOME. Net income increased $4.1 million, or 39.4%, to $14.5 million
for the period January 1, 1998 through July 9, 1998, from $10.4 million for the
six months ended June 30, 1997. This increase was primarily due to increased
sales volume and improved gross margins, offset by increased operating expenses
as described above. As a percentage of sales, net income decreased to 10.4% for
the period January 1, 1998 through July 9, 1998, from 10.5% for the six months
ended June 30, 1997.
EBITDA. EBITDA increased $4.5 million, or 36.9%, to $16.7 million for the
period January 1, 1998 through July 9, 1998, from $12.2 million for the six
months ended June 30, 1997. This increase was primarily due to increased sales
volume and improved gross margins, offset by increased operating expenses as
described above. As a percentage of sales, EBITDA decreased to 12.0% for the
period January 1, 1998 through July 9, 1998, from 12.3% for the six months ended
June 30, 1997.
YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR BASIS) COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 (PREDECESSOR BASIS)
NET SALES. Net sales increased $55.4 million, or 45.2%, to $178.0 million
for 1997 from $122.6 million for 1996.
Domestic sales of portable generators increased $27.7 million, or 44.2%, to
$90.3 million for 1997 from $62.6 million for 1996. This increase was primarily
due to increased sales volume of higher value overhead valve industrial engine
driven generators into Home Depot.
Domestic sales of domestic pressure washers increased $26.2 million, or
60.8%, to $69.3 million for 1997 from $43.1 million for 1996. This increase was
primarily due to the improved sales to Sears and expansion of product offerings
into other home center accounts.
Sales of portable generators to international markets and other items
increased $1.5 million, or 8.9%, to $18.4 million for 1997 from $16.9 million
for 1996.
GROSS PROFIT. Gross profit increased $19.6 million, or 71.8%, to $46.9
million for 1997 from $27.3 million for 1996. This increase was primarily due to
increased sales volume as described above and improved gross margins. Gross
profit margin increased to 26.3% in 1997 from 22.3% in 1996 as a result of the
migration into higher margin portable generator products, improved mix of sales
distribution, continued product cost reductions for both generator and pressure
washer product lines, and overall product cost improvements due to
diversification of worldwide supply arrangements.
OPERATING EXPENSES. Operating expenses increased $7.6 million, or 41.5%, to
$25.9 million for 1997 from $18.3 million for 1996.
Selling and service expenses increased $7.8 million, or 56.1%, to $21.7
million for 1997 from $13.9 for 1996. This increase was attributable to
increased sales volume as described above. This increase was primarily a result
of increased selling and distribution expenses related to the shift of domestic
sales distribution into national home center markets. Home centers typically
command higher volume, promotional and other sales incentives. In addition, $2.8
million in incremental warranty costs were incurred related to the launch of new
pressure washer products. Selling and service expenses increased to 12.2% of net
sales for 1997 from 11.3% for 1996.
General and administrative expenses decreased $.2 million, or 4.5%, to $4.2
million for 1997 from $4.4 million for 1996. This decrease is attributable to a
$.8 million decrease in research and development costs due to the development of
the pressure washer pump in 1996. This decrease was partially offset by an
increase in general and administrative expenses required to support the
increased sales volume described above. General and administrative expenses
decreased to 2.3% of net sales for 1997 from 3.6% for 1996.
NET INCOME. Net income increased $11.9 million, or 175.0%, to $18.7 million
for 1997 from $6.8 million for 1996. This increase was primarily due to
increased sales volume and improved gross
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margins as described above. As a percentage of sales, net income increased to
10.5% in 1997 from 5.5% in 1996.
EBITDA. EBITDA increased $11.8 million, or 112.4%, to $22.3 million in 1997
from $10.5 million in 1996. This increase was primarily due to increased sales
volume and improved gross margins as described above. As a percentage of sales,
EBITDA increased to 12.5% in 1997 from 8.6% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our predecessor historically met its working capital needs and capital
expenditure requirements through a combination of operating cash flow and
availability under a revolving credit agreement maintained by, and industrial
revenue bonds supported by, Generac Corporation.
Since the acquisition of the Portable Products Division of Generac
Corporation, our principal sources of liquidity have been cash flow generated
from operations and the $30.0 million revolving credit portion of our credit
facility. See "Description of the Amended Credit Facility and the Indenture"
later in this Prospectus. Our principal uses of liquidity are debt service
requirements, capital expenditures and working capital.
We incurred substantial indebtedness in connection with the acquisition of
the Portable Products Division of Generac Corporation. Following this
acquisition, we had approximately $209.2 million of combined indebtedness
outstanding. After giving effect to the offering and use of net proceeds
together with the funds under the amended credit facility to repurchase all of
our outstanding 11 1/4% Senior Subordinated Notes, we will have approximately
$134.7 million of combined indebtedness outstanding. See "Use of Proceeds." Our
ability to make scheduled payments of principal, to pay the interest on our
indebtedness, or to fund planned capital expenditures, will depend upon our
future performance, which in turn is subject to general economic, financial,
competitive and other factors that are beyond our control. Based upon the
current level of operations and anticipated growth, we believe that future cash
flow from operations, together with available borrowings under our credit
facility, will be adequate to meet our anticipated requirements for capital
expenditures, working capital, interest payments and scheduled principal
payments through the expiration of our revolving credit agreement in 2003. There
can be no assurance, however, that our business will continue to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures after satisfying certain liabilities arising in
the ordinary course of business. If we are unable to generate sufficient cash
flow, we may be required to delay necessary capital expenditures, refinance all
or a portion of our existing debt, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
available or that any such sales of assets or additional financing could be
obtained. See "Risk Factors--We Will Continue to Have Substantial Debt After the
Offering Which Could Adversely Affect Us" and "--We May Not Repurchase All of
Our 11 1/4% Senior Subordinated Notes."
Cash provided by operating activities totaled $16.2 million for the period
July 10, 1998 through December 31, 1998 and cash used for operating activities
totaled $13.6 million for the period January 1, 1998 through July 9, 1998. This
increase in cash generated from operations during the second half of 1998
resulted primarily from seasonal factors related to sales of pressure washers in
which our level of receivables is typically highest during the second quarter of
the year as compared to other quarters. Cash provided by operating activities
totaled $8.2 million for the year ended December 31, 1997 as compared to $17.3
million for the year ended December 31, 1996. This decrease in cash generated
from operating activities was primarily a result of a reduction in inventory
during 1996 and the subsequent build-up of inventory during 1997 to support
increased sales activity.
Our capital expenditures were $5.4 million, $1.4 million and $2.3 million in
1998, 1997, and 1996, respectively. The 1998 capital expenditures related
primarily to plant expansions at our facilities, production machinery and
equipment and software. In an economic downturn, we believe we will be able to
adjust the amount spent on capital expenditures without compromising the base
requirements of our
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operations. We expect to spend approximately $12.0 million in 1999 for various
capital projects, including increased capacity through plant expansion, cost
improvement and quality enhancement initiatives, administrative offices
expansion, and updating management information systems. We spent approximately
$1.9 million, $1.7 million and $2.5 million in 1998, 1997 and 1996,
respectively, on research and development.
SEASONALITY
Sales of certain of our products are subject to seasonal variation. Due to
seasonal and regional weather factors, sales of pressure washers and related
working capital requirements are typically higher during the second quarter than
at other times of the year. The residential and commercial construction markets
are sensitive to cyclical changes in the economy.
RAW MATERIAL COSTS AND INFLATION
The rate of inflation over recent years has been relatively low and has not
had a significant effect on our results of operations. Approximately 43% to 47%
of our cost of goods sold relate to small gasoline engines which have not been
subject to material price fluctuations. We purchase steel, copper, paperboard,
and plastics from various suppliers. While all such materials are available from
numerous independent suppliers, commodity raw materials are subject to price
fluctuations.
YEAR 2000
Many currently installed computer systems and software products use two
digits rather than four to define the applicable year. Date-sensitive software
using two-digit years may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in systems failures or miscalculations
causing disruptions of our operations. We are continuing a process of making all
necessary software changes to ensure that we do not experience any loss of
critical business functionality due to the Year 2000 issue. We have adopted and
are implementing a three phase approach of assessment, correction and testing.
The scope of the project includes all internal software, hardware, operating
systems, non-information technology systems, products and assessment of risk to
the business from vendors and other parties' Year 2000 issues. We have completed
the assessment phase relating to our internal software, hardware and other
operating systems and are currently in the correction and testing phases. We are
completing our assessment of the non-information technology systems and the risk
to the business from vendors and other parties. We believe that this formal
assessment (including prioritization by business risk), correction (including
conversions to new software), and testing of necessary changes will minimize the
business risk of Year 2000 from internal systems.
Although we have not yet fully completed our Year 2000 project, management
estimates that approximately 40% of our information sub-systems are currently
Year 2000 ready. The balance of our systems are currently being modified or
replaced, with all significant systems targeted for Year 2000 readiness by
September 1, 1999. The need for contingency plans will be evaluated as this
target date approaches. In most instances, we have replaced, or are in the
process of replacing, older software with new programs and systems, rather than
modifying existing systems solely to become Year 2000 ready. In this regard, we
are currently in the process of installing a new enterprise resource planning
system, which will be Year 2000 compliant. Replacing these systems results in a
significant upgrade in systems and capabilities, as well as providing the
ability to properly interpret Year 2000 data. Although the timing of the system
replacements is influenced by the Year 2000, in most instances these systems
would have been replaced in the normal course of business.
We are currently unable to predict the extent to which Year 2000 issues will
affect vendors with which we do a material amount of business, or the extent to
which we would be vulnerable to the failure of any of these vendors to convert
their systems on a timely basis. We could face a material financial risk if our
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customers or suppliers are unable to complete critical Year 2000 readiness
efforts in a timely manner. We are continuing to work with our customers and
suppliers to evaluate our Year 2000 readiness, identify material risks, and
develop solutions so that all critical processes needed to conduct our business
are Year 2000 ready. As part of the evaluation of the Year 2000 readiness of our
customers and suppliers, we have requested that our customers and suppliers
complete a Year 2000 questionnaire which has facilitated our assessment of the
Year 2000 readiness of relevant third parties. Although we believe that customer
and supplier representations have been made in good faith, there is no assurance
that such representations would be legally binding. In addition, our exposure to
these external risks is partially mitigated by the size and sophistication of
our primary customers, as well as by the diversity of our suppliers and
geographic locations.
We have spent approximately $.9 million during 1998 to upgrade and replace
our systems to ensure Year 2000 readiness. We estimate we will incur additional
costs of approximately $1.8 million to upgrade and replace our systems, the
majority of which will be incurred in fiscal 1999. We believe we are
appropriately reducing the risks of not being Year 2000 compliant through the
identification and remediation process described above. During 1999, we will
continue to evaluate the need for contingency planning as it relates to the
readiness for each business related software and hardware item.
We may experience an increase in our sales of portable generators as a
result of consumer concerns relating to Year 2000 power outages. We cannot
assure you that any sales growth attributable to Year 2000 consumer concerns
will be sustainable or that our sales will not decline in 2000 from 1999 levels.
In addition, we cannot assure you that we will not experience an increase in
returns of our products after January 1, 2000.
EURO CONVERSION
On January 1, 1999, member countries of the European Monetary Union (EMU)
began a three-year transition from their national currencies to a new common
currency, the "Euro". In the first phase, the permanent rates of exchange
between the members' national currencies and the Euro were established and
monetary, capital, foreign exchange, and interbank markets were converted to the
Euro. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions. By January 2002, Euro currency
will be issued and by July 2002, the respective national currencies will be
withdrawn. We have operations in member countries of the EMU and, accordingly,
have established action plans that are continuing to be implemented to address
the Euro's impact on information systems, currency exchange rate risk, taxation,
contracts, competition and pricing. Based on its current assessment, management
believes that the costs of the Euro conversion will not have a material impact
on our operations, cash flows or financial condition.
FUTURE ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities" which is effective for
periods beginning after June 15, 2000. Due to our current limited use of
derivative instruments, the adoption of this statement is not expected to have a
material effect on our financial condition or results of operations.
RISK MANAGEMENT
We are exposed to market risk from changes in interest rates and, to a
lesser extent, foreign exchange rates and commodities. To reduce such risks, we
selectively use financial instruments. All hedging transactions are authorized
and executed pursuant to clearly defined policies and procedures, which strictly
prohibit the use of financial instruments for trading purposes. A discussion of
our accounting policies for derivative financial instruments is included in the
summary of Significant Accounting Policies in Note 2 to the Consolidated
Financial Statements included herein.
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We use interest rate swaps to modify our exposure to interest rate
movements. Net interest payments or receipts from interest rate swaps are
recorded as adjustments to interest expense in the consolidated statement of
income on a current basis. Our earnings exposure related to adverse movements in
interest rates is primarily derived from outstanding floating rate debt
instruments that are indexed to Eurodollar money rates. A 10% increase/decrease
in the average cost of 7.84% at December 31, 1998 of our debt under our bank
credit facility would result in an increase/decrease in annual pre-tax interest
expense of approximately $356,000 after giving effect to an outstanding interest
rate swap. A 10% increase/decrease in Eurodollar rates would not have a material
effect on the fair value of the interest rate swap as compared to its fair value
at December 31, 1998.
We have manufacturing, sales and distribution facilities throughout Europe
and source raw materials from around the world. Accordingly, we make investments
and enter into transactions denominated in various foreign currencies. We are
primarily exposed to fluctuations in various European currencies. Due to the
relative stability of these currencies, management has not deemed it necessary
to currently pursue a foreign currency hedging strategy. We do not believe that
our foreign currency exposure is material.
Our exposure to commodity price changes relates to certain manufacturing
operations that utilize raw commodities. We manage our exposure to changes in
those prices primarily through our procurement and sales practices. This
exposure is not material to Generac Portable Products.
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BUSINESS
GENERAL
We are a leading designer, manufacturer and marketer of engine-powered tools
for use in both consumer and commercial applications. Our two principal product
lines are portable generators and pressure washers. We estimate that in 1998, as
measured by net sales, Generac Portable Products was:
- the largest U.S. manufacturer of portable generators, with an overall
domestic market share of approximately 29%, and
- the second largest U.S. manufacturer of consumer pressure washers, with an
overall domestic market share of approximately 33%.
Over the past three years, our net sales have grown at a compounded annual
rate of approximately 38%, increasing from $104.8 million in 1995 to $276.4
million in 1998. In both our product categories, we offer one of the broadest
lines of innovative products across all major price points. Our products are
well represented in multiple channels of retail distribution, including the
leading home center chains, mass merchants and warehouse clubs, as well as
independent dealers. We have been the major supplier of portable generators to
Sears, marketed under the Craftsman-Registered Trademark- and
Companion-Registered Trademark- labels, since 1961. We have been the largest
supplier to Sears of consumer pressure washers, marketed under the
Craftsman-Registered Trademark- label, since Sears established itself in that
category in 1994. We are also a core supplier of portable generators and
consumer pressure washers, both marketed under the Generac-Registered Trademark-
label, to Home Depot, the largest and one of the fastest growing retail home
center chains in the United States. We have recently established a supply
relationship with Lowe's, the second largest retail home center chain in the
United States, to supply them with a full line of portable generators.
We believe that our strength in each product category is the result of our
engineering and manufacturing capabilities which emphasize delivering superior
customer value through innovation in product development and focus on product
quality. The strength of our product offerings has enabled us to take advantage
of the strong growth in the engine-powered tools market as well as of favorable
demographic trends. In addition to manufacturing portable generators and
pressure washers, we also manufacture core components for these products,
including alternators and pressure washer pumps. We believe that this strategic
vertical integration enables us to enjoy significant cost advantages over
competitors who source these components from third party suppliers. In addition,
we have been successful in improving manufacturing flexibility and operating
profitability through the strategic integration of our manufacturing processes,
the streamlining of our production processes and the standardization of our
components. We have long-standing customer relationships and effectively utilize
our nationwide service network to build and support our consumer base. These
strengths have enabled us to service our increasingly sophisticated and
demanding customers.
In 1959 Robert Kern founded Generac Corporation, the former parent of
Generac Portable Products, Inc. and an integrated manufacturer of engines and
generators. The first products manufactured by Generac Corporation were
alternators and vehicle-mounted generators, and it began manufacturing the
Generac GN overhead valve industrial engine in 1992. Generac Corporation
(presently known as Generac Power Systems, Inc.) continues to manufacture its
proprietary engine and also manufactures generators for industrial prime power
applications, industrial and residential stand-by power applications, and
recreational vehicle applications. In July 1998, The Beacon Group III--Focus
Value Fund, L.P., certain members of management and certain other investors,
including Robert Kern, acquired the Portable Products Division of Generac
Corporation for a purchase price of $305.5 million. We have exclusive supply
rights until 2007 to Generac Corporation's current family of engines for use in
portable generators and pressure washers. The same dedicated management team
that built the Portable Products Division of Generac Corporation into a leader
in the portable engine-powered tools industry continues to lead our company.
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COMPETITIVE STRENGTHS
We attribute our success to the following competitive strengths:
LEADING MARKET POSITIONS. We are a market leader in our industry, with an
overall domestic market share of approximately 29% in portable generators and
approximately 33% in consumer pressure washers in 1998, based on management
estimates. We believe we were the largest U.S. supplier of portable generators
and the second largest U.S. supplier of consumer pressure washers in 1998, as
measured by net sales. In addition, we are a major supplier for many of the
leading retail home centers, mass merchants and warehouse clubs. We believe that
our broad and innovative product offerings, our commitment to quality, our
reputation for customer service, and our ability to anticipate customer needs
and create growth opportunities have enabled us to achieve both revenue and
earnings growth and our leading market positions.
WELL-ESTABLISHED AND GROWING DISTRIBUTION CHANNELS. For over 35 years, our
portable generators have been sold under the Craftsman-Registered Trademark-
label through Sears' mall-based stores and, more recently, through Sears'
growing chain of freestanding hardware and dealer stores. Over the last five
years, we have continued to expand the distribution of our products marketed
under the Generac-Registered Trademark- name to other leading retailers,
including B.J.'s Wholesale Club, Costco, HomeBase, Home Depot, Lowe's and
Tru-Serv Incorporated (the buying cooperative for True Value hardware stores).
Our products are well represented in retail home centers, mass merchants,
warehouse clubs and hardware stores as well as through our independent dealer
network. We believe that our distribution strategy increases our market
penetration, as we can sell our products into the same geographic market under
different brand names and through different distribution channels. In addition,
since 1995, we have significantly increased our sales to Home Depot, the largest
and one of the fastest growing home center chains in the U.S. We believe that
our strong strategic relationships with leading retailers, such as Sears, Home
Depot and Lowe's, will facilitate continued market share gains as these chains
grow and as hardware channels of distribution continue to consolidate. In
addition, as is the case with our major U.S.-based customers, we expect our
expanding relationships with such leading European retailers as B&Q (U.K.), Der
Praktiker (Germany), Bauhaus (Germany), BRICO (Belgium), Continente (Spain),
Carrefour (France) and Jumbo (Switzerland) to expedite our European sales growth
as these retailers expand throughout Europe.
INNOVATIVE DESIGN AND ENGINEERING EXPERTISE. We attribute much of our
success to our innovative design and engineering expertise. Our product design
efforts are focused on anticipating trends in consumer preferences and on
designing our products to incorporate these preferences with the ultimate goal
of enhancing the utility of our products for the consumer market. Our portable
generators and pressure washers are highly engineered, durable, precision
manufactured products. We have capitalized on our design and engineering
capabilities by deciding to design and manufacture selected key components, such
as our alternator and pressure washer pumps. As a manufacturer of certain
strategic components, we believe that we are better able to control product
quality and therefore offer a superior finished product. We believe our
strategic vertical integration provides us with significant advantages, such as
shorter lead times, lower costs and inventory levels and greater manufacturing
flexibility, which differentiates us from many of our competitors who source
these components from third-party suppliers. In addition, we believe our
engineering and design expertise is readily extendible to new engine-powered
product categories as well.
LOW COST MANUFACTURING OPERATIONS AND COMPONENTS. We believe that our low
cost operations are attributable to our strategic vertical integration and
increased levels of standardization in our manufacturing processes resulting
primarily from the common design and use of standard components across all
product lines. This commonality and our efficient manufacturing processes enable
us to realize savings through reduced inventory levels, greater leverage with
suppliers and improved production flexibility. In 1995, we built our current
facility in Jefferson, Wisconsin, and expanded it in 1997. This facility
incorporates state-of-the-art manufacturing technology and processes and was
custom designed to manufacture both of our major product lines, while allowing
us the flexibility to transfer production
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resources from one product line to another on an efficient and timely basis as
and when demand dictates. We are currently in the process of further expanding
capacity in our Jefferson facility which we expect to complete in the third
quarter of 1999. We believe that we are one of the more vertically integrated
manufacturers of portable generators and consumer pressure washers in the U.S.,
and therefore are more cost-efficient and better able to respond to customer
demands than our competitors. As a result of our highly integrated manufacturing
process, we have increased our total annual production of units from
approximately 120,000 in 1995 to over 675,000 in 1998, a compounded annual
growth rate of 78%.
Our low cost structure is further enhanced by our effective sourcing
strategies based on worldwide supply relationships and low cost components,
including critical items such as gasoline engines manufactured by Briggs &
Stratton and Tecumseh Products, as well as exclusive access to lower cost
engines manufactured by Generac Corporation.
ESTABLISHED BRAND NAME AND REPUTATION. The Generac brand name has a 40-year
heritage in the engine-powered tools industry. We established our leading brand
name primarily by providing high-quality, innovative, reliable products as well
as a high level of customer service and product support. We are a key supplier
to leading home center chains, and have reinforced our reputation with these
chains by tailoring our product offerings and product features to suit their
desire for differentiated product lines.
SUPERIOR CUSTOMER SERVICE AND COMMITMENT TO QUALITY. We support our strong
relationships with retailers through our "program sales approach" which provides
innovative sales and marketing programs to educate end-users and increase
retailers' effectiveness in selling our full line of products. To this end, we
have developed comprehensive category management services, which include
merchandising and providing informational materials, sales associate training
and product support. To ensure after-sale support, we differentiate ourselves by
maintaining a competitive independent dealer network, consisting of over 3,000
outdoor power equipment and service dealers. We believe that we have the most
comprehensive dealer-service network in our industry. We believe that the
independent dealer network serves as a strong incentive for home center and
other retailers to allocate shelf space to our products and reduces end-user
returns. In addition, we maintain strict quality inspection procedures
throughout the manufacturing process. These procedures, which include the
testing of each unit prior to shipment, enable us to ensure consistent quality.
As evidence of our strong position with our customers and our ability to provide
reliable, high quality products, we have been selected as a core supplier of
portable generators and pressure washers to Home Depot, and are the largest
supplier of portable generators and pressure washers to Sears.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY
INCENTIVE. We continue to be led by the same dedicated management team from the
Portable Products Division of Generac Corporation that built us into an industry
leader. Our management team has over 100 years of collective experience in the
engine-powered tools industry. Our management team has successfully managed our
rapid revenue and earnings growth through the maintenance of high quality
standards, continuous product innovation and commitment to customer service. Our
senior managers have a substantial financial interest in our continued success
through their direct investment in our common stock and participation in our
stock option program.
BUSINESS STRATEGY
We seek to take advantage of our competitive strengths by pursuing the
following business strategies:
GROWING MARKET SHARE THROUGH ALLIANCES WITH STRONG, FAST-GROWING
RETAILERS. We believe that our strong strategic relationships with Sears, Home
Depot and other leading retailers will position us to gain market share as these
chains grow. For example, Sears and Home Depot together plan to have
approximately 3,500 stores by the year 2002, up from approximately 2,300 in
1998. In addition, these leading retailers are continuing to develop a variety
of store formats to broaden their customer reach. At the same time, many of
these home center retailers are actively expanding beyond the traditional
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do-it-yourself market and into the commercial contractor markets. We intend to
develop products to support these retailers' commercial needs. We believe that
we have the potential to add important new accounts and, upon the completion of
the planned expansion of our Jefferson facility, will have the capacity to add
important new accounts and meet expected demand.
EXPANDING THROUGH STRATEGICALLY MANAGED PRODUCT LINES. Our strategy is to
develop a continuous stream of innovative products that deliver the highest
quality and best overall value in the industry. A driving force behind our
growth in both product categories and our expansion of gross margins is our
ability to develop and deliver new products at entry-level price points and to
then successfully migrate end-users to more sophisticated products with unique
features that are designed around our proprietary components. Our strategy has
been attractive to leading retailers who use this "good, better, best"
merchandising strategy. By offering one of the broadest selections of portable
generators and pressure washers supported by comprehensive sales associate
training, field merchandising support and informative point-of-purchase displays
and packaging, we have become a major supplier to our key customers such as Home
Depot and Sears.
CONTINUING PRODUCT INNOVATION AND DIVERSIFICATION INTO NEW AND RELATED
PRODUCTS. High level engineering capabilities, a dedicated research and
development group and efficient manufacturing operations provide us with
significant resources for continued product innovations as well as new product
development. Our product development program for the portable generator product
line includes:
- mobile back-up power generators,
- manual and automatic transfer switches for home use,
- computer controlled generators, and
- generators for recreational use.
Our product development program for the pressure washer product line
includes:
- a new Dial-A-Cleaner-TM- cleaning system, which allows the user to easily
alternate between multiple cleaning solutions,
- a new commercial line of gasoline engine-powered pressure washers,
- an expanded line of accessories, and
- a pump family for products with higher operating pressures and greater
water flow rates.
We also have new product categories under development. Our research and
development group is continually developing and field-testing various products,
which may be introduced in the future.
CONTINUING COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. We believe that
we can maintain our position as a low cost, high-quality manufacturer by
continuing to take advantage of further opportunities, when appropriate, to
strategically integrate and manufacture components. We manufacture our core
components in the U.S. but have the flexibility to outsource manufacturing
worldwide when such outsourcing can be done efficiently. Our decision to
manufacture selected core components, including pressure washer pumps and
alternators, is an example of our "buy versus make" strategy. This analysis
takes into consideration our technical and manufacturing capabilities as well as
costs and investments in tooling and machinery. Our successful execution of this
strategy enables us to lower costs, better control product quality, shorten
supply lead times, maintain lower inventory levels and achieve greater overall
manufacturing flexibility. We seek to continue to improve operating
profitability and maintain a high standard of product quality by focusing on
reducing costs and developing performance-enhancing product features. In
addition, we seek to continually improve productivity and profitability through
focused industrial engineering efforts and the standardization of components.
PURSUING INTERNATIONAL MARKET OPPORTUNITIES. We offer our portable
generators throughout Europe and have been successful in building long-term
customer relationships with leading retailers such as B&Q (U.K.), Der Praktiker
(Germany), Bauhaus (Germany), BRICO (Belgium), Continente (Spain), Carrefour
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(France) and Jumbo (Switzerland). Our strategy is to accelerate European sales
growth over the next five years by taking advantage of our product line breadth
and brand name recognition to gain shelf space and placements in new and
existing European markets. We expect our European sales growth to come from
continuing to improve our relationships with home center retailers by adding
other product categories including pressure washers and accessories,
engine-driven pumps, engine driven welders and compressors. We believe that, as
the major U.S.-based home center chains expand internationally, there will be a
growing need for their relationship suppliers, such as our company, to establish
a direct presence overseas. We plan to use our U.K. manufacturing base to
support our marketing efforts in Europe, thus realizing enhanced operating
leverage at that facility. We also have the ability to manufacture products for
sale to the U.S. market if demand warrants it.
INDUSTRY OVERVIEW
We compete primarily in the portable generator and pressure washer product
lines of the engine-powered tools industry. We estimate that the U.S. portable
generator market was $492 million in 1998 and that it has grown at a 16%
compounded annual rate from $230 million since 1993. We believe that this market
will continue to grow at a 16% compounded annual rate to reach approximately
$900 million in 2002. In 1998, the U.S. portable generator market consisted of
approximately ten manufacturers, ranging from small regional producers to large
manufacturers with nationwide distribution capabilities. Our research indicates
that sales of the four largest manufacturers accounted for approximately 85% of
the total market in 1998.
We estimate that the U.S. consumer pressure washer market was $300 million
in 1998 and has grown at a 43% compounded annual rate from $50 million since
1993. We believe that this market will grow at a 15% compounded annual rate to
reach approximately $527 million in 2002. In addition, the U.S. commercial
pressure washer market was approximately $120 million in 1998. In 1998, the
total U.S. pressure washer market consisted of approximately ten manufacturers,
ranging from small regional producers to large manufacturers with nationwide
distribution capabilities. While the commercial pressure washer market is still
highly fragmented, the consumer market is consolidating. Our research indicates
that sales of the four largest manufacturers accounted for an estimated 80% of
this market in 1998.
Growth in the portable generator and consumer pressure washer markets is
driven by:
- increasing consumer awareness of product uses,
- momentum of national retailers,
- improving affordability and performance, and
- favorable demographic trends.
INCREASING CONSUMER AWARENESS OF PRODUCT USES. Historically, applications
for portable generators have included running power tools and other appliances
at residential as well as remote construction sites, and providing electrical
power in connection with the use of recreational vehicles and at camping sites.
In recent years, the demand by homeowners for alternative, or back-up, power
sources has driven the growth in the portable generator market. We believe that
this demand has increased in part due to the trend toward utility deregulation,
which has increased the threat of power supply interruptions, and by increasing
requirements of homeowners for back-up power and home security. Although we
believe that storms and other natural disasters heighten consumer awareness of
the benefits of auxiliary or back-up power, our consumer research indicates that
generator sales are not highly seasonal and that natural disasters do not have
an immediate effect on our sales. Our consumer research suggests that one of the
primary reasons for portable generator purchases is in anticipation of power
outages, and we believe that the demand for back-up power will continue to be a
primary factor in the growth of the overall market.
Pressure washers have been used in commercial applications for over 50
years. In recent years, the consumer pressure washer market has evolved, driven
by increased awareness of the utility and the ease of use of the products.
Consumer applications include car and boat washing, patio, deck and driveway
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cleaning, and pre-treating exterior surfaces prior to painting. Common
commercial applications include stripping paint, removing graffiti, farm and
agricultural uses, automotive uses, and factory and warehouse applications.
Consumer demand for pressure washers reflects the considerable increase in home
ownership, real estate values, boat and recreational vehicle ownership and
consumers' desire to preserve the value of, and enhance the appearance of, these
investments. Pressure washers also have a strong appeal to homeowners faced with
increasing demands on their time. The use of pressure washers has evolved from a
primarily commercial application to a residential use. A driving force behind
this has been the "enjoyment" factor: households have purchased the product
because of its convenience and ease of use, and for its ability to make labor
intensive tasks easier.
MOMENTUM OF NATIONAL RETAILERS. In recent years, the emergence of home
center chains and warehouse clubs has enhanced the market and distribution
infrastructure for engine-powered tools, including portable generators and
consumer pressure washers. Independent dealers, commercial and industrial supply
houses and lawn and garden outlets were the historical channels of distribution
for portable generators. These channels were fragmented, and retailers assumed
many costs associated with these products, such as freight, inventory and
handling and in-store product support, which were passed on to consumers by way
of higher prices. In 1994, Sears was the first retailer to offer an effectively
merchandised and well-balanced assortment of consumer pressure washers for
consumer applications. Other leading home center chains and mass merchandisers
began offering consumer pressure washers shortly thereafter, and contributed to
the rapid development of the consumer market. These retailers have required
their portable generator and consumer pressure washer suppliers to provide
broader product lines, continually improve quality, price and product
performance, offer continuous product innovation, and assist in the development
of marketing and merchandising efforts. As a result, these home center chains,
mass merchandisers and warehouse clubs have been instrumental in creating the
consumer awareness and interest which is driving sales of both portable
generators and consumer pressure washers. As these retailers continue to
implement their aggressive expansion plans, portable generator and consumer
pressure washer suppliers will continue to benefit from this growth. In
addition, we believe that the demands upon these suppliers from the home center
chains will lead to further industry consolidation and provide further
advantages to the larger and more established suppliers.
IMPROVING AFFORDABILITY AND PERFORMANCE. Improved affordability combined
with enhanced performance have led to increased demand for portable generators
and pressure washers. Improvements in customer value in portable generators and
pressure washers can be attributed to significant strides in the design,
engineering and manufacturing cost of overhead valve industrial engines and lawn
mower-type gasoline engines. We believe that the most significant enhancement to
customer value has been the development of the overhead valve Generac engine, a
highly engineered product that established new industry standards for the
highest power-to-weight ratio, the lowest noise level and the longest operating
life. In 1998, portable generators equipped with overhead valve industrial
engines represented approximately 30% of the total portable generator market, up
from less than approximately 6% of the market in 1993. By the year 2002, we
believe that approximately 40% of the portable generators sold in the U.S. will
be powered by overhead valve industrial engines.
Gasoline engine-powered pressure washers offer a significant step-up in
cleaning power, durability, engine life and safety features at only a modest
premium to the opening price point of a basic electric pressure washer. The
axial cam pump, introduced in 1994, significantly lowered the manufacturing cost
of a pressure washer in addition to improving quality and overall customer
satisfaction. The shift to axial cam pumps from crank shaft pumps allowed the
use of high-volume, low-cost vertical shaft engines. This innovation has not
only reduced retail prices but has also made this product more convenient to
use, adding to continued growth in the consumer market.
FAVORABLE DEMOGRAPHIC TRENDS. Our consumer research indicates that
approximately 60% of portable generator purchasers are over 45 years old and
approximately 75% are homeowners. According to U.S. census estimates, this
segment of the population is expected to grow by approximately 25% over the next
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six years. This expanding middle-aged segment of the population has historically
been the dominant purchaser of our products. In addition, the U.S. census
projects that there will be over three million new homeowners over the next five
years. We believe these trends clearly indicate that a strong and rapidly
growing consumer base exists for products in our industry.
PRODUCTS
We primarily produce portable generators and pressure washers built around
commercially available lawn mower-type engines and the Generac engine. We
believe that the Generac engine is technically superior to all competitive
engines. This technical superiority is based on its unique lubrication system as
well as on its overall design, which facilitates a more efficient airflow that
allows for a significantly cooler operating temperature and, consequently, a
longer engine life. The Generac engine, to which we have exclusive access for
our portable generators and pressure washers, offers several value-added
features to home, recreational and commercial end-users. Unlike engines
available to our competitors, which offer an operating life of approximately
400-700 hours in side valve configuration and up to 1,000 hours in overhead
valve configuration, the Generac engine has a life expectancy of up to
approximately 3,000 hours. Overhead valve engines with comparable horse power
tend to sell at a premium relative to the Generac engine. This has enabled us to
gain market share by offering a superior value to consumers and a differentiated
product to retailers.
PORTABLE GENERATORS
We believe that we manufacture and market the broadest line of portable
generator products in the industry. Our product offering ranges from
premium-priced models, incorporating advanced operating features and performance
characteristics built around the Generac engine, to value-priced products built
around conventional commercially available lawnmower-type engines. Our generator
line of approximately 25 models ranges from the most basic model of 2,500 watts,
sold at a retail price of approximately $399, to more sophisticated models of
10,000 watts, with enhanced features attractive to the consumer and commercial
markets, sold at a retail price of approximately $1,999.
Our competitive position in the portable generator category is the result of
our state-of-the-art product design and engineering capabilities. Our entire
product line incorporates various value-added features such as low oil shutdown
and high efficiency mufflers that help reduce noise levels. Many of our premium
Generac engine-powered generators are equipped with voltage regulators which
provide superior voltage control and surge capacity for starting large
electrical loads. The Generac engine-powered units also feature lighter weight
for portability, compact size, reduced maintenance and lower fuel consumption.
An electric start is available on certain models and the commercial units
incorporate an idle control device which further reduces noise, greatly extends
engine operating life and additionally reduces fuel consumption. Large fuel
tanks for longer operating times are standard with these units.
The increasing success of the portable generator has been enhanced by our
strategy for growing the existing market and level of sales:
- ADAPT PRODUCTS TO CONSUMER DEMANDS. By drawing on the results of our
consumer research surveys, and further understanding the needs of the
consumer, we have been able to improve the design of our products to best
accommodate consumer demands. Through such techniques as seeking completed
warranty card surveys, employing field personnel and utilizing a toll-free
help line, we have determined that the customer is interested in "extras"
such as extended run-time, higher kilowatts and improved price value. In
response, we have designed and introduced such features as an 8-gallon
fuel tank, a 7,500 watt generator, and a 2,000 watt compact generator.
- SOURCE COMPONENTS AT LOWEST POSSIBLE COST. We have consistently maintained
a strategy of procuring components at the lowest possible cost. For
example, we are able to purchase lawnmower-type/ residential-type quality
engines at similar prices to our competitors and are able to purchase the
Generac engine exclusively at a significant price advantage to technically
similar engines.
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- MAXIMIZE PRICE VALUE POSITIONING. We have been able to offer the consumer
a product at a low cost without compromising quality. For example, we sell
the Generac 4000XL at a price of $699, whereas Honda sells an equivalent
model for $1,299 and does not offer any additional features or
accessories.
- "PROGRAM SELL" A FULL PRODUCT LINE. We have been extremely successful with
our strategy of program selling our full line of products, or "good,
better, best" merchandising, and this has been most effective with
customers with whom we are gradually building a relationship. We began our
relationship with Home Depot in 1994 by selling a limited number of
generators in two of their regions, with limited point-of-purchase
support. As this relationship has expanded to become one of our largest
accounts, we have added a greater variety of generators to a greater
number of regions with an increasing amount of consumer support at the
point-of-purchase. As a result, our sales to Home Depot increased tenfold
from 1995 to 1998.
- DEVELOP A PIPELINE OF NEW PRODUCTS. Part of our growth strategy is to
develop a continuous stream of innovative products that deliver the
highest quality and best overall value in the industry. High level
engineering capabilities and efficient manufacturing operations provide us
with significant resources for continued product innovations as well as
new product development. By having a continuous supply of new designs, we
believe that we are able to stay ahead of our competition while also
satisfying the consumer's desire for improvement.
PRESSURE WASHERS
We believe that we manufacture and market the broadest line of pressure
washer products in the industry. Our product offering ranges from premium-priced
models, incorporating advanced operating features and performance
characteristics built around the Generac engine, to value-priced products built
around conventional commercially available lawnmower-type engines. Our pressure
washer line of approximately 25 models ranges from the most basic electric model
of 1,300 pounds per square inch, sold at a retail price of $179, to more
sophisticated models with the Generac engine of 3,500 pounds per square inch,
sold at a retail price of $1,299. Our engine-driven pressure washers incorporate
various value added features such as thermal overload devices, which prevent
overheating and resulting failures, and an exclusive unloading circuit which
makes starting easier. Our electric pressure washer product line offers reduced
noise levels, a long operating life and an automatic start-stop feature that
protects against damage from overheating or running dry.
Our competitive position in the pressure washer category is also the result
of our state-of-the-art product design and engineering capabilities. Our
proprietary pump, based on different combinations of interchangeable components,
promotes greater manufacturing flexibility and a faster response to evolving
end-user needs. Our company-designed and -manufactured family of pressure washer
pumps provides us with a high quality and cost-effective product, which has
enabled us to effectively differentiate ourselves from the competition and to
provide unique product values to our customers.
Our market for pressure washers has also increased primarily through a
highly successful growth strategy by which we:
- INCORPORATE INSIGHTS FROM CONSUMER RESEARCH. Similar to the strategy for
the portable generator, the use of warranty card surveys, field personnel
and a toll-free help line has allowed us to better understand the
consumers' needs. Through these tactics, we determined that the customer
was interested in features such as more user-friendly designs, greater
cleaning power and more storage space. In response, we have introduced
user-friendly designs such as the Dial-A-Cleaner-TM- cleaning system,
cost-effective pump design changes resulting in higher cleaning power and
components reconfigured for additional storage space. In addition, we have
included a "how to" video in every pressure washer box.
- EXPLOIT PUMP QUALITY, DELIVERY AND COST ADVANTAGE. We believe our
technical expertise in pressure washer pumps provides us with a
significant advantage over our competitors. By incorporating
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common designs and standardizing components, we are able to provide a
family of pumps with increasingly high pressure and flow outputs and
longer lives while maintaining an attractive cost structure. Our
company-designed and -manufactured pumps enable us to significantly
shorten our supply lead times, thereby reducing inventory and increasing
manufacturing flexibility.
- OUTPERFORM THE COMPETITION. We have been extremely successful with our
sales strategy of program selling our full line of products, or "good,
better, best" merchandising, a high level of commitment to the industry
and undivided customer focus. We believe that this level of commitment is
unmatched by any of our competitors and has been highly successful in
increasing our customer base.
NEW AND RELATED PRODUCTS
All of our new product initiatives are based on our core manufacturing and
marketing strengths. In the portable generator market, we plan to leverage our
exclusive access to the Generac engine to introduce high value models at
competitive price points. For example, our product development program for the
portable generator product line includes mobile back-up power generators and
generators for recreational use. Our long-term product strategy also includes
the introduction of computer controlled generators, which we believe will be
part of the norm in the next generation of generators, new products such as
manual and automatic transfer switches for home use and a full line of easy to
use back-up home security packages, and innovations such as higher kilowatt
output equipment for light commercial units.
In the pressure washer category, we recently introduced our first product
designed specifically for the commercial market. This commercial product has
been designed around the same Generac engine used in our portable generators,
providing longer life for trouble-free power compared to competitive offerings.
We believe that as the large home center chains focus increasingly on the
commercial contractor and home construction markets, our established position in
these channels, as well as in various catalogs directed at contractors, should
enable us to participate successfully in this segment. We estimate that the
market for these products was approximately $120 million in 1998. Our product
development program for the pressure washer product line includes a new cleaning
system, a new commercial line of gasoline-powered pressure washers, an expanded
line of accessories, and a pump family for products with higher pounds per
square inch ratings.
Superior design and engineering capabilities and low-cost manufacturing
operations provide us with a significant resource for developing new product
categories. We have identified several new product and business opportunities in
which we can provide added value to end-users and attractive profit margins to
retailers. These include an engine-driven welder, an engine-driven air
compressor and an engine-driven water pump. Our research and development group
is developing and field-testing various products.
ILLUSTRATIVE RELATIONSHIPS
SEARS. Sears is one of the leading retailers in the U.S., with
approximately 1,925 stores currently, and plans to open approximately 570
additional stores by the year 2002. We have been the major supplier of portable
generators to Sears since 1961. Our portable generators at Sears are marketed
under the Craftsman-Registered Trademark- and Companion-Registered Trademark-
labels. We are the largest supplier to Sears of pressure washers, marketed under
the Craftsman-Registered Trademark- label, since Sears established itself in the
consumer pressure washer category in 1994. Our level of retail sophistication
and know-how has been enhanced by our 38-year relationship with Sears. We have
benefitted from the development of exclusive product offerings under the
Craftsman-Registered Trademark- label, high levels of in-store sales support,
well-coordinated merchandising and promotional campaigns and access to Sears'
nationwide service network. In both the portable generator and pressure washer
categories, we have collaborated with Sears to create high-impact in-store
displays that provide both an assortment of products and informative
point-of-purchase materials to help guide end-users in their purchasing
decision. We also offer to Sears other value-added, in-store services such as
sales associate training and product support. We believe that our relationship
with Sears and our ability to affect merchandise presentation at the
point-of-purchase, particularly visual merchandising and packaging, has
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had a strong impact on Sears' portable generator and pressure washer sales and
profitability. We continue to increase our sales through Sears' expanding
hardware distribution channels including its new local hardware stores, dealer
stores and Orchard Supply, a chain of home center stores in California recently
acquired by Sears.
Our longstanding relationship with Sears is typified by our most recent
collaborative effort, which has resulted in the successful introduction of an
exclusive cleaning system family of pressure washer products marketed under the
Dial-A-Cleaner-TM- label.
HOME DEPOT. Home Depot is the largest and one of the fastest growing retail
home center chains in the U.S., with approximately 800 stores currently, and
plans to open approximately 800 additional stores by the year 2002. We are a
"core supplier" to Home Depot of portable generators and pressure washers, both
marketed under the Generac-Registered Trademark- label. A core supplier is one
that has the ability to supply certain minimum dollar levels of a product
category with retail sales in excess of $100 million. In 1995, we sold three
generator models in three of Home Depot's seven regions and no pressure washer
models. Currently, we sell six generator models and two pressure washer models
in all eight of Home Depot's regions. Home Depot has positioned itself as a
leading provider of value in the home center industry. Our broad product line
and program sales approach of providing innovative sales and marketing programs
to educate end-users and increase retailers' effectiveness in selling our full
line of products are highly compatible with Home Depot's "good, better, best"
merchandising strategy.
LOWE'S. We have recently established a supply relationship with Lowe's, the
second largest retail home center chain in the U.S., with approximately 500
stores currently, and plans to continue to aggressively open new stores in the
future. We currently provide Lowe's with a full line of portable generators with
the potential for further penetration in both the portable generator and
pressure washer markets by the year 2000 and beyond. Lowe's caters to the
do-it-yourself market as well as the commercial business customer. As Lowe's has
been successful at positioning itself as a leading provider of increased quality
and effectively merchandised products, it is ideally suited to be a key partner
in our future.
DISTRIBUTION AND MARKETING
Our three largest customers are Home Depot, Sears and Costco, which combined
accounted for approximately 74% of sales in 1998. We also sell to other consumer
home centers and warehouse clubs, as well as outdoor power equipment dealers. In
addition to traditional retail distribution, we offer our products through
national catalog companies such as Northern Hydraulic, Sears Power Tool catalog
and our own "special-order" service.
Over the past five years, we have expanded the distribution of our products,
marketed under the Generac-Registered Trademark- name, to home centers and
warehouse clubs. Drawing from our 38 years of experience with Sears, we offer to
our customers a total category management approach, including value-added,
in-store services such as merchandising, informational materials, sales
associate training and product support. We believe that our ability to affect
merchandise presentation at the point-of-purchase, particularly visual
merchandising and packaging, has had a strong impact on retailers' portable
generator and pressure washer sales and profitability. Major U.S. retail
customers now include B.J.'s Wholesale Club, Costco, HomeBase, Home Depot,
Lowe's, Sears and Tru-Serv Incorporated (the buying cooperative of True Value
hardware stores). We also have successful relationships with leading European
retailers, such as B&Q (U.K.), Der Praktiker (Germany), Bauhaus (Germany), BRICO
(Belgium), Continente (Spain), Carrefour (France) and Jumbo (Switzerland).
Our marketing group directs product development, pricing strategy, consumer
promotion, advertising and package design. We use consumer advertising,
primarily newspaper inserts, to increase awareness of our products and to build
recognition for the Generac brand name. We employ a two-tiered sales force to
sell our products through mass merchants, home centers and independent dealer
channels. Product managers are responsible for developing sales programs
tailored to retailer-specific needs in the home center and warehouse club
channels. Territory sales managers are responsible for establishing
relationships
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with new independent dealers, training sales associates at a store level, and
managing and reducing product returns. Territory sales managers also serve as
the primary interface between our manufacturing operation and our independent
dealer network.
We have assembled a comprehensive after-sales service network in North
America for generators and pressure washers comprised of (1) approximately 3,000
dealers, (2) 11 independently owned master parts distributors and (3) a
company-owned fleet of mobile service training vehicles. In today's retail
environment, most independent dealers do not generate the traffic to be
competitive with mass merchants, home centers or warehouse clubs. Nevertheless,
we have made a strategic decision to maintain the viability of the independent
dealer network for the express purpose of providing after-sales service
capability to support our product. We have positioned ourselves not only to
respond to short-term warranty needs but to maintain service capability
throughout the life of the product as well. Many of the master part distributors
have their own sales force, which effectively broadens the availability of our
products and spare parts.
PRODUCT TECHNOLOGY AND DEVELOPMENT
Our ability to serve both retailers and end-users is effectively driven by
the strength of our engineering and product development capabilities,
particularly in alternator design. In 1959, we were the first to exploit a new
technology to completely redesign the alternator, thereby fundamentally
improving the manufacturing economics and performance characteristics of
portable generators. Similar performance improvements have been associated with
the Generac engine and the computer-controlled generator. Our engineers have
assisted in the design of the first V Twin Vanguard engine for Briggs & Stratton
and were instrumental in assisting with the establishment of the joint venture
company of Dihatsu Briggs & Stratton in Japan, which is the manufacturer of the
Vanguard engine.
In the pressure washer category, we have leveraged our engineering strength
to turn areas of potential vulnerability into competitive advantages. For
example, to reduce our dependence on inflexible and often unpredictable overseas
suppliers of highly engineered pressure water pumps, we design and manufacture
our own pressure washer pump. This pump is based on an axial cam design,
resulting in increased responsiveness to market demands and avoiding the costly
air freight expenses incurred in the past.
Our ability to successfully commercialize technical innovations is a core
competency and is expected to continue to contribute to revenue and profit
growth. Today's retail environment demands a continuous flow of new,
value-enhanced offerings to maintain product placements and shelf space
allocations. We have new product categories under development, and our research
and development group is developing and field-testing various products. See
"--Products--New and Related Products."
INTERNATIONAL SALES AND DISTRIBUTION
We have been successful in building long-term customer relationships with
leading European retailers, such as B&Q (U.K.), Der Praktiker (Germany), Bauhaus
(Germany), BRICO (Belgium), Continente (Spain), Carrefour (France) and Jumbo
(Switzerland). To support our growing European generator business, local sales
offices have been established in Manchester, England, Cologne, Germany and
Barcelona, Spain. To service our European customer base more effectively, we
design and assemble our European products in our Cheshire, England facility.
This facility imports alternators, engines and pumps and other components and
assembles portable generators to meet local product requirements and quality
assurance regulations.
Our international operations have contributed approximately 8% of total net
sales for 1998. We plan to focus on international expansion as a key part of our
strategy. Our growth strategy for international operations is to take advantage
of our broad channels of distribution by adding other product categories, such
as generators in a higher output range, engine driven pumps, engine driven
welders, compressors, electric and gasoline pressure washers and an expanded
line of accessories. As we build the Generac name in new markets, we can also
implement initiatives such as the reduction of low priced "promotional" based
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sales, price increases in Germany, and the manufacturing of products for the
U.S. market, which were not as feasible when our international operations were
in a preliminary stage of growth. See "--Business Strategy--Pursuing
International Market Opportunities."
COMPETITION
The U.S. engine-powered tools industry has experienced significant
consolidation over the last 10 to 15 years. The number of competitors in its
product categories has decreased from approximately 20 in 1985 to approximately
ten today, of which only four companies have national distribution capabilities.
We experience substantial competition from these competitors, but we believe
that we are a market leader in each of our core products. In the manufacture and
sale of portable generators, we compete primarily with Coleman Powermate, a
division of The Coleman Company, Inc. and Honda. In the manufacture and sale of
pressure washers, we compete primarily with DeVilbiss Air Power Company, a
subsidiary of Falcon Building Products, Inc., and, to a lesser extent, with
Alfred Karcher GmBH & Co. and Campbell Hausfeld, an affiliate of Scott Fetzer
Company. In general, we compete on the basis of quality, breadth of product
line, product features and price.
MANUFACTURING
We believe that we are one of the more vertically-integrated manufacturers
of portable generators and pressure washers in the U.S. We believe that our
commitment to manufacturing and technological excellence are important to remain
competitive from both a price and product offering perspective.
We operate a state-of-the-art manufacturing facility in Jefferson,
Wisconsin. Completed in January 1995, the original 120,000-square foot facility
was expanded by 57,500 square feet in January 1997. We have recently added
approximately 72,000 square feet to this facility, which brings the total to
250,000 square feet. We expect to have the equipment in place in the second
quarter of 1999 and to complete the expansion of manufacturing capacity in the
third quarter of 1999.
The Jefferson plant incorporates facilities for blow molding of plastic
tanks, robotic welding of cradles, powder coat painting of metal components,
machining, a complete rotor and stator production line, which represents the
latest alternator winding technology available, with an automated varnishing
system, high-volume assembly lines for one to 12 kilowatt portable generators
and 1,300 pounds per square inch to 3,500 pounds per square inch pressure
washers, and on-line testing, packaging and warehousing facilities.
We also own and operate a manufacturing facility in Cheshire, England, which
was built in 1990 and recently expanded from approximately 18,000 square feet to
approximately 45,000 square feet.
AGREEMENTS WITH GENERAC CORPORATION
The following is a brief description of the material provisions of each of
the agreements we have with Generac Corporation. We entered into each of these
agreements at the time we purchased the Portable Products Division from Generac
Corporation.
ENGINE SUPPLY AND NON-COMPETE AGREEMENTS. We are parties to an engine
supply agreement and a non-compete agreement, each with Generac Corporation. We
have used the Generac GN overhead valve industrial engine in certain of our
products since 1992. In 1998, approximately 32% of our sales were attributable
to products that incorporated the Generac engine. While the engine supply
agreement is not a "take or pay" contract, which would require us to pay for
certain minimum annual purchases whether or not we took delivery of the engines,
it provides that Generac Corporation will supply us with certain models of the
Generac engine for use in our pressure washers and consumer portable generators
on an exclusive basis as long as we make minimum annual purchases of Generac
engines. We exceeded the annual minimum purchase exclusivity threshold by
approximately 40% in 1998 and anticipate purchasing approximately twice the
exclusivity threshold in 1999. The engine supply agreement also gives us the
right to increase the number of engines purchased based on our forecast
requirements. The initial term of the
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engine supply agreement is until 2007, with provision for three year renewals,
subject to certain conditions.
We also purchase engines from Briggs & Stratton, Tecumeseh Products and Honda.
Under our non-compete agreement with Generac Corporation, which expires in
2007, Generac Corporation agreed not to manufacture or sell products of a type
made by the Portable Products Division at the time the agreement was entered
into in May 1998, including consumer portable generators, pressure washers and
welders. At the same time, we agreed not to manufacture or sell products of a
type made by Generac Corporation's industrial division at the time the agreement
was entered into, including certain types of generator applications and related
equipment. Also, under our engine supply agreement we must obtain approval from
Generac before we can incorporate the Generac engine into any products of a type
not currently being made by us. Please read "Risk Factors--Our Operating Results
May Suffer if We Cannot Obtain a Sufficient Supply of the Generac Engine or if
We Lose the Exclusive Right to Use the Generac Engine in Our Products" and "--We
May Be Unable to Successfully Develop New Products and Until 2007 We May Be
Restricted by Our Agreements with Generac Corporation from Marketing Certain New
Products" for a discussion of certain risks associated with the terms of these
agreements.
PARTS SUPPLY AGREEMENT. The parts supply agreement provides for the
purchase of certain components manufactured by Generac Corporation that are used
in our products. This agreement allows us to buy these components, primarily
stator assemblies and rotors, from time to time according to Generac
Corporation's established specifications for the components. The number of
components to be sold depends on our estimated requirements for components for
the next four quarters. Generac Corporation is under no obligation to
manufacture or sell more components than are listed in those forecasts. This
agreement has an initial term of three years, with an automatic one-year renewal
period.
GENERATOR SUPPLY AGREEMENT. The generator supply agreement provides for the
purchase of generators manufactured by Generac Corporation. The number of
generators to be sold depends on our estimated requirements for generators for
the next four quarters. Generac Corporation is under no obligation to
manufacture or sell more generators than are listed in those forecasts. This
agreement has an initial term of one year, with automatic one-year renewal
periods.
TRADEMARK LICENSE AGREEMENT. Under the trademark license agreement, Generac
Corporation has granted us a limited exclusive right to use the trademark
"GENERAC PORTABLE PRODUCTS" on our products, packaging and printed materials in
any part of the world where Generac Corporation possesses the right to the
trademark. Generac Corporation also granted us a limited exclusive right to use
the trademark as part of the name of entities under which we conduct our
business of manufacturing, marketing and selling portable consumer portable
generators, pressure washers and engine-driven welders, but not in connection
with any other goods or services. This license will continue in perpetuity
unless a breach occurs, as described in the agreement.
PATENT LICENSE AGREEMENT. Under the patent license agreement, Generac
Corporation has granted us an exclusive right and paid-up license to exercise
the patent rights in the manufacture and sale of pressure washers, portable
consumer generators and portable engine-driven welders. The agreement also
grants us the right to sublicense the patent rights for those uses during the
term of the agreement. This agreement will remain in effect until the expiration
of the last of the patents to expire, or until terminated under the provisions
of the agreement.
EMPLOYEES
As of March 31, 1999, we had 1,136 employees, the majority of whom were
involved in production and distribution, with the balance engaged in technical,
administration, sales and clerical work. Of these 1,136 employees, 410 were
temporary and 1,086 were employed in the United States and 50 in Europe.
Although all of our production employees are covered by a collective bargaining
agreement, none of our employees are currently unionized. The collective
bargaining agreement expires in October 1999, and we expect to negotiate and
renew it when it expires. We believe that our relationship with our employees is
good.
57
<PAGE>
ENVIRONMENTAL MATTERS
Our operations are subject to foreign, federal, state and local laws and
regulations governing, among other things, emissions to air, discharge to
waters, the generation, handling, storage, transportation, treatment and
disposal of waste and other materials and health and safety matters. Many of
these laws and regulations provide for substantial fines and criminal sanctions
for violations. The operation of manufacturing plants entails risks in these
areas and there can be no assurance that we will not incur material costs or
liabilities in the future. In addition, potentially significant expenditures
could be required to comply with changes to environmental, health and safety
laws, regulations or requirements that may be adopted or imposed in the future.
LEGAL PROCEEDINGS
We are involved from time to time in litigation arising out of our business
operations. Most of such litigation involves claims for personal injury,
property damage, breach of contract, claims involving employee relations and
certain administrative proceedings. We believe such claims do not involve a risk
of material loss to our company.
PROPERTIES
We currently own and operate an approximately 250,000 square foot
manufacturing and warehouse facility in Jefferson, Wisconsin and an
approximately 45,000 square foot manufacturing facility in Cheshire, England. We
believe that our manufacturing plants are generally well-maintained, in good
condition and, upon completion of the expansion, are adequate to meet our
present needs. In addition, we have sales offices in Manchester, England,
Cologne, Germany and Barcelona, Spain, and warehousing facilities in Jefferson,
Sullivan and Waukesha, Wisconsin, all of which are leased. We do not believe
that we will have any difficulty renewing any real property lease or finding
alternative sites, if necessary.
58
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of Generac Portable Products.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Dorrance J. Noonan, Jr........ 46 President, Chief Executive Officer and Director of Generac Portable
Products, LLC; Director of Generac Portable Products, Inc.
Gary J. Lato.................. 39 Chief Financial Officer and Secretary of Generac Portable Products, LLC
James H. Deneffe.............. 54 Senior Vice President--Sales of Generac Portable Products, LLC
Wesley C. Sodemann............ 55 Vice President of Engineering of Generac Portable Products, LLC
Jay C. Sugar.................. 38 Vice President of Operations of Generac Portable Products, LLC
J. David Bramhill............. 43 Vice President of International Operations of Generac Portable Products,
LLC
Robert M. Saeger.............. 53 Vice President of Planning of Generac Portable Products, LLC
Timothy J. Lemont............. 45 Vice President of Marketing of Generac Portable Products, LLC
R. Eugene Cartledge(1)(2)..... 69 Chairman of the Board of Generac Portable Products, Inc.
Eric R. Wilkinson(1).......... 43 President and Director of Generac Portable Products, Inc.
Richard A. Aube............... 30 Secretary and Treasurer of Generac Portable Products, Inc.; Director of
Generac Portable Products, LLC
Thomas A. Commes.............. 56 Director of Generac Portable Products, Inc.
Robert D. Kern(1)(2).......... 73 Director of Generac Portable Products, Inc.
Thomas G. Mendell............. 51 Director of Generac Portable Products, Inc.
R. Ralph Parks(1)(2).......... 55 Director of Generac Portable Products, Inc.
Richard A. Van Deuren(2)...... 70 Director of Generac Portable Products, Inc.
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
DORRANCE J. NOONAN, JR., President, Chief Executive Officer and Director of
Generac Portable Products, LLC and, since our formation in 1998, Director of
Generac Portable Products, Inc., served in various management positions with
Generac Corporation from 1990 to 1998, most recently as Chief Operating Officer
from 1997 to 1998. Prior to joining Generac Corporation, Mr. Noonan was Manager
of Sales and Marketing at Artcraft Industries from 1988 to 1990, a registered
securities broker at Prudential-Bache Securities from 1985 to 1988, and Manager
of International Sales and Marketing at the Perfex Division of McQuay-Perfex
from 1981 to 1985.
GARY J. LATO, Chief Financial Officer and Secretary of Generac Portable
Products, LLC, joined Generac Corporation in 1991, serving as Director of
Finance in 1991 and as Vice President--Finance from
59
<PAGE>
1992 to 1998. Prior to joining Generac Corporation, Mr. Lato held various
positions, including most recently as Senior Audit Manager, at Price Waterhouse
from 1981 to 1991.
JAMES H. DENEFFE, Senior Vice President--Sales of Generac Portable Products,
LLC, held that position at Generac Corporation from 1996 to 1998. Mr. Deneffe
has been with Generac Corporation since 1978, serving as Vice
President--Consumer Products Sales and Marketing from 1982 to 1995 and as Group
Sales Manager from 1978 to 1981.
WESLEY C. SODEMANN, Vice President of Engineering of Generac Portable
Products, LLC, held that position at Generac Corporation from 1996 to 1998. Mr.
Sodemann also served as Chief Engineer of Generac Corporation from 1979 to 1996
and as Associate Engineer from 1965 to 1979.
JAY C. SUGAR, Vice President of Operations of Generac Portable Products,
LLC, held that position at Generac Corporation from 1996 to 1998. Mr. Sugar also
served as Manufacturing Manager of Generac Corporation from 1993 to 1996 and as
Manager of Production and Inventory Control in 1993. Prior to joining Generac
Corporation, Mr. Sugar held various positions at Cadence Design Systems--ASI
Division (1990 to 1992), Data General Corporation (1987 to 1990) and General
Dynamics (1982 to 1985).
J. DAVID BRAMHILL, Vice President of International Operations of Generac
Portable Products, LLC, has held that position since 1997 and served as European
Operations Manager for Generac Corporation from 1992 to 1996. Prior to joining
Generac Portable Products, Mr. Bramhill served in various management and
engineering positions at Heulins Manufacturing, Crewe, Cheshire, England (1991
to 1992) and Rolls-Royce Motor Car Company, Ltd. and Rolls-Royce Aerospace,
Crewe, Cheshire, England (1972 to 1991).
ROBERT M. SAEGER, Vice President of Planning of Generac Portable Products,
LLC, has held that position since 1998. From 1997 to 1998, Mr. Saeger served as
Director of Accounting/Controller with Generac Corporation and also served as
Director of Accounting and Financial Control from 1990 to 1996, as Accounting
Manager from 1983 to 1990 and as Assistant Controller from 1976 to 1983.
