<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 1998
---------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______.
Commission File No. 1 - 11288
---------
APPLIED POWER INC.
------------------
(Exact name of Registrant as specified in its charter)
Wisconsin 39-0168610
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13000 West Silver Spring Drive
Butler, Wisconsin 53007
Mailing address: P.O. Box 325, Milwaukee, Wisconsin 53201
---------------------------------------------------------
(Address of principal executive offices)
(414) 783-9279
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, New York Stock Exchange
$.20 par value per share -----------------------
------------------------ (Name of each exchange on
(Title of each class) which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of October 30, 1998, the aggregate market value of Common Stock held by non-
affiliates was approximately $1,036.9 million, and there were 38,654,903 shares
of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on January 8, 1999 are incorporated by reference into
Part III hereof.
<PAGE>
PART I
------
Item 1. Business
--------
General Development of the Company
Applied Power Inc. (the "Company"), a Wisconsin corporation incorporated in
1910, is a diversified global company engaged in the business of providing
tools, equipment, systems and supply items to a variety of end users and
original equipment manufacturers ("OEMs") in the manufacturing, computer,
semiconductor, telecommunication, datacom, construction, electrical,
transportation, recreational vehicle, aerospace, defense and other industries.
The Company's operations are divided into three business segments:
Enclosure Products and Systems
Electronic enclosure products, systems and technical environment solutions
sold into the telecommunication, computer networking, semiconductor
equipment, medical, electronic and manufacturing environments.
Engineered Solutions
Motion, vibration control and magnetic applications and systems primarily
for OEM customers.
Tools and Supplies
Industrial and electrical tools and supplies sold primarily through
distributors and mass merchandisers.
Merger and Acquisitions
During the fiscal year, the Company's Enclosure Products and Systems segment
acquired several businesses. Substantially all of the assets of Performance
Manufactured Products Inc., located in San Jose, California, and a related
entity ("PMP") were acquired in January 1998. In February 1998, the Company
acquired AA Manufacturing, Inc. ("AA"), located in Garland, Texas. The Company
purchased certain assets of Product Technology Inc. ("PTI"), located in Irvine,
California, in May 1998. Premier Industries ("Premier"), located in Hudson, New
Hampshire, was purchased in May 1998. In June 1998, the Company, through a
wholly-owned subsidiary, acquired all of the outstanding shares of VERO Group
plc ("VERO"). VERO is a United Kingdom based company that manufactures
electronic enclosures, racks, backplanes and power supplies. The Company
purchased certain assets of Brown Manufacturing Company ("Brown"), located in
Austin, Texas, in June 1998. On July 31, 1998, the Company and ZERO Corporation
("ZERO") completed the merger of a newly created subsidiary of the Company into
ZERO following special meetings for both companies at which shareholders voted
to approve the merger. ZERO's operations had two business segments: "Enclosures
and Accessories" for the electronics industry and "Other" which serves the air
cargo and other/consumer markets. The ZERO units have been integrated into the
Enclosure Products and Systems and Engineered Solutions segments of the Company.
Following the end of the fiscal year, in September, 1998, the Company announced
that the Boards of Directors of the Company and Rubicon Group plc ("Rubicon")
had agreed to terms of a recommended cash offer by the Company to acquire the
entire issued share capital of Rubicon. Rubicon is comprised of two business
divisions. The Electronic Manufacturing Services ("EMS") division is a contract
manufacturer of complex electronic enclosures and related system sub-assemblies.
The second division is Rubicon's magnetics business, which specializes in the
design, prototyping, manufacturing and testing of bonded magnets, using rare
earth and ferric magnet materials for applications in the information
technology, automotive and consumer electronic industries.
All of the above acquisitions in aggregate relate to electronic enclosures
manufacturing, assembly, integration and supporting critical components such as
backplanes, thermal management and power supplies.
With respect to the Engineered Solutions segment, in October 1997, the Company,
through a wholly-owned subsidiary, acquired all of the outstanding shares of
Versa Technologies Inc. ("Versa/Tek"). Versa/Tek, operating out of several
locations in Wisconsin, is a value-added manufacturer of custom engineered
components and systems for diverse industrial markets, and has been integrated
into the Company's Engineered Solutions and Tools and Supplies segments.
2
<PAGE>
During the year, the Company also made several acquisitions in the Tools and
Supplies segment. The outstanding capital stock of Del City Wire Co., Inc. ("Del
City") was acquired in February 1998. Headquartered in Oklahoma City, Oklahoma,
Del City is a direct catalog supplier of electrical wire, consumables, and
accessories to wholesale and OEM customers in the heavy equipment, automotive,
trucking, marine and industrial markets. Del City is also a domestic
manufacturer of solderless terminals, molded electrical plugs, battery cables
and related products. In January 1998, the Company completed the acquisition of
all of the outstanding capital stock of Ancor Products, Inc. ("Ancor"). Ancor,
headquartered in Cotati, California, is a market leader in electrical products
to the marine industry. In October 1997, the Company's CalTerm subsidiary
acquired substantially all of the assets of Nylo-Flex Manufacturing Company,
Inc. ("Nylo-Flex"). Nylo-Flex, which does business under the TAM name, is
headquartered in Mobile, Alabama. Nylo-Flex is a manufacturer, packager, and
distributor of high quality battery terminals, battery cables, and battery
maintenance accessories to the automotive, marine, farm, fleet and industrial
markets.
For further information regarding the Company's acquisitions, see Note B -
"Merger and Acquisitions" and Note P - "Subsequent Events" in Notes to
Consolidated Financial Statements.
Financial information by segment and geographic area, as well as information
related to export sales, is included in Note N - "Segment Information" in Notes
to Consolidated Financial Statements, which is included as part of Item 8 of
Part II of this report and is incorporated herein by reference.
All dollar amounts are in US$ thousands unless otherwise indicated.
Description of Business Segments
ENCLOSURE PRODUCTS AND SYSTEMS
Enclosure Products and Systems ("EPS"), formerly known as Technical Environments
and Enclosures, provides users and manufacturers of electronic equipment with
technical furniture and electronic enclosure products and systems. Technical
furniture, sold primarily under the Wright Line brand name, is used to configure
the environment in which computers reside, including computer room,
manufacturing or technical office environments. Electronic enclosure products
are cabinets, racks and subracks that are sold under the Stantron and VERO brand
names. Other products include backplanes, power supplies and cases sold under
the VERO, Danica and ZERO Halliburton(R) brand names, respectively. In addition
to providing standard products, EPS sells customized electronic enclosure
systems allowing the Company to provide completely integrated and tested
products to a wide array of customers including the telecommunication, computer
networking, semiconductor manufacturing equipment and automated teller machines
markets. The systems business is driven by the desire of many producers of
electronic components to outsource manufacturing and it relies heavily on EPS'
skills in new product development, supply chain management, assembly and
testing. EPS also has a global drop ship capability.
EPS products are primarily sold direct, with specific standard products going
through distribution in selected markets. EPS sales and manufacturing locations
are mainly in Europe and North America. EPS' largest single customer, IBM, is
expected to account for just under ten percent of total EPS sales in 1999. Sales
to the Federal Government, which now average approximately 7% of total EPS net
sales, are made pursuant to a contract between EPS and the US Government's
General Services Administration ("GSA"). The government sales are primarily for
technical furniture. As the enclosure product line grows within EPS, it is
expected that the percent of total EPS sales attributable to the GSA contract
will decline considerably in 1999.
ENGINEERED SOLUTIONS
Engineered Solutions ("ES") is a technology based business providing customized
solutions to OEM customers in the truck, aerospace, automotive, recreational
vehicle, electrical/electronic enclosures and other general industrial markets.
ES possesses particular competence in hydraulic, electromechanical,
rubber/elastomer molding, magnetic, thermal systems and electronic control
techniques. Principle brand names that ES trades under include McLean, Barry
Controls, Power Gear, Power Packer, Vlier, Mox-Med and Eder. The segment's
sales, engineering and manufacturing activities are primarily in Europe and
North America. As an OEM supplier, ES operates as a just-in-time supplier and
maintains numerous quality certifications including ISO 9001 and ISO 9000. Most
ES sales are diversified by customer and end user industry and are primarily
sold through direct sales persons, with sales representatives and distributors
used in certain situations.
3
<PAGE>
TOOLS AND SUPPLIES
Tools and Supplies ("TS") provides a wide array of electrical and industrial
tools and supplies to wholesale distributors, catalogs and various retail
channels of distribution. TS provides over 10,000 stock keeping units ("SKUs"),
most of which are designed and manufactured by the Company in North America. TS
has particular expertise in hydraulic design and plastic injection molding. The
Company maintains a sophisticated sourcing operation to supply additional
products to supplement its own products and meet its customers' needs. Principal
brand names used by the Company include Enerpac, GB Gardner Bender, Ancor,
Calterm and Del City. End user markets include general industrial, construction,
retail marine, retail automotive, do-it-yourself and production automation. To
provide its customers with the service levels required, TS maintains a
sophisticated warehouse and physical distribution capability in North America,
Europe and Asia. Certain products are sold on an OEM basis.
Competition
The Company competes on the basis of product design, quality, availability,
performance, customer service and price. The Company believes that its technical
skills, global presence, shared technology base, close working relationships
with customers as well as patent protection bolster its competitive position.
The Company's businesses face competition to varying degrees in each of their
markets. In general, each product line competes with a small group of different
competitors. No one company competes directly with the Company across all of its
businesses.
Research and Development
The Company maintains engineering staffs at several locations that design new
products and make improvements to existing product lines. Expenditures for
research and development were $13,947, $10,437 and $10,247 in fiscal years 1998,
1997 and 1996, respectively, the majority of which was expended by the
Engineered Solutions segment. Substantially all research, development and
product improvement expenditures are Company funded.
Patents and Trademarks
The Company has been issued a number of patents that provide protection for
valuable designs and processes primarily in its Tools and Supplies and
Engineered Solutions businesses. The Company owns numerous other United States
and foreign patents and trademarks. No such individual patent or trademark (or
group thereof) is believed to be of sufficient importance that its termination
would have a material adverse effect on the Company's businesses.
Manufacturing, Materials and Suppliers
The majority of the Company's manufacturing operations include the assembly of
parts and components which have been purchased by the Company from a number of
suppliers. In the absence of unusual circumstances, substantially all such parts
and components are normally available from a number of local and national
suppliers.
Order Backlogs and Seasonality
At August 31, 1998, the Company had approximately $251,900 in backlog, compared
to approximately $164,200 at August 31, 1997. Substantially all orders are
expected to be completed prior to August 31, 1999. The Company's sales are
subject to minor seasonal fluctuations, with second quarter sales traditionally
being the lowest of the year.
4
<PAGE>
Employee Relations
As of August 31, 1998, the Company employed approximately 10,150 people on a
full-time basis, of which approximately 80 were represented by a collective
bargaining agreement. In general, the Company enjoys good relationships with its
employees.
Environmental Compliance
The Company has facilities in numerous geographic locations that are subject to
a range of environmental laws and regulations. Compliance with these laws has
and will require expenditures on a continuing basis. The Company has been
identified by the United States Environmental Protection Agency as a
"Potentially Responsible Party" regarding various multi-party Superfund sites.
Based on its investigations, the Company believes it is a de minimis participant
in each case, and that any liability which may be incurred as a result of its
involvement with such Superfund sites, taken together with its expenditures for
environmental compliance, will not have a material adverse effect on its
financial position. Environmental costs are expensed or capitalized depending on
their future economic benefits. Expenditures that have no future economic value
are expensed. Liabilities are recorded when environmental remediation is
probable and the costs can be reasonably estimated. Environmental expenditures
over the last three years have not been material. Although the level of future
expenditures for environmental remediation is impossible to determine with any
degree of certainty, it is management's opinion that such costs are not
presently expected to have a material adverse effect on the Company's financial
position, results of operations or cash flows. Environmental remediation
accruals of $4,049 and $1,608 were included in the Consolidated Balance Sheet at
August 31 , 1998 and 1997, respectively. For further information, refer to Note
O - "Contingencies and Litigation" in Notes to Consolidated Financial
Statements.
Item 2. Properties
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The following table summarizes the principal manufacturing, warehouse and office
facilities owned or leased by the Company:
<TABLE>
<CAPTION>
Location and Business Size (sq. feet) Owned/Leased
- --------------------------------------------------------------------------------
<S> <C> <C>
ENCLOSURE PRODUCTS AND SYSTEMS
- ------------------------------
Anaheim, California 360,000 Leased
Monson, Massachusetts 320,000 Owned
North Salt Lake, Utah 292,000 Owned
Worcester, Massachusetts 240,000 Owned
Dublin, Ireland 205,000 Leased/Owned
Eastleigh, England 186,000 Leased
San Jose, California 177,000 Leased
Middlesex, England 151,000 Leased
Monon, Indiana 150,000 Owned
Hudson, New Hampshire 140,000 Leased
Pacoima, California 113,000 Leased
Southampton, England 95,000 Leased
Garland, Texas 80,000 Leased
El Monte, California 78,000 Leased
Wallingford, Connecticut 76,000 Leased
Cork, Ireland 70,000 Leased
West Boylston, Massachusetts 60,000 Owned
Portsmouth, New Hampshire 55,000 Leased
Bremen, Germany 54,000 Owned
Austin, Texas 51,000 Leased
San Diego, California 49,000 Owned
Garden Grove, California 47,000 Leased
Aarup, Denmark 38,000 Owned
Irvine, California 35,000 Leased
Beauvais, France 32,000 Owned
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Location and Business Size (sq. feet) Owned/Leased
- ------------------------------ --------------- ------------
<S> <C> <C>
ENGINEERED SOLUTIONS
- ------------------------------
Champlin, Minnesota 186,000 Owned
Birmingham, England 145,000 Owned/Leased
Brighton, Massachusetts 144,000 Leased
Robbinsville, New Jersey 133,000 Owned
Burbank, California 126,000 Leased
Oldenzaal, Netherlands 126,000 Owned/Leased
Rancho Dominguez, California 110,000 Leased
Waukesha, Wisconsin 83,000 Leased
Pachuca, Mexico 73,000 Leased
Oak Creek, Wisconsin 72,000 Owned
Hartford, Connecticut 65,000 Owned
Portage, Wisconsin 56,000 Owned
Westfield, Wisconsin 40,000 Owned
Hersham, England 39,000 Leased
Beaver Dam, Wisconsin 38,000 Owned
Camarillo, California 36,000 Leased
Tijuana, Mexico 35,000 Leased
Middlesex, England 32,000 Leased
Smethwick, England 29,000 Leased
Sao Paulo, Brazil 22,000 Leased
TOOLS AND SUPPLIES
- ------------------------------
Glendale, Wisconsin 313,000 Leased
Troyes, France 185,000 Leased
Columbus, Wisconsin 130,000 Leased
Veenendaal, Netherlands 97,000 Owned
Mobile, Alabama 75,000 Leased
Cudahy, Wisconsin 73,000 Owned
San Diego, California 69,000 Leased
Oklahoma City, Oklahoma 56,000 Leased
Reno, Nevada 55,000 Owned
Tecate, Mexico 54,000 Leased
Tokyo, Japan 39,000 Leased
Charlotte, North Carolina 36,000 Leased
Matthews, North Carolina 33,000 Owned
Alexandria, Minnesota 25,000 Owned
Sydney, Australia 23,000 Leased
Cotati, California 20,000 Leased
Taipei, Taiwan 19,000 Leased
Ontario, Canada 18,000 Leased
Corsico, Italy 18,000 Owned
Seoul, South Korea 18,000 Leased
Lancaster, Pennsylvania 16,000 Leased
Dusseldorf, Germany 15,000 Leased
Singapore, Singapore 15,000 Leased
</TABLE>
In addition to these properties, the Company utilizes a number of smaller
facilities in Spain, Italy, Canada, Brazil, France, Germany, Russia, Taiwan,
India, Hong Kong, Malaysia, the Peoples Republic of China, the United Kingdom
and the United States. The above table does not include facilities acquired with
Rubicon in September 1998. The Company's headquarters are based in a leased
office facility in Butler, Wisconsin.
The Company's strategy is to lease properties when available and economically
advantageous. Leases for the majority of the Company's facilities include
renewal options. For additional information, see Note J - "Leases" in
6
<PAGE>
Notes to Consolidated Financial Statements. The Company believes its current
properties are well maintained and in general are adequately sized to house
existing operations.