TIMOTHY J. LEMONT, Vice President of Marketing of Generac Portable Products,
LLC, joined Generac Portable Products in 1999. Prior to this he was with
Harnischfeger Industries, Inc. from 1985 to 1999, most recently as Vice
President of Business Development for the P&H Mining Equipment Division. In
addition, Mr. Lemont held various positions, including most recently as Senior
Tax Manager at Price Waterhouse in Milwaukee, Wisconsin from 1980 through 1985.
R. EUGENE CARTLEDGE, Chairman of the Board of Generac Portable Products,
Inc. since 1998, was Chairman of the Board and Chief Executive Officer of Union
Camp Corp. from 1986 until his retirement in June 1994. Mr. Cartledge is a
director of Blount, Inc., Chase Brass Industries, Inc., Delta Airlines
Incorporated, Sunoco, Inc., Union Camp Corp. and UCAR International Inc.
ERIC R. WILKINSON, President and Director of Generac Portable Products, Inc.
since our formation in 1998, has been with The Beacon Group, LLC (an affiliate
of The Beacon Group, LP) since 1994, most recently as a managing director. Prior
to joining The Beacon Group, LLC, Mr. Wilkinson was a partner of Apax Partners &
Cie SA, a European private equity firm, from 1989 to 1994 and a partner of Bain
& Company, a strategy consulting firm, from 1983 to 1989. Mr. Wilkinson is a
director of Doctors Health Systems, Intek Information Inc., The Identity Group,
OnCare Inc., National Century Financial Enterprises, Inc., International
Components Corporation and EyeWeb, Inc.
RICHARD A. AUBE, Secretary and Treasurer of Generac Portable Products, Inc.
and Director of Generac Portable Products, LLC, has been with The Beacon Group,
LLC since 1993, most recently as Director. Prior to joining The Beacon Group,
LLC, Mr. Aube was a financial analyst in the Natural Resources Group of Morgan
Stanley & Co. Incorporated. Mr. Aube is a director of Vessels Energy, Inc.
THOMAS A. COMMES, Director of Generac Portable Products, Inc. since 1999,
has been the President, Chief Operating Officer and director of The
Sherwin-Williams Company from 1986 until his retirement in
60
<PAGE>
1999. Mr. Commes is also a director of KeyCorp, Applied Industrial Technologies,
Inc. and Pella Corporation and is a trustee of The Cleveland Clinic Foundation
and Vocational Guidance Services.
ROBERT D. KERN, Director of Generac Portable Products, Inc. since our
formation in 1998, has been Chairman and Chief Executive Officer of Generac
Corporation since its founding in 1959.
THOMAS G. MENDELL, Director of Generac Portable Products, Inc. since our
formation in 1998, has been a managing director of The Beacon Group, LLC since
1994. Prior to joining The Beacon Group, LLC, Mr. Mendell was a partner of
Goldman, Sachs & Co. where he was employed for nineteen years and served as a
member of the firm's Investment Committee and head of GS Capital. Mr. Mendell is
a director of Doctors Health Systems, Hollywood Theaters, Inc., Coherent
Network, Inc., The Identity Group and OnCare Inc.
R. RALPH PARKS, Director of Generac Portable Products, Inc. since our
formation in 1998, has been a limited partner of The Beacon Group, LP since
1998. Prior to joining The Beacon Group, LP, Mr. Parks was a partner of Goldman,
Sachs & Co. where he was employed for 14 years and held several positions
including head of its Investment Banking Services for Europe and Canada.
RICHARD A. VAN DEUREN, Director of Generac Portable Products, Inc. since our
formation in 1998, has been a partner in the law firm of Reinhart, Boerner, Van
Deuren, Norris & Rieselbach, s.c., Attorneys at Law since 1962. Mr. Van Deuren
is a director of Allen Edmonds Corporation, Allrubber Products & Supply Co.,
Arandell Corporation, Ataco Steel Products Corporation, F.W. Busch Corp.,
Campbell, Newman, Pottinger & Associates, Inc., Construction Forms, Inc., Energy
Ventures, Ltd., Foran Spice Company, Inc., Generac Corporation, Marshall W.
Nelson & Associates, Inc., MSI General Corporation, UNICO, INC., Valuation
Research Corporation and Waukee Engineering Company, Inc.
Directors of each of Generac Portable Products, Inc. and Generac Portable
Products, LLC will hold office until his or her successor has been elected and
qualified. Officers of Generac Portable Products, Inc. will be elected by the
board of directors at the annual meeting of stockholders and will serve at the
discretion of the board. Officers of Generac Portable Products, LLC will be
appointed by the board of directors and will serve at the discretion of the
board.
61
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation paid
during our last completed fiscal year to the Chief Executive Officer and each of
our other four most highly compensated executive officers as of December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------------- COMPENSATION
OTHER AWARDS
ANNUAL SECURITIES
NAME AND COMPEN- UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) OPTIONS (#)
- ------------------------------------------------------ --------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Dorrance J. Noonan, Jr................................ 1998 136,500 26,340 -- --
Chief Executive Officer
Gary J. Lato.......................................... 1998 131,250 25,500 -- --
Chief Financial Officer
James H. Deneffe...................................... 1998 131,250 25,500 -- --
Senior Vice President--Sales
Wesley C. Sodemann.................................... 1998 101,923 24,000 47,500 --
Vice President--Engineering
Jay C. Sugar.......................................... 1998 101,923 19,000 47,500 --
Vice President--Operations
<CAPTION>
ALL OTHER
NAME AND COMPEN-
PRINCIPAL POSITION SATION($)(1)
- ------------------------------------------------------ -----------
<S> <C>
Dorrance J. Noonan, Jr................................ 5,287
Chief Executive Officer
Gary J. Lato.......................................... 3,127
Chief Financial Officer
James H. Deneffe...................................... 11,737
Senior Vice President--Sales
Wesley C. Sodemann.................................... 8,758
Vice President--Engineering
Jay C. Sugar.......................................... 1,882
Vice President--Operations
</TABLE>
- ------------------------
(1) All other compensation includes the value of deferred compensation
agreements maintained with the officers of Generac Portable Products, LLC.
62
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the grants of
options made under our stock option plan during fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION --------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------- ----------- ----------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dorrance J. Noonan, Jr. ........ 375,985 23.8% $ 8.71 7/8/08 $ 2,062,090 $ 5,236,889
Gary J. Lato.................... 300,788 19.0% 8.71 7/8/08 1,649,672 4,189,511
James H. Deneffe................ 150,394 9.5% 8.71 7/8/08 824,836 2,094,755
Wesley C. Sodemann.............. 150,394 9.5% 8.71 7/8/08 824,836 2,094,755
Jay C. Sugar.................... 150,394 9.5% 8.71 7/8/08 824,836 2,094,755
</TABLE>
- ------------------------
(1) These gains are based on arbitrary compounded rates of growth of stock
prices mandated by the Securities and Exchange Commission of 5% and 10% per
year from the date the option was granted over the full option term. These
rates do not represent our estimate or projection of future prices of
Generac Portable Products, Inc. Common Stock. There is no assurance that the
values that may be realized by any executive officer upon exercise of his
options will be at or near the value estimated in the foregoing table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the options granted
during fiscal 1998. To date, no such options have been exercised.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS
SHARES OPTIONS AT FY-END AT FY-END (1)
ACQUIRED ON VALUE ------------------------------ ---------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------- --------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Dorrance J. Noonan, Jr. ....... -- -- -- 375,985 0
Gary J. Lato................... -- -- -- 300,788 0
James H. Deneffe............... -- -- -- 150,394 0
Wesley C. Sodemann............. -- -- -- 150,394 0
Jay C. Sugar................... -- -- -- 150,394 0
<CAPTION>
NAME UNEXERCISABLE
- ------------------------------- -----------------
<S> <C>
Dorrance J. Noonan, Jr. ....... 0
Gary J. Lato................... 0
James H. Deneffe............... 0
Wesley C. Sodemann............. 0
Jay C. Sugar................... 0
</TABLE>
- ------------------------
(1) Assumes the fair market value of the shares underlying the options is the
same as the exercise price ($8.71 per share) payable for such shares.
63
<PAGE>
DIRECTORS' COMPENSATION
Directors of Generac Portable Products do not receive director's fees or
attendance fees. Directors are reimbursed for their reasonable expenses incurred
in connection with attending meetings and performing their duties as directors.
Outside directors are eligible to receive options to purchase Generac Portable
Products, Inc. common stock pursuant to our stock option plan. See "--Stock
Option Plan." Options to purchase 300,788 shares of Generac Portable Products,
Inc. common stock were granted to certain directors during 1998.
BENEFIT PLANS
In connection with the acquisition of the Portable Products Division of
Generac Corporation, we established two non-contributory defined benefit plans
covering substantially all employees: bargaining/ hourly and
non-bargaining/salaried groups. Participants begin vesting after three years of
service and fully vest after seven years of service. The benefits paid under the
salaried plan are based upon years of service and the participant's defined
final monthly compensation. Benefits paid under the hourly plan are based on a
unit amount at the date of termination multiplied by the participants' credited
service. The plans provide for a continuation of participant's years of service
credited with Generac Corporation.
In connection with this acquisition, we also established 401(k) employee
retirement savings plans for the benefit of its employees. We pay all
administrative costs of the plans but make no contributions. There are unfunded
deferred compensation plans for certain key employees.
STOCK OPTION PLAN
In order to attract, retain and motivate selected employees, officers and
directors and to encourage such persons to devote their best efforts to the
business and financial success of Generac Portable Products, we have adopted the
Generac Portable Products, Inc. stock option plan. Under the stock option plan,
stock options to acquire up to 2,406,310 shares, or approximately 16.0% on a
fully diluted basis, of Generac Portable Products, Inc. common stock, in the
aggregate, may be granted under a time-vesting formula at an exercise price
equal to the fair market value of the Generac Portable Products, Inc. common
stock at the date of grant. On July 9, 1998, 1,729,531 options, or approximately
11.5% on a fully diluted basis (assuming the grant of all options), were granted
at an exercise price of $8.71 per share to certain members of management and
certain directors.
The stock option plan is administered by Generac Portable Products, Inc.'s
board of directors. The board of directors will designate which of our employees
shall be eligible to receive awards under the stock option plan, and the amount,
timing and other terms and conditions applicable to such awards. As of December
31, 1998, approximately 4.5% of the outstanding shares of such stock were
reserved for future grants. Options are exercisable in accordance with the terms
established by the board of directors.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of May 31, 1999, with
respect to the beneficial ownership of Generac Portable Products, Inc.'s common
stock by (1) each person who beneficially owns more than 5% of such shares; (2)
each selling stockholder; (3) each of our directors; (4) each of the executive
officers named in the Summary Compensation Table; and (5) all executive officers
and directors of Generac Portable Products as a group. Unless otherwise
indicated, the address for each of our officers and directors is c/o Generac
Portable Products, Inc., 1 Generac Way, Jefferson, Wisconsin 53549.
Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days are deemed outstanding, while such shares are not
deemed outstanding for purposes of computing the percentage ownership of any
other person. Unless otherwise indicated in the footnotes below, the following
persons and entities have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED AFTER OFFERING OWNED AFTER OFFERING
SHARES BENEFICIALLY NUMBER OF SHARES (ASSUMING (ASSUMING
OWNED PRIOR TO BEING OFFERED(13) OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
OFFERING (ASSUMING OVER- NOT EXERCISED) IS EXERCISED IN FULL)
---------------------- ALLOTMENT OPTION IS ---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT EXERCISED IN FULL) NUMBER PERCENT NUMBER PERCENT
- ------------------------------ --------- ----------- --------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
5% HOLDERS:
The Beacon Group III--Focus
Value Fund, L.P.(1)....... 6,982,672 55.3% 693,536 6,982,672 33.8% 6,289,136 30.5%
California Public Employees'
Retirement System(2)...... 2,871,164 22.7% 285,171 2,871,164 13.9% 2,585,993 12.5%
Capital d'Amerique CDPQ
Inc.(3)................... 849,864 6.7% 84,411 849,864 4.1% 765,453 3.7%
DIRECTORS:
R. Eugene Cartledge(4)...... 93,973(5) * -- 93,973(5) * 93,973(5) *
Thomas A. Commes............ -- -- -- -- -- -- --
Robert D. Kern.............. 114,846 * -- 114,846 * 114,846 *
Thomas G. Mendell........... 6,982,672(6) 55.3% -- 6,982,672(6) 33.8% 6,982,136(6) 30.5%
R. Ralph Parks.............. 50,131(7) * -- 50,131(7) * 50,131(7) *
Richard A. Van Deuren....... 36,550(5) * -- 36,550(5) * 36,550(5) *
Eric R. Wilkinson........... 6,982,672(6) 55.3% -- 6,982,672(6) 33.8% 6,982,136(6) 30.5%
OFFICERS:
Dorrance J. Noonan, Jr...... 190,043(8) 1.5% -- 190,043(8) * 190,043(8) *
Gary J. Lato................ 175,004(9) 1.4% -- 175,004(9) * 175,004(9) *
James H. Deneffe............ 144,925 10) 1.1% -- 144,925 10) * 144,925 10) *
Wesley C. Sodemann.......... 32,950 10) * -- 32,950 10) * 32,950 10) *
Jay C. Sugar................ 32,950 10) * -- 32,950 10) * 32,950 10) *
All directors and executive
officers as a group
(15 individuals)(12)...... 937,272 11) 7.2% -- 937,272 11) 4.5% 937,272 11) 4.5%
OTHER SELLING STOCKHOLDERS:
BT Capital Investors,
L.P....................... 574,232 4.5% 57,034 574,232 2.8% 517,198 2.5%
Task Holdings Limited....... 459,386 3.6% 45,627 459,386 2.2% 413,759 2.0%
Squam Lake Investors III,
L.P....................... 110,252 * 10,951 110,252 * 99,301 *
Sunapee Securities, Inc..... 4,594 * 456 4,594 * 4,138 *
Hamilton Lane Private Equity
Partners, L.P............. 72,570 * 7,208 72,570 * 65,362 *
Hamilton Lane Equity Fund
PLC....................... 157,122 1.2% 15,606 157,122 * 141,516 *
</TABLE>
- ------------------------------
* Less than 1%.
(1) The address of The Beacon Group III--Focus Value Fund, L.P. is 399 Park
Avenue, New York, New York 10022.
65
<PAGE>
(2) The address of California Public Employees' Retirement System is Lincoln
Plaza--400 P Street, P.O. Box 942707, Sacramento, California 94229.
(3) The address of Capital d'Amerique CDPQ Inc. is 1981, Avenue McGill
College, 9th Floor, Montreal, Quebec H3A3C7.
(4) 34,454 shares are owned by the Cartledge Family Limited Partnership, of
which Mr. Cartledge is the general partner.
(5) Includes options to purchase 25,066 shares of common stock exercisable
within 60 days of the date of this prospectus.
(6) Messrs. Wilkinson and Mendell may be deemed to share beneficial
ownership of shares of common stock owned of record by The Beacon Group
III--Focus Value Fund, L.P. by virtue of their status as partners of The
Beacon Group, an affiliate of the general partner of The Beacon Group
III--Focus Value Fund, L.P. Messrs. Wilkinson and Mendell disclaim
beneficial ownership of the shares of common stock owned by The Beacon
Group III--Focus Value Fund, L.P. The business address of Messrs.
Wilkinson and Mendell is c/o The Beacon Group III--Focus Value Fund,
L.P., 399 Park Avenue, New York, New York 10022.
(7) Includes options to purchase 50,131 shares of common stock exercisable
within 60 days of the date of this prospectus.
(8) Includes options to purchase 75,197 shares of common stock exercisable
within 60 days of the date of this prospectus.
(9) Includes options to purchase 60,158 shares of common stock exercisable
within 60 days of the date of this prospectus.
(10) Includes options to purchase 30,079 shares of common stock exercisable
within 60 days of the date of this prospectus.
(11) Includes options to purchase 386,013 shares of common stock exercisable
within 60 days of the date of this prospectus.
(12) Does not include 6,982,672 shares as to which Messrs. Wilkinson and
Mendell may be deemed to have beneficial ownership by virtue of their
indirect control of The Beacon Group III--Focus Value Fund, L.P. See
"Management--Directors and Executive Officers."
(13) As part of the underwriters' over-allotment option, each of the Beacon
Group III--Focus Value Fund, L.P., California Public Employees'
Retirement System, Capital d'Amerique CDPQ Inc., BT Capital Investors,
L.P., Task Holdings Limited, Squam Lake Investors III, L.P., Sunapee
Securities, Inc., Hamilton Lane Private Equity Partners, L.P. and
Hamilton Lane Private Equity Fund, PLC have agreed to sell up to an
aggregate 1,200,000 shares of common stock on a pro rata basis to the
underwriters for the purpose of covering over-allotments at the public
offering price set forth on the cover page of this prospectus, less
underwriting discounts and commissions.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL STOCKHOLDERS' AGREEMENT
We are party to a stockholders' agreement with The Beacon Group III--Focus
Value Fund, L.P., and certain other of our stockholders which was entered into
for the purposes, among others, of establishing the composition of our board of
directors and limiting the manner and terms by which the common stock owned by
the stockholders may be transferred. The provisions of the stockholders'
agreement, except for the registration rights described below, generally
terminate upon the occurrence of a registered underwritten public offering of
common stock having an aggregate offering price of at least $100 million. The
following summary of the material terms of the stockholders' agreement is not
intended to be exhaustive and is qualified in its entirety by reference to the
provisions of the stockholders' agreement.
ELECTION OF DIRECTORS. Until the occurrence of a public offering as
described above or at the time Beacon ceases to hold 25% or more of the
outstanding shares of common stock, each stockholder has agreed to vote all of
its shares so that:
- at least four members of the board are designated by Beacon;
- our chief executive officer is a member of the board;
- the removal from the board, with or without cause, of any Beacon-
designated director is only at Beacon's written request; and
- in the event that any Beacon-designated director for any reason ceases to
serve as a member of the board during his or her term of office, the
resulting vacancy is filled by an individual designated by Beacon.
RESTRICTIONS ON TRANSFER OF SHARES. Each minority stockholder has agreed
that it will not sell or transfer any interest in any of their shares except
pursuant to a public sale or as otherwise permitted or required in accordance
with the terms of the stockholders' agreement.
FIRST OFFER RIGHT. If a minority stockholder desires to sell any of its
shares other than to a permitted transferee or pursuant to a public sale, then
we have the right to elect to purchase all, but not less than all, of the
offered shares on substantially the same terms and conditions as the proposed
sale. We may elect to assign our right to purchase the offered shares to the
non-selling stockholders on a pro rata basis. In the event we make an assignment
and any non-selling stockholder fails to elect to participate in the selling
stockholder's sale of shares, the participating stockholders each have the right
to purchase such non-participating stockholder's pro rata share of the
unsubscribed portion of offered shares.
If we or, in the event we make an assignment, the non-selling stockholders
do not elect to purchase all of the offered shares, the selling stockholder is
free to sell the offered shares to any person other than us at a price no less
than and upon terms and conditions no more favorable than the price, terms and
conditions set forth in the selling stockholder's notice to us and each other
stockholder.
TAG-ALONG RIGHTS. In the event of a sale of its shares by a minority
stockholder to a third party purchaser, each non-selling minority stockholder
has the right to participate in the proposed sale of shares in an amount up to
such non-selling stockholder's pro rata share of shares, on the same terms and
conditions as the proposed sale.
If Beacon desires to sell any of its shares other than to a permitted
transferee or pursuant to a public sale, each non-selling stockholder has the
right to participate in the sale by Beacon of its shares, in a percentage of
such non-selling stockholder's shares equal to the same percentage of Beacon's
shares being sold by Beacon, at the same price, on the same terms and conditions
as the proposed sale.
To the extent any of the non-selling stockholders exercises its tag-along
rights, the number of shares proposed to be sold by Beacon or the selling
stockholder, as the case may be, will be correspondingly reduced. If any
non-selling stockholder fails to elect to participate in Beacon's or the selling
stockholder's
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sale, Beacon or the selling stockholder, as the case may be, will give notice of
such failure to the remaining non-selling stockholders who did so elect. Each
participating stockholder shall have the right to sell its pro rata share of the
unsubscribed portion of shares proposed to be sold.
LIMITATION ON CERTAIN ACTIONS BY GENERAC PORTABLE PRODUCTS, INC. Without
the prior affirmative vote of the stockholders who hold at least a majority of
the outstanding common stock, we have agreed not to:
- adopt or effect any plan of sale, merger, consolidation, dissolution,
reorganization or recapitalization;
- offer for sale or sell all or substantially all of our assets;
- amend or restate our certificate of incorporation or our bylaws other than
in conformity with the stockholders' agreement;
- redeem any shares of our capital stock other than pursuant to the
stockholders' agreement or on a pro rata basis among all stockholders; or
- change the type of business activities in which we are engaged.
SALE OF GENERAC/COME-ALONG RIGHT. Each stockholder has agreed, if the board
and the stockholders holding at least a majority of the outstanding shares
approve a sale of us, to vote for such sale and to take all actions, at our
expense, reasonably requested by us in order to consummate such sale.
PARTICIPATION/PREEMPTIVE RIGHTS. We have agreed to grant to each
stockholder the right to purchase all or any part of such stockholder's
proportionate percentage of any future eligible offering.
REGISTRATION RIGHTS. Beacon and certain other of our stockholders are
entitled, under the stockholders' agreement, to certain rights with respect to
the registration of their shares of common stock under the Securities Act of
1933 following an initial public offering of our common stock. These
registration rights do not terminate upon the occurrence of a registered
underwritten public offering of common stock having an aggregate offering price
of at least $100 million. Please see "Description of Capital Stock--Registration
Rights" for additional information.
EMPLOYEES STOCKHOLDERS' AGREEMENT
Employees who own our stock are also subject to an employee stockholders'
agreement. This agreement restricts their right to transfer their stock except
with the written consent of Beacon or otherwise in compliance with the terms of
the agreement. In addition, under certain conditions, this agreement will
require them to sell a pro rata portion of their stock in a transaction in which
Beacon is selling its stock. This agreement also provides the employees with
tag-along rights if Beacon sells its stock and provides us the right to purchase
stock held by terminated employees or employees that have filed for personal
bankruptcy or have been declared insolvent.
AGREEMENTS WITH GENERAC CORPORATION
We are currently party to several agreements with Generac Corporation which
we entered into at the time we purchased the Portable Products Division of
Generac Corporation. Robert D. Kern, one of our directors, is the Chairman and
Chief Executive Officer of Generac Corporation. For more information regarding
the these agreements, please read "Business--Agreements with Generac
Corporation--Engine Supply and Non-Compete Agreements" in this prospectus.
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DESCRIPTION OF THE AMENDED CREDIT FACILITY AND THE INDENTURE
THE AMENDED CREDIT FACILITY
Generac Portable Products, LLC, our operating company, has entered into a
credit facility with a group of lenders and Bankers Trust Company, as
administrative agent and arranger, providing for up to $115.0 million of loans.
On June 10, 1999, we received a commitment from the lenders and the
administrative agent pursuant to which the credit facility will be amended to
provide for up to $155.0 million of loans. After amendment, the credit facility
will consist of (1) a $45.0 million senior secured term loan facility (the "A
Term Loan Facility"), (2) a $40.0 million senior secured term loan facility (the
"B Term Loan Facility"), (3) a $30.0 million senior secured term loan facility
(the "C Term Loan Facility" and together with the A Term Loan Facility and the B
Term Loan Facility the "Term Loan Facilities"), and (4) a $40.0 million senior
secured revolving credit facility. The revolving credit facility will have a
letter of credit sublimit of $5.0 million.
USE OF PROCEEDS; MATURITY. Proceeds of the A Term Loan Facility and the B
Term Loan Facility were used to fund, in part, Generac Portable Products, LLC's
acquisition of the Portable Products Division of Generac Corporation and pay the
related fees and expenses. Proceeds of the C Term Loan Facility will be used to
finance, in part, the repurchase of our 11 1/4% Senior Subordinated Notes, and
to pay the fees and expenses owing in connection with such redemption. Proceeds
of the revolving credit facility will be used for general corporate and working
capital purposes. The $45.0 million term loan facility will mature on December
31, 2003. The $40.0 million term loan facility will mature on June 30, 2005. The
$30.0 million term loan facility will mature on June 30, 2006. The $45.0 million
term loan facility provides for amortization of $2.5 million in the first year,
$6.25 million in the second year, $7.5 million in the third year, $10.0 million
in the fourth year, $12.5 million in the fifth year and $6.25 million in the
sixth year. The $40.0 million term loan facility provides for amortization of $2
million in the first five years and amortization of $19 million in each of the
sixth and seventh years. The $30.0 million term loan facility shall be amortized
in quarterly installments to be determined. The revolving credit facility will
mature on December 31, 2003.
PREPAYMENT; REDUCTION OF COMMITMENTS. Borrowings under the credit facility
are required to be prepaid, subject to certain exceptions, from:
- 100% of the net proceeds of asset sales by our operating company and its
subsidiaries (subject to exceptions for reinvestment of certain asset sale
proceeds and certain exceptions),
- 100% of the net proceeds from incurrences of certain debt obligations by
us and our subsidiaries,
- 100% of the first $50.0 million and 75% of the balance, if any, of net
proceeds from issuances of equity by us and our subsidiaries,
- certain percentages of annual excess cash flow, and
- 100% of the net proceeds from certain insurance recovery events of us and
our subsidiaries.
Voluntary prepayments are generally permitted without premium or penalty. In
the case of voluntary prepayment of eurodollar borrowings other than on the last
day of the relevant interest period, however, the lenders' costs must be
reimbursed. Voluntary prepayments under the term loan facilities will be
allocated among those facilities on a pro rata basis. The amounts so allocated
will be applied to reduce future scheduled amortization payments on a pro rata
basis.
INTEREST AND FEES. The interest rates under the $45.0 million term loan
facility and the revolving credit facility are based, at the option of our
operating company, on either a eurodollar rate plus 2.25% per annum or a base
rate plus 1.25% per annum. The interest rate under the $40.0 million term loan
facility is based, at the option of our operating company, on a eurodollar rate
plus 2.75% or a base rate plus 1.75%. The interest rate under the $30.0 million
term loan facility is based, at the option of our operating
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company, on a eurodollar rate plus 2.50% or a base rate plus 1.50%. A commitment
fee of 0.50% per annum will be charged on the unused portion of the revolving
credit facility. A facing fee of .25% of the daily average amount of each
outstanding letter of credit will be paid to the bank issuing such letter of
credit. The interest rate margins (except as they apply to the $30.0 million
term loan facility) and commitment fees will be reduced in the event of
reductions in our consolidated debt to EBITDA ratio.
COLLATERAL AND GUARANTEES. The credit facility is guaranteed by General
Portable Products, GPPW, Inc., all of Generac Portable Products, LLC's existing
and future domestic subsidiaries and, upon the occurrence of certain events,
GPPD, Inc. Subject to certain exceptions, the credit facility is secured by a
first priority lien on substantially all of the properties and assets of the
company, our operating company, each direct or indirect subsidiary of our
operating company, GPPW, Inc. and, upon the occurrence of certain events, GPPD,
Inc. GPPW, Inc. and GPPD, Inc. are wholly owned subsidiaries of our company.
COVENANTS. The credit facility contains covenants restricting the ability
of our operating company and its subsidiaries to, among others:
- incur additional debt,
- engage in mergers, acquisitions and asset sales,
- engage in sale-leaseback transactions,
- declare dividends and make other restricted payments,
- prepay, redeem or purchase debt or amend existing debt agreements,
- engage in transactions with affiliates,
- make investments,
- incur liens, and
- make capital expenditures.
FINANCIAL COVENANTS. We are required to comply with financial covenants
with respect to (a) a maximum leverage ratio, (b) a minimum interest coverage
ratio and (c) a minimum EBITDA test (as defined in the credit facility
agreement). The leverage ratio, which is the ratio of indebtedness to EBITDA on
a consolidated basis, was required under the credit facility to be no more than
6.7 to 1 at March 31, 1999. At such date, our actual leverage ratio was 5.22 to
1. The interest coverage ratio, which is the ratio of EBITDA to cash interest
expense on a consolidated basis, was required under the credit facility to be no
less than 1.55 to 1 at March 31, 1999. At such date, our actual interest
coverage ratio was 2.04 to 1. EBITDA, which was required under the credit
facility to be at least $31.0 million at March 31, 1999, was actually $41.1
million at that date.
EVENTS OF DEFAULT. Events of default under the credit facility include:
- our operating company's failure to pay principal when due or interest
after a grace period,
- material breach of any covenant, representation or warranty contained in
the loan documents,
- customary cross-default and cross-acceleration provisions,
- certain events of or proceedings regarding bankruptcy, insolvency or
dissolution of Generac Portable Products, Inc. or its subsidiaries,
- certain judgments against Generac Portable Products, Inc. and its
subsidiaries or their assets,
- the actual or asserted invalidity of security documents or guarantees of
Generac Portable Products, Inc., our operating company or its
subsidiaries, and
- a change in control of Generac Portable Products, Inc. or our operating
company.
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The preceding discussion of the material provisions of the credit facility
is not intended to be exhaustive and is qualified in its entirety by reference
to the provisions of the credit facility.
THE 11 1/4% SENIOR SUBORDINATED NOTES
On July 2, 1998, Generac Portable Products, LLC and GPPW, Inc. issued $110
million of their 11 1/4% Senior Subordinated Notes due 2006, which are
guaranteed by Generac Portable Products, Inc. Interest on the notes is payable
semi-annually on January 1 and July 1. We intend to make an offer to repurchase
all of the outstanding notes with the net proceeds from this offering together
with borrowings under the amended credit facility. In connection with the tender
offer, we will seek to eliminate most of the covenants in the indenture relating
to these notes.
The indenture contains covenants that, among other things, limit our ability
and the ability of our subsidiaries to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, engage in transactions with
stockholders and affiliates, create liens, sell assets and engage in mergers and
consolidations. If the tender offer is not completed we will remain subject to
these covenants.
The notes are redeemable, at our option, in whole or in part, at any time on
or after July 1, 2002 and prior to maturity, upon not less than 30 nor more than
60 days' prior notice, at a redemption price of 107.625% of the principal amount
of the notes at maturity, plus accrued and unpaid interest, declining to 100% of
the principal amount of the notes, plus accrued and unpaid interest.
In addition, at any time prior to July 1, 2001, we may redeem up to 35% of
the principal amount of the notes with the proceeds of one or more public equity
offerings, as a whole or in part, at a redemption price of 111.25% of the
principal amount of the notes, plus accrued and unpaid interest.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Our authorized capital stock consists of 30,000,000 shares of common stock,
with a $0.01 par value per share. As of March 31, 1999, there were 12,633,125
shares of common stock outstanding, which were held by 18 stockholders of
record. On May 20, 1999, our certificate of incorporation was amended to
increase the authorized capital stock of Generac Portable Products to 30,000,000
shares of common stock. On May 20, 1999, we effected a 1,250-for-1 stock split
and on May 28, 1999, we effected a 1.189-for-1 stock split which increased the
number of shares from 8,500 shares of common stock issued and outstanding to
12,633,125 shares.
The holders of common stock are generally entitled to one vote for each
share held of record on all matters to be voted upon by the stockholders. There
are no cumulative voting rights. The holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available for that purpose. In the
event of a liquidation, dissolution or winding up of Generac Portable Products,
Inc., the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock.
PREFERRED STOCK
Our board of directors is authorized to issue 2,000,000 shares of preferred
stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions of such preferred stock, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
a series or the designation of such series, without any further vote or action
by our stockholders. The issuance of preferred stock could have the effect of
delaying, deferring or making more difficult a change in control of Generac
Portable Products and may adversely affect the market price of the common stock
and the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock including the loss of voting control
to others and it could decrease the amount of earnings and assets available for
distribution to the holders of common stock. We have no current plans to issue
any shares of preferred stock, and no such shares are currently outstanding.
REGISTRATION RIGHTS
Beacon and certain other stockholders are entitled to certain rights with
respect to the registration of their shares of common stock under the Securities
Act of 1933 following this offering. These rights are provided under the terms
of a stockholders' agreement between us and these holders of registrable
securities. Beacon may require that we use our best efforts to register its
registrable securities for public resale, provided that the anticipated offering
price would exceed $25 million. We must bear all the registration expenses for
two of the registrations that Beacon is entitled to. The other holders of
registrable securities may require that we use our best efforts to register
their registrable securities for public resale on Form S-3, provided that the
expected offering price would exceed $10 million. We must bear all the
registration expenses for all of the Form S-3 registrations that are not
underwritten and for three of the Form S-3 registrations that are underwritten.
If we register any of our common stock for our own account, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, subject to the ability of the underwriters to limit the number
of shares included in the offering, and we must bear all registration expenses.
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ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
THE DELAWARE BUSINESS COMBINATION ACT. We are a Delaware corporation and
are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with a holder of 15% or more
of the corporation's common stock for a period of three years following the date
the person became a 15% stockholder, unless the business combination or the
transaction in which the person became the 15% stockholder is approved in a
prescribed manner. Generally, a business combination includes a merger, asset or
stock sale or other transaction resulting in a financial benefit to the 15%
stockholder. The existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by the
stockholders.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our certificate of
incorporation authorizes our board of directors to establish one or more series
of undesignated preferred stock, the terms of which can be determined by our
board of directors at the time of issuance. Our certificate of incorporation
also provides that all stockholder action must be effected at a duly called
meeting of stockholders and not by a consent in writing. Furthermore, our
certificate of incorporation provides that our board of directors may amend our
bylaws without stockholder consent. Our certificate of incorporation also allows
our board of directors to issue rights to stockholders with provisions that
limit our ability to redeem such issued securities. In addition, our bylaws do
not permit our stockholders to call a special meeting of stockholders; only our
chairman, president or board of directors may do so. Our bylaws also require
that stockholders give advance notice to our secretary of any nominations for
director or other business to be brought by stockholders at any stockholders
meeting. Finally, the bylaws and certificate of incorporation allow stockholders
to remove directors only for cause and only at stockholders' meetings. These
certificate of incorporation and bylaw provisions could discourage potential
acquisition proposals and could delay or prevent a change in control of Generac
Portable Products or our management.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar is BankBoston, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market after this
offering, or the possibility of such sales occurring, could adversely affect the
prevailing market price and our ability to raise capital in the future.
Upon the completion of this offering, Generac Portable Products, Inc. will
have outstanding 20,633,125 shares of common stock. Of these shares, the
8,000,000 shares of common stock sold in this offering will be freely tradeable
without restriction. The remaining shares were issued and sold in private
transactions and are eligible for public sale only if registered under the
Securities Act of 1933 or sold in accordance with Rule 144 under the Securities
Act of 1933.
Generac Portable Products, Beacon, the selling stockholders and all of our
executive officers and directors have entered into lock-up agreements. The
lock-up agreements require that the locked-up person not dispose of any shares
of common stock owned by them for a period of 180 days after the date of this
prospectus without the prior written consent of the underwriters. After the
expiration of the lock-up agreements, such persons will be entitled to dispose
of the common stock that they hold subject to the provisions of applicable
securities laws.
Our executive officers and directors are generally permitted to sell common
stock in accordance with Rule 144. In general, under Rule 144, a person who has
beneficially owned shares for at least one year is entitled to sell in broker
transactions or to market makers, within any three-month period, a certain
number of shares. This number may not exceed the greater of:
- one percent of the then outstanding shares of common stock, or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the required filing of the Form 144 with respect
to such sale.
Under Rule 144, however, a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has held the
shares proposed to be sold for a minimum of two years is free to sell such
shares without having to comply with the volume, manner-of-sale, volume
limitation or notice provisions under Rule 144.
Shortly after the completion of this offering, we intend to file a
registration statement under the federal securities laws to permit the 2,406,310
shares reserved for issuance under our stock option plan to be sold in the
public market.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated and Salomon
Smith Barney Inc. are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them 8,000,000 shares of common stock.
The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Morgan Stanley & Co. Incorporated..........................................
Deutsche Bank Securities Inc...............................................
Salomon Smith Barney Inc...................................................
-----------------
Total...................................................................... 8,000,000
-----------------
-----------------
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of our common stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to purchase all of the shares of our common stock,
except those covered by the underwriters' over-allotment option described below,
if any are purchased.
The underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus. The underwriters may also offer the shares to securities dealers at
a price that represents a concession not in excess of $ a share under the
public offering price. Any underwriter may allow and dealers may reallow, a
concession not in excess of $ a share to other underwriters or to securities
dealers. After the initial offering of the shares, the offering price and other
selling terms may from time to time be changed by the representatives.
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of 1,200,000 additional shares at the public offering price set forth
on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares offered pursuant to this prospectus. To the extent this option is
exercised, each underwriter will become obligated, subject to specified
conditions, to purchase about the same percentage of additional shares as the
number set forth next to the underwriter's name in the preceding table bears to
the total number of shares set forth next to the names of all underwriters in
the preceding table. If the underwriters' option is exercised in full, the total
price to public for this offering would be $ , the total underwriters'
discounts and commissions would be $ and total proceeds to the selling
stockholders would be $ .
The underwriters have informed us that each principal underwriter in this
offering may, subject to the approval of Morgan Stanley & Co. Incorporated, sell
to discretionary accounts over which the principal underwriter exercises
discretionary authority. The underwriters have further informed us that they
estimate that these sales will not exceed in the aggregate five percent of the
total number of shares offered by them.
We have applied for listing of our common stock on the NYSE under the symbol
"GPP", subject to official notice of issuance. The underwriters intend to sell
shares of the common stock to a minimum of 2,000 beneficial owners in lots of
100 or more so as to meet the distribution requirements of such listing.
At our request, the underwriters will reserve up to 400,000 shares to be
sold in the offering and offered hereby for sale, at the initial public offering
price, to directors, officers and employees and others, generally in the United
States. This directed share program will be administered by Morgan Stanley & Co.
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Incorporated. The number of shares available for sale to the general public will
be reduced to the extent these individuals purchase the reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered in this
prospectus.
Generac Portable Products, Inc., Beacon, the selling stockholders and all of
our directors and executive officers have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we
will not, during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant purchase, lend, or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable for common stock, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of shares
of common stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters,
- the issuance by us of shares of common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
of this prospectus of which the underwriters have been advised in writing,
- the granting of stock options and/or restricted stock units pursuant to
our existing employee benefit plans, PROVIDED that such options do not
become exercisable and such units do not vest during such 180-day period,
- transactions by any person other than Generac Portable Products, Inc. and
its subsidiaries relating to shares of common stock or other securities
acquired in open market or other transactions after the completion of the
offering.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may agree to sell (or
allot) more shares than the 8,000,000 shares of our common stock we have agreed
to sell to them. This over-allotment would create a short position in our common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed shares of common stock in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. The underwriters
have reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities,
and may end any of these activities at any time.
From time to time, certain of the underwriters and their affiliates have
provided, and may continue to provide, financial advisory and commercial banking
services to Generac Portable Products, Inc. and Beacon.
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In this regard, an affiliate of Deutsche Bank Securities Inc. acted as
placement agent in connection with our issuance of the 11 1/4% Senior
Subordinated Notes and Deutsche Bank Securities Inc. will act as our financial
advisor in connection with our tender offer for these notes. In addition, BT
Capital Investors, L.P., an affiliate of Deutsche Bank Securities Inc.,
currently owns approximately 574,232 shares or 4.5% of our common stock and, if
the underwriters' over-allotment option is exercised in full, will sell 56,127
shares of common stock in this offering. See "Principal and Selling
Stockholders." In addition, Bankers Trust Company, an affiliate of Deutsche Bank
Securities Inc., is an administrative agent and lender under our credit facility
and may receive more than 10% of the net proceeds of this offering if amounts
are repaid under our credit facility. See "Use of Proceeds." Under the
provisions of Rule 2710 of the Conduct Rules of the National Association of
Securities Dealers, when an NASD member participates in a public offering of a
company's securities where more than 10% of the net offering proceeds are
intended to be paid to such member or associated or affiliated persons of such
member, the public offering price of the securities can be no higher than that
recommended by the "qualified independent underwriter," as that term is defined
in Rule 2720 of the Conduct Rules. In accordance with these requirements, Morgan
Stanley & Co. Incorporated has agreed to serve as a "qualified independent
underwriter" and has conducted due diligence and will recommend a maximum price
for the shares of common stock.
Generac Portable Products, Inc., the selling stockholders and the
underwriters have agreed to indemnify each other against a variety of
liabilities, including liabilities under the Securities Act of 1933.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
among Generac Portable Products, Inc., the selling stockholders and the
representatives. Among the factors to be considered in determining the initial
public offering price will be our record of operations, our current financial
position and future prospects, sales, earnings and certain of our other
financial and operating information in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to ours.
The estimated initial public offering price range set forth on the cover page of
this prospectus is subject to change as a result of market conditions and other
factors.
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<PAGE>
EXPERTS
The financial statements of Generac Portable Products, Inc. as of July 9,
1998 and December 31, 1998 and for the period July 10, 1998 through December 31,
1998 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of the Portable Products Division, a Business Unit
of Generac Corporation, as of and for each of the two years in the period ended
December 31, 1997, the three months ended March 31, 1998 and for the period
January 1, 1998 through July 9, 1998 included in this Prospectus and the related
financial statement schedule included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Generac Portable Products, Inc. by King & Spalding, New York, New York. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Davis Polk & Wardwell, New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4 with the SEC with respect
to the 11 1/4% Senior Subordinated Notes due 2006. As a result of the filing of
that registration statement with the SEC, we will be required to file annual,
quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any document we file with the SEC, including that
registration statement, at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005. Please call the SEC at 1-800-SEC-0330
for further information on the SEC's public reference room. You may also request
copies of such documents, upon payment of a duplicating fee, by writing to the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such
documents over the Internet at the SEC's website at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. As allowed by SEC rules, this prospectus does not contain
all of the information included in that registration statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
document are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to that registration statement, you should
read the exhibit for a more complete understanding of the document or subject
matter involved.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF GENERAC PORTABLE PRODUCTS, INC.
Unaudited Interim Financial Statements:
Consolidated Balance Sheet as of March 31, 1999.......................................................... F-2
Consolidated Statement of Income for the Three Months Ended March 31, 1999............................... F-3
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1999........................... F-4
Notes to Unaudited Consolidated Financial Statements..................................................... F-5
Audited Financial Statements:
Report of Independent Accountants........................................................................ F-8
Consolidated Balance Sheets as of December 31, 1998 and July 9, 1998..................................... F-9
Consolidated Statement of Income for the period July 10, 1998 through December 31, 1998.................. F-10
Consolidated Statement of Changes in Stockholders' Equity for the period July 10, 1998 through December
31, 1998............................................................................................... F-11
Consolidated Statement of Cash Flows for the period July 10, 1998 through December 31, 1998.............. F-12
Notes to Consolidated Financial Statements............................................................... F-13
FINANCIAL STATEMENTS OF PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION
Report of Independent Auditors............................................................................. F-26
Balance Sheets as of July 9, 1998, March 31, 1998 and December 31, 1997 and 1996........................... F-27
Statements of Income for the Six Months and Nine Days Ended July 9, 1998, the Three Months Ended March 31,
1998 and the Years Ended December 31, 1997 and 1996...................................................... F-28
Statements of Cash Flows for the Six Months and Nine Days Ended July 9, 1998, the Three Months Ended March
31, 1998 and the Years Ended December 31, 1997 and 1996.................................................. F-29
Notes to Financial Statements.............................................................................. F-30
</TABLE>
F-1
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.......................................................................... $ 1,407
Accounts receivable (less allowance of $263)....................................................... 70,899
Inventories........................................................................................ 58,955
Deferred income taxes.............................................................................. 139
Prepaid expenses and other current assets.......................................................... 1,004
-----------
Total current assets........................................................................... 132,404
Property, plant and equipment, net................................................................... 20,659
Intangible assets, net............................................................................... 210,065
Deferred financing costs............................................................................. 6,808
Other................................................................................................ 262
-----------
Total assets................................................................................... $ 370,198
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................................................................. $ 8,381
Trade accounts payable............................................................................. 32,199
Accrued employee compensation, benefits and payroll withholdings................................... 1,666
Other accrued liabilities.......................................................................... 13,156
-----------
Total current liabilities...................................................................... 55,402
Long-term debt obligations........................................................................... 206,334
Other long-term obligations.......................................................................... 1,011
Deferred income taxes................................................................................ 2,261
Commitments and contingencies (Note 4)
Stockholders' Equity:
Common stock, $.01 par value, 30,000 shares authorized; 12,633 shares issued and outstanding....... 126
Additional paid-in capital......................................................................... 109,874
Retained earnings.................................................................................. 7,027
Accumulated other comprehensive loss............................................................... (179)
Excess of purchase price over book value of net assets acquired from entities partially under
common control................................................................................... (11,658)
-----------
Total stockholders' equity..................................................................... 105,190
-----------
Total liabilities and stockholders' equity..................................................... $ 370,198
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1999
--------------
<S> <C>
(UNAUDITED)
Net sales..................................................................... $ 92,887
Cost of sales................................................................. 68,730
-------
Gross profit............................................................ 24,157
Operating expenses:
Selling and service......................................................... 11,152
General and administrative.................................................. 2,001
Intangible asset amortization............................................... 1,341
-------
Income from operations.................................................. 9,663
Other expense:
Interest expense............................................................ 5,096
Deferred financing cost amortization........................................ 213
Other expense, net.......................................................... 5
-------
Income before income taxes.............................................. 4,349
Provision for income taxes.................................................... 1,524
-------
Net income.............................................................. $ 2,825
-------
-------
Earnings per share:
Basic....................................................................... $ 0.22
-------
-------
Diluted..................................................................... $ 0.22
-------
-------
Weighted average shares outstanding:
Basic....................................................................... 12,633
-------
-------
Diluted..................................................................... 12,912
-------
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1999
--------------
<S> <C>
(UNAUDITED)
Operating activities:
Net income...................................................................................... $ 2,825
Adjustments to reconcile net income to cash used for operating activities:
Depreciation.................................................................................. 584
Amortization.................................................................................. 1,554
Deferred income taxes......................................................................... 756
Increase (decrease) in cash due to changes in:
Accounts receivable......................................................................... (26,534)
Inventories................................................................................. (12,933)
Other assets................................................................................ (138)
Trade accounts payable...................................................................... 19,550
Accrued liabilities......................................................................... (753)
--------------
Net cash used for operating activities...................................................... (15,089)
--------------
Investing activities:
Capital expenditures............................................................................ (1,885)
--------------
Net cash used for investing activities...................................................... (1,885)
--------------
Financing activities:
Net borrowings under revolving loan facility.................................................... 18,400
Payments on other long-term debt obligations.................................................... (1,468)
Payment of deferred financing costs............................................................. (35)
--------------
Net cash provided by financing activities................................................... 16,897
--------------
Effect of exchange rate changes on cash........................................................... (44)
--------------
Net decrease in cash and cash equivalents......................................................... (121)
Cash and cash equivalents:
Beginning of period............................................................................. 1,528
--------------
End of period................................................................................... $ 1,407
--------------
--------------
Supplemental cash flow information:
Cash paid for interest.......................................................................... $ 7,874
--------------
--------------
Cash paid for taxes............................................................................. $ 790
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
1. BASIS OF PRESENTATION
Generac Portable Products, Inc. ("Generac Portable Products" or the
"company"), with domestic operations located in Jefferson, Wisconsin and branch
operations in the United Kingdom and Germany, is a leader in the design,
manufacture and sale of portable generators and pressure washers for use in both
industrial and residential applications. Generac Portable Products sells
primarily to large home center retailers throughout the United States, Canada
and Europe.
These financial statements have been prepared by Generac Portable Products
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC") and, in the opinion of Generac Portable Products, include all
adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position, results of operations and cash flows of
Generac Portable Products for the interim period presented. These financial
statements include the accounts of Generac Portable Products' wholly-owned
subsidiaries, and all significant intercompany transactions have been
eliminated. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed and omitted pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with Generac Portable Products' financial statements for the period
July 10, 1998 through December 31, 1998, and Generac Portable Products'
unaudited pro forma consolidated financial information included elsewhere in
this prospectus.
The following is a reconciliation of the average shares outstanding,
adjusted to reflect the company's May 20, 1999 and May 28, 1999 stock splits
(see Note 7), used to compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Basic EPS....................................................................... 12,633
Dilutive effect of stock options................................................ 279
------
Diluted EPS..................................................................... 12,912
------
------
</TABLE>
2. INVENTORIES
Inventories at March 31, 1999 consist of the following:
<TABLE>
<S> <C>
Raw materials and sub-assemblies................................... $ 35,142
Finished goods..................................................... 23,813
---------
$ 58,955
---------
---------
</TABLE>
3. INCOME TAXES
Generac Portable Products recorded an income tax provision by estimating the
annual effective income tax rate and applied that rate to pretax income. The
effective income tax rate for Generac Portable Products varies from the Federal
statutory tax rate due to state income taxes and other non-deductible expenses.
F-5
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
4. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
In the normal course of business Generac Portable Products is involved in
certain legal actions and claims. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect on
Generac Portable Products' financial position, results of operations or cash
flows.
In connection with the purchase by Generac Portable Products, LLC of
substantially all of the assets of the Portable Products Division (the
"Predecessor") of Generac Corporation on July 9, 1998 (the "Acquisition"),
Generac Portable Products entered into an OEM engine supply agreement with
Generac Corporation, to supply it with the engine used in certain of Generac
Portable Products' pressure washers and consumer portable generators. The engine
supply agreement allows for Generac Portable Products to make minimum purchases
of engines from Generac Corporation in each of the next nine years and gives
Generac Portable Products the right to increase the amount purchased based upon
forecasted requirements. This agreement is an exclusive arrangement related to
such products subject to the minimum purchase requirements. As Generac Portable
Products maintains relationships with other major engine suppliers, management
believes that the minimum purchase quantities and unit prices under this
agreement will not have an adverse effect on Generac Portable Products.
Management also considers the provisions of the engine supply agreement to
reflect arms-length terms. For the period ended March 31, 1999, Generac Portable
Products purchased products approximating $11.5 million under this agreement. In
addition, Generac Portable Products also purchased other components from Generac
Corporation approximating $5.6 million for the period ended March 31, 1999.
Included in accounts payable are amounts due to Generac Corporation of
approximately $6.8 million at March 31, 1999.
In connection with the issuance by Generac Portable Products, LLC and GPPW,
Inc. ("GPPW") of $110 million of 11.25% Senior Subordinated Notes due June 30,
2006 (the "Notes"), Generac Portable Products entered into a registration rights
agreement pursuant to which Generac Portable Products agreed that it would use
its best efforts to file a registration statement with the SEC for the purpose
of exchanging the existing notes for new notes registered under the Securities
Act. Under the registration rights agreement, Generac Portable Products is
subject to liquidated damages in the form of additional interest at the rate of
0.50% per annum if certain deadlines are not met in connection with this filing.
The anticipated impact of the additional interest is not expected to be
material.
5. COMPREHENSIVE INCOME
Total comprehensive income totaled $1,923 for the three months ended March
31, 1999. Total comprehensive income is comprised of net income of $2,825 and
accumulated other comprehensive loss of $902. The accumulated other
comprehensive loss is comprised entirely of foreign currency translation
adjustments.
6. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
In connection with the Acquisition, Generac Portable Products, LLC and GPPW
co-issued the Notes. While Generac Portable Products, LLC and GPPW are jointly
and severally liable for the obligations under the Notes, GPPW does not conduct
any operations, or have any assets of any kind other than its investment in
Generac Portable Products, LLC. The following unaudited condensed supplemental
consolidating financial information as of March 31, 1999 and for the three
months ended March 31, 1999,
F-6
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
6. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
(CONTINUED)
reflects the investments of Generac Portable Products, GPPW and GPPD, Inc.
("GPPD") in Generac Portable Products, LLC using the equity method. Generac
Portable Products, GPPW and GPPD are dependent upon Generac Portable Products,
LLC for cash flows to fund their income tax liabilities arising from their
respective investments. GPPW and GPPD are wholly-owned subsidiaries of Generac
Portable Products, and GPPW and GPPD hold a 5% and 95% ownership interest in
Generac Portable Products, LLC, respectively.
<TABLE>
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets............. $ -- $ 7 $ 132 $ 132,265 $ $ 132,404
Investment in affiliates... 116,058 5,988 113,774 -- (235,820) --
Noncurrent assets.......... -- -- -- 237,794 -- 237,794
-------- --------- ---------- -------- ------------ ------------
Total assets......... $ 116,058 $ 5,995 $ 113,906 $ 370,059 $ (235,820) $ 370,198
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
Current liabilities........ -- $ 40 $ 752 $ 54,610 $ -- $ 55,402
Long-term debt............. -- -- -- 206,334 -- 206,334
Other long-term
obligations.............. -- 113 2,148 1,011 -- 3,272
Stockholders' equity....... 116,058 5,842 111,006 108,104 (235,820) 105,190
-------- --------- ---------- -------- ------------ ------------
$ 116,058 $ 5,995 $ 113,906 $ 370,059 $ (235,820) $ 370,198
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ -- $ -- $ 92,887 $ -- $ 92,887
Gross profit............... -- -- -- 24,157 -- 24,157
Operating expenses......... -- -- -- 14,494 -- 14,494
-------- --------- ---------- -------- ------------ ------------
Operating income........... -- -- -- 9,663 -- 9,663
Interest expense........... -- -- -- 5,096 -- 5,096
Other expense, net......... -- -- -- 218 -- 218
Equity in earnings of
affiliates............... 2,825 217 4,132 -- (7,174) --
-------- --------- ---------- -------- ------------ ------------
Income before income
taxes.................... 2,825 217 4,132 4,349 (7,174) 4,349
Provision for income
taxes.................... -- 76 1,448 -- -- 1,524
-------- --------- ---------- -------- ------------ ------------
Net income................. $ 2,825 $ 141 $ 2,684 $ 4,349 $ (7,174) $ 2,825
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
</TABLE>
7. STOCK SPLIT
On May 20, 1999, the company effected a 1,250 for one common stock split and
on May 28, 1999, the company effected a 1.189 for one common stock split. All
share and per share information in these consolidated financial statements have
been retroactively adjusted to reflect these stock splits.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Generac Portable Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Generac Portable Products, Inc. and its subsidiaries at December 31, 1998 and
July 9, 1998, and the results of their operations and their cash flows for the
period July 10, 1998 through December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Generac Portable Products' management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
February 22, 1999, except as to the EARNINGS PER SHARE
section of Note 2, and Note 10, which are as of
May 28, 1999
F-8
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $ 1,528 $ 599
Accounts receivable (less allowances of $242 and $225, respectively)................. 44,695 51,028
Inventories.......................................................................... 46,651 42,663
Deferred income taxes................................................................ 139 --
Prepaid expenses and other current assets............................................ 898 429
------------ ----------
Total current assets............................................................. 93,911 94,719
Property, plant and equipment, net..................................................... 19,437 16,633
Intangible assets, net................................................................. 211,407 213,938
Deferred financing costs............................................................... 6,985 7,309
Other.................................................................................. 262 --
------------ ----------
Total assets..................................................................... $ 332,002 $ 332,599
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................................................... $ 7,922 $ 3,372
Trade accounts payable............................................................... 12,839 14,904
Accrued employee compensation, benefits and payroll withholdings..................... 1,185 1,063
Other accrued liabilities............................................................ 14,424 8,070
------------ ----------
Total current liabilities........................................................ 36,370 27,409
Long-term debt obligations............................................................. 189,861 205,853
Other long-term obligations............................................................ 999 995
Deferred income taxes.................................................................. 1,505 --
Commitments and contingencies (Note 13)
Stockholders' Equity:
Common stock, $.01 par value, 30,000 shares authorized; 12,633 shares issued and
outstanding........................................................................ 126 126
Additional paid-in capital........................................................... 109,874 109,874
Retained earnings.................................................................... 4,202 --
Accumulated other comprehensive income............................................... 723 --
Excess of purchase price over book value of net assets acquired from entities
partially under common control..................................................... (11,658) (11,658)
------------ ----------
Total stockholders' equity....................................................... 103,267 98,342
------------ ----------
Total liabilities and stockholders' equity....................................... $ 332,002 $ 332,599
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 10, 1998
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Net sales...................................................................................... $ 136,862
Cost of sales.................................................................................. 98,245
--------
Gross profit............................................................................. 38,617
Operating expenses:
Selling and service.......................................................................... 16,935
General and administrative................................................................... 2,865
Intangible asset amortization................................................................ 2,531
--------
Income from operations................................................................... 16,286
Other expense (income):
Interest expense............................................................................. 9,674
Deferred financing cost amortization......................................................... 401
Other income, net............................................................................ (171)
--------
Income before income taxes............................................................... 6,382
Provision for income taxes..................................................................... 2,180
--------
Net income............................................................................... $ 4,202
--------
--------
Earnings per share:
Basic........................................................................................ $ 0.33
--------
--------
Diluted...................................................................................... $ 0.33
--------
--------
Weighted average shares outstanding:
Basic........................................................................................ $ 12,633
--------
--------
Diluted...................................................................................... $ 12,752
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 10, 1998 THROUGH DECEMBER 31, 1998
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME OTHER (A) TOTAL
--------- --------- ---------- ----------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 9, 1998.................. 12,633 $ 126 $ 109,874 $ -- $ -- $ (11,658) $ 98,342
Comprehensive income:
Net income............................. -- -- -- 4,202 -- -- 4,202
Translation adjustments.................. -- -- -- -- 723 -- 723
--------- --------- ---------- ----------- ----- ---------- ----------
Total comprehensive income............... -- -- -- 4,202 723 -- 4,925
--------- --------- ---------- ----------- ----- ---------- ----------
Balance at December 31, 1998............. 12,633 $ 126 $ 109,874 $ 4,202 $ 723 $ (11,658) $ 103,267
--------- --------- ---------- ----------- ----- ---------- ----------
--------- --------- ---------- ----------- ----- ---------- ----------
</TABLE>
- ------------------------
(A) Amount represents the excess of the purchase price paid in connection with
the Acquisition over the book value of net assets acquired not recognized as
a result of certain continuing shareholder interests.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 10, 1998
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Operating activities:
Net income................................................................................... $ 4,202
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation............................................................................... 1,022
Amortization............................................................................... 2,932
Deferred income taxes...................................................................... 1,366
Increase (decrease) in cash due to changes in:
Accounts receivable...................................................................... 6,696
Inventories.............................................................................. (3,627)
Other assets............................................................................. (726)
Trade accounts payable................................................................... (2,106)
Accrued liabilities...................................................................... 6,454
-------
Net cash provided by operating activities.............................................. 16,213
-------
Investing activities:
Capital expenditures......................................................................... (3,814)
Proceeds from sale of property, plant and equipment.......................................... 34
-------
Net cash used for investing activities................................................. (3,780)
-------
Financing activities:
Net payments under revolving loan facility................................................... (11,008)
Payments on other long-term debt obligations................................................. (434)
Payment of deferred financing costs.......................................................... (77)
-------
Net cash used for financing activities................................................. (11,519)
-------
Effect of exchange rate changes on cash........................................................ 15
-------
Net increase in cash and cash equivalents...................................................... 929
Cash and cash equivalents:
Beginning of period.......................................................................... 599
-------
End of period................................................................................ $ 1,528
-------
-------
Supplemental cash flow information:
Cash paid for interest....................................................................... $ 2,260
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
1. FORMATION OF GENERAC PORTABLE PRODUCTS AND NATURE OF BUSINESS
Generac Portable Products, Inc. ("Generac Portable Products" or the
"company"), a Delaware corporation, was formed on April 29, 1998 by an investor
group organized by The Beacon Group III-- Focus Value Fund L.P. for the purpose
of acquiring, through its indirect wholly-owned limited liability company,
Generac Portable Products, LLC, net assets of the Portable Products Division of
Generac Corporation. The primary business activity of Generac Portable Products
consists of its indirect ownership of 100% of the limited liability company
interests in Generac Portable Products, LLC, a Delaware limited liability
company (the "Operating Company"), through two wholly-owned subsidiaries: GPPW,
Inc. a Wisconsin corporation ("GPPW"), and GPPD, Inc. a Delaware corporation
("GPPD"). GPPW and GPPD hold, respectively, 5% and 95% limited liability company
interests in Generac Portable Products, LLC. Generac Portable Products had no
operations during the period April 29, 1998 through July 8, 1998; its only
business activity involved the issuance of $110 million of common stock to
finance a portion of the purchase price discussed below.
On July 9, 1998, Generac Portable Products caused Generac Portable Products,
LLC to purchase substantially all of the assets, and assume certain of the
liabilities, of the Portable Products Division (the "Predecessor") of Generac
Corporation (the "Acquisition"). The aggregate consideration paid for the net
assets of the Predecessor was approximately $330 million, which includes cash
acquired of $.6 million, direct acquisition costs of $1.4 million and assumed
liabilities of $23.9 million. The purchase price paid for the Predecessor was
subject to a post-closing adjustment based on net working capital at July 9,
1998, as defined. Generac Portable Products has recorded a receivable of $1.0
million at December 31, 1998 relating to this adjustment.
The Acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to
identifiable assets acquired and liabilities assumed based upon their estimated
fair values, subject to certain limitations (see Note 2), with the excess
purchase price recorded as goodwill. Goodwill of approximately $214 million has
been recorded as a result of the Acquisition.
The following table sets forth the pro forma information for Generac
Portable Products as if the Acquisition had occurred on January 1, 1998. This
information is unaudited and does not purport to represent actual sales or net
income had the Acquisition actually occurred on January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
FOR THE YEAR ENDED
DECEMBER 31, 1998
---------------------
<S> <C>
Net sales.............................................................. $ 276,413
Net income............................................................. 5,835
Earnings per share:
Basic................................................................ $ 0.46
Diluted.............................................................. $ 0.46
</TABLE>
In addition to the issuance of common stock by Generac Portable Products,
the purchase price was financed through the issuance of Senior Subordinated
Notes of $110 million and borrowings of $96.6 million under a $115 million bank
credit facility (see Note 7).
Generac Portable Products, with domestic operations located in Jefferson,
Wisconsin and branch operations in the United Kingdom and Germany, is a leader
in the design, manufacture and sale of portable generators and pressure washers
for use in both industrial and residential applications.
F-13
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: Generac Portable Products prepares its financial
statements in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
PRINCIPLES OF CONSOLIDATION: Generac Portable Products' consolidated
financial statements include the accounts of its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
BASIS OF ACCOUNTING: Pursuant to the Financial Accounting Standards Board's
Emerging Issues Task Force Issue No. 88-16, "Basis in Leveraged Buyout
Transactions," Generac Portable Products has limited its accounting basis
resulting from the Acquisition as a result of certain shareholders which also
held an interest in the Predecessor through ownership interests in Generac
Corporation. Such limitation was based upon the lesser of each continuing
shareholder's interest in Generac Portable Products or the Predecessor, and the
Predecessor's historical book value at July 9, 1998. The difference between the
continuing shareholders' basis in the Predecessor and their proportionate equity
in the book value of the Predecessor was not material. The difference between
the total consideration paid in connection with the Acquisition and the
accounting basis recognized is reported as a separate component of stockholders'
equity.