Item 3. Legal Proceedings
-----------------
The Company is a party to various legal proceedings that have arisen in the
normal course of its business. These legal proceedings typically include product
liability, environmental, labor and patent claims. (For further information
related to environmental claims, refer to the section titled "Environmental
Compliance" in Item 1). The Company has recorded reserves for estimated losses
based on the specific circumstances of each case. Such reserves are recorded
when the occurrence of loss is probable and can be reasonably estimated. In the
opinion of management, the resolution of these contingencies is not expected to
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. For further information, refer to Note O -
"Contingencies and Litigation" in Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On July 31, 1998, ZERO Corporation, a Delaware corporation ("ZERO"), became a
wholly-owned subsidiary of the Company through the merger of STB Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company
("Acquisition"), with and into ZERO (the "Merger") pursuant to an Agreement and
Plan of Merger by and among the Company, ZERO and Acquisition dated as of April
6, 1998 (the "Merger Agreement"). The shareholders of the Company approved the
issuance of shares of the Company's common stock pursuant to the Merger
Agreement to effect the transactions contemplated by the Merger Agreement by the
requisite vote at the special meeting of shareholders of the Company held on
July 31, 1998. The voting results were: 22,160,498 for; 77,950 against; 608,361
abstentions; and, no broker non-votes.
Executive Officers of the Registrant
- ------------------------------------
The names, ages and positions of all of the executive officers of the Company
are listed below.
<TABLE>
<CAPTION>
Name Age Position
- ----------------------- --- ---------------------------------------------------------
<S> <C> <C>
Richard G. Sim 54 Chairman, President and Chief Executive Officer; Director
William J. Albrecht 47 Senior Vice President
Philip T. Burkart 41 Senior Vice President
Timothy R. Wightman 52 Senior Vice President
Gustav H.P. Boel 54 Vice President
Theodore M. Lecher 47 Vice President
Robert C. Arzbaecher 38 Senior Vice President and Chief Financial Officer
Richard D. Carroll 35 Treasurer and Controller
Anthony W. Asmuth III 56 Secretary
</TABLE>
Richard G. Sim was elected President and Chief Operating Officer in 1985, Chief
Executive Officer in 1986 and Chairman of the Board in 1988. From 1982 through
1985, Mr. Sim was a General Manager in the General Electric Medical Systems
Business Group. He is also a director of IPSCO Inc. and Oshkosh Truck
Corporation.
William J. Albrecht was named Senior Vice President of Engineered Solutions in
1994. Prior to that, he served as Vice President and President of Power-Packer
and APITECH since 1991. He joined the Company in 1989 as Director of Marketing
of the APITECH Division in the United States and became General Manager shortly
7
<PAGE>
thereafter. Prior to joining the Company, Mr. Albrecht was Director of National
Accounts and Industrial Power Systems at Generac Corp. from 1987 to 1989.
Philip T. Burkart was elected Senior Vice President of the Company in 1998.
Prior to that, he served as Vice President of the Company since 1995 and
President of Enclosure Products and Systems since 1994. From 1990 to 1994, Mr.
Burkart held various positions within Enclosure Products and Systems including:
General Manager, Vice President, Marketing and Operations and Director of
Marketing. Prior to joining the Company, Mr. Burkart was a Marketing Manager for
GE Medical Systems.
Timothy R. Wightman joined the Company in September 1998 with the acquisition of
Rubicon Group plc where he was Chief Executive Officer since 1992. Prior to
joining Rubicon, Mr. Wightman was Chief Executive of Credit Ancillary Services
Ltd from 1987 to 1992.
Gustav H.P. Boel was appointed Vice President with responsibilities for Tools
and Supplies in 1998. Prior to that, Mr. Boel was President of Enerpac since
1995. From 1991 to 1995, he managed the Company's Engineered Solutions business
in Europe. From 1990 to 1991, Mr. Boel was Technical Director for Groeneveld,
located in the Netherlands. Prior to 1990, Mr. Boel worked in Europe in various
positions in the industrial tool business.
Theodore M. Lecher was appointed Business Development Leader in 1998. Prior to
that, he served as President of GB Electrical, Inc. (Gardner Bender, Inc. prior
to its acquisition by the Company in 1988) since 1986. He has been a Company
Vice President since 1988. He was Vice President-General Manager of Gardner
Bender, Inc. from 1983 to 1986, and prior to that, Director of Sales and
Marketing since 1980. Mr. Lecher has been associated with GB Electrical, Inc.
since 1977.
Robert C. Arzbaecher was named Vice President and Chief Financial Officer in
1994 and Senior Vice President in 1998. He had served as Vice President, Finance
of Tools and Supplies from 1993 to 1994. He joined the Company in 1992 as
Corporate Controller. From 1988 through 1991, Mr. Arzbaecher was employed by
Grabill Aerospace Industries LTD, where he last held the position of Chief
Financial Officer.
Richard D. Carroll joined the Company as Corporate Controller in 1996 and was
appointed Treasurer and Controller in 1998. Mr. Carroll was previously employed
with the Northwest Indiana Water Company as its Vice President/Controller during
1995. Prior to that, he was Controller for Nypro Chicago from 1993 to 1995.
Anthony W. Asmuth III is a partner in the law firm of Quarles & Brady,
Milwaukee, Wisconsin, having joined that firm in 1989. Quarles & Brady performs
legal services for the Company and certain of its subsidiaries. Prior to joining
Quarles & Brady, he was a shareholder of the law firm of Whyte Hirschboeck Dudek
S.C. Mr. Asmuth had previously served as Secretary of the Company from 1986 to
1993. He was re-elected Secretary in 1994.
Each officer is appointed by the Board of Directors and holds office until he
resigns, dies, is removed or a different person is appointed to the office. The
Board of Directors generally appoints officers at its meeting following the
Annual Meeting of Shareholders.
8
<PAGE>
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
On February 3, 1998, the Company effected a two-for-one stock split in the form
of a 100 percent stock dividend. Unless otherwise indicated, all financial and
other data contained in this report have been restated to give retroactive
effect to such stock split.
The Company's common stock is traded on the New York Stock Exchange under the
symbol APW. At October 30, 1998, the approximate number of record shareholders
of common stock was 4,865. The high and low sales prices of the common stock by
quarter for each of the past two years (adjusted to reflect the 1998 stock
split) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR PERIOD HIGH LOW
- --------------- -------------------------- --------- ----------
<S> <C> <C> <C>
1998 June 1 to August 31 $ 38 $ 24 3/4
March 1 to May 31 40 33 1/2
December 1 to February 28 35 3/4 34 11/16
September 1 to November 30 34 1/4 29 1/2
1997 June 1 to August 31 $ 31 3/4 $ 21 7/8
March 1 to May 31 22 9/16 19 9/16
December 1 to February 28 21 7/16 18 3/16
September 1 to November 30 18 3/4 14 11/16
</TABLE>
Quarterly dividends of $0.015 per share were declared and paid by the Company
for each of the quarters above.
9
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following table sets forth selected consolidated financial information of
the Company for the five fiscal years in the period ended August 31, 1998. This
selected financial information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included herein. The
selected financial data reflect the combined results of operations and financial
position of Applied Power Inc. and ZERO Corporation restated for all periods
presented pursuant to the pooling of interests method of accounting and includes
the results of other acquired companies from their respective effective dates of
acquisition in accordance with the purchase method of accounting. See Notes A -
"Summary of Significant Accounting Policies" and B - "Merger and Acquisitions"
in Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
(In Millions, except per share amounts)
For the years ended August 31,
--------------------------------------------------------------------
1998/(1)/ 1997/(1)/ 1996/(1)/ 1995/(1)/ 1994/(1)/
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $1,230.7 $ 897.8 $ 777.5 $ 706.8 $ 605.5
Gross Profit 395.0 327.2 290.5 263.0 219.4
Earnings (Loss)
Continuing Operations 26.7/(2)(3)/ 57.9 50.7 39.8 29.7
Discontinued Operations - - - - (0.4)
Extraordinary Loss - - - (4.9) -
-------- --------- --------- -------- --------
Net Earnings $ 26.7 $ 57.9 $ 50.7 $ 34.9 $ 29.4
Basic Earnings (Loss) Per Share
Continuing Operations $ 0.70/(2)(3)/ $ 1.53 $ 1.26 $ 0.99 $ 0.75
Discontinued Operations - - - - (0.01)
Extraordinary Loss - - - (0.12) -
-------- --------- --------- -------- --------
Net Earnings Per Share $ 0.70 $ 1.53 $ 1.26 $ 0.87 $ 0.74
Diluted Earnings (Loss) Per Share
Continuing Operations $ 0.66/(2)(3)/ $ 1.47 $ 1.22 $ 0.97 $ 0.74
Discontinued Operations - - - - (0.01)
Extraordinary Loss - - - (0.12) -
-------- --------- --------- -------- --------
Net Earnings Per Share/(4)/ $ 0.66 $ 1.47 $ 1.22 $ 0.85 $ 0.73
Dividends Per Common Share See (5) below
<CAPTION>
August 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- --------- -------- --------
Total Assets $1,174.7 $ 649.5 $ 547.1 $ 504.5 $ 476.1
Long-term Obligations $ 512.6 $ 153.2 $ 128.1 $ 74.2 $ 78.0
Shareholders' Equity $ 341.9 $ 305.4 $ 253.3 $ 277.3 $ 243.8
Actual Shares Outstanding 38.6 38.0 37.6 40.4 39.8
</TABLE>
- -----------
(1) Prior to the Merger, ZERO had a March 31 fiscal year end. The historical
results have been combined using an August 31 year end for ZERO for the
year ended August 31, 1998. For all prior periods, the results of
operations and financial position reflect the combination of ZERO with a
March 31 fiscal year end and the Company with an August 31 fiscal year end.
Net sales and net income for ZERO for the period April 1, 1997 through
August 31, 1997 (which results are not included in the historical combined
results) were $107.2 and $7.9, respectively.
(2) Earnings from continuing operations in fiscal 1998 include a gain of
approximately $4.6, $0.11 per share on a diluted basis, for special items
recognized by ZERO.
(3) Earnings from continuing operations in fiscal 1998 include charges related
to merger, restructuring and other non-recurring costs of $52.6, $1.31 per
share on a diluted basis. See Note G - "Merger, Restructuring and Other
Non-recurring Charges" in Notes to Consolidated Financial Statements.
10
<PAGE>
(4) Per share amounts for all periods presented have been restated to give
effect to the Merger and a two-for-one stock split effected in the form of
a 100 percent stock dividend distributed to the Company's shareholders of
record as of January 22, 1998. To effect the stock split, a total of 13.9
shares of the Company's common stock were issued on February 3, 1998.
(5) Prior to the Merger, ZERO declared quarterly dividends of $0.03 per share
in its fiscal years ended March 31, 1998 and 1997, $0.11 per share in
fiscal 1996 and the fourth quarter of fiscal 1995 and $0.10 per share in
the first three quarters of fiscal 1995 and each quarter of fiscal 1994.
The Company declared quarterly dividends of $0.015 per share (as adjusted
for the stock split) in its fiscal years ended August 31, 1998, 1997, 1996,
1995 and 1994.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
(Dollars in Millions unless otherwise indicated, except per share amounts)
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in this report.
Business Combination
On July 31, 1998, the Company completed its Merger with ZERO Corporation
("ZERO"), a leading supplier of electrical and electronic system enclosure
products and thermal management products. The Merger was accounted for as a
pooling of interests. The Company issued approximately 10.6 million shares of
its common stock in exchange for all outstanding common stock of ZERO
Corporation and assumed outstanding options to purchase ZERO common stock that
were converted into options to purchase approximately 0.6 million shares of the
Company's common stock pursuant to the terms of the Merger.
All financial data of Applied Power Inc. and its subsidiaries (the "Company" or
"APW") presented in this Form 10-K have been restated to include the historical
financial information of ZERO Corporation in accordance with generally accepted
accounting principles and pursuant to Regulation S-X. Prior to the Merger, ZERO
had a March 31 fiscal year end. The historical results have been combined using
an August 31 year end for ZERO for the year ended August 31, 1998. For all
preceding years, the results of operations and financial position reflect the
combination of ZERO with a March 31 fiscal year end and the Company with an
August 31 fiscal year end. Net sales and net income for ZERO for the period
April 1, 1997 through August 31, 1997 (which results are not included in the
historical combined results) were $107.2 and $7.9, respectively.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Results of Operations Years Ended August 31, Percentage of Net Sales
- ---------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,230.7 $897.8 $777.5 100.0% 100.0% 100.0%
Gross Profit 395.0 327.2 290.5 32.1 36.4 37.4
Operating Expenses 319.2 225.5 206.5 25.9 25.1 26.6
Operating Earnings 75.8 101.7 84.0 6.2 11.3 10.8
Other Expenses 18.4 12.5 6.6 1.5 1.4 0.8
Earnings Before Income Tax Expense 57.4 89.2 77.4 4.7 9.9 10.0
Income Tax Expense 30.7 31.3 26.7 2.5 3.5 3.4
Net Earnings $ 26.7 $ 57.9 $ 50.7 2.2% 6.4% 6.6%
- ----------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Merger, Restructuring and Other Non-recurring Items
The Company recorded restructuring and other one-time charges in the fourth
quarter of fiscal 1998 of $52.6, or $1.31 per share on a diluted basis. The pre-
tax charges of $69.4 relate to costs associated with the ZERO merger, various
plant consolidations principally associated with the enclosure businesses, and
other cost reductions and product rationalization efforts of the Company. The
pre-tax charges of $69.4 include $13.6 for severance payments for a reduction of
approximately 400 employees, of which a negligible amount was paid in 1998 and
$9.3 in ZERO merger costs. In addition to the charges above, ZERO recognized a
net gain of $4.6, $0.11 per share on a diluted basis, for special items relating
to a gain from life insurance and sale of property offset by a provision for the
estimated loss on the sale of a subsidiary. The following table reconciles
reported results to results of operations on an ongoing basis:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Comparative Statement of Earnings Year Ended August 31, 1998
- ---------------------------------------------------------------------------------------------------------
(In Thousands, except per share amounts)
Fourth APW
APW ZERO Non- Quarter Excluding
As recurring One-time One-time
Reported Items Charges Items
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net sales $1,230,689 $ - $ - $1,230,689
Cost of products sold 835,716 - (25,785) 809,931
---------- --------- -------- ----------
Gross Profit 394,973 25,785 420,758
Engineering, selling and administrative expense 269,227 - (9,019) 260,208
Amortization of intangible assets 20,353 - (5,062) 15,291
Restructuring charges 20,298 - (20,298) -
Merger related expenses 9,276 - (9,276) -
---------- --------- -------- ----------
Operating Earnings 75,819 - 69,440 145,259
Other Expense(Income):
Net financing costs 28,531 - - 28,531
Other - net (10,097) 7,024 - (3,073)
---------- --------- -------- ----------
Earnings Before Income Tax Expense 57,385 (7,024) 69,440 119,801
Income Tax Expense 30,698 (2,438) 16,803 45,063
---------- --------- -------- ----------
Net Earnings $ 26,687 $ (4,586) $ 52,637 $ 74,738
========== ========= ======== ==========
Basic Earnings Per Share $ 0.70 $ (0.12) $ 1.36 $ 1.94
========== ========= ======== ==========
Weighted Average Common
Shares Outstanding (000's) 38,380 38,380 38,380 38,380
Diluted Earnings Per Share $ 0.66 $ (0.11) $ 1.31 $ 1.86
========== ========= ======== ==========
Weighted Average Common and
Equivalent Shares Outstanding (000's) 40,174 40,174 40,174 40,174
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Reclassifications
Certain prior year amounts have been reclassified to conform to the fiscal 1998
presentation, including, but not limited to, the reclassification of financial
data previously reported in Tools and Supplies into Engineered Solutions.
12
<PAGE>
Net Sales
- ---------
Net sales increased 37% during fiscal 1998 to $1,230.7 from $897.8 in fiscal
1997. The incremental effect of acquisitions was approximately $256.0 in fiscal
1998. Price changes have not had a significant impact on the comparability of
net sales during the last three years. Excluding the unfavorable impact on
translated sales from the stronger US Dollar, sales increased approximately 39%
over 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Sales Percentage Change from Prior Year
- --------------------------------------------------------------------------------------------------------------------------
Segment Sales 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Enclosure Products and
Systems $ 482.4 $296.2 $190.1 63% 56% 25%
Engineered Solutions 432.0 312.3 308.9 38 1 4
Tools and Supplies 316.3 289.3 278.5 9 4 9
- --------------------------------------------------------------------------------------------------------------------------
Totals $1,230.7 $897.8 $777.5 37% 15% 10%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Enclosure Products and Systems increased sales 63% over 1997. The acquisitions
of VERO, Brown, Premier, PTI, AA and PMP in 1998 as well as Everest, CFAB and
Hormann in 1997 resulted in additional sales of $133.5. The continued expansion
of end user markets in the US and Europe also contributed to the growth.
Excluding acquisitions net of the negative impact of the stronger US Dollar,
Enclosure Products and Systems sales in 1998 grew 22%. In 1997, sales grew 56%
due to the effect of acquisitions, continued demand for its products, the
expansion of its direct sales force and geographic expansion in Europe and Asia.
Sales for the Engineered Solutions segment improved 38% compared to 1997. The
increase was the result of the acquisition of Versa/Tek in October 1997, which
contributed $91.1, along with growth primarily in European truck and automotive
markets. The strengthening US Dollar negatively impacted sales by 2% in 1998.
Sales increased 1% in 1997 over 1996, primarily the result of increased sales in
the thermal management market.
Sales in the Tools and Supplies segment increased 9% in 1998 to $316.3 from
$289.3 in 1997. The increase was primarily the result of $31.4 of increased
sales from acquisitions offset by declining Asian sales and the effect of the
strengthening US Dollar. The impact of the stronger US Dollar negatively
impacted reported sales by approximately 3% for the year. In 1997, sales for
Tools and Supplies increased 4% over 1996. The increase for 1997 was attributed
to approximately $11.7 from acquisitions net of product line dispositions. The
impact of the stronger US Dollar in 1997 over 1996 negatively impacted sales by
approximately 5%.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Sales Percentage Change from Prior Year
- --------------------------------------------------------------------------------------------------------------------------
Geographic Sales 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America $ 895.3 $653.3 $547.6 37% 20% 12%
Europe 284.2 181.0 163.2 57 9 9
Japan and Asia Pacific 37.6 52.0 56.8 (28) (8) 3
Latin America 13.6 11.5 9.9 18 16 (18)
- -------------------------------------------------------------------------------------------------------------------------
Totals $1,230.7 $897.8 $777.5 37% 15% 10%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company does business in many different geographic regions and is subject to
various economic conditions. The improved economic environment in North America
and the effect of acquisitions combined to increase sales 37% in this region
over 1997. Sales increased 20% in 1997 over 1996 primarily due to the improving
US economy and the acquisitions made in the third quarter of 1996 and the first
quarter of 1997.
Sales in Europe grew 57% in 1998 compared to 1997. The combination of the VERO
acquisition, which contributed $53.9, along with strong internal growth
accounted for the 1998 growth. Sales grew 9% in 1997 compared to 1996, primarily
the result of two acquisitions. Sales in Japan and Asia Pacific fell 28% in 1998
due to the general economic down-turn in this region. In 1997, sales decreased
8% in Japan and Asia Pacific, 6% of which was attributable to foreign currency
fluctuations. The remaining decrease was caused by weakening economic
conditions. The sales growth generated in Latin America during 1998 and 1997 was
the result of geographic expansion in this region. As the Company's recent
acquisition strategy has focused on North America and Europe, sales from Japan,
Asia Pacific and Latin America are expected to become a smaller percentage of
the Company's total sales in 1999.
13
<PAGE>
Gross Profit
Gross profit increased 21% in 1998 to $395.0 compared to $327.2 in 1997 and
$290.5 in 1996. The increases in gross profit resulted primarily from increased
sales in 1998 and 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Gross Profit Percentages By Segment 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Enclosure Products and Systems 32.1% 39.4% 42.4%
Engineered Solutions 31.8 32.5 31.4
Tools and Supplies 32.5 37.6 40.5
- -------------------------------------------------------------
Totals 32.1% 36.4% 37.4%
- -------------------------------------------------------------
</TABLE>
The one-time charges that were recorded in the fourth quarter of fiscal 1998
negatively impacted gross profit by $25.8. These charges primarily relate to a
decision to discontinue certain product lines and SKUs, principally within Tools
and Supplies. To a lesser extent, charges were incurred to conform ZERO
inventory valuation methods to the Company's. Excluding the impact of these
charges, the gross profit percentages by segment would have been:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Gross Profit Percentages By Segment
(excluding one-time charges) 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Enclosure Products and Systems 33.8% 39.4% 42.4%
Engineered Solutions 32.5 32.5 31.4
Tools and Supplies 37.1 37.6 40.5
- ------------------------------------------------------------
Totals 34.2% 36.4% 37.4%
- ------------------------------------------------------------
</TABLE>
The following discussion addresses the gross profit percentages by segment
excluding the effect of the one-time charges discussed above. The overall gross
profit percentage for the Company is primarily influenced by the relative sales
mix between Enclosure Products and Systems, Engineered Solutions and Tools and
Supplies. Engineered Solutions gross profit percentages are lower than either
Enclosure Products and Systems or Tools and Supplies because a much higher
proportion of its sales are made to OEM customers, which typically generate
lower margins than non-OEM customers. The gross profit percentage in Engineered
Solutions increased in 1997 versus 1996 as a result of efforts to reduce costs
associated with manufacturing. Tools and Supplies gross profit percentage
remained relatively flat in 1998 compared to 1997, however, the decline in 1997
compared to 1996 was primarily due to $2.1 of non-recurring charges recorded in
1997 and competitive pricing pressures. Since 1996, gross profit percentages in
Enclosure Products and Systems have been declining. This is the result of the
effect of the enclosure related acquisitions that took place during 1998 and
1997. These enclosures are sold primarily to OEM customers and carry a lower
gross profit margin. With the recent acquisition of Rubicon and the Company's
continued focus on OEM customers, the gross profit percentage within Enclosure
Products and Systems is expected to moderately decline in the future. However,
as discussed below, these enclosure businesses operate with lower selling,
administrative and engineering expenses. The overall gross profit margin of the
Company will vary depending on the levels of OEM sales within Engineered
Solutions and Enclosure Products and Systems.
Operating Expenses
Operating expenses increased $93.6 in 1998, of which the fourth quarter one-time
charges represented $43.7. These one-time charges related to costs associated
with the ZERO merger, goodwill impairment on two APW business units, and
restructuring and downsizing efforts in all three business segments. To a lesser
extent, charges were incurred to conform ZERO's accounting policies with the
Company's.
Excluding the one-time charges, operating expenses increased 22% and 9% in 1998
and 1997, respectively. During the corresponding periods, sales increased 37%
and 15%, respectively. The majority of the increase since 1996 relates to
variable selling expenses and increased amortization of goodwill associated with
recent acquisitions.
In addition to variable selling expenses, total operating costs have increased
as a result of acquisitions, product development programs and expenditures for
geographic expansion into emerging markets. Approximately $40.8 of the increase
in fiscal 1998 was attributable to businesses acquired since 1997.
14
<PAGE>
Overall, the lower corporate expenses as a percent of sales are attributed to
the effects of the lower operating cost enclosure businesses and the Company's
goal to continually identify ways to be more cost efficient and have allowed the
Company to reduce operating costs as a percent of sales. Excluding 1998
restructuring and other one-time items, operating costs as a percent of sales
were 22%, 25%, and 27% in 1998, 1997 and 1996, respectively.
Other Expense(Income)
<TABLE>
<CAPTION>
- ------------------------------------------------
Other Expense(Income) 1998 1997 1996
- ------------------------------------------------
<S> <C> <C> <C>
Net financing costs $ 28.5 $16.2 $ 7.9
Other - net (10.1) (3.7) (1.3)
- ------------------------------------------------
</TABLE>
The trend of increased net financing costs over the last three years is the
result of increased debt levels following the Company's acquisitions during this
period. For further information, see "Liquidity and Capital Resources" below.
"Other - net" includes foreign exchange gains and losses as well as
miscellaneous other income and expenses. The Company recognized gains on the
sale of two properties in 1998 totaling $11.6 and life insurance proceeds of
$1.7. Offsetting these gains was a $4.5 write-down recorded to reduce a European
subsidiary to its estimated realizable value. Additionally, in 1998 and 1997,
the US Dollar strengthened against most other major currencies and the Company
realized foreign exchange gains due to transactions denominated in currencies
outside of the functional currencies of certain of its foreign units.
Income Tax Expense
The Company's effective income tax rate was 53.5%, 35.1% and 34.5% in 1998, 1997
and 1996, respectively. The rate for 1998 is largely impacted by the current
non-deductibility of the one-time charges recorded in the fourth quarter.
Excluding the one-time items, the 1998 effective income tax rate was 37.6%. The
non-deductibility of goodwill on many of the Company's acquisitions over the
last three years has led to the gradual increase in the Company's effective tax
rate. With the Rubicon acquisition subsequent to year end, this trend is
expected to continue in 1999.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from nonowner sources. Examples of items to be included in comprehensive income,
which are excluded from net income, include foreign currency translation
adjustments, unrealized gain(loss) on available-for-sale securities, and mark-
to-market adjustments for hedging activities. The disclosures required by this
Statement will be made beginning with the Company's first quarter of fiscal
1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way companies report information about operating segments in financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company is in the
process of reassessing its current business segment reporting to determine if
changes in reporting will be required in adopting this new standard, but does
not expect that adoption of this Statement will have a significant impact on the
Company's disclosures. The disclosures required by this Statement will be
adopted in the Company's 1999 annual report and subsequent interim periods.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises disclosures
about pension and other postretirement benefit plans. This Statement is
effective for the Company's 1999 fiscal year financial statements and
restatement of disclosures for earlier years provided for comparative purposes
will be required unless the information is not readily available. The Company is
currently evaluating the extent to which its financial statement disclosures
will be affected by SFAS No. 132.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which specifies the
15
<PAGE>
accounting treatment provided to computer software costs depending upon the type
of costs incurred. This Statement is effective for the Company's fiscal year
2000 financial statements and restatement of prior years will not be permitted.
The Company does not believe that the adoption of this Statement will have a
significant impact on its financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. This Statement is effective for the Company's fiscal
year 2000 financial statements and initial application will be reported as a
cumulative effect of a change in accounting principle. The Company is currently
evaluating the extent to which its financial statements will be affected by SOP
98-5.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that an entity recognize
derivative instruments, including certain derivative instruments embedded in
other contracts, as either assets or liabilities and measure those instruments
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This Statement is effective for the
Company's fiscal year 2000 first quarter financial statements and restatement of
prior years will not be permitted. The Company is currently evaluating the
extent to which its financial statements will be affected by SFAS No. 133, which
is not expected to have a material effect on the Company based on its current
derivative and hedging activities.
Liquidity and Capital Resources
Outstanding debt at August 31, 1998 totaled $512.6, an increase of $338.0 since
the beginning of the year. The increase in debt is a direct result of the
business acquisitions that were made during 1998. End of year debt to total
capital was 58% in 1998 compared to 35% in 1997. Approximately $129.7 of cash
was generated from operating activities in 1998, a 54% increase over 1997. The
Company used $426.0 of cash to fund acquisitions and $56.8 was used to fund
capital expenditures. In 1997, $84.0 of cash was generated from operations of
which $77.0 was used to fund acquisitions and $33.5 was used to fund capital
expenditures. The additional cash generated in 1998 originated primarily from
increased sales of receivables. Dividends of $2.6 and $3.1 were paid during 1998
and 1997, respectively.
On June 18, 1998, the Company and Enerpac B.V., a Netherlands subsidiary of the
Company, entered into a Multicurrency Credit Agreement (the "Credit Agreement"),
providing for a $700.0, 5-year revolving credit facility (the "Facility") in
order to provide the necessary funds to Applied Power Limited to acquire all of
the VERO Group plc shares. In conjunction with the closing of the Facility, the
Company terminated its prior $350.0, 5-year revolving credit facility (the
"Prior Facility"), and used certain funds received under the Facility to repay
borrowings under the Prior Facility. The Facility was used to finance the
remaining expenses of the VERO Group plc acquisition, provide for working
capital, capital expenditures and for other general corporate purposes. At
August 31, 1998, the Company had borrowings denominated in the US Dollar and the
Japanese Yen. The Credit Agreement contains customary restrictions concerning
investments, liens on assets, sales of assets, maximum levels of debt and
minimum levels of shareholders' equity. In addition, the agreement requires the
Company to maintain certain financial ratios. As of August 31, 1998, the Company
was in compliance with all debt covenants. For additional information, see Note
I - "Long-term Debt" in Notes to Consolidated Financial Statements and
"Subsequent Events" below.
To reduce risk of interest rate increases, the Company has entered into interest
rate swap agreements which effectively convert $239.3 of the Company's variable
rate debt to a weighted average fixed rate of 5.95% at August 31, 1998. The swap
agreements expire on varying dates through 2005.
On August 28, 1998, the Company amended its accounts receivable financing
facility by increasing the amount of multi-currency accounts receivable
financing from $80.0 to $90.0. All other terms of the agreement remain the same.
An incremental $39.7 of receivables was financed in 1998, bringing the total
balance financed to $89.7 at August 31, 1998. Proceeds were used to reduce debt.
For additional information, see Note D - "Accounts Receivable Financing" in
Notes to Consolidated Financial Statements.
The Company does not purchase or hold any derivative financial instruments for
trading purposes.
16
<PAGE>
The following table summarizes the Company's total capitalization over the last
three years:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Dollars Percentage of Total Capitalization
- -------------------------------------------------------------------------------------------------------------------------
Total Capitalization 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Debt $512.6 $174.6 $144.2 58% 35% 35%
Shareholders' Equity 341.9 305.4 253.3 39 62 61
Deferred Income Taxes 23.1 14.6 15.4 3 3 4
- -------------------------------------------------------------------------------------------------------------------------
Totals $877.6 $494.6 $412.9 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
In order to minimize interest expense, the Company intentionally maintains low
cash balances and uses available cash to reduce short-term bank borrowings.
Funds available under unused non-committed lines and the $700.0 multi-currency
credit agreement totaled $34.1 and $269.0, respectively, as of August 31, 1998.
The Company believes that such availability, plus funds generated from
operations, will be adequate to fund operating activities, including capital
expenditures and working capital, for the next fiscal year.
Year 2000 Considerations
- ------------------------
As is the case for most companies, the Year 2000 computer issue creates a risk
for the Company. If systems do not correctly recognize date information when the
year changes to 2000, there could be a material adverse impact on the Company's
operations. However, the impact cannot be quantified at this time.
The Company is taking actions intended to ensure that its computer systems are
capable of processing periods for the Year 2000 and beyond. The Company has
developed and has clearly articulated a written policy that Year 2000 readiness
is an important responsibility for all its business leaders. In addition, the
Company is aggressively pursuing a comprehensive set of programs intended to
reduce the risk of disruptions due to the Year 2000 problem. Issues addressed in
the context of these efforts include, but are not limited to, creating
management awareness regarding the Year 2000 problem and the need to become Year
2000 ready, mitigating known Year 2000 readiness problems, communicating the
Company's Year 2000 readiness commitment to its customers, conducting a company-
wide Year 2000 readiness check, the official designation of Year 2000 readiness
contacts within each business unit, comprehensive testing and compliance
certification for all of the Company's mission-critical business and
manufacturing control systems, proactive Year 2000 compliance certification of
key suppliers, and the development of contingency plans to deal with emergent
Year 2000 situations. The Company expects to complete the majority of its
efforts in this area by the end of its fiscal 1999. This should leave adequate
time to perform additional testing and make any further modifications that are
deemed necessary.
The Company is continuing an ongoing process of assessing potential Year 2000
risks and uncertainties. However, it is currently premature to define the most
reasonably likely worst case scenarios related to the Year 2000 problem. The
Company's Year 2000 readiness initiatives are intended to address its critical
business functions, and the Company currently expects to successfully mitigate
its controllable internal year 2000 issues. However, the Company also relies
upon third parties whose failure to identify and remediate their Year 2000
problems could have a material impact on the Company's operations and financial
condition. The Company's Year 2000 readiness efforts will include attempting to
identify, assess and mitigate third party risks where possible, but the
potential impact and related costs and consequences of third party failures have
not yet been identified.
Based on the current status of the Company's compliance and readiness efforts,
the costs associated with identified Year 2000 issues are not expected to have a
material effect on the results of operations or financial condition of the
Company. Most of the Company's business units have installed or are in the
process of installing new business management systems which go beyond just Year
2000 compliance. The costs of purchased software are capitalized. Some
businesses have chosen to upgrade existing systems to be compliant. These costs
are being expensed as incurred. Additionally, the Company is developing a
contingency plan to deal with any issues that are not resolved on a timely
basis. The Company historically has not quantified the costs of Year 2000
compliance and remediation, but believes costs incurred to date were immaterial.