CASH AND CASH EQUIVALENTS: Generac Portable Products considers all
investments with a maturity of three months or less at the date of purchase to
be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market (replacement cost or estimated net realizable
value).
RESEARCH AND DEVELOPMENT COSTS: Generac Portable Products has an ongoing
program of new product development and existing product enhancement through
redesign of existing products and the addition of new models. Costs related to
these programs are expensed as incurred and totaled $1,011 for the period ended
December 31, 1998. Costs related to manufacturing start-up activities for new
products are included in cost of sales as incurred.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at
cost and includes equipment under leases which have been capitalized.
Maintenance and repair costs are charged to expense as incurred. Gains and
losses on disposition of property, plant and equipment are reflected in income.
Depreciation of property, plant and equipment are recorded using principally the
straight-line method for financial reporting purposes over the estimated useful
lives of the assets or terms of related leases as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements...................................................................... 20
Buildings.............................................................................. 40
Machinery and equipment................................................................ 7-10
Dies and tools......................................................................... 3-5
Office equipment....................................................................... 5-10
Vehicles............................................................................... 3-4
</TABLE>
F-14
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS: Goodwill, representing the recognized portion of the
cost of the Acquisition in excess of the fair values assigned to identifiable
net assets acquired, is being amortized on a straight-line basis over 40 years.
The non-compete agreement and patents and trademarks are being amortized on a
straight-line basis over 10 years. Generac Portable Products assesses the
carrying value of goodwill and other intangibles at each balance sheet date.
Consistent with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", such assessments include, as appropriate, a comparison of (a)
the estimated future nondiscounted cash flows anticipated to be generated during
the remaining amortization period to (b) the net carrying value of the asset.
Impairment assessments of goodwill made in accordance with SFAS No. 121 are made
in connection with an analysis of related long-lived assets acquired in the
Acquisition when events or changes in circumstances indicate the carrying amount
of either asset may not be recoverable. Generac Portable Products recognizes
impairment losses resulting from diminution in value, if any, on a current basis
based upon estimated fair value of the related assets.
DEFERRED FINANCING COSTS: Expenses associated with the issuance of debt
instruments are capitalized and are being amortized over the terms of the
respective financing arrangement using the effective interest rate and
straight-line methods over periods ranging from 5 to 8 years.
INTEREST RATE SWAPS: To limit the effect of increases in interest rates,
Generac Portable Products has entered into an interest rate swap arrangement.
The differential between the contract floating and fixed rates is accrued each
period and recorded as an adjustment of interest expense.
PRODUCT WARRANTIES: Generac Portable Products provides that warranted
products are merchantable and free of defects in workmanship and material
generally for a period of one year. Warranty reserves are provided as charges to
operations under selling and service expense for estimated normal warranty costs
and, if applicable, for any significant problems known to exist on products
sold. Warranty expense totaled $1,989 for the period ended December 31, 1998.
INCOME TAXES: Deferred income tax assets and liabilities are determined
based upon the difference between the financial statement and tax bases of
assets and liabilities, as measured by enacted tax rates which will be in effect
when these differences are expected to reverse. Deferred income tax expense is
the result of changes in the deferred tax assets and liabilities. A valuation
allowance is provided when it is considered more likely than not that some
portion or all of recorded deferred income tax assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents, accounts receivable,
accounts payable, and short-term borrowings approximate fair value due to the
short-term maturity of these financial instruments. The amounts reported for
borrowings under the bank credit facility approximate fair value since the
underlying instruments bear interest at a variable rate that reprices
frequently. The fair value of Generac Portable Products' Senior Subordinated
Notes at December 31, 1998 is estimated based upon the average yield on similar
debt instruments as of such date. The fair value of the interest rate swap
arrangement is the amount at which it could be settled, based on a quote
obtained from the respective financial institution (see Note 7).
F-15
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION: Net sales and costs of sales are recognized as the
related products are shipped. Provisions for estimated sales returns and sales
incentives are recorded in the period in which the sales are recognized.
FOREIGN CURRENCY TRANSLATION: The translation of the assets and liabilities
of Generac Portable Products' international branch operations into U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using an average
exchange rate during the period. The gains or (losses) resulting from such
translation are reflected as translation adjustments in accumulated other
comprehensive income.
EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
income by the weighted average shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
shares outstanding during the period as increased for the dilutive effect of
outstanding stock options. The adjustment to weighted average shares outstanding
is computed by determining the number of additional common shares that would
have been outstanding if stock options were exercised and the related proceeds
from such exercise were used to acquire shares of common stock at the average
market price during the period.
The following is a reconciliation of the average shares outstanding,
adjusted to reflect the company's May 20, 1999 1,250 for one common stock split
and the company's May 28, 1999 1.189 for one common stock split used to compute
basic and diluted earnings per share. There is no earnings impact from the
assumed conversion of the outstanding stock options.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Basic EPS................................................................................ 12,633
Dilutive effect of stock options......................................................... 119
-------------
Diluted EPS.............................................................................. 12,752
-------------
-------------
</TABLE>
FUTURE ACCOUNTING CHANGES: The Financial Accounting Standards Board has
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which is effective for periods beginning after June 15, 2000. Due to
Generac Portable Products' current limited use of derivative instruments, the
adoption of this statement is not expected to have a material effect on Generac
Portable Products' financial condition or results of operations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ---------
<S> <C> <C>
Raw materials and sub-assemblies..................................... $ 27,721 $ 26,423
Finished goods....................................................... 18,930 16,240
------------ ---------
$ 46,651 $ 42,663
------------ ---------
------------ ---------
</TABLE>
F-16
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
3. INVENTORIES (CONTINUED)
Work-in-process is not a significant separate component of inventories and is
included in the raw materials and sub-assemblies component.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ---------
<S> <C> <C>
Land and land improvements........................................... $ 980 $ 972
Buildings............................................................ 5,940 5,781
Machinery and equipment.............................................. 8,056 7,179
Dies and tools....................................................... 2,742 2,266
Office equipment..................................................... 1,357 377
Vehicles............................................................. 56 58
------------ ---------
19,131 16,633
Accumulated depreciation............................................. (1,023) --
------------ ---------
18,108 16,633
Construction in progress............................................. 1,329 --
------------ ---------
$ 19,437 $ 16,633
------------ ---------
------------ ---------
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ----------
<S> <C> <C>
Goodwill........................................................... $ 213,738 $ 213,738
Trademarks and patents............................................. 100 100
Noncompete agreement............................................... 100 100
------------ ----------
213,938 213,938
Accumulated amortization........................................... (2,531) --
------------ ----------
$ 211,407 $ 213,938
------------ ----------
------------ ----------
</TABLE>
F-17
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ---------
<S> <C> <C>
Sales incentives...................................................... $ 4,430 $ 6,236
Product warranty...................................................... 1,229 1,020
Accrued interest...................................................... 7,414 --
Other................................................................. 1,351 814
------------ ---------
$ 14,424 $ 8,070
------------ ---------
------------ ---------
</TABLE>
7. LONG-TERM DEBT OBLIGATIONS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ----------
<S> <C> <C>
Bank credit facility............................................... $ 85,400 $ 96,608
Senior subordinated notes.......................................... 110,000 110,000
Capital lease obligations.......................................... 2,383 2,617
------------ ----------
197,783 209,225
Less: current portion.............................................. (7,922) (3,372)
------------ ----------
$ 189,861 $ 205,853
------------ ----------
------------ ----------
</TABLE>
In connection with the Acquisition, Generac Portable Products entered into a
$115 million bank credit facility (the "Senior Secured Credit Facility"). The
Senior Secured Credit Facility provides for maximum borrowings under two term
loans of $45 million ("A Term Loan") and $40 million ("B Term Loan"),
respectively, with balances outstanding at December 31, 1998 of $45 million and
$39.8 million, respectively. The Senior Secured Credit Facility also provides
for maximum borrowings of $30 million, less the amount outstanding under letters
of credit, under revolving loan arrangements due December 31, 2003, with a
balance outstanding at December 31, 1998 of $600. The A Term Loan Facility will
mature 5 1/2 years from July 9, 1998. The B Term Loan Facility will mature seven
years from July 9, 1998. The A Term Loan Facility will provide for amortization
of $2.5 million in the first year, $6.25 million in the second year, $7.5
million in the third year, $10.0 million in the fourth year, $12.5 million in
the fifth year and $6.25 million in the sixth year. The B Term Loan Facility
will provide for nominal annual amortization in the first five years and
amortization of $19 million in each of the sixth and seventh years.
Additionally, Generac Portable Products is also required to make an annual
principal payment equal to its excess cash flow, as defined. The required excess
cash flow payment for the period ended December 31, 1998 is approximately $2.1
million and will be applied to reduce the scheduled repayments under both the A
and B Term Loan Facilities described above, on a pro rata basis. The interest
rates under the A Term Loan Facility and the revolving loan portion of the
facility will be based, at the option of Generac Portable Products, LLC, on
either a Eurodollar rate plus 2.25% per annum or a base rate plus 1.25% per
annum, subject to a pricing grid that will provide for reductions in the
applicable interest rate margins based on Generac Portable Products'
consolidated debt to earnings before interest, income taxes, depreciation and
amortization ("EBITDA") ratio. The interest
F-18
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
7. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
rate under the B Term Loan Facility is based, at the option of Generac Portable
Products, LLC, on a Eurodollar rate plus 2.75% or a base rate plus 1.75%,
subject to a pricing grid that will provide for reductions in the applicable
interest rate margins based on Generac Portable Products' consolidated debt to
EBITDA ratio. The weighted average interest rate for the term loans as of
December 31, 1998 was 7.84%. Borrowings under the revolving loans bear interest
at the Prime Rate plus 1.25% (9% at December 31, 1998). A commitment fee of
0.50% per annum will be charged on the unused revolving loan portion of the
Senior Secured Credit Facility, subject to a pricing grid that will provide for
reductions in the applicable commitment fee margin based on Generac Portable
Products' consolidated debt to EBITDA ratio. Substantially all of Generac
Portable Products' assets are pledged as collateral under the Senior Secured
Credit Facility.
Effective October 15, 1998, Generac Portable Products entered into an
interest rate swap agreement with a major financial institution to reduce the
impact of changes in interest rates on its floating rate long-term debt. The
notional amount of this agreement was $40 million at December 31, 1998. Interest
expense has been adjusted for the net amount payable under this agreement. The
effect of this agreement on Generac Portable Products' interest expense for the
period ended December 31, 1998 was not significant. The fair value of the
interest rate swap agreement was $903 at December 31, 1998, which is the amount
Generac Portable Products would have paid to settle the instrument at such date.
Generac Portable Products is exposed to credit loss in the event of
non-performance by the financial institution, however, management does not
anticipate such non-performance.
Also on July 9, 1998, Generac Portable Products, LLC and GPPW issued $110
million of 11.25% Senior Subordinated Notes due June 30, 2006, (the "Notes") to
BT Alex. Brown, Incorporated (the "Initial Purchaser"). The Initial Purchaser
subsequently resold the Notes to qualified institutional buyers pursuant to Rule
144A of the Securities Exchange Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. The estimated fair value of the Notes at December 31, 1998
approximates par.
The Notes are redeemable, at Generac Portable Products' option, in whole at
any time or in part from time to time, on and after July 1, 2002, upon not less
than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on July 1 of the year set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2002.................................................................................. 107.625%
2003.................................................................................. 104.750%
2004.................................................................................. 102.875%
2005 and thereafter................................................................... 100.000%
</TABLE>
At any time, or from time to time, on or prior to July 1, 2001, Generac
Portable Products may, at its option, use the net cash proceeds of one or more
Public Equity Offerings, as defined, to redeem the Notes at a redemption price
equal to 111.25% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; PROVIDED that at least 65%
of the principal amount of Notes originally issued remains outstanding
immediately after any such redemption.
F-19
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
7. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
The Senior Secured Credit Facility and the indenture governing the Notes
contain a number of covenants that, among other things, restrict the ability of
Generac Portable Products to dispose of assets, repay other indebtedness, incur
additional indebtedness, pay dividends, prepay subordinated indebtedness
(including, in the case of the Senior Secured Credit Facility, the Notes), incur
liens, make capital expenditures and make certain investments or acquisitions,
engage in mergers or consolidations, engage in certain transactions with
affiliates and otherwise restrict the activities of Generac Portable Products.
In addition, under the Senior Secured Credit Facility, Generac Portable
Products, LLC will be required to satisfy specified financial ratios and tests,
including a minimum level of earnings before interest, income taxes,
depreciation and amortization.
Capital lease obligations relate to Generac Portable Products' obligations
on leases for industrial equipment. These obligations are due in monthly
installments including principal and interest at a rate of 8.6% and mature
November 30, 2002.
The aggregate scheduled maturities of long-term debt and capital lease
obligations in subsequent years are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 7,922
2000.............................................................. 8,228
2001.............................................................. 8,275
2002.............................................................. 13,358
2003.............................................................. 22,231
Thereafter........................................................ 137,769
---------
$ 197,783
---------
---------
</TABLE>
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
In connection with the Acquisition, Generac Portable Products established
noncontributory defined benefit pension plans (salaried and hourly) covering
substantially all of its employees. The unfunded benefit obligation assumed as
of the Acquisition date totaled $678. Benefits under the salaried plan are based
upon years of service and the participants' defined final average monthly
compensation. Benefits under the hourly plan are based on a unit amount at the
date of termination multiplied by the participants' credited service. The plans
provide for a continuation of participants' years of service as credited with
Generac Corporation. Generac Portable Products' funding policy is to contribute
amounts that equal or exceed the minimum requirements of the Employee Retirement
Income Security Act of 1974 (ERISA). As of December 31, 1998 and July 9, 1998,
no assets have been contributed to the plans. Net pension expense for the period
ended December 31, 1998 is comprised of the following components:
<TABLE>
<S> <C>
Service cost.......................................................... $ 48
Interest cost on projected benefit obligation......................... 24
---
$ 72
---
---
</TABLE>
F-20
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS (CONTINUED)
The following table summarizes those items comprising the change in the
benefit obligation for the period ended December 31, 1998:
<TABLE>
<S> <C>
Unfunded benefit obligation assumed as of July 9, 1998............... $ 678
Service cost......................................................... 48
Interest cost........................................................ 24
---------
Benefit obligation as of December 31, 1998........................... $ 750
---------
---------
</TABLE>
The assumptions used in developing the pension information as of December
31, 1998 and July 9, 1998 were as follows:
<TABLE>
<S> <C> <C>
Discount rate................................................... 7.00%
Return on plan assets........................................... 8.00%
Rate of compensation increase................................... 4.50%
</TABLE>
In connection with the Acquisition, Generac Portable Products established
deferred compensation plans for certain key employees and at December 31, 1998
and July 9, 1998, approximately $340 and $317, respectively, was included in
other long-term obligations related to such plans. Deferred compensation expense
charged to operations was $23 for the period ended December 31, 1998.
In connection with the Acquisition, Generac Portable Products established a
qualified 401(k) profit sharing plan covering substantially all full-time
employees. No contributions were made to the plan for the period ended December
31, 1998.
9. INCOME TAXES
The provision for income taxes for the period ended December 31, 1998
consists of the following:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 781
State............................................................. 33
---------
Total current................................................... 814
Deferred:
Federal and state................................................. 1,366
---------
Total provision for income taxes................................ $ 2,180
---------
---------
</TABLE>
The following reconciles the U.S. federal statutory income tax rate with
Generac Portable Products' effective tax rate for the period ended December 31,
1998:
<TABLE>
<S> <C>
U.S. federal statutory income tax rate................................ 34.0%
State income taxes, net of federal benefit............................ 1.0
Nondeductible expenses and other...................................... (.8)
---
34.2%
---
---
</TABLE>
F-21
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflected in the balance sheet consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Deferred tax assets:
Inventories and receivables................................................... $ 267
Accrued warranty.............................................................. 76
------------
343
------------
Deferred tax liabilities:
Intangible assets............................................................. (1,512)
Sales incentives.............................................................. (161)
Other......................................................................... (36)
------------
(1,709)
------------
Total net deferred tax liability................................................ $ (1,366)
------------
------------
</TABLE>
10. STOCKHOLDERS' EQUITY
In connection with the initial capitalization of Generac Portable Products,
The Beacon Group III-- Focus Value Fund, L.P., management of Generac Portable
Products and certain other investors purchased an aggregate of $110 million of
common stock, par value of $.01 per share, constituting 100% of Generac Portable
Products' outstanding common stock. Upon consummation of the Acquisition, The
Beacon Group III--Focus Value Fund, L.P. and the other stockholders of Generac
Portable Products, and Generac Portable Products, entered into a Stockholders'
Agreement which includes certain transfer restrictions, voting agreements and
registration rights. Employees who own stock of Generac Portable Products are
also subject to agreements that restrict their right to transfer their stock
and, under certain conditions, require them to sell a pro rata portion of their
stock in a transaction in which The Beacon Group III-- Focus Value Fund, L.P. is
selling its stock. Generac Portable Products is not obligated to purchase this
stock.
Effective July 9, 1998, Generac Portable Products' board of directors
approved the Generac Portable Products, Inc. Stock Option Plan which provides
for the granting of stock options as an incentive to certain key employees.
Under this Plan, stock options to acquire up to 2,406,310 shares of common
stock, in the aggregate, may be granted under a time-vesting formula at an
exercise price equal to the fair market value of the common stock at the date of
grant. The options become exercisable in equal increments beginning on the first
anniversary of the grant date over a five-year period and expire ten years
subsequent to the grant date. On July 9, 1998, 1,729,531 options were granted at
an exercise price of $8.71 per share to certain members of management and
Generac Portable Products' board of directors. The options have a remaining
contractual life of 9.5 years. No options were granted or forfeited subsequent
to the initial grant. The fair value of the options at the date of grant was
$2.92 per option. The fair value was estimated using the minimum value method in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
assuming an expected option life of 7 years and a risk-free interest rate of 6%.
Generac Portable Products applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock option plan.
Accordingly, no compensation expense has been
F-22
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
recognized in the statement of income. If compensation cost had been determined
in accordance with SFAS No. 123, net income would have decreased approximately
$351 during the period ended December 31, 1998 and basic and diluted earnings
per share amounts on a pro forma basis would have been $0.31 and $0.30,
respectively, as compared to reported basic and diluted per share amounts of
$0.33.
On May 20, 1999, the company effected a 1,250 for one common stock split and
on May 28, 1999, the company effected a 1.189 for one common stock split. All
share and per share information in these consolidated financial statements have
been retroactively adjusted to reflect these stock splits.
11. LEASES
Generac Portable Products leases certain manufacturing equipment, computer
equipment and vehicles under operating leases with lease terms ranging up to 3
years. Additionally, in connection with the Acquisition, Generac Portable
Products entered into a capital lease arrangement with Generac Corporation for
certain manufacturing equipment. Property, plant and equipment at December 31,
1998 includes $2,451 for equipment under capital leases, which is net of $165 in
accumulated depreciation. Following is a summary of future minimum payments
under capitalized leases and operating leases that have initial or remaining
non-cancelable lease terms in excess of one year at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ---------
<S> <C> <C>
1999..................................................................... $ 348 $ 673
2000..................................................................... 208 673
2001..................................................................... 147 673
2002..................................................................... -- 830
----- ---------
$ 703 2,849
-----
-----
Less amount representing interest........................................ (466)
---------
Present value of minimum lease payments.................................. $ 2,383
---------
---------
</TABLE>
Total rent expense recognized by Generac Portable Products for the period
ended December 31, 1998 is $142.
12. SEGMENT INFORMATION
Generac Portable Products is a leader in the design, manufacture and sale of
portable generators and pressure washers. Engineering, manufacturing, marketing
and administrative resources are generally not product specific and Generac
Portable Products evaluates operating performance based upon the combined
results of these product lines.
Information regarding Generac Portable Products' geographic areas is
summarized below:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE CONSOLIDATED
---------- --------- ------------
<S> <C> <C> <C>
Net sales to unaffiliated customers...................... $ 126,740 $ 10,122 $ 136,862
Long-lived assets........................................ 235,341 2,574 237,915
</TABLE>
F-23
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
12. SEGMENT INFORMATION (CONTINUED)
Generac Portable Products sells primarily to large home center retailers.
Three customers accounted for approximately 74% of net sales for the period
ended December 31, 1998. All three customers individually comprise more than 10%
of Generac Portable Products' net sales. Included in accounts receivable at
December 31, 1998 and July 9, 1998 are amounts due from these three customers
aggregating $29,862 and $34,998, respectively.
13. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
In the normal course of business Generac Portable Products is involved in
certain legal actions and claims. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect on
Generac Portable Products' financial position, results of operations or cash
flows.
In connection with the Acquisition, Generac Portable Products entered into
an OEM engine supply agreement with Generac Corporation, to supply it with the
engine used in certain of Generac Portable Products' pressure washers and
consumer portable generators. The engine supply agreement allows for Generac
Portable Products to make minimum purchases of engines from Generac Corporation
in each of the next nine years and gives Generac Portable Products the right to
increase the amount purchased based upon forecasted requirements. This agreement
is an exclusive arrangement related to such products subject to the minimum
purchase requirements. As Generac Portable Products maintains relationships with
other major engine suppliers, management believes that the minimum purchase
quantities and unit prices under this agreement will not have an adverse effect
on Generac Portable Products. Management also considers the provisions of the
engine supply agreement to reflect arms-length terms. For the period ended
December 31, 1998, Generac Portable Products purchased product approximating
$14.4 million under this agreement. In addition, Generac Portable Products also
purchased other components from Generac Corporation approximating $6.5 million
for the period ended December 31, 1998. Included in accounts payable are amounts
due to Generac Corporation of approximately $4.7 million at December 31, 1998.
In connection with the issuance of the Senior Subordinated Notes, Generac
Portable Products entered into a registration rights agreement pursuant to which
Generac Portable Products agreed that it would use its best efforts to file a
registration statement with the Securities and Exchange Commission for the
purpose of exchanging the existing notes for new notes registered under the
Securities Act. Under the registration rights agreement, Generac Portable
Products is subject to liquidated damages in the form of additional interest at
the rate of .50% per annum if certain deadlines are not met in connection with
this filing. The anticipated impact of the additional interest is not expected
to be material.
14. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
In connection with the Acquisition, Generac Portable Products, LLC and GPPW
co-issued the Notes, and while Generac Portable Products, LLC and GPPW are
jointly and severally liable for the obligations under the Notes, GPPW does not
conduct any operations, or have any assets of any kind other than its investment
in Generac Portable Products, LLC. Generac Portable Products has provided a full
and unconditional guarantee of the Notes. However, because Generac Portable
Products has no operating activities independent of Generac Portable Products,
LLC, Generac Portable Products' consolidated financial statements are
essentially the same as those of Generac Portable Products, LLC. The following
condensed supplemental consolidating financial information reflects the
investments of Generac Portable
F-24
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
14. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
(CONTINUED)
Products, GPPW and GPPD in Generac Portable Products, LLC using the equity
method. Generac Portable Products, GPPW and GPPD are dependent upon Generac
Portable Products, LLC for cash flows to fund their income tax liabilities
arising from their respective investments. GPPW and GPPD are wholly-owned
subsidiaries of Generac Portable Products, and GPPW and GPPD hold a 5% and 95%
ownership interest in Generac Portable Products, LLC, respectively.
<TABLE>
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets............. $ -- $ 7 $ 132 $ 93,772 $ -- $ 93,911
Investment in affiliates... 114,925 5,856 111,249 -- (232,030) --
Noncurrent assets.......... -- -- -- 238,091 -- 238,091
-------- --------- ---------- -------- ------------ ------------
Total assets........... $ 114,925 $ 5,863 $ 111,381 $ 331,863 $ (232,030) $ 332,002
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
Current liabilities........ $ -- $ 41 $ 773 $ 35,556 $ -- $ 36,370
Long-term debt............. -- -- -- 189,861 -- 189,861
Other long-term
obligations.............. -- 75 1,430 999 -- 2,504
Stockholders' equity....... 114,925 5,747 109,178 105,447 (232,030) 103,267
-------- --------- ---------- -------- ------------ ------------
$ 114,925 $ 5,863 $ 111,381 $ 331,863 $ (232,030) $ 332,002
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC., GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ -- $ -- $ 136,862 $ -- $ 136,862
Gross profit............... -- -- -- 38,617 -- 38,617
Operating expenses......... -- -- -- 22,331 -- 22,331
-------- --------- ---------- -------- ------------ ------------
Operating income........... -- -- -- 16,286 -- 16,286
Interest expense........... -- -- -- 10,075 -- 10,075
Other income, net.......... -- -- -- (171) -- (171)
Equity in earnings of
affiliates............... 4,202 319 6,063 -- (10,584) --
-------- --------- ---------- -------- ------------ ------------
Income before income
taxes.................... 4,202 319 6,063 6,382 (10,584) 6,382
Provision for income
taxes.................... -- 109 2,071 -- -- 2,180
-------- --------- ---------- -------- ------------ ------------
Net income................. $ 4,202 $ 210 $ 3,992 $ 6,382 $ (10,584) $ 4,202
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
</TABLE>
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Generac Corporation:
We have audited the accompanying balance sheets of the Portable Products
Division, a Business Unit ("Business Unit") of Generac Corporation ("Company"),
as of July 9, 1998, March 31, 1998, December 31, 1997 and 1996, and the related
statements of income and cash flows for the six months and nine days ended July
9, 1998, the three months ended March 31, 1998, and the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared from the separate
records maintained by the Business Unit and may not necessarily be indicative of
the conditions that would have existed or the results of operations if the
Business Unit had been operated as an unaffiliated company. Portions of certain
income and expenses represent allocations made from Generac Corporation of items
applicable to the Company as a whole.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Portable Products Division, a Business
Unit of Generac Corporation, at July 9, 1998, March 31, 1998, December 31, 1997
and 1996, and the results of its operations and its cash flows for the six
months and nine days ended July 9, 1998, the three months ended March 31, 1998,
and the years ended December 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
January 29, 1999
F-26
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 599 $ 1,132 $ 1,065 $ 1,122
Accounts receivable............................................... 48,528 40,076 18,766 14,263
Inventories....................................................... 42,839 36,972 33,023 24,707
Prepaid expenses.................................................. 429 311 206 630
---------- ----------- --------- ---------
Total current assets............................................ 92,395 78,491 53,060 40,722
PROPERTY, PLANT AND EQUIPMENT:
At cost:
Land and land improvements........................................ 972 951 943 942
Building.......................................................... 5,781 5,419 5,210 5,226
Machinery and equipment........................................... 6,708 6,532 5,511 5,295
Dies and tools.................................................... 4,552 3,517 4,404 3,375
Vehicles.......................................................... 265 241 227 215
Office equipment.................................................. 668 569 536 449
---------- ----------- --------- ---------
18,946 17,229 16,831 15,502
Less accumulated depreciation....................................... 5,577 4,542 4,591 3,145
---------- ----------- --------- ---------
13,369 12,687 12,240 12,357
---------- ----------- --------- ---------
TOTAL............................................................... $ 105,764 $ 91,178 $ 65,300 $ 53,079
---------- ----------- --------- ---------
---------- ----------- --------- ---------
LIABILITIES AND BUSINESS UNIT INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable............................................ $ 14,904 14,475 $ 6,998 $ 6,961
Accrued employee compensation, benefits and payroll
withholdings.................................................... 1,245 1,072 1,020 427
Other accrued liabilities......................................... 7,705 4,624 4,519 4,055
---------- ----------- --------- ---------
Total current liabilities....................................... 23,854 20,171 12,537 11,443
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 12)
BUSINESS UNIT INVESTMENT............................................ 81,910 71,007 52,763 41,636
---------- ----------- --------- ---------
TOTAL............................................................... $ 105,764 $ 91,178 $ 65,300 $ 53,079
---------- ----------- --------- ---------
---------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-27
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
STATEMENTS OF INCOME (IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS FOR THE THREE DECEMBER 31,
AND NINE DAYS MONTHS ENDED ----------------------
ENDED JULY 9, 1998 MARCH 31, 1998 1997 1996
------------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES............................................ $ 139,551 $ 59,555 $ 178,014 $ 122,550
COST OF SALES........................................ 104,537 44,422 131,095 95,246
-------- ------- ---------- ----------
Gross profit....................................... 35,014 15,133 46,919 27,304
-------- ------- ---------- ----------
EXPENSES
Selling and service................................ 16,624 7,006 21,729 13,860
General and administrative......................... 2,380 1,050 4,161 4,435
-------- ------- ---------- ----------
Total expenses................................... 19,004 8,056 25,890 18,295
-------- ------- ---------- ----------
INCOME FROM OPERATIONS............................... 16,010 7,077 21,029 9,009
OTHER EXPENSES
Interest expense................................... 1,409 488 2,100 2,237
Foreign currency................................... 108 (6) 186 15
-------- ------- ---------- ----------
Total other expense.............................. 1,517 482 2,286 2,252
-------- ------- ---------- ----------
NET INCOME........................................... $ 14,493 $ 6,595 $ 18,743 $ 6,757
-------- ------- ---------- ----------
-------- ------- ---------- ----------
COMPREHENSIVE INCOME
Net income......................................... $ 14,493 $ 6,595 $ 18,743 $ 6,757
Translation adjustments............................ (535) (351) (832) 521
-------- ------- ---------- ----------
Total comprehensive income....................... $ 13,958 $ 6,244 $ 17,911 $ 7,278
-------- ------- ---------- ----------
-------- ------- ---------- ----------
</TABLE>
See notes to financial statements.
F-28
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
STATEMENTS OF CASH FLOWS (IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS FOR THE THREE DECEMBER 31,
AND NINE DAYS MONTHS ENDED --------------------
ENDED JULY 9, 1998 MARCH 31, 1998 1997 1996
------------------ -------------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................ $ 14,493 $ 6,595 $ 18,743 $ 6,757
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation........................................ 796 358 1,466 1,498
(Increase) decrease in assets:
Accounts receivable............................... (29,943) (21,471) (4,753) (2,533)
Inventories....................................... (10,054) (4,092) (8,696) 9,661
Prepaid expenses.................................. (224) (94) 276 (533)
Increase in liabilities:
Accounts payable.................................. 7,936 7,421 95 866
Accrued liabilities............................... 3,428 152 1,084 1,581
------- ------- --------- ---------
Net cash (used in) provided by operating
activities.................................... (13,568) (11,131) 8,215 17,297
INVESTING ACTIVITIES--Capital expenditures.............. (1,553) (479) (1,413) (2,272)
FINANCING ACTIVITIES--Increase (decrease) in business
unit investment, net.................................. 14,787 11,700 (6,784) (14,157)
EFFECT OF EXCHANGE RATE CHANGES ON CASH................. (132) (23) (75) 11
------- ------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (466) 67 (57) 879
CASH AND CASH EQUIVALENTS:
Beginning of Period................................... 1,065 1,065 1,122 243
------- ------- --------- ---------
End of Period......................................... $ 599 $ 1,132 $ 1,065 $ 1,122
------- ------- --------- ---------
------- ------- --------- ---------
</TABLE>
See notes to financial statements.
F-29
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of the Portable
Products Division located in Jefferson, Wisconsin and its branches in the United
Kingdom and Germany, a Business Unit ("Business Unit") of Generac Corporation
("Generac"). The Business Unit designs and manufactures portable generators,
pressure washers and other engine-powered tools for the world market.
CASH EQUIVALENTS--The Business Unit considers all investments purchased with
a maturity of three months or less to be cash equivalents.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out method) or market (replacement cost or estimated net realizable
value).
REVENUE RECOGNITION--Net sales and costs of sales are recognized as the
related products are shipped. A provision for estimated sales returns is
recorded in the period in which the sales are recognized.
RESEARCH AND DEVELOPMENT COSTS--The Business Unit has an ongoing program of
new product development and existing product enhancement through redesign of
existing products and the addition of new models. Costs related to these
programs are expensed as incurred and totaled the following amounts for the
respective periods shown:
<TABLE>
<CAPTION>
(IN $000'S)
-----------
<S> <C>
For the six months and nine days ended July 9, 1998 $ 925
For the three months ended March 31, 1998 434
For the years ended December 31,
1997............................................................................ 1,743
1996............................................................................ 2,494
</TABLE>
DEPRECIATION--Costs of property, plant and equipment are depreciated using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Land improvements................................................................... 20
Buildings........................................................................... 40
Machinery and equipment............................................................. 10
Dies and tools...................................................................... 3 to 5
Vehicles............................................................................ 4
Office equipment.................................................................... 5 to 10
</TABLE>
PRODUCT WARRANTIES--The Business Unit provides that warranted products are
merchantable and free of defects in workmanship and material generally for a
period of one year. Warranty reserves are provided as charges to operations
under selling and service expense for estimated normal warranty costs and, if
F-30
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
applicable, for any significant problems known to exist on products sold.
Warranty expense totaled the following amounts for the respective periods shown:
<TABLE>
<CAPTION>
(IN $000'S)
-----------
<S> <C>
For the six months and nine days ended July 9, 1998............................... $ 1,848
For the three months ended March 31, 1998......................................... 946
For the years ended December 31,
1997............................................................................ 5,305
1996............................................................................ 1,941
</TABLE>
FOREIGN CURRENCY TRANSLATION--The translation of the branch accounts into U.
S. dollars is performed for balance sheet accounts using current exchange rates
in effect at the balance sheet date and for revenue and expense accounts using
an average exchange rate during the period. The gains or (losses) resulting from
such translation are reflected as "cumulative translation adjustments" in
business unit investment. Such adjustments amounted to $(703,000) through July
9, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Business Unit believes the carrying
amount of its financial instruments (cash and cash equivalents, accounts
receivable and accounts payable) is a reasonable estimate of the fair value of
these instruments.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. BUSINESS UNIT INVESTMENT
The Business Unit is an operating unit of Generac. The Business Unit
investment balance reflects opening net assets, accumulated earnings for the six
months and nine days ended July 9, 1998, for the three months ended March 31,
1998, and for the years ended December 31, 1997 and 1996, and various activities
between the Business Unit and Generac. Domestic cash management is centralized
at Generac and, as such, the Business Unit's cash funding requirements are met
by Generac.
The financial statements for the year ended December 31, 1996 present the
results of operations and cash flows of the carved out Portable Products
operations of Generac. Receivables, inventories, property, plant and equipment,
accounts payable, accrued liabilities, net sales, cost of sales, and selling
expenses were specifically identified for each operation. Liabilities related to
employee compensation were allocated to each operation based upon either
employee head count or payroll. Other expenses relating to service, research and
development, and general and administrative were allocated to each operation
based upon either specific activities or sales levels. Management believes the
allocations are reasonable. Beginning in 1997, the Business Unit operated as a
division of Generac with separate financial reporting.
F-31
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
2. BUSINESS UNIT INVESTMENT (CONTINUED)
The financial statements for the six months and nine days ended July 9,
1998, the three months ended March 31, 1998, and the year ended December 31,
1997 include allocations by Generac for certain operating and employee benefit
costs incurred on behalf of the Business Unit. These costs are allocated based
on estimates of time and services provided, specifically identifiable charges,
or relevant criteria that establish the Business Unit's pro rata charge of costs
common to all Generac operating units. Allocated support costs from Generac to
the Business Unit during the six months and nine days ended July 9, 1998, the
three months ended March 31, 1998 and the year ended December 31, 1997 included
manufacturing support of $125,000, $46,000 and $587,000, service support of
$11,000, $11,000 and $789,000, research and development support of $21,000,
$21,000 and $410,000, general and administrative support of $152,000, $72,000
and $280,000, and human resource and employee benefits support of $76,000,
$36,000 and $228,000, respectively.
Research and development expenses totaling $131,000, $52,000, $246,000 and
$235,000 were incurred by the Business Unit's United Kingdom branch during the
six months and nine days ended July 9, 1998, the three months ended March 31,
1998, and the years ended December 31, 1997 and 1996, respectively, on behalf of
Generac and charged to Generac.
The Business Unit and Generac supply each other with certain inventories.
Total inventories transferred during the six months and nine days ended July 9,
1998, the three months ended March 31, 1998, and the years ended December 31,
1997 and 1996 were $7,855,000, $7,426,000, $9,541,000 and $11,374,000,
respectively, from Generac to the Business Unit and $350,000, $339,000,
$1,330,000 and $0, respectively, from the Business Unit to Generac. Commencing
February 1, 1998, certain production was transferred from the Business Unit to
Generac. During the five months and nine days ended July 9, 1998 and the two
months ended March 31, 1998, the Business Unit purchased $12,223,000 and
$3,538,000, respectively, of inventories related to such transferred production.
At July 9 and March 31, 1998 such inventory represented approximately $2,673,000
and $2,165,000, respectively, including profit of approximately $508,000 and
$411,000, respectively. All other inventory is transferred at cost.
The Business Unit is also charged a portion of Generac's interest expense
based upon levels of Business Unit investment. This interest charge aggregated
$1,354,000, $508,000, $1,999,000 and $2,237,000 during the six months and nine
days ended July 9, 1998, the three months ended March 31, 1998, and the years
ended December 31, 1997 and 1996, respectively.
Management believes the allocations and activities between the Business Unit
and Generac are reasonable under the circumstances; however, they may not be
indicative of amounts that would be required to be incurred if the Business Unit
operated on a stand-alone basis.
F-32
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
2. BUSINESS UNIT INVESTMENT (CONTINUED)
The changes within the business unit investment for 1996, 1997 and the
periods ended March 31 and July 9, 1998 are as follows:
<TABLE>
<S> <C>
Balance at December 31, 1995....................................... $ 48,515
Net income....................................................... 6,757
Cumulative translation adjustments............................... 521
Activity with parent, net........................................ (14,157)
---------
Balance at December 31, 1996....................................... 41,636
Net income....................................................... 18,743
Cumulative translation adjustments............................... (832)
Activity with parent, net........................................ (6,784)
---------
Balance at December 31, 1997....................................... 52,763
Net income....................................................... 6,595
Cumulative translation adjustments............................... (351)
Activity with parent, net........................................ 12,000
---------
Balance at March 31, 1998.......................................... 71,007
Net income....................................................... 7,898
Cumulative translation adjustments............................... (184)
Activity with parent, net........................................ 3,189
---------
Balance at July 9, 1998............................................ $ 81,910
---------
---------
</TABLE>
3. S CORPORATION ELECTION
Generac and its Stockholders have elected for federal and certain state
income tax purposes to be treated as a S Corporation under provisions of the
Internal Revenue Code. Accordingly, Generac's taxable income is includable in
the individual tax returns of its Stockholders and no provision for income taxes
is included in the accompanying financial statements.
4. RECEIVABLES
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
Accounts receivable.............................. $ 48,753 $ 40,262 $ 18,938 $ 14,414
Allowance for doubtful accounts.................. (225) (186) (172) (151)
--------- ----------- --------- ---------
$ 48,528 $ 40,076 $ 18,766 $ 14,263
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
F-33
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
4. RECEIVABLES (CONTINUED)
There are no accounts receivable having a due date more than one year after
the balance sheet date. The provision for doubtful accounts charged (credited)
to operations was as follows:
<TABLE>
<CAPTION>
(IN $000'S)
-------------
<S> <C>
For the six months and nine days ended July 9, 1998 $ 67
For the three months ended March 31, 1998 14
For the years ended December 31,
1997............................................................................ 21
1996............................................................................ (155)
</TABLE>
5. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
Raw materials and sub-assemblies................. $ 26,599 $ 22,902 $ 20,490 $ 15,377
Finished goods................................... 16,240 14,070 12,533 9,330
--------- ----------- --------- ---------
Total............................................ $ 42,839 $ 36,972 $ 33,023 $ 24,707
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
Work-in-process is not a significant separate component of inventories and
is included in the raw materials and sub-assemblies component.
6. PROPERTY, PLANT AND EQUIPMENT
In 1994, Generac entered into an Industrial Development Revenue Bond
agreement with the City of Jefferson, Wisconsin. The proceeds from these
Industrial Development Revenue Bonds, aggregating $7,200,000, were used to
construct and equip the Business Unit's manufacturing facility in Jefferson.
Property, plant and equipment with a net carrying amount of $8,999,000,
$8,762,000 and $8,644,000 at March 31, 1998, December 31, 1997 and 1996,
respectively, were pledged as collateral under a related letter of credit
agreement which was terminated in June 1998.
F-34
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
Sales incentives..................................... $ 5,936 $ 2,791 $ 2,768 $ 2,843
Product warranty..................................... 1,020 1,029 987 659
Other................................................ 749 804 764 553
--------- ----------- --------- ---------
$ 7,705 $ 4,624 $ 4,519 $ 4,055
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
Generac has noncontributory pension plans (salaried and hourly) covering
substantially all of its employees including the employees of the Business Unit.
The benefits under the salaried plan are based upon years of service and the
participants' defined final average monthly compensation. The benefits under the
hourly plan are based on a unit amount at the date of termination multiplied by
the participants' credited service. Generac's funding policy for these plans is
to contribute amounts at least equal to the minimum annual amount required by
applicable regulations. Total pension expense allocated to the Business Unit for
the six months and nine days ended July 9, 1998, the three months ended March
31, 1998 and the years ended December 31, 1997 and 1996 was $231,000, $108,000,
$293,000 and $255,000, respectively.
Generac maintains deferred compensation plans for key employees of the
Business Unit and at July 9, 1998, approximately $182,000 of deferred
compensation was included in accrued employee benefits. Deferred compensation
expense charged to operations was $18,000, $40,000 and $23,000, for the six
months and nine days ended July 9, 1998 and for the years ended December 31,
1997 and 1996, respectively. No such provision was made for the three months
ended March 31, 1998.
9. LEASE COMMITMENTS
Generac leases certain manufacturing equipment, computer equipment and
vehicles used in the Business Unit under operating leases for lease terms
ranging up to five years.
The aggregate minimum rental commitments at July 9, 1998 are as follows:
<TABLE>
<S> <C>
Five months and 22 days ended December 31, 1998................. $ 389,000
Years ended:
1999.......................................................... 746,000
2000.......................................................... 701,000
2001.......................................................... 674,000
2002.......................................................... 287,000
---------
$2,797,000
---------
---------
</TABLE>
F-35
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
9. LEASE COMMITMENTS (CONTINUED)
Total rent expense for the six months and nine days ended July 9, 1998, the
three months ended March 31, 1998 and the years ended December 31, 1997 and 1996
was approximately $476,000, $196,000, $462,000 and $100,000, respectively.
Certain manufacturing equipment with an original cost of $3,178,000 is
leased under a five-year master lease arrangement and accounts for $353,000,
$168,000 and $385,000 of total rental expense for the six months and nine days
ended July 9, 1998, the three months ended March 31, 1998 and for the year ended
December 31, 1997, respectively; $673,000 of future annual commitments through
2001; and all of the year 2002 commitments. At the end of the lease term,
Generac has the option to purchase the equipment at a purchase price equal to
the then fair market value which shall not be less than 15% nor more than 25% of
the original equipment cost.
10. MAJOR CUSTOMERS
Two customers accounted for approximately 69% of net sales for the six
months and nine days ended July 9, 1998, and included in accounts receivable at
July 9, 1998 are amounts due from these two customers aggregating $34,998,000.
Two customers accounted for approximately 67% of net sales for the three months
ended March 31, 1998, and included in accounts receivable at March 31, 1998 are
amounts due from these two customers aggregating $25,652,000. Three customers
accounted for approximately 74% of net sales for the year ended December 31,
1997, and included in accounts receivable at December 31, 1997 are amounts due
from these three customers aggregating $11,076,000. Two customers accounted for
approximately 56% of net sales for the year ended December 31, 1996, and
included in accounts receivable at December 31, 1996 are amounts due from these
two customers aggregating $6,608,000.
11. FOREIGN OPERATIONS
The Business Unit's European operations accounted for approximately 19%,
18%, 18% and 20% of the total Business Unit's assets as of July 9, 1998, March
31, 1998, December 31, 1997 and December 31, 1996, respectively. Sales for these
European operations accounted for approximately 8%, 8%, 8% and 10% of net sales
for the six months and nine days ended July 9, 1998, the three months ended
March 31, 1998 and for the years ended December 31, 1997 and 1996, respectively.
12. CONTINGENCIES
In the normal course of business the Business Unit is involved in certain
legal actions and claims. It is the opinion of management that such litigation
and claims will be resolved without material effect on the Business Unit's
financial position or results of operations.
13. SUBSEQUENT EVENT
On July 9, 1998, Generac completed the sale of substantially all of the
assets and the assumption of certain liabilities of the Business Unit to Generac
Portable Products, LLC (a company formed by The Beacon Group III--Focus Value
Fund, L.P.) for a net purchase price of approximately $305 million, including
expenses.
F-36
<PAGE>
[GENERAC LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
registrant. All amounts are estimates except the registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
Registration fee................................................ $ 38,364
NASD filing fee................................................. 14,300
NYSE listing fee................................................ 140,000
Accounting fees and expenses.................................... 250,000
Legal fees and expenses......................................... 400,000
Transfer agent fees............................................. 6,000
Printing and engraving expenses................................. 325,000
Miscellaneous expenses.......................................... 226,336
---------
Total....................................................... $1,400,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), permits a Delaware corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may pay expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action (upon
receipt of a written undertaking to reimburse the corporation if indemnification
is not appropriate), and must reimburse a successful defendant for expenses,
including attorneys' fees, actually and reasonably incurred, and permits a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL provides that indemnification may be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person is
entitled to indemnity for such expenses as the court deems proper.
Section 107(b)(7) of the DGCL permits a Delaware corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for a breach of the director's fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions or (d) for any transaction from which the director
derived an improper personal benefit.
The Registrant's Certificate of Incorporation provides that the directors of
the Registrant are entitled to the benefits of all limitations on the liability
of directors generally that are now or hereafter become available under the
DGCL. It also provides that any repeal or modification of this provision shall
be prospective only, and shall not affect, to the detriment or any director, any
limitation on the personal liability of a director of the Registrant existing at
the time of such repeal or modification. In addition, the Registrant's Bylaws
provide for indemnification to the fullest extent of the law.
II-1
<PAGE>
The form of underwriting agreement filed as an exhibit to this registration
statement provides for the indemnification of our directors and officers in
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 9, 1998, Generac issued to The Beacon Group III--Focus Value Fund,
L.P., Squam Lake Investors III, L.P., Sunapee Securities, Inc., Hamilton Lane
Private Equity Partners, L.P., Hamilton Lane Private Equity Fund, PLC, Task
Holdings Limited, BT Capital Investors, L.P., California Public Employees'
Retirement System, Capital D'Amerique CDPQ Inc., Robert D. Kern, Richard A. Van
Deuren and R. Eugene Cartledge an aggregate of 8,260.456 shares of common stock
(12,277,103 shares of common stock after the stock splits that occurred on May
20, 1999 and May 28, 1999) for an aggregate purchase price of $110 million. Such
sale was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended. All of the proceeds from such sale were used to finance the
acquisition of the Portable Products Division of Generac Corporation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER DESCRIPTION OF EXHIBITS
- --------- ----------- ---------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of Generac Portable Products, Inc.
*3.2 By-Laws of Generac Portable Products, Inc.
*4.1 Stockholders' Agreement dated July 9, 1998 among Generac Portable Products, Inc., The Beacon
Group III--Focus Value Fund, L.P. and other stockholders.
*4.2 Specimen of Common Stock Certificate.
*5.1 Opinion of King & Spalding (including the consent of such counsel) regarding the legality of
the Common Stock.
**10.1 OEM Engine Supply Agreement dated July 9, 1998 between Generac Corporation and Generac
Portable Products, Inc. (filed as Exhibit 10.1 to the Registration Statement on Form S-4,
File No. 333-73247, filed on April 20, 1999 and incorporated herein by reference).
*10.2 Stock Option Plan.
*10.3 Asset Purchase and Sale Agreement dated May 5, 1998 between GPPC, Inc. and Generac
Corporation
*10.4 Parts Supply Agreement dated July 9, 1998 between Generac Portable Products, Inc. and Generac
Corporation.
*10.5 Generator Supply Agreement dated July 9, 1998 between Generac Portable Products, Inc. and
Generac Corporation.
*10.6 Trademark License Agreement dated July 9, 1998 between Generac Portable Products, Inc. and
Generac Corporation.
*10.7 Patent License Agreement dated July 9, 1998 between Generac Portable Products, Inc. and
Generac Corporation.
*10.8 Assignment of Trademark Applications and Common Law Trademarks dated July 9, 1998 between
Generac Portable Products, Inc. and Generac Corporation
*10.9 Assignment of Patents and Patent Applications dated July 9, 1998 between Generac Portable
Products, Inc. and Generac Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
10.10 Indenture dated July 1, 1998 among Generac Portable Products, LLC GPPW, Inc. and Marine
Midland Bank, as trustee (filed as exhibit 4.1 to the Registration Statement on Form S-4,
File No. 333-73247, filed on March 3, 1999 and incorporated herein by reference).
10.11 Credit Agreement dated July 9, 1998 among Generac Portable Products, LLC, Generac Portable
Products, Inc., GPPW, Inc., various banks and Bankers Trust Company, as administrative agent.
10.12 Commitment Letter between Generac Portable Products, LLC and Bankers Trust Company.
*21.1 Subsidiaries.
23.1 Independent Auditors' Consent and Reports on Financial Statement Schedule of Deloitte &
Touche LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
*23.3 Consent of King & Spalding (included in Exhibit 5.1).
*24.1 Power of Attorney (included in the signature page of Registration Statement filed on May 21,
1999).
*27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
** Portions of which have been omitted pursuant to a request for confidential
treatment.
(B) FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULE
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
Report of PricewaterhouseCoopers LLP on Financial Statement Schedule.
Report on Schedule of Deloitte & Touche LLP (included in Exhibit 23.1 of Amendment No. 1 to
Registration Statement).
II Generac Portable Products, Inc. Schedule of Combined Valuation Accounts.
II Portable Products Division, a Business Unit of Generac Corporation Schedule of Combined Valuation
Accounts.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant (the "Registrant") hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(2) That, 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 of 1933 shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(3) That, 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
II-3
<PAGE>
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.
(4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on June 11, 1999.
GENERAC PORTABLE PRODUCTS, INC.
By: /s/ ERIC R. WILKINSON
-----------------------------------------
Eric R. Wilkinson
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities with Generac Portable Products, Inc. and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ERIC R. WILKINSON President and Director
- ------------------------------ June 11, 1999
Eric R. Wilkinson
* Secretary and Treasurer
- ------------------------------ June 11, 1999
Richard A. Aube
* Chairman of the Board
- ------------------------------ June 11, 1999
R. Eugene Cartledge
* Director
- ------------------------------ June 11, 1999
Thomas A. Commes
* Director
- ------------------------------ June 11, 1999
Robert D. Kern
* Director
- ------------------------------ June 11, 1999
Thomas G. Mendell
* Director
- ------------------------------ June 11, 1999
Dorrance J. Noonan, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
* Director
- ------------------------------ June 11, 1999
R. Ralph Parks
* Director
- ------------------------------ June 11, 1999
Richard A. Van Deuren
</TABLE>
/s/ ERIC R. WILKINSON
--------------------------------------
Eric R. Wilkinson
*By: ATTORNEY-IN-FACT
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Generac Portable Products, Inc.
Our audit of the consolidated financial statements referred to in our report
dated February 22, 1999, except as to the EARNINGS PER SHARE section of Note 2,
and Note 10, which are as of May 28, 1999, appearing in Part I of this Amendment
No. 1 to Registration Statement on Form S-1 also included an audit of the
accompanying Financial Statement Schedule of Generac Portable Products, Inc. for
the period July 10, 1998 through December 31, 1998 included in Part II of this
Amendment No. 1 to Registration Statement on Form S-1. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 22, 1999
S-1
<PAGE>
SCHEDULE II
GENERAC PORTABLE PRODUCTS, INC.
SCHEDULE OF COMBINED VALUATION ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGES TO BALANCE AT END
PERIOD EXPENSE DEDUCTIONS OF PERIOD
------------- ------------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
For the Period July 10, 1998 through December 31, 1998........ $ 225 $ 17 $ -- $ 242
<CAPTION>
BALANCE AT
BEGINNING OF CHARGES TO BALANCE AT END
PERIOD EXPENSE DEDUCTIONS OF PERIOD
------------- ------------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
INVENTORY:
For the Period July 10, 1998 through December 31, 1998........ $ 500 $ 593 $ 319 $ 774
</TABLE>
S-2
<PAGE>
SCHEDULE II
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
SCHEDULE OF COMBINED VALUATION ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGES TO BALANCE AT
OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
------------- ----------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Year Ended:
December 31, 1996........................................... $ 444 $ (155) $ 138 $ 151
December 31, 1997........................................... 151 21 -- 172
Three Months Ended:
March 31, 1998.............................................. 172 14 -- 186
Six Months and Nine Days Ended:
July 9, 1998................................................ 172 67 14 225
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGES TO BALANCE AT
OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
------------- ------------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
INVENTORY:
Year Ended:
December 31, 1996........................................... $ 190 $ 331 $ 396 $ 125
December 31, 1997........................................... 125 781 556 350
Three Months Ended:
March 31, 1998.............................................. 350 248 98 500
Six Months and Nine Days Ended:
July 9, 1998................................................ 350 412 262 500
</TABLE>
S-3
<PAGE>
Exhibit 1.1
8,000,000 SHARES
GENERAC PORTABLE PRODUCTS, INC.
COMMON STOCK $.01 PAR VALUE
UNDERWRITING AGREEMENT
__________ __, 1999
<PAGE>
___________ __, 1999
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
BT Alex. Brown Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
GENERAC PORTABLE PRODUCTS, INC., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule II hereto (the "Underwriters") 8,000,000 shares of its Common Stock,
$.01 par value per share (the "Firm Shares"). Certain shareholders of the
Company (the "Selling Shareholders") named in Schedule I hereto severally
propose to sell to the several Underwriters not more than an additional
1,200,000 shares of Common Stock, $.01 par value per share, of the Company (the
"Additional Shares"), each Selling Shareholder selling the amount set forth
opposite such Selling Shareholder's name in Schedule I hereto, if and to the
extent that you, as Managers of the offering, shall have determined to exercise,
on behalf of the Underwriters, the right to purchase such shares of common stock
granted to the Underwriters in Section 3 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of Common Stock, $.01 par value per share, of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock." The Company and the Selling Shareholders are
hereinafter sometimes collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement. Morgan Stanley & Co. Incorporated ("Morgan Stanley") has
agreed to reserve up to __ shares of the Firm Shares to be purchased by it under
this Agreement for sale to the Company's directors, officers, employees and
business associates and other parties related to the Company
<PAGE>
2
(collectively, "Participants"), as set forth in the Prospectus under the heading
"Underwriters" (the "Directed Share Program"). The shares to be sold by Morgan
Stanley pursuant to the Directed Share Program (the "Directed Shares") will be
sold by Morgan Stanley pursuant to this Agreement at the public offering price.
Any Directed Shares not orally confirmed for purchase by any Participants by the
end of the first business day after the date on which this Agreement is executed
will be offered to the public by Morgan Stanley as set forth in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or, to the knowledge of the
Company, threatened by the Commission.
(i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus, or any amendment or
supplement thereto (if applicable), based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(c) GPPD, Inc., a Delaware corporation ("GPPD"), GPPW, Inc., a
Wisconsin corporation ("GPPW"), and Generac Portable Products, LLC, a Delaware
limited liability company ("GPPLLC"), are the only subsidiaries of the Company;
each subsidiary of the Company has been duly organized, is validly existing in
good standing under the laws of the jurisdiction of its organization, has the
power and authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in good
<PAGE>
3
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;
all of the issued shares of capital stock of GPPD and GPPW have been duly and
validly authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances, equities or
claims; and all of the membership interests in GPPLLC are indirectly owned by
the Company, free and clear of all liens, encumbrances, equities or claims.
(d) This Agreement has been duly authorized, executed and delivered by
the Company.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under the caption
"Description of Capital Stock".
(f) The shares of Common Stock (including the Shares to be sold by the
Selling Shareholders) outstanding prior to the issuance of the Shares to be sold
by the Company have been duly authorized and are validly issued, fully paid and
non-assessable.
(e) The Shares to be sold by the Company have been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement against
payment therefor, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights.
(f) Neither the Company nor any of its subsidiaries is, and upon the
performance by the Company and its subsidiaries of their businesses as described
in the Prospectus, neither the Company nor any of its subsidiaries will be, in
violation of its organizational documents or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties may be
bound which violation or default would have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(g) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not violate any
provision of law applicable to the Company or any of its subsidiaries or the
certificate of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as have been obtained under the Securities Act and such as may be required by
the securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
<PAGE>
4
(h) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).
(i) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company or any of its subsidiaries
is a party or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(j) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(k) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(l) PricewaterhouseCoopers LLP and Deloitte & Touche LLP, each of whom
have certified certain financial statements included in the Registration
Statement, are each independent public accountants within the meaning of the
Securities Act and the rules and regulations of the Commission thereunder.
(m) The Company and its subsidiaries (i) are in compliance with any and
all applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental Laws"),
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (ii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(n) ordinary course of its business, the Company conducts a periodic
review of the effect of Environmental Laws on the business, operations and
properties of the Company and its subsidiaries. On the basis of such review, the
Company has reasonably concluded that with
<PAGE>
5
respect only to those Environmental Laws in effect as of the date of this
Agreement, any liabilities arising under or pursuant to, or the cost of
complying with such Environmental Laws, will not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company or to require
the Company to include such securities with the Shares registered pursuant to
the Registration Statement.
(p) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as stated therein, (i)
the Company and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (ii) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any dividend
or distribution of any kind on its capital stock other than ordinary and
customary dividends; and (iii) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement).
(q) The Company and its subsidiaries have marketable title in fee
simple to all real property and marketable title to all personal property owned
by them, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries, in each
case except as described in the Prospectus and except for matters which would
not have a material adverse effect on the Company and its subsidiaries, taken as
a whole.
(r) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, adequate licenses or other rights to use all patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, except
where the failure to own or possess or have the right to acquire would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;
and neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the
<PAGE>
6
subject of an unfavorable decision, ruling or finding, would result in a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(s) No labor dispute with the employees of the Company or any of its
subsidiaries exists, except as described in or contemplated by the Prospectus,
or, to the knowledge of the Company, is imminent except for disputes that would
not have a material adverse effect on the Company and its subsidiaries, taken as
a whole.
(t) The Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of the businesses in which they are engaged.
(u) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
to the extent that the failure to possess such certificates, authorizations and
permits would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, and neither the Company nor any such subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the Company and its subsidiaries, taken
as a whole, except as described in the Prospectus.
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(w) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of the
Company or any of its subsidiaries will be affected by the "Year 2000 Problem"
(that is, any significant risk that the computer hardware or software
applications used by the Company and its subsidiaries will not, in the case of
dates or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to January
1, 2000); as a result of such review, (i) the Company has no reason to believe,
and does not believe, that (A) there are any issues related to the Company's
preparedness to address the Year 2000 Problem that are of a character required
to be described or referred to in the Registration Statement or the Prospectus
which have not been accurately described in the Registration Statement or the
Prospectus and (B) the Year 2000 Problem will have a material adverse effect on
the Company and its subsidiaries, taken as a whole and (ii) the Company
reasonably believes, after due inquiry, that the suppliers, vendors, customers
<PAGE>
7
or other material third parties used or serviced by the Company and such
subsidiaries are addressing or will address the Year 2000 Problem in a timely
manner, except to the extent that a failure to address the Year 2000 Problem by
any supplier, vendor, customer or material third party would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(x) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any amendments or supplements thereto will comply, with
any applicable laws or regulations of foreign jurisdictions in which the
Prospectus or any preliminary prospectus, as amended or supplemented, if
applicable, are distributed in connection with the Directed Share Program.
(y) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency, other than those obtained, is required in
connection with the offering of the Directed Shares in any jurisdiction in which
the Directed Shares are being offered.
(z) The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the specific
intent to unlawfully influence (i) a customer or supplier of the Company to
alter the customer's or supplier's level or type of business with the Company,
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
1. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. (a) Each
of the Selling Shareholders, severally and not jointly, represents and warrants
to and agrees with each of the Underwriters that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(ii) The execution and delivery by such Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, (A) this Agreement and (B) the Power of Attorney and Custody
Agreement (the "Power of Attorney and Custody Agreement") signed by
such Selling Shareholder, certain individuals as such Selling
Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") and
BankBoston, N.A. as Custodian (the "Custodian"), relating to the
transactions contemplated hereby and by the Registration Statement,
will not violate any provision of law applicable to such Selling
Shareholder, or the certificate of incorporation or by-laws of such
Selling Shareholder (if such Selling Shareholder is a corporation), or
any agreement or other instrument binding upon such Selling Shareholder
or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Shareholder, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by such
Selling Shareholder of its obligations under this Agreement or the
Power of Attorney and Custody Agreement of such Selling Shareholder,
except such as has been obtained under the Securities Act or otherwise
and
<PAGE>
8
such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares.
(iii) Such Selling Shareholder has, and on the Closing Date
will have, valid title to the Shares to be sold by such Selling
Shareholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and the Power of
Attorney and Custody Agreement and to sell, transfer and deliver the
Shares to be sold by such Selling Shareholder.
(iv) The Power of Attorney and Custody Agreement has been duly
authorized, executed and delivered by such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder.
(v) Upon delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement against payment therefor, title
to such Shares will pass to the Underwriters free and clear of any
security interests, claims, liens, equities and other encumbrances.
(b) Beacon Group III - Focus Value Fund, L.P. ("Beacon") represents to
and agrees with each of the Underwriters that (i) the Registration Statement,
when it became effective, did not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will comply in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph 2(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each of the Selling Shareholders, other than Beacon, represents to
and agrees with each of the Underwriters that, to the extent that any statements
or omissions made in the Registration Statement, any preliminary Prospectus, the
Prospectus or any amendment or supplement thereto are made in reliance upon and
in conformity with written information furnished to the Company by such Selling
Shareholder expressly for use therein, such preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments or
supplements to the Registration Statement and the Prospectus, when they become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Securities Act and the rules
and regulations of the Commission thereunder and
<PAGE>
9
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at $______ a share (the "Purchase Price") the respective numbers of Firm
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) set forth in Schedule II hereto.