The Company estimates remaining costs to range between $3.0 and $5.0, which is
expected to be funded with cash flow from operations.
At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000 problem to have material adverse effects on the
Company's business, operations or financial condition. However, the Company
cannot be certain that it will not suffer business interruptions, either due to
its own Year 2000 problems or those of its customers or
17
<PAGE>
suppliers whose Year 2000 problems may make it difficult or impossible to
fulfill their commitments to the Company. Furthermore, the Year 2000 problem has
many elements and potential consequences, some of which may not be reasonably
foreseeable, and there can be no assurances that every material Year 2000
problem will be identified and addressed or that unforeseen consequences will
not arise and possibly have a material adverse effect on the Company.
Unanticipated factors while implementing the changes necessary to mitigate Year
2000 problems, including, but not limited to, the ability to locate and correct
all relevant codes in computer and imbedded systems, or the failure of critical
third parties to communicate and mitigate their Year 2000 problems could result
in unanticipated adverse impacts on the business activities or operations of the
Company.
European Economic Monetary Union
- --------------------------------
On January 1, 1999, eleven of the European Union countries (including eight
countries where APW operations are located) are scheduled to adopt the Euro as
their single currency, and there will be fixed conversion rates between their
existing currencies ("legacy currencies") and the Euro. The Euro will then trade
on currency exchanges and be available for noncash transactions. Following the
introduction of the Euro, the legacy currencies will remain legal tender in the
participating countries during the transition period from January 1, 1999
through January 1, 2002. Beginning on January 1, 2002, the European Central Bank
will issue Euro-denominated bills and coins for use in cash transactions. On or
before July 1, 2002, the participating countries will withdraw all legacy bills
and coins and use the Euro as their legal currency.
The Company's various operating units located in Europe which are affected by
the Euro conversion intend to keep their books in their respective legacy
currency through a portion of the three year introductory period. At this time,
the Company does not expect the reasonably foreseeable consequences of the Euro
conversion to have material adverse effects on the Company's business,
operations or financial condition.
Inflation
- ---------
No meaningful measures of inflation are available because the Company has a
significant number of small operations which operate in countries with diverse
rates of inflation and currency rate movements.
Outlook
- -------
The Company expects its trend of increasing sales and earnings per share to
continue into fiscal 1999, assuming no significant downturn in the economy in
North America or Western Europe. Net sales are expected to be approximately
$1,900.0 with increased sales at all three of the Company's business segments.
The strength of its core markets and the incremental effect of recent
acquisitions will be the driving forces of the growth. Operating profit is
expected to improve as a result of the increased sales and the streamlining and
cost reduction efforts initiated in the fourth quarter of 1998. The improved
operating profit is expected to be partially offset by higher interest expense
and a higher effective income tax rate, generating record earnings per share.
Risk Factors That May Affect Future Results
- -------------------------------------------
Certain statements in this Form 10-K, including the above section entitled
"Outlook," as well as statements in other Company communications, which are not
historical facts, are forward looking statements that involve risks and
uncertainties. The terms "anticipate", "believe", "estimate", "expect",
"objective", "plan", "project" and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements are subject to
inherent risks and uncertainties that may cause actual results or events to
differ materially from those contemplated by such forward-looking statements. In
addition to the assumptions and other factors referred to specifically in
connection with such statements, factors that may cause actual results or events
to differ materially from those contemplated by such forward-looking statements
include, without limitation, general economic conditions and market conditions
in the industrial production, trucking, construction, aerospace, automotive,
recreational vehicle, computer, semiconductor, telecommunication, electronic and
defense industries in North America, Europe and, to a lesser extent, Asia,
market acceptance of existing and new products, successful integration of
acquisitions, competitive pricing, foreign currency risk, interest rate risk,
unforeseen costs or consequences of Year 2000 issues and other factors that may
be referred to in the Company's reports filed with the Securities and Exchange
Commission from time to time.
18
<PAGE>
Subsequent Events
- -----------------
On September 29, 1998, the Company, through its wholly-owned subsidiary, APW
Enclosure Systems Limited, accepted for payment all shares of Rubicon Group plc
("Rubicon") common stock which had been tendered pursuant to the APW Enclosure
Systems Limited tender offer for all outstanding shares of common stock at 2.35
pounds sterling per share and all outstanding shares of cumulative preferred
stock at 0.50 pounds sterling per share, which constituted control, and
continued with steps to acquire the remaining outstanding shares. Rubicon is a
leading provider of electronic manufacturing services and engineered magnetic
solutions to major OEMs in the information technology and telecommunication
industries. Consideration for the transaction totaled approximately $365.0,
including related fees and expenses. APW Enclosure Systems Limited obtained all
of the funds it expended from the Company. To provide the necessary funds, the
Company and Enerpac B.V., a Netherlands subsidiary of the Company, as Borrowers,
entered into a Multicurrency Credit Agreement, dated as of October 14, 1998,
providing for an $850.0, 5-year revolving credit facility (the "New Facility").
In conjunction with the closing of the New Facility, the Company terminated its
prior $700.0, 5-year revolving credit facility (the "Facility"), and used
certain funds received under the New Facility to repay borrowings under the
Facility.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to market risk from changes in foreign exchange and
interest rates and, to a lesser extent, commodities. To reduce such risks, the
Company selectively uses 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 the Company's accounting policies for derivative financial
instruments is included in Note A - "Summary of Significant Accounting Policies"
in Notes to Consolidated Financial Statements, and further disclosure relating
to financial instruments is included in Note I - "Long-term Debt."
Currency Risk - The Company has significant international operations. In most
instances, the Company's products are produced at manufacturing facilities
located near the customer. As a result, significant volumes of finished goods
are manufactured in countries for sale into those markets. For goods purchased
from other Company affiliates, the Company denominates the transaction in the
functional currency of the producing operation.
The Company has adopted the following guidelines to manage its foreign exchange
exposures:
(i) increase the predictability of costs associated with goods whose purchase
price is not denominated in the functional currency of the buyer;
(ii) minimize the cost of hedging through the use of naturally offsetting
positions (borrowing in local currency), netting, pooling; and
(iii) where possible, sell product in the functional currency of the
producing operation.
The Company's identifiable foreign exchange exposures result primarily from the
anticipated purchase of product from affiliates and third-party suppliers along
with the repayment of intercompany loans with foreign subsidiaries denominated
in foreign currencies. The Company identifies naturally occurring offsetting
positions and then purchases hedging instruments to protect anticipated
exposures. The Company's financial position is not materially sensitive to
fluctuations in exchange rates as any gains or losses on foreign currency
exposures are generally offset by gains and losses on underlying payables,
receivables and net investments in foreign subsidiaries.
Interest Rate Risk - The Company enters into interest rate swaps to stabilize
financing costs by minimizing the effect of potential interest rate increases on
floating-rate debt in a rising interest rate environment. Under these
agreements, the Company contracts with a counter-party to exchange the
difference between a fixed rate and a floating rate applied to the notional
amount of the swap. The Company's existing swap contracts range between two and
seven years in duration. The differential to be paid or received on interest
rate swap agreements is accrued as interest rates change and is recognized in
net income as an adjustment to interest expense. Credit and market risk is
minimized through diversification among counter-parties with high credit
ratings.
19
<PAGE>
Commodity Prices - The Company is exposed to fluctuation in market prices for
steel. Therefore, the Company has established a program for centralized
negotiation of steel prices. This program allows the Company to take advantage
of economies of scale as well as to cap pricing. All business units are able to
purchase steel under this arrangement. In general, the contracts lock steel
pricing for 18 months and enable the Company to pay less if market prices fall.
See Note I - "Long-term Debt" in Notes to Consolidated Financial Statements for
additional information concerning derivative financial instruments.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Quarterly financial data for 1998 and 1997 is as follows:
(In Millions, except per share amounts)
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
FIRST(1) SECOND THIRD(2) FOURTH(3)
--------- ------ -------- ---------
<S> <C> <C> <C> <C>
Net Sales $275.4 $279.4 $303.9 $372.0
Gross Profit 95.7 96.1 106.4 96.8
Net Earnings 19.1 16.5 22.4 (31.3)
====== ====== ====== ======
Basic Earnings Per Share $ 0.49 $ 0.43 $ 0.58 $(0.81)
====== ====== ====== ======
Diluted Earnings Per Share $ 0.48 $ 0.41 $ 0.55 $(0.78)
====== ====== ====== ======
1997
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
--------- ------ -------- ---------
Net Sales $207.8 $210.6 $232.4 $247.0
Gross Profit 79.4 77.8 83.8 86.2
Net Earnings 13.3 13.2 15.3 16.1
====== ====== ====== ======
Basic Earnings Per Share $ 0.36 $ 0.35 $ 0.40 $ 0.42
====== ====== ====== ======
Diluted Earnings Per Share $ 0.34 $ 0.34 $ 0.39 $ 0.41
====== ====== ====== ======
</TABLE>
(1) Includes a $1.7 gain, after tax, on life insurance proceeds, or $0.04 per
diluted share.
(2) Includes a $2.9 net gain, after tax, on the sale of a facility and the
writedown of a European subsidiary to its estimated realizable value, or
$0.08 per diluted share.
(3) Includes restructuring and other one-time charges of $52.6, after tax, or
$1.31 per diluted share.
The Consolidated Financial Statements are included on pages 27 to 48 and are
incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
A change in the Company's independent public accountants was previously reported
in a Current Report on Form 8-K dated November 4, 1997 and filed on November 10,
1997. The information reported in the Form 8-K is also contained in the 1999
Annual Meeting Proxy Statement (identified in Item 10) under the caption "Other
Information - Independent Public Accountants," and is set forth below:
On November 3, 1997, the Audit Committee of the Board of Directors recommended
the replacement of Deloitte & Touche LLP with Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) as the Company's independent public accountants
for the fiscal year ended August 31, 1998. On November 4, 1997, the Board of
Directors of the Company accepted and approved the Audit Committee's
recommendation. On the same day, Deloitte & Touche LLP was notified of its
dismissal and PricewaterhouseCoopers LLP was notified of its engagement.
Through November 4, 1997, there were no
20
<PAGE>
disagreements with Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused that firm to make reference to the
subject matter of the disagreement in connection with its report. Deloitte &
Touche LLP's report on the Company's financial statements for the previous two
fiscal years contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required by this item is incorporated by reference from the
"Election of Directors" and "Other Information -- Section 16(a) Beneficial
Ownership Reporting Compliance" sections of the Company's Proxy Statement for
its Annual Meeting of Shareholders to be held on January 8, 1999 (the "1999
Annual Meeting Proxy Statement"). See also "Executive Officers of the
Registrant" in Part I hereof.
Item 11. Executive Compensation
----------------------
The information required by this item is incorporated by reference from the
"Board Meetings, Committees and Director Compensation" section and the
"Executive Compensation" section (other than the subsections thereof entitled
"Report of the Compensation Committee of the Board of Directors on Executive
Compensation" and "Performance Graph") of the 1999 Annual Meeting Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by this item is incorporated by reference from the
"Certain Beneficial Owners" and "Election of Directors" sections of the 1999
Annual Meeting Proxy Statement.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
21
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) Documents filed as part of this report:
---------------------------------------
1. Consolidated Financial Statements
---------------------------------
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on page 23, the Report of Independent Accountants and
Independent Auditors' Reports on pages 24 to 26 and the Consolidated
Financial Statements on pages 27 to 48, all of which are incorporated
herein by reference.
2. Financial Statement Schedules
-----------------------------
See "Index to Consolidated Financial Statements and Financial Statement
Schedule" on page 23, the Report of Independent Accountants on
Financial Statement Schedule on page 49 and the Financial Statement
Schedule on page 50, all of which are incorporated herein by reference.
3. Exhibits
--------
See "Index to Exhibits" on pages 52 to 56, which is incorporated herein
by reference.
(b) Reports on Form 8-K:
--------------------
The following reports on Form 8-K were filed during the last quarter of
fiscal 1998:
On June 22, 1998, the Company filed a Current Report on Form 8-K dated
June 5, 1998 reporting under Item 2 that the Company had accepted for
payment all the VERO Group plc shares which had been tendered pursuant
to the Company's tender offer to acquire all outstanding shares at a
cash price of 192 pence per share. The required Item 7 VERO financial
statements and pro forma financial information were also filed. The
Company filed an amendment to the Current Report on Form 8-K/A on July
1, 1998.
On August 12, 1998, the Company filed a Current Report on Form 8-K
dated July 31, 1998 reporting under Item 2 the merger of ZERO
Corporation, a Delaware corporation ("ZERO"), with a wholly-owned
subsidiary of the Company. The required Item 7 ZERO financial
statements and pro forma financial information were also filed.
On August 12, 1998, the Company filed a Current Report on Form 8-K
dated August 12, 1998 for the purpose of updating and superseding
(under Item 5) the description of the Class A Common Stock of the
Company contained in the Company's Registration Statement on Form 8-A
filed on August 11, 1987, as previously updated by the Company's
Current Report on Form 8-K dated January 28, 1991.
Subsequent to the end of the fiscal year, on October 14, 1998, the Company
filed a Current Report on Form 8-K dated September 29, 1998 reporting under
Item 2 that the Company had accepted for payment all the Rubicon Group plc
shares tendered pursuant to the Company's tender offer to acquire all
outstanding shares, and indicating that the required Item 7 Rubicon
financial statements and pro forma financial information would be filed as
an amendment to such report.
22
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Page
----
<S> <C>
Report of Independent Accountants.................................. 24
Independent Auditors' Reports...................................... 25 - 26
Consolidated Statement of Earnings
For the years ended August 31, 1998, 1997 and 1996.......... 27
Consolidated Balance Sheet
As of August 31, 1998 and 1997.............................. 28
Consolidated Statement of Shareholders' Equity
For the years ended August 31, 1998, 1997 and 1996.......... 29
Consolidated Statement of Cash Flows
For the years ended August 31, 1998, 1997 and 1996.......... 30
Notes to Consolidated Financial Statements......................... 31 - 48
INDEX TO FINANCIAL STATEMENT SCHEDULE
- -------------------------------------
Report of Independent Accountants on Financial Statement Schedule.. 49
Schedule II - Valuation and Qualifying Accounts.................... 50
</TABLE>
All other schedules are omitted because they are not applicable, not required or
because the required information is included in the consolidated financial
statements or notes thereto.
23
<PAGE>
Report of Independent Accountants
- ---------------------------------
To the Shareholders and Directors of Applied Power Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Applied Power Inc.
and its subsidiaries at August 31, 1998, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our 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.
The consolidated financial statements of Applied Power Inc. for the years ended
August 31, 1997 and 1996, prior to restatement for pooling of interests, and the
separate financial statements of ZERO Corporation included in the 1997 and 1996
restated consolidated financial statements, for the years ended March 31, 1997
and 1996, were audited and reported on separately by other independent
accountants. We also audited the combination of the accompanying consolidated
balance sheet as of August 31, 1997, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the two years in the
period then ended, after restatement for the 1998 pooling of interests; in our
opinion, such consolidated statements have been properly combined on the basis
described in Note A of Notes to Consolidated Financial Statements.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
September 30, 1998
24
<PAGE>
Independent Auditors' Report
- ----------------------------
To the Shareholders and Directors of Applied Power Inc.:
We have audited the consolidated balance sheet of Applied Power Inc. and
subsidiaries as of August 31, 1997 and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the two years in the
period ended August 31, 1997 (none of which are presented herein). Our audits
also included the consolidated financial statement schedule for the two years in
the period ended August 31, 1997 (which is not presented herein) listed in the
Index at Item 14. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Applied Power Inc. and subsidiaries
at August 31, 1997, and the results of their operations and their cash flows for
each of the two years in the period ended August 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
September 25, 1997
(October 16, 1997 as to Note O)
25
<PAGE>
Independent Auditors' Report
- ----------------------------
To the Stockholders of ZERO Corporation:
We have audited the consolidated balance sheet of ZERO Corporation and its
subsidiaries as of March 31, 1997, and the related statements of consolidated
income, stockholders' equity, and cash flows for each of the two years in the
period ended March 31, 1997 (none of which are presented herein). Our audit also
included the consolidated financial statment schedule of the Company for each of
the two years in the period ended March 31, 1997 (which is not presented herein)
listed in the Index at Item 14. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ZERO Corporation and its
subsidiaries at March 31, 1997, and the results of their operations and their
cash flows for each of the two years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles. Also in our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
May 11, 1998
26
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended August 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $1,230,689 $897,758 $777,462
Cost of products sold 835,716 570,551 486,991
---------- -------- --------
Gross Profit 394,973 327,207 290,471
Engineering, selling and administrative expenses 269,227 217,522 201,333
Amortization of intangible assets 20,353 8,013 5,140
Restructuring charges 20,298 - -
Merger related expenses 9,276 - -
---------- -------- --------
Operating Earnings 75,819 101,672 83,998
Other Expense(Income):
Net financing costs 28,531 16,158 7,892
Other - net (10,097) (3,710) (1,308)
---------- -------- --------
Earnings Before Income Tax Expense 57,385 89,224 77,414
Income Tax Expense 30,698 31,299 26,735
---------- -------- --------
Net Earnings $ 26,687 $ 57,925 $ 50,679
========== ======== ========
Basic Earnings Per Share:
Earnings Per Share $ 0.70 $ 1.53 $ 1.26
========== ======== ========
Weighted Average Common Shares
Outstanding (000's) 38,380 37,880 40,318
========== ======== ========
Diluted Earnings Per Share:
Earnings Per Share $ 0.66 $ 1.47 $ 1.22
========== ======== ========
Weighted Average Common and Equivalent
Shares Outstanding (000's) 40,174 39,307 41,453
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE>
APPLIED POWER INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 6,349 $ 22,047
Accounts receivable, less allowances
of $6,758 and $4,936, respectively 147,380 120,663
Inventories 164,786 150,771
Deferred income taxes 29,905 11,209
Prepaid expenses 16,144 12,564
---------- ---------
Total Current Assets 364,564 317,254
Property, Plant and Equipment
Property 6,249 5,063
Plant 74,411 71,982
Machinery and equipment 337,555 211,532
---------- ---------
418,215 288,577
Less: Accumulated depreciation (193,045) (153,622)
---------- ---------
Net Property, Plant and Equipment 225,170 134,955
Goodwill, net of accumulated amortization of $36,803
and $17,870, respectively 499,973 139,681
Other Intangibles, net of accumulated amortization of
$19,338 and $14,690, respectively 42,896 30,723
Other Assets 42,119 26,933
---------- --------
Total Assets $1,174,722 $ 649,546
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 91 $ 21,463
Trade accounts payable 127,470 63,456
Accrued compensation and benefits 45,457 31,315
Income taxes payable 12,898 7,093
Other current liabilities 74,792 25,955
---------- ---------
Total Current Liabilities 260,708 149,282
Long-term Debt 512,557 153,166
Deferred Income Taxes 23,065 14,596
Other Deferred Liabilities 36,510 27,141
Shareholders' Equity
Class A common stock, $0.20 par value per share,
authorized 80,000,000 shares, issued and
outstanding 38,626,068 and 38,046,219 shares,
respectively 7,725 2,927
Additional paid-in capital 5,817 1,595
Retained earnings 335,805 304,526
Cumulative translation adjustments (7,465) (3,687)
---------- ---------
Total Shareholders' Equity 341,882 305,361
---------- ---------
Total Liabilities and Shareholders' Equity $1,174,722 $ 649,546
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended August 31, 1998, 1997 and 1996
------------------------------------------------
Class A Additional Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustments
------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance at September 1, 1995,
as previously reported $2,681 $ 28,328 $ 94,285 $ 6,392
Restatement for pooling of interests with
ZERO (as described in Note A ) 161 29,418 115,754 261
------ -------- -------- -------
Balance at September 1, 1995, as restated 2,842 57,746 210,039 6,653
Net earnings for the year - - 50,679 -
Cash dividends declared - - (8,681) -
Exercise of stock options and
issuance of treasury stock 26 4,762 (1,461) -
Issuance of stock in acquisition 25 3,905 - -
Tax benefit of option exercises - 568 - -
Stock repurchase - (71,871) - -
Currency translation adjustments - - - (1,946)
------ -------- -------- -------
Balance at August 31, 1996 2,893 (4,890) 250,576 4,707
Net earnings for the year - - 57,925 -
Cash dividends declared - - (3,114) -
Exercise of stock options and
issuance of treasury stock 34 5,656 (861) -
Tax benefit of option exercises - 1,052 - -
Stock repurchase - (293) - -
Currency translation adjustments and other - 70 - (8,394)
------ -------- -------- -------
Balance at August 31, 1997 2,927 1,595 304,526 (3,687)
Effect of ZERO excluded period
(as described in Note A) 1,948 (1,615) 7,156 (34)
Net earnings for the year - - 26,687 -
Cash dividends declared - - (2,564) -
Exercise of stock options 72 7,686 - -
Tax benefit of option exercises - 929 - -
Issuance of stock in 2-for-1 stock split 2,778 (2,778) - -
Currency translation adjustments - - - (3,744)
------ -------- -------- -------
Balance at August 31, 1998 $7,725 $ 5,817 $335,805 $(7,465)
====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements
29
<PAGE>
APPLIED POWER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended August 31,
--------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Operating Activities
Net Earnings $ 26,687 $ 57,925 $ 50,679
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 47,570 31,112 27,233
Gain from sale of assets (11,647) (511) (46)
Provision for deferred income taxes (8,508) (583) (2,467)
Provision for loss on sale of subsidiary 4,500 - -
Restructuring and other one-time charges, net of tax benefit 52,637 - -
Changes in operating assets and liabilities, excluding
the effects of business acquisitions and disposals:
Accounts receivable (3,273) (11,193) (10,536)
Inventories 10,696 3,410 (16,071)
Prepaid expenses and other assets 486 (6,637) (3,423)
Trade accounts payable 11,736 6,501 2,254
Other liabilities (1,217) 4,010 2,517
--------- --------- --------
Net Cash Provided by Operating Activities 129,667 84,034 50,140
Investing Activities
Sales of short-term investments, net - 965 18,937
Proceeds on sale of property, plant and equipment 24,841 5,168 2,491
Additions to property, plant and equipment (56,827) (33,463) (31,391)
Business acquisitions (426,046) (76,951) (45,697)
Product line dispositions 6,000 - 5,181
Other 61 (63) 389
--------- --------- --------
Net Cash Used in Investing Activities (451,971) (104,344) (50,090)
Financing Activities
Proceeds from issuance of long-term debt 384,418 77,000 92,433
Principal payments on long-term debt (129,137) (50,205) (38,130)
Net borrowings on short-term credit facilities 16,158 6,691 3,484
Net commercial paper repayments - - (3,276)
Additional receivables financed 39,700 525 13,275
Pre-funding of trusts (17,801) - -
Stock repurchases - (293) (71,871)
Dividends paid on common stock (2,564) (3,114) (8,681)
Stock option exercises and other 6,855 5,156 2,768
--------- --------- --------
Net Cash Provided by (Used in) Financing Activities 297,629 35,760 (9,998)
Effect of Exchange Rate Changes on Cash (882) (1,422) (76)
--------- --------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (25,557) 14,028 (10,024)
Cash and Cash Equivalents - Beginning of Year 22,047 8,019 18,043
Effect of the ZERO excluded period
(as described in Note A) 9,859 - -
--------- --------- --------
Cash and Cash Equivalents - End of Year $ 6,349 $ 22,047 $ 8,019
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
30
<PAGE>
APPLIED POWER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, except per share amounts)
Note A - Summary of Significant Accounting Policies
- ---------------------------------------------------
Principles of Consolidation: The consolidated financial statements include the
accounts of Applied Power Inc. and its subsidiaries ("Applied Power," "APW" or
the "Company"). The Company consolidates companies in which it owns or controls
more than fifty percent of the voting shares unless control is likely to be
temporary. The results of companies acquired or disposed of during the fiscal
year are included in the consolidated financial statements from the effective
date of acquisition or up to the date of disposal except in the case of pooling
of interests (see "Basis of Presentation" below). All significant intercompany
balances, transactions and profits have been eliminated in consolidation.
Basis of Presentation: The consolidated financial statements have been prepared
in United States Dollars in accordance with generally accepted accounting
principles in the United States. As described more fully in Note B - "Merger and
Acquisitions," on July 31, 1998, ZERO Corporation, a Delaware corporation
("ZERO"), became a wholly-owned subsidiary of Applied Power through the merger
of STB Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Applied Power ("Acquisition"), with and into ZERO (the "Merger")
pursuant to an Agreement and Plan of Merger by and among Applied Power, ZERO and
Acquisition dated as of April 6, 1998 (the "Merger Agreement"). The consolidated
financial statements have been prepared following the pooling of interests
method of accounting for the Merger and therefore reflect the combined financial
position, operating results and cash flows of ZERO as if they had been combined
for all periods presented. In accordance with the pooling of interests method of
accounting, the fiscal 1996 beginning balances in the Consolidated Statement of
Shareholders' Equity have been restated to record the Merger with ZERO. Prior to
the Merger, ZERO had a March 31 fiscal year end. The Consolidated Balance Sheet,
Statements of Earnings, Shareholders' Equity and Cash Flows as of and for the
year ended August 31, 1998 reflect the combination of an August 31 year end
consolidated financial position, results of operations and cash flows for ZERO.
The Consolidated Balance Sheets, Statements of Earnings, Shareholders' Equity
and Cash Flows as of and for the years ended August 31, 1997 and 1996 reflect
the combination of the March 31 fiscal year end financial positions, results of
operations and cash flows of ZERO and the August 31 fiscal year end financial
positions, results of operations and cash flows of Applied Power Inc. The
results of operations and cash flows for ZERO from April 1, 1997 to August 31,
1997, which have been excluded from these consolidated financial statements, are
reflected as adjustments in the 1998 Consolidated Statements of Shareholders'
Equity and Cash Flows. Net sales and net income for ZERO for the excluded period
from April 1, 1997 to August 31, 1997 were $107,237 and $7,891, respectively.
Cash Equivalents: The Company considers all highly liquid investments with
original maturities of 90 days or less to be cash equivalents.
Inventories: Inventories are comprised of material, direct labor and
manufacturing overhead, and are stated at the lower of cost or market.
Property, Plant and Equipment: Property, plant and equipment are stated at cost.
Plant and equipment are depreciated over the estimated useful lives of the
assets, ranging from two to thirty years, under the straight-line method for
financial reporting purposes and both straight-line and accelerated methods for
tax purposes. Capital leases and leasehold improvements are amortized over the
life of the related assets or the life of the lease, whichever is shorter.
Expenditures for maintenance and repairs not expected to extend the useful life
of an asset beyond its normal useful life are expensed.
Intangible Assets: Goodwill is amortized on a straight-line basis over periods
of fifteen to forty years. Other intangible assets, consisting primarily of
purchased patents, trademarks and noncompete agreements, are amortized over
periods from two to forty years. The Company periodically evaluates the carrying
value of intangible assets in accordance 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." Impairment of goodwill, if any, is
measured on the basis of whether anticipated undiscounted operating cash flows
generated by the acquired businesses will recover the recorded goodwill balances
over the remaining amortization period. For the year ended August 31, 1998, the
Company recorded an
31
<PAGE>
impairment of goodwill of $5,062. For further information, see Note G - "Merger,
Restructuring and Other Non-recurring Charges." No impairment of goodwill was
indicated at August 31, 1997
Revenue Recognition: Revenues and costs of products sold are recognized as the
related products are shipped.
Research and Development Costs: Research and development costs are expensed as
incurred. Such costs incurred in the development of new products or significant
improvements to existing products totaled approximately $13,947, $10,437 and
$10,247 in 1998, 1997 and 1996, respectively.
Financing Costs: Net financing costs represent interest expense on debt
obligations, investment income and accounts receivable financing costs.
Income Taxes: The Company utilizes the liability method to recognize deferred
income tax assets and liabilities for the expected future income tax
consequences of events that have been recognized in the Company's financial
statements. Under this method, deferred tax assets and liabilities are
determined based on the temporary differences between financial statement
carrying amounts and the income tax basis of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences are
expected to reverse. For further information, see Note M - "Income Taxes."
Earnings Per Share: During the second quarter of fiscal 1998, the Company
adopted the provisions of SFAS No. 128, "Earnings Per Share," which was issued
by the Financial Accounting Standards Board ("FASB") in February 1997. Under the
new pronouncement, the dilutive effect of stock options is excluded from the
calculation of primary earnings per share, now called basic earnings per share.
Earnings per share information for all prior periods presented has been restated
to conform with the new calculation under SFAS No. 128.
In accordance with SFAS No. 128, earnings per share were computed as follows
(1998 results include restructuring charges and other one-time items - see Note
G - "Merger, Restructuring and Other Non-recurring Charges"):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net earnings for basic and diluted earnings per share $26,687 $57,925 $50,679
- -----------------------------------------------------------------------------------------------------
Denominator:
Weighted average common shares outstanding for
basic earnings per share (000's) 38,380 37,880 40,318
Net effect of dilutive options based on the treasury
stock method using average market price (000's) 1,794 1,427 1,135
- -----------------------------------------------------------------------------------------------------
Weighted average common and equivalent shares
outstanding for diluted earnings per share (000's) 40,174 39,307 41,453
- -----------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.70 $ 1.53 $ 1.26
- -----------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 0.66 $ 1.47 $ 1.22
- -----------------------------------------------------------------------------------------------------
</TABLE>
Foreign Currency Translation: Assets and liabilities of the Company's
subsidiaries operating outside of the United States which accounts are
denominated in a functional currency other than US Dollars are translated into
US Dollars using year-end exchange rates. Revenues and expenses are translated
at the average exchange rates effective during the year. Foreign currency
translation adjustments are generally excluded from the Consolidated Statement
of Earnings and are included in cumulative translation adjustments in the
Consolidated Balance Sheet and Consolidated Statement of Shareholders' Equity.
Gains and losses resulting from foreign currency transactions are included in
"Other - net" in the Consolidated Statement of Earnings.
32
<PAGE>
Derivative Financial Instruments: Derivative financial instruments are primarily
utilized by the Company to manage risks associated with interest rate market
volatility and foreign exchange exposures. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company currently
holds only interest rate swap agreements. For interest rate swap agreements, the
differential to be paid or received is accrued monthly as an adjustment to
interest expense. The Company also utilizes foreign currency forward contracts
to hedge existing foreign exchange exposures. Gains and losses resulting from
these instruments are recognized in the same period as the underlying
transaction. For further information, see Note I - "Long-term Debt."
Use of Estimates: The financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the years presented. They also affect the
disclosure of contingencies. Actual results could differ from those amounts.
New Accounting Pronouncements: In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income." This Statement establishes standards for the
reporting and display of comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Comprehensive income as defined includes all changes in equity (net
assets) during a period from nonowner sources. Examples of items to be included
in comprehensive income, which are excluded from net income, include foreign
currency translation adjustments, unrealized gain(loss) on available-for-sale
securities, and mark-to-market adjustments for hedging activities. The
disclosures required by this Statement will be made beginning with the Company's
first quarter of fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way companies report information about operating segments in financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company is in the
process of reassessing its current business segment reporting to determine if
changes in reporting will be required in adopting this new standard, but does
not expect that adoption of this Statement will have a significant impact on the
Company's disclosures. The disclosures required by this Statement will be
adopted in the Company's 1999 annual report and subsequent interim periods.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises disclosures
about pension and other postretirement benefits plans. This Statement is
effective for the Company's 1999 fiscal year financial statements and
restatement of disclosures for earlier years provided for comparative purposes
will be required unless the information is not readily available. The Company is
currently evaluating the extent to which its financial statement disclosures
will be affected by SFAS No. 132.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which specifies the accounting
treatment provided to computer software costs depending upon the type of costs
incurred. This Statement is effective for the Company's fiscal year 2000
financial statements and restatement of prior years will not be permitted. The
Company does not believe that the adoption of this Statement will have a
significant impact on its financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. This Statement is effective for the Company's fiscal
year 2000 financial statements and initial application will be reported as a
cumulative effect of a change in accounting principle. The Company is currently
evaluating the extent to which its financial statements will be affected by SOP
98-5.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that an entity recognize
derivative instruments, including certain derivative instruments embedded in
other contracts, as either assets or liabilities and measure those instruments
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This Statement is effective for the
Company's fiscal year 2000 first quarter financial statements and restatement of
prior years will not be permitted. The Company is currently evaluating the
extent to which its financial
33
<PAGE>
statements will be affected by SFAS No. 133, which is not expected to have a
material effect on the Company based on its current derivative and hedging
activities.
Reclassifications: Certain prior year amounts shown have been reclassified to
conform to the fiscal 1998 presentation, including but not limited to, the
reclassification of certain financial data previously reported in Tools and
Supplies into Engineered Solutions.