On the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, each Selling Shareholder agrees to sell
to the Underwriters such Selling Shareholder's Pro Rata Portion (as that term is
defined in the Power of Attorney and Custody Agreement) of Additional Shares,
and the Underwriters shall have a one-time right to purchase, severally and not
jointly, up to 1,200,000 Additional Shares at the Purchase Price. If you, on
behalf of the Underwriters, elect to exercise such option, you shall so notify
the Company and the Attorneys-in-Fact for the Selling Shareholders in writing
not later than 30 days after the date of this Agreement, which notice shall
specify the number of Additional Shares to be purchased by the Underwriters and
the date on which such shares are to be purchased. Such date may be the same as
the Closing Date (as defined below) but not earlier than the Closing Date nor
later than ten business days after the date of such notice. Additional Shares
may be purchased as provided in Section 5 hereof solely for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each Underwriter agrees,
severally and not jointly, to purchase the number of Additional Shares (subject
to such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth in Schedule II hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant outstanding on the date hereof of which the
Underwriters have been advised in writing or which is described in the
Prospectus, (C) transactions by any person other than the Company relating to
shares of Common Stock or other securities acquired in open market transactions
after the
<PAGE>
10
completion of the offering of the Shares or (D) bona fide gifts to donees who
agree in writing to be bound by the restrictions set forth in the foregoing
sentence. In addition, each Selling Shareholder agrees that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock. Notwithstanding the foregoing, the restrictions
contained in this paragraph shall cease to be binding on the Sellers in the
event that the offering of Shares contemplated hereby has not been consummated
on or before [DATE 60 DAYS AFTER THE DATE OF THIS AGREEMENT].
3. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$_______ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of $______ a share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by the
Company shall be made to the Company in Federal (same day) or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on [DATE 3 BUSINESS DAYS OR, IF PRICING IS AFTER 4:30 P.M. EASTERN TIME, 4
BUSINESS DAYS AFTER THE DATE OF THIS AGREEMENT] or at such other time on the
same or such other date, not later than [DATE 5 BUSINESS DAYS AFTER PREVIOUS
DATE] as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Custodian in Federal
(same day) or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than [DATE 10 BUSINESS DAYS AFTER EXPIRATION OF
GREEN SHOE] as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in definitive
form and registered in such names and in such denominations as you shall request
in writing not later than one full business day prior to the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and Additional Shares shall be delivered to you on the Closing Date or
the Option Closing Date, as the case may be, for the respective accounts of the
several Underwriters, with any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters duly paid, against payment of the
Purchase Price therefor.
<PAGE>
11
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [TIME] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following further
conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial
or otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date:
(i) a certificate, dated the Closing Date and signed by an
executive officer of the Company, to the effect set forth in clause
(a)(i) above and to the effect that the representations and warranties
of the Company contained in this Agreement are true and correct as of
the Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date; and
(ii) a certificate, dated the Closing Date and signed by each
Selling Shareholder to the effect that the representations and
warranties of such Selling Shareholder contained in this Agreement are
true and correct as of the Closing Date and that such Selling
Shareholder has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied hereunder on
or before the Closing Date.
The persons signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
<PAGE>
12
(c) The Underwriters shall have received on the Closing Date an opinion
of King & Spalding, outside counsel for the Company, dated the Closing Date, to
the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(ii) each subsidiary of the Company has been duly organized,
is validly existing in good standing under the laws of the jurisdiction
of its organization, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(iii) the authorized capital stock of the Company conforms in
all material respects as to legal matters to the description thereof
contained in the Prospectus under the caption "Description of Capital
Stock";
(iv) the shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(v) (A) all of the issued shares of each of GPPD and GPPW have
been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims and (B) all of the
membership interests in GPPLLC are indirectly owned by the Company,
free and clear of all liens, encumbrances, equities or claims;
(vi) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement against payment therefor, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
<PAGE>
13
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of law applicable to the Company and
its subsidiaries or the certificate of incorporation or by-laws of the
Company or, to the best of such counsel's knowledge, any agreement or
other instrument binding upon the Company or any of its subsidiaries
that is filed as an exhibit to the Registration Statement, or, to the
best of such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this Agreement,
except such as have been obtained under the Securities Act and such as
may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Business - Engine Supply," "Certain Relationships and Related Party
Transactions - Stockholders' Agreements," "Description of Certain
Indebtedness - The Credit Facility," "Description of Capital Stock" and
"Underwriters" and (B) in the Registration Statement in Item 14, in
each case insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present
the information required to be described with respect to such legal
matters, documents and proceedings and fairly summarize such legal
matters and documents required to be described;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and are
not so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended;
(xii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and notes
thereto, the financial statement schedules and other financial and
statistical data included therein as to which such counsel need not
express any opinion) comply as to form in all material respects with
the Securities Act and the applicable rules and regulations of the
Commission thereunder, (B) has no reason to believe that (except for
financial statements and notes thereto, the financial statement
schedules and other financial and statistical data included therein as
to which such counsel need not express any belief) the Registration
Statement and the prospectus
<PAGE>
14
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and notes thereto, the
financial statement schedules and other financial and statistical data
included therein as to which such counsel need not express any belief)
the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an opinion
from counsel for each Selling Shareholder, such counsel to be reasonably
satisfactory to counsel for the Underwriters, dated the Closing Date, to the
effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder;
(ii) the execution and delivery by such Selling Shareholder
of, and the performance by such Selling Shareholder of its obligations
under, this Agreement and the Power of Attorney and Custody Agreement
of such Selling Shareholder will not contravene any provision of law
applicable to such Selling Shareholder, or the certificate of
incorporation or by-laws of such Selling Shareholder (if such Selling
Shareholder is a corporation), or, to the best of such counsel's
knowledge, any material agreement or other material instrument binding
upon such Selling Shareholder or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over such Selling Shareholder, and
no consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by such
Selling Shareholder of its obligations under this Agreement or the
Power of Attorney and Custody Agreement of such Selling Shareholder,
except such as have been obtained under the Securities Act and such as
may be required by the securities or Blue Sky laws of the various
states in connection with offer and sale of the Shares;
(iii) such Selling Shareholder has valid title to the Shares
to be sold by such Selling Shareholder and has the legal right and
power, and all authorization and approval required by law, to enter
into this Agreement and the Power of Attorney and Custody Agreement of
such Selling Shareholder and to sell, transfer and deliver the Shares
to be sold by such Selling Shareholder;
(iv) the Power of Attorney and Custody Agreement of such
Selling Shareholder has been duly authorized, executed and delivered by
such Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder;
(v) upon delivery of the Shares to be sold by such Selling
Shareholder against payment therefor pursuant to this Agreement and the
Power of Attorney and Custody
<PAGE>
15
Agreement, and assuming such shares are purchased without notice of any
adverse claim (within the meaning of the New York Uniform Commercial
Code (the "UCC"), the Underwriters purchasing such shares will acquire
valid title to such Shares free and clear of any adverse claim pursuant
to Section 8-302 of the UCC.
(e) The Underwriters shall have received on the Closing Date an opinion
of Davis Polk & Wardwell, counsel for the Underwriters, dated the Closing Date,
covering the matters referred to in Sections 6(c)(vi), 6(c)(vii), 6(c)(ix) (but
only as to the statements in the Prospectus under "Description of Capital Stock"
and "Underwriters") and 6(c)(xii) above.
With respect to Section 6(c)(xii) above, King & Spalding and
Davis Polk & Wardwell may state that their opinion and belief are based
upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without
independent check or verification, except as specified. In rendering
the foregoing opinions, such counsel may rely, with respect to factual
matters and to the extent they deem appropriate, upon representations
or certificates of responsible officers of the Company and certificates
of public officials. With respect to Section 6(d) above, counsel for
each Selling Shareholder may rely with respect to factual matters and
to the extent such counsel deems appropriate, upon the representations
of each Selling Shareholder contained herein and in the Power of
Attorney and Custody Agreement of such Selling Shareholder and in other
documents and instruments; PROVIDED that copies of such Power of
Attorney and Custody Agreements and of any such other documents and
instruments shall be delivered to you and shall be in form and
substance satisfactory to your counsel.
The opinions of King & Spalding and counsel for each Selling
Shareholder described in Sections 6(c) and 6(d) above, respectively,
shall be rendered to the Underwriters at the request of the Company or
one or more of the Selling Shareholders, as the case may be, and shall
so state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, from each
of PricewaterhouseCoopers LLP and Deloitte & Touche LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; PROVIDED that the letter delivered on
the Closing Date shall use a "cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of Exhibit
A hereto, between you and certain shareholders, officers and directors of the
Company relating to sales and certain other dispositions of shares of Common
Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
<PAGE>
16
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company and certain matters related to the sale of the Additional Shares.
6. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 7(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement without
your prior consent, such consent not to be unreasonably withheld, and to file
with the Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the Prospectus
is required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to comply
with applicable law, forthwith to prepare, file with the Commission and furnish,
at its own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been sold by
you on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided that, in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction.
<PAGE>
17
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-month
period ending _______, 2000 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder.
(f) To direct the transfer agent to place stop transfer orders on any
Directed Shares that have been sold to Participants subject to the three month
restriction on sale, transfer, assignment, pledge or hypothecation imposed by
NASD Regulation, Inc. under its Interpretative Material 2110-1 on free-riding
and withholding to the extent necessary to ensure compliance with the three
month restrictions. [Morgan Stanley will notify the Company as to which
Participants will need to be so restricted.]
(g) To comply with all applicable securities and other laws, rules and
regulations in each jurisdiction in which the Directed Shares are offered in
connection with the Directed Share Program.
(h) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Company agrees to pay or cause
to be paid all expenses incident to the performance of the Sellers' obligations
under this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel, the Company's accountants and counsel for the Selling
Shareholders in connection with the registration and delivery of the Shares
under the Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all reasonable expenses in connection
with the qualification of the Shares for offer and sale under state securities
laws as provided in Section 7(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., including the reasonable fees and disbursements of
counsel to Morgan Stanley in its capacity as "qualified independent
underwriter," (v) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Common Stock
and all costs and expenses incident to listing the Shares on the NYSE, (vi) the
cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of
<PAGE>
18
any consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, (ix) all fees
and disbursements of counsel incurred by the Underwriters in connection with the
Directed Share Program and stamp duties, similar taxes or duties or other taxes,
if any, incurred by the Underwriters in connection with the Directed Share
Program, and (x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 8 entitled "Indemnity and Contribution", and the last paragraph
of Section 11 below, the Underwriters will pay all of their costs and expenses,
including fees, without limitation, and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make. The provisions of
this Section shall not supersede or otherwise affect any agreement that the
Sellers may otherwise have for the allocation of such expenses among themselves.
7. INDEMNITY AND CONTRIBUTION. (a) The Sellers, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; PROVIDED, HOWEVER,
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law to have been so delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 7(a) or Section 7(c).
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter and the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls each Underwriter or the Company within the
<PAGE>
19
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
with reference to information relating to such Selling Shareholder furnished in
writing by or on behalf of such Selling Shareholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto. [Notwithstanding anything contained herein to
the contrary, no Selling Shareholder, other than Beacon, shall be liable under
this Section 8 for any amount in excess of the total proceeds (before deducting
expenses) received by such Selling Shareholder from the Underwriters for the
Shares sold by such Selling Shareholder hereunder.]
(c) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act, or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages, liabilities and judgments
incurred as a result of Morgan Stanley's participation as a "qualified
independent underwriter" within the meaning of Rule 2720 of the National
Association of Securities Dealers' Conduct Rules in connection with the offering
of the Shares, except for any losses, claims, damages, liabilities, and
judgments resulting from Morgan Stanley's or such controlling person's, willful
misconduct.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Shareholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Shareholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(e) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section
<PAGE>
20
8(a), 8(b), 8(c) or 8(d), such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any 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 (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to 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. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, (ii) the fees and expenses of more than one separate firm (in addition to
any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Selling
Shareholders and all persons, if any, who control any Selling Shareholder within
the meaning of either such Section, and that all such reasonable fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of any Underwriters,
such firm shall be designated in writing by Morgan Stanley. In the case of any
such separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the Company.
In the case of any such separate firm for the Selling Shareholders and such
control persons of any Selling Shareholders, such firm shall be designated in
writing by the Attorneys-in-Fact for the Selling Shareholders. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought pursuant
to Section 8(c) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying party shall
be liable for the reasonable fees and expenses of not more than one separate
firm (in addition to any local counsel) for Morgan Stanley in its capacity as a
"qualified independent underwriter' and all persons, if any, who control Morgan
Stanley within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by
<PAGE>
21
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(f) To the extent the indemnification provided for in Section 8(a),
8(b), 8(c) or 8(d) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 8(f)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(f)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(g) The Sellers and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 8 were determined by PRO RATA
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 8(f). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, [(i)] no Underwriter shall be required to
contribute any amount
<PAGE>
22
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue [statement or
omission or alleged omission and (ii) no Selling Shareholder, other than Beacon,
shall be required to contribute any amount in excess of the amount by which the
net proceeds received from the sale of the Shares by such Selling Shareholder
exceeds the amount of damages that such Selling Shareholder has otherwise been
required to pay by reason of such untrue or alleged untrue] statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(h) The indemnity and contribution provisions contained in this Section
8 and the representations, warranties and other statements of the Company and
the Selling Shareholders contained in this Agreement shall remain operative and
in full force and effect regardless of (i) any termination of this Agreement,
(ii) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person controlling
any Selling Shareholder, or the Company, its officers or directors or any person
controlling the Company and (i) acceptance of and payment for any of the Shares.
8. DIRECTED SHARE PROGRAM INDEMNIFICATION. (a) The Company agrees to
indemnify and hold harmless Morgan Stanley and each person, if any, who controls
Morgan Stanley within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act ("Morgan Stanley Entities"), from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
the Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 9(a), the Morgan Stanley Entity
seeking indemnity, shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any others the Company may designate in such proceeding and shall pay the
fees and
<PAGE>
23
disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
separate firm for the Morgan Stanley Entities shall be designated in writing by
Morgan Stanley. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees to
indemnify the Morgan Stanley Entities from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time a Morgan Stanley Entity shall have requested the Company to
reimburse it for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the Company agrees that it shall be liable
for any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by the Company
of the aforesaid request and (ii) the Company shall not have reimbursed the
Morgan Stanley Entity in accordance with such request prior to the date of such
settlement. The Company shall not, without the prior written consent of Morgan
Stanley, effect any settlement of any pending or threatened proceeding in
respect of which any Morgan Stanley Entity is or could have been a party and
indemnity could have been sought hereunder by such Morgan Stanley Entity, unless
such settlement includes an unconditional release of the Morgan Stanley Entities
from all liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 9(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 9(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 9(c)(i) above but also the
relative fault of the Company on the one hand and of the Morgan Stanley Entities
on the other hand in connection with any statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Morgan Stanley Entities on the other hand in connection with
the offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the
<PAGE>
24
Directed Shares bear to the aggregate Public Offering Price of the Directed
Shares. If the loss, claim, damage or liability is caused by an untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, the relative fault of the Company on the one hand and
the Morgan Stanley Entities on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement or the
omission or alleged omission relates to information supplied by the Company or
by the Morgan Stanley Entities and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(d) The Company and the Morgan Stanley Entities agree that it would not
be just or equitable if contribution pursuant to this Section 9 were determined
by PRO RATA allocation (even if the Morgan Stanley Entities were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 9(C). The amount
paid or payable by the Morgan Stanley Entities as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by the Morgan Stanley
Entities in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Morgan Stanley Entity shall
be required to contribute any amount in excess of the amount by which the total
price at which the Directed Shares were offered to the Participants exceeds the
amount of any damages that such Morgan Stanley Entity has otherwise been
required to pay. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(e) The indemnity and contribution provisions contained in this Section
9 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
10. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through
<PAGE>
25
10(a)(iv), such event, singly or together with any other such event, makes it,
in your judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any one
or more of the Underwriters shall fail or refuse to purchase Shares that it has
or they have agreed to purchase hereunder on such date, and the aggregate number
of Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the number of Firm Shares set forth opposite
their respective names in Schedule II bears to the aggregate number of Firm
Shares set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; PROVIDED that in no event shall the number of Shares that any
Underwriter has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 11 by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on the Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders. In any such
case either you or the relevant Sellers shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement. If this Agreement shall be terminated (other
than pursuant to Section 10) by the Underwriters, or any of them, because of any
failure or refusal on the part of any Seller to comply with the terms or to
fulfill any of the conditions of this Agreement, or if for any reason any Seller
shall be unable to perform its obligations under this Agreement, the Sellers
will reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) reasonably
incurred by such Underwriters in connection with this Agreement or the offering
contemplated hereunder.
<PAGE>
26
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
13. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
GENERAC PORTABLE PRODUCTS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
The Selling Shareholders named in Schedule I
hereto, acting severally
By:
-------------------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
BT Alex. Brown Incorporated
Acting severally on behalf of themselves and the several Underwriters named in
Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------
Name:
-----------------------
<PAGE>
SCHEDULE I
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
[NAMES OF SELLING SHAREHOLDERS]............
-------------------------
Total: ............................... -------------------------
<PAGE>
SCHEDULE II
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
BT Alex. Brown Incorporated
-------------------------
Total: ............................... -------------------------
-------------------------
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
[Date]
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
BT Alex. Brown Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Generac Portable Products, Inc., a Delaware corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley (the "Underwriters"), of
8,000,000 shares (the "Shares") of the Common Stock, par value $.01 per share,
of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement, (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering or (c) bona fide gifts
to donees who agree in writing to be bound by the restrictions set forth in the
foregoing sentence. In addition, the undersigned agrees that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, it will not,
during the period commencing on the date hereof and ending 180 days after the
date of the Prospectus, make any demand for or exercise any right with respect
to, the registration of any
<PAGE>
2
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
This Agreement shall automatically terminate if the Public Offering has not
been consummated on or before November 30, 1999.
Very truly yours,
------------------------------------
(Name)
------------------------------------
(Address)
<PAGE>
Exhibit 10.11
[CONFORMED COPY WITH EXHIBITS
H AND I CONFORMED AS EXECUTED]
================================================================================
CREDIT AGREEMENT
AMONG
GENERAC PORTABLE PRODUCTS, LLC,
GENERAC PORTABLE PRODUCTS, INC.,
GPPW, INC.,
VARIOUS BANKS,
AND
BANKERS TRUST COMPANY,
AS ADMINISTRATIVE AGENT
----------------------------------
DATED AS OF JULY 9, 1998
----------------------------------
$115,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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SECTION 1. Amountand Terms of Credit.............................................................................1
1.01 The Commitments.............................................................................1
1.02 Minimum Amount of Each Borrowing; Limitation on Number of Borrowings........................3
1.03 Notice of Borrowing.........................................................................4
1.04 Disbursement of Funds.......................................................................5
1.05 Notes.......................................................................................5
1.06 Conversions.................................................................................7
1.07 Pro Rata Borrowings.........................................................................7
1.08 Interest....................................................................................8
1.09 Interest Periods............................................................................8
1.10 Increased Costs, Illegality, etc............................................................9
1.11 Compensation...............................................................................12
1.12 Change of Lending Office...................................................................12
1.13 Replacement of Banks.......................................................................12
SECTION 2. Letters of Credit....................................................................................14
2.01 Letters of Credit..........................................................................14
2.02 Letter of Credit Requests..................................................................15
2.03 Letter of Credit Participations............................................................16
2.04 Agreement to Repay Letter of Credit Drawings...............................................17
2.05 Increased Costs............................................................................18
SECTION 3. Commitment Commission; Fees; Reductions of Commitment................................................19
3.01 Fees.......................................................................................19
3.02 Voluntary Termination of Unutilized Commitments............................................20
3.03 Mandatory Reduction of Commitments.........................................................21
SECTION 4. Prepayments; Payments; Taxes.........................................................................21
4.01 Voluntary Prepayments......................................................................21
4.02 Mandatory Repayments and Commitment Reductions.............................................22
4.03 Method and Place of Payment................................................................28
4.04 Net Payments; Taxes........................................................................28
SECTION 5. Conditions Precedent to Loans........................................................................30
5.01 Execution of Agreement; Notes..............................................................30
5.02 Fees, etc..................................................................................30
5.03 Opinions of Counsel........................................................................30
(i)
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5.04 Corporate Documents; Proceedings; etc......................................................31
5.05 Employee Benefit Plans; Shareholders'Agreements; Management Agreements; Debt
Agreements; Acquisition Documents; Tax Sharing Agreements..................................31
5.06 Financings; etc............................................................................32
5.07 Acquisition; etc...........................................................................32
5.08 Indebtedness...............................................................................33
5.09 Subsidiaries Guaranty......................................................................33
5.10 Pledge Agreement..........................................................................33
5.11 Security Agreement.........................................................................33
5.12 Mortgages; Title Insurance; Surveys; etc...................................................34
5.13 Consent Letter.............................................................................35
5.14 Adverse Change, etc........................................................................35
5.15 Litigation.................................................................................35
5.16 Solvency Opinion; Environmental Analyses; Insurance........................................35
5.17 Pro Forma Balance Sheet; Financial Statements; Projections.................................36
SECTION 6. Conditions Precedent to All Credit Events............................................................36
6.01 No Default; Representations and Warranties.................................................36
6.02 Notice of Borrowing; Letter of Credit Request..............................................36
SECTION 7. Representations, Warranties and Agreements...........................................................36
7.01 Corporate Status...........................................................................37
7.02 Corporate Power and Authority..............................................................37
7.03 No Violation...............................................................................37
7.04 Governmental Approvals.....................................................................38
7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc.......38
7.06 Litigation.................................................................................39
7.07 True and Complete Disclosure...............................................................39
7.08 Use of Proceeds; Margin Regulations........................................................39
7.09 Tax Returns and Payments...................................................................40
7.10 Compliance with ERISA......................................................................40
7.11 The Security Documents.....................................................................41
7.12 Representations and Warranties in Documents................................................43
7.13 Properties.................................................................................43
7.14 Capitalization.............................................................................43
7.15 Subsidiaries...............................................................................44
7.16 Compliance with Statutes, etc..............................................................44
7.17 Investment Company Act.....................................................................44
7.18 Public Utility Holding Company Act.........................................................44
7.19 Environmental Matters......................................................................44
7.20 Labor Relations............................................................................45
7.21 Patents, Licenses, Franchises and Formulas.................................................45
7.22 Indebtedness...............................................................................45
(ii)
<PAGE>
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7.23 Transaction................................................................................46
7.24 Special Purpose Corporations...............................................................46
7.25 Insurance..................................................................................46
7.26 Senior Subordinated Notes..................................................................46
7.27 Year 2000 Problem..........................................................................46
SECTION 8. Affirmative Covenants................................................................................46
8.01 Information Covenants......................................................................46
8.02 Books, Records and Inspections.............................................................50
8.03 Maintenance of Property; Insurance.........................................................50
8.04 Corporate Franchises.......................................................................51
8.05 Compliance with Statutes, etc..............................................................51
8.06 Compliance with Environmental Laws.........................................................51
8.07 ERISA......................................................................................52
8.08 End of Fiscal Years; Fiscal Quarters.......................................................53
8.09 Performance of Obligations.................................................................53
8.10 Payment of Taxes...........................................................................53
8.11 Ownership of Subsidiaries..................................................................53
8.12 Additional Security; Further Assurances; Surveys...........................................54
8.13 Interest Rate Protection...................................................................56
8.14 Foreign Subsidiaries Security..............................................................56
8.15 Maintenance of Corporate Separateness......................................................56
8.16 Year 2000 Compatibility....................................................................57
SECTION 9. Negative Covenants...................................................................................57
9.01 Liens......................................................................................57
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc.....................................59
9.03 Dividends..................................................................................60
9.04 Indebtedness...............................................................................61
9.05 Advances, Investments and Loans............................................................62
9.06 Transactions with Affiliates...............................................................64
9.07 Capital Expenditures.......................................................................64
9.08 Consolidated Interest Coverage Ratio.......................................................64
9.09 Maximum Leverage Ratio.....................................................................65
9.10 Minimum EBITDA.............................................................................65
9.11 Limitation on Modifications of Indebtedness; Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; etc...................................66
9.12 Limitation on Certain Restrictions on Subsidiaries.........................................66
9.13 Limitation on Issuance of Capital Stock....................................................67
9.14 Limitation on Creation of Subsidiaries.....................................................67
9.15 Business...................................................................................67
9.16 Designated Senior Indebtedness.............................................................68
(iii)
<PAGE>
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SECTION 10. Events of Default...................................................................................68
10.01 Payments...................................................................................68
10.02 Representations, etc.......................................................................68
10.03 Covenants..................................................................................68
10.04 Default Under Other Agreements.............................................................68
10.05 Bankruptcy, etc............................................................................69
10.06 ERISA......................................................................................69
10.07 Security Documents.........................................................................70
10.08 Guaranty...................................................................................70
10.09 Judgments..................................................................................70
10.10 Change of Control..........................................................................70
SECTION 11. Definitions and Accounting Terms....................................................................71
11.01 Defined Terms..............................................................................71
SECTION 12. The Agent...........................................................................................95
12.01 Appointment................................................................................95
12.02 Nature of Duties...........................................................................95
12.03 Lack of Reliance on the Administrative Agent...............................................95
12.04 Certain Rights of the Agent................................................................96
12.05 Reliance...................................................................................96
12.06 Indemnification............................................................................96
12.07 The Administrative Agent in its Individual Capacity........................................96
12.08 Holders....................................................................................97
12.09 Resignation by the Administrative Agent....................................................97
SECTION 13. Miscellaneous.......................................................................................97
13.01 Payment of Expenses, etc...................................................................97
13.02 Right of Setoff............................................................................98
13.03 Notices....................................................................................99
13.04 Benefit of Agreement.......................................................................99
13.05 No Waiver; Remedies Cumulative............................................................101
13.06 Payments Pro Rata.........................................................................101
13.07 Calculations; Computations................................................................102
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL....................102
13.09 Counterparts..............................................................................103
13.10 Effectiveness.............................................................................104
13.11 Headings Descriptive......................................................................104
13.12 Amendment or Waiver; etc..................................................................104
13.13 Survival..................................................................................106
13.14 Domicile of Loans.........................................................................106
13.15 Limitation on Additional Amounts, Etc.....................................................106
13.16 Confidentiality...........................................................................106
(iv)
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13.17 Register..................................................................................107
SECTION 14. Parent Guaranty....................................................................................108
14.01 The Parent Guaranty.......................................................................108
14.02 Bankruptcy................................................................................108
14.03 Nature of Liability.......................................................................108
14.04 Independent Obligation....................................................................109
14.05 Authorization.............................................................................109
14.06 Reliance..................................................................................110
14.07 Subordination.............................................................................110
14.08 Waiver....................................................................................110
14.09 Maximum Liability.........................................................................111
</TABLE>
SCHEDULE I - COMMITMENTS
SCHEDULE II - BANK ADDRESSES
SCHEDULE III - REAL PROPERTY
SCHEDULE IV - EXISTING LIENS
SCHEDULE V - EXISTING INDEBTEDNESS
SCHEDULE VI - INSURANCE
SCHEDULE VII - ERISA
SCHEDULE VIII - SUBSIDIARIES
SCHEDULE IX - LABOR RELATIONS
SCHEDULE X - PROJECTIONS
SCHEDULE XI - CONVERTIBLE SECURITIES
SCHEDULE XII - ORGANIZATIONAL CHART
EXHIBIT A Notice of Borrowing
EXHIBIT B-1 Term Note
EXHIBIT B-2 Tranche A Term Note
EXHIBIT B-3 Tranche B Term Note
EXHIBIT B-4 Swingline Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Opinion of King & Spalding
EXHIBIT F Officer's Certificate
EXHIBIT G Subsidiaries Guaranty
EXHIBIT H Pledge Agreement
EXHIBIT I Security Agreement
EXHIBIT J Consent Letter
EXHIBIT K Solvency Letter
EXHIBIT L Assignment and Assumption Agreement
EXHIBIT M Subordination Provisions
(v)
<PAGE>
CREDIT AGREEMENT, dated as of July 9, 1998, among Generac
Portable Products, a Delaware corporation ("Holdings"), GPPW, Inc., a Wisconsin
corporation ("WisCorp" and together with Holdings, the "Parent Guarantors"),
Generac Portable Products LLC, a Delaware limited liability company (the
"Borrower"), the Banks party hereto from time to time and BANKERS TRUST COMPANY,
as Administrative Agent (in such capacity, the "Administrative Agent") (all
capitalized terms used herein and defined in Section 11 are used herein as
therein defined).
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein
set forth, the Banks are willing to make available to the Borrower the
respective credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 THE COMMITMENTS. (a) Subject to and upon the terms and
conditions set forth herein, each Bank with a Tranche A Term Loan Commitment
severally agrees to make, on the Initial Borrowing Date, a term loan (each, a
"Tranche A Term Loan" and, collectively, the "Tranche A Term Loans") to the
Borrower, which Tranche A Term Loans (i) shall be made and initially maintained
as a single Borrowing of Base Rate Loans (subject to the option to convert such
Tranche A Term Loans pursuant to Section 1.06) and (ii) shall be made by each
Bank in that initial aggregate principal amount as is equal to the Tranche A
Term Loan Commitment of such Bank on such date (before giving effect to any
reductions thereto on such date pursuant to Section 3.03(b)(i) but after giving
effect to any reductions thereto on or prior to such date pursuant to Section
3.03(b)(ii)). Once repaid, Tranche A Term Loans incurred hereunder may not be
reborrowed.
(b) Subject to and upon the terms and conditions set forth
herein, each Bank with a Tranche B Term Loan Commitment severally agrees to
make, on the Initial Borrowing Date, a term loan (each, a "Tranche B Term Loan"
and, collectively, the "Tranche B Term Loans") to the Borrower, which Tranche B
Term Loans (i) shall be made and initially maintained as a single Borrowing of
Base Rate Loans (subject to the option to convert such Tranche B Term Loans
pursuant to Section 1.06) and (ii) shall be made by each Bank in that initial
aggregate principal amount as is equal to the Tranche B Term Loan Commitment of
such Bank on such date (before giving effect to any reductions thereto on such
date pursuant to Section 3.03(c)(i) but after giving effect to any reductions
thereto on or prior to such date pursuant to Section 3.03(c)(ii)). Once repaid,
Tranche B Term Loans incurred hereunder may not be reborrowed.
(c) Subject to and upon the terms and conditions set forth
herein, each Bank with a Revolving Loan Commitment severally agrees, at any time
and from time to time after the Initial Borrowing Date and prior to the
Revolving Loan Maturity Date, to make a revolving loan or revolving loans (each,
a "Revolving Loan" and, collectively, the "Revolving Loans") to the
<PAGE>
Borrower, which Revolving Loans (i) shall, at the option of the Borrower, be
Base Rate Loans or Eurodollar Loans, PROVIDED that (A) except as otherwise
specifically provided in Section 1.10(b), all Revolving Loans comprising the
same Borrowing shall at all times be of the same Type and (B) no Revolving Loans
maintained as Eurodollar Loans may be incurred prior to the earlier of (1) the
5th day after the Initial Borrowing Date and (2) the Syndication Date, (ii) may
be repaid and reborrowed in accordance with the provisions hereof, (iii) shall
not exceed for any Bank at any time outstanding that aggregate principal amount
which, when added to the product of (x) such Bank's Adjusted Percentage and (y)
the sum of (I) the aggregate amount of all Letter of Credit Outstandings
(exclusive of Unpaid Drawings which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans) at such time and (II) the aggregate principal amount of all Swingline
Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans) then outstanding, equals the Revolving Loan Commitment of such Bank at
such time and (iv) shall not exceed for all Banks at any time outstanding that
aggregate principal amount which, when added to (w) the amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time, (x) the aggregate principal amount
of all Swingline Loans (exclusive of Swingline Loans which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, (y) the principal amount of
Indebtedness outstanding pursuant to Section 9.04 (xi) and (z) the Foreign Loan
Amount at such time, equals the Total Revolving Loan Commitment at such time.
(d) Subject to and upon the terms and conditions herein set
forth, the Swingline Bank in its individual capacity agrees to make at any time
and from time to time on and after the Initial Borrowing Date and prior to the
Swingline Expiry Date, a revolving loan or revolving loans (each, a "Swingline
Loan" and, collectively, the "Swingline Loans") to the Borrower, which Swingline
Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be repaid
and reborrowed in accordance with the provisions hereof, (iii) shall not exceed
in aggregate principal amount at any time outstanding, when added to (w) the
aggregate principal amount of all Revolving Loans made by Non-Defaulting Banks
then outstanding, (x) the Letter of Credit Outstandings at such time, (y) the
Foreign Loan Amount at such time and (z) the principal amount of Indebtedness
outstanding pursuant to Section 9.04 (xi), an amount equal to the Adjusted Total
Revolving Loan Commitment at such time (after giving effect to any reductions to
the Adjusted Total Revolving Loan Commitment on such date), (iv) shall not
exceed at any time outstanding the Maximum Swingline Amount and (v) shall not be
extended if the Swingline Bank receives a written notice from the Administrative
Agent or the Required Banks that has not been rescinded that there is a Default
or an Event of Default in existence hereunder.
(e) On any Business Day, the Swingline Bank may, in its sole
discretion, give notice to the other Banks that its outstanding Swingline Loans
shall be funded with a Borrowing of Revolving Loans (provided that such notice
shall be deemed to have been automatically given upon the occurrence of a
Default or an Event of Default under Section 10.05 or upon the exercise of any
of the remedies provided in the last paragraph of Section 10), in which case a
Borrowing of Revolving Loans constituting Base Rate Loans (each such Borrowing,
a "Mandatory Borrowing") shall be made on the immediately succeeding Business
Day by all Banks with a Revolving
-2-
<PAGE>
Loan Commitment (without giving effect to any reductions thereto pursuant to the
last paragraph of Section 10) pro RATA based on each Bank's Adjusted Percentage
(determined before giving effect to any termination of the Revolving Loan
Commitments pursuant to the last paragraph of Section 10) and the proceeds
thereof shall be paid directly to the Swingline Bank to repay the Swingline Bank
for such outstanding Swingline Loans. Each such Bank hereby irrevocably agrees
to make Revolving Loans upon one Business Day's notice pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline Bank
notwithstanding (i) that the amount of the Mandatory Borrowing may not comply
with the minimum amount for Borrowings otherwise required hereunder, (ii)
whether any conditions specified in Section 6 are then satisfied, (iii) whether
a Default or an Event of Default then exists, (iv) the date of such Mandatory
Borrowing and (v) the amount of the Total Revolving Loan Commitment or the
Adjusted Total Revolving Loan Commitment at such time. In the event that any
Mandatory Borrowing cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code with respect to the Borrower), then each
such Bank hereby agrees that it shall forthwith purchase (as of the date the
Mandatory Borrowing would otherwise have occurred, but adjusted for any payments
received from the Borrower on or after such date and prior to such purchase)
from the Swingline Bank such participations in the outstanding Swingline Loans
as shall be necessary to cause such Banks to share in such Swingline Loans
ratably based upon their respective Adjusted Percentages (determined before
giving effect to any termination of the Revolving Loan Commitments pursuant to
the last paragraph of Section 10), PROVIDED that (x) all interest payable on the
Swingline Loans shall be for the account of the Swingline Bank until the date as
of which the respective participation is required to be purchased and, to the
extent attributable to the purchased participation, shall be payable to the
participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Bank
shall be required to pay the Swingline Bank interest on the principal amount of
participation purchased for each day from and including the day upon which the
Mandatory Borrowing would otherwise have occurred to but excluding the date of
payment for such participation, at the overnight Federal Funds Rate for the
first three days and at the rate otherwise applicable to Revolving Loans
maintained as Base Rate Loans hereunder for each day thereafter.
1.02 MINIMUM AMOUNT OF EACH BORROWING; LIMITATION ON NUMBER OF
BORROWINGS. (a) The aggregate principal amount of each Borrowing of any Tranche
of Term Loans shall not be less than $1,000,000. The aggregate principal amount
of each Borrowing of Revolving Loans shall be not less than (x) in the case of a
Borrowing of Eurodollar Loans, $1,000,000 and (y) in the case of a Borrowing of
Base Rate Loans, $500,000, PROVIDED that Mandatory Borrowings shall be made in
the amounts required by Section 1.01(e). The aggregate principal amount of each
Borrowing of Swingline Loans shall not be less than $100,000 and, if greater,
shall be in an integral multiple of $100,000.
(b) More than one Borrowing may occur on the same date, but at
no time shall there be outstanding more than (x) if at any time prior to the
earlier of (i) the 65th day following the Initial Borrowing Date and (ii) the
Syndication Date, one Borrowing of Eurodollar Loans under each Tranche each of
which shall have an Interest Period of one month and shall begin and end on the
same day that the Interest Periods applicable to Eurodollar Loans under the
other
-3-
<PAGE>
Tranches begin and end and (y) if at any time thereafter, ten Borrowings of
Eurodollar Loans in the aggregate under all Tranches.
1.03 NOTICE OF BORROWING. (a) Whenever the Borrower desires to
make Borrowing hereunder (excluding Borrowings of Swingline Loans and Mandatory
Borrowings), it shall give the Administrative Agent at its Notice Office at
least one Business Day's prior written notice (or telephonic notice promptly
confirmed in writing) of each Base Rate Loan and at least three Business Days'
prior written notice (or telephonic notice promptly confirmed in writing) of
each Eurodollar Loan to be made hereunder, PROVIDED that any such notice shall
be deemed to have been given on a certain day only if given before 11:00 A.M.
(New York time). Each such written notice or written confirmation of telephonic
notice (each a "Notice of Borrowing"), except as otherwise expressly provided in
Section 1.10, shall be irrevocable and shall be given by the Borrower in the
form of Exhibit A, appropriately completed to specify the aggregate principal
amount of the Loans to be made pursuant to such Borrowing, the date of such
Borrowing (which shall be a Business Day), whether the Loans being made pursuant
to such Borrowing shall constitute Tranche A Term Loans, Tranche B Term Loans or
Revolving Loans and whether the Loans being made pursuant to such Borrowing are
to be initially maintained as Base Rate Loans or Eurodollar Loans and, if
Eurodollar Loans, the initial Interest Period to be applicable thereto. The
Administrative Agent shall promptly give each Bank which is required to make
Loans of the Tranche specified in the respective Notice of Borrowing, notice of
such proposed Borrowing, of such Bank's proportionate share thereof and of the
other matters required by the immediately preceding sentence to be specified in
the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to make a Borrowing of
Swingline Loans hereunder, it shall give the Swingline Bank not later than 12:00
Noon (New York time) on the date that a Swingline Loan is to be made, written
notice or telephonic notice promptly confirmed in writing of each Swingline Loan
to be made hereunder. Each such notice shall be irrevocable and specify in each
case (A) the date of Borrowing (which shall be a Business Day) and (B) the
aggregate principal amount of the Swingline Loans to be made pursuant to such
Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice
specified in Section 1.01(e), with the Borrower irrevocably agreeing, by its
incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as
set forth in Section 1.01(e).
(c) Without in any way limiting the obligation of the Borrower
to confirm in writing any telephonic notice of any Borrowing of Loans, the
Administrative Agent or the Swingline Bank, as the case may be, may act without
liability upon the basis of telephonic notice of such Borrowing, believed by the
Administrative Agent or the Swingline Bank, as the case may be, in good faith to
be from the Chairman of the Board, the President, the Treasurer, any Assistant
Treasurer or any Controller of the Borrower (or any other officer of the
Borrower designated in writing to the Administrative Agent and the Swingline
Bank by the Chairman of the Board, the President or the Treasurer as being
authorized to give such notices under this Agreement) prior to receipt of
written confirmation. In each such case, the Borrower hereby waives the right to
dispute the Administrative Agent's and the Swingline Bank's record of the terms
of such telephonic notice of such Borrowing of Loans, absent manifest error.
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1.04 DISBURSEMENT OF FUNDS. Except as otherwise specifically
provided in the immediately succeeding sentence, no later than 12:00 Noon (New
York time) on the date specified in each Notice of Borrowing (or (x) in the case
of Swingline Loans, not later than 2:00 P.M. (New York time) on the date
specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory
Borrowings, not later than 12:00 Noon (New York time) on the date specified in
Section 1.01(e)), each Bank with a Commitment of the respective Tranche will
make available its PRO RATA portion of each such Borrowing requested to be made
on such date (or in the case of Swingline Loans, the Swingline Bank shall make
available the full amount thereof). All such amounts shall be made available in
Dollars and in immediately available funds at the Payment Office of the
Administrative Agent, and, except in the case of Mandatory Borrowings, the
Administrative Agent will make available to the Borrower at the Payment Office
the aggregate of the amounts so made available by the Banks (for Loans other
than Swingline Loans, prior to 1:00 P.M. (New York time) on such day, to the
extent of funds actually received by the Administrative Agent prior to 12:00
Noon (New York time) on such day). Unless the Administrative Agent shall have
been notified by any Bank prior to the date of Borrowing that such Bank does not
intend to make available to the Administrative Agent such Bank's portion of any
Borrowing to be made on such date, the Administrative Agent may assume that such
Bank has made such amount available to the Administrative Agent on such date of
Borrowing and the Administrative Agent may, in reliance upon such assumption,
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Administrative Agent by such Bank,
the Administrative Agent shall be entitled to recover such corresponding amount
on demand from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Administrative Agent's demand therefor, the Administrative
Agent shall promptly notify the Borrower and the Borrower shall immediately pay
such corresponding amount to the Administrative Agent. The Administrative Agent
shall also be entitled to recover on demand from such Bank or the Borrower, as
the case may be, interest on such corresponding amount in respect of each day
from the date such corresponding amount was made available by the Administrative
Agent to the Borrower until the date such corresponding amount is recovered by
the Administrative Agent, at a rate per annum equal to (i) if recovered from
such Bank, at the overnight Federal Funds Rate and (ii) if recovered from the
Borrower, the rate of interest applicable to the respective Borrowing, as
determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be
deemed to relieve any Bank from its obligation to make Loans hereunder or to
prejudice any rights which the Borrower may have against any Bank as a result of
any failure by such Bank to make Loans hereunder.
1.05 NOTES. (a) The Borrower's obligation to pay the principal
of, and interest on, the Loans made by each Bank shall be evidenced (i) if
Tranche A Term Loans, by a promissory note duly executed and delivered by the
Borrower substantially in the form of Exhibit B-1 with blanks appropriately
completed in conformity herewith (each, a "Tranche A Term Note" and,
collectively, the "Tranche A Term Notes"), (ii) if Tranche B Term Loans, by a
promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B-2 with blanks appropriately completed in conformity herewith
(each, a "Tranche B Term Note" and, collectively, the "Tranche B Term Notes"),
(iii) if Revolving Loans, by a promissory note duly executed and delivered by
the Borrower substantially in the form of Exhibit B-3, with blanks appropriately
completed in conformity herewith (each, a "Revolving Note" and, collectively,
the
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"Revolving Notes") and (iv) if Swingline Loans, by a promissory note duly
executed and delivered by the Borrower substantially in the form of Exhibit B-4,
with blanks appropriately completed in conformity herewith (the "Swingline
Note").
(b) The Tranche A Term Note issued to each Bank shall (i) be
executed by the Borrower, (ii) be payable to the order of such Bank and be dated
the Initial Borrowing Date (or, in the case of Tranche A Term Notes issued after
the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be
in a stated principal amount equal to the Tranche A Term Loan made by such Bank
on the Initial Borrowing Date (or, in the case of Tranche A Term Notes issued
after the Initial Borrowing Date, be in a stated principal amount equal to the
outstanding principal amount of the Tranche A Term Loan of such Bank on the date
of the issuance thereof) and be payable in the principal amount of Tranche A
Term Loans evidenced thereby, (iv) mature on the Tranche A Term Loan Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to voluntary prepayment and mandatory
repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(c) The Tranche B Term Note issued to each Bank shall (i) be
executed by the Borrower, (ii) be payable to the order of such Bank and be dated
the Initial Borrowing Date (or, in the case of Tranche B Term Notes issued after
the Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be
in a stated principal amount equal to the Tranche B Term Loan made by such Bank
on the Initial Borrowing Date (or, in the case of Tranche B Term Notes issued
after the Initial Borrowing Date, be in a stated principal amount equal to the
outstanding principal amount of the Tranche B Term Loan of such Bank on the date
of the issuance thereof) and be payable in the principal amount of Tranche B
Term Loans evidenced thereby, (iv) mature on the Tranche B Term Loan Maturity
Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in
respect of the Base Rate Loans and Eurodollar Loans, as the case may be,
evidenced thereby, (vi) be subject to voluntary prepayment and mandatory
repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(d) The Revolving Note issued to each Bank shall (i) be
executed by the Borrower, (ii) be payable to the order of such Bank and be dated
the Initial Borrowing Date (or, in the case of Revolving Notes issued after the
Initial Borrowing Date, be dated the date of the issuance thereof), (iii) be in
a stated principal amount equal to the Revolving Loan Commitment of such Bank
and be payable in the principal amount of the Revolving Loans evidenced thereby,
(iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided
in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment and mandatory repayment as provided in Sections 4.01 and
4.02 and (vii) be entitled to the benefits of this Agreement and the other
Credit Documents.
(e) The Swingline Note issued to the Swingline Bank shall (i)
be executed by the Borrower, (ii) be payable to the order of the Swingline Bank
and be dated the Initial Borrowing Date (or, in the case of any Swingline Note
issued after the Initial Borrowing Date, be
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dated the date of the issuance thereof), (iii) be in a stated principal amount
equal to the Maximum Swingline Amount and be payable in the principal amount of
the outstanding Swingline Loans evidenced thereby, (iv) mature on the Swingline
Expiry Date, (v) bear interest as provided in the appropriate clause of Section
1.08 in respect of the Base Rate Loans evidenced thereby and (vi) be entitled to
the benefits of this Agreement and the other Credit Documents.
(f) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation or endorsement shall not affect the Borrower's
obligations in respect of such Loans.
1.06 CONVERSIONS. The Borrower shall have the option to
convert, on any Business Day occurring on or after the earlier of (1) the 5th
day after the Initial Borrowing Date and (2) the Syndication Date, all or a
portion equal to at least (x) in the case of a conversion of Term Loans,
$1,000,000 and (y) in the case of a conversion of Revolving Loans, $1,000,000
(or $500,000 if in the case of a conversion into Base Rate Loans), of the
outstanding principal amount of Loans made pursuant to one or more Borrowings
(so long as of the same Tranche) of one or more Types of Loans into a Borrowing
(of the same Tranche) of another Type of Loan, PROVIDED that (i) no Eurodollar
Loans may be converted into Base Rate Loans on a day which is not the last day
of an Interest Period applicable to the Loans being converted, (ii) no partial
conversion of Eurodollar Loans shall reduce the outstanding principal amount of
such Eurodollar Loans made pursuant to a single Borrowing to less than
$1,000,000, (iii) unless the Required Banks otherwise specifically agree in
writing, Base Rate Loans may only be converted into Eurodollar Loans if no
Default or Event of Default is in existence on the date of the conversion, (iv)
no conversion pursuant to this Section 1.06 shall result in a greater number of
Eurodollar Borrowings than is permitted under Section 1.02 and (v) Swingline
Loans may not be converted pursuant to this Section 1.06. Each such conversion
shall be effected by the Borrower by giving the Administrative Agent at its
Notice Office prior to 12:00 Noon (New York time) at least (x) in the case of a
conversion to Eurodollar Loans, three Business Days' prior notice and (y) in the
case of a conversion to Base Rate Loans, one Business Day's prior notice (each a
"Notice of Conversion") specifying the Loans to be so converted, the
Borrowing(s) pursuant to which such Loans were made and, if to be converted into
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Bank prompt notice of any such proposed
conversion affecting any of its Loans.
1.07 PRO RATA BORROWINGS. All Borrowings of Tranche A Term
Loans, Tranche B Term Loans and Revolving Loans under this Agreement shall be
incurred from the Banks PRO RATA on the basis of their Tranche A Term Loan
Commitments, Tranche B Term Loan Commitments or Revolving Loan Commitments, as
the case may be, provided that all Borrowings of Revolving Loans made pursuant
to a Mandatory Borrowing shall be incurred from the Banks PRO RATA on the basis
of their Adjusted Percentages. It is understood that no Bank shall be
responsible for any default by any other Bank of its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans provided to be
made by it hereunder, regardless of the failure of any other Bank to make its
Loans hereunder.
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1.08 INTEREST. (a) The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Base Rate Loan from the date the
proceeds thereof are made available to the Borrower until the earlier of (i) the
maturity (whether by acceleration or otherwise) of such Base Rate Loan and (ii)
the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section
1.06, at a rate per annum which shall be equal to the sum of the Applicable
Margin plus the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the
unpaid principal amount of each Eurodollar Loan from the date the proceeds
thereof are made available to the Borrower until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Eurodollar Loan and (ii) the
conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06
or 1.09, as applicable, at a rate per annum which shall, during each Interest
Period applicable thereto, be equal to the sum of the Applicable Margin plus the
Eurodollar Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
greater of (x) 2% per annum in excess of the rate otherwise applicable to Base
Rate Loans of the respective Tranche of Loans from time to time (or, if such
overdue amount is not interest or principal in respect of a Loan, 2% per annum
in excess of the rate otherwise applicable to Base Rate Loans which are
Revolving Loans from time to time) and (y) the rate which is 2% in excess of the
rate then borne by such Loans, in each case with such interest to be payable on
demand.
(d) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly
Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each
Interest Period applicable thereto and, in the case of an Interest Period in
excess of three months, on each date occurring at three month intervals after
the first day of such Interest Period and (iii) in respect of each Loan, on any
repayment or prepayment (on the amount repaid or prepaid), at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.
(e) Upon each Interest Determination Date, the Administrative
Agent shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrower and the Banks thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
1.09 INTEREST PERIODS. At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to such Eurodollar Loan (in the case of any subsequent
Interest Period), the Borrower shall have the right to elect, by giving the
Administrative Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two, three or six month period, PROVIDED that:
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(i) all Eurodollar Loans comprising a Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including
the date of any conversion thereto from a Loan of a different Type) and
each Interest Period occurring thereafter in respect of such Eurodollar
Loan shall commence on the day on which the next preceding Interest
Period applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; PROVIDED, HOWEVER, that if any Interest
Period for a Eurodollar Loan would otherwise expire on a day which is
not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on
the next preceding Business Day;
(v) unless the Required Banks otherwise specifically agree in
writing, no Interest Period may be selected at any time when a Default
or Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing of any
Tranche of Loans shall be selected which extends beyond the respective
Maturity Date for such Tranche of Loans; and
(vii) no Interest Period in respect of any Borrowing of Tranche A
Term Loans or Tranche B Term Loans, as the case may be, shall be
selected which extends beyond any date upon which a mandatory repayment
of such Tranche of Term Loans will be required to be made under Section
4.02(b) or (c), as the case may be, if the aggregate principal amount
of Tranche A Term Loans or Tranche B Term Loans, as the case may be,
which have Interest Periods which will expire after such date will be
in excess of the aggregate principal amount of Tranche A Term Loans or
Tranche B Term Loans, as the case may be, then outstanding less the
aggregate amount of such required prepayment.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to such Eurodollar
Loans as provided above, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that
any Bank shall have determined (which determination shall, absent manifest
error, be final and conclusive and binding upon all parties hereto but, with
respect to clause (i) below, may be made only by the Administrative Agent):
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(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect
to any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation,
order, guideline or request (whether or not having the force of law) or
in the interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation, order,
guideline or request, such as, for example, but not limited to: (A) a
change in the basis of taxation of payment to any Bank of the principal
of or interest on such Eurodollar Loan or any other amounts payable
hereunder (except for changes in the rate of tax on, or determined by
reference to, the net income or profits of such Bank, or any franchise
tax based on the net income or profits of such Bank, in either case
pursuant to the laws of the United States of America, the jurisdiction
in which it is organized or in which its principal office or applicable
lending office is located or any subdivision thereof or therein), but
without duplication of any amounts payable in respect of Taxes pursuant
to Section 4.04(a), or (B) a change in official reserve requirements
and/or (y) other circumstances since the date of this Agreement
affecting such Bank or the interbank Eurodollar market or the position
of such Bank in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental
rule, regulation or order, and/or (y) impossible by compliance by any
Bank in good faith with any governmental request (whether or not having
force of law) or (z) impracticable as a result of a contingency
occurring after the date of this Agreement which materially and
adversely affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrower and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the
case of clause (i) above, Eurodollar Loans shall no longer be available until
such time as the Administrative Agent notifies the Borrower and the Banks that
the circumstances giving rise to such notice by the Administrative Agent no
longer exist, and any Notice of Borrowing or Notice of Conversion given by the
Borrower with respect to Eurodollar Loans which have not yet been incurred
(including by way of conversion) shall be deemed rescinded by the Borrower, (y)
in the case of clause (ii) above, the Borrower shall, subject to the provisions
of Section 13.15 (to the extent applicable) pay to such Bank, upon written
demand therefor, such additional amounts (in the form of an increased rate of,
or a different method of calculating, interest or otherwise as such Bank in its
reasonable discretion shall determine) as shall be required to compensate such
Bank for such increased costs or reductions in amounts received or receivable
hereunder (a written notice as to the additional amounts owed to such Bank,
showing in reasonable detail the basis for and the calculation thereof,
submitted to the Borrower by such Bank in good faith shall, absent manifest
error, be final and conclusive and binding on all the parties hereto) and (z) in
the case of
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clause (iii) above, the Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law. Each of the Administrative Agent and each Bank agrees
that if it gives notice to the Borrower of any of the events described in clause
(i) or (iii) above, it shall promptly notify the Borrower and, in the case of
any such Bank, the Administrative Agent, if such event ceases to exist. If any
such event described in clause (iii) above ceases to exist as to a Bank, the
obligations of such Bank to make Eurodollar Loans and to convert Base Rate Loans
into Eurodollar Loans on the terms and conditions contained herein shall be
reinstated.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, cancel the respective
Borrowing by giving the Administrative Agent telephonic notice (confirmed in
writing) on the same date that the Borrower was notified by the affected Bank or
the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the
affected Eurodollar Loan is then outstanding, upon at least one Business Day's
written notice to the Administrative Agent, require the affected Bank to convert
such Eurodollar Loan into a Base Rate Loan, PROVIDED that, if more than one Bank
is affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.10(b).
(c) In the event that any Bank shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
on all parties hereto) at any time that by reason of Regulation D such Bank is
required to maintain reserves in respect of eurodollar loans or liabilities
during any period it has a Eurodollar Loan outstanding, then such Bank shall
promptly notify the Administrative Agent and the Borrower by telephone confirmed
in writing specifying the additional amounts required to indemnify such Bank
against the cost of maintaining such reserves in respect of such Eurodollar
Loans (such written notice to provide in sufficient detail a computation of such
additional amounts) and the Borrower shall directly pay to such Bank such
specified amounts as additional interest at the time that it is otherwise
required to pay interest in respect of such Eurodollar Loan or, if later, on
demand.
(d) If at any time after the date of this Agreement any Bank
determines that the introduction of or any change in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, in each case introduced or changed after the date
hereof, will have the effect of increasing the amount of capital required or
requested to be maintained by such Bank or any corporation controlling such Bank
based on the existence of such Bank's Commitments hereunder or its obligations
hereunder, then the Borrower shall, subject to the provisions of Section 13.15
(to the extent applicable), pay to such Bank, upon its written demand therefor,
such additional amounts as shall be required to compensate such Bank or such
other corporation for the increased cost to such Bank or such other corporation
or the reduction in the rate of return to such Bank or such other corporation as
a result of such increase of capital. In determining such additional amounts,
each Bank will act reasonably and in good faith and will use averaging and
attribution methods which are reasonable, PROVIDED that such Bank's
determination of compensa-
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tion owing under this Section 1.10(d) shall, absent manifest error, be final and
conclusive and binding on all the parties hereto. Each Bank, upon determining
that any additional amounts will be payable pursuant to this Section 1.10(d),
will give prompt written notice thereof to the Borrower, which notice shall show
in reasonable detail the basis for and calculation of such additional amounts.
1.11 COMPENSATION. The Borrower shall, subject to the
provisions of Section 13.15 (to the extent applicable), compensate each Bank,
upon its written request (which request shall set forth in reasonable detail the
basis for requesting and the calculation of such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Bank to fund its Eurodollar Loans
but excluding any loss of anticipated profit) which such Bank may sustain: (i)
if for any reason (other than a default by such Bank or the Administrative
Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not
occur on a date specified therefor in a Notice of Borrowing or Notice of
Conversion (whether or not withdrawn by the Borrower or deemed withdrawn
pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment
made pursuant to Section 4.02 or a result of an acceleration of the Loans
pursuant to Section 10) or conversion of any of its Eurodollar Loans occurs on a
date which is not the last day of an Interest Period with respect thereto; (iii)
if any prepayment of any of its Eurodollar Loans is not made on any date
specified in a notice of prepayment given by the Borrower; or (iv) as a
consequence of (x) any other default by the Borrower to repay its Loans when
required by the terms of this Agreement or any Note held by such Bank or (y) any
election made pursuant to Section 1.10(b).
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that on the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to such Bank,
it will, if requested by the Borrower, use reasonable efforts (subject to
overall policy considerations of such Bank) to designate another lending office
for any Loans or Letters of Credit affected by such event, PROVIDED that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
in this Section 1.12 shall affect or postpone any of the obligations of the
Borrower or the right of any Bank provided in Sections 1.10, 2.05 and 4.04.
1.13 REPLACEMENT OF BANKS. (x) If any Bank becomes a
Defaulting Bank or otherwise defaults in its obligations to make Loans or fund
Unpaid Drawings, (y) upon the occurrence of any event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 1.10(d),
Section 2.05 or Section 4.04 with respect to any Bank which results in such Bank
charging to the Borrower increased costs in excess of those being generally
charged by the other Banks, or (z) as provided in Section 13.12(b) in the case
of certain refusals by a Bank to consent to certain proposed changes, waivers,
discharges or terminations with respect to this Agreement which have been
approved by the Required Banks, the Borrower shall have the right, if no Default
or Event of Default will exist immediately after giving effect to the respective
replacement, to either replace such Bank (the "Replaced Bank") with one or more
other Eligible Transferee or Transferees, none of whom shall constitute a
Defaulting Bank at the time of such replacement (collectively, the "Replacement
Bank") reasonably acceptable to the Administrative
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Agent or, at the option of the Borrower, to replace only (a) the Revolving Loan
Commitment (and outstandings pursuant thereto) of the Replaced Bank with an
identical Revolving Loan Commitment provided by the Replacement Bank or (b) in
the case of a replacement as provided in Section 13.12(b) where the consent of
the respective Bank is required with respect to less than all Tranches of its
Loans or Commitments, the Commitments and/or outstanding Term Loans of such Bank
in respect of each Tranche where the consent of such Bank would otherwise be
individually required, with identical Commitments and/or Loans of the respective
Tranche provided by the Replacement Bank, PROVIDED that (i) at the time of any
replacement pursuant to this Section 1.13, the Replacement Bank shall enter into
one or more Assignment and Assumption Agreements pursuant to Section 13.04(b)
(and with all fees payable pursuant to said Section 13.04(b) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all of
the Commitments and outstanding Loans (or, in the case of the replacement of
only (a) the Revolving Loan Commitment, the Revolving Loan Commitment and
outstanding Revolving Loans or (b) the outstanding Term Loans of one or more
Tranches, the outstanding Term Loans of the respective Tranche or Tranches) of,
and in each case (except for the replacement of only the outstanding Term Loans
of one or more Tranches of the respective Bank) participations in Letters of
Credit by, the Replaced Bank and, in connection therewith, shall pay to (x) the
Replaced Bank in respect thereof an amount equal to the sum (without
duplication) of (A) an amount equal to the principal of, and all accrued
interest on, all outstanding Loans (or, in the case of the replacement of only
(I) the Revolving Loan Commitment, the outstanding Revolving Loans or (II) the
Term Loans of one or more Tranches, the outstanding Term Loans of such Tranche
or Tranches) of the Replaced Bank, (B) except in the case of the replacement of
only the outstanding Term Loans of one or more Tranches of a Replaced Bank, an
amount equal to all Unpaid Drawings that have been funded by (and not reimbursed
to) such Replaced Bank, together with all then unpaid interest with respect
thereto at such time and (C) an amount equal to all accrued, but theretofore
unpaid, Fees owing to the Replaced Bank (but only with respect to the relevant
Tranche, in the case of the replacement of less than all Tranches of Loans then
held by the respective Replaced Bank) pursuant to Section 3.01 and (y) except in
the case of the replacement of only the outstanding Term Loans of one or more
Tranches of a Replaced Bank, the respective Issuing Bank an amount equal to such
Replaced Bank's Adjusted Percentage (for this purpose, determined as if the
adjustment described in clause (y) of the immediately succeeding sentence had
been made with respect to such Replaced Bank) of any Unpaid Drawing (which at
such time remains an Unpaid Drawing) to the extent such amount was not
theretofore funded by such Replaced Bank, and (ii) all obligations of the
Borrower owing to the Replaced Bank (other than those (a) specifically described
in clause (i) above in respect of which the assignment purchase price has been,
or is concurrently being, paid or (b) relating to any Tranche of Loans and/or
Commitments of the respective Replaced Bank which will remain outstanding after
giving effect to the respective replacement) shall be paid in full to such
Replaced Bank concurrently with such replacement. Upon the execution of the
respective Assignment and Assumption Agreements, the payment of amounts referred
to in clauses (i) and (ii) above and, if so requested by the Replacement Bank,
delivery to the Replacement Bank of the appropriate Note or Notes executed by
the Borrower, (x) the Replacement Bank shall become a Bank hereunder and, unless
the respective Replaced Bank continues to have outstanding Term Loans or a
Revolving Loan Commitment hereunder, the Replaced Bank shall cease to constitute
a Bank hereunder, except with respect to indemnification provisions under this
Agreement (including, without limitation, Sections 1.10, 1.11, 2.05,
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4.04, 13.01 and 13.06), which shall survive as to such Replaced Bank and (y) in
the case of a replacement of a Defaulting Bank with a Non-Defaulting Bank, the
Adjusted Percentages of the Banks shall be automatically adjusted at such time
to give effect to such replacement (and to give effect to the replacement of a
Defaulting Bank with one or more Non- Defaulting Banks).
SECTION 2. LETTERS OF CREDIT.
2.01 LETTERS OF CREDIT. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request that any Issuing Bank
issue, at any time and from time to time on and after the Initial Borrowing Date
and prior to the date which is 30 days prior to the Revolving Loan Maturity
Date, (x) for the account of the Borrower and for the benefit of any holder (or
any trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness of the Borrower or any of its Subsidiaries, an
irrevocable sight standby letter of credit, in a form customarily used by such
Issuing Bank or in such other form as has been approved by such Issuing Bank
(each such standby letter of credit, a "Standby Letter of Credit") in support of
such L/C Supportable Indebtedness and (y) for the account of the Borrower and
for the benefit of sellers of goods or materials to the Borrower or any of its
Subsidiaries, an irrevocable sight commercial letter of credit in a form
customarily used by such Issuing Bank or in such other form as has been approved
by such Issuing Bank (each such commercial letter of credit, a "Trade Letter of
Credit", and each such Trade Letter of Credit and each Standby Letter of Credit,
a "Letter of Credit") in support of commercial transactions of the Borrower and
its Subsidiaries.