Note B - Merger and Acquisitions
- --------------------------------
Merger
On July 31, 1998, at special meetings for both companies, shareholders voted to
approve the merger of a newly created subsidiary of the Company into ZERO
Corporation. The Merger was completed after the approval of the shareholders of
the Company and ZERO at their respective shareholder meetings. Under the terms
of the Merger Agreement, ZERO stockholders received 0.85 of a share of the
Company's Common Stock for each share of ZERO Common Stock. The Company issued
approximately 10.6 million shares of its common stock in exchange for all
outstanding common stock of ZERO Corporation and assumed outstanding options to
purchase ZERO common stock that were converted into options to purchase
approximately .6 million shares of the Company's common stock pursuant to the
terms of the Merger. This equates to a purchase price of approximately $386,000
based on the July 30, 1998 closing stock price of the Company. ZERO's primary
business is protecting electronics. ZERO's system packaging, thermal management
and engineered cases serve the telecommunication, instrumentation and data-
processing markets. ZERO also produces the line of ZERO Halliburton(R) cases for
consumers worldwide and cargo containers and proprietary loading systems to the
airline industry. The Merger has been accounted for using the pooling of
interests method of accounting and therefore reflects the combined financial
position, operating results and cash flows of ZERO as if they had been combined
for all periods presented. See Note A - "Summary of Significant Accounting
Policies - Basis of Presentation."
All fees and expenses related to the ZERO merger and to the integration of the
combined companies have been expensed as required under the pooling of interests
method of accounting. Such fees and expenses amounted to $20,129 in 1998. This
total includes transaction costs of approximately $9,276 related to legal,
accounting and financial advisory services. The remaining $10,853 reflects costs
associated with organizational realignment, closure of ZERO headquarters,
facility consolidation and the conforming of accounting policies.
Acquisitions
Fiscal 1998
On June 5, 1998, Applied Power Limited, a United Kingdom subsidiary of the
Company, accepted for payment all of the VERO Group plc ("VERO") stock tendered,
which totaled over 72% of the outstanding VERO shares, pursuant to Applied Power
Limited's tender offer to acquire the entire issued share capital of VERO at a
price of 192 pence per VERO share (the "Offer"). Applied Power Limited had
previously acquired approximately 10% of VERO's shares, so that after accepting
the shares tendered, Applied Power Limited owned or had accepted over 82% of
VERO's shares. On June 19, 1998, Applied Power Limited announced that additional
shares tendered brought the total of the shares it owned or had accepted for
payment to over 90% of VERO's issued share capital and that it would invoke
Section 429 of the U.K. Companies Act of 1985, as amended, to acquire the
remaining outstanding shares of VERO stock. After the required procedures were
completed, Applied Power Limited owned all of the issued share capital of VERO.
Cash paid for the transaction totaled approximately $191,700. Preliminary
allocations of the purchase price resulted in approximately $172,700 of
goodwill. VERO is a United Kingdom based company that manufactures electronic
enclosures, racks, backplanes and power supplies. The acquisition has been
recorded using the purchase method of accounting. The operating results of VERO
subsequent to June 5, 1998 are included in the Consolidated Statement of
Earnings.
On October 6, 1997, the Company, through a wholly-owned subsidiary, accepted for
payment all shares of Versa Technologies, Inc. ("Versa/Tek") common stock which
were tendered pursuant to the Company's tender offer to purchase all outstanding
shares at a cash price of $24.625 net per share. The balance of the outstanding
shares was acquired for the same per share cash price in a follow-up merger on
October 9, 1997. Cash paid for the transaction
34
<PAGE>
totaled approximately $141,000. Preliminary allocations of the purchase price
resulted in approximately $108,000 of goodwill. The transaction was primarily
funded with proceeds from a $140,000, 364-day revolving credit facility from the
Company's then existing lenders. Versa/Tek, operating out of several locations
in Wisconsin, is a value-added manufacturer of custom engineered components and
systems for diverse industrial markets. The acquisition has been recorded using
the purchase method of accounting. The operating results of Versa/Tek subsequent
to October 6, 1997 are included in the Consolidated Statement of Earnings.
In addition to the above acquisitions made in fiscal 1998, the pro forma data
for fiscal 1997 in the table below give effect to the purchase of the net assets
of Everest Electronic Equipment, Inc. ("Everest") on September 26, 1996 for cash
consideration of $52,000, which was funded through borrowings under then
existing credit facilities. Approximately $43,000 of the purchase price was
assigned to goodwill. Everest is a manufacturer of custom and standard
electronic enclosures used by the computer, telecommunication, datacom and other
industries and is headquartered in Anaheim, California. The acquisition has been
recorded using the purchase method of accounting. The results of Everest
subsequent to the acquisition date are included in the Consolidated Statement of
Earnings.
The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the acquisitions described above had been completed
on September 1, 1996, the beginning of the 1997 fiscal year. The pro forma data
give effect to actual operating results prior to the acquisitions and
adjustments to interest expense, depreciation, goodwill amortization and income
tax expense. These pro forma amounts do not purport to be indicative of the
results that would have actually been obtained if the acquisition had occurred
on September 1, 1996 or that may be obtained in the future. The following data
do not give pro forma effect to the other acquisitions completed subsequent to
August 31, 1996, which are discussed below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $1,392,833 $1,270,045
Net Earnings $ 27,556 $ 57,137
Basic Earnings Per Share $ 0.72 $ 1.51
Shares Used in Basic Computation (000's) 38,380 37,880
Diluted Earnings Per Share $ 0.69 $ 1.45
Shares Used in Diluted Computation (000's) 40,174 39,307
- --------------------------------------------------------------------------------
</TABLE>
In addition to the Merger and material acquisitions discussed above, in fiscal
1998 the Company acquired eight other companies, primarily in its Enclosure
Products and Systems business segment, for an aggregate of approximately
$125,600, including $118,900 in cash and the assumption of approximately $6,700
in debt. The cash portion of the acquisitions was paid utilizing borrowings
under existing credit facilities. Each of these acquisitions was accounted for
using the purchase method of accounting and the results of operations of the
acquired companies are included in the Consolidated Statement of Earnings from
their respective acquisition dates. As a result of the acquisitions,
approximately $90,700 in goodwill was recorded by the Company.
Fiscal 1997
In addition to the acquisition of Everest discussed above, in fiscal 1997 the
Company acquired three other companies for an aggregate of approximately $22,800
in cash. The cash portion of the acquisitions' purchase price was made utilizing
borrowings under then existing credit facilities. Each of these acquisitions was
accounted for as a purchase and the results of operations of the acquired
companies are included in the Consolidated Statement of Earnings from their
respective acquisition dates. As a result of the acquisitions, approximately
$11,200 in goodwill was recorded by the Company.
Fiscal 1996
In fiscal 1996, the Company acquired four companies for an aggregate of
approximately $45,700, including approximately $33,700 in cash, the assumption
of approximately $7,400 in debt, the forgiveness of accounts receivable
outstanding of approximately $700, and the issuance of Applied Power Inc. Class
A Common Stock valued at approximately $3,900. The cash portion of the
acquisitions' purchase price was paid utilizing borrowings under then existing
credit facilities. Each of these acquisitions was accounted for as a purchase
and the results of operations of the
35
<PAGE>
acquired companies are included in the Consolidated Statement of Earnings from
their respective acquisition dates. As a result of the acquisitions,
approximately $5,300 in goodwill was recorded by the Company.
Note C - Sales of Product Lines
- -------------------------------
On March 31, 1998, the Company completed the sale of the assets of Moxness
Industrial Products, a division of Versa/Tek. Total consideration from the
transaction was $6,000, which approximated book value of the assets.
On January 24, 1996, the Company sold substantially all of the assets and
liabilities of its APITECH mobile equipment product line. Total consideration
from the transaction, which included future collection of retained accounts
receivable, was approximately $5,200, which approximated the book value of the
product line.
On December 13, 1995, the Company's GB Electrical subsidiary sold its HIT spring
steel product line for approximately $2,400 in cash. Proceeds from the sale
approximated the book value of the product line.
Note D - Accounts Receivable Financing
- --------------------------------------
On November 20, 1997, the Company replaced its former $50,000 accounts
receivable financing facility with a new facility that provided up to $80,000 of
multi-currency accounts receivable financing. The new agreement expires in
November 2000. On August 28, 1998, the Company amended the facility by
increasing the amount of multi-currency accounts receivable financing from
$80,000 to $90,000. All other terms of the agreement remain the same.
Under the terms of this agreement, the Company and certain subsidiaries
(collectively, "Originators") sell trade accounts receivable to Applied Power
Credit Corporation ("APCC"), a wholly-owned limited purpose subsidiary of the
Company. APCC is a separate corporate entity that sells participating interests
in its pool of accounts receivable to financial institutions ("Purchasers"). The
Purchasers, in turn, receive an ownership and security interest in the pool of
receivables. Participation interests in new receivables generated by the
Originators are purchased by APCC and resold to the Purchasers as collections
reduce previously sold participation interests. The sold accounts receivable are
reflected as a reduction of receivables in the Consolidated Balance Sheet. APCC
has the risk of credit loss on such receivables up to a maximum recourse amount
and, accordingly, the full amount of the allowance for doubtful accounts has
been retained on the Company's Consolidated Balance Sheet. The Company retains
collection and administrative responsibilities on the participation interests
sold as servicer for APCC and the Purchasers.
At August 31, 1998 and 1997, accounts receivable were reduced by $89,700 and
$50,000, respectively, representing receivable interests sold under this
program. The proceeds from the sales were used to reduce debt.
Accounts receivable financing costs totaling $4,349, $2,978 and $2,324 for the
years ended August 31, 1998, 1997 and 1996, respectively, are included with net
financing costs in the accompanying Consolidated Statement of Earnings.
Note E - Net Inventories
- ------------------------
Inventory cost is determined using the last-in, first-out ("LIFO") method for a
portion of US owned inventory (approximately 37% and 57% of total inventories in
1998 and 1997, respectively). The first-in, first-out or average cost methods
are used for all other inventories. If the LIFO method was not used, inventory
balances would be higher than the amounts in the Consolidated Balance Sheet by
approximately $8,239 and $7,920 at August 31, 1998 and 1997, respectively.
It is not practical to segregate the amounts of raw materials, work-in-process
or finished goods at the respective balance sheet dates, since the segregation
is possible only as the result of physical inventories which are taken at dates
different from the balance sheet dates. The systems at many of the Company's
operating units have not been designed to capture this segregation due to the
very short production cycle of their products and the minimal amount of work-in-
process.
36
<PAGE>
Note F - Shareholders' Equity
- -----------------------------
The authorized capital stock of the Company as of August 31, 1998 consisted of
80,000,000 shares of Class A Common Stock, $0.20 par value, of which 38,626,068
shares were issued and outstanding; 7,500,000 shares of Class B Common Stock,
$0.20 par value, none of which were issued and outstanding; and 800,000 shares
of Cumulative Preferred Stock, $1.00 par value ("Preferred Stock"), none of
which have been issued. Holders of both classes of the Company's Common Stock
are entitled to such dividends as the Company's Board of Directors may declare
out of funds legally available, subject to any contractual restrictions on the
payment of dividends or other distributions on the Common Stock. If the Company
were to issue any of its Preferred Stock, no dividends could be paid or set
apart for payment on shares of Common Stock, unless paid in Common Stock, until
dividends on all of the issued and outstanding shares of Preferred Stock had
been paid or set apart for payment and provision had been made for any mandatory
sinking fund payments. In the event of dissolution or liquidation of the
Company, the holders of both classes of Common Stock are entitled to share
ratably all assets of the Company remaining after payment of the Company's
liabilities and satisfaction of the rights of any series of Preferred Stock
which may be outstanding. There are no redemption or sinking fund provisions
with respect to the Common Stock.
On January 8, 1998, the Board of Directors authorized a two-for-one stock split
effected in the form of a 100 percent stock dividend to shareholders of record
on January 22, 1998. To effect the stock split, a total of 13,891,578 shares of
the Company's Class A Common Stock were issued on February 3, 1998. All
references in the accompanying consolidated financial statements to the average
number of common shares and related per share amounts have been restated to
reflect the stock split.
At the Annual Meeting of Shareholders on January 9, 1998, the shareholders voted
to increase the number of authorized shares of Class A Common from 40,000,000 to
80,000,000.
Prior to the Merger, as discussed in Note B - "Merger and Acquisitions," ZERO
Corporation repurchased approximately 4,019,000 shares of its common stock at a
cost of approximately $71,871 in a Dutch Auction Tender Offer in February 1996.
The source of the funds to repurchase the shares was provided by the issuance of
promissory notes totaling $50,000 by ZERO Corporation (see also Note I - "Long-
term Debt"), together with available cash and cash derived from the sale of
short-term investments.
Note G - Merger, Restructuring and Other Non-recurring Charges
- --------------------------------------------------------------
The Company recorded restructuring and other one-time charges of $52,637 in the
fourth quarter of 1998. The pre-tax charges of $69,440 relate to costs
associated with the ZERO merger, various plant consolidations, and other cost
reductions and product rationalization efforts of the Company. The charges were
reflected in the financial statements as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Merger, Restructuring and Other Non-recurring Charges
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Cost of products sold $25,785
Engineering, selling and administrative expenses 9,019
Amortization of intangible assets 5,062
Restructuring charges 20,298
Merger related expenses 9,276
- -------------------------------------------------------------------------------------------------------------------
Subtotal 69,440
Less: Income tax benefit 16,803
- -------------------------------------------------------------------------------------------------------------------
Total $52,637
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In connection with the Merger with ZERO consummated in fiscal 1998 (Note B -
"Merger and Acquisitions"), the Company recorded transaction costs of
approximately $9,276 related to legal, accounting and financial advisory
services. These were expensed as required under the pooling of interests method
of accounting. In addition, the Company incurred costs of $10,853 associated
with organizational realignment, closure of ZERO headquarters, facility
consolidation and the conforming of accounting policies.
37
<PAGE>
In August 1998, the Company also recorded restructuring and one-time charges of
$49,311 related to the product line rationalization of certain acquired
companies, combination of certain production facilities and exiting of several
product lines. As of August 31, 1998, there was $21,471 remaining in the reserve
for organizational realignments and other cash related items and $27,840 for
non-cash charges related to inventory rationalization, facility consolidation
and goodwill impairment. Of the total charges incurred, $13,600 was recorded for
severance payments of approximately 400 employees of which a negligible amount
was paid in fiscal 1998.
Note H - Short-term Borrowings
- ------------------------------
The Company had borrowings under non-collateralized non-committed lines of
credit with banks aggregating approximately $91 and $21,463 at August 31, 1998
and 1997, respectively. Interest rates vary depending on the currency being
borrowed. The weighted average interest rates on the US and non-US short-term
borrowings were 5.24% and 6.22% at August 31, 1998 and 1997, respectively. The
amount of unused available borrowings under such lines of credit was
approximately $80,872 at August 31, 1998.
Note I - Long-term Debt
- -----------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
August 31,
- --------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowings under:
Multi-currency revolving credit agreement $360,672 $101,663
Commercial paper 42,930 -
Pound Sterling multi-currency revolving credit agreement 26,218 -
Floating rate unsecured notes, due December 31, 2003 27,386 -
Senior promissory notes, due March 8, 2011 50,000 50,000
Other 5,351 1,503
- --------------------------------------------------------------------------------------------------------------------
Total Long-term Debt $512,557 $153,166
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
On June 18, 1998, the Company and Enerpac B.V., a Netherlands subsidiary of the
Company, as Borrowers, entered into a Multicurrency Credit Agreement (the
"Credit Agreement"), providing for a $700,000, 5-year revolving credit facility
(the "Facility"). In conjunction with the closing of the Facility, the Company
terminated its prior $350,000, 5-year revolving credit facility (the "Prior
Facility"), and used certain funds received under the Facility to repay
borrowings under the Prior Facility. The Facility was used to finance expenses
related to the acquisition of VERO, provide for working capital, capital
expenditures and for other general corporate purposes. At August 31, 1998,
direct outstanding borrowings under the Facility were $360,672 and commercial
paper borrowings and certain loan notes, considered a utilization of the
Facility, were $42,930 and $27,386, respectively. The Company can borrow at a
floating rate of LIBOR plus 0.275 to 1.00 basis points annually, depending on
the debt-to-EBITDA ratio. Currently, the Company incurs interest at 0.625 basis
points above 30-day LIBOR, determined by the underlying currency of the debt
which the Company is borrowing. At August 31, 1998, the Company had borrowings
denominated in the US Dollar and the Japanese Yen. A non-use fee, currently
computed at a rate of 0.175 basis points annually, is payable quarterly on the
average unused credit line. The unused credit line at August 31, 1998 was
approximately $269,000.