(b) Subject to the terms and conditions contained herein, the
Administrative Agent hereby agrees that it will (and at the Borrower's request
each other Issuing Bank may, at its option, agree that it will), at any time and
from time to time on or after the Initial Borrowing Date and prior to the date
which is 30 days prior to the Revolving Loan Maturity Date, following its
receipt of the respective Letter of Credit Request, issue for the account of the
Borrower one or more Letters of Credit (x) in the case of Standby Letters of
Credit, in support of such L/C Supportable Indebtedness of the Borrower or any
of its Subsidiaries as is permitted to remain outstanding without giving rise to
a Default or Event of Default hereunder and (y) in the case of Trade Letters of
Credit, in support of sellers of goods or materials as referenced in Section
2.01(a), PROVIDED that the respective Issuing Bank shall be under no obligation
to issue any Letter of Credit of the types described above if at the time of
such issuance:
(i) any order, judgment or decree of any governmental authority
or arbitrator shall purport by its terms to enjoin or restrain such
Issuing Bank from issuing such Letter of Credit or any requirement of
law applicable to such Issuing Bank or any request or directive
(whether or not having the force of law) from any governmental
authority with jurisdiction over such Issuing Bank shall prohibit, or
request that such Issuing Bank refrain from, the issuance of letters of
credit generally or such Letter of Credit in particular or shall impose
upon such Issuing Bank with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which such Issuing
Bank is not otherwise compensated) not in effect on the date hereof, or
any unreimbursed loss, cost or expense which was not applicable, in
effect or known to such Issuing Bank as of the date hereof and which
such Issuing Bank in good faith deems material to it; or
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(ii) such Issuing Bank shall have received notice from any Bank
prior to the issuance of such Letter of Credit of the type described in
the second sentence of Section 2.02(b).
(c) Notwithstanding the foregoing, (i) no Letter of Credit
shall be issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) at such time would
exceed either (x) $5,000,000 or (y) when added to (w) the aggregate principal
amount of all Revolving Loans made by Non-Defaulting Banks and then outstanding,
(x) the principal amount of all Swingline Loans then outstanding, (y) the
Foreign Loan Amount at such time and (z) the principal amount of Indebtedness
then outstanding pursuant to Section 9.04 (xi), an amount equal to the Adjusted
Total Revolving Loan Commitment at such time, (ii) each Letter of Credit shall
be denominated in Dollars, (iii) each Letter of Credit shall by its terms
terminate (x) in the case of Standby Letters of Credit, on or before the earlier
of (A) the date which occurs 12 months after the date of the issuance thereof
(although any such Standby Letter of Credit may be automatically extendible for
successive periods of up to 12 months, but not beyond the tenth Business Day
prior to the Revolving Loan Maturity Date, on terms acceptable to the Issuing
Bank thereof) and (B) the tenth Business Day prior to the Revolving Loan
Maturity Date, and (y) in the case of Trade Letters of Credit, on or before the
earlier of (A) the date which occurs 180 days after the date of issuance thereof
and (B) the date which is 30 days prior to the Revolving Loan Maturity Date and
(iv) the Stated Amount of each Letter of Credit upon issuance shall be not less
than $25,000 or such lesser amount as is acceptable to the respective Issuing
Bank.
2.02 LETTER OF CREDIT REQUESTS. (a) Whenever the Borrower
desires that a Letter of Credit be issued for its account, the Borrower shall
give the Administrative Agent and the respective Issuing Bank at least three
Business Days' (or such shorter period as is acceptable to the respective
Issuing Bank) written notice thereof. Each notice shall be in the form of
Exhibit C (each a "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the Borrower that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of, Section 2.01(c). Unless the respective Issuing Bank has received notice from
any Bank before it issues a Letter of Credit that one or more of the conditions
specified in Section 5 or Section 6, as applicable, are not then satisfied, or
that the issuance of such Letter of Credit would violate Section 2.01(c), then
such Issuing Bank shall issue the requested Letter of Credit for the account of
the Borrower in accordance with such Issuing Bank's usual and customary
practices. Upon the issuance of or amendment to any Standby Letter of Credit,
such Issuing Bank shall promptly notify each Bank of such issuance or amendment
and such notice shall be accompanied by a copy of the issued Standby Letter of
Credit or amendment, as the case may be. For Trade Letters of Credit on which
the Issuing Bank is other than the Administrative Agent, the Issuing Bank will
send to the Administrative Agent by facsimile transmission, promptly on the
first Business Day of each week, the daily aggregate Stated Amount of Trade
Letters of Credit issued by such Issuing Bank and outstanding during the
preceding week. The Administrative Agent shall deliver to each Bank, after each
calendar month end and upon
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each payment of the Letter of Credit Fee, a report setting forth for the
relevant period the daily aggregate Stated Amount of all outstanding Trade
Letters of Credit during such period.
2.03 LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the
issuance by any Issuing Bank of any Letter of Credit, such Issuing Bank shall be
deemed to have sold and transferred to each Bank with a Revolving Loan
Commitment, other than such Issuing Bank (each such Bank, in its capacity under
this Section 2.03, a "Participant"), and each such Participant shall be deemed
irrevocably and unconditionally to have purchased and received from such Issuing
Bank, without recourse or warranty, an undivided interest and participation, to
the extent of such Participant's Adjusted Percentage, in such Letter of Credit,
each drawing made thereunder and the obligations of the Borrower under this
Agreement with respect thereto, and any security therefor or guaranty pertaining
thereto. Upon any change in the Revolving Loan Commitments or Adjusted
Percentages of the Banks pursuant to Section 1.13 or 13.04 or as a result of a
Bank Default, it is hereby agreed that, with respect to all outstanding Letters
of Credit and Unpaid Drawings, there shall be an automatic adjustment to the
participations pursuant to this Section 2.03 to reflect the new Adjusted
Percentages of the assignor and assignee Bank or of all Banks with Revolving
Loan Commitments, as the case may be.
(b) In determining whether to pay under any Letter of Credit,
such Issuing Bank shall have no obligation relative to the other Banks other
than to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to substantially
comply on their face with the requirements of such Letter of Credit. Subject to
the provisions of the immediately preceding sentence, any action taken or
omitted to be taken by any Issuing Bank under or in connection with any Letter
of Credit if taken or omitted in the absence of gross negligence or willful
misconduct, as determined by a court of competent jurisdiction, shall not create
for such Issuing Bank any resulting liability to any Credit Party or any Bank.
(c) In the event that any Issuing Bank makes any payment under
any Letter of Credit and the Borrower shall not have reimbursed such amount in
full to such Issuing Bank pursuant to Section 2.04(a), such Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant, of such failure, and each Participant shall promptly and
unconditionally pay to such Issuing Bank the amount of such Participant's
Adjusted Percentage of such unreimbursed payment in Dollars and in same day
funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York
time) on any Business Day, any Participant required to fund a payment under a
Letter of Credit, such Participant shall make available to such Issuing Bank in
Dollars such Participant's Adjusted Percentage of the amount of such payment on
such Business Day in same day funds. If and to the extent such Participant shall
not have so made its Adjusted Percentage of the amount of such payment available
to such Issuing Bank, such Participant agrees to pay to such Issuing Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to such Issuing Bank at the
overnight Federal Funds Rate. The failure of any Participant to make available
to such Issuing Bank its Adjusted Percentage of any payment under any Letter of
Credit shall not relieve any other Participant of its obligation hereunder to
make available to such Issuing Bank its Adjusted Percentage of any Letter of
Credit on the date required, as specified above, but no
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Participant shall be responsible for the failure of any other Participant to
make available to such Issuing Bank such other Participant's Adjusted Percentage
of any such payment.
(d) Whenever any Issuing Bank receives a payment of a
reimbursement obligation as to which it has received any payments from the
Participants pursuant to clause (c) above, such Issuing Bank shall forward such
payment to the Administrative Agent, which in turn shall distribute to each
Participant which has paid its Adjusted Percentage thereof, in Dollars and in
same day funds, an amount equal to such Participant's share (based upon the
proportionate aggregate amount originally funded by such Participant to the
aggregate amount funded by all Participants) of the principal amount of such
reimbursement obligation and interest thereon accruing after the purchase of the
respective participations.
(e) Upon the request of any Participant, each Issuing Bank
shall furnish to such Participant copies of any Letter of Credit issued by it
and such other documentation as may reasonably be requested by such Participant.
(f) The obligations of the Participants to make payments to
each Issuing Bank with respect to Letters of Credit issued by it shall be
irrevocable and not subject to any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other
right which the Borrower or any of its Subsidiaries may have at any
time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, any Issuing Bank, any
Participant, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein
or any unrelated transactions (including any underlying transaction
between the Borrower and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or any 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;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.04 AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The
Borrower hereby agrees to reimburse the respective Issuing Bank, by making
payment to the Administrative Agent in immediately available funds at the
Payment Office, for any payment or disbursement made by it under any Letter of
Credit (each such amount, so paid until reimbursed, an "Unpaid Drawing"), no
later than three Business Days after the date of such payment or disbursement,
with interest on
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the amount so paid or disbursed by such Issuing Bank, to the extent not
reimbursed prior to 12:00 Noon (New York time) on the date of such payment or
disbursement, from and including the date paid or disbursed to but excluding the
date such Issuing Bank was reimbursed by the Borrower therefor at a rate per
annum which shall be the Base Rate in effect from time to time plus the
Applicable Margin for Revolving Loans maintained as Base Rate Loans, PROVIDED,
HOWEVER, to the extent such amounts are not reimbursed prior to 12:00 Noon (New
York time) on the fifth Business Day following receipt of notice of such payment
or disbursement, interest shall thereafter accrue on the amounts so paid or
disbursed by such Issuing Bank (and until reimbursed by the Borrower) at a rate
per annum which shall be the Base Rate in effect from time to time plus the
Applicable Margin for Revolving Loans maintained as Base Rate Loans plus 2%, in
each such case, with interest to be payable on demand. The respective Issuing
Bank shall give the Borrower prompt notice of each Drawing under any Letter of
Credit, PROVIDED that the failure to give any such notice shall in no way
affect, impair or diminish the Borrower's obligations hereunder.
(b) The obligations of the Borrower under this Section 2.04 to
reimburse the respective Issuing Bank with respect to drawings on Letters of
Credit (each, a "Drawing") (including, in each case, interest thereon) shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim or defense to payment which the Borrower may have or
have had against any Bank (including in its capacity as issuer of the Letter of
Credit or as Participant), or any nonapplication or misapplication by the
beneficiary of the proceeds of such Drawing, the respective Issuing Bank's only
obligation to the Borrower being to confirm that any documents required to be
delivered under such Letter of Credit appear to have been delivered and that
they appear to substantially comply on their face with the requirements of such
Letter of Credit. Subject to the provisions of the immediately preceding
sentence, any action taken or omitted to be taken by any Issuing Bank under or
in connection with any Letter of Credit if taken or omitted in the absence of
gross negligence or willful misconduct as determined by a court of competent
jurisdiction, shall not create for such Issuing Bank any resulting liability to
the Borrower or any other Credit Party.
2.05 INCREASED COSTS. If at any time after the date of this
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Issuing Bank or
any Participant with any request or directive by any such authority (whether or
not having the force of law), shall either (i) impose, modify or make applicable
any reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by any Issuing Bank or participated in by any Participant, or (ii)
impose on any Issuing Bank or any Participant any other conditions relating,
directly or indirectly, to this Agreement or any Letter of Credit; and the
result of any of the foregoing is to increase the cost to any Issuing Bank or
any Participant of issuing, maintaining or participating in any Letter of
Credit, or reduce the amount of any sum received or receivable by any Issuing
Bank or any Participant hereunder or reduce the rate of return on its capital
with respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Issuing Bank or
such Participant, or any franchise tax based on the net income or profits of
such Bank or Participant, in either case pursuant to the laws of the United
States of America, the jurisdiction in which it is organized or in which its
principal office or applicable lending office is located or any subdivision
thereof or therein), but without
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duplication of any amounts payable in respect of Taxes pursuant to Section
4.04(a), then, upon demand to the Borrower by such Issuing Bank or any
Participant (a copy of which demand shall be sent by such Issuing Bank or such
Participant to the Administrative Agent) and subject to the provisions of
Section 13.15 (to the extent applicable), the Borrower shall pay to such Issuing
Bank or such Participant such additional amount or amounts as will compensate
such Bank for such increased cost or reduction in the amount receivable or
reduction on the rate of return on its capital. Any Issuing Bank or any
Participant, upon determining that any additional amounts will be payable
pursuant to this Section 2.05, will give prompt written notice thereof to the
Borrower, which notice shall include a certificate submitted to the Borrower by
such Issuing Bank or such Participant (a copy of which certificate shall be sent
by such Issuing Bank or such Participant to the Administrative Agent), setting
forth in reasonable detail the basis for and the calculation of such additional
amount or amounts necessary to compensate such Issuing Bank or such Participant.
The certificate required to be delivered pursuant to this Section 2.05 shall, if
delivered in good faith and absent manifest error, be final and conclusive and
binding on the Borrower.
SECTION 3. Commitment Commission; Fees; Reductions of
Commitment.
3.01 FEES. (a) The Borrower agrees to pay the Administrative
Agent for distribution to each Non-Defaulting Bank with a Revolving Loan
Commitment a commitment commission (the "Commitment Commission") for the period
from the Initial Borrowing to and including the Revolving Loan Maturity Date (or
such earlier date as the Total Revolving Loan Commitment shall have been
terminated), computed at a rate for each day equal to the Applicable Commitment
Commission Percentage per annum on the daily average Unutilized Revolving Loan
Commitment of such Non-Defaulting Bank. Accrued Commitment Commission shall be
due and payable quarterly in arrears on each Quarterly Payment Date and on the
Revolving Loan Maturity Date or such earlier date upon which the Total Revolving
Loan Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent for
distribution to each Non-Defaulting Bank with a Revolving Loan Commitment (based
on their respective Adjusted Percentages) a fee in respect of each Letter of
Credit issued hereunder (the "Letter of Credit Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
termination of such Letter of Credit, computed at a rate per annum equal to the
Applicable Margin then in effect for Revolving Loans maintained as Eurodollar
Loans on the daily average Stated Amount of such Letter of Credit. Accrued
Letter of Credit Fees shall be due and payable quarterly in arrears on each
Quarterly Payment Date and upon the first day on or after the termination of the
Total Revolving Loan Commitment upon which no Letters of Credit remain
outstanding.
(c) The Borrower agrees to pay to the respective Issuing Bank,
for its own account, a facing fee in respect of each Letter of Credit issued for
its account hereunder (the "Facing Fee") for the period from and including the
date of issuance of such Letter of Credit to and including the termination of
such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the
daily average Stated Amount of such Letter of Credit; PROVIDED that in no event
shall the annual Facing Fee with respect to any Letter of Credit be less than
$250, it being agreed that, on the date of issuance of any Letter of Credit and
on each anniversary thereof prior to the
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termination of such Letter of Credit, $250 will be paid toward the next year's
Facing Fees for such Letter of Credit, which amount shall be credited in direct
order to the Facing Fees which would otherwise be payable with respect to such
Letter of Credit in the succeeding annual period. Accrued Facing Fees shall be
due and payable quarterly in arrears on each Quarterly Payment Date and on the
date upon which the Total Revolving Loan Commitment has been terminated and such
Letter of Credit has been terminated in accordance with its terms.
(d) The Borrower shall pay, upon each payment under, issuance
of, or amendment to, any Letter of Credit, such amount as shall at the time of
such event be the administrative charge which the respective Issuing Bank is
generally imposing in connection with such occurrence with respect to letters of
credit.
(e) The Borrower shall pay to the Administrative Agent, for
its own account, such other fees as have been agreed to in writing by the
Borrower and the Administrative Agent.
3.02 VOLUNTARY TERMINATION OF UNUTILIZED COMMITMENTS. (a) Upon
at least one Business Day's prior notice to the Administrative Agent at its
Notice Office (which notice the Administrative Agent shall promptly transmit to
each of the Banks), the Borrower shall have the right, at any time or from time
to time, without premium or penalty, to terminate the Total Unutilized Revolving
Loan Commitment, in whole or in part, in integral multiples of $1,000,000 in the
case of partial reductions to the Total Unutilized Revolving Loan Commitment,
PROVIDED that (i) each such reduction shall apply proportionately to permanently
reduce the Revolving Loan Commitment of each Bank with such a Commitment and
(ii) the reduction to the Total Unutilized Revolving Loan Commitment shall in no
case be in an amount which would cause the Revolving Loan Commitment of any Bank
to be reduced (as required by preceding clause (i)) by an amount which exceeds
the remainder of (x) the Unutilized Revolving Loan Commitment of such Bank as in
effect immediately before giving effect to such reduction minus (y) such Bank's
Adjusted Percentage of the aggregate principal amount of Swingline Loans then
outstanding.
(b) In the event of certain refusals by a Bank as provided in
Section 13.12(b) to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved by the
Required Banks, the Borrower may, subject to the requirements of said Section
13.12(b) and upon five Business Days' written notice to the Administrative Agent
at its Notice Office (which notice the Administrative Agent shall promptly
transmit to each of the Banks), terminate all of the Revolving Loan Commitment
of such Bank so long as all Loans, together with accrued and unpaid interest,
fees and all other amounts, owing to such Bank (other than amounts owing in
respect of any Tranche of Term Loans maintained by such Bank, if such Term Loans
are not being repaid pursuant to Section 13.12(b)) are repaid concurrently with
the effectiveness of such termination (at which time Schedule I shall be deemed
modified to reflect such changed amounts), and at such time, unless the
respective Bank continues to have outstanding Term Loans hereunder, such Bank
shall no longer constitute a "Bank" for purposes of this Agreement, except with
respect to indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which shall
survive as to such repaid Bank.
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3.03 MANDATORY REDUCTION OF COMMITMENTS. (a) The Total
Commitments (and the Tranche A Term Loan Commitment, the Tranche B Term Loan
Commitment and the Revolving Loan Commitment of each Bank) shall terminate in
its entirety on August 31, 1998 unless the Initial Borrowing Date shall have
occurred on or prior to such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Tranche A Term Loan Commitment (and the
Tranche A Term Loan Commitment of each Bank) shall (i) terminate in its entirety
on the Initial Borrowing Date (after giving effect to the making of the Tranche
A Term Loans on such date) and (ii) prior to the termination of the Total
Tranche A Term Loan Commitment as provided in clause (i) above, be reduced from
time to time to the extent required by Section 4.02.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Tranche B Term Loan Commitment (and the
Tranche B Term Loan Commitment of each Bank) shall (i) terminate in its entirety
on the Initial Borrowing Date (after giving effect to the making of the Tranche
B Term Loans on such date) and (ii) prior to the termination of the Total
Tranche B Term Loan Commitment as provided in clause (i) above, be reduced from
time to time to the extent required by Section 4.02.
(d) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank) shall terminate in its entirety on the
Revolving Loan Maturity Date.
(e) Each reduction to the Total Tranche A Term Loan
Commitment, the Total Tranche B Term Loan Commitment and the Total Revolving
Loan Commitment pursuant to this Section 3.03 shall be applied proportionately
to reduce the Tranche A Term Loan Commitment, the Tranche B Term Loan Commitment
or the Revolving Loan Commitment, as the case may be, of each Bank with such a
Commitment.
SECTION 4. Prepayments; Payments; Taxes.
4.01 VOLUNTARY PREPAYMENTS. The Borrower shall have the right
to prepay the Loans, without premium or penalty, in whole or in part at any time
and from time to time on the following terms and conditions: (i) the Borrower
shall give the Administrative Agent prior to 12:00 Noon (New York time) at its
Notice Office (x) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay Base
Rate Loans (or same day notice in the case of Swingline Loans provided such
notice is given prior to 12:00 Noon (New York time)) and (y) at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay Eurodollar Loans, whether Tranche A Term Loans,
Tranche B Term Loans, Revolving Loans or Swingline Loans shall be prepaid, the
amount of such prepayment and the Types of Loans to be prepaid and, in the case
of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which
made, which notice the Administrative Agent shall promptly transmit to each of
the Banks; (ii) each prepayment shall be in an aggregate principal amount of at
least $1,000,000 (or $500,000 in the case of Swingline Loans) or such lesser
amount of a Borrowing which is outstanding, PROVIDED that if any partial
prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the
outstanding
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<PAGE>
Eurodollar Loans made pursuant to such Borrowing to an amount less than
$1,000,000, then such Borrowing may not be continued as a Borrowing of
Eurodollar Loans and any election of an Interest Period with respect thereto
given by the Borrower shall have no force or effect; (iii) at the time of any
prepayment of Eurodollar Loans pursuant to this Section 4.01 on any date other
than the last day of the Interest Period applicable thereto, the Borrower shall
pay the amounts required pursuant to Section 1.11; (iv) in the event of certain
refusals by a Bank as provided in Section 13.12(b) to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks, the Borrower may, upon
5 Business Days' written notice to the Administrative Agent at its Notice Office
(which notice the Administrative Agent shall promptly transmit to each of the
Banks) repay all Loans, together with accrued and unpaid interest, Fees, and
other amounts owing to such Bank (or owing to such Bank with respect to each
Tranche which gave rise to the need to obtain such Bank's individual consent) in
accordance with said Section 13.12(b) so long as (A) in the case of the
repayment of Revolving Loans of any Bank pursuant to this clause (iv) the
Revolving Loan Commitment of such Bank is terminated concurrently with such
repayment (at which time Schedule I shall be deemed modified to reflect the
changed Revolving Loan Commitments) and (B) the consents required by Section
13.12(b) in connection with the repayment pursuant to this clause (iv) have been
obtained; (v) except as expressly provided in the preceding clause (iv), each
voluntary prepayment of Term Loans pursuant to this Section 4.01 shall be
applied to the Tranche A Term Loans and the Tranche B Term Loans on a PRO RATA
basis (based upon the then outstanding principal amount of Tranche A Term Loans
and Tranche B Term Loans); and (vi) except as expressly provided in the
preceding clause (iv), each prepayment in respect of any Loans made pursuant to
a Borrowing shall be applied PRO RATA among the Loans comprising such Borrowing;
PROVIDED that at the Borrower's election in connection with any prepayment of
Revolving Loans pursuant to this Section 4.01, such prepayment shall not be
applied to any Revolving Loan of a Defaulting Bank. Each prepayment of principal
of any Tranche of Term Loans pursuant to this Section 4.01 shall be applied to
reduce the then remaining Scheduled Repayments of the respective Tranche of Term
Loans PRO RATA based upon the then remaining principal amounts of the Scheduled
Repayments of the respective Tranche after giving effect to all prior reductions
thereto.
4.02 MANDATORY REPAYMENTS AND COMMITMENT REDUCTIONS. (a) (i)
On any day on which the sum of the aggregate outstanding principal amount of the
Revolving Loans made by Non-Defaulting Banks, Swingline Loans and the Letter of
Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as then
in effect minus the Foreign Loan Amount then in effect, the Borrower shall
prepay principal of Swingline Loans and, after the Swingline Loans have been
repaid in full, Revolving Loans of Non-Defaulting Banks in an amount equal to
such excess. If, after giving effect to the prepayment of all outstanding
Swingline Loans and Revolving Loans of Non-Defaulting Banks, the aggregate
amount of the Letter of Credit Outstandings exceeds the Adjusted Total Revolving
Loan Commitment as then in effect, the Borrower shall pay to the Administrative
Agent at the Payment Office on such date an amount of cash or Cash Equivalents
equal to the amount of such excess (up to a maximum amount equal to the Letter
of Credit Outstandings at such time), such cash or Cash Equivalents to be held
as security for all obligations of the Borrower to Non-Defaulting Banks
hereunder in a cash collateral account to be established by the Administrative
Agent.
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<PAGE>
(ii) On any day on which the aggregate outstanding principal
amount of the Revolving Loans made by any Defaulting Bank exceeds the Revolving
Loan Commitment of such Defaulting Bank, the Borrower shall prepay principal of
Revolving Loans of such Defaulting Bank in an amount equal to such excess.
(b) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date set forth
below, the Borrower shall be required to repay that principal amount of Tranche
A Term Loans, to the extent then outstanding, as is set forth opposite such date
(each such repayment, as the same may be reduced as provided in Sections 4.01
and 4.02(i), a "Tranche A Scheduled Repayment," and each such date, a "Tranche A
Scheduled Repayment Date"):
<TABLE>
<CAPTION>
Tranche A
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
March 31, 1999 $1,250,000
June 30, 1999 $1,250,000
September 30, 1999 $1,250,000
December 31, 1999 $1,250,000
March 31, 2000 $1,875,000
June 30, 2000 $1,875,000
September 30, 2000 $1,875,000
December 31, 2000 $1,875,000
March 31, 2001 $1,875,000
June 30, 2001 $1,875,000
September 30, 2001 $1,875,000
December 31, 2001 $1,875,000
March 31, 2002 $3,125,000
June 30, 2002 $3,125,000
September 30, 2002 $3,125,000
December 31, 2002 $3,125,000
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<PAGE>
<CAPTION>
Tranche A
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
March 31, 2003 $3,125,000
June 30, 2003 $3,125,000
September 30, 2003 $3,125,000
December 31, 2003 $3,125,000
</TABLE>
(c) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date set forth
below, the Borrower shall be required to repay that principal amount of Tranche
B Term Loans, to the extent then outstanding, as is set forth opposite such date
(each such repayment, as the same may be reduced as provided in Sections 4.01
and 4.02(i), a "Tranche B Scheduled Repayment," and each such date, a "Tranche B
Scheduled Repayment Date"):
<TABLE>
<CAPTION>
Tranche B
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
September 30, 1998 $100,000
December 31, 1998 $100,000
March 31, 1999 $100,000
June 30, 1999 $100,000
September 30, 1999 $100,000
December 31, 1999 $100,000
March 31, 2000 $100,000
June 30, 2000 $100,000
September 30, 2000 $100,000
December 31, 2000 $100,000
March 31, 2001 $100,000
June 30, 2001 $100,000
September 30, 2001 $100,000
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<PAGE>
<CAPTION>
Tranche B
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
December 31, 2001 $100,000
March 31, 2002 $100,000
June 30, 2002 $100,000
September 30, 2002 $100,000
December 31, 2002 $100,000
March 31, 2003 $100,000
June 30, 2003 $100,000
September 30, 2003 $4,750,000
December 31, 2003 $4,750,000
March 31, 2004 $4,750,000
June 30, 2004 $4,750,000
September 30, 2004 $4,750,000
December 31, 2004 $4,750,000
March 31, 2005 $4,750,000
June 30, 2005 $4,750,000
</TABLE>
(d) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date after the
Effective Date upon which Holdings or any of its Subsidiaries receives any
proceeds from any sale or issuance of its equity (other than proceeds received
(x) on or prior to the Initial Borrowing Date as a result of the Equity
Contribution and (y) from the exercise of stock options granted to management
employees or directors as permitted hereunder, so long as the aggregate amount
of cash proceeds pursuant to this clause (y) does not exceed $1,000,000) an
amount equal to (i) 100% of the cash proceeds of the respective sale or issuance
(net of underwriting discounts and commissions and other direct costs associated
therewith, including, without limitation, legal fees and expenses) to the extent
that such net cash proceeds do not exceed $50,000,000 in the aggregate and (ii)
75% of such net cash proceeds to the extent that such net cash proceeds exceed
$50,000,000 in the aggregate, shall be applied as a mandatory repayment of
principal of outstanding Term Loans (or, if the Initial Borrowing Date has not
yet occurred, such amounts shall be applied as a mandatory reduction to the
Total Term Loan Commitment) in accordance with the requirements of Section
4.02(i) and (j), PROVIDED that (A) the proceeds of any issuance of options,
warrants or other equity as part of a unit in
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<PAGE>
connection with any issuance of Indebtedness shall be treated as cash proceeds
from the issuance of Indebtedness and applied as a mandatory repayment as set
forth under Section 4.02(e) and (B) the Borrower shall not be required to comply
with this Section 4.02 (d) until such time as the net proceeds from all such
issuances of equity exceed $1,000,000.
(e) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date after the
Effective Date upon which Holdings or any of its Subsidiaries receives any
proceeds from any incurrence by Holdings or any of its Subsidiaries of
Indebtedness for borrowed money (other than Indebtedness for borrowed money
permitted to be incurred pursuant to Section 9.04 as such Section is in effect
on the Effective Date), an amount equal to the cash proceeds (net of
underwriting discounts and commissions and other costs associated therewith
including, without limitation, legal fees and expenses) of the respective
incurrence of Indebtedness shall be applied as a mandatory repayment of
principal of outstanding Term Loans (or, if the Initial Borrowing Date has not
yet occurred, such amounts shall be applied as a mandatory reduction to the
Total Term Loan Commitment) in accordance with the requirements of Sections
4.02(i) and (j).
(f) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date after the
Effective Date upon which Holdings or any of its Subsidiaries receives proceeds
from any Asset Sale (excluding (i) sales or transfers of assets in accordance
with Sections 9.02(v) and (vi) as in effect on the Effective Date and (ii) any
other sale of assets so long as, and to the extent that, the aggregate amount of
Net Sale Proceeds from all sales of assets excluded pursuant to this clause (ii)
during any fiscal year of the Borrower in which the Net Sale Proceeds are
received does not exceed $1,000,000 provided that the Net Cash Proceeds of any
excluded sale transaction or series of related sales transactions do not equal
or exceed $1,000,000), an amount equal to 100% of the Net Sale Proceeds
therefrom shall be applied as a mandatory repayment of principal of outstanding
Term Loans (or, if the Initial Borrowing Date has not yet occurred, such amounts
shall be applied as a mandatory reduction to the Total Term Loan Commitment) in
accordance with the requirements of Sections 4.02(i) and (j); PROVIDED that (x)
with respect to no more than $5,000,000 in the aggregate of Net Cash Proceeds
from Asset Sales in any fiscal year of Holdings, such Net Sale Proceeds
therefrom shall not be required to be so applied on such date so long as no
Default or Event of Default then exists and the Borrower has delivered a
certificate to the Administrative Agent on or prior to such date stating that
such Net Sale Proceeds shall be used to purchase replacement assets within 270
days following the date of such Asset Sale (which certificate shall set forth
the estimates of the proceeds to be so expended), and (y) if all or any portion
of such Net Sale Proceeds not required to be applied to the repayment of
outstanding Term Loans (or to reduce the Total Term Loan Commitment, as the case
may be) are not so reinvested in replacement assets within such 270 day period,
such remaining portion shall be applied on the last day of such period as a
mandatory repayment of principal of outstanding Term Loans as provided above in
this Section 4.02(f) without regard to the immediately preceding proviso.
(g) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, within 10 days following
each date after the Effective Date on which Holdings or any of its Subsidiaries
receives any proceeds from any Recovery Event, an amount equal to 100% of the
proceeds of such Recovery Event (net of reasonable costs including
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<PAGE>
without limitation legal costs and expenses, and taxes incurred in connection
with such Recovery Event) shall be applied as a mandatory repayment of principal
of outstanding Term Loans (or, if the Initial Borrowing Date has not yet
occurred, such amounts shall be applied as a mandatory reduction to the Total
Term Loan Commitment) in accordance with the requirements of Sections 4.02(i)
and (j), PROVIDED that (x) so long as no Default or Event of Default then
exists, such proceeds shall not be required to be so applied on such date to the
extent that the Borrower has delivered a certificate to the Administrative Agent
on or prior to such date stating that such proceeds shall be used or shall be
committed to be used to replace or restore any properties or assets in respect
of which such proceeds were paid within one year following the date of such
Recovery Event (which certificate shall set forth the estimates of the proceeds
to be so expended) and (y) if all or any portion of such proceeds not required
to be applied to the repayment of Term Loans pursuant to the preceding clause
(x) are either (A) not so used or committed to be so used within one year after
the date of the respective Recovery Event or (B) if committed to be used within
one year after the date of receipt of such proceeds of such Recovery Event and
not so used within two years after the date of the respective Recovery Event
then, in either such case, such remaining portion not used or committed to be
used in the case of preceding clause (A) and not used in the case of preceding
clause (B) shall be applied on the date which is the first anniversary of the
date of the respective Recovery Event in the case of clause (A) above or the
date occurring two years after the date of the respective Recovery Event in the
case of clause (B) above as a mandatory repayment of principal of outstanding
Term Loans in accordance with the requirements of Section 4.02(i) and (j); and
provided further, that the immediately preceding proviso shall not be applicable
to any proceeds received in respect of a Recovery Event related to the
Borrower's manufacturing facility located in Jefferson, Wisconsin to the extent
such proceeds exceed $5,000,000.
(h) In addition to any other mandatory repayments pursuant to
this Section 4.02, on each Excess Cash Payment Date, an amount equal to 50% of
the Excess Cash Flow for the relevant Excess Cash Payment Period shall be
applied as a mandatory repayment of principal of outstanding Term Loans in
accordance with the requirements of Sections 4.02(i) and (j).
(i) Each amount required to be applied to Term Loans (or to
the Total Term Loan Commitment) pursuant to Sections 4.02(d), (e), (f), (g) and
(h) shall be applied PRO RATA to each Tranche of Term Loans based upon the then
remaining principal amounts of the respective Tranches (with each Tranche of
Term Loans to be allocated that percentage of the amount to be applied as is
equal to a fraction (expressed as a percentage) the numerator of which is the
then outstanding principal amount of such Tranche of Term Loans (or, if the
Initial Borrowing Date has not yet occurred, the aggregate Term Loan Commitments
of the Banks with respect to such Tranche) and the denominator of which is equal
to the then outstanding principal amount of all Term Loans (or, if the Initial
Borrowing Date has not yet occurred, the then Total Term Loan Commitment)). Any
amount required to be applied to any Tranche of Term Loans pursuant to Sections
4.02(d), (e), (f), (g) and (h) shall be applied to repay the outstanding
principal amount of Term Loans of the respective Tranche then outstanding (or,
if the Initial Borrowing Date has not yet occurred, to reduce the Total Tranche
A Term Loan Commitment or Total Tranche B Term Loan Commitment, as the case may
be). The amount of each principal repayment of Term Loans (and the amount of
each reduction to the Term Loan Commitments) made as required by Sections
4.02(d), (e), (f), (g) and (h) shall be applied to reduce the then remaining
Scheduled Repayments
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<PAGE>
of the respective Tranche PRO RATA based upon the then remaining principal
amounts of the Scheduled Repayments of the respective Tranche after giving
effect to all prior reductions thereto.
(j) With respect to each repayment of Loans required by this
Section 4.02, the Borrower may designate the Types of Loans of the respective
Tranche which are to be repaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings of the respective Tranche pursuant to which
made, PROVIDED that: (i) repayments of Eurodollar Loans pursuant to this Section
4.02 may only be made on the last day of an Interest Period applicable thereto
unless all Eurodollar Loans of the respective Tranche with Interest Periods
ending on such date of required repayment and all Base Rate Loans of the
respective Tranche have been paid in full; (ii) if any repayment of Eurodollar
Loans made pursuant to a single Borrowing shall reduce the outstanding
Eurodollar Loans made pursuant to such Borrowing to an amount less than
$1,000,000, such Borrowing shall be converted at the end of the then current
Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of
any Loans comprising a Borrowing shall be applied PRO RATA among such Loans. In
the absence of a designation by the Borrower as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion.
(k) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, (i) all then outstanding Swingline Loans shall be
repaid in full on the Swingline Expiry Date and (ii) all other then outstanding
Loans shall be repaid in full on the respective Maturity Date for such Loans.
4.03 METHOD AND PLACE OF PAYMENT. Except as otherwise
specifically provided herein, all payments under this Agreement or any Note
shall be made to the Administrative Agent for the account of the Bank or Banks
entitled thereto not later than 12:00 Noon (New York time) on the date when due
and shall be made in Dollars in immediately available funds at the Payment
Office of the Administrative Agent. Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable at the
applicable rate during such extension.
4.04 NET PAYMENTS; TAXES. (a) All payments made by any Credit
Party hereunder or under any Note will be made without setoff, counterclaim or
other defense. Except as provided in Section 4.04(b), all such payments will be
made free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Bank pursuant to
the laws of the United States of America, the jurisdiction in which it is
organized or the jurisdiction in which the principal office or applicable
lending office of such Bank is located or any subdivision thereof or therein)
and all interest, penalties or similar liabilities with respect to such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
(all such non-excluded taxes, levies, imposts, duties, fees, assessments or
other charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and
such additional
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<PAGE>
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any Note, after withholding or deduction for or on account of
any Taxes, will not be less than the amount provided for herein or in such Note.
If any amounts are payable in respect of Taxes pursuant to the preceding
sentence, the Borrower agrees to reimburse each Bank, upon the written request
of such Bank, for taxes imposed on or measured by the net income or net profits
of such Bank pursuant to the laws of the jurisdiction in which such Bank is
organized or in which the principal office or applicable lending office of such
Bank is located or under the laws of any political subdivision or taxing
authority of any such jurisdiction in which such Bank is organized or in which
the principal office or applicable lending office of such Bank is located and
for any withholding of taxes as such Bank shall determine are payable by, or
withheld from, such Bank, in respect of such amounts so paid to or on behalf of
such Bank pursuant to the preceding sentence and in respect of any amounts paid
to or on behalf of such Bank pursuant to this sentence. The Borrower will
furnish to the Administrative Agent within 45 days after the date the payment of
any Taxes is due pursuant to applicable law certified copies of tax receipts
evidencing such payment by the Borrower. The Borrower agrees to indemnify and
hold harmless each Bank, and reimburse such Bank upon its written request, for
the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to the Borrower and the Administrative Agent on or
prior to the Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04
(unless the respective Bank was already a Bank hereunder immediately prior to
such assignment or transfer), on the date of such assignment or transfer to such
Bank, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such Bank's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Note, or (ii)
if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y)
two accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement and under any Note. In addition, each
Bank agrees that from time to time after the Effective Date, when a lapse in
time or change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section
4.04(b)(ii) Certificate, as the case may be, and such other forms as may be
required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or it shall immediately
notify the Borrower and the Agent of its inability to deliver any such Form or
Certificate, in which case such Bank shall not be required to deliver any such
Form or Certificate pursuant to this Section 4.04(b). Notwithstanding anything
to the contrary contained in Section 4.04(a), but subject to Section 13.04(b)
and the immediately succeeding sentence, (x) the Borrower shall be entitled, to
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<PAGE>
the extent it is required to do so by law, to deduct or withhold income or
similar taxes imposed by the United States (or any political subdivision or
taxing authority thereof or therein) from interest, Fees or other amounts
payable hereunder for the account of any Bank which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for U.S.
Federal income tax purposes to the extent that such Bank has not provided to the
Borrower U.S. Internal Revenue Service Forms that establish a complete exemption
from such deduction or withholding and (y) the Borrower shall not be obligated
pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in
respect of income or similar taxes imposed by the United States if (I) such Bank
has not provided to the Borrower the Internal Revenue Service Forms required to
be provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case
of a payment, other than interest, to a Bank described in clause (ii) above, to
the extent that such Forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 4.04 and except as set forth
in Section 13.04(b), the Borrower agrees to pay any additional amounts and to
indemnify each Bank in the manner set forth in Section 4.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the immediately
preceding sentence as a result of any changes after the Effective Date in any
applicable law, treaty, governmental rule, regulation, guideline or order, or in
the interpretation thereof, relating to the deducting or withholding of such
Taxes.
SECTION 5. CONDITIONS PRECEDENT TO LOANS. The obligation of
each Bank to make Loans, and the obligation of each Issuing Bank to issue
Letters of Credit, on the Initial Borrowing Date, is subject at the time of the
making of such Loans or the issuance of such Letters of Credit to the
satisfaction of the following conditions:
5.01 EXECUTION OF AGREEMENT; NOTES. On or prior to the Initial
Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each of the
Banks the appropriate Tranche A Term Note, Tranche B Term Note and/or Revolving
Note executed by the Borrower, and to the Swingline Bank the Swingline Note
executed by the Borrower, in each case in the amount, maturity and as otherwise
provided herein.
5.02 FEES, ETC. On the Initial Borrowing Date, the Borrower
shall have paid to the Administrative Agent and the Banks all costs, fees and
expenses (including, without limitation, legal fees and expenses) payable to the
Administrative Agent and the Banks to the extent then due.
5.03 OPINIONS OF COUNSEL. On the Initial Borrowing Date, the
Administrative Agent shall have received (i) from King & Spalding, special
counsel to Holdings and its Subsidiaries, an opinion addressed to the
Administrative Agent and each of the Banks and dated the Initial Borrowing Date
covering the matters set forth in Exhibit E and (ii) from local counsel
satisfactory to the Administrative Agent, opinions each of which (x) shall be
addressed to the Administrative Agent and each of the Banks and dated the
Initial Borrowing Date, (y) shall be in form and substance satisfactory to the
Administrative Agent and the Required Banks and (z) shall cover the perfection
of the security interests granted pursuant to the Security Agreement and the
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<PAGE>
Mortgages and such other matters incident to the transactions contemplated
herein as the Administrative Agent may reasonably request.
5.04 CORPORATE DOCUMENTS; PROCEEDINGS; ETC. (a) On the Initial
Borrowing Date, the Administrative Agent shall have received a certificate,
dated the Initial Borrowing Date, signed by the Chairman of the Board, the
President, any Vice President or the Treasurer of each Credit Party and of
DelCorp, and attested to by the Secretary or any Assistant Secretary of such
Credit Party or DelCorp, as the case may be, in the form of Exhibit F with
appropriate insertions, together with copies of the Certificate of Incorporation
and By-Laws (or equivalent organizational documents) of such Credit Party and
the resolutions of such Credit Party referred to in such certificate, and the
foregoing shall be reasonably acceptable to the Administrative Agent.
(b) All corporate and legal proceedings and all material
instruments and agreements in connection with the transactions contemplated by
this Agreement and the other Documents shall be reasonably satisfactory in form
and substance to the Administrative Agent and the Required Banks, and the
Administrative Agent shall have received all information and copies of all
documents and papers, including records of corporate proceedings, governmental
approvals, good standing certificates and bring-down telegrams or facsimiles, if
any, which the Administrative Agent reasonably may have requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities.
5.05 EMPLOYEE BENEFIT PLANS; SHAREHOLDERS' AGREEMENTS;
MANAGEMENT AGREEMENTS; DEBT AGREEMENTS; ACQUISITION DOCUMENTS; TAX SHARING
AGREEMENTS. On the Initial Borrowing Date, there shall have been made available
for review by the Administrative Agent and the Banks true and correct copies of
the following documents:
(i) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of
the most recent such report (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information), and
for each Plan that is a "single-employer plan," as defined in Section
4001(a)(15) of ERISA, if any, the most recently prepared actuarial
valuation therefor) and any other "employee benefit plans," as defined
in Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees of
Holdings or any of its Subsidiaries or any ERISA Affiliate (provided
that the foregoing shall apply in the case of any multiemployer plan,
if any, as defined in 4001(a)(3) of ERISA, only to the extent that any
document described therein is in the possession of Holdings or any
Subsidiary of Holdings or any ERISA Affiliate or reasonably available
thereto from the sponsor or trustee of any such plan) (collectively,
the "Employee Benefit Plans");
(ii) all agreements entered into by Holdings or any of its
Subsidiaries governing the terms and relative rights of its capital
stock and any agreements entered into by shareholders relating to any
such entity with respect to its capital stock (collectively, the
"Shareholders' Agreements");
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(iii) all agreements with members of, or with respect to, the
management of Holdings or any of its Subsidiaries (collectively, the
"Management Agreements");
(iv) all agreements evidencing or relating to Indebtedness of
Holdings or any of its Subsidiaries which is to remain outstanding
after giving effect to the incurrence of Loans on the Initial Borrowing
Date (collectively, the "Debt Agreements"); and
(v) all tax sharing, tax allocation and other similar
agreements entered into by Holdings, the Borrower or any of their
respective Subsidiaries (collectively, the "Tax Sharing Agreements");
all of which Employee Benefit Plans, Shareholders' Agreements,
Management Agreements, Debt Agreements and Tax Sharing Agreements shall be in
form and substance reasonably satisfactory to the Administrative Agent and shall
be in full force and effect on the Initial Borrowing Date.
5.06 FINANCINGS; ETC. (a) On or prior to the Initial Borrowing
Date, (i) Holdings shall have received gross cash proceeds of at least
$110,000,000 from the Equity Financing, (ii) Holdings shall have contributed the
full amount of the gross cash proceeds received by it from the Equity Financing
as a common equity contribution to DelCorp and WisCorp, (iii) each of DelCorp
and WisCorp shall have contributed the full amount of the gross cash proceeds
received by it from Holdings as described in the immediately preceding clause
(ii) to the capital of the Borrower as a common equity contribution in exchange
for membership interests in the Borrower constituting in the aggregate, 100% of
membership interests in the Borrower, and (iv) the Borrower shall have utilized
the full amount of such cash contribution to make payments owing in connection
with the Transaction.
(b) On or prior to the Initial Borrowing Date, (i) the
Borrower shall have received gross cash proceeds of $110,000,000 from the
issuance of a like principal amount of the Senior Subordinated Notes and (ii)
the Borrower shall have utilized the full amount of the net cash proceeds
received from the issuance of the Senior Subordinated Notes to make payments
owing in connection with the Transaction.
(c) On or prior to the Initial Borrowing Date, there shall
have been delivered to the Administrative Agent true and correct copies of the
Equity Financing Documents and the Senior Subordinated Note Documents and all of
the terms and conditions of the Equity Financing Documents and the Senior
Subordinated Note Documents shall be reasonably satisfactory in form and
substance to the Administrative Agent and the Required Banks. The Equity
Financing and the issuance of the Senior Subordinated Notes shall have been
consummated, in each case in all material respects in accordance with the terms
and conditions of the applicable Documents therefor and all applicable laws.
5.07 ACQUISITION; ETC. (a) On or prior to the Initial
Borrowing Date, there shall have been delivered to the Administrative Agent true
and correct copies of the Acquisition Agreement and the other Acquisition
Documents, all of which Acquisition Documents shall be in form and substance
reasonably satisfactory to the Administrative Agent and the Required Banks
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and in full force and effect. All material conditions precedent to the
consummation of the Acquisition as contained in the Acquisition Agreement shall
have been satisfied and not waived without the consent of the Administrative
Agent and the Required Banks, and any amendment to the Acquisition Documents
shall be required to be reasonably satisfactory in form and substance to the
Administrative Agent and the Required Banks.
(b) On or prior to the Initial Borrowing Date, the Acquisition
shall have been (or shall be) consummated in all material respects in accordance
with the Acquisition Documents and all applicable laws.
5.08 INDEBTEDNESS. After giving effect to the consummation of
the Transaction, Holdings, the Borrower and their respective Subsidiaries shall
have no outstanding Indebtedness except (i) the Senior Subordinated Notes, (ii)
the Loans and (iii) such other indebtedness, if any, as shall be permitted to
remain outstanding by the Administrative Agent and the Required Banks and which
is listed on Schedule V hereto.
5.09 SUBSIDIARIES GUARANTY. To the extent any Subsidiary
Guarantors exist on the Initial Borrowing Date, each such Subsidiary Guarantor
shall have duly authorized, executed and delivered a Subsidiaries Guaranty on
such date.
5.10 PLEDGE AGREEMENT. On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered a Pledge
Agreement in the form of Exhibit H (as modified, supplemented or amended from
time to time, the "Pledge Agreement") and shall have delivered to the Collateral
Agent, as pledgee, all the Pledged Securities, if any, referred to therein then
owned by such Credit Party, (x) endorsed in blank in the case of promissory
notes constituting Pledged Securities and (y) together with executed and undated
stock powers, in the case of capital stock constituting Pledged Securities.
5.11 SECURITY AGREEMENT. (a) On the Initial Borrowing Date,
each Credit Party shall have duly authorized, executed and delivered a Security
Agreement in the form of Exhibit I (as modified, supplemented or amended from
time to time, the "Security Agreement") covering all of such Credit Party's
present and future Security Agreement Collateral, in each case together with:
(i) proper Financing Statements (Form UCC-1) fully executed
for filing under the UCC or other appropriate filing offices of each
jurisdiction as may be necessary or, in the reasonable opinion of the
Collateral Agent, desirable to perfect the security interests purported
to be created by the Security Agreement;
(ii) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, listing all effective financing
statements that name any Credit Party as debtor and that are filed in
the jurisdictions referred to in clause (a) above, together with copies
of such other financing statements (none of which shall cover the
Collateral except to the extent evidencing Permitted Liens or in
respect of which the Collateral Agent shall have received termination
statements (Form UCC-3) or such other termination statements as shall
be required by local law) fully executed for filing;
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(iii) evidence of execution for post-closing filing and
recordation of all other recordings and filings of, or with respect to,
the Security Agreement as may be necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect the security
interests intended to be created by such Security Agreement; and
(iv) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security
Agreement have been taken.
(b) On the Initial Borrowing Date, the Borrower shall have
duly authorized, executed and delivered a debenture in form and substance
satisfactory to the Administrative Agent covering the Borrower's property and
rights situated in England and Wales (such debenture as modified, supplemented
or amended from time to time, the "U.K. Security Agreement").
5.12 MORTGAGES; TITLE INSURANCE; SURVEYS; ETC. On the Initial
Borrowing Date, the Collateral Agent shall have received:
(a) fully executed counterparts of mortgages or deeds to
secure debt in each case in form and substance reasonably satisfactory
to the Administrative Agent (each, a "Mortgage" and, collectively, the
"Mortgages"), which Mortgages shall cover such of the Real Property
owned or leased by the Borrower or any Domestic Subsidiary as shall be
designated as such on Schedule III (each, a "Mortgaged Property" and,
collectively, the "Mortgaged Properties"), together with evidence that
counterparts of the Mortgages have been delivered to the title
insurance company insuring the Lien of the Mortgages for recording in
all places to the extent necessary or, in the reasonable opinion of the
Collateral Agent, desirable to effectively create a valid and
enforceable first priority mortgage lien, subject only to Permitted
Encumbrances, on each Mortgaged Property in favor of the Collateral
Agent (or such other trustee as may be required or desired under local
law) for the benefit of the Secured Creditors; and
(b) mortgagee title insurance policies on each Mortgaged
Property issued by, Chicago Title Insurance Company, or such other
title insurers reasonably satisfactory to the Collateral Agent (the
"Mortgage Policies") in amounts satisfactory to the Administrative
Agent and the Required Banks assuring the Collateral Agent that the
Mortgages on such Mortgaged Properties are valid and enforceable first
priority mortgage liens on the respective Mortgaged Properties, free
and clear of all defects and encumbrances except Permitted Encumbrances
and such Mortgage Policies shall otherwise be in form and substance
reasonably satisfactory to the Administrative Agents and the Required
Banks and shall include, as appropriate, an endorsement for future
advances under this Agreement and the Notes and for any other matter
that the Collateral Agent in its reasonable discretion may reasonably
request, shall not include an exception for mechanics' liens, and shall
provide for affirmative insurance and such reinsurance as the
Collateral Agent in its discretion may reasonably request.
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5.13 CONSENT LETTER. On the Initial Borrowing Date, the
Administrative Agent shall have received a letter from CT Corporation System,
presently located at 1633 Broadway, New York, NY 10019, substantially in the
form of Exhibit J, indicating its consent to its appointment by each Credit
Party as its agent to receive service of process as specified in Section 13.08.
5.14 ADVERSE CHANGE, ETC. (a) On the Initial Borrowing Date,
there shall not have occurred or been threatened since December 31, 1997 any
material adverse change (or a series of adverse changes) constituting a material
adverse change in or affecting the business, property, assets, nature of assets,
liabilities condition (financed or otherwise) or prospects of the Business.
(b) On or prior to the Initial Borrowing Date, all necessary
material governmental (domestic and foreign) and third party approvals and/or
consents in connection with the Transaction, the transactions contemplated by
the Documents and otherwise referred to herein or therein shall have been
obtained and remain in effect, and all applicable waiting periods shall have
expired without any action being taken by any competent authority which
restrains, prevents or imposes materially adverse conditions upon the
consummation of the Transaction or the transactions contemplated by this
Agreement. Additionally, there shall not exist any judgment, order, injunction
or other restraint prohibiting or imposing materially adverse conditions upon
the Transaction or the transactions contemplated by this Agreement.
5.15 LITIGATION. On the Initial Borrowing Date, no litigation
by any entity (private or governmental) shall be pending or threatened with
respect to the Transaction or this Agreement or any documentation executed in
connection therewith, or which the Administrative Agent shall determine could
reasonably be expected to have a materially adverse effect on the Transaction or
the business, property, assets, condition (financial or otherwise) or prospects
of the Parent Guarantors, the Borrower, or the Borrower and its Subsidiaries
taken as a whole (after giving effect to the Transaction).
5.16 SOLVENCY OPINION; ENVIRONMENTAL ANALYSES; INSURANCE. On
or before the Initial Borrowing Date, the Borrower shall cause to be delivered
to the Administrative Agent (i) a solvency opinion from Valuation Research
Corporation in the form of Exhibit K hereto, which shall be addressed to the
Administrative Agent and each of the Banks and dated the Initial Borrowing Date,
setting forth the conclusion that, after giving effect to the Transaction and
the incurrence of all the financings contemplated herein, each Parent Guarantor
and its Subsidiaries taken as a whole and the Borrower, are not insolvent and
will not be rendered insolvent by the indebtedness incurred in connection
therewith, and will not be left with unreasonably small capital with which to
engage in their businesses and will not have incurred debts beyond their ability
to pay debts as they mature, (ii) environmental and hazardous substance analyses
with respect to the properties of Holdings and its Subsidiaries, the results of
which shall be in scope, and in form and substance satisfactory to the
Administrative Agent and the Required Banks (it being acknowledged and agreed
that the environmental and hazardous substance analyses furnished to the
Administrative Agent on or prior to May 5, 1998 are in form and substance
satisfactory to the Agents and the Required Banks) and (iii) certificates of
insurance complying with the requirements of Section 8.03 for the business and
properties of Holdings and its Subsidiaries, in
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scope, form and substance reasonably satisfactory to the Administrative Agent
and the Required Banks and naming the Collateral Agent as an additional insured
and/or loss payee, and stating that such insurance shall not be cancelled or
revised without 30 days prior written notice by the insurer to the Collateral
Agent.
5.17 PRO FORMA BALANCE SHEET; FINANCIAL STATEMENTS;
PROJECTIONS. On or prior to the Initial Borrowing Date, the Agents shall have
received copies of the financial statements (including the PRO forma financial
statements) and Projections referred to in Sections 7.05(a) and (d).
SECTION 6. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The
obligation of each Bank to make Loans (including Loans made on the Initial
Borrowing Date but excluding Mandatory Borrowings made thereafter, which shall
be made as provided in Section 1.01(e)), and the obligation of an Issuing Bank
to issue any Letter of Credit, is subject, at the time of each such Credit Event
(except as hereinafter indicated), to the satisfaction of the following
conditions:
6.01 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time
of each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein or in any other Credit Document shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Credit Event (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date).
6.02 NOTICE OF BORROWING; LETTER OF CREDIT REQUEST. (a) Prior
to the making of each Loan (excluding Swingline Loans), the Administrative Agent
shall have received the notice required by Section 1.03(a). Prior to the making
of any Swingline Loan, the Swingline Bank shall have received the notice
required by Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the
Administrative Agent and the respective Issuing Bank shall have received a
Letter of Credit Request meeting the requirements of Section 2.02.
The acceptance of the proceeds of each Credit Event shall constitute a
representation and warranty by the Borrower to the Administrative Agent and each
of the Banks that all the conditions specified in Section 5 and in this Section
6 and applicable to such Credit Event have been satisfied as of that time. All
of the Notes, certificates, legal opinions and other documents and papers
referred to in Section 5 and in this Section 6, unless otherwise specified,
shall be delivered to the Administrative Agent at the Notice Office for the
account of each of the Banks and, except for the Notes, in sufficient
counterparts for each of the Banks and shall be in form and substance reasonably
satisfactory to the Administrative Agent.
SECTION 7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In
order to induce the Banks to enter into this Agreement and to make the Loans,
and issue (or participate in) the Letters of Credit as provided herein, each
Parent Guarantor and the Borrower makes the following representations,
warranties and agreements, in each case after giving effect to the Transaction
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as consummated on the Initial Borrowing Date, all of which shall survive the
execution and delivery of this Agreement and the Notes and the making of the
Loans and issuance of the Letters of Credit, with the occurrence of each Credit
Event on or after the Initial Borrowing Date being deemed to constitute a
representation and warranty that the matters specified in this Section 7 are
true and correct in all material respects on and as of the Initial Borrowing
Date and on the date of each such Credit Event (it being understood and agreed
that any representation or warranty which by its terms is made as of a specified
date shall be required to be true and correct in all material respects only as
of such specified date).
7.01 CORPORATE STATUS. Each Parent Guarantor, the Borrower and
each of their respective Subsidiaries (i) is a duly organized and validly
existing corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation, (ii) has the
corporate or other applicable power and authority to own its property and assets
and to transact the business in which it is engaged and presently proposes to
engage and (iii) is duly qualified and is authorized to do business and is in
good standing in each jurisdiction where the conduct of its business requires
such qualifications except for failures to be so qualified which, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
7.02 CORPORATE POWER AND AUTHORITY. Each Credit Party has the
corporate or other applicable power and authority to execute, deliver and
perform the terms and provisions of each of the Documents to which it is party
and has taken all necessary corporate or other applicable action to authorize
the execution, delivery and performance by it of each of such Documents. Each
Credit Party has duly executed and delivered each of the Documents to which it
is party, and each of such Documents constitutes the legal, valid and binding
obligation of such Credit Party enforceable in accordance with its terms, except
to the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law).
7.03 NO VIOLATION. Neither the execution, delivery or
performance by any Credit Party of the Documents to which it is a party, nor
compliance by it with the terms and provisions thereof, (i) will contravene any
provision of any applicable law, statute, rule or regulation or any applicable
order, writ, injunction or decree of any court or governmental instrumentality,
(ii) will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Documents) upon any of the properties or assets
of any Parent Guarantor, the Borrower or any of their respective Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement or loan agreement, or any other material agreement, contract or
instrument, to which any Parent Guarantor, the Borrower or any of their
respective Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it may be subject (excluding, in the case of the
Acquisition Documents, from the foregoing clauses (i) and (ii) such immaterial
violations, which in no event shall violate the provisions of this Agreement or
otherwise be reasonably expected to have (x) a material adverse effect on (I)
the Transaction or (II) the rights or remedies of the Administrative Agent or
the Banks, or on the ability of any Credit Party to perform their respective
obligations to
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the Administrative Agent and the Banks or (y) a Material Adverse Effect) or
(iii) will violate any provision of the Certificate of Incorporation or By-Laws
(or equivalent organizational documents) of any Parent Guarantor, the Borrower
or any of their respective Subsidiaries.
7.04 GOVERNMENTAL APPROVALS. No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with (except as have been obtained or made or, in the case of any filings or
recordings in respect of the Security Documents executed on the Initial
Borrowing Date, will be made within 10 days thereof), or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Document or (ii) the legality, validity, binding
effect or enforceability of any Document.
7.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION; UNDISCLOSED
LIABILITIES; PROJECTIONS; ETC. (a) The audited balanced sheets of the Business
for the fiscal years and three month period ended on December 31, 1996, December
31, 1997 and March 31, 1998, respectively, and the related statements of income,
cash flows and shareholders' equity of the Business for the fiscal year or three
month period, as the case may be ended on such dates, copies of which have been
furnished to the Banks prior to the Effective Date, present fairly in all
material respects the financial position of the Business at the dates of such
balance sheets and the results of the operations of the Business for the periods
covered thereby. All of the foregoing historical financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied. The PRO FORMA consolidated financial statements of
Holdings and its Subsidiaries as of March 31, 1998, after giving effect to the
Transaction, copies of which have been furnished to the Banks prior to the
Effective Date, present fairly in all material respects the PRO FORMA
consolidated financial position of Holdings and its Subsidiaries as March 31,
1998 and the PRO FORMA consolidated results of operations of Holdings and its
Subsidiaries for the period covered thereby.
(b) (i) On and as of the Initial Borrowing Date, on a PRO
FORMA basis after giving effect to the Transaction and all other transactions
contemplated by the Documents and to all Indebtedness (including the Loans)
being incurred or assumed, and Liens created by each Credit Party in connection
therewith, with respect to each Parent Guarantor and the Borrower, individually,
and each such Person and its Subsidiaries taken as a whole, (x) the sum of the
assets, at a fair valuation, of each such Person, individually, and each such
Person and its Subsidiaries taken as a whole, will exceed its or their debts;
(y) it has not incurred and does not intend to incur, nor believes that it will
incur, debts beyond its ability to pay such debts as such debts mature; and (z)
it will have sufficient capital with which to conduct its business. For purposes
of this Section 7.05(b), "debt" means any liability on a claim and "claim" means
(i) right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(c) Except as fully disclosed in the financial statements
(including the PRO FORMA financial statements) delivered pursuant to Section
7.05(a), there were as of the Initial
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Borrowing Date no liabilities or obligations with respect to Holdings or any of
its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent
or otherwise and whether or not due) which, either individually or in the
aggregate, would be adversely material to the Business or Holdings and its
Subsidiaries taken as a whole or the Borrower. As of the Initial Borrowing Date,
none of the Credit Parties knows of any basis for the assertion against it of
any liability or obligation of any nature that is not fully disclosed in the
financial statements delivered pursuant to Section 7.05(a) which, either
individually or in the aggregate, could be materially adverse to Holdings and
its Subsidiaries taken as a whole or the Borrower.
(d) On and as of the Initial Borrowing Date, the Projections
which have been delivered to the Administrative Agent and the Banks on or prior
to the Effective Date have been prepared on a basis consistent with the
financial statements referred to in Section 7.05(a), and are based on good faith
estimates and assumptions believed by management of Holdings and the Borrower to
be reasonable as of the date of such Projections, and there are no statements or
conclusions in any of the Projections which are based upon or include
information known to Holdings or any of its Subsidiaries to be misleading in any
material respect or which fail to take into account material information
regarding the matters reported therein. On the Initial Borrowing Date, Holdings
believes that the Projections were reasonable.
(e) Since December 31, 1997 (x) if this representation is
being made (or deemed made) on or prior to the Initial Borrowing Date, there has
been no material adverse change in the operations, properties, financial
condition or prospects of the Business, Holdings and its Subsidiaries taken as a
whole or the Borrower and (y) if this representation is being made (or deemed
made) at any time after the Initial Borrowing Date after giving effect to the
Transaction, nothing has occurred that has had or could reasonably be expected
to have a Material Adverse Effect.
7.06 LITIGATION. There are no actions, suits or proceedings
pending or, to the best knowledge of Holdings and the Borrower, threatened (i)
with respect to any Document or (ii) that could reasonably be expected to have a
Material Adverse Effect.
7.07 TRUE AND COMPLETE DISCLOSURE. All factual information
(taken as a whole) furnished by or on behalf of Holdings or the Borrower in
writing to the Administrative Agent or any Bank (including, without limitation,
all information contained in the Documents or in the Offering Circular) for
purposes of or in connection with this Agreement, the other Credit Documents or
any transaction contemplated herein or therein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of Holdings
or the Borrower in writing to the Administrative Agent or any Bank will be, true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any fact necessary
to make such information (taken as a whole) not misleading in any material
respect at such time in light of the circumstances under which such information
was provided.
7.08 USE OF PROCEEDS; MARGIN REGULATIONS. (a) All proceeds of
the Term Loans shall be used by the Borrower (i) to effect the Acquisition and
(ii) to pay fees and expenses related to the Acquisition.
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(b) All proceeds of all Revolving Loans and all Swingline
Loans incurred after the Initial Borrowing Date shall be used for the Borrower's
general corporate and working capital purposes (excluding the purposes described
in preceding Section 7.08(a)).
(c) No part of the proceeds of any Loan will be used to
purchase or carry any Margin Stock or to extend credit for the purpose of
purchasing or carrying any Margin Stock. Neither the making of any Loan nor the
use of the proceeds thereof nor the occurrence of any other Credit Event will
violate or be inconsistent with the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
7.09 TAX RETURNS AND PAYMENTS. Each of Holdings and each of
its Subsidiaries has filed all federal income tax returns and all other tax
returns, domestic and foreign, required to be filed by it and has paid all taxes
and assessments payable by it which have become due, except for those contested
in good faith and adequately disclosed and fully provided for on the financial
statements of Holdings and its Subsidiaries in accordance with generally
accepted accounting principles. Holdings and each of its Subsidiaries have at
all times paid, or have provided adequate reserves (in the good faith judgment
of the management of Holdings) for the payment of, all federal, state and
foreign income taxes applicable for all prior fiscal years and for the current
fiscal year to date. There is no action, suit, proceeding, investigation, audit,
or claim now pending or, to the knowledge of Holdings or any of its
Subsidiaries, threatened by any authority regarding any taxes relating to
Holdings or any of its Subsidiaries which could be reasonably expected to have a
Material Adverse Effect. As of the Initial Borrowing Date, neither Holdings nor
any of its Subsidiaries has entered into an agreement or waiver or been
requested to enter into an agreement or waiver extending any statute of
limitations relating to the payment or collection of taxes of Holdings or any of
its Subsidiaries, or is aware of any circumstances that would cause the taxable
years or other taxable periods of Holdings or any of its Subsidiaries not to be
subject to the normally applicable statute of limitations. Neither Holding nor
any Subsidiary has incurred, or will incur, any material tax liability in
connection with the Transaction.
7.10 COMPLIANCE WITH ERISA. (i) Schedule VII sets forth, as of
the Initial Borrowing Date, each Plan; each Plan (and each related trust,
insurance contract or fund) is in substantial compliance with its terms and with
all applicable laws, including without limitation ERISA and the Code; each Plan
(and each related trust, if any) which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 401(a) and
501(a) of the Code, or has been drafted with the intent that it meets the
requirements of Sections 401(a) and 501(a) of the Code and will be amended as
required by the Internal Revenue Service to meet such requirements since the
effective date of the Plan; no Reportable Event has occurred; no Plan which is a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or
in reorganization; no Plan has an Unfunded Current Liability which, when added
to the aggregate amount of Unfunded Current Liabilities of all other Plans,
exceeds the aggregate amount of such Unfunded Current Liabilities that existed
on the Initial Borrowing Date by $100,000; no Plan which is subject to Section
412 of the Code or Section 302 of ERISA has an accumulated funding deficiency,
within the meaning of such sections of the Code or ERISA, or has applied for or
received a waiver of an accumulated funding deficiency or an extension of any
amortization period, within the meaning of Section 412 of the Code or Section
303 or 304 of ERISA; to the
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best knowledge of Holdings or any Subsidiary of Holdings, all contributions
required to be made with respect to a Plan have been or will be timely made;
neither Holdings nor any Subsidiary of Holdings nor any ERISA Affiliate has
incurred any material liability (including any indirect, contingent or secondary
liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29),
4971 or 4975 of the Code or expects to incur any such liability under any of the
foregoing sections with respect to any Plan; to the best knowledge of Holdings
or any Subsidiary of Holdings, no condition exists which presents a material
risk to Holdings or any Subsidiary of Holdings or any ERISA Affiliate of
incurring a liability to or on account of a Plan pursuant to the foregoing
provisions of ERISA and the Code; no proceedings have been instituted to
terminate or appoint a trustee to administer any Plan which is subject to Title
IV of ERISA; to the best knowledge of Holdings or any Subsidiary of Holdings, no
action, suit, proceeding, hearing, audit or investigation with respect to the
administration, operation or the investment of assets of any Plan (other than
routine claims for benefits) is pending, or, to the best knowledge of Holdings
or any Subsidiary of Holdings, expected or threatened; using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of Holdings and its Subsidiaries
and its ERISA Affiliates to all Plans which are multiemployer plans (as defined
in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom,
as of the close of the most recent fiscal year of each such Plan ended prior to
the date of the most recent Credit Event, would not exceed $100,000; each group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code) which covers or has covered employees or former employees of Holdings, any
Subsidiary of Holdings, or any ERISA Affiliate has at all times been operated in
material compliance with the provisions of Part 6 of subtitle B of Title I of
ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on
the assets of Holdings or any Subsidiary of Holdings or any ERISA Affiliate
exists or is likely to arise on account of any Plan; and Holdings and its
Subsidiaries may cease contributions to or terminate any Employee Benefit Plan
maintained by any of them without incurring any material liability.
(ii) Each Foreign Pension Plan has been maintained in
substantial compliance with its terms and with the requirements of any and all
applicable laws, statutes, rules, regulations and orders and has been
maintained, where required, in good standing with applicable regulatory
authorities. All contributions required to be made with respect to a Foreign
Pension Plan have been or will be timely made. Neither Holdings nor any of its
Subsidiaries has incurred any obligation in connection with the termination of
or withdrawal from any Foreign Pension Plan. The excess of the present value of
the accrued benefit liabilities (whether or not vested) under each Foreign
Pension Plan, determined as of the end of Holdings' most recently ended fiscal
year on the basis of actuarial assumptions, each of which is reasonable, over
the current value of the assets of each such Foreign Pension Plan allocable to
such benefit liabilities does not, in the aggregate, have a Material Adverse
Effect.
7.11 THE SECURITY DOCUMENTS. (a) The provisions of the
Security Agreement are effective to create in favor of the Collateral Agent for
the benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the Credit Parties in the Security
Agreement Collateral described therein, and the Security Agreement, upon the
filing of Form UCC-1 financing statements or the appropriate equivalent (which
filings, if this representation is being made more than 10 days after the
Initial Borrowing Date, have been made),
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create a fully perfected first lien on, and security interest in, all right,
title and interest in all of the Security Agreement Collateral described
therein, subject to no other Liens other than Permitted Liens, to the extent a
security interest in such collateral can be perfected by the filing of a
financing statement. The recordation of the Assignment of Security Interest in
U.S. Patents and Trademarks in the form attached to the Security Agreement in
the United States Patent and Trademark Office together with filings on Form
UCC-1 made pursuant to the Security Agreement will be effective when recorded or
filed (which recordings or filings, if this representation is being made more
than 10 days after the Initial Borrowing Date, have been made), under applicable
law, to perfect the security interest granted to the Collateral Agent in the
trademarks and patents covered by the Security Agreement and the recordation of
the Assignment of Security Interest in U.S. Copyrights in the form attached to
the Security Agreement with the United States Copyright Office together with
filings on Form UCC-1 made pursuant to the Security Agreement will be effective
when recorded or filed (which recordings or filings, if this representation is
being made more than 10 days after the Initial Borrowing Date, have been made)
under federal law to perfect the security interest granted to the Collateral
Agent in the copyrights covered by the Security Agreement.
(b) The security interests created in favor of the Collateral
Agent, as pledgee, for the benefit of the Secured Creditors under the Pledge
Agreement constitute first priority perfected security interests in the Pledged
Securities described in the Pledge Agreement, subject to no security interests
of any other Person. No filings or recordings are required in order to perfect
(or maintain the perfection or priority of) the security interests created in
the Pledged Securities and the proceeds thereof under the Pledge Agreement.
(c) The Mortgages create, as security for the obligations
purported to be secured thereby, a valid and enforceable perfected security
interest in and mortgage lien on all of the Mortgaged Properties in favor of the
Collateral Agent (or such other trustee as may be required or desired under
local law) for the benefit of the Secured Creditors, superior to and prior to
the rights of all third persons (except that the security interest and mortgage
lien created in the Mortgaged Properties may be subject to the Permitted
Encumbrances related thereto) and subject to no other Liens (other than
Permitted Liens). Schedule III contains a true and complete list of each parcel
of Real Property owned or leased by the Borrower and its Subsidiaries on the
Initial Borrowing Date, and the type of interest therein held by the Borrower or
such Subsidiary. The Borrower and each of its Subsidiaries have good and
indefeasible title to all fee-owned Mortgaged Properties and valid leasehold
title to all Leaseholds, in each case free and clear of all Liens except those
described in the first sentence of this subsection (c).
(d) The provisions of the U.K. Security Agreement are
effective to create in favor of the Collateral Agent for the benefit of the
Secured Creditors a legal, valid and enforceable security interest in all right,
title and interest of the Credit Parties in the Charged Assets described
therein, and the U.K. Security Agreement, creates a fully perfected first lien
on, and security interest in, all right, title and interest in all of the
Charged Assets described therein, subject to no other Liens other than Permitted
Liens.
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7.12 REPRESENTATIONS AND WARRANTIES IN DOCUMENTS. On the
Initial Borrowing Date, to the knowledge of the Borrower, all representations
and warranties set forth in the other Documents were true and correct in all
material respects at the time as of which such representations and warranties
were made (or deemed made).
7.13 PROPERTIES. Holdings, the Borrower and each of their
respective Subsidiaries have good and valid title to all properties owned by
them, including all property reflected in the most recent balance sheet of the
Business referred to in Section 7.05(a) and in the pro forma balance sheet
referred to in Section 5.18 (except as sold or otherwise disposed of since the
date of such balance sheet in the ordinary course of business), free and clear
of all Liens, other than Permitted Liens permitted by Section 9.01. On the
Initial Borrowing Date, Schedule III sets forth a true and complete description
of all Real Property owned or leased by the Borrower and/or its Subsidiaries and
sets forth the direct owner or lessee thereof.
7.14 CAPITALIZATION. (a) On the Initial Borrowing Date and
after giving effect to the Transaction, the authorized capital stock of Holdings
shall consist of 12,000 shares of Common Stock, 8,500 of which shall be issued
and outstanding. All such outstanding shares have been duly and validly issued,
are fully paid and non-assessable and have been issued free of preemptive
rights. Except as set forth on Schedule XI, on the Initial Borrowing Date,
Holdings does not have outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreement providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
(b) On the Initial Borrowing Date and after giving effect to
the Transaction, the authorized capital stock of DelCorp shall consist of 1,000
shares of common stock, 1,000 of which shall be issued and outstanding and shall
be owned by Holdings. All such outstanding shares of common stock have been duly
and validly issued, are fully paid and nonassessable and are free of preemptive
rights. As of the Initial Borrowing Date, DelCorp does not have outstanding any
securities convertible into or exchangeable for its capital stock or outstanding
any rights to subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any character relating to, its capital
stock.
(c) On the Initial Borrowing Date and after giving effect to
the Transaction, the authorized capital stock of WisCorp shall consist of 1,000
shares of common stock, 1,000 of which shall be issued and outstanding, shall be
owned by Holdings and shall be delivered for pledge pursuant to the Pledge
Agreement. All such outstanding shares of common stock have been duly validly
issued, are fully paid and nonassessable and are free of preemptive rights. As
of the Initial Borrowing Date, WisCorp does not have outstanding any securities
convertible into or exchangeable for its capital stock or outstanding any rights
to subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
(d) All outstanding equity interests of the Borrower have been
duly and validly issued and are fully paid and have been delivered for pledge
pursuant to the Pledge Agreement.
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The Borrower does not have outstanding any securities convertible into or
exchangeable for its membership interests or outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreement
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its membership interests.
7.15 SUBSIDIARIES. After giving effect to the Transaction,
Holdings will have no Subsidiaries other than DelCorp., WisCorp. and the
Borrower and its Subsidiaries. After giving effect to the Transaction, the
Borrower will have no Subsidiaries other than (i) those Subsidiaries listed on
Schedule VIII and (ii) new Subsidiaries created in compliance with Section 9.14.
An accurate organization chart, showing the ownership structure of Holdings and
each of its Subsidiaries on the Initial Borrowing Date, and after giving effect
to the Transaction, is set forth on Schedule XII.
7.16 COMPLIANCE WITH STATUTES, ETC. Holdings, the Borrower and
each of their respective Subsidiaries each is in compliance with all applicable
statutes, regulations and orders of, and all applicable restrictions imposed by,
all governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
7.17 INVESTMENT COMPANY ACT. None of Holdings, the Borrower or
any of their respective Subsidiaries is an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
7.18 PUBLIC UTILITY HOLDING COMPANY ACT. None of Holdings, the
Borrower or any of their respective Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
7.19 ENVIRONMENTAL MATTERS. (a) Holdings, the Borrower and
each of their respective Subsidiaries have complied with, and on the date of
each Credit Event will be in compliance with, all applicable Environmental Laws
and the requirements of any permits issued under such Environmental Laws. There
are no pending or, to the best knowledge of Holdings and the Borrower after due
inquiry, past or threatened Environmental Claims against Holdings, the Borrower
or any of their respective Subsidiaries or any Real Property owned or operated
by Holdings, the Borrower or any of their respective Subsidiaries. There are no
facts, circumstances, conditions or occurrences in respect of any Real Property
owned or operated by Holdings, the Borrower or any of their respective
Subsidiaries that, to the best knowledge of Holdings or the Borrower after due
inquiry, could reasonably be expected (i) to form the basis of an Environmental
Claim against Holdings, the Borrower or any of their respective Subsidiaries or
any such Real Property, or (ii) to cause any such Real Property to be subject to
any restrictions on the ownership, occupancy, use or transferability of such
Real Property by Holdings, the Borrower or any of their respective Subsidiaries
under any applicable Environmental Law.
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(b) Hazardous Materials have not at any time been generated,
used, treated or stored on, or transported to or from, any Real Property owned
or operated by Holdings, the Borrower or any of their respective Subsidiaries
where such generation, use, treatment or storage has violated or could
reasonably be expected to violate any Environmental Law. Hazardous Materials, to
the best knowledge of Holdings and the Borrower, have not been Released on or
from any Real Property owned or operated by Holdings, the Borrower or any of
their respective Subsidiaries where such Release has violated or could
reasonably be expected to violate any applicable Environmental Law.
(c) Notwithstanding anything to the contrary in this Section
7.19, the representations made in this Section 7.19 shall only be untrue if the
aggregate effect of all failures and noncompliances of the types described above
could reasonably be expected to have a Material Adverse Effect.
7.20 LABOR RELATIONS. Except as set forth on Schedule IX, none
of Holdings, the Borrower nor any of their respective Subsidiaries is engaged in
any unfair labor practice that could reasonably be expected to have a material
adverse effect on Holdings and its Subsidiaries taken as a whole or the Borrower
and there is (i) no unfair labor practice complaint pending against Holdings,
the Borrower or any of their respective Subsidiaries or, to the best knowledge
of Holdings or the Borrower, threatened against any of them, before the National
Labor Relations Board, and no material grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against Holdings, the Borrower or any of their respective Subsidiaries or, to
the best knowledge of Holdings or the Borrower, threatened against any of them,
(ii) no strike, labor dispute, slowdown or stoppage pending against Holdings,
the Borrower or any of their respective Subsidiaries or, to the best knowledge
of Holdings or the Borrower, threatened against Holdings, the Borrower or any of
their respective Subsidiaries and (iii) to the best knowledge of Holdings and
the Borrower, no union representation proceeding is pending with respect to the
employees of Holdings or the Borrower or any of their respective Subsidiaries,
except (with respect to any matter specified in clause (i), (ii) or (iii) above,
either individually or in the aggregate) such as could not reasonably be
expected to have a Material Adverse Effect.
7.21 PATENTS, LICENSES, FRANCHISES AND FORMULAS. Each of
Holdings, the Borrower and their respective Subsidiaries owns all material
patents, trademarks, permits, service marks, trade names, copyrights, licenses,
franchises and formulas, or rights with respect to the foregoing, and has
obtained assignments of all leases and other rights of whatever nature,
necessary for the present conduct of its business, without any known conflict
with the rights of others which, or the failure to own or obtain which, as the
case may be, would be reasonably likely to result in a Material Adverse Effect.
7.22 INDEBTEDNESS. Schedule V sets forth a true and complete
list of all Indebtedness (excluding (i) the Senior Subordinated Notes and (ii)
the Loans and Letters of Credit) of Holdings, the Borrower and their respective
Subsidiaries as of the Initial Borrowing Date and which is to remain outstanding
after giving effect to the Transaction (the "Existing Indebtedness"), in each
case showing the aggregate principal amount thereof and the name of the
respective borrower and any other entity which directly or indirectly guaranteed
such debt.
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7.23 TRANSACTION. At the time of consummation thereof, the
Transaction shall have been consummated in all material respects in accordance
with the terms of the respective Documents and all applicable laws. At the time
of consummation of the Transaction, all necessary material consents and
approvals of, and filings and registrations with, and all other actions in
respect of, all governmental agencies, authorities or instrumentalities required
in order to make or consummate the Transaction will have been obtained, given,
filed or taken and are or will be in full force and effect (or effective
judicial relief with respect thereto has been obtained). All applicable waiting
periods with respect thereto have or, prior to the time when required, will
have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents, or imposes material adverse
conditions upon the Transaction. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the Transaction, or the occurrence of any Credit Event or the
performance by Holdings or the Borrower of its obligations under the respective
Credit Documents. All actions taken by Holdings and the Borrower pursuant to or
in furtherance of the Transaction have been taken in all material respects in
compliance with the respective Documents and all applicable laws.
7.24 SPECIAL PURPOSE CORPORATIONS. Each Parent Guarantor and
DelCorp was formed for the purpose of effecting the Transaction and, prior to
the consummation thereof, had no material assets or liabilities except in
connection therewith. Neither Parent Guarantor nor DelCorp engages in business
activities other than the employment of management of the Borrower, except in
connection with its ownership of the equity interest in the Borrower and, in the
case of Holdings, its ownership of the capital stock of DelCorp and WisCorp.
7.25 INSURANCE. Schedule VII sets forth a true and complete
listing of all insurance maintained by Holdings and its Subsidiaries as of the
Initial Borrowing Date, and with the amounts insured (and any deductibles) set
forth therein.
7.26 SENIOR SUBORDINATED NOTES The subordination provisions
contained in the Senior Subordinated Notes and in the other Senior Subordinated
Note Documents are enforceable against the respective Credit Parties party
thereto and the holders of the Senior Subordinated Notes, and all Obligations
and Guaranteed Obligations (as defined in the Subsidiaries Guaranty) are within
the definition of "Senior Indebtedness" or "Guarantor Senior Indebtedness", as
the case may be, included in such subordination provisions.
7.27 YEAR 2000 PROBLEM. Each of Holdings and each of its
Subsidiaries has developed a plan to address any potential Year 2000 Problem and
will, on a timely basis, implement such plan and successfully eliminate any Year
2000 Problem.
SECTION 8. AFFIRMATIVE COVENANTS. Holdings and the Borrower
hereby covenant and agree that on and after the Effective Date and until the
Total Commitments and all Letters of Credit have terminated and the Loans, Notes
and Unpaid Drawings, together with interest, Fees and all other obligations
incurred hereunder and thereunder, are paid in full:
8.01 INFORMATION COVENANTS. Holdings and/or the Borrower will
furnish to the Administrative Agent (with sufficient copies for each of the
Banks) and the Administrative Agent will promptly thereafter furnish to each
Bank:
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(a) MONTHLY REPORTS. Within 45 days after the end of each
fiscal month of Holdings (or, if earlier, at the time delivered by
Holdings to its Board of Directors), the management reports furnished
by Holdings to its Board of Directors, which report shall in any event
include a consolidated balance sheet of Holdings and its Consolidated
Subsidiaries as at the end of such month and the Consolidated EBITDA
for such month, in each case setting forth comparative figures for the
corresponding month in the prior fiscal year.
(b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the
close of the first three quarterly accounting periods in each fiscal
year of Holdings, (i) the consolidated balance sheets of Holdings and
its Consolidated Subsidiaries as at the end of such quarterly
accounting period and the related consolidated statements of income and
cash flows, in each case for such quarterly accounting period and for
the elapsed portion of the fiscal year ended with the last day of such
quarterly accounting period, and in each case, setting forth
comparative figures for the related periods in the prior fiscal year
and, after the delivery of the first budget pursuant to Section
8.01(e), the budgeted figures for such quarterly periods as set forth
in the respective budget delivered pursuant to Section 8.01(e), all of
which shall be certified by the Chief Financial Officer or Treasurer of
Holdings, subject to normal year-end audit adjustments and (ii)
management's discussion and analysis of the important operational and
financial developments during the fiscal quarter and year-to-date
periods.
(c) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the
close of each fiscal year of Holdings, (i) the consolidated and
consolidating balance sheets of Holdings and its Consolidated
Subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income and retained
earnings and of cash flows for such fiscal year setting forth
comparative figures for the preceding fiscal year and certified (x) in
the case of such consolidated financial statements, by Coopers &
Lybrand, or such other independent certified public accountants of
recognized national standing reasonably acceptable to the
Administrative Agent, together with a report of such accounting firm
stating that in the course of its regular audit of the financial
statements of Holdings and its Subsidiaries, which audit was conducted
in accordance with generally accepted auditing standards, such
accounting firm obtained no knowledge of any Default or Event of
Default which has occurred and is continuing or, if in the opinion of
such accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof, and (y) in the
case of such consolidating financial statements, by the Chief Financial
Officer or Treasurer of Holdings, and (ii) management's discussion and
analysis of the important operational and financial developments during
such fiscal year.
(d) MANAGEMENT LETTERS. Promptly after the receipt thereof by
Holdings, the Borrower or any of their respective Subsidiaries, a copy
of any "management letter" received by any such Person from its
certified public accountants and the management's responses thereto.
(e) BUDGETS. No later than 30 days following the commencement
of the first day of each fiscal year of Holdings, a budget in form
satisfactory to the Administrative
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Agent prepared by Holdings for (x) each of the twelve months of such
fiscal year prepared in detail and (y) each of the five years
immediately following such fiscal year prepared in summary form, in
each case, of Holdings and its Subsidiaries, accompanied by the
statement of the Chief Financial Officer or Treasurer of Holdings to
the effect that, to the best of his knowledge, the budget is a
reasonable estimate for the period covered thereby.
(f) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Section 8.01(b) and (c), a
certificate of the Chairman of the Board, the President, Chief
Financial Officer or the Treasurer of each of the Borrower and Holdings
to the effect that, to the best of such officer's knowledge, no Default
or Event of Default has occurred and is continuing or, if any Default
or Event of Default has occurred and is continuing, specifying the
nature and extent thereof, which certificate shall, in the case of any
such financial statements delivered in respect of a period ending on
the last day of a fiscal quarter or year of Holdings, (x) set forth the
calculations required to establish whether the Borrower was in
compliance with the provisions of Sections 4.02(f), (g) and (h) (but
with respect to Section 4.02(h) only to the extent delivered with the
financial statements required by Sections 8.01(c)), 9.05, 9.07 and 9.08
through 9.10, inclusive, at the end of such fiscal quarter or year, as
the case may be, (y) if delivered with the financial statements
required by Section 8.01(c), set forth the amount of Excess Cash Flow
for the respective Excess Cash Payment Period and (z) set forth the
calculations required to establish the Applicable Commitment Commission
Percentage and the Applicable Margin for the relevant Margin Adjustment
Period.
(g) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any
event within five Business Days after an officer of Holdings or the
Borrower obtains knowledge thereof, notice of (i) the occurrence of any
event which constitutes a Default or Event of Default and (ii) any
litigation or governmental investigation or proceeding pending or
threatened (x) against Holdings, the Borrower or any of their
respective Subsidiaries which could reasonably be expected to have a
Material Adverse Effect, (y) with respect to any Indebtedness in excess
of $500,000 of Holdings, the Borrower or any of their respective
Subsidiaries or (z) with respect to any Document.
(h) OTHER REPORTS AND FILINGS. Promptly, copies of all
financial information, proxy materials and other information and
reports, if any, which Holdings, the Borrower or any of their
respective Subsidiaries shall file with the Securities and Exchange
Commission or any successor thereto (the "SEC") or deliver to holders
of its Indebtedness pursuant to the terms of the documentation
governing such Indebtedness (or any trustee, agent or other
representative therefor).
(i) ENVIRONMENTAL MATTERS. Promptly upon, and in any event
within ten Business Days after, an officer of Holdings, the Borrower or
any of their respective Subsidiaries obtains knowledge thereof, notice
of one or more of the following environmental matters which occurs
after the Initial Borrowing Date, unless such environmental matters
could not, individually or when aggregated with all other such
environmental matters, be reasonably expected to have a Material
Adverse Effect:
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(i) any Environmental Claim pending or threatened in
writing against Holdings, the Borrower or any of their
respective Subsidiaries or any Real Property owned or operated
by Holdings, the Borrower or any of their respective
Subsidiaries;
(ii) any condition or occurrence on or arising from any
Real Property owned or operated by Holdings, the Borrower or
any of their respective Subsidiaries that (a) results in
noncompliance by Holdings, the Borrower or any of their
respective Subsidiaries with any applicable Environmental Law
or (b) could reasonably be expected to form the basis of an
Environmental Claim against Holdings, the Borrower or any of
their respective Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property
owned or operated by Holdings, the Borrower or any of their
respective Subsidiaries that could reasonably be expected to
cause such Real Property to be subject to any restrictions on
the ownership, occupancy, use or transferability by Holdings,
the Borrower or any of their respective Subsidiaries of such
Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in
response to the actual or alleged presence of any Hazardous
Material on any Real Property owned or operated by Holdings,
the Borrower or any of their respective Subsidiaries as
required by any Environmental Law or any governmental or other
administrative agency; PROVIDED that in any event Holdings
and/or the Borrower shall deliver to the Administrative Agent
all material notices received by it or any of their respective
Subsidiaries from any government or governmental agency under,
or pursuant to, CERCLA.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial
action and Holdings', the Borrower's or such Subsidiary's response
thereto. In addition, the Borrower will provide the Banks with copies
of all material communications with any government or governmental
agency and all material communications with any Person (other than
Holdings', the Borrower's or any Subsidiary's attorneys) relating to
any Environmental Claim of which notice is required to be given
pursuant to this Section 8.01(i), and such detailed reports of any such
Environmental Claim as may reasonably be requested by the Banks.
(j) ANNUAL MEETINGS WITH BANKS. At the request of
Administrative Agent, Holdings shall within 120 days after the close of
each fiscal year of Holdings hold a meeting at a reasonable time and
place selected by Holdings and acceptable to the Administrative Agent
with all of the Banks at which meeting shall be reviewed the financial
results of the previous fiscal year and the financial condition of
Holdings and its Subsidiaries and the budgets presented for the current
fiscal year of Holdings and its Subsidiaries.
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(k) OTHER INFORMATION. From time to time, such other
information or documents (financial or otherwise) with respect to
Holdings, the Borrower or their respective Subsidiaries as the
Administrative Agent or any Bank may reasonably request in writing.
8.02 BOOKS, RECORDS AND INSPECTIONS. Holdings and the Borrower
will, and will cause each of their respective Subsidiaries to, keep proper books
of record and account in which full, true and correct entries in conformity with
generally accepted accounting principles and all requirements of law shall be
made of all dealings and transactions in relation to its business and
activities. Holdings and the Borrower will, and will cause each of their
respective Subsidiaries to, permit officers and designated representatives of
any of the Administrative Agent or any Bank to visit and inspect, during regular
business hours and under guidance of officers of Holdings, the Borrower or such
Subsidiary, any of the properties of Holdings and the Borrower or such
Subsidiary, and to examine the books of account of Holdings and the Borrower or
such Subsidiary and discuss the affairs, finances and accounts of Holdings, the
Borrower or such Subsidiary with, and be advised as to the same by, its and
their officers and independent accountants, all upon reasonable advance notice
and at such reasonable times and intervals and to such reasonable extent as the
Administrative Agent or such Bank may request.
8.03 MAINTENANCE OF PROPERTY; INSURANCE. (a) Holdings and the
Borrower will, and will cause each of their respective Subsidiaries to, (i) keep
all property necessary in its business in good working order and condition
(ordinary wear and tear and loss or damage by casualty or condemnation
excepted), (ii) maintain insurance on all its property in at least such amounts
and against at least such risks as is consistent and in accordance with industry
practice and (iii) furnish to each Bank, upon written request, full information
as to the insurance carried.
(b) Holdings and the Borrower will, and will cause their
respective Subsidiaries to, at all times keep their respective property insured
in favor of the Collateral Agent, and all policies or certificates (or certified
copies thereof) with respect to such insurance (and any other insurance
maintained by Holdings, the Borrower or any of their respective Subsidiaries)
(i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of
the Collateral Agent (including, without limitation, by naming the Collateral
Agent as loss payee or as an additional insured), (ii) shall state that such
insurance policies shall not be cancelled without 30 days' prior written notice
thereof by the respective insurer to the Collateral Agent, (iii) shall provide
that the respective insurers irrevocably waive any and all rights of subrogation
with respect to the Collateral Agent and the Secured Creditors, (iv) shall
contain the standard non-contributing mortgage clause endorsement in favor of
the Collateral Agent with respect to hazard liability insurance, (v) shall,
except in the case of public liability insurance, provide that any losses shall
be payable notwithstanding (A) any act or neglect of Holdings, the Borrower or
any of their respective Subsidiaries, (B) the occupation or use of the
properties for purposes more hazardous than those permitted by the terms of the
respective policy, (C) any foreclosure or other proceeding relating to the
insured properties or (D) any change in the title to or ownership or possession
of the insured properties and (vi) shall be deposited with the Collateral Agent.
(c) If Holdings, the Borrower or any of their respective
Subsidiaries shall fail to maintain all insurance in accordance with this
Section 8.03, or if Holdings, the Borrower or any of their respective
Subsidiaries shall fail to so endorse and deposit all policies or certificates
with
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respect thereto, the Administrative Agent and/or the Collateral Agent shall
have the right (but shall be under no obligation), upon ten days advance notice
to Holdings, the Borrower or any of their respective Subsidiaries, as the case
may be, to procure such insurance and the Borrower agrees to reimburse the
Administrative Agent or the Collateral Agent as the case may be, for all costs
and expenses of procuring such insurance.
8.04 CORPORATE FRANCHISES. Holdings and the Borrower will, and
will cause each of their respective Subsidiaries, to do or cause to be done, all
things necessary to preserve and keep in full force and effect its existence and
its material rights, franchises, licenses and patents used in its business;
PROVIDED, HOWEVER, that nothing in this Section 8.04 shall prevent (i) sales of
assets, consolidations or mergers by or involving Holdings, the Borrower or any
of their respective Subsidiaries in accordance with Section 9.02, (ii) the
withdrawal by Holdings, the Borrower or any of their respective Subsidiaries of
their qualification as a foreign corporation in any jurisdiction where such
withdrawal could not reasonably be expected to have a Material Adverse Effect or
(iii) the abandonment by Holdings, the Borrower or any of their respective
Subsidiaries of any rights, franchises, licenses and patents that the Borrower
reasonably determines are not useful to its business.
8.05 COMPLIANCE WITH STATUTES, ETC. Holdings and the Borrower
will, and will cause each of their respective Subsidiaries to, comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property, except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
8.06 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) Holdings and the
Borrower will comply, and will cause each of their respective Subsidiaries to
comply, in all material respects with all Environmental Laws applicable to the
ownership or use of its Real Property now or hereafter owned or operated by
Holdings, the Borrower or any of their respective Subsidiaries, will within a
reasonable time-period pay or cause to be paid all costs and expenses incurred
in connection with such compliance (except to the extent being contested in good
faith), and will keep or cause to be kept all such Real Property free and clear
of any Liens imposed pursuant to such Environmental Laws. None of Holdings, the
Borrower nor any of their respective Subsidiaries will generate, use, treat,
store, release or dispose of, or permit the generation, use, treatment, storage,
release or disposal of Hazardous Materials on any Real Property now or hereafter
owned or operated by Holdings, the Borrower or any of their respective
Subsidiaries, or transport or permit the transportation of Hazardous Materials
to or from any such Real Property except in material compliance with all
applicable Environmental Laws and reasonably required in connection with the
operation, use and maintenance of any such Real Property or otherwise in
connection with their businesses.
(b) At the written request of the Administrative Agent or the
Required Banks, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time, the Borrower will provide, at the
Borrower's sole cost and expense, an environmental site assessment report
concerning any Real Property now or hereafter owned or operated by Holdings, the
Borrower or any of their respective Subsidiaries, prepared by an environmental
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consulting firm reasonably acceptable to the Administrative Agent, indicating
the presence or absence of Hazardous Materials and the potential cost of any
removal or remedial action in connection with any Hazardous Materials on such
Real Property; PROVIDED, that such request may be made only if (i) there has
occurred and is continuing an Event of Default, (ii) the Administrative Agent or
the Required Banks reasonably believe that Holdings, the Borrower or any such
Real Property is not in compliance with Environmental Law and such circumstances
could reasonably be expected to have a Material Adverse Effect, or (iii)
circumstances exist that reasonably could be expected to form the basis of a
material Environmental Claim against Holdings, the Borrower or any such Real
Property. If the Borrower fails to provide the same within 90 days after such
request was made, the Administrative Agent may order the same, and the Borrower
shall grant and hereby grants to the Administrative Agent and the Banks and
their agents access to such Real Property and specifically grants the
Administrative Agent and the Banks an irrevocable non-exclusive license, subject
to the rights of tenants, to undertake such an assessment, all at the Borrower's
expense.
8.07 ERISA. As soon as reasonably possible and, in any event,
within ten (10) days after Holdings, the Borrower or any of their respective
Subsidiaries or any ERISA Affiliate knows or has reason to know of the
occurrence of any of the following, Holdings or the Borrower will deliver to
each of the Banks a certificate of the chief financial officer of Holdings or
the Borrower, as the case may be, setting forth the full details as to such
occurrence and the action, if any, that Holdings, the Borrower, such Subsidiary
or such ERISA Affiliate is required or proposes to take, together with any
notices required or proposed to be given to or filed with or by Holdings, the
Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or
the Plan administrator with respect thereto: that a Reportable Event has
occurred (except to the extent that Holdings or the Borrower has previously
delivered to the Banks a certificate and notices (if any) concerning such event
pursuant to the next clause hereof); that a contributing sponsor (as defined in
Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to subparagraph (b)(1) thereof), and an event described in subsection
.62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is
reasonably expected to occur with respect to such Plan within the following 30
days; that an accumulated funding deficiency, within the meaning of Section 412
of the Code or Section 302 of ERISA, has been incurred or an application may be
or has been made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Plan; that any contribution required to be made with respect
to a Plan or Foreign Pension Plan has not been timely made and such failure
could result in a material liability for Holdings, the Borrower or any of their
respective Subsidiaries; that a Plan has been or may be reasonably expected to
be terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be
reasonably expected to be or have been instituted to terminate or appoint a
trustee to administer a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that Holdings, the Borrower, any of their
respective Subsidiaries or any ERISA Affiliate will or may reasonably expect to
incur any liability (including any indirect, contingent, or secondary liability)
to or on account of the termination of or
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withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212
of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980
of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code; or that Holdings, the Borrower, or
any of their respective Subsidiaries may incur any material liability pursuant
to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. Upon
request, the Borrower will deliver to any of the Banks (i) a complete copy of
the annual report (on Internal Revenue Service Form 5500-series) of each Plan
(including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
Service and (ii) copies of any records, documents or other information that must
be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA. In addition to any certificates or notices delivered to the Banks
pursuant to the first sentence hereof, copies of annual reports and any records,
documents or other information required to be furnished to the PBGC, and any
material notices received by Holdings, the Borrower, any of their respective
Subsidiaries or any ERISA Affiliate with respect to any Plan or Foreign Pension
Plan shall be delivered to the Banks no later than ten (10) days after the date
such annual report has been filed with the Internal Revenue Service or such
records, documents and/or information has been furnished to the PBGC or such
notice has been received by Holdings, the Borrower, the Subsidiary or the ERISA
Affiliate, as applicable.
8.08 END OF FISCAL YEARS; FISCAL QUARTERS. Holdings shall
cause (i) each of its, and each of its Subsidiaries', fiscal years to end on
December 31 and (ii) its fiscal quarters to end on a date which is within one
week of March 31, June 30, September 30 and December 31.
8.09 PERFORMANCE OF OBLIGATIONS. Each of Holdings and the
Borrower will, and will cause each of its Subsidiaries to, perform all of its
obligations under the terms of each mortgage, indenture, security agreement and
other debt instrument by which it is bound, except such non-performances as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
8.10 PAYMENT OF TAXES. Each of Holdings and the Borrower will
pay and discharge, and will cause each of their respective Subsidiaries to pay
and discharge, all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any properties belonging to it,
prior to the date on which penalties attach thereto, and all lawful claims for
sums that have become due and payable which, if unpaid, might become a Lien not
otherwise permitted under Section 9.01(i), PROVIDED, that none of Holdings, the
Borrower nor any of their respective Subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves with
respect thereto in accordance with GAAP.
8.11 OWNERSHIP OF SUBSIDIARIES. Holdings shall at all times
own 100% of the outstanding capital stock of DelCorp and WisCorp and shall cause
DelCorp and WisCorp to collectively own at all times 100% of the membership
interests in the Borrower. The Borrower
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shall directly or indirectly own (except to the extent permitted by Section
9.13(b)(iii)) 100% of the capital stock of each Subsidiary of Holdings other
than the Borrower, DelCorp and WisCorp.
8.12 ADDITIONAL SECURITY; FURTHER ASSURANCES; SURVEYS. (a)
Holdings and the Borrower will, and will cause each of their respective Domestic
Wholly-Owned Subsidiaries to, grant to the Collateral Agent security interests
and mortgages (an "Additional Mortgage") in such Real Property (excluding Real
Property where the fair market value thereof is less than $1,000,000) of
Holdings, the Borrower or any of their respective Domestic Wholly-Owned
Subsidiaries as are not covered by the original Mortgages, to the extent
acquired after the Initial Borrowing Date, and as may be requested from time to
time by the Administrative Agent or the Required Banks (each such Real Property,
an "Additional Mortgaged Property"). All such Additional Mortgages shall be
granted pursuant to documentation substantially in the form of the Mortgages
delivered to the Administrative Agent on the Initial Borrowing Date or in such
other form as is reasonably satisfactory to the Administrative Agent and shall
constitute valid and enforceable perfected Liens superior to and prior to the
rights of all third Persons and subject to no other Liens except as are
permitted by Section 9.01 at the time of perfection thereof. The Additional
Mortgages or instruments related thereto shall be duly recorded or filed in such
manner and in such places as are required by law to establish, perfect, preserve
and protect the Liens in favor of the Collateral Agent required to be granted
pursuant to the Additional Mortgages and all taxes, fees and other charges
payable in connection therewith shall be paid in full.
(b) Holdings and the Borrower will, and will cause each of
their respective Domestic Wholly-Owned Subsidiaries to, at the expense of the
Borrower, make, execute, endorse, acknowledge, file and/or deliver to the
Collateral Agent from time to time such vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, real property surveys, reports
and other assurances or instruments and take such further steps relating to the
Collateral covered by any of the Security Documents as the Collateral Agent may
reasonably require pursuant to this Section 8.12. Additionally, upon the request
of the Collateral Agent or the Required Banks, Holdings and the Borrower shall
take, or cause to be taken such action as may be requested in order to perfect
(or maintain the perfection of) the security interests (or take any analogous
actions under the applicable provisions of local law in order to protect such
security interests) in any Collateral located outside the U.S., in each case to
the extent such actions are permitted to be taken under the laws of the
applicable jurisdictions. Furthermore, Holdings and the Borrower shall cause to
be delivered to the Collateral Agent such opinions of counsel, title insurance
and other related documents as may be reasonably requested by the Collateral
Agent to assure itself that this Section 8.12 has been complied with.
(c) Holdings and the Borrower agree to cause each Domestic
Wholly-Owned Subsidiary established or created in accordance with Section 9.14
to execute and deliver, (i) in the case of the first such Subsidiary so
established or created (unless a Subsidiaries Guaranty has been executed and
delivered prior to such date pursuant to Section 5.10), the Subsidiaries
Guaranty and (ii) otherwise, a guaranty of all Obligations and all obligations
under Interest Rate Protection or Other Hedging Agreements in substantially the
form of the Subsidiaries Guaranty.
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(d) The Borrower agrees to pledge and deliver, or cause to be
pledged and delivered, all of the capital stock of each new Subsidiary
(excluding that portion of the voting stock of any Foreign Subsidiary which
would be in excess of 65% of the total outstanding voting stock of such Foreign
Subsidiary) established or created after the Initial Borrowing Date, to the
extent owned by Holdings, the Borrower or any Domestic Wholly-Owned Subsidiary,
to the Collateral Agent for the benefit of the Secured Creditors pursuant to the
Pledge Agreement.
(e) Holdings and the Borrower will cause each Domestic
Wholly-Owned Subsidiary established or created in accordance with Section 9.14
to grant to the Collateral Agent a first priority (subject to Permitted Liens)
Lien on property (tangible and intangible) of such Subsidiary upon terms and
with exceptions similar to those set forth in the Security Documents as
appropriate, and satisfactory in form and substance to the Borrower, the
Administrative Agent and Required Banks. Holdings and the Borrower shall cause
each such Domestic Wholly-Owned Subsidiary, at its own expense, to execute,
acknowledge and deliver, or cause the execution, acknowledgment and delivery of,
and thereafter register, file or record in any appropriate governmental office,
any document or instrument reasonably deemed by the Collateral Agent to be
necessary or desirable for the creation and perfection of the foregoing Liens.
Holdings and the Borrower will cause each of such Domestic Wholly-Owned
Subsidiaries to take all actions reasonably requested by the Administrative
Agent (including, without limitation, the filing of UCC-1's) in connection with
the granting of such security interests.
(f) If requested by the Required Lenders (which request may be
made only during the continuance of an Event of Default), within 15 days of such
request Holdings agrees to cause DelCorp to execute and deliver a guaranty of
all Obligations and all obligations under Interest Rate Protection or Other
Hedging Agreements in substantially the form of the Parent Guaranty and to grant
to the Collateral Agent a first priority (subject to Permitted Liens) Lien on
property (tangible and intangible) of DelCorp upon terms and with exceptions
similar to those set forth in the Security Documents as appropriate, and
satisfactory in form and substance to Administrative Agent and Required Banks.
Holdings shall cause DelCorp, at its own expense, to execute, acknowledge and
deliver, or cause the execution, acknowledgment and delivery of, and thereafter
register, file or record in any appropriate governmental office, any document or
instrument reasonably deemed by the Collateral Agent to be necessary or
desirable for the creation and perfection of the foregoing Liens. Holdings will
cause DelCorp to take all actions reasonably requested by the Administrative
Agent (including, without limitation, the filing of UCC-1's) in connection with
the granting of such security interests.
(g) The security interests required to be granted pursuant to
this Section 8.12 shall be granted pursuant to security documentation (which
shall be substantially similar to the Security Documents already executed and
delivered by the Borrower or its Subsidiaries, as applicable) or otherwise
satisfactory in form and substance to the Collateral Agent and the Borrower and
shall constitute valid and enforceable perfected security interests prior to the
rights of all third Persons and subject to no other Liens except such Liens as
are permitted by Section 9.01. The Additional Security Documents and other
instruments related thereto shall be duly recorded or filed in such manner and
in such places and at such times as are required by law to establish, perfect,
preserve and protect the Liens, in favor of the Collateral Agent for the benefit
of the respective Secured Creditors, required to be granted pursuant to the
Additional Security
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Documents and all taxes, fees and other charges payable in connection therewith
shall be paid in full by the Borrower. At the time of the execution and delivery
of the Additional Security Documents, the Borrower shall cause to be delivered
to the Collateral Agent such opinions of counsel, Mortgage Policies, title
surveys, real estate appraisals and other related documents as may be reasonably
requested by the Administrative Agent or the Required Banks to assure themselves
that this Section 8.12 has been complied with.
(h) Each of Holdings and the Borrower agrees that each action
required above by Section 8.12 (a) or (b) shall be completed as soon as
possible, but in no event later than 90 days after such action is requested to
be taken by the Administrative Agent or the Required Banks. As is provided in
Section 8.12(f), Holdings agrees that each action required by such Section shall
be completed with 15 days of the Required Bank's request. Each of Holdings and
the Borrower further agrees that each action required by Section 8.12(c), (d),
(e) and (g) with respect to the creation or acquisition of a new Subsidiary
shall be completed contemporaneously with (or, in the case of any documents or
instruments to be registered, filed or recorded, within 10 days of) the creation
of such new Subsidiary.
8.13 INTEREST RATE PROTECTION. No later than the 30th day
after the Initial Borrowing Date, the Borrower shall enter into, and for a
minimum average life of three years thereafter maintain, Interest Rate
Protection Agreements reasonably acceptable to the Administrative Agent
establishing a fixed or maximum interest rate acceptable to the Administrative
Agent for an aggregate amount with respect to the Term Loans outstanding from
time to time as is equal to $25,000,000.
8.14 FOREIGN SUBSIDIARIES SECURITY. If following a change in
the relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
Borrower acceptable to the Administrative Agent and the Required Banks does not
within 30 days after a request from the Administrative Agent or the Required
Banks deliver to the Administrative Agent evidence, in form and substance
satisfactory to the Administrative Agent and the Required Banks, with respect to
any Foreign Subsidiary which has not already had all of its stock pledged
pursuant to the Pledge Agreement that a pledge of 66-2/3% or more of the total
combined voting power of all classes of capital stock of such Foreign Subsidiary
entitled to vote, would cause the undistributed earnings of such Foreign
Subsidiary as determined for Federal income tax purposes to be treated as a
deemed dividend to such Foreign Subsidiary's United States parent for Federal
income tax purposes, then that portion of such Foreign Subsidiary's outstanding
capital stock not theretofore pledged pursuant to the Pledge Agreement shall be
pledged to the Collateral Agent for the benefit of the Secured Creditors
pursuant to the Pledge Agreement (or another pledge agreement in substantially
similar form, if needed), to the extent that the entering into such Pledge
Agreement is permitted by the laws of the respective foreign jurisdiction and
with all documents delivered pursuant to this Section 8.14 to be in form and
substance reasonably satisfactory to the Administrative Agent and the Required
Banks.
8.15 MAINTENANCE OF CORPORATE SEPARATENESS. Holdings will, and
will cause each of its Subsidiaries to, satisfy customary corporate formalities,
including the holding of regular board of directors' and shareholders' meetings
or action by directors or shareholders
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without a meeting and the maintenance of corporate offices and records. Neither
Holdings nor any of its Subsidiaries shall take any action, or conduct its
affairs in a manner, which is likely to result in the corporate existence of
Holdings or any of its Subsidiaries being ignored, or in the assets and
liabilities of Holdings or any of its Subsidiaries being substantively
consolidated with those of any other such Person in a bankruptcy, reorganization
or other insolvency proceeding.
8.16 YEAR 2000 COMPATIBILITY. Holdings will, and will cause
each of its Subsidiaries to, take all action reasonably necessary to assure that
each of the Holdings' and its Subsidiaries' computer-based systems are able to
operate and effectively process data including datafields requiring references
to dates on and after January 2000 and to eliminate any potential Year 2000
Problem.
SECTION 9. NEGATIVE COVENANTS. Holdings and the Borrower
covenant and agree that on and after the Effective Date and until the Total
Commitments and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
9.01 LIENS. Holdings will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable with recourse to Holdings or any of its Subsidiaries), or
assign any right to receive income or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute; PROVIDED that the provisions of this Section 9.01
shall not prevent the creation, incurrence, assumption or existence of the
following (Liens described below are herein referred to as "Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due and payable or Liens for taxes,
assessments or governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves have
been established in accordance with generally accepted accounting
principles in the United States (or the equivalent thereof in any
country in which a Foreign Subsidiary is doing business, as
applicable);
(ii) Liens in respect of property or assets of the Borrower or
any of its Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers', warehousemen's, materialmen's and mechanics'
liens and other similar Liens arising in the ordinary course of
business, and (x) which do not in the aggregate materially detract from
the value of the property or assets of Holdings or such Subsidiary and
do not materially impair the use thereof in the operation of the
business of Holdings or such Subsidiary or (y) which are being
contested in good faith by appropriate proceedings, which proceedings
(or orders entered in connection with such proceedings) have the effect
of preventing the forfeiture or sale of the property or assets subject
to any such Lien;
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(iii) Liens in existence on the Effective Date which are listed,
and the property subject thereto described, in Schedule IV, but only to
the respective date, if any, set forth in such Schedule IV for the
removal and termination of any such Liens, plus renewals and extensions
of such Liens to the extent set forth on Schedule IV, PROVIDED that (x)
the aggregate principal amount of the Indebtedness, if any, secured by
such Liens does not increase from that amount outstanding at the time
of any such renewal or extension and (y) any such renewal or extension
does not encumber any additional assets or properties of Holdings or
any of its Subsidiaries;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to the Security Documents;
(vi) licenses, leases or subleases granted to other Persons in
the ordinary course of business not materially interfering with the
conduct of the business of Holdings and its Subsidiaries taken as a
whole;
(vii) Liens placed upon assets used in the ordinary course of
business of the Borrower or any of its Subsidiaries at the time of
acquisition thereof by the Borrower or any such Subsidiary or within 90
days thereafter to secure Indebtedness incurred to pay all or a portion
of the purchase price thereof, PROVIDED that (x) the aggregate
outstanding principal amount of all Indebtedness secured by Liens
permitted by this clause (vii) shall not at any time exceed $7,500,000
and (y) in all events, the Lien encumbering the assets so acquired does
not encumber any other asset (other than proceeds thereof) of the
Borrower or such Subsidiary;
(viii) easements, rights-of-way, restrictions (including zoning
restrictions), covenants, encroachments, protrusions and other similar
charges or encumbrances, and minor title deficiencies, in each case
whether now or hereafter in existence, not securing Indebtedness and
not materially interfering with the conduct of the business of the
Holdings and its Subsidiaries taken as a whole or the Borrower;
(ix) Liens arising from precautionary UCC financing statement
filings regarding operating leases entered into by the Borrower or any
of its Subsidiaries in the ordinary course of business;
(x) Liens arising out of judgments or awards in respect of
which the Borrower or any of its Subsidiaries shall in good faith be
prosecuting an appeal or proceedings for review in respect of which
there shall have been secured a subsisting stay of execution pending
such appeal or proceedings, provided that the aggregate amount of all
such judgments or awards does not exceed $2,500,000 at any time
outstanding;
(xi) statutory and common law landlords' liens under leases or
subleases to which the Borrower or any of its Subsidiaries is a party;
(xii) Liens (other than any Lien imposed by ERISA) (x) incurred
or deposits made in the ordinary course of business in connection with
workers' compensation, unemploy-
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ment insurance and other types of social security, (y) to secure the
performance of tenders, statutory obligations (other than excise
taxes), surety, stay, customs and appeal bonds, statutory bonds, bids,
leases, government contracts, trade contracts, performance and return
of money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money) or (z) arising by virtue of deposits
made in the ordinary course of business to secure liability for
premiums to insurance carriers, PROVIDED that the aggregate amount of
deposits at any time pursuant to sub-clause (y) and sub-clause (z)
shall not exceed $2,500,000 in the aggregate; and
(xiii) any interest or title of a lessor, sublessor, licensee or
licensor under any lease or license agreement permitted by this
Agreement.
In connection with the granting of Liens of the type described in clauses (vii)
and (viii) of this Section 9.01 by the Borrower of any of its Subsidiaries, the
Administrative Agent and the Collateral Agent shall be authorized to take any
actions deemed appropriate by it in connection therewith (including, without
limitation, by executing appropriate lien releases or lien subordination
agreements in favor of the holder or holders of such Liens, in either case
solely with respect to the item or items of equipment or other assets (including
Real Property) subject to such Liens).
9.02 CONSOLIDATION, MERGER, PURCHASE OR SALE OF ASSETS, ETC.
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets, or enter into any sale-leaseback transactions, or purchase or otherwise
acquire (in one or a series of related transactions) any part of the property or
assets (other than purchases or other acquisitions of inventory, materials,
equipment and intangible assets in the ordinary course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:
(i) Capital Expenditures by the Borrower and its Subsidiaries
shall be permitted to the extent not in violation of Section 9.07;
(ii) each of the Borrower and its Subsidiaries may (x) in the
ordinary course of business, sell, lease or otherwise dispose of any
assets which, in the reasonable judgment of such Person, are obsolete,
worn out or otherwise no longer useful in the conduct of such Person's
business and (y) sell, lease or otherwise dispose of any other assets,
PROVIDED that the aggregate Net Sale Proceeds of all assets subject to
sales or other dispositions pursuant to this clause (ii) shall not
exceed $5,000,000 in any four consecutive fiscal quarters of the
Borrower;
(iii) investments may be made to the extent permitted by
Section 9.05;
(iv) each of the Borrower and its Subsidiaries may lease (as
lessee) real or personal property in the ordinary course of business
(so long as any such lease does not create a Capitalized Lease
Obligation except to the extent permitted by Section 9.04 (vii));
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(v) each of the Borrower and its Subsidiaries may make sales or
transfers of inventory in the ordinary course of business and
consistent with past practices;
(vi) the Borrower and its Subsidiaries may sell or discount, in
each case without recourse and in the ordinary course of business,
overdue accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof
consistent with customary industry practice (and not as part of any
bulk sale);
(vii) licenses or sublicenses by the Borrower and its
Subsidiaries of software, trademarks and other intellectual property in
the ordinary course of business and which do not materially interfere
with the business of Holdings and its Subsidiaries taken as a whole or
the Borrower shall be permitted;
(viii) the Acquisition shall be permitted; and
(ix) the Borrower or any Domestic Wholly-Owned Subsidiary of the
Borrower may transfer assets or lease to or acquire or lease assets
from the Borrower or any other Domestic Wholly-Owned Subsidiary or any
Domestic Wholly-Owned Subsidiary may be merged into the Borrower or any
other Domestic Wholly-Owned Subsidiary of the Borrower.
To the extent the Required Banks waive the provisions of this Section 9.02 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by
this Section 9.02, such Collateral (unless sold to Holdings or a Subsidiary of
Holdings) shall be sold free and clear of the Liens created by the Security
Documents, and the Administrative Agent and Collateral Agent shall be authorized
to take any actions deemed appropriate in order to effect the foregoing.
9.03 DIVIDENDS. Holdings shall not, and shall not permit any
of its Subsidiaries to, authorize, declare or pay any Dividends with respect to
Holdings or any of its Subsidiaries, except that:
(i) any Subsidiary of the Borrower (x) may pay cash Dividends
to the Borrower or any Wholly-Owned Subsidiary of the Borrower and (y)
if such Subsidiary is not a Wholly-Owned Subsidiary, may pay cash
Dividends to its shareholders generally so long as the Borrower or its
respective Subsidiary which owns the equity interest or interests in
the Subsidiary paying such Dividends receives at least its
proportionate share thereof (based upon its relative holdings of equity
interests in the Subsidiary paying such Dividends and taking into
account the relative preferences, if any, of the various classes of
equity interests in such Subsidiary);
(ii) so long as there shall exist no Default or Event of Default
(both before and after giving effect to the payment thereof), Holdings
may repurchase outstanding shares of its common stock (or options to
purchase such common stock) following the death, disability, retirement
or termination of employment of employees, officers or directors of
Holdings or any of its Subsidiaries, PROVIDED that (x) all amounts used
to effect such repurchases are obtained by Holdings from a
substantially concurrent issuance of its com-
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mon stock (or options to purchase such common stock) to other
employees, members of management, executive officers or directors of
Holdings or any of its Subsidiaries or (y) to the extent the proceeds
used to effect any repurchase pursuant to this clause (y) are not
obtained as described in preceding clause (x), the aggregate amount of
Dividends paid by Holdings pursuant to this clause (ii) (exclusive of
amounts paid as described pursuant to preceding clause (x)) shall not
exceed $1,000,000 in the fiscal year of Holdings ended December 31,
1999, $2,000,000 in the fiscal year of Holdings ended December 31, 2000
or $3,000,000 in any subsequent fiscal year of Holdings and shall not
exceed $10,000,000 in the aggregate after the Initial Borrowing Date
and provided, further, that at the time of such repurchase the
Consolidated Fixed Charge Coverage Ratio of the Borrower (as defined in
the Senior Subordinated Note Indenture as in effect on the Initial
Borrowing Date) is greater than 2.0 to 1.0;
(iii) the Borrower may pay cash Dividends to DelCorp and WisCorp
for the purpose of paying, so long as all proceeds thereof are promptly
used to fund a Dividend to Holdings and used by Holdings to pay, its
reasonable operating expenses incurred in the ordinary course of
business and other corporate overhead costs and expenses directly
attributable to the operations of the Borrower and its Subsidiaries
(including, without limitation, legal and accounting expenses and
similar expenses), PROVIDED that the aggregate amount of Dividends paid
by the Borrower pursuant to this clause (iii) shall not exceed in any
fiscal year of Holdings the sum of $750,000 and the amount required to
be paid by Holdings in such fiscal year to outside advisers such as
lawyers and accountants which are not Affiliates of Holdings;
(iv) so long as the Borrower is treated as a partnership for
federal income purposes, the Borrower may pay cash Dividends to DelCorp
and WisCorp to enable DelCorp and WisCorp to make tax payments with
respect to the Borrower's income in any fiscal year, PROVIDED that the
aggregate amount of cash Dividends paid pursuant to this clause (iv)
shall not exceed with respect to any fiscal year of the Borrower the
lesser of the aggregate amount of income tax payments required to be
made by all such members for such fiscal year which are attributable to
the income of the Borrower and such members' ownership interest in the
Borrower; and
(v) so long as there shall exist no Default or Event of
Default, the Borrower may pay cash Dividends to DelCorp and WisCorp for
the purpose of enabling Holdings to pay the Dividends referred to in
clause (ii) above, so long as all proceeds thereof are promptly used to
fund a Dividend to Holdings and used by Holdings to pay such Dividends;
and
9.04 INDEBTEDNESS. Holdings will not, and will not permit any
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
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(ii) Indebtedness of the Borrower pursuant to the Senior
Subordinated Notes in an aggregate principal amount not to exceed
$110,000,000 less the aggregate amount of all repayments of Senior
Subordinated Notes effected after the Initial Borrowing Date;
(iii) Existing Indebtedness shall be permitted to the extent
actually outstanding on the Initial Borrowing Date and as the same is
listed on Schedule V, but no refinancings or renewals thereof;
(iv) accrued expenses and trade accounts payable incurred in
the ordinary course;
(v) Indebtedness under Interest Rate Protection Agreements
entered into in compliance with Section 8.13, and such other
non-speculative Interest Rate Protection Agreements which may be
entered into from time to time by the Borrower and which the Borrower
in good faith believes will provide protection against fluctuations in
interest rates with respect to outstanding floating rate Indebtedness
then outstanding, and permitted to remain outstanding, pursuant to the
other provisions of this Section 9.04;
(vi) Indebtedness subject to Liens permitted under Section
9.01(vii), so long as the outstanding amount of such Indebtedness does
not exceed the amount provided in said Section 9.01(vii);
(vii) intercompany Indebtedness of the Borrower and its
Subsidiaries outstanding to the extent permitted by Section 9.05(vi);
(viii) Indebtedness evidenced by Other Hedging Agreements
entered into pursuant to Section 9.05(v);
(ix) Indebtedness under performance bonds, letter of credit
obligations to provide security for worker's compensation claims and
bank overdrafts, in each case incurred in the ordinary course of
business, PROVIDED that any obligations arising in connection with such
bank overdraft Indebtedness is extinguished within five Business Days;
(x) additional Indebtedness of Foreign Subsidiaries to the
extent not permitted by the foregoing clauses of this Section 9.04 not
to exceed in aggregate principal amount at any time outstanding the
lesser of (A) $10,000,000 and (B) the Foreign Loan Amount at such time;
and
(xi) additional Indebtedness of the Borrower and its
Subsidiaries to the extent not permitted by the foregoing clauses of
this Section 9.04 not to exceed in aggregate principal amount at any
time outstanding, the lesser of (a) the amount by which the Total
Revolving Loan Commitment exceeds the sum of the aggregate outstanding
principal amount of Revolving Loans, Swingline Loans and Letter of
Credit Outstandings and the Foreign Loan Amount at such time and (b)
$1,000,000.
9.05 ADVANCES, INVESTMENTS AND LOANS. Holdings will not, and
will not permit any of its Subsidiaries to, directly or indirectly, lend money
or credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or
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make any capital contribution to, any other Person, or purchase or own a futures
contract or otherwise become liable for the purchase or sale of currency or
other commodities at a future date in the nature of a futures contract, or hold
any cash or Cash Equivalents, (each of the foregoing an "Investment" and,
collectively, "Investments") except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and hold
accounts receivables owing to any of them;
(ii) the Borrower and its Subsidiaries may acquire and hold cash
and Cash Equivalents, PROVIDED that during any time that Revolving
Loans of Non- Defaulting Banks or Swingline Loans are outstanding, the
aggregate amount of cash and Cash Equivalents permitted to be held by
the Borrower and its Domestic Subsidiaries shall not exceed $2,000,000
for any period of 45 consecutive days (or any period of ten consecutive
days at any time that a Default or Event of Default is continuing);
(iii) the Borrower and its Subsidiaries may make loans and
advances in the ordinary course of business to their respective
employees so long as the aggregate principal amount thereof at any time
outstanding (determined without regard to any write-downs or write-offs
of such loans and advances) shall not exceed $1,000,000;
(iv) the Borrower may enter into Interest Rate Protection
Agreements to the extent permitted in Section 9.04(vi);
(v) the Borrower may enter into and perform its obligations
under Other Hedging Agreements entered into in the ordinary course of
business and so long as any such Other Hedging Agreement is not
speculative in nature and is (x) related to income derived from foreign
operations of the Borrower or any Subsidiary or otherwise related to
purchases permitted hereunder from foreign suppliers or (y) entered
into to protect the Borrower and/or its Subsidiaries against
fluctuations in the prices of raw materials used in their businesses;
(vi) any Wholly-Owned Subsidiary may make intercompany loans to
the Borrower or any Wholly-Owned Subsidiary and the Borrower may make
intercompany loans and advances to any Wholly-Owned Subsidiary,
PROVIDED that (x) any promissory notes evidencing such intercompany
loans shall be pledged (and delivered) by the Borrower or the
respective Domestic Wholly-Owned Subsidiary that is the lender of such
intercompany loan as Collateral pursuant to the applicable Pledge
Agreement, (y) neither the Borrower nor any Domestic Subsidiaries of
the Borrower may make loans to any Foreign Subsidiaries of the Borrower
pursuant to this clause (vi) and (z) any loans made by any Foreign
Subsidiaries to the Borrower or any of its Domestic Subsidiaries
pursuant to this clause (vi) shall be subordinated to the obligations
of the Credit Parties pursuant to subordination provisions in
substantially the form of Exhibit M hereto;
(vii) the Borrower and it Subsidiaries may sell or transfer
assets to the extent permitted by Section 9.02;
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(viii) the Borrower may establish Subsidiaries to the extent
permitted by Section 9.14; and
(ix) Holdings may make the equity contributions in DelCorp and
WisCorp and DelCorp and WisCorp may make equity contributions in the
Borrower.