The Credit Agreement contains customary restrictions concerning investments,
liens on assets, sales of assets, maximum levels of debt and minimum levels of
shareholders' equity. In addition, the agreement requires the Company to
maintain certain financial ratios. As of August 31, 1998, the Company was in
compliance with all debt covenants. See also Note P - "Subsequent Events."
Commercial paper outstanding at August 31, 1998 totaled $42,930, net of
discount, and carried an average interest rate of 5.70%. The Company has the
ability and intent to maintain these commercial paper obligations, classified as
long term, for more than one year. Amounts outstanding as commercial paper
reduce the amount available for borrowings under the Credit Agreement. There was
no commercial paper outstanding at August 31, 1997.
38
<PAGE>
The Pound Sterling multi-currency revolving credit agreement was entered into by
the Company's VERO subsidiary in April 1998, prior to the acquisition of VERO by
the Company. The facility provides up to 27.5 million Pounds Sterling of multi-
currency borrowings and expires in 2003. Any borrowings carry an interest rate
of LIBOR plus 0.65 basis points determined by the underlying currency of the
debt which the Company is borrowing. At August 31, 1998 the facility had
borrowings denominated in Pounds Sterling, German Marks, French Francs, US
Dollars, Danish Krone and Italian Lira. The agreement has customary covenants
regarding tangible net worth and debt-to-net worth, neither of which were deemed
restrictive at August 31, 1998. The total unused line available at August 31,
1998 was 9.1 million Pounds Sterling or approximately $15,000.
The floating rate unsecured notes were entered into by the Company as a result
of its acquisition of VERO. The notes were exchanged with individual
shareholders of VERO, at their option, in lieu of receiving cash payment for
their tendered shares. The notes carry an interest rate of LIBOR minus 0.50
basis points and can be redeemed at the option of the note holder on various
dates through 2003.
The senior promissory notes bear interest at 7.13%, and are payable in 11 annual
installments of $4,545 beginning March 8, 2001. The proceeds from the notes were
used solely for the repurchase of ZERO's common stock in a Dutch Auction Tender
Offer and for payment of related expenses. See also Note F - "Shareholders'
Equity."
Derivative Financial Instruments: As part of its interest rate management
program, the Company periodically enters into interest rate swap agreements with
respect to portions of its outstanding debt. The purpose of these swaps is to
protect the Company from the effect of an increase in interest rates. The
interest rate swap agreements in place at August 31, 1998 effectively convert
$239,264 of the Company's variable rate debt to a weighted average fixed rate of
5.95%. The swap agreements expire on varying dates through 2005. The
accompanying Consolidated Balance Sheet at August 31, 1998 does not reflect a
value for these swap agreements.
The purpose of the Company's foreign currency hedging activities is to protect
the Company from the risk that the eventual US Dollar cash flows resulting from
the sale and purchase of products in foreign currencies will be adversely
affected by changes in exchange rates. In addition, the Company seeks to manage
the impact of foreign currency fluctuations related to the repayment of
intercompany borrowings. Fluctuations in the value of hedging instruments are
offset by fluctuations in the value of the underlying exposures being hedged.
The Company uses forward exchange contracts to hedge certain firm purchase and
sales commitments and the related receivables and payables including other third
party or intercompany foreign currency transactions. Cross-currency swaps are
used to hedge foreign currency denominated payments related to intercompany loan
agreements. Hedged transactions are denominated primarily in European
currencies. The net realized and unrealized gains or losses on forward contracts
deferred at August 31, 1998 were negligible.
The counterparties to these financial instruments consist of major financial
institutions with investment grade or better credit ratings. The Company does
not expect any losses from nonperformance by these counterparties.
Adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," in fiscal 2000 will require the Company to record these instruments
at their fair values. See Note A - "Summary of Significant Accounting Policies -
New Accounting Pronouncements."
Fair Values: The fair value of the Company's short-term borrowings and long-
term debt approximated book value as of August 31, 1998 and 1997 due to their
short-term nature and the fact that the interest rates approximate market rates,
respectively. The fair value of debt instruments is calculated by discounting
the cash flow of such obligations using the market interest rates for similar
instruments. If the Company decided to terminate its interest rate swap
agreements, the Company would have had to pay $4,223 and $553 as of August 31,
1998 and 1997, respectively. The Company had no foreign currency contracts in
place at August 31, 1998.
Aggregate Maturities: Long-term debt outstanding at August 31, 1998 is payable
as follows: none in 1999; $1,572 in 2000; $6,259 in 2001; $5,871 in 2002;
$434,950 in 2003 and $63,905 thereafter.
The Company paid $24,832, $15,506 and $8,202 for financing costs in 1998, 1997
and 1996, respectively.
39
<PAGE>
Note J - Leases
- ---------------
The Company leases certain facilities, computers, equipment and vehicles under
various lease agreements generally over periods of one to twenty years. Under
most arrangements, the Company pays the property taxes, insurance, maintenance
and expenses related to the leased property. Many of the leases include
provisions which enable the Company to renew leases based upon the fair values
on the date of expiration of the initial lease.
Future obligations on non-cancelable operating leases in effect at August 31,
1998 are: $24,484 in 1999; $20,660 in 2000; $17,090 in 2001; $21,984 in 2002;
$12,134 in 2003 and $101,906 thereafter.
Total rental expense under operating leases was $20,117, $14,385 and $12,798 in
1998, 1997 and 1996, respectively.
Note K - Stock Option Plans
- ---------------------------
A total of 8,715,638 shares of Class A Common are authorized for issuance under
the Company's employee and director stock option plans (including the assumed
ZERO stock options described below), of which a total of 3,080,741 have been
issued through exercises of option grants. At August 31, 1998, 5,634,897 shares
were reserved for issuance under the plans, consisting of 2,841,706 shares
subject to outstanding options and 2,793,191 shares available for further
grants.
Employee Plans: On January 8, 1997, shareholders of the Company approved the
adoption of the Applied Power Inc. 1996 Stock Plan (the "1996 Plan").
Previously, the Company had three nonqualified stock option plans for employees-
the 1985, 1987 and 1990 plans. No further options may be granted under the 1985,
1987 or 1990 plans, although options previously issued and outstanding under
these plans remain exercisable pursuant to the provisions of the plans. Under
the terms of the 1996 Plan, options may be granted to officers and key
employees. Options generally have a maximum term of ten years and an exercise
price equal to 100% of the fair market value of a share of the Company's common
stock at the date of grant. Options generally vest 50% after two years and 100%
after five years.
In connection with the Merger occurring in fiscal 1998 (see Note B - "Merger and
Acquisitions"), all of the options outstanding under the former ZERO stock
option plans were assumed by the Company and converted into options to purchase
shares of the Company's Class A Common Stock on terms adjusted to reflect the
Merger exchange ratio. Options to acquire a total of 735,767 ZERO shares were
converted into options to acquire a total of 625,402 Company shares. These
options, as so adjusted, retain all of the rights, terms and conditions of the
respective plans under which they were originally granted.
ZERO's plans provided for the granting of options to purchase shares of ZERO
common stock to directors, officers and other key employees at a price not less
than the fair market value on the date of grant. Options were granted for terms
of five to eight years and become exercisable in annual installments (generally
one-third of the total grant) commencing one year from the date of grant, on a
cumulative basis.
40
<PAGE>
A summary of option activity under the employee plans is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 1, 1995 3,623,519 $10.61
Granted 377,183 17.03
Exercised (457,138) 10.42
Canceled (345,044) 11.42
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at August 31, 1996 3,198,520 $11.37
Granted 642,865 19.61
Exercised (502,379) 11.16
Canceled (87,396) 14.51
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at August 31, 1997 3,251,610 $12.91
Effect of ZERO excluded period (as described in Note A) (84,797) --
Granted 467,644 32.27
Exercised (721,160) 13.01
Canceled (133,591) 18.85
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at August 31, 1998 2,779,706 $15.72
- -----------------------------------------------------------------------------------------------------------------------
Exercisable at August 31, 1998 1,616,503 $10.63
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.75 - $ 8.38 632,208 3.6 years $ 8.02 632,208 $ 8.02
$ 8.56 - $10.69 690,682 3.2 years $ 9.74 588,532 $ 9.57
$11.13 - $16.18 439,542 5.6 years $14.57 278,592 $14.68
$17.75 - $26.13 582,029 6.6 years $19.51 112,200 $19.96
$31.63 - $36.13 435,245 8.3 years $32.46 4,971 $31.84
- ------------------------------------------------------------------------------------------------------------------------
2,779,706 $15.72 1,616,503 $10.63
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
employee stock option plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for the outside
director plan discussed below. If the Company had accounted for these stock
options issued to employees in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings and earnings per share
would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings - as reported $26,687 $57,925 $50,679
Net Earnings - pro forma 25,592 56,946 50,334
Basic Earnings Per Share - as reported $ 0.70 $ 1.53 $ 1.26
Basic Earnings Per Share - pro forma 0.67 1.50 1.25
Diluted Earnings Per Share - as reported $ 0.66 $ 1.47 $ 1.22
Diluted Earnings Per Share - pro forma 0.64 1.45 1.21
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
The pro forma effects of applying SFAS No. 123 may not be representative of the
effects on reported net income and earnings per share for future years since
options vest over several years and additional awards are made each year.
The fair value of Applied Power stock options used to compute pro forma net
earnings and pro forma earnings per share disclosures is the estimated present
value at grant date using the Black-Scholes option-pricing model. The weighted
average fair values per share of options granted in 1998, 1997 and 1996 are
$11.54, $4.90 and $4.03, respectively. The following weighted average
assumptions were used in completing the model:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 0.24% 0.33% 0.40%
Expected volatility 23.5% 19.0% 18.3%
Risk-free rate of return 5.5% 6.3% 6.3%
Expected life 5.6 years 5.0 years 5.0 years
- --------------------------------------------------------------------------------
</TABLE>
Outside Director Plan: Annually, each outside director is granted stock options
to purchase 3,000 shares of common stock at a price equal to the market price of
the underlying stock on the date of grant. The amount of shares granted was
increased in 1997, from 2,000 shares, by an amendment to the plan adopted on
October 31, 1996. These options are recorded as compensation expense as required
by SFAS No. 123. A maximum of 120,000 shares may be issued under this plan.
Options vest 100% after 11 months.
A summary of option activity under this plan is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 1, 1995 40,000 $ 9.63
Granted 12,000 13.82
Exercised (2,000) 8.50
- --------------------------------------------------------------------------------
Outstanding at August 31, 1996 50,000 $10.77
Granted 15,000 19.44
Canceled (4,000) 8.42
- --------------------------------------------------------------------------------
Outstanding at August 31, 1997 61,000 $13.03
Granted 15,000 34.50
Exercised (14,000) 10.09
- --------------------------------------------------------------------------------
Outstanding at August 31, 1998 62,000 $18.88
- --------------------------------------------------------------------------------
Exercisable at August 31, 1998 47,000 $13.90
- --------------------------------------------------------------------------------
</TABLE>
Note L - Employee Benefit Plans
- -------------------------------
Postretirement Benefit Plans - The Company does not offer postretirement health
care and life insurance benefits to employees. However, certain employees of
businesses previously acquired by the Company were entitled to such benefits
upon retirement. Most individuals receiving health care benefits under these
programs are required to make monthly contributions to defray a portion of the
cost. Retiree contributions are adjusted annually. Retirees currently do not
contribute toward the cost of life insurance. The accounting for retiree health
care benefits assumes retirees will continue to contribute toward the cost of
such benefits. Net periodic postretirement benefit expense for 1998, 1997 and
1996 was not material. The Company's postretirement benefit obligation is not
funded. Benefits paid in 1998, 1997 and 1996 were $41, $128 and $22 higher than
that expensed during those years, respectively.
42
<PAGE>
The Company's accumulated postretirement benefit obligation for such benefits is
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
August 31,
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Retirees $4,388 $3,843
Vested former employees 606 748
Active employees 230 174
- ------------------------------------------------------------------------------
Subtotal 5,224 4,765
Unrecognized gain 4,445 4,312
- ------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation $9,669 $9,077
- ------------------------------------------------------------------------------
</TABLE>
The health care cost trend rate used in the actuarial calculations was 9.8%,
trending downward to 6.5% by the year 2009, and remaining level thereafter. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.0%, 7.75% and 7.75% for the years 1998, 1997 and 1996,
respectively. The effect of a one percentage-point increase in health care cost
trend rates would increase the accumulated postretirement benefit obligation by
approximately 8%.
Defined Benefit Pension Plans - The Company does not offer defined benefit
pensions to employees. However, certain employees of the Versa/Tek businesses
acquired by the Company during 1998 were entitled to such benefits upon
retirement. Two of the plans cover certain hourly production employees and
provide benefits of stated amounts for specified periods of service. Another
plan covers certain salaried, administrative and clerical employees and provides
benefits based on years of service and compensation. In 1998, the Company
amended the plans to freeze the accumulation of benefits. This change resulted
in a decrease of approximately $1,890 in the projected benefit obligation.
The Company makes actuarially determined contributions to a trust fund for these
plans which represents the maximum allowable for deduction in determination of
Federal taxable income. Trust assets consist primarily of participating units in
common stock and bond funds. Net pension cost for fiscal 1998 for the defined
benefit plans was not material. Benefits paid in 1998 were approximately $200
higher than that expensed.
The defined benefit plans' funded status at August 31, 1998 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1998
- ----------------------------------------------------------------------------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 10,418
- ----------------------------------------------------------------------------
Accumulated benefit obligation 10,778
- ----------------------------------------------------------------------------
Projected benefit obligation 10,778
Plan assets at fair value 12,086
- ----------------------------------------------------------------------------
Plan assets in excess of accumulated benefits (1,308)
Unrecognized net actuarial loss (515)
- ----------------------------------------------------------------------------
Prepaid Pension Cost $(1,823)
- ----------------------------------------------------------------------------
</TABLE>
The projected benefit obligation assumes a 7.0% actuarial discount rate and an
expected long-term rate of return on plan assets of 8.5%.
In place of participation in any of the above defined benefit pension plans, the
Company makes cash contributions to a labor management (union) multi-employer
pension fund based on hours worked in accordance with a negotiated labor
contract for tool makers employed at one of the Company's manufacturing
facilities.
The Company also assumed an unfunded supplemental pension agreement with a
former Versa/Tek key executive officer. The actuarially computed provision for
this agreement was $41 for 1998.
43
<PAGE>
Defined Contribution Plans - US Employees: Effective January 1, 1998, the
Company merged its former Employee Savings Plan with the Applied Power Inc.
Employee Stock Ownership Plan to create a single retirement program for eligible
employees - the APW 401(k) Plan (the "401(k) Plan"). Substantially all of the
Company's full-time US employees are eligible to participate in the 401(k) Plan.
Under the provisions of the 401(k) Plan, the plan administrator acquires shares
of Class A Common Stock on the open market and allocates such shares to accounts
set aside for Company employees' retirements. Company contributions generally
equal 3% of each employees' annual cash compensation, subject to IRS
limitations. Additionally, employees generally may contribute up to 15% of their
base compensation. The Company also matches approximately 25% of each employee's
contribution up to the participant's first 6% of earnings. During the years
ended August 31, 1998, 1997 and 1996, pre-tax expense related to the defined
contribution plans was approximately $3,800, $4,100 and $2,800, respectively.
Non-US Employees: The Company contributes to a number of retirement programs for
employees outside the US. Pension expense under these programs amounted to
approximately $2,102, $1,215 and $1,046 in 1998, 1997 and 1996, respectively.
These plans are not required to report to US governmental agencies under the
Employee Retirement Income Security Act of 1974 and, therefore, the Company does
not determine the actuarial value of accumulated plan benefits or net assets
available for benefits.