9.06 TRANSACTIONS WITH AFFILIATES. Holdings will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any of its Subsidiaries, other than in the ordinary
course of business and on terms and conditions substantially as favorable to
Holdings or such Subsidiary as would reasonably be obtained by Holdings or such
Subsidiary at that time in a comparable arm's-length transaction with a Person
other than an Affiliate, except that:
(i) Dividends may be paid to the extent provided in Section
9.03; and
(ii) loans may be made and other transactions may be entered
into between the Borrower and its Subsidiaries to the extent permitted
by Sections 9.04 and 9.05.
9.07 CAPITAL EXPENDITURES. (a) Holdings will not, and will not
permit any of its Subsidiaries to, make any Capital Expenditures, except that
the Borrower and its Subsidiaries may make Capital Expenditures during any
period in an aggregate amount not to exceed (x) $4 million during the period
commencing on the Effective Date and ending on December 31 1998; (y) $6.5
million during the calendar year ending on December 31, 1999; and (z) $5 million
for each calendar year thereafter.
(b) In addition to the Capital Expenditures permitted pursuant
to preceding clause (a) the Borrower and its Subsidiaries may make additional
Capital Expenditures consisting of the reinvestment of proceeds of Recovery
Events not required to be applied to prepay the Loans pursuant to Section
4.02(g).
9.08 CONSOLIDATED INTEREST COVERAGE RATIO. Holdings will not
permit the Consolidated Interest Coverage Ratio for any period of four
consecutive fiscal quarters, in each case taken as one accounting period, ended
on the last day of a fiscal quarter described below to be less than the amount
set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Ratio
------------------------------- -----
<S> <C>
September 30, 1998 1.35:1.00
December 31, 1998 1.50:1.00
March 31, 1999 1.55:1.00
June 30, 1999 1.60:1:00
September 30, 1999 1.70:1.00
December 31, 1999 1.80:1.00
March 31, 2000 1.90:1.00
June 30, 2000 2.00:1.00
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September 30, 2000 2.15:1.00
December 31, 2000 2.20:1.00
March 31, 2001 2.25:1.00
June 30, 2001 2.30:1.00
September 30, 2001 2.45:1.00
December 31, 2001 2.55:1.00
March 31, 2002 2.65:1.00
June 30, 2002 2.75:1.00
September 30, 2002 2.85:1.00
December 31, 2002 and thereafter 3.00:1.00
</TABLE>
9.09 MAXIMUM LEVERAGE RATIO. Holdings will not permit the
Leverage Ratio at any time during a fiscal quarter set forth below to be greater
than the ratio set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Ratio
------------------------------- -----
<S> <C>
December 31, 1998 6.80:1.00
March 31, 1999 6.70:1.00
June 30, 1999 6.55:1.00
September 30, 1999 6.20:1.00
December 31, 1999 5.85:1.00
March 31, 2000 5.75:1.00
June 30, 2000 5.60:1.00
September 30, 2000 5.40:1.00
December 31, 2000 5.10:1.00
March 31, 2001 4.90:1.00
June 30, 2001 4.75:1.00
September 30, 2001 4.50:1.00
December 31, 2001 4.20:1.00
March 31, 2002 4.10:1.00
June 30, 2002 4.10:1.00
September 30, 2002 3.90:1.00
December 31, 2002 and thereafter 3.75:1.00
</TABLE>
9.10 MINIMUM EBITDA. Holdings will not permit Consolidated
EBITDA for any period of four consecutive fiscal quarters, in each case taken as
one accounting period, ended on the last day of a fiscal quarter described below
to be less than the amount set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Minimum EBITDA
------------------------------- --------------
<S> <C>
December 31, 1998 $30 million
March 31, 1999 $31 million
June 30, 1999 $33 million
September 30, 1999 $34.5 million
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December 31, 1999 $36 million
March 31, 2000 $37 million
June 30, 2000 $40 million
September 30, 2000 $42 million
December 31, 2000 $44 million
March 31, 2001 $45 million
June 30, 2001 $47 million
September 30, 2001 $49 million
December 31, 2001 $52 million
March 31, 2002 $53 million
June 30, 2002 $54 million
September 30, 2002 $55 million
December 31, 2002 $56 million
March 31, 2003 $57 million
June 30, 2003 $58 million
September 30, 2003 $60 million
December 31, 2003 and thereafter $62 million
</TABLE>
9.11 LIMITATION ON MODIFICATIONS OF INDEBTEDNESS;
MODIFICATIONS OF CERTIFICATE OF INCORPORATION, BY-LAWS AND CERTAIN OTHER
AGREEMENTS; ETC. Holdings will not, and will not permit any of its Subsidiaries
to, (i) amend or modify, or permit the amendment or modification of, any
provision of the Existing Indebtedness or of any agreement (including, without
limitation, any purchase agreement, indenture, loan agreement or security
agreement) relating thereto other than any amendments or modifications to the
Existing Indebtedness which do not in any way adversely affect the interests of
the Banks and are otherwise permitted under Section 9.04(iv), (ii) make (or give
any notice in respect thereof) any voluntary or optional payment or prepayment
on or redemption or acquisition for value of, or any prepayment or redemption as
a result of any asset sale, change of control or similar event of, any Senior
Subordinated Note, (iii) amend or modify, or permit the amendment or
modification of, any provision of any Senior Subordinated Notes or any agreement
(including, without limitation, any Senior Subordinated Note Document) relating
thereto other than amendments or modifications which do not in any way adversely
affect the interests of the Banks and which are effected to make technical
corrections to the respective documentation, (iv) amend or modify, or permit the
amendment or modification of the Acquisition Agreement or any other Acquisition
Document, except for amendments or modifications which are not in any way
adverse in any material respect to the interests of the Banks or (v) amend,
modify or change its Certificate of Incorporation (including, without
limitation, by the filing or modification of any certificate of designation) or
By-Laws (or equivalent organizational documents) or any agreement entered into
by it, with respect to its capital stock (or equivalent interests) (including
any Shareholders' Agreement), or enter into any new agreement with respect to
its capital stock, other than any amendments, modifications or changes pursuant
to this clause (v) or any such new agreements pursuant to this clause (v) which
do not in any way adversely affect in any material respect the interests of the
Banks.
9.12 LIMITATION ON CERTAIN RESTRICTIONS ON SUBSIDIARIES. The
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such
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Subsidiary to (a) pay dividends or make any other distributions on its capital
stock or any other interest or participation in its profits owned by the
Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the
Borrower or a Subsidiary of the Borrower, (b) make loans or advances to the
Borrower or any of the Borrower's Subsidiaries or (c) transfer any of its
properties or assets to the Borrower or any of the Borrower's Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) this Agreement and the other Credit Documents, (iii)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of the Borrower or a Subsidiary of the Borrower, (iv)
customary provisions restricting assignment of any agreement entered into by the
Borrower or a Subsidiary of the Borrower in the ordinary course of business, (v)
any holder of a Permitted Lien may restrict the transfer of the asset or assets
subject thereto and (vi) restrictions which are not more restrictive than those
contained in this Agreement contained in any documents governing any
Indebtedness incurred after the Effective Date in accordance with the provisions
of this Agreement.
9.13 LIMITATION ON ISSUANCE OF CAPITAL STOCK. (a) Holdings
will not issue any capital stock which is not Qualified Capital Stock.
(b) Holdings will not permit any of its Subsidiaries to issue
any capital stock (including by way of sales of treasury stock) or any options
or warrants to purchase, or securities convertible into, capital stock, except
(i) for transfers and replacements of then outstanding shares of capital stock,
(ii) for stock splits, stock dividends and additional issuances which do not
decrease the percentage ownership of Holdings or any of its Subsidiaries in any
class of the capital stock of such Subsidiary, (iii) in the case of Foreign
Subsidiaries of the Borrower, to qualify directors to the extent required by
applicable law, and (iv) Subsidiaries of the Borrower formed after the Effective
Date pursuant to Section 9.15 may issue capital stock to the Borrower or the
respective Subsidiary of the Borrower which is to own such stock in accordance
with the requirements of Section 8.11. All capital stock issued in accordance
with this Section 9.14(b) shall, to the extent required by the Pledge Agreement,
be delivered to the Collateral Agent for pledge pursuant to the Pledge
Agreement.
9.14 LIMITATION ON CREATION OF SUBSIDIARIES. Neither Holdings
nor the Borrower shall establish, create or acquire any additional Subsidiaries
without the prior written consent of the Required Banks; PROVIDED that the
Borrower may establish or create one or more Wholly-Owned Subsidiaries of the
Borrower without such consent so long as (i) 100% of the capital stock of any
new Domestic Subsidiary (or all capital stock of any new Foreign Subsidiary
which is owned by any Credit Party, except that not more than 65% of the voting
stock of any such Foreign Subsidiary shall be required to be so pledged) is upon
the creation or establishment of any such new Subsidiary pledged and delivered
to the Collateral Agent for the benefit of the Secured Creditors under the
Pledge Agreement and (ii) upon the creation or establishment of any such new
Domestic Subsidiary such Domestic Subsidiary executes the Additional Security
Documents and guaranty required to be executed by it in accordance with Section
8.12.
9.15 BUSINESS. (a) Holdings will engage in no business
activities and will have no assets or liabilities, other than its ownership of
the capital stock of DelCorp and WisCorp and
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liabilities incident thereto, including its liabilities pursuant to the Pledge
Agreement and its guarantee pursuant to Section 14.01.
(b) Neither DelCorp nor WisCorp will engage in any business
activity and will have no assets or liabilities, other than its ownership of
membership interests in the Borrower and liabilities incidental thereto,
including in the case of WisCorp its liabilities pursuant to the Security
Documents and its guarantee pursuant to Section 14.01 and, in the case of
DelCorp, its obligations under the Credit Documents, if any, executed and
delivered by it pursuant to Section 8.12(f).
(c) The Borrower will not, and will not permit any of its
Subsidiaries to, engage (directly or indirectly) in any business other than the
Business and other businesses reasonably related thereto.
9.16 DESIGNATED SENIOR INDEBTEDNESS. In no event will the
Borrower designate any indebtedness as "Designated Senior Indebtedness" for
purposes of the Senior Subordinated Note Indenture unless the Required Banks
specifically consent thereto in writing.
SECTION 10. EVENTS OF DEFAULT. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
10.01 PAYMENTS. The Borrower shall (i) default in the payment
when due of any principal of any Loan or any Note or (ii) default, and such
default shall continue unremedied for three or more Business Days, in the
payment when due of any Unpaid Drawings or interest on any Loan or Note, or any
Fees or any other amounts owing hereunder or thereunder; or
10.02 REPRESENTATIONS, ETC. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any certificate delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
10.03 COVENANTS. Holdings or the Borrower shall (i) default in
the due performance or observance by it of any term, covenant or agreement
contained in Section 8.01(g)(i), 8.08, 8.11 or Section 9 or (ii) default in the
due performance or observance by it of any other term, covenant or agreement
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to the Borrower by the Administrative
Agent or any of the Banks; or
10.04 DEFAULT UNDER OTHER AGREEMENTS. Holdings, the Borrower
or any of their respective Subsidiaries shall (i) default in any payment of any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created or (ii) default in the observance or performance of any agreement or
condition relating to any Indebtedness (other than the Obligations) or contained
in any instrument or agreement evidencing, securing or relating thereto, or any
other event shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder
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or holders) to cause (determined without regard to whether any notice is
required), any such Indebtedness to become due prior to its stated maturity or
(iii) any Indebtedness (other than the Obligations) of Holdings, the Borrower or
any of their respective Subsidiaries shall be declared to be due and payable, or
required to be prepaid other than by a regularly scheduled required prepayment,
prior to the stated maturity thereof, PROVIDED that it shall not be a Default or
Event of Default under this Section 10.04 unless the aggregate principal amount
of all Indebtedness as described in preceding clauses (i) through (iii),
inclusive, is at least $2,500,000; or
10.05 BANKRUPTCY, ETC. Holdings, the Borrower or any of their
respective Subsidiaries shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against Holdings, the Borrower or any of their respective
Subsidiaries and the petition is not controverted within 15 days, or is not
dismissed within 60 days, after commencement of the case; or a custodian (as
defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of Holdings, the Borrower or any of their
respective Subsidiaries or Holdings, the Borrower or any of their respective
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to Holdings, the Borrower or any of their respective
Subsidiaries or there is commenced against Holdings, the Borrower or any of
their respective Subsidiaries any such proceeding which remains undismissed for
a period of 60 days, or Holdings, the Borrower or any of their respective
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or Holdings, the
Borrower or any of their respective Subsidiaries suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days; or Holdings, the Borrower or
any of their respective Subsidiaries makes a general assignment for the benefit
of creditors; or any corporate action is taken by Holdings, the Borrower or any
of their respective Subsidiaries for the purpose of effecting any of the
foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is reasonably likely to have a
trustee appointed to administer such Plan, any Plan which is subject to Title IV
of ERISA is, shall have been or is reasonably likely to be terminated or to be
the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, a contribution required to be made with respect to a
Plan or a Foreign Pension Plan has not been timely made, Holdings or any
Subsidiary of Holdings or any ERISA Affiliate has incurred or is reasonably
likely to incur any liability to or on account of a Plan under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or
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4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code, or Holdings, or any of its
Subsidiaries has incurred or is reasonably likely to incur liabilities pursuant
to one or more employee welfare benefit plans (as defined in Section 3(1) of
ERISA) that provide benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or Plans or Foreign Pension
Plans; (b) there shall result from any such event or events the imposition of a
lien, the granting of a security interest, or a liability or a material risk of
incurring a liability; and (c) such lien, security interest or liability,
individually, and/or in the aggregate, in the opinion of the Required Banks, has
had, or could reasonably be expected to have, a Material Adverse Effect; or
10.07 SECURITY DOCUMENTS. At any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full force
and effect, or shall cease in any material respect to give the Collateral Agent
for the benefit of the Secured Creditors the Liens, rights, powers and
privileges purported to be created thereby (including, without limitation, a
perfected security interest in, and Lien on, all of the Collateral), in favor of
the Collateral Agent, superior to and prior to the rights of all third Persons
(except as permitted by Section 9.01), and subject to no other Liens (except as
permitted by Section 9.01), or any Credit Party shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any of the Security Documents and such default
shall continue beyond any grace period (if any) specifically applicable thereto
pursuant to the terms of such Security Document; or
10.08 GUARANTY. Any Guaranty or any provision thereof shall
cease to be in full force or effect as to the relevant Guarantor (unless such
Guarantor is no longer a Subsidiary by virtue of a liquidation, sale, merger or
consolidation permitted by Section 9.02), or any Guarantor or Person acting by
or on behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under the relevant Guaranty, or any Guarantor shall default in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to its Guaranty; or
10.09 JUDGMENTS. One or more judgments or decrees shall be
entered against Holdings, the Borrower or any of their respective Subsidiaries
involving in the aggregate for Holdings, the Borrower and their respective
Subsidiaries a liability (not paid or fully covered by a reputable and solvent
insurance company) and such judgments and decrees either shall be final and
non-appealable or shall not be vacated, discharged or stayed or bonded pending
appeal for any period of 60 consecutive days, and the aggregate amount of all
such judgments to the extent not covered by insurance exceeds $2,500,000; or
10.10 CHANGE OF CONTROL. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Banks, shall by written notice to the Borrower, take any or all of
the following actions, without prejudice to the rights of the Administrative
Agent, any Bank or the holder of any Note to enforce its claims against any
Credit Party (PROVIDED that, if an Event of Default specified in Section 10.05
shall
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occur with respect to the Borrower, the result which would occur upon the
giving of written notice by the Administrative Agent to the Borrower as
specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitments terminated,
whereupon all Commitments of each Bank shall forthwith terminate immediately and
any Commitment Commission shall forthwith become due and payable without any
other notice of any kind; (ii) declare the principal of and any accrued interest
in respect of all Loans and the Notes and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; (iii) terminate any Letter of Credit
that may be terminated in accordance with its terms; (iv) direct the Borrower to
pay (and the Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default specified in Section 10.05 with respect to the
Borrower, it will pay) to the Collateral Agent at the Payment Office such
additional amount of cash, to be held as security by the Collateral Agent, as is
equal to the aggregate Stated Amount of all Letters of Credit issued for the
account of the Borrower and then outstanding; and (v) enforce, as Collateral
Agent, all of the Liens and security interests created pursuant to the Security
Documents.
SECTION 11. DEFINITIONS AND ACCOUNTING TERMS.
11.01 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Acquisition" shall mean the purchase of the Business by the
Borrower from the Seller pursuant to the Acquisition Documents.
"Acquisition Agreement" shall mean the Asset Purchase
Agreement, dated as of May 5th, 1998, between the Borrower and the Seller, as in
effect on the Effective Date and as the same may be amended, modified or
supplemented from time to time in accordance with the terms hereof and thereof.
"Acquisition Documents" shall mean the Acquisition Agreement
and all other documents entered into or delivered in connection with the
Acquisition Agreement (including, without limitation, all Exhibits, Schedules or
Agreements executed thereof documents delivered by the Seller pursuant to
Section 7.08 of the Acquisition Agreement).
"Additional Collateral" shall mean all property (whether real
or personal) in which security interests are granted (or have been purported to
be granted) (and continue to be in effect at the time of determination) pursuant
to Section 8.12.
"Additional Mortgage" shall have the meaning provided in
Section 8.12(a).
"Additional Mortgaged Property" shall have the meaning
provided in Section 8.12(a).
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"Additional Security Documents" shall mean all mortgages,
pledge agreements, security agreements and other security documents entered into
pursuant to Section 8.12 with respect to Additional Collateral.
"Adjusted Consolidated Net Income" for any period shall mean
Consolidated Net Income for such period plus, without duplication, the sum of
the amount of all net non- cash charges (including, without limitation,
depreciation, amortization, deferred tax expense and non-cash interest expense,
but excluding any net non-cash charges reflected in Adjusted Consolidated
Working Capital) and net non-cash losses which were included in arriving at
Consolidated Net Income for such period less the sum of the amount of all net
non-cash gains (exclusive of items reflected in Adjusted Consolidated Working
Capital) included in arriving at Consolidated Net Income for such period.
"Adjusted Consolidated Working Capital" at any time shall mean
Consolidated Current Assets (but excluding therefrom all cash and Cash
Equivalents) less Consolidated Current Liabilities.
"Adjusted Percentage" shall mean (x) at a time when no Bank
Default exists, for each Bank, such Bank's Percentage and (y) at a time when a
Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and (ii)
for each Bank that is a Non-Defaulting Bank, the percentage determined by
dividing such Bank's Revolving Loan Commitment at such time by the Adjusted
Total Revolving Loan Commitment at such time, it being understood that all
references herein to Revolving Loan Commitments and the Adjusted Total Revolving
Loan Commitment at a time when the Total Revolving Loan Commitment or Adjusted
Total Revolving Loan Commitment, as the case may be, has been terminated shall
be references to the Revolving Loan Commitments or Adjusted Total Revolving Loan
Commitment, as the case may be, in effect immediately prior to such termination,
PROVIDED that (A) no Bank's Adjusted Percentage shall change upon the occurrence
of a Bank Default from that in effect immediately prior to such Bank Default if
after giving effect to such Bank Default, and any repayment of Revolving Loans
and Swingline Loans at such time pursuant to Section 4.02(a) or otherwise, the
sum of (i) the aggregate outstanding principal amount of Revolving Loans of all
Non-Defaulting Banks plus (ii) the aggregate outstanding principal amount of
Swingline Loans plus (iii) the Letter of Credit Outstandings, exceed the
Adjusted Total Revolving Loan Commitment; (B) the changes to the Adjusted
Percentage that would have become effective upon the occurrence of a Bank
Default but that did not become effective as a result of the preceding clause
(A) shall become effective on the first date after the occurrence of the
relevant Bank Default on which the sum of (i) the aggregate outstanding
principal amount of the Revolving Loans of all Non-Defaulting Banks plus (ii)
the aggregate outstanding principal amount of Swingline Loans plus (iii) the
Letter of Credit Outstandings is equal to or less than the Adjusted Total
Revolving Loan Commitment; and (C) if (i) a Non-Defaulting Bank's Adjusted
Percentage is changed pursuant to the preceding clause (B) and (ii) any
repayment of such Bank's Revolving Loans, or of Unpaid Drawings with respect to
Letters of Credit or of Swingline Loans, that were made during the period
commencing after the date of the relevant Bank Default and ending on the date of
such change to its Adjusted Percentage must be returned to the Borrower as a
preferential or similar payment in any bankruptcy or similar proceeding of the
Borrower, then the change to such Non-Defaulting Bank's Adjusted Percentage
effected pursuant to said clause (B) shall be reduced to that positive
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change, if any, as would have been made to its Adjusted Percentage if (x) such
repayments had not been made and (y) the maximum change to its Adjusted
Percentage would have resulted in the sum of the outstanding principal of
Revolving Loans made by such Bank plus such Bank's new Adjusted Percentage of
the outstanding principal amount of Swingline Loans and of Letter of Credit
Outstandings equaling such Bank's Revolving Loan Commitment at such time.
"Adjusted Total Revolving Loan Commitment" shall mean at any
time the Total Revolving Loan Commitment less the aggregate Revolving Loan
Commitments of all Defaulting Banks.
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement, and shall include any successor thereto.
"Affiliate" shall mean, with respect to any Person, any other
Person (including, for purposes of Section 9.06 only, all directors, officers
and partners of such Person) directly or indirectly controlling, controlled by,
or under direct or indirect common control with, such Person; PROVIDED, HOWEVER,
that for purposes of Section 9.06, an Affiliate of Holdings shall include any
Person that directly or indirectly owns more than 5% of any class of the capital
stock of Holdings and any officer or director of Holdings or any of its
Subsidiaries. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated, extended, renewed or replaced from time to
time.
"Applicable Commitment Commission Percentage" and "Applicable
Margin" shall mean (A) prior to the first Margin Adjustment Period beginning
after the Initial Borrowing Date (i) in the case of the Applicable Commitment
Commission Percentage, 0.50%, (ii) in the case of Tranche B Term Loans
maintained as (x) Base Rate Loans, 1.75% and (y) Eurodollar Loans, 2.75% and
(ii) in the case of Revolving Loans and Tranche A Term Loans maintained as (x)
Base Rate Loans, 1.25% and (y) Eurodollar Loans, 2.25%, and (B) during each
Margin Adjustment Period beginning after the Initial Borrowing Date, the
percentage per annum set forth below opposite the respective Level indicated to
have been achieved on the applicable Start Date for such Margin Adjustment
Period (as shown on the respective officer's certificate delivered pursuant to
Section 8.01(f)) in accordance with the Leverage Ratio for the various Levels
specified in the table below:
<TABLE>
<CAPTION>
APPLICABLE A TERM LOANS AND A TERM LOANS AND
COMMITMENT REVOLVING LOANS REVOLVING LOANS B TERM LOANS B TERM LOANS
COMMISSION MAINTAINED AS MAINTAINED AS MAINTAINED AS MAINTAINED AS
PERCENTAGE BASE RATE LOANS EURODOLLAR LOANS BASE RATE LOANS EURODOLLAR LOANS
---------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
LEVEL LEVERAGE RATIO
1 Greater than or 0.50% 1.25% 2.25% 1.75% 2.75%
equal to 4.50
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<PAGE>
<CAPTION>
APPLICABLE A TERM LOANS AND A TERM LOANS AND
COMMITMENT REVOLVING LOANS REVOLVING LOANS B TERM LOANS B TERM LOANS
COMMISSION MAINTAINED AS MAINTAINED AS MAINTAINED AS MAINTAINED AS
PERCENTAGE BASE RATE LOANS EURODOLLAR LOANS BASE RATE LOANS EURODOLLAR LOANS
---------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
2 Greater than or
equal to 4.25:1 0.50% 1.00% 2.00% 1.50% 2.50%
but less than
4.50:1
3 Greater than or
equal to 3.75:l 0.375% 0.75% 1.75% 1.25% 2.25%
but less than
4.25:1
4 Greater than or
equal to 3.25:1 0.375% 0.50% 1.50% 1.00% 2.00%
but less than
3.75:1
5 Greater than or
equal to 2.75:1 0.30% 0.25% 1.25% 0.75% 1.75%
but less than
3.25:1
6 Less than 2.75:1 0.25% 0% 0.875% 0.50% 1.50%
</TABLE>
provided, however, that Level 1 pricing shall also apply (x) from the period
from the Initial Borrowing Date to but excluding the first day of the first
Margin Adjustment Period occurring after the Initial Borrowing Date and (y) at
any time when any Event of Default is in existence.
"Asset Sale" shall mean any sale, transfer or other
disposition by Holdings and any of its Subsidiaries to any Person (including
by-way-of redemption by such Person) of any asset (including, without
limitation, any capital stock or other securities of, or equity interests in,
another Person), PROVIDED that the issuance of capital stock by a Subsidiary of
the Borrower shall be deemed to constitute an Asset Sale.
"Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement substantially in the form of Exhibit L
(appropriately completed).
"Bank" shall mean each financial institution listed on
Schedule I, as well as any Person which becomes a "Bank" hereunder pursuant to
13.04(b).
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing (including
any Mandatory Borrowing) or to fund its portion of any unreimbursed payment
under Section 2.03(c) or (ii) a Bank having notified in writing the Borrower
and/or the Administrative Agent that it does not intend to comply with its
obligations under Section 1.01(c) or Section 2.
"Bankruptcy Code" shall have the meaning provided in Section
10.05.
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<PAGE>
"Base Rate" shall mean for any day, a rate of interest per
annum equal to the higher of (i) the Prime Lending Rate for such day and (ii)
the sum of the Federal Funds Rate for such day plus 1/2 of 1% per annum.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii)
each Loan designated or deemed designated as such by the Borrower at the time of
the incurrence thereof or conversion thereto.
"Beacon" shall mean The Beacon Group III--Focus Value Fund,
L.P., a limited partnership organized under the laws of the State of Delaware.
"Borrower" shall have the meaning set forth in the first
paragraph of this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a
single Tranche from all the Banks (other than any Bank which has not funded its
share of a Borrowing in accordance with this Agreement) having Commitments of
the respective Tranche (or from the Swingline Bank in the case of Swingline
Loans) on a given date (or resulting from a conversion or conversions on such
date) having in the case of Eurodollar Loans the same Interest Period, PROVIDED
that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered
part of the related Borrowing of Eurodollar Loans. It is understood that there
may be more than one Borrowing outstanding pursuant to a given Tranche.
"BTCo" shall mean Bankers Trust Company in its individual
capacity.
"Business" shall mean the portable products division of the
Seller.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day except Saturday, Sunday and any day which
shall be in New York, New York a legal or a day on which banking institutions
are authorized or required by law or other government action to close and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in the New York interbank Eurodollar market.
"Capital Expenditures" shall mean, with respect to any Person,
all expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with
generally accepted accounting principles) and the amount of Capitalized Lease
Obligations incurred by such Person.
"Capitalized Lease Obligations" of any Person shall mean all
rental obligations which, under generally accepted accounting principles, are or
will be required to be capitalized on the books of such Person, in each case
taken at the amount thereof accounted for as indebtedness in accordance with
such principles.
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"Cash Equivalents" shall mean, as to any Person, (i)
securities issued or directly and fully guaranteed or insured by the United
States or any agency or instrumentality thereof (PROVIDED that the full faith
and credit of the United States is pledged in support thereof) having maturities
of not more than one year from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof or the District of Columbia having capital,
surplus and undivided profits aggregating in excess of $200,000,000, with
maturities of not more than one year from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than 90 days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any Person incorporated in the United States rated at
least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least
P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each
case maturing not more than one year after the date of acquisition by such
Person, and (v) investments in money market funds substantially all of whose
assets are comprised of securities of the types described in clauses (i) through
(iv) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 eT SEq.
"Change of Control" shall mean (a) prior to the date of an
initial registered public offering by the Holdings of its common stock, the
Permitted Holders shall cease to own on a fully diluted basis in the aggregate
at least 51% of the economic and voting interest in the Holdings outstanding
Voting Stock free of Liens, (b) on or after the date of an initial registered
public offering by the Holdings of its common stock, (A) any other Person or
"group" (within the meaning of Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, as in effect on the Initial Borrowing Date) shall own more
than 20% of the voting and/or economic interest in the Holding's capital stock,
(B) the Board of Directors of the Holdings shall cease to consist of a majority
of Continuing Directors or (C) the Permitted Holders shall cease to own on a
fully diluted basis in the aggregate at least 25% of the economic and voting
interest in the Holding's capital stock, free of Liens, (c) a "change of
control" or similar event shall occur as provided in the Senior Subordinated
Note Indenture, or (d) Holdings shall at any time cease to own directly or
indirectly 100% of the membership interests in the Borrower.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or
personal) with respect to which any security interests have been granted (or
purported to be granted) pursuant to any Security Document, including, without
limitation, all Pledge Agreement Collateral, all Security Agreement Collateral,
all Mortgaged Properties, all cash and Cash Equivalents delivered as collateral
pursuant to Section 4.02 or 10 hereof, all Charged Assets (as defined in the
U.K. Security Agreement) and all Additional Collateral, if any.
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<PAGE>
"Collateral Agent" shall mean the Administrative Agent acting
as collateral agent for the Secured Creditors pursuant to the Security
Documents.
"Commitment" shall mean any of the commitments of any Bank,
I.E., whether the Tranche A Term Loan Commitment, Tranche B Term Loan Commitment
or Revolving Loan Commitment.
"Commitment Commission" shall have the meaning provided in
Section 3.01(a).
"Consolidated Cash Interest Expense" shall mean, for any
period, the total consolidated cash interest expense of Holdings and its
Consolidated Subsidiaries for such period (calculated without regard to any
limitations on the payment thereof) plus, without duplication, that portion of
Capitalized Lease Obligations of Holdings and its Consolidated Subsidiaries
representing the interest factor for such period, but excluding the amortization
of any deferred financing costs incurred in connection with this Agreement or
the issuance of the Senior Subordinated Notes; provided that in the event that
the period for which the Consolidated Interest Coverage Ratio is being
determined includes any period prior to the Initial Borrowing Date, the
Consolidated Interest Coverage Ratio shall be determined on a pro forma basis to
give effect to any Indebtedness incurred on or after the Initial Borrowing Date
(including, without limitation, the Loans and the Senior Subordinated Notes) as
if such Indebtedness has been incurred at the beginning of such period and had
remained outstanding throughout such period.
"Consolidated Current Assets" shall mean, at any time, the
consolidated current assets of Holdings and its Consolidated Subsidiaries.
"Consolidated Current Liabilities" shall mean, at any time,
the consolidated current liabilities of Holdings and its Consolidated
Subsidiaries at such time, but excluding (i) the current portion of any
Indebtedness under this Agreement and any other long-term Indebtedness which
would otherwise be included therein, (ii) accrued but unpaid interest with
respect to the Indebtedness described in clause (i), and (iii) the current
portion of Indebtedness constituting Capitalized Lease Obligations.
"Consolidated EBIT" shall mean, for any period, the
Consolidated Net Income for such period, before interest expense and provision
for taxes based on income and without giving effect to any extraordinary gains
or losses or gains or losses from sales of assets other than inventory sold in
the ordinary course of business.
"Consolidated EBITDA" shall mean, for any period, Consolidated
EBIT, adjusted by adding thereto the amount of all amortization of intangibles
and depreciation, in each case that were deducted in arriving at Consolidated
EBIT for such period.
"Consolidated Indebtedness" shall mean, as at any date of
determination, the aggregate stated balance sheet amount of all Indebtedness
(but including in any event the then outstanding principal amount of all Loans,
all Senior Subordinated Notes, all Capitalized Lease Obligations and all Letter
of Credit Outstandings) of Holdings and its Subsidiaries on a consolidated basis
as determined in accordance with GAAP; PROVIDED that Indebtedness
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outstanding pursuant to trade payables incurred in the ordinary course of
business shall be excluded in determining Consolidated Indebtedness.
"Consolidated Interest Coverage Ratio" shall mean, for any
period, the ratio of (i) Consolidated EBITDA for such period to (ii)
Consolidated Cash Interest Expense for such period; provided that in the event
that the period for which the Consolidated Interest Coverage Ratio is being
determined includes any period prior to the Initial Borrowing Date, the
Consolidated Interest Coverage Ratio shall be determined on a PRO FORMA basis to
give effect to any Indebtedness incurred on or after the Initial Borrowing Date
(including, without limitation, the Loans and the Senior Subordinated Notes) as
if such Indebtedness had been incurred at the beginning of such period and had
remained outstanding throughout such period.
"Consolidated Net Income" shall mean, for any period, the
consolidated net after tax income of Holdings and its Consolidated Subsidiaries
determined in accordance with GAAP; provided that in the event that the period
for which Consolidated Net Income is being determined includes any period prior
to the Initial Borrowing Date, the Consolidated Net Income shall be determined
on the basis of the consolidated net after tax income of the Business prior to
the Initial Borrowing Date.
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes in accordance with GAAP.
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
PROVIDED, HOWEVER, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business and any products warranties extended in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made (or, if the less, the
maximum amount of such primary obligation for which such Person may be liable
pursuant to the terms of the instrument evidencing such Contingent Obligation)
or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith.
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"Continuing Directors" shall mean the (i) directors of
Holdings on the Initial Borrowing Date and (ii) each other director, if such
director's nomination for election to the Board of Directors of Holdings is
recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement and, after the
execution and delivery thereof pursuant to the terms of this Agreement, each
Note, each Security Document and the Subsidiaries Guaranty and, after the
execution and delivery thereof, each additional guaranty or security document
executed pursuant to Section 8.12.
"Credit Event" shall mean the making of any Loan or the
issuance of any Letter of Credit.
"Credit Party" shall mean each Parent Guarantor, the Borrower,
each Subsidiary Guarantor and any other Subsidiary which at any time executes
and delivers any Credit Document as required by this Agreement.
"Debt Agreements" shall have the meaning provided in Section
5.05. "Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"DelCorp" shall mean GPPD, Inc., a Delaware corporation and a
wholly owned Subsidiary of Holdings.
"Disqualified Stock" shall mean any capital stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, (i) matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the first anniversary of the Tranche B Term Loan Maturity
Date, or (ii) is convertible into or exchangeable (unless at the sole option of
the issuer thereof) for (a) debt securities or (b) any capital stock referred to
in (i) above, in each case at any time prior to the first anniversary of the
Tranche B Term Loan Maturity Date
"Dividend" with respect to any Person shall mean that such
Person has declared or paid a dividend or returned any equity capital to its
stockholders or members or authorized or made any other distribution, payment or
delivery of property (other than common stock of such Person) or cash to its
stockholders or members as such, or redeemed, retired, purchased or otherwise
acquired, directly or indirectly, for a consideration any shares of any class of
its capital stock or membership interests outstanding on or after the Effective
Date (or any options or warrants issued by such Person with respect to its
capital stock), or set aside any funds for any of the foregoing purposes, or
shall have permitted any of its Subsidiaries to purchase or otherwise acquire
for a consideration any shares of any class of the capital stock of such Person
outstanding on or after the Effective Date (or any options or warrants issued by
such Person with respect to its
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capital stock). Without limiting the foregoing, "Dividends" with respect to any
Person shall also include all payments made or required to be made by such
Person with respect to any stock appreciation rights, plans, equity incentive or
achievement plans or any similar plans or setting aside of any funds for the
foregoing purposes.
"Documents" shall mean the Credit Documents, the Other
Financing Documents and the Acquisition Documents.
"Dollars" and the sign "$" shall each mean lawful money of the
United States.
"Domestic Subsidiary" shall mean each Subsidiary of the
Borrower that is incorporated or organized in the United States of America, any
State thereof, the United States Virgin Islands or Puerto Rico.
"Domestic Wholly-Owned Subsidiary" shall mean each Domestic
Subsidiary which is a Wholly-Owned Subsidiary of the Borrower.
"Drawing" shall have the meaning provided in Section 2.04(b).
"Effective Date" shall have the meaning provided in Section
13.10.
"Eligible Transferee" shall mean and include a commercial
bank, insurance company, financial institution, fund or other Person which
regularly purchases interests in loans or extensions of credit of the types made
pursuant to this Agreement, any other Person which would constitute a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act as
in effect on the Effective Date or other "accredited investor" (as defined in
Regulation D of the Securities Act).
"Employee Benefit Plans" shall have the meaning provided in
Section 5.05.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law or any permit issued,
or any approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief in connection
with alleged injury or threat of injury to health, safety or the environment due
to the presence of Hazardous Materials.
"Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Holdings, the
Borrower or any of their respective Subsidiaries, relating to the environment,
employee health and
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safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the
Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 eT SEq.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET seq.; the Clean Air Act, 42 U.S.C.
ss. 7401 eT SEq.; the Safe Drinking Water Act, 42 U.S.C. ss. 3803 ET seq.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 eT SEq.; the Emergency Planning
and the Community Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 eT SEq., the
Hazardous Material Transportation Act, 49 U.S.C. ss. 1801 ET seq. and the
Occupational Safety and Health Act, 29 U.S.C. ss. 651 eT SEq. (to the extent it
regulates occupational exposure to Hazardous Materials); and any state and local
or foreign counterparts or equivalents, in each case as amended from time to
time.
"Equity Contribution" shall mean the common equity
contributions made in Holdings on or prior to the Initial Borrowing Date by
Beacon, management of the Borrower and certain other investors.
"Equity Financing Documents" shall mean the subscription
agreements between Holdings and each of the Persons making an Equity
Contribution.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with Holdings or a Subsidiary of Holdings
would be deemed to be a "single employer" within the meaning of Section 414(b),
(c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean each Loan (excluding Swingline
Loans) designated as such by the Borrower at the time of the incurrence thereof
or conversion thereto.
"Eurodollar Rate" shall mean the rate determined by the
Administrative Agent to be the rate at which deposits in U.S. dollars are
offered by BTCo to first-class banks in the New York interbank market at
approximately 11 a.m. (New York time) two Business Days prior to the first day
of the Interest Period applicable to such Eurodollar Loan, in the approximate
amount of BTCo's relevant Eurodollar Loan and having a maturity approximately
equal to the Interest Period applicable to such Eurodollar Loan.
"Event of Default" shall have the meaning provided in Section
10.
"Excess Cash Flow" shall mean, for any period, the remainder
of (a) the sum of (i) Adjusted Consolidated Net Income for such period, and (ii)
the decrease, if any, in Adjusted Consolidated Working Capital from the first
day to the last day of such period, minus (b) the sum of (i) the amount of
Capital Expenditures made by the Borrower and its Subsidiaries on a consolidated
basis during such period pursuant to and in accordance with Section 9.07(a) (but
without giving effect to Capital Expenditures made pursuant to Section 9.07(b)),
in each case except to the extent financed with the proceeds of Indebtedness or
pursuant to Capitalized Lease Obligations or to the extent constituting a
reinvestment of Net Sale Proceeds of Asset Sales under
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the proviso to Section 4.02(f), (ii) the aggregate amount of permanent principal
payments of Indebtedness for borrowed money of the Borrower and its Subsidiaries
and the permanent repayment of the principal component of Capitalized Lease
Obligations of the Borrower and its Subsidiaries (excluding (1) payments with
proceeds of Asset Sales, (2) payments with the proceeds of other Indebtedness or
equity and (3) payments of Loans or other Obligations, PROVIDED that repayments
of Loans shall be deducted in determining Excess Cash Flow if such repayments
were (x) required as a result of a Scheduled Repayment under Section 4.02(b) or
(c) (but not as a reduction to the amount of Scheduled Repayments pursuant to
another provision of this Agreement) or (y) made as a voluntary prepayment
pursuant to Section 4.01 with internally generated funds (but in the case of a
voluntary prepayment of Revolving Loans or Swingline Loans, only to the extent
accompanied by a voluntary reduction to the Total Revolving Loan Commitment))
during such period; and (iii) the increase, if any, in Adjusted Consolidated
Working Capital from the first day to the last day of such period.
"Excess Cash Payment Date" shall mean the date occurring 120
days after the last day of each fiscal year of Holdings (beginning with its
fiscal year ending on December 31, 1998).
"Excess Cash Payment Period" shall mean, with respect to the
repayment required on each Excess Cash Payment Date, the immediately preceding
fiscal year of Holdings (or, in the case of the first Excess Cash Payment Date,
the period beginning on the Initial Borrowing Date and to and including December
31, 1998).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Existing Indebtedness" shall have the meaning provided in
Section 7.22.
"Facing Fee" shall have the meaning provided in Section
3.01(c).
"Federal Funds Rate" shall mean, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding 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 at approximately 11 a.m. (New York
time) on such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by the
Administrative Agent in its sole discretion.
"Fees" shall mean all amounts payable pursuant to or referred
to in Section 3.01.
"Foreign Loan Amount" shall mean (i) at any time prior to the
delivery of the first certificate by the Borrower to the Administrative Agent
specifying the maximum amount of Indebtedness which may be incurred by Foreign
Subsidiaries pursuant to Section 9.04(xi), zero and (ii) at any time after the
delivery of a certificate by the Borrower to the Administrative Agent specifying
the maximum amount of Indebtedness which may be incurred by Foreign Subsidiaries
pursuant to Section 9.04(xi), the amount specified in the last such certificate
delivered by the Borrower to the Administrative Agent as being the maximum
amount of Indebtedness which may
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be incurred by Foreign Subsidiaries pursuant to said Section 9.04(xi), provided
that in no event shall the Foreign Loan Amount exceed the lesser of (x)
$10,000,000, and (y) the amount which when added to the aggregate principal
amount of Revolving Loans then outstanding, the amount of all Letter of Credit
Outstandings at such time, the aggregate principal amount of all Swingline Loans
then outstanding and the aggregate principal amount of all Indebtedness
outstanding pursuant to Section 9.04 (xii) at such time, would exceed the Total
Revolving Loan Commitment at such time.
"Foreign Pension Plan" shall mean any plan, fund (including,
without limitation, any superannuation fund) or other similar program
established or maintained outside the United States of America by Holdings or
any one or more of its Subsidiaries primarily for the benefit of employees of
Holdings or such Subsidiaries residing outside the United States of America,
which plan, fund or other similar program provides, or results in, retirement
income, a deferral of income in contemplation of retirement or payments to be
made upon termination of employment, and which plan is not subject to ERISA or
the Code.
"Foreign Subsidiary" shall mean each Subsidiary of the
Borrower that is incorporated or organized under the laws of any jurisdiction
other than the United States of America, any State thereof, the United States
Virgin Islands or Puerto Rico.
"GAAP" shall have the meaning provided in Section 13.07(a).
"Guaranteed Creditors" shall mean and include each of the
Administrative Agent, the Collateral Agent, the Banks and each party (other than
any Credit Party) party to an Interest Rate Protection Agreement or Other
Hedging Agreement to the extent such party constitutes a Secured Creditor under
the Security Documents.
"Guaranteed Obligations" shall mean all obligations of the
Borrower (i) to each Bank for the full and prompt payment when due (whether at
the stated maturity, by acceleration or otherwise) of the principal and interest
on each Note issued by the Borrower to such Bank, and Loans made, under the
Credit Agreement and all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit, together with all the other obligations and
liabilities (including, without limitation, indemnities, fees and interest
thereon) of the Borrower to such Bank now existing or hereafter incurred under,
arising out of or in connection with the Credit Agreement or any other Credit
Document and the due performance and compliance with all the terms, conditions
and agreements contained in the Credit Documents by the Borrower and (ii) to
each Bank and each Affiliate of a Bank which enters into an Interest Rate
Protection or Other Hedging Agreement with the Borrower, the full and prompt
payment when due (whether by acceleration or otherwise) of all obligations of
the Borrower owing under any such Interest Rate Protection or Other Hedging
Agreement, whether now in existence or hereafter arising, and the due
performance and compliance with all terms, conditions and agreements contained
therein.
"Guarantor" shall mean each Parent Guarantor and each
Subsidiary Guarantor.
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"Guaranty" shall mean the guaranty issued by the Parent
Guarantors pursuant to Section 14 hereof, the Subsidiaries Guaranty and any
other guarantee executed and delivered by a Subsidiary of the Borrower pursuant
to Section 8.12.
"Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, ureaformaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls, and radon gas; (b) any chemicals, materials or substances defined as
or included in the definition of "hazardous substances," "hazardous waste,"
"hazardous materials," "extremely hazardous substances," "restricted hazardous
waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants,"
or words of similar import, under any applicable Environmental Law; and (c) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority under Environmental Laws.
"Holdings" shall have the meaning provided in the first
paragraph of this Agreement.
"Indebtedness" shall mean, as to any Person, without
duplication, (i) all indebtedness (including principal, interest, fees and
charges) of such Person for borrowed money or for the deferred purchase price of
property or services, (ii) the maximum amount available to be drawn under all
letters of credit issued for the account of such Person and all unpaid drawings
in respect of such letters of credit, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person (to the extent of the value of the
respective property), (iv) the aggregate amount required to be capitalized under
leases under which such Person is the lessee, (v) all obligations of such person
to pay a specified purchase price for goods or services, whether or not
delivered or accepted, I.E., take-or-pay and similar obligations, (vi) all
Contingent Obligations of such Person and (vii) all obligations under any
Interest Rate Protection Agreement or Other Hedging Agreement or under any
similar type of agreement.
"Initial Borrowing Date" shall mean the date occurring on or
after the Effective Date on which the initial Borrowing of Term Loans hereunder
occurs.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section
1.09.
"Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest collar agreement,
interest rate hedging agreement, interest rate floor agreement or other similar
agreement or arrangement.
"Investments" shall have the meaning provided in Section 9.05.
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"Issuing Bank" shall mean the Administrative Agent and any
Bank which at the request of the Borrower and with the consent of the
Administrative Agent (which shall not be unreasonably withheld) agrees, in such
Bank's sole discretion, to become an Issuing Bank for the purpose of issuing
Letters of Credit pursuant to Section 2.
"L/C Supportable Indebtedness" shall mean (i) obligations of
the Borrower or its Subsidiaries incurred in the ordinary course of business
with respect to insurance obligations and workers' compensation, surety bonds
and other similar statutory obligations and (ii) such other obligations of the
Borrower or any of its Subsidiaries as are permitted to exist pursuant to the
terms of this Agreement.
"Leaseholds" of any Person means all the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in
Section 2.02(a).
"Leverage Ratio" shall mean, at any date of determination, the
ratio of Consolidated Indebtedness on such date to Consolidated EBITDA for the
Test Period last ended.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Tranche A Term Loan, each Tranche B
Term Loan, each Revolving Loan and each Swingline Loan.
"Majority Banks" of any Tranche shall mean those
Non-Defaulting Banks which would constitute the Required Banks under, and as
defined in, this Agreement if all outstanding Obligations of the other Tranches
under this Agreement were repaid in full and all Commitments with respect
thereto were terminated.
"Management Agreements" shall have the meaning provided in
Section 5.05.
"Mandatory Borrowing" shall have the meaning provided in
Section 1.01(e).
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"Margin Adjustment Period" shall mean each period which shall
commence on a date occurring after the Initial Borrowing Date on which the
financial statements are delivered pursuant to Section 8.01(b) or (c) for a
fiscal quarter or year, as the case may be, which ends at least three months
after the Initial Borrowing Date and which Margin Adjustment Period shall end on
the earlier of (i) the date of actual delivery of the next financial statements
pursuant to Section 8.01(b) or (c) and (ii) the latest date on which the next
financial statements are required to be delivered pursuant to Section 8.01(b) or
(c).
"Margin Adjustment Test Period" shall mean, with respect to
each Margin Adjustment Period, the Test Period ended on the last day of the
fiscal quarter or year, as the case may be, for which financial statements were
last delivered or required to be delivered pursuant to Section 8.01(b) or (c).
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean a material adverse effect
on the business, operations, property, assets, liabilities, condition (financial
or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole or
the Borrower.
"Maturity Date" shall mean, with respect to any Tranche of
Loans, the Tranche A Term Loan Maturity Date, the Tranche B Term Loan Maturity
Date, the Revolving Loan Maturity Date or the Swingline Expiry Date, as the case
may be.
"Maximum Swingline Amount" shall mean $2,000,000.
"Mortgage" shall have the meaning provided in Section 5.12
and, after the execution and delivery thereof, shall include each Additional
Mortgage.
"Mortgage Policies" shall have the meaning provided in Section
5.12.
"Mortgaged Property" shall have the meaning provided in
Section 5.12 and, after the execution and delivery of any Additional Mortgage,
shall include the respective Additional Mortgaged Property.
"Net Sale Proceeds" shall mean for any sale of assets, the
gross cash proceeds (including any cash received by way of deferred payment
pursuant to a promissory note, receivable or otherwise, but only as and when
received) received from any sale of assets, net of (i) reasonable transaction
costs (including, without limitation, any underwriting, brokerage or other
customary selling commissions and reasonable legal, advisory and other fees and
expenses, including title and recording expenses, associated therewith), (ii)
payments of unassumed liabilities relating to the assets sold at the time of, or
within 90 days after, the date of such sale, (iii) the amount of such gross cash
proceeds required to be used to repay any Indebtedness (other than Indebtedness
of the Banks pursuant to this Agreement) which is secured by the respective
assets which were sold, and (iv) the estimated marginal increase in income taxes
which will be payable by Holdings' consolidated group with respect to the fiscal
year in which the sale occurs as a result of such sale.
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"Non-Defaulting Bank" shall mean and include each Bank other
than a Defaulting Bank.
"Note" shall mean each Tranche A Term Note, each Tranche B
Term Note, each Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Administrative
Agent located at 130 Liberty Street, 14th Floor, New York, NY 10006, Attention:
Stuart Levy or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to the
Administrative Agent, the Collateral Agent or any Bank pursuant to the terms of
this Agreement or any other Credit Document.
"Offering Circular" shall mean the Offering Circular dated
July 2, 1998, and prepared in connection with the Senior Subordinated Notes.
"Other Financing Documents" shall mean the Equity Financing
Documents and the Senior Subordinated Note Documents.
"Other Hedging Agreement" shall mean any foreign exchange
contracts, currency swap agreements, commodity agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency or commodity values.
"Parent Guarantor" shall have the meaning provided in the
first paragraph of this Agreement.
"Participant" shall have the meaning provided in Section
2.03(a).
"Payment Office" shall mean the office of the Administrative
Agent located at 130 Liberty Street, New York, New York 10006, or such other
office as the Administrative Agent may hereafter designate in writing as such to
the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment at such time, PROVIDED that if the Percentage of any
Bank is to be determined after the Total Revolving Loan Commitment has been
terminated, then the Percentages of the Banks shall be determined immediately
prior (and without giving effect) to such termination.
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"Permitted Encumbrance" shall mean, with respect to any
Mortgaged Property, such exceptions to title as are set forth in the title
insurance policy or title commitment delivered with respect thereto, PROVIDED
that in the case of any Additional Mortgaged Property, all such exceptions shall
also be acceptable to the Administrative Agent in its reasonable discretion.
"Permitted Holders" shall mean Beacon and its Affiliates.
"Permitted Liens" shall have the meaning provided in Section
9.01.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) Holdings or a Subsidiary of Holdings or an ERISA
Affiliate, and each such plan for the five year period immediately following the
latest date on which Holdings, or a Subsidiary of Holdings or an ERISA Affiliate
maintained, contributed to or had an obligation to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.10.
"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in each of the Pledge Agreements.
"Pledged Securities" shall mean "Pledged Securities" as
defined in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. BTCo may make commercial loans or other loans
at rates of interest at, above or below the Prime Lending Rate.
"Projections" shall mean the projections set forth on Schedule
X hereto.
"Qualified Capital Stock" of any Person shall mean any capital
stock of such Person which is not Disqualified Stock.
"Qualified Public Offering" shall mean an underwritten public
offering of common stock of, and by, Holdings pursuant to a registration
statement filed with the Securities and Exchange Commission in accordance with
the Securities Act, which public equity offering results in gross proceeds to
Holdings of not less than $50,000,000; PROVIDED, HOWEVER, that Holdings
contributes to the common equity of the Company the net cash proceeds from such
underwritten public offering.
"Quarterly Payment Date" shall mean the last Business Day of
January, May, August and November occurring after the Initial Borrowing Date.
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"RCRA" shall mean the Resource Conservation and Recovery Act,
as the same may be amended from time to time, 42 U.S.C.ss. 6901 Et SEQ.
"Real Property" of any Person shall mean all the right, title
and interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by the Holdings or any
of its Subsidiaries of any cash insurance proceeds or condemnation award payable
(i) by reason of theft, loss, physical destruction or damage, condemnation
action or conveyance in lieu thereof or any other similar event with respect to
any property or assets of the Borrower or any of its Subsidiaries, (ii) under
any policy of insurance required to be maintained under Section 8.03 or (iii) by
any condemning authority (or any authority receiving a conveyance in lieu of
condemning the subject property).
"Register" shall have the meaning provided in Section 13.17.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.
"Replaced Bank" shall have the meaning provided in Section
1.13.
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks, the sum of
whose outstanding Term Loans (or, if prior to the Initial Borrowing Date, Term
Loan Commitments) and Revolving Loan Commitments (or after the termination
thereof, outstanding Revolving Loans
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and Adjusted Percentage of Swingline Loans and Letter of Credit Outstandings)
represent an amount greater than 50% of the sum of all outstanding Term Loans
(or, if prior to the Initial Borrowing Date, Term Loan Commitments) of
Non-Defaulting Banks and the Adjusted Total Revolving Loan Commitment (or after
the termination thereof, the sum of the then total outstanding Revolving Loans
of Non-Defaulting Banks and the aggregate Adjusted Percentages of all
Non-Defaulting Banks of the total outstanding Swingline Loans and Letter of
Credit Outstandings at such time).
"Revolving Loan" shall have the meaning provided in Section
1.01(c).
"Revolving Loan Commitment" shall mean, for each Bank, the
amount set forth opposite such Bank's name in Schedule I hereto directly below
the column entitled "Revolving Loan Commitment," as same may be (x) reduced from
time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.13 or 13.04(b).
"Revolving Loan Maturity Date" shall mean December 31, 2003.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"Scheduled Repayments" shall mean Tranche A Scheduled
Repayments and Tranche B Scheduled Repayments.
"SEC" shall have the meaning provided in Section 8.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning
provided in Section 4.04(b).
"Secured Creditors" shall have the meaning assigned that term
in the Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Security Agreement" shall have the meaning provided in
Section 5.11.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Document" shall mean the Pledge Agreement, the
Security Agreement, the U.K. Security Agreement, each Mortgage and, after the
execution and delivery thereof, each Additional Mortgage and each Additional
Security Document.
"Seller" shall mean Generac Corporation, a Wisconsin
corporation.
"Senior Subordinated Note Documents" shall mean the Senior
Subordinated Notes, the Senior Subordinated Note Indenture and all other
documents executed and delivered with respect to the Senior Subordinated Notes
or Senior Subordinated Note Indenture.
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"Senior Subordinated Note Indenture" shall mean the indenture
dated as of July 1, 1998, among the Borrower, WisCorp and the Senior
Subordinated Note Indenture Trustee, as in effect on the Initial Borrowing Date
and as thereafter amended from time to time in accordance with the requirements
thereof and of this Agreement.
"Senior Subordinated Note Indenture Trustee" shall mean Marine
Midland Bank or any successor trustee under the Senior Subordinated Note
Indenture.
"Senior Subordinated Notes" shall mean the Borrower's 11 1/4%
Senior Subordinated Notes due 2006 issued pursuant to the Senior Subordinated
Note Indenture and any notes issued by the Borrower and WisCorp in exchange for,
and as contemplated by, the Senior Subordinated Notes with substantially
identical terms as the Senior Subordinated Notes.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.05.
"Special Majority Banks" shall mean Non-Defaulting Banks, the
sum of whose outstanding Term Loans (or, if prior to the Initial Borrowing Date,
Term Loan Commitments) and Revolving Loan Commitments (or after the termination
thereof, outstanding Revolving Loans and Adjusted Percentage of Swingline Loans
and Letter of Credit Outstandings) represent an amount greater than 66-2/3% of
the sum of all outstanding Term Loans (or, if prior to the Initial Borrowing
Date, Term Loan Commitments) of Non-Defaulting Banks and the Adjusted Total
Revolving Loan Commitment (or after the termination thereof, the sum of the then
total outstanding Revolving Loans of Non-Defaulting Banks and the aggregate
Adjusted Percentages of all Non-Defaulting Banks of the total outstanding
Swingline Loans and Letter of Credit Outstandings at such time).
"Standby Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Stated Amount" of each Letter of Credit shall, at any time,
mean the maximum amount available to be drawn thereunder (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Start Date" shall mean, with respect to any Margin Adjustment
Period, the first day of such Margin Adjustment Period.
"Subsidiaries Guaranty" shall mean the Subsidiaries Guaranty
substantially in the form of Exhibit G (appropriately completed), and, after the
execution and delivery thereof, as modified, supplemented or amended from time
to time.
"Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time. Notwithstanding the
foregoing (and except for purposes of the definition of
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Unrestricted Subsidiary contained herein) an Unrestricted Subsidiary shall be
deemed not to be a Subsidiary of the Borrower or any of its other Subsidiaries
for purposes of this Agreement.
"Subsidiary Guarantor" shall mean each Subsidiary of the
Borrower designated as a "Subsidiary Guarantor" on Schedule VIII hereto or which
executes a guarantee after the Initial Borrowing Date pursuant to Section 8.12.
"Supermajority Banks" of any Tranche shall mean those
Non-Defaulting Banks which would constitute the Required Banks under, and as
defined in, this Agreement if (x) all outstanding Obligations of the other
Tranches under this Agreement were repaid in full and all Commitments with
respect thereto were terminated and (y) the percentage "50%" contained therein
were changed to "66-2/3%".
"Swingline Bank" shall mean BTCo.
"Swingline Expiry Date" shall mean the date which is two
Business Days prior to the Revolving Loan Maturity Date.
"Swingline Loan" shall have the meaning provided in Section
1.01(d).
"Swingline Note" shall have the meaning provided in Section
1.05(a).
"Syndication Agent" shall have the meaning provided in the
first paragraph of this Agreement.
"Syndication Date" shall mean that date upon which the
Administrative Agent determines in its sole discretion (and notifies the
Borrower) that the primary syndication (and resultant addition of institutions
as Banks pursuant to Section 13.04) has been completed.
"Tax Sharing Agreement" shall have the meaning provided in
Section 5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall mean each Tranche A Term Loan and the
Tranche B Term Loan.
"Term Loan Commitment" shall mean each Tranche A Term Loan
Commitment and each Tranche B Term Loan Commitment, with the Term Loan
Commitment of any Bank at any time to equal the sum of its Tranche A Term Loan
Commitment and Tranche B Term Loan Commitment as then in effect.
"Test Period" shall mean each period of four consecutive
fiscal quarters of the Borrower, in each case taken as one accounting period.
"Total Commitments" shall mean, at any time, the sum of the
Commitments of each of the Banks.
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"Total Revolving Loan Commitment" shall mean, at any time, the
sum of the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum
of the Total Tranche A Term Loan Commitment and Total Tranche B Term Loan
Commitment.
"Total Tranche A Term Loan Commitment" shall mean, at any
time, the sum of the Tranche A Term Loan Commitments of each of the Banks.
"Total Tranche B Term Loan Commitment" shall mean, at any
time, the sum of the Tranche B Term Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at
any time, an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less (y) the sum of the aggregate principal amount of Revolving
Loans and Swingline Loans then outstanding plus the then aggregate amount of
Letter of Credit Outstandings.
"Trade Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Tranche" shall mean the respective facility and commitments
utilized in making Loans hereunder, with there being four separate Tranches,
I.E., Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and Swingline
Loans.
"Tranche A Scheduled Repayment" shall have the meaning
provided in Section 4.02(b). "Tranche A Scheduled Repayment Date" shall have the
meaning provided in Section 4.02(b).
"Tranche A Term Loan" shall have the meaning provided in
Section 1.01(a).
"Tranche A Term Loan Commitment" shall mean, for each Bank,
the amount set forth opposite such Bank's name in Schedule I hereto directly
below the column entitled "Tranche A Term Loan Commitment", as same may be (x)
reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y)
adjusted from time to time as a result of assignments to or from such Bank
pursuant to Section 1.13 or 13.04.
"Tranche A Term Loan Maturity Date" shall mean December 31,
2003.
"Tranche A Term Note" shall have the meaning provided in
Section 1.05(a).
"Tranche B Scheduled Repayment" shall have the meaning
provided in Section 4.02(c).
"Tranche B Scheduled Repayment Date" shall have the meaning
provided in Section 4.02(c).
"Tranche B Term Loan" shall have the meaning provided in
Section 1.01(b).
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"Tranche B Term Loan Commitment" shall mean, for each Bank,
the amount set forth opposite such Bank's name in Schedule I hereto directly
below the column entitled "Tranche B Term Loan Commitment", as same may be (x)
reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y)
adjusted from time to time as a result of assignments to or from such Bank
pursuant to Section 1.13 or 13.04(b).
"Tranche B Term Loan Maturity Date" shall mean June 30, 2005.
"Tranche B Term Note" shall have the meaning provided in
Section 1.05(a).
"Transaction" shall mean, collectively, (i) the Acquisition,
(ii) the incurrence of Loans and the issuance of the Senior Subordinated Notes
on the Initial Borrowing Date, (iii) the consummation of the Equity Contribution
on the Initial Borrowing Date and (iv) the payment of fees and expenses owing in
connection with the foregoing.
"Type" shall mean the type of Loan determined with regard to
the interest option applicable thereto, I.E., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the relevant jurisdiction.
"U.K. Security Agreement" shall have the meaning provided in
Section 5.11(b).
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year, determined
in accordance with actuarial assumptions at such time consistent with Statement
of Financial Accounting Standards No. 87, exceeds the market value of the assets
allocable thereto.
"United States" and "U.S." shall each mean the United States
of America.
"Unpaid Drawing" shall have the meaning provided for in
Section 2.04(a).
"Unutilized Revolving Loan Commitment" with respect to any
Bank, at any time, shall mean such Bank's Revolving Loan Commitment at such time
less the sum of (i) the aggregate outstanding principal amount of Revolving
Loans made by such Bank and (ii) such Bank's Adjusted Percentage of the Letter
of Credit Outstandings in respect of Letters of Credit issued under this
Agreement.
"Voting Stock" shall mean any class or classes of capital
stock of Holdings pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the Board of
Directors of Holdings.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i)
any corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership,
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association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.
"WisCorp" shall have the meaning provided in the first
paragraph of this Agreement.
"Year 2000 Problem" shall mean the reasonable possibility that
the computer applications and software programs used by Holdings and its
Subsidiaries in the operation of their business will be unable to effectively
process data including data fields requiring references to dates on and after
January 1, 2000, and may experience or produce invalid or incorrect results or
abnormal operation related to or as a result of the occurrence of such dates.
SECTION 12. THE AGENT.
12.01 APPOINTMENT. The Banks hereby designate Bankers Trust
Company as Administrative Agent (for purposes of this Section 12, the term
"Administrative Agent" shall include Bankers Trust Company (and/or any of its
affiliates) in its capacity as Collateral Agent pursuant to the Security
Documents) to act as specified herein and in the other Credit Documents. Each
Bank hereby irrevocably authorizes, and each holder of any Note by the
acceptance of such Note shall be deemed irrevocably to authorize, the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement, the other Credit Documents and any other instruments and
agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of the Administrative Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Administrative Agent may
perform any of its duties hereunder by or through its respective officers,
directors, agents, employees or affiliates.
12.02 NATURE OF DUTIES. The Administrative Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement
and the Security Documents. Neither the Administrative Agent nor any of its
officers, directors, agents, employees or affiliates shall be liable for any
action taken or omitted by it or them hereunder or under any other Credit
Document or in connection herewith or therewith, unless caused by such Person's
gross negligence or willful misconduct. The duties of the Administrative Agent
shall be mechanical and administrative in nature; the Administrative Agent shall
not have by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Bank or the holder of any Note; and nothing in
this Agreement or any other Credit Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Administrative Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein or therein.
12.03 LACK OF RELIANCE ON THE ADMINISTRATIVE AGENT.
Independently and without reliance upon the Administrative Agent, each Bank and
the holder of each Note, to the extent it deems appropriate, has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of Holdings and its Subsidiaries in connection with the
making and the continuance of the Loans and the taking or not taking of any
action in connection herewith and (ii) its own appraisal of the creditworthiness
of Holdings and its Subsidiaries and,
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except as expressly provided in this Agreement, the Administrative Agent shall
not have any duty or responsibility, either initially or on a continuing basis,
to provide any Bank or the holder of any Note with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter. The Administrative Agent
shall not be responsible to any Bank or the holder of any Note for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability, perfection,
collectability, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of Holdings and its Subsidiaries or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of this Agreement or any other Credit
Document, or the financial condition of Holdings and its Subsidiaries or the
existence or possible existence of any Default or Event of Default.
12.04 CERTAIN RIGHTS OF THE AGENT. If the Administrative Agent
shall request instructions from the Required Banks with respect to any act or
action (including failure to act) in connection with this Agreement or any other
Credit Document, the Administrative Agent shall be entitled to refrain from such
act or taking such action unless and until the Administrative Agent shall have
received instructions from the Required Banks; and the Administrative Agent
shall not incur liability to any Person by reason of so refraining. Without
limiting the foregoing, no Bank or the holder of any Note shall have any right
of action whatsoever against the Administrative Agent as a result of the
Administrative Agent acting or refraining from acting hereunder or under any
other Credit Document in accordance with the instructions of the Required Banks.
12.05 RELIANCE. The Administrative Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, radiogram, order or other document or telephone message
signed, sent or made by any Person that the Administrative Agent believed to be
the proper Person, and, with respect to all legal matters pertaining to this
Agreement and any other Credit Document and its duties hereunder and thereunder,
upon advice of counsel selected by the Administrative Agent.
12.06 INDEMNIFICATION. To the extent the Administrative Agent
is not reimbursed and indemnified by the Borrower the Banks will reimburse and
indemnify the Administrative Agent, in proportion to their respective
"percentages" as used in determining the Required Banks (without regard to the
existence of any Defaulting Banks), for and against any and all liabilities,
obligations, losses, damages, penalties, claims, actions, judgments, costs,
expenses or disbursements of whatsoever kind or nature which may be imposed on,
asserted against or incurred by the Administrative Agent in performing its
respective duties hereunder or under any other Credit Document, in any way
relating to or arising out of this Agreement or any other Credit Document;
PROVIDED that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct.
12.07 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.
With respect to its obligation to make Loans under this Agreement, the
Administrative Agent shall have the rights and powers specified herein for a
"Bank" and may exercise the same rights and powers as though
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it were not performing the duties specified herein; and the term "Banks,"
"Required Banks," "holders of Notes" or any similar terms shall, unless the
context clearly otherwise indicates, include the Administrative Agent in its
individual capacity. The Administrative Agent may accept deposits from, lend
money to, and generally engage in any kind of banking, trust or other business
with any Credit Party or any Affiliate of any Credit Party as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrower or any other Credit Party for services in
connection with this Agreement and otherwise without having to account for the
same to the Banks.
12.08 HOLDERS. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or endorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
12.09 RESIGNATION BY THE ADMINISTRATIVE AGENT. (a) The
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
15 Business Days' prior written notice to the Borrower and the Banks. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation by the Administrative
Agent, the Banks shall appoint a successor Administrative Agent hereunder or
thereunder who shall be a commercial bank or trust company reasonably acceptable
to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 15 Business Day period, the Administrative Agent, with the
consent of the Borrower (which shall not be unreasonably withheld or delayed),
shall then appoint a commercial bank or trust company with capital and surplus
of not less than $500,000,000 as successor Administrative Agent who shall serve
as Administrative Agent hereunder or thereunder until such time, if any, as the
Banks appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed
pursuant to clause (b) or (c) above by the 25th Business Day after the date such
notice of resignation was given by the Administrative Agent, the Administrative
Agent's resignation shall become effective and the Required Banks shall
thereafter perform all the duties of the Administrative Agent hereunder and/or
under any other Credit Document until such time, if any, as the Required Banks
appoint a successor Administrative Agent as provided above.
SECTION 13. MISCELLANEOUS.
13.01 PAYMENT OF EXPENSES, ETC. The Borrower shall: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent
(including, without limitation, the reasonable fees and
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disbursements of White & Case LLP and local counsel) in connection with the
preparation, execution and delivery of this Agreement and the other Credit
Documents and the documents and instruments referred to herein and therein and
any amendment, waiver or consent relating hereto or thereto, of the
Administrative Agent in connection with its syndication efforts with respect to
this Agreement and of the Administrative Agent and each of the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel (including
in-house counsel) for the Administrative Agent and for each of the Banks); (ii)
pay and hold each of the Banks harmless from and against any and all present and
future stamp, excise and other similar taxes with respect to the foregoing
matters and save each of the Banks harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to such Bank) to pay such taxes; and (iii) indemnify
the Administrative Agent and each Bank, and each of their respective officers,
directors, trustees, employees, representatives and agents from and hold each of
them harmless against any and all liabilities, obligations (including removal or
remedial actions), losses, damages, penalties, claims, actions, judgments,
suits, costs, expenses and disbursements (including reasonable attorneys' and
consultants' fees and disbursements) incurred by, imposed on or assessed against
any of them as a result of, or arising out of, or in any way related to, or by
reason of, (a) any investigation, litigation or other proceeding (whether or not
the Administrative Agent or any Bank is a party thereto) related to the entering
into and/or performance of this Agreement or any other Credit Document or the
use of any Letter of Credit or the proceeds of any Loans hereunder or the
consummation of any transactions contemplated herein (including, without
limitation, the Transaction), or in any other Credit Document or the exercise of
any of their rights or remedies provided herein or in the other Credit
Documents, or (b) the actual or alleged presence of Hazardous Materials in the
air, surface water or groundwater or on the surface or subsurface of any Real
Property owned or at any time operated by Holdings or any of its Subsidiaries,
the generation, storage, transportation, handling or disposal of Hazardous
Materials at any location, whether or not owned or operated by Holdings or any
of its Subsidiaries, the non-compliance of any Real Property with foreign,
federal, state and local laws, regulations, and ordinances (including applicable
permits thereunder) applicable to any Real Property, or any Environmental Claim
asserted against Holdings, any of its Subsidiaries or any Real Property owned or
at any time operated by Holdings or any of its Subsidiaries, including, in each
case, without limitation, the reasonable fees and disbursements of counsel and
other consultants incurred in connection with any such investigation, litigation
or other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the undertaking
to indemnify, pay or hold harmless the Administrative Agent or any Bank set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, the Borrower shall make the maximum contribution to
the payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.
13.02 RIGHT OF SETOFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, each
Bank is hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to any Guarantor or the Borrower or
to
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any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Bank (including, without
limitation, by branches and agencies of such Bank wherever located) to or for
the credit or the account of the Borrower or any Guarantor but in any event
excluding assets held in trust for any such Person against and on account of the
Obligations and liabilities of the Borrower or such Guarantor, as applicable, to
such Bank under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations purchased by such
Bank pursuant to Section 13.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured.
13.03 NOTICES. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telexed, telegraphic, telex, telecopier or cable communication) and
mailed, telexed, telecopied, cabled or delivered: if to a Parent Guarantor, at
such Parent Guarantor's address specified opposite its signature below; if to
the Borrower, at the Borrower's address specified opposite its signature below;
if to any Bank, at its address specified opposite its name on Schedule II below;
and if to the Administrative Agent, at its Notice Office; or, as to any Credit
Party, at such other address as shall be designated by such party in a written
notice to the other parties hereto and, as to each Bank, at such other address
as shall be designated by such Bank in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed,
telexed, telecopied or sent by overnight courier, be effective when deposited in
the mails or delivered to the overnight courier, prepaid and properly addressed
for delivery on such or the next Business Day, or sent by telex or telecopier,
except that notices and communications to the Administrative Agent shall not be
effective until received by the Administrative Agent.
13.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; PROVIDED, HOWEVER, that (i) no
Credit Party may assign or transfer any of its rights, obligations or interest
hereunder or under any other Credit Document without the prior written consent
of the Banks, (ii) although any Bank may transfer, assign or grant
participations in its rights hereunder, such Bank shall remain a "Bank" for all
purposes hereunder (and may not transfer or assign all or any portion of its
Commitments hereunder except as provided in Section 13.04(b)) and the
transferee, assignee or participant, as the case may be, shall not constitute a
"Bank" hereunder and (iii) no Bank shall transfer or grant any participation
under which the participant shall have rights to approve any amendment to or
waiver of this Agreement or any other Credit Document except to the extent such
amendment or waiver would (x) extend the final scheduled maturity of any Loan,
Note or Letter of Credit (unless such Letter of Credit is not extended beyond
the Revolving Loan Maturity Date) in which such participant is participating, or
reduce the rate or extend the time of payment of interest or Fees thereon
(except (m) in connection with a waiver of applicability of any post-default
increase in interest rates and (n) that any amendment or modification to the
financial definitions in this Agreement shall not constitute a reduction in the
rate of interest for purposes of this clause (x)) or reduce the principal amount
thereof, or increase the amount of the participant's participation over the
amount thereof then in effect (it being understood that a waiver of any Default
or Event of Default or of a mandatory reduction in the
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Total Commitments shall not constitute a change in the terms of such
participation, and that an increase in any Commitment or Loan shall be permitted
without the consent of any participant if the participant's participation is not
increased as a result thereof), (y) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement or (z)
release all or substantially all of the Collateral under all of the Security
Documents (except as expressly provided in the Credit Documents) securing the
Loans hereunder in which such participant is participating. In the case of any
such participation, the participant shall not have any rights under this
Agreement or any of the other Credit Documents (the participant's rights against
such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto)
and all amounts payable by the Borrower hereunder shall be determined as if such
Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank
together with one or more other Banks) may (x) assign all or a portion of its
Revolving Loan Commitment (and related outstanding Obligations hereunder) and/or
its outstanding Term Loans (or, if prior to the Initial Borrowing Date, Term
Loan Commitment) to its (i) parent company and/or any affiliate of such Bank
which is at least 50% owned by such Bank or its parent company or (ii) in the
case of any Bank that is a fund that invests in bank loans, any other fund that
invests in bank loans and is managed or advised by the same investment advisor
of such Bank or by an Affiliate of such investment advisor or (iii) to one or
more Banks or (y) assign all, or if less than all, a portion equal to at least
$5,000,000 in the aggregate for the assigning Bank or assigning Banks, of such
Revolving Loan Commitments and outstanding principal amount of Term Loans (or,
if prior to the Initial Borrowing Date, Term Loan Commitment) hereunder to one
or more Eligible Transferees (treating any fund that invests in bank loans and
any other fund that invests in bank loans and is managed or advised by the same
investment advisor of such fund or by an Affiliate of such investment advisor as
a single Eligible Transferee), each of which assignees shall become a party to
this Agreement as a Bank by execution of an Assignment and Assumption Agreement,
PROVIDED that, (i) at such time Schedule I shall be deemed modified to reflect
the Commitments (and/or outstanding Term Loans, as the case may be) of such new
Bank and of the existing Banks, (ii) new Notes will be issued, at the Borrower's
expense, to such new Bank and to the assigning Bank upon the request of such new
Bank or assigning Bank, such new Notes to be in conformity with the requirements
of Section 1.05 (with appropriate modifications) to the extent needed to reflect
the revised Commitments (and/or outstanding Term Loans, as the case may be),
(iii) the consent of the Administrative Agent and each Issuing Bank shall be
required in connection with any assignment of all or any portion of Revolving
Loan Commitments (which consents shall not be unreasonably withheld or delayed),
(iv) in the case of assignments pursuant to clause (y) above, the consent of the
Administrative Agent (and, unless any Event of Default is then in existence, and
after the Syndication Date the consent of the Borrower) shall be required (which
consents shall not be unreasonably withheld or delayed) and (v) the
Administrative Agent shall receive at the time of each such assignment, from the
assigning or assignee Bank, the payment of a non-refundable assignment fee of
$5,000. To the extent of any assignment pursuant to this Section 13.04(b), the
assigning Bank shall be relieved of its obligations hereunder with respect to
its assigned Commitments (it being understood that the indemnification
provisions under this Agreement (including, without limitation, Sections 1.10,
1.11, 2.05, 4.04, 13.01 and 13.06) shall survive as to such assigning Bank). At
the time of each assignment pursuant to this Section
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13.04(b) to a Person which is not already a Bank hereunder and which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for Federal income tax purposes, the respective assignee Bank shall
provide to the Borrower and the Administrative Agent the appropriate Internal
Revenue Service Forms (and, if applicable, a Section 4.04(b)(ii) Certificate)
described in Section 4.04(b). To the extent that an assignment of all or any
portion of a Bank's Commitments and related outstanding Obligations pursuant to
Section 1.13 or this Section 13.04(b) would, at the time of such assignment,
result in increased costs under Section 1.10, 1.11 or 4.04 from those being
charged by the respective assigning Bank prior to such assignment, then the
Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
assignment).
(c) Nothing in this Agreement shall prevent or prohibit any
Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by such Bank from such Federal Reserve Bank and, with
the consent of the Administrative Agent, any Lender which is a fund may pledge
all or any portion of its Notes or Loans to a trustee for the benefit of
investors and in support of its obligation to such investors.
13.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of the Administrative Agent or any Bank or any holder of any Note in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Borrower or any other Credit Party
and the Administrative Agent or any Bank or the holder of any Note shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder or under any other Credit Document preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder or thereunder. The rights, powers and remedies herein or in
any other Credit Document expressly provided are cumulative and not exclusive of
any rights, powers or remedies which the Administrative Agent or any Bank or the
holder of any Note would otherwise have. No notice to or demand on any Credit
Party in any case shall entitle any Credit Party to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Administrative Agent or any Bank or the holder of any Note to any other
or further action in any circumstances without notice or demand.
13.06 PAYMENTS PRO RATA. (a) Except as otherwise provided in
this Agreement, the Administrative Agent agrees that promptly after its receipt
of each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Banks (other than any Bank
that has consented in writing to waive its PRO RATA share of any such payment)
PRO RATA based upon their respective shares, if any, of the Obligations with
respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings, Commitment Commission or Letter of Credit Fees,
of a sum which with respect to the related sum or sums received by other Banks
is in a greater proportion than
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the total of such Obligation then owed and due to such Bank bears to the total
of such Obligation then owed and due to all of the Banks immediately prior to
such receipt, then such Bank receiving such excess payment shall purchase for
cash without recourse or warranty from the other Banks an interest in the
Obligations of the respective Credit Party to such Banks in such amount as shall
result in a proportional participation by all the Banks in such amount; PROVIDED
that if all or any portion of such excess amount is thereafter recovered from
such Bank, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein,
the provisions of the preceding Sections 13.06(a) and (b) shall be subject to
the express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks.
13.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements
to be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Banks); PROVIDED that, except as otherwise specifically provided herein, all
computations of Excess Cash Flow and all computations determining compliance
with Sections 9.08 through 9.11, inclusive, shall utilize accounting principles
and policies in conformity with those used to prepare the historical financial
statements delivered to the Banks for the first fiscal year of Holdings ended
after the Initial Borrowing Date pursuant to Section 8.01(c) (which annual
financial statements shall be generally consistent with the historical financial
statements delivered to the Banks pursuant to Section 7.05(a) (with the
foregoing generally accepted accounting principles, subject to the preceding
proviso, herein called "GAAP").
(b) All computations of interest on Eurodollar Loans,
Commitment Commission and Fees hereunder shall be made on the basis of a year of
360 days for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest, Commitment
Commission or Fees are payable. All computations of interest on Base Rate Loans
shall be made on the basis of a year of 365 or 366 days, as the case may be, for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER
OF JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS
OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF EACH PARENT GUARANTOR AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS
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PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH OF EACH PARENT GUARANTOR AND THE BORROWER HEREBY IRREVOCABLY
DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE
DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK, 10019 AS ITS DESIGNEE,
APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF,
AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS,
NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF
FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO
ACT AS SUCH, EACH CREDIT PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND
AGENT IN THE STATE OF NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS
PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT. EACH OF
EACH PARENT GUARANTOR AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT 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 ANY CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS
SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT UNDER THIS
AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION.
(B) EACH OF EACH PARENT GUARANTOR AND THE BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the
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same instrument. A set of counterparts executed by all the parties hereto shall
be lodged with the Borrower and the Administrative Agent.
13.10 EFFECTIVENESS. This Agreement shall become effective on
the date (the "Effective Date") on which each Parent Guarantor, the Borrower and
each of the Banks who are initially parties hereto shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered the same to the Administrative Agent or, in the case of the Banks,
shall have given to the Administrative Agent telephonic (confirmed in writing),
written or telex notice (actually received) at such office that the same has
been signed and mailed to it. The Administrative Agent will give the Borrower
and each Bank prompt written notice of the occurrence of the Effective Date.
13.11 HEADINGS DESCRIPTIVE. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
13.12 AMENDMENT OR WAIVER; ETC. (a) Neither this Agreement nor
any other Credit Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the respective Credit Parties party thereto
and the Required Banks, PROVIDED that no such change, waiver, discharge or
termination shall, without the consent of each Bank (other than a Defaulting
Bank) (with Obligations being directly affected in the case of following clause
(i)), (i) extend the final scheduled maturity of any Loan or Note or extend the
stated maturity of any Letter of Credit beyond the Revolving Loan Maturity Date,
or reduce the rate or extend the time of payment of interest or Fees thereon
(except (x) in connection with the waiver of applicability of any post-default
increase in interest rates and (y) that any amendment or modification to the
financial definitions in this Agreement shall not constitute a reduction in the
rate of interest for purposes of this clause (i)), or reduce the principal
amount thereof (except to the extent repaid in cash), (ii) release all or
substantially all of the Collateral (except as expressly provided in the Credit
Documents) under all the Security Documents, (iii) amend, modify or waive any
provision of this Section 13.12, (iv) reduce the percentage specified in the
definition of Required Banks (it being understood that, with the consent of the
Required Banks, additional extensions of credit pursuant to this Agreement may
be included in the determination of the Required Banks on substantially the same
basis as the extensions of Term Loans and Revolving Loan Commitments are
included on the Effective Date) or (v) consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement; PROVIDED
further, that no such change, waiver, discharge or termination shall (t) without
the consent of the Special Majority Banks, release any Parent Guarantor from its
obligations under the Parent Guaranty, (u) increase the Commitments of any Bank
over the amount thereof then in effect without the consent of such Bank (it
being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction in the
Total Commitments shall not constitute an increase of the Commitment of any
Bank, and that an increase in the available portion of any Commitment of any
Bank shall not constitute an increase in the Commitment of such Bank), (v)
without the consent of BTCo or, in the case of Letters of Credit, the respective
Issuing Bank, amend, modify
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or waive any provision of Section 2 or alter its rights or obligations with
respect to Letters of Credit or Swingline Loans, (w) without the consent of the
Administrative Agent, amend, modify or waive any provision of Section 12 as same
applies to the Administrative Agent or any other provision as same relates to
the rights or obligations of the Administrative Agent, (x) without the consent
of the Collateral Agent, amend, modify or waive any provision relating to the
rights or obligations of the Collateral Agent, (y) without the consent of the
Majority Banks of each Tranche which is being allocated a lesser prepayment,
repayment or commitment reduction as a result of the actions described below (or
without the consent of the Majority Banks of each Tranche in the case of an
amendment to the definition of Majority Banks), amend the definition of Majority
Banks (it being understood that, with the consent of the Required Banks,
additional extensions of credit pursuant to this Agreement may be included in
the determination of the Majority Banks on substantially the same basis as the
extensions of Term Loans and Revolving Loan Commitments are included on the
Effective Date) or alter the required application of any prepayments or
repayments (or commitment reductions), as between the various Tranches, pursuant
to Section 4.01 or 4.02 (excluding Sections 4.02(b) and (c)) (although (x) the
Required Banks may waive, in whole or in part, any such prepayment, repayment or
commitment reduction, so long as the application, as amongst the various
Tranches, of any such prepayment, repayment or commitment reduction which is
still required to be made is not altered and (y) if additional Tranches of Term
Loans are extended after the Initial Borrowing Date with the consent of the
Required Banks as required above, such Tranches may be included on a pro rata
basis (as is originally done with the Tranche A Term Loans and Tranche B Term
Loans) in the various prepayments or repayments required pursuant to Sections
4.01 and 4.02 (excluding Sections 4.02(b) and (c) and any section providing
Scheduled Repayments for any new Tranche of Term Loans) or (z) without the
consent of the Supermajority Banks of the respective Tranche, reduce the amount
of, or extend the date of, any Scheduled Repayment applicable to such Tranche
or, without the consent of the Supermajority Banks of each Tranche, amend the
definition of Supermajority Banks (it being understood that, with the consent of
the Required Banks, additional extensions of credit pursuant to this Agreement
may be included in the determination of the Supermajority Banks on substantially
the same basis as the extensions of Term Loans and Revolving Loan Commitments
are included on the Effective Date).
(b) If, in connection with any proposed change, waiver,
discharge or termination to any of the provisions of this Agreement as
contemplated by clauses (i) through (v), inclusive, of the first proviso to
Section 13.12(a), the consent of the Required Banks is obtained but the consent
of one or more of such other Banks whose consent is required is not obtained,
then the Borrower shall have the right, so long as all non-consenting Banks
whose individual consent is required are treated as described in either clauses
(A) or (B) below, to either (A) replace each such non-consenting Bank or Banks
(or, at the option of the Borrower if the respective Bank's consent is required
with respect to less than all Tranches of Loans (or related Commitments), to
replace only the respective Tranche or Tranches of Commitments and/or Loans of
the respective non-consenting Bank which gave rise to the need to obtain such
Bank's individual consent) with one or more Replacement Banks pursuant to
Section 1.13 so long as at the time of such replacement, each such Replacement
Bank consents to the proposed change, waiver, discharge or termination or (B)
terminate such non-consenting Bank's Revolving Loan Commitment (if such Bank's
consent is required as a result of its Revolving Loan Commitment) and/or repay
each Tranche of outstanding Term Loans of such Bank which gave rise to the need
to obtain such Bank's consent, in accordance with Sections 3.02(b) and/or
4.01(iv), PROVIDED
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that, unless the Commitments are terminated, and Loans repaid, pursuant to
preceding clause (B) are immediately replaced in full at such time through the
addition of new Banks or the increase of the Commitments and/or outstanding
Loans of existing Banks (who in each case must specifically consent thereto),
then in the case of any action pursuant to preceding clause (B) the Required
Banks (determined before giving effect to the proposed action) shall
specifically consent thereto, PROVIDED further, that in any event the Borrower
shall not have the right to replace a Bank, terminate its Revolving Loan
Commitment or repay its Loans solely as a result of the exercise of such Bank's
rights (and the withholding of any required consent by such Bank) pursuant to
the second proviso to Section 13.12(a).
13.13 SURVIVAL. All indemnities set forth herein including,
without limitation, in Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06 shall,
subject to Section 13.15 (to the extent applicable), survive the execution,
delivery and termination of this Agreement and the Notes and the making and
repayment of the Loans.
13.14 DOMICILE OF LOANS. Each Bank may transfer and carry its
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Bank. Notwithstanding anything to the contrary contained herein, to the extent
that a transfer of Loans pursuant to this Section 13.14 would, at the time of
such transfer, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04
from those being charged by the respective Bank prior to such transfer, then the
Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
transfer).
13.15 LIMITATION ON ADDITIONAL AMOUNTS, ETC. Notwithstanding
anything to the contrary contained in Sections 1.10, 1.11, 2.05 or 4.04 of this
Agreement, unless a Bank gives notice to the Borrower that it is obligated to
pay an amount under any such Section within one year after the later of (x) the
date the Bank incurs the respective increased costs, Taxes, loss, expense or
liability, reduction in amounts received or receivable or reduction in return on
capital or (y) the date such Bank has actual knowledge of its incurrence of the
respective increased costs, Taxes, loss, expense or liability, reductions in
amounts received or receivable or reduction in return on capital, then such Bank
shall only be entitled to be compensated for such amount by the Borrower
pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be, to the
extent the costs, Taxes, loss, expense or liability, reduction in amounts
received or receivable or reduction in return on capital are incurred or
suffered on or after the date which occurs one year prior to such Bank giving
notice to the Borrower that it is obligated to pay the respective amounts
pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be. This
Section 13.15 shall have no applicability to any Section of this Agreement other
than said Sections 1.10, 1.11, 2.05 and 4.04.
13.16 CONFIDENTIALITY. (a) Subject to the provisions of clause
(b) of this Section 13.16, each Bank agrees that it will use its best efforts
not to disclose without the prior consent of Holdings or the Borrower (other
than to its employees, auditors, advisors or counsel or to another Bank if the
Bank or such Bank's holding or parent company or board of trustees in its sole
discretion determines that any such party should have access to such
information, provided such Persons shall be subject to the provisions of this
Section 13.16 to the same extent as such Bank) any information with respect to
Holdings or any of its Subsidiaries which is now or in the
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future furnished pursuant to this Agreement or any other Credit Document,
PROVIDED that any Bank may disclose any such information (a) as has become
generally available to the public other than by virtue of a breach of this
Section 13.16(a) by the respective Bank, (b) as may be required or appropriate
in any report, statement or testimony submitted to any municipal, state or
Federal regulatory body having or claiming to have jurisdiction over such Bank
or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors, (c) as may be required or appropriate in respect to any summons or
subpoena or in connection with any litigation, (d) in order to comply with any
law, order, regulation or ruling applicable to such Bank, (e) to the
Administrative Agent or the Collateral Agent and (f) to any prospective or
actual transferee or participant in connection with any contemplated transfer or
participation of any of the Notes or Commitments or any interest therein by such
Bank, PROVIDED that such prospective transferee agrees to be bound by the
confidentiality provisions contained in this Section 13.16.
(b) Each of Holdings and the Borrower hereby acknowledges and
agrees that each Bank may share with any of its affiliates any information
related to Holdings or any of its Subsidiaries (including, without limitation,
any nonpublic customer information regarding the creditworthiness of Holdings
and its Subsidiaries, provided such Persons shall be subject to the provisions
of this Section 13.16 to the same extent as such Bank).
13.17 REGISTER. The Borrower hereby designates the
Administrative Agent to serve as the Borrower's agent, solely for purposes of
this Section 13.17, to maintain a register (the "Register") on which it will
record the Commitments from time to time of each of the Banks, the Loans made by
each of the Banks and each repayment in respect of the principal amount of the
Loans of each Bank. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
13.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Administrative Agent for acceptance and registration of
assignment or transfer of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Bank shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Bank and/or the
new Bank. The Borrower agrees to indemnify the Administrative Agent from and
against any and all losses, claims, damages and liabilities of whatsoever nature
which may be imposed on, asserted against or incurred by the Administrative
Agent in performing its duties under this Section 13.17.
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SECTION 14. Parent Guaranty.
14.01 THE PARENT GUARANTY. In order to induce the
Administrative Agent and the Banks to enter into this Agreement and to extend
credit hereunder, to induce Banks or any of their respective Affiliates to enter
into the Interest Rate Protection Agreements or other Hedging Agreements, and in
recognition of the direct benefits to be received by each Parent Guarantor from
the proceeds of the Loans, the issuance of the Letters of Credit, and the
entering into of Interest Rate Protection Agreements or Other Hedging
Agreements, each Parent Guarantor hereby, jointly and severally, agrees with the
Guaranteed Creditors as follows: such Parent Guarantor hereby unconditionally
and irrevocably guarantees as primary obligor and not merely as surety the full
and prompt payment when due, whether upon maturity, acceleration or otherwise,
of any and all of the Guaranteed Obligations of the Borrower to the Guaranteed
Creditors. If any or all of the Guaranteed Obligations of the Borrower to the
Guaranteed Creditors becomes due and payable hereunder, such Parent Guarantor
irrevocably and unconditionally promises to pay such indebtedness to the
Guaranteed Creditors, or order, on demand, together with any and all expenses
which may be incurred by the Guaranteed Creditors in collecting any of the
Guaranteed Obligations. If claim is ever made upon any Guaranteed Creditor for
repayment or recovery of any amount or amounts received in payment or on account
of any of the Guaranteed Obligations and any of the aforesaid payees repays all
or part of said amount by reason of (i) any judgment, decree or order of any
court or administrative body having jurisdiction over such payee or any of its
property or (ii) any settlement or compromise of any such claim effected by such
payee with any such claimant (including the Borrower), then and in such event
such Parent Guarantor agrees that any such judgment, decree, order, settlement
or compromise shall be binding upon such Parent Guarantor, notwithstanding any
revocation of this Parent Guaranty or other instrument evidencing any liability
of the Borrower, and such Parent Guarantor shall be and remain liable to the
aforesaid payees hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by any such payee.
14.02 BANKRUPTCY. Additionally, each Parent Guarantor
unconditionally and irrevocably guarantees the payment of any and all of the
Guaranteed Obligations of the Borrower to the Guaranteed Creditors whether or
not due or payable by the Borrower upon the occurrence of an Event of Default
under any of the events specified in Section 10.05, and unconditionally promises
to pay such indebtedness to the Guaranteed Creditors, or order, on demand, in
lawful money of the United States.
14.03 NATURE OF LIABILITY. The liability of each Parent
Guarantor hereunder is exclusive and independent of any security for or other
guaranty of the Guaranteed Obligations of the Borrower whether executed by such
Parent Guarantor, any other guarantor or by any other party, and the liability
of such Parent Guarantor hereunder is not affected or impaired by (a) any
direction as to application of payment by the Borrower or by any other party, or
(b) any other continuing or other guaranty, undertaking or maximum liability of
a guarantor or of any other party as to the Guaranteed Obligations of the
Borrower, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or change
in personnel by the Borrower, or (e) any payment made to any Guaranteed Creditor
on the Guaranteed Obligations which any such Guaranteed Creditor repays to the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief
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proceeding, and each Parent Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding.
14.04 INDEPENDENT OBLIGATION. The obligations of each Parent
Guarantor hereunder are independent of the obligations of any other guarantor,
any other party or the Borrower, and a separate action or actions may be brought
and prosecuted against each Parent Guarantor whether or not action is brought
against any other guarantor, any other party or the Borrower and whether or not
any other guarantor, any other party or the Borrower be joined in any such
action or actions. Each Parent Guarantor waives, to the full extent permitted by
law, the benefit of any statute of limitations affecting its liability hereunder
or the enforcement thereof. Any payment by the Borrower or other circumstance
which operates to toll any statute of limitations as to the Borrower shall
operate to toll the statute of limitations as to each Parent Guarantor.
14.05 AUTHORIZATION. Each Parent Guarantor authorizes the
Guaranteed Creditors without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew, increase, accelerate or
alter, any of the Guaranteed Obligations (including any increase or
decrease in the rate of interest thereon), any security therefor, or
any liability incurred directly or indirectly in respect thereof, and
the Parent Guaranty herein made shall apply to the Guaranteed
Obligations as so changed, extended, renewed or altered;
(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset there against;
(c) exercise or refrain from exercising any rights against the
Borrower, any other Credit Party or others or otherwise act or refrain
from acting;
(d) release or substitute any one or more endorsers,
guarantors, the Borrower or other obligors;
(e) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of the Borrower to
its creditors other than the Guaranteed Creditors;
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(f) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Borrower to the Guaranteed
Creditors regardless of what liability or liabilities of Holdings or
the Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or other wise amend, modify or supplement this
Agreement or any of such other instruments or agreements; and/or
(h) take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable
discharge of such Parent Guarantor from its liabilities under this
Parent Guaranty.
14.06 RELIANCE. It is not necessary for any Guaranteed
Creditor to inquire into the capacity or powers of the Borrower or the officers,
directors, partners or agents acting or purporting to act on their behalf, and
any Guaranteed Obligations made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
14.07 SUBORDINATION. Any of the indebtedness of the Borrower
now or hereafter owing to each Parent Guarantor is hereby subordinated to the
Guaranteed Obligations of the Borrower owing to the Guaranteed Creditors; and if
the Administrative Agent so requests at a time when an Event of Default exists,
all such indebtedness of the Borrower to such Parent Guarantor shall be
collected, enforced and received by such Parent Guarantor for the benefit of the
Guaranteed Creditors and be paid over to the Administrative Agent on behalf of
the Guaranteed Creditors on account of the Guaranteed Obligations of the
Borrower to the Guaranteed Creditors, but without affecting or impairing in any
manner the liability of such Parent Guarantor under the other provisions of this
Parent Guaranty. Prior to the transfer by a Parent Guarantor of any note or
negotiable instrument evidencing any of the indebtedness of the Borrower to such
Parent Guarantor, such Parent Guarantor shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination. Without
limiting the generality of the foregoing, each Parent Guarantor hereby agrees
with the Guaranteed Creditors that it will not exercise any right of subrogation
which it may at any time otherwise have as a result of this Parent Guaranty
(whether contractual, under Section 509 of the Bankruptcy Code or otherwise)
until all Guaranteed Obligations have been irrevocably paid in full in cash.
14.08 WAIVER. (a) Each Parent Guarantor waives any right
(except as shall be required by applicable statute and cannot be waived) to
require any Guaranteed Creditor to (i) proceed against the Borrower, any other
guarantor or any other party, (ii) proceed against or exhaust any security held
from the Borrower, any other guarantor or any other party or (iii) pursue any
other remedy in any Guaranteed Creditor's power whatsoever. Each Parent
Guarantor waives any defense based on or arising out of any defense of the
Borrower, any other guarantor or any other party, other than payment in full of
the Guaranteed Obligations, based on or arising out of the disability of the
Borrower, any other guarantor or any other party, or the validity, legality or
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrower other
than payment in full of the Guaranteed Obligations. The Guaranteed Creditors
may, at their election, foreclose on any
-110-
<PAGE>
security held by the Administrative Agent, the Collateral Agent or any other
Guaranteed Creditor by one or more judicial or nonjudicial sales, whether or not
every aspect of any such sale is commercially reasonable (to the extent such
sale is permitted by applicable law), or exercise any other right or remedy the
Guaranteed Creditors may have against the Borrower or any other party, or any
security, without affecting or impairing in any way the liability of any Parent
Guarantor hereunder except to the extent the Guaranteed Obligations have been
paid. Each Parent Guarantor waives any defense arising out of any such election
by the Guaranteed Creditors, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy of
any Parent Guarantor against the Borrower or any other party or any security.
(b) Each Parent Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Parent Guaranty, and notices of the existence, creation or incurring of
new or additional Guaranteed Obligations. Each Parent Guarantor assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks which such Parent Guarantor assumes and incurs hereunder, and agrees that
neither the Administrative Agent nor any Bank shall have any duty to advise such
Parent Guarantor of information known to them regarding such circumstances or
risks.
14.09 MAXIMUM LIABILITY. It is the desire and intent of each
Parent Guarantor and the Guaranteed Creditors that this Parent Guaranty shall be
enforced against such Parent Guarantor to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. If, however, and to the extent that, the obligations of a Parent
Guarantor under this Parent Guaranty shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or
transfers), then the amount of the Guaranteed Obligations of such Parent
Guarantor shall be deemed to be reduced and such Parent Guarantor shall pay the
maximum amount of the Guaranteed Obligations which would be permissible under
applicable law.
* * *
-111-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Addresses:
1 Generac Way GENERAC PORTABLE PRODUCTS, LLC
Jefferson, WI 53549
Tel: 920-674-1760
Fax: 920-674-5663
Attention: Dorrance Noonan, Jr. By: /s/ DOORANCE NOONAN, JR.
-----------------------------------------
Title: President and Chief Executive
Officer
399 Park Avenue GENERAC PORTABLE PRODUCTS, INC.
New York, NY 10022
Tel: 212-339-9100
Fax: 212-339-9109
Attention: Dorance Noonan, Jr. By: /s/ ERIC R. WILKINSON
-----------------------------------------
Title: President
1 Generac Way GPPW, INC.
Jefferson, WI 53549
Tel: 920-674-1760
212-339-9100
Fax: 920-674-5663 By: /s/ FAITH ROSENFELD
-----------------------------------------
Title: President
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: /s/ PATRICIA HOGAN
-----------------------------------------
Title: Principal
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ ELIZABETH BOROW
-----------------------------------------
Title: Managing Director
LASALLE NATIONAL BANK
By: /s/ RICHARD MAIER
-----------------------------------------
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ GAIL FLETCHER
-----------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ JERRY KANE
-----------------------------------------
Title: Senior Vice President
SANWA BUSINESS CREDIT CORPORATION
By /s/ PETER L. SKAVLA
------------------------------------------
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ TETSUO KAMATSU
-----------------------------------------
Title: Joint General Manager
<PAGE>
SCHEDULE I
COMMITMENTS
<TABLE>
<CAPTION>
Tranche A Term Tranche B Term Revolving
Bank Loan Commitment Loan Commitment Loan Commitment Totals
- ---- --------------- --------------- --------------- ------
<S> <C> <C> <C> <C>
Bankers Trust Company $3,913,043 $16,695,652 $2,608,697 $23,217,391
Bank of America
National Trust and Savings Association 6,554,348 5,826,087 4,369,565 16,750,000
The First National Bank of Chicago 6,554,348 5,826,087 4,369,565 16,750,000
LaSalle National Bank 6,554,348 5,826,087 4,369,565 16,750,000
Sanwa Business Credit Corporation 6,554,348 5,826,087 4,369,565 16,750,000
The Fuji Bank, Limited 5,869,565 -- 3,913,043 9,782,609
Union Bank of California, N.A. 9,000,000 -- 6,000,000 15,000,000
--------- --------- ----------
Totals $45,000,000 $40,000,000 $30,000,000 115,000,000
=========== =========== =========== ===========
</TABLE>
<PAGE>
SCHEDULE II
BANK ADDRESSES
Bankers Trust Company 130 Liberty Street
New York, New York 10006
Telephone No.: (212) 250-4886
Telecopier No.: (212) 250-7218
Attention: Anthony Logrippo
Bank of America 335 Madison Avenue
National Trust and Savings Association 6th Floor
New York, New York 10017
Telephone No.: (212) 503-8236
Telecopier No.: (212) 503-7502
Attention: Karen Lau
231 South LaSalle Street
Chicago, IL 60697
Telephone No.: (312) 828-2056
Telecopier No.: (312) 828-1974
Attention: Rob Ritter
LaSalle National Bank 135 South LaSalle Street
Suite 308
Chicago, IL 60603
Telephone No.: (312) 904-7624
Telecopier No.: (312) 904-8544
Attention: Richard G. Maier
Union Bank of California, N.A. 350 California Street
6th Floor
San Fransisco, CA 94104-1402
Telephone No.: (415) 705-7511
Telecopier No.: (415) 705-7567
Attention: Gail Fletcher
Sanwa Business Credit Corporation 500 Glenpointe Centre
West Teaneck, NJ 07666
Telephone No.: (201) 836-4006
Telecopier No.: (201) 836-4744
Attention: Pete Skavla
<PAGE>
Schedule II
Page 2
BANK ADDRESSES
The First National Bank of Chicago One First National Plaza
Mail Suite 0088
Chicago, IL 60670-0088
Telephone No.: (312) 732-1614
Telecopier No.: (312) 732-1117
Attention: Jerry J. Kane
Fuji Bank Ltd., 225 W. Wacker Drive
Chicago Branch Suite 2000
Chicago, Illinois 60606
Telephone No.: (312) 621-0397
Telecopier No.: (312) 621-0539
Attention: Jim Fayen
<PAGE>
SCHEDULE III
REAL PROPERTY
Owner Description
<PAGE>
SCHEDULE IV
EXISTING LIENS
<PAGE>
SCHEDULE V
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE VI
INSURANCE
<PAGE>
SCHEDULE VII
ERISA
<PAGE>
SCHEDULE VIII
SUBSIDIARIES
- -----------------------------
1/ Subsidiary Guarantor
<PAGE>
LABOR RELATIONS
(i)
<PAGE>
Exhibit 10.12
BANKERS TRUST COMPANY
130 LIBERTY STREET
NEW YORK, NEW YORK 10006
June 10, 1999
Generac Portable Products, LLC
1 Generac Way
Jefferson, WI 53549
Attention: Gary J. Lato, Chief Financial Officer
Dear Gary:
Reference is made to a Credit Agreement (the "Credit
Agreement") dated as of July 9, 1998, among Generac Portable Products, Inc., a
Delaware corporation ("Holdings"), GPPW, Inc., a Wisconsin corporation
("WisCorp" and together with Holdings, the "Parent Guarantors"), Generac
Portable Products, LLC, a Delaware limited liability company (the "Borrower"),
the Banks party thereto from time to time, and Bankers Trust Company, as
Administrative Agent. Unless otherwise defined herein, all capitalized terms
used herein shall have the respective meanings provided such terms in the Credit
Agreement. You have advised Bankers Trust Company ("BTCo") that Holdings intends
to effect an initial public offering of its common stock and to use the cash
proceeds from such offering together with proceeds from the Additional Senior
Bank Financing (as defined below) to repay (via tender) the Senior Subordinated
Notes (the "Senior Subordinated Notes Redemption").
In order to finance the Senior Subordinated Notes Redemption
and to pay fees and expenses owing in connection with the transaction, it is
presently contemplated that Holdings shall (x) obtain $40 million of additional
senior secured bank financing (the "Additional Senior Bank Financing") and (y)
receive gross proceeds of approximately $104 million from issuance of its common
stock pursuant to an initial public offering (the "Initial Public Offering" and,
together with the Additional Senior Bank Financing and the Senior Subordinated
Notes Redemption, the "Transaction").
We understand that the Additional Senior Bank Financing shall
be in the form of an increase to the Revolving Loan Commitment under the Credit
Agreement, in an amount up to $10 million (such increase, the "Additional
Revolving Loan Commitments"), and a new term loan facility for $30 million (the
"Tranche C Term Loan Facility"). Based on our discussions to date, we propose
that the Additional Senior Bank Financing be made available pursuant to an
<PAGE>
amendment to the Credit Agreement. A summary of certain terms and conditions of
the Additional Senior Bank Financing is set forth on Exhibit A attached hereto
(the "Term Sheet"). Please note that those matters that are not covered or made
clear herein, in the Term Sheet or in the Fee Letter of even date herewith (the
"Fee Letter") are subject to mutual agreement of the parties. The terms and
conditions of this commitment may be modified only in writing signed by each of
the parties hereto.
BTCo is pleased to confirm that (i) it is willing to provide,
on, and subject to the terms and conditions set forth herein and in the Term
Sheet, 100% of the Additional Senior Bank Financing and (ii) BTCo will continue
to act as sole Administrative Agent under the Credit Agreement. You agree that
no other agents, co-agents or arrangers will be appointed, no other titles will
be awarded and no compensation (other than that expressly contemplated by the
Term Sheet and the Fee Letter) will be paid in connection with the Additional
Senior Bank Financing unless you and we shall so agree.
BTCo reserves the right, prior to or after execution of the
definitive credit documentation for the Additional Senior Bank Financing, to
syndicate all or part of its commitment hereunder to one or more financial
institutions (collectively with BTCo, the "Banks") reasonably acceptable to the
Borrower that will become party to such definitive credit documentation pursuant
to a syndication to be managed by BTCo. BTCo will commence syndication promptly
after your acceptance of this letter and you agree to assist BTCo actively in
achieving a syndication that is satisfactory to BTCo and you. Such syndication
will be accomplished by a variety of means, including direct contact during the
syndication between senior management and advisors of Beacon, Holdings, WisCorp
and the Borrower and the proposed syndicate members. To assist BTCo in its
syndication efforts, you hereby agree (a) to provide and cause your advisors to
provide BTCo and the other syndicate members upon request with all information
deemed reasonably necessary by BTCo to complete syndication, including but not
limited to information and evaluations prepared by Beacon, Holdings, WisCorp and
the Borrower or the Borrower's advisors relating to the Transaction and the
other transactions contemplated hereby, (b) to assist BTCo upon request in the
preparation of an Information Memorandum to be used in connection with the
syndication of the Additional Senior Bank Financing and (c) to make available
the senior officers and representatives of Beacon, Holdings, WisCorp and the
Borrower, in each case from time to time and to attend and make presentations
regarding the business and prospects of Beacon, Holdings, WisCorp and the
Borrower and their respective subsidiaries at a meeting or meetings of Banks or
prospective Banks.
It is understood and agreed that, if BTCo deems such actions
advisable in order to ensure successful syndications of the Additional Senior
Bank Financing, BTCo shall be entitled (before the closing of the Additional
Senior Bank Financing) to increase the applicable margin for the Tranche C Term
Loans set forth in the Term Sheet by up to 1/2%.
BTCo's commitment hereunder also is subject to (a) its
reasonable satisfaction that prior to and during the syndication of the
Additional Senior Bank Financing there shall be no competing offering, placement
or arrangement of any debt securities or bank financing by or on behalf of
Parent Guarantors, the Borrower or their subsidiaries, (b) there not occurring
or becoming known to BTCo any material adverse condition or material adverse
change in or
2
<PAGE>
affecting the business, property, assets, nature of assets, liabilities,
conditions (financial or otherwise) or prospects of Holdings, the Borrower or
Holdings and its subsidiaries taken as a whole, (c) the absence after the date
hereof of any material disruption of or a material adverse change in financial,
banking or capital market conditions that, in the reasonable judgment of BTCo,
could materially impair the syndication of the Additional Senior Bank Financing
and (d) the other conditions set forth or referred to in the Term Sheet,
including obtaining the requisite consents of the Required Banks under the
Credit Agreement.
BTCo's commitment hereunder shall terminate on August 31,
1999 unless the Amendment Effective Date (as defined in the Term Sheet) has
occurred on or before such date.
You hereby agree to pay all reasonable costs and expenses
(including the reasonable fees and expenses of White & Case LLP as BTCo's
counsel, the reasonable fees and expenses of third party consultants retained by
BTCo and BTCo's reasonable out-of-pocket expenses) arising in connection with
the preparation, execution and delivery of this letter and the definitive
financing agreements (and our due diligence and syndication efforts in
connection therewith), provided that, in each case, you receive reasonably
detailed invoices regarding such costs and expenses). In addition, you agree to
pay when and as due the fees described in the Fee Letter. You further agree to
indemnify and hold harmless us and each of the Banks and each director, officer,
employee, agent and affiliate thereof (each an "indemnified person") in
connection with any losses, claims, damages, liabilities or other expenses to
which any indemnified person may become subject, insofar as such losses, claims,
damages, liabilities (or actions or other proceedings commenced or threatened in
respect thereof) or other expenses arise out of or in any way relate to or
result from the Transaction or this letter or the extension of the Additional
Senior Bank Financing contemplated by this letter, or in any way arise from any
use or intended use of this letter or the proceeds of the Additional Senior Bank
Financing, and you agree to reimburse each indemnified person for any legal or
other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not any such indemnified person is a party to any action
or proceeding out of which any such expenses arise), provided that you shall
have no obligation hereunder to indemnify any indemnified person for any loss,
claim, damage, liability or expense to the extent that same results from the
gross negligence or willful misconduct of such indemnified person. This letter
is furnished for your benefit only, and may not be relied upon by any other
person or entity. Neither BTCo nor any other Bank shall be responsible or liable
to you or any other person or entity for consequential damages which may be
alleged as a result of this letter. It is understood and agreed by the parties
hereto that, upon the execution and effectiveness of the definitive
documentation with respect to the Additional Senior Bank Financing, the
indemnification provisions contained above in this paragraph shall be superseded
and replaced by the provisions contained in such definitive documentation.
This letter and the Term Sheet (collectively, the "Commitment
Letter") are furnished for your benefit, and may not be relied upon by any other
person or entity. You agree that this Commitment Letter is for your confidential
use only and that neither its existence nor the terms hereof will be disclosed
by you to any person other than your officers, directors, employees,
accountants, attorneys and other advisors, and then only on a "need to know"
basis in connection with the transactions contemplated hereby and on a
confidential basis. Notwithstanding the fore-
3
<PAGE>
going, following your acceptance of the provisions hereof and your return of an
executed counterpart of this Commitment Letter and the related Fee Letter to us
as provided below, (i) you may make public disclosure of the existence and
amount of the commitments hereunder and of the identity of BTCo, (ii) you may
file a copy of this Commitment Letter (but not the Fee Letter) in any public
record in which it is required by law to be filed and (iii) you may make such
other public disclosure of the terms and conditions hereof as, and to the
extent, you are required by law, in the opinion of your counsel, to make.
The provisions of the two immediately preceding paragraphs
shall survive any termination of this letter.
BTCo reserves the right to employ the services of its
affiliates (including BT Alex. Brown Incorporated ("BTAB")) in providing the
services contemplated by this letter and to allocate, in whole or in part, to
such affiliates (including, BTAB) certain fees payable to BTCo in such manner as
BTCo and its affiliates may agree in their sole discretion. You acknowledge that
BTCo may share with any of its affiliates (including BTAB) any information
relating to the Transaction, Holdings and its subsidiaries and affiliates. BTCo
agrees to treat, and cause any such affiliate to treat, all non-public
information provided to it by Holdings and its subsidiaries, as confidential
information in accordance with customary banking industry practices.
If you are in agreement with the foregoing, please sign and
return to us the enclosed copy of this letter, together with an executed copy of
the enclosed Fee Letter. This offer shall terminate at 5:00 P.M., New York time,
on June 18, 1999 unless a signed copy of this letter and the enclosed Fee Letter
have been delivered to us (including by way of telecopier) by such time. This
letter may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument.
* * * *
4
<PAGE>
THIS LETTER AND THE FEE LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK, AND ANY RIGHT TO TRAIL BY JURY WITH
RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED
BY THIS LETTER AND/OR THE FEE LETTER IS HEREBY WAIVED. THE PARTIES HERETO HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE
COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO
THIS LETTER AND/OR THE FEE LETTER OR ANY MATTERS CONTEMPLATED HEREBY OR THEREBY.
If this letter is not accepted by you as provided in the
second preceding paragraph, you are directed to immediately return this letter
(and any copies hereof) to the undersigned.
Very truly yours,
BANKERS TRUST COMPANY
By: /s/ Victoria Page
------------------------
Title: Managing Director
Agreed to and Accepted this
10th day of June, 1999
GENERAC PORTABLE PRODUCTS, LLC.
By: /s/ Gary J. Lato
------------------------------
Title: Chief Financial Officer
5
<PAGE>
EXHIBIT A
SUMMARY OF CERTAIN OF THE TERMS AND
CONDITIONS OF THE ADDITIONAL SENIOR BANK FINANCING(1)
Administrative Agent: Bankers Trust Company ("BTCo").
Lead Arranger: BTCo.
Banks: A syndicate of Banks reasonably acceptable to
the Borrower arranged by BTCo (the "Banks").
Borrower: Generac Portable Products, LLC.
Amount: $40 million, allocated as a new $30 million
term loan facility (the "Tranche C Term Loan
Facility"), and a $10 million increase in the
Revolving Loan Facility under the Credit
Agreement (such increase, the "Additional
Revolving Loan Commitments").
Use of Proceeds: A. The loans under the Tranche C Term
Loan Facility (the " Tranche C Term
Loans") may only be incurred on one
date occurring within 60 days of the
date the conditions precedent set
forth below under "Conditions
Precedent" are satisfied (the
"Amendment Effective Date") and the
proceeds thereof shall be utilized
solely to finance, in part, the
Senior Subordinated Notes
Redemption, and to pay the fees
and expenses owing in connection
with the Senior Subordinated
Notes Redemption. The aggregate
amount of the Tranche C Term
Loans is limited to the amount
paid for the Senior Subordinated
Notes Redemption less the gross
cash proceeds from the Initial
Public Offering plus fees and
expenses payable in connection
with the Initial Public Offering
and the Additional Senior Bank
Financing.
B. The Additional Revolving Loan
Commitments shall be utilized solely
for working capital and general
corporate purposes of the Borrower.
- ----------
(1) All capitalized terms used herein and not otherwise defined herein or
in the Commitment Letter attached hereto shall have the meaning
provided in the Credit Agreement.
<PAGE>
Exhibit A
Page 2
Maturity: The final maturity of the Tranche C Term Loans
shall be June 30, 2006. The Tranche C Term
Loans shall be amortized in quarterly
installments to be determined.
Availability: A. Tranche C Term Loans may only be
incurred within 60 days of the
Amendment Effective Date. No amount
of Tranche C Term Loans once repaid
may be reborrowed.
B. The Additional Revolving Loan
Commitment shall be effective on the
Amendment Effective Date and shall
remain effective through the
Revolving Loan Maturity Date.
Guaranties: The Additional Senior Bank Financing shall be
unconditionally guaranteed on the same basis as
all existing indebtedness under the Credit
Agreement.
Security: The Additional Senior Bank Financing (and the
guaranties thereof) shall be secured on a PARI
PASSU basis by all collateral securing the
existing indebtedness under the Credit
Agreement.
Mandatory
Repayments: A. Mandatory repayments of outstanding
Tranche C Term Loans and reductions
of the remaining scheduled
amortization of the Tranche C Term
Loans shall be required from excess
cash flow, asset sales, issuances of
equity, incurrence of debt and
receipt of insurance proceeds all on
the same basis as currently provided
in the Credit Agreement for Term
Loans, PROVIDED, that the proceeds
from the Initial Public Offering
which are utilized to fund the
Senior Subordinated Notes Redemption
and to pay fees and expenses in
connection therewith within 60 days
of the receipt thereof (or 90 days
in the case of fees and expenses)
shall not be required to be applied
to the repayment of the Term Loans
under the Credit Agreement.
B. The Additional Revolving Loan
Commitment shall be subject to
reductions in the same manner as the
Revolving Loan Commitment under the
Credit Agreement.
<PAGE>
Exhibit A
Page 3
Voluntary
Prepayments: A. Voluntary prepayments of Tranche C
Term Loans may be made at any time
without premium or penalty on the
same basis as currently provided in
the Credit Agreement for Term Loans,
PROVIDED, that any prepayment of
Term Loans will be applied PRO RATA
among each Tranche of the Term
Loans.
B. Voluntary reductions of the
Additional Revolving Loan Commitment
shall be on the same basis as the
Revolving Loan Commitment under the
Credit Agreement.
Commitment Termination: The commitments hereunder shall terminate on
August 31, 1999 unless the Amendment Effective
Date has occurred on or before such date.
Interest Rates: A. The Tranche C Term Loans will bear
interest at the same rates, on the
same basis, and paid at the same
times, as the Term Loans under the
Credit Agreement, PROVIDED that the
Applicable Margin for the Tranche C
Term Loans maintained as (x) Base
Rate Loans shall be 1.50% at all
times and (y) Eurodollar Loans shall
be 2.50% at all times (such margin
shall not be adjusted pursuant to
the pricing grid).
B. The loans under the Additional
Revolving Loan Commitment shall bear
interest at the same rates, on the
same basis, and paid at the same
times, as the Revolving Loan
Commitment in the Credit Agreement.
C. In addition, for the period
commencing on the Amendment
Effective Date and ending on the
three month anniversary thereof, the
Applicable Margin (but not the
Applicable Commitment Commission
Percentage) for Loans under the
Credit Agreement will not be less
than Level 4.
Agent Fees: The Administrative Agent shall receive such
fees as have been separately agreed upon with
the Administrative Agent.
<PAGE>
Exhibit A
Page 4
Assignments and
Participations: On the same basis as provided in the Credit
Agreement.
Conditions
Precedent: In addition to conditions precedent typical for
these types of facilities and any other
conditions appropriate in the context of the
proposed transaction, the following conditions
shall apply:
(i) The Administrative Agent shall have
received for the account of each
Bank making Tranche C Term Loans,
the appropriate Tranche C Term Note,
in the amount, maturity and
otherwise provided in the Section
1.05 of the Credit Agreement, and
each such Bank with an Additional
Revolving Loan Commitment shall
receive a replacement Revolving Note
reflecting the increase in its
Revolving Loan Commitment.
(ii) The Borrower shall have paid to the
Administrative Agent and the Banks
all costs, fees and expenses
(including, without limitation,
legal fees and expenses) payable to
the Administrative Agent and the
Banks to the extent then due.
(iii) The Banks shall have received legal
opinions from counsel, and covering
matters, reasonably acceptable to
the Administrative Agent.
(iv) All actions shall be taken to ensure
that the Security Documents and the
Subsidiaries Guaranty secure and
guarantee the Additional Senior Bank
Financing.
(v) All necessary governmental (domestic
and foreign) and third party
approvals and/or consents in
connection with the Transaction
shall have been obtained and remain
in effect, and all applicable
waiting periods shall have expired
without any action being taken by
any competent authority which
restrains, prevents, or imposes
materially adverse conditions upon,
the consummation of the Transaction.
Additionally, there shall not exist
any judgment, order, injunction or
other restraint prohibiting or
imposing materially adverse
conditions upon the Transaction.
<PAGE>
Exhibit A
Page 5
(vi) (a) The Initial Public Offering
shall have been consummated in
accordance with all applicable law,
(b) the the gross cash proceeds
thereof (before payment of fees,
costs and expenses) shall be at
least $104 million, (c) net cash
proceeds thereof (after payment of
fees, costs and expenses) shall have
been contributed as a common equity
contribution to DelCorp and WisCorp,
(d) DelCorp and WisCorp shall have
contributed such amount to the
Borrower and (e) the Borrower shall
have utilized the full amount
received pursuant to clause (d) to
redeem the Senior Subordinated Notes
(and to pay related fees, costs and
expenses).
(vii) The Borrower shall have accepted for
payment all Senior Subordinated
Notes issued by it, in each case to
the extent tendered and not
withdrawn pursuant to an offer to
purchase and consent solicitation,
which shall be in form and substance
satisfactory to BTCo (including,
without limitation, the tender
price) and shall be in accordance
with all applicable law, and each of
the conditions to such purchase as
set forth in such offer to purchase
either shall have been (i) satisfied
or (ii) waived with the consent of
the Administrative Agent (it being
understood that in any event at
least 80% of the aggregate
outstanding principal amount of the
Senior Subordinated Notes shall be
purchased pursuant to such offer to
purchase).
(viii) In the event that 100% of the Senior
Subordinated Notes shall not have
been accepted for payment pursuant
to the offer to purchase and consent
solicitation referred to in clause
(vii) above, amendments to the
documentation for the Senior
Subordinated Notes, satisfactory in
form and substance to BTCo, shall
have become effective.
(ix) There shall not exist or be
continuing any Default or Event of
Default under the Credit Agreement
and all representations and
warranties set forth in the Credit
Agreement shall be true and correct
in all material respects.
(x) The amendment to the Credit
Agreement incorporating the
provisions contemplated hereby
<PAGE>
Exhibit A
Page 6
and satisfactory in form and substance to BTCo
shall have become effective in accordance with
the terms of the Credit Agreement.
Representation and Warranties: Substantially the same as the representations
and warranties contained in the Credit
Agreement, with appropriate changes thereto and
any additional representations and warranties
as are necessary in the context of the
Transaction.
Covenants: Substantially the same as the covenants
contained in the Credit Agreement, with
appropriate changes thereto and any additional
covenants as are necessary to permit the Senior
Subordinated Notes Redemption, PROVIDED that
Section 9.07(a) of the Credit Agreement shall
be amended to permit Capital Expenditures of
$12.5 million during the fiscal year ending on
December 31, 1999 and $10.0 million for each
fiscal year thereafter.
Events of Default: Substantially the same as the events of default
contained in the Credit Agreement, with
appropriate changes thereto and any additional
events of default as are necessary in the
context of the Transaction.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Generac Portable Products, Inc.
We consent to the use in this Amendment No. 1 to Registration Statement
of Generac Portable Products, Inc. on Form S-1 (File No. 333-79071) of our
report dated January 29, 1999 (relating to the financial statements of the
Portable Products Division, a Business Unit of Generac Corporation) appearing
in the Prospectus, which is part of this Amendment No. 1 to Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
Our audits of the financial statements also included the financial statement
schedule of the Portable Products Division, a Business Unit of Generac
Corporation listed in Item 16(b) Schedule II. This financial statement
schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
June 11, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration
Statement on Form S-1 of Generac Portable Products, Inc. (File No. 333-79071)
of our report dated February 22, 1999, except as to the EARNINGS PER SHARE
section of Note 2, and Note 10, which are as of May 28, 1999, relating to the
financial statements of Generac Portable Products, Inc., which appears in
such Amendment No. 1 to Registration Statement. We also consent to the use in
this Amendment No. 1 to Registration Statement of our report dated February
22, 1999 relating to the Financial Statement Schedule of Generac Portable
Products, Inc. We also consent to the reference to us under the heading
"Experts" in such Amendment No. 1 to Registration Statement.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 11, 1999