Note M - Income Taxes
- ---------------------
Income tax expense consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Currently Payable:
<S> <C> <C> <C> <C>
Federal $25,323 $23,607 $18,941
Foreign 9,626 5,015 6,510
State 4,257 3,260 3,751
- ----------------------------------------------------------------------------
Subtotals 39,206 31,882 29,202
- ----------------------------------------------------------------------------
Deferred:
Federal (8,887) (488) (1,451)
Foreign 1,007 87 (780)
State (628) (182) (236)
- ----------------------------------------------------------------------------
Subtotals (8,508) (583) (2,467)
- ----------------------------------------------------------------------------
Totals $30,698 $31,299 $26,735
- ----------------------------------------------------------------------------
</TABLE>
Components of deferred income tax benefits include the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation and other
employee benefits $(1,007) $(1,565) $ (312)
Inventory items (7,478) (747) (694)
Depreciation and amortization 4,330 684 (1,875)
Restructuring expenses (4,734) (65) 373
Deferred income (88) 526 574
Book reserves and other items 469 584 (533)
- ----------------------------------------------------------------------------
Totals $(8,508) $ (583) $(2,467)
- ----------------------------------------------------------------------------
</TABLE>
44
<PAGE>
Income tax expense differs from the amounts computed by applying the Federal
income tax rate to earnings before income tax expense. A reconciliation of
income taxes at the US statutory rate to the effective tax rate follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Percent of Pre-tax Earnings
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal effect 4.1 2.5 2.8
Non-deductible amortization and other expenses 12.1 1.0 1.1
Net effects of foreign tax rates and credits 5.7 (3.1) (3.2)
Other items (3.4) (0.3) (1.1)
- -------------------------------------------------------------------------------
Effective Tax Rate 53.5% 35.1% 34.6%
- -------------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which gave rise to the deferred tax
assets and liabilities included the following items:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
August 31,
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Operating loss and state tax credit carryforwards $ 5,846 $ 4,206
Compensation and other employee benefits 15,803 11,357
Inventory items 15,012 7,228
Restructuring expenses 6,012 242
Deferred income 700 611
Book reserves and other items 6,599 2,892
- -------------------------------------------------------------------------------
49,972 26,536
Valuation allowance (5,846) (4,206)
- -------------------------------------------------------------------------------
44,126 22,330
- -------------------------------------------------------------------------------
Deferred income tax liabilities:
Depreciation and amortization 27,496 13,385
Inventory items 3,342 3,882
Other items 6,448 6,586
- -------------------------------------------------------------------------------
37,286 23,853
- -------------------------------------------------------------------------------
Net Deferred Income Tax Asset (Liability) $ 6,840 $(1,523)
- -------------------------------------------------------------------------------
</TABLE>
The valuation allowance represents a reserve for foreign and state loss
carryforwards for which utilization is uncertain. The increase in the valuation
allowance represents the current year increase in such loss carryforwards. The
majority of the foreign losses may be carried forward indefinitely. The state
loss carryforwards expire in various years through 2013.
Income taxes paid during 1998, 1997 and 1996 were $49,672, $32,362 and $29,104,
respectively.
The Company's policy is to remit earnings from foreign subsidiaries only to the
extent any resultant foreign income taxes are creditable in the US. Accordingly,
the Company does not currently provide for the additional US and foreign income
taxes which would become payable upon remission of undistributed earnings of
foreign subsidiaries. Undistributed earnings on which additional income taxes
have not been provided amounted to approximately $79,000 at August 31, 1998. If
all such undistributed earnings were remitted, an additional provision for
income taxes of approximately $3,800 would have been necessary as of August 31,
1998.
Earnings from continuing operations before income taxes from non-US operations
were $15,351, $10,471 and $11,928 for 1998, 1997 and 1996, respectively.
45
<PAGE>
Note N - Segment Information
- ----------------------------
The Company's operations are classified into three business segments: Enclosure
Products and Systems, Engineered Solutions and Tools and Supplies. Enclosure
Products and Systems designs, manufactures and sells furnishings and enclosures
utilized in technology intensive business environments. Engineered Solutions
focuses on developing and marketing value-added, customized solutions for OEMs
in the automotive, truck, off-highway equipment, medical, aerospace, defense and
industrial markets. Tools and Supplies is involved in the design, manufacture
and distribution of tools and supplies to the construction, electrical
wholesale, retail do-it-yourself, datacom, retail automotive, industrial and
production automation markets.
The following table summarizes financial information by business segment. The
information for Earnings Before Income Tax Expense includes the effects of the
Merger, restructuring and other non-recurring charges of $69,440 discussed in
Note G - "Merger, Restructuring and Other Non-recurring Charges." Such charges
allocated by segment are $17,730 in Enclosure Products and Systems, $11,375 in
Engineered Solutions, $24,615 in Tools and Supplies and $15,720 in General
corporate and other.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Enclosure Products and Systems $ 482,361 $296,235 $190,031
Engineered Solutions 432,070 312,254 308,907
Tools and Supplies 316,258 289,269 278,524
- -------------------------------------------------------------------------------
Totals $1,230,689 $897,758 $777,462
- -------------------------------------------------------------------------------
Earnings Before Income Tax Expense:
Enclosure Products and Systems $ 39,318 $ 46,293 $ 26,343
Engineered Solutions 56,521 41,783 36,473
Tools and Supplies 13,150 28,717 35,138
General corporate and other (51,604) (27,569) (20,540)
- -------------------------------------------------------------------------------
Totals $ 57,385 $ 89,224 $ 77,414
- -------------------------------------------------------------------------------
Depreciation and Amortization:
Enclosure Products and Systems $ 19,409 $ 9,533 $ 5,830
Engineered Solutions 17,059 12,344 13,099
Tools and Supplies 10,467 9,049 8,184
General corporate and other 635 186 120
- -------------------------------------------------------------------------------
Totals $ 47,570 $ 31,112 $ 27,233
- -------------------------------------------------------------------------------
Capital Expenditures:
Enclosure Products and Systems $ 25,191 $ 13,822 $ 11,044
Engineered Solutions 22,328 11,375 10,834
Tools and Supplies 8,914 7,965 9,290
General corporate and other 394 301 223
- -------------------------------------------------------------------------------
Totals $ 56,827 $ 33,463 $ 31,391
- -------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------
August 31,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Assets:
Enclosure Products and Systems $ 639,776 $241,027 $140,963
Engineered Solutions 324,581 192,476 183,992
Tools and Supplies 202,176 193,605 205,746
General corporate 8,189 22,438 16,377
- -------------------------------------------------------------------------------
Totals $1,174,722 $649,546 $547,078
- -------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
The following table summarizes financial information by geographic region. The
information for Earnings Before Income Tax Expense includes the effects of the
Merger, restructuring and other non-recurring charges of $69,440 discussed in
Note G - "Merger, Restructuring and Other Non-recurring Charges." Such charges
allocated by geographic region are $39,907 in North America, $7,743 in Europe,
$4,320 in Japan and Asia Pacific, $1,750 in Latin America and $15,720 in General
corporate and other.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
North America $ 895,355 $653,333 $547,561
Europe 284,189 180,995 163,213
Japan and Asia Pacific 37,588 51,962 56,750
Latin America 13,557 11,468 9,938
- -------------------------------------------------------------------------
Totals $1,230,689 $897,758 $777,462
- -------------------------------------------------------------------------
Earnings Before Income Tax Expense:
North America $ 91,511 $103,599 $ 77,836
Europe 20,474 15,818 17,531
Japan and Asia Pacific (1,250) (1,121) 3,772
Latin America (1,746) (1,503) (1,185)
General corporate and other (51,604) (27,569) (20,540)
- -------------------------------------------------------------------------
Totals $ 57,385 $ 89,224 $ 77,414
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
August 31,
- -------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
North America $ 743,943 $458,077 $387,225
Europe 390,588 125,335 93,325
Japan and Asia Pacific 24,412 33,669 38,834
Latin America 7,590 10,027 11,317
General corporate 8,189 22,438 16,377
- -------------------------------------------------------------------------
Totals $1,174,722 $649,546 $547,078
- -------------------------------------------------------------------------
</TABLE>
Earnings before income tax expense for each business and geographic segment do
not include general corporate expenses, interest expense or currency exchange
adjustments. Sales between business segments and geographic areas are
insignificant and are accounted for at prices intended to yield a reasonable
return to the selling affiliate. No single customer accounted for more than 10%
of total sales in 1998, 1997 or 1996. Export sales from domestic operations were
less than 10% in each of the periods presented.
Corporate assets, which are not allocated, represent principally cash and
deferred income taxes.
Note O - Contingencies and Litigation
- -------------------------------------
The Company had outstanding letters of credit totaling $6,625 and $6,396 at
August 31, 1998 and 1997, respectively. The letters of credit generally serve as
collateral for liabilities included in the Consolidated Balance Sheet.
The Company is a party to various legal proceedings which have arisen in the
normal course of its business. These legal proceedings typically include product
liability, environmental, labor and patent claims. The Company has recorded
reserves for loss contingencies based on the specific circumstances of each
case. Such reserves are recorded when the occurrence of loss is probable and can
be reasonably estimated. In the opinion of management, the resolution of these
contingencies will not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
47
<PAGE>
The Company has facilities at numerous geographic locations which are subject to
a range of environmental laws and regulations. Environmental costs are expensed
or capitalized depending on their future economic benefits. Expenditures that
have no future economic value are expensed. Liabilities are recorded when
environmental remediation is probable and the costs can be reasonably estimated.
Environmental expenditures over the last three years have not been material.
Although the level of future expenditures for environmental remediation is
impossible to determine with any degree of certainty, it is management's opinion
that such costs will not have a material adverse effect on the Company's
financial position, results of operations or cash flows. Environmental
remediation accruals of $4,049 and $1,608 were included in the Consolidated
Balance Sheet at August 31, 1998 and 1997, respectively.
Note P - Subsequent Events
- --------------------------
On September 29, 1998, the Company, through its wholly-owned subsidiary, APW
Enclosure Systems Limited, accepted for payment all shares of Rubicon Group plc
("Rubicon") common stock which had been tendered pursuant to the APW Enclosure
Systems Limited tender offer for all outstanding shares of common stock at 2.35
pounds sterling per share and all outstanding shares of cumulative preferred
stock at 0.50 pounds sterling per share, which constituted control, and
continued with steps to acquire the remaining outstanding shares. Rubicon is a
leading provider of electronic manufacturing services and engineered magnetic
solutions to major OEMs in the information technology and telecommunication
industries. Consideration for the transaction totaled approximately $365,000,
including related fees and expenses. APW Enclosure Systems Limited obtained all
of the funds it expended from the Company. To provide the necessary funds, the
Company and Enerpac B.V., a Netherlands subsidiary of the Company, as Borrowers,
entered into a Multicurrency Credit Agreement, dated as of October 14, 1998,
providing for an $850,000, 5-year revolving credit facility (the "New
Facility"). In conjunction with the closing of the New Facility, the Company
terminated its prior $700,000, 5-year revolving credit facility (the
"Facility"), described in Note I - "Long-term Debt," and used certain funds
received under the New Facility to repay borrowings under the Facility.
SUPPLEMENTARY DATA
- ------------------
Unaudited quarterly financial data for the Company for 1998 and 1997 is included
in Item 8 - "Financial Statements and Supplementary Data."
48
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
- -----------------------------------------------------------------
To the Directors of Applied Power Inc.:
Our audit of the consolidated financial statements referred to in our report
dated September 30, 1998 appearing on page 24 of this Form 10-K also included an
audit of the information as of and for the year ended August 31, 1998 in the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K. The
Financial Statement Schedules for the years ended August 31, 1997 and 1996,
prior to the restatement for pooling of interests, and the separate Financial
Statement Schedules of ZERO Corporation in the 1997 and 1996 restated
consolidated financial statements, for the years ended March 31, 1997 and 1996,
were audited and reported on separately by other independent accountants. We
also audited the combination of the information for each of the two years in the
period ended August 31, 1997, after restatement for the 1998 pooling of
interests. In our opinion, this Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein as of and for the year
ended August 31, 1998 when read in conjunction with the related consolidated
financial statements, and, in our opinion, the information for each of the two
years in the period ended August 31, 1997, has been properly combined on the
basis described in Note A of Notes to Consolidated Financial Statements.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
September 30, 1998
49
<PAGE>
APPLIED POWER INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions Deductions
---------------------- --------------------
Accounts
Balance at Effect of Charged to Written Off Balance
Beginning Excluded Costs and Net Less at End
Description of Period Activity Expenses Acquired Recoveries Other of Period
- --------------------------- ---------- --------- ---------- -------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------
Deducted from assets to
which they apply:
- ---------------------------
Allowance for losses -
trade accounts receivable
August 31, 1998 $ 4,936 $ 74 $ 3,018 $ 722 $1,485 $507 $ 6,758
======= ==== ======= ====== ====== ==== =======
August 31, 1997 $ 4,938 $ - $ 1,797 $ 133 $1,623 $309 $ 4,936
======= ==== ======= ====== ====== ==== =======
August 31, 1996 $ 4,317 $ - $ 1,439 $ 100 $ 863 $ 55 $ 4,938
======= ==== ======= ====== ====== ==== =======
Allowance for losses -
inventory
August 31, 1998 $13,741 $415 $31,118 $5,612 $9,004 $614 $41,268
======= ==== ======= ====== ====== ==== =======
August 31, 1997 $12,164 $ - $ 7,676 $ 465 $6,120 $444 $13,741
======= ==== ======= ====== ====== ==== =======
August 31, 1996 $ 8,437 $ - $ 7,794 $ 30 $4,006 $ 91 $12,164
======= ==== ======= ====== ====== ==== =======
</TABLE>
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLIED POWER INC.
(Registrant)
Dated: November 20, 1998 By:/s/ Robert C. Arzbaecher
------------------------
Robert C. Arzbaecher
Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard G. Sim and Robert C. Arzbaecher, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all and any other regulatory authority, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.*
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard G. Sim Chairman of the Board, President and Chief Executive
- ------------------------------------ Officer; Director
Richard G. Sim
/s/ Robert C. Arzbaecher Vice President and Chief Financial Officer
- ------------------------------------ (Principal Financial Officer)
Robert C. Arzbaecher
/s/ Richard D. Carroll Controller and Treasurer
- ------------------------------------ (Principal Accounting Officer)
Richard D. Carroll
/s/ H. Richard Crowther Director
- ------------------------------------
H. Richard Crowther
/s/ Jack L. Heckel Director
- ------------------------------------
Jack L. Heckel
/s/ Richard A. Kashnow Director
- ------------------------------------
Richard A. Kashnow
/s/ L. Dennis Kozlowski Director
- ------------------------------------
L. Dennis Kozlowski
/s/ John J. McDonough Director
- ------------------------------------
John J. McDonough
</TABLE>
- --------------------
* Each of the above signatures is affixed as of November 20, 1998.
51
<PAGE>
APPLIED POWER INC.
(the "Registrant")
(Commission File No. 1-11288)
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 1998
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- --------- ------------------------------------ ---------------------------------- ------------
<S> <C> <C> <C>
2.1 Agreement and Plan of Merger, dated Exhibit (c)(1) to the
as of September 2, 1997, among Registrant's Tender Offer
Applied Power Inc., TVPA Corp. and Statement on Schedule 14D-1 filed
Versa Technologies, Inc. on September 5, 1997 (File No.
5-13342)
2.2 (a) Agreement and Plan of Merger, Appendix A to the Joint Proxy
dated as of April 6, 1998, by and Statement/Prospectus contained in
among Applied Power Inc., ZERO the Registrant's Registration
Corporation and STB Acquisition Statement on Form S-4 (File No.
Corporation 333-58267)
(b) Certified copy of Certificate Exhibit 2.2 to the Registrant's
of Merger of STB Acquisition Form 8-K dated July 31, 1998
Corporation with and into ZERO
Corporation, dated July 31, 1998
3.1 Restated Articles of Incorporation Exhibit 4.1 to the Registrant's
of the Registrant (dated as of Registration Statement on Form
February 13, 1998) S-8 (File No. 333-46469)
3.2 Amended and Restated Bylaws of the Exhibit 3.2 to the Registrant's
Registrant (effective as of January Form 10-K for the fiscal year
8, 1997) ended August 31, 1997 ("1997
10-K")
4+
4.1 Articles III, IV and V the Restated See Exhibit 3.1 above
Articles of Incorporation
</TABLE>
+ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish to the Securities and Exchange Commission upon request a copy of any
unfiled instruments, or any unfiled exhibits or schedules to filed instruments,
defining the rights of security holders.
52
<PAGE>
<TABLE>
<CAPTION>
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- --------- ------------------------------------ ---------------------------------- ------------
<S> <C> <C> <C>
4.2 Agreement for Purchase and Sale, Exhibit 19.2(a)-(g) to the
dated August 29, 1990, between Registrant's Form 10-Q for
Minnesota Mining and quarter ended May 31, 1991
Manufacturing Company and
Applied Power Inc., and seven related
Leases, each dated April 29, 1991,
between Bernard Garland and
Sheldon Garland, d/b/a Garland
Enterprises, as Landlord, and
Applied Power Inc., as Tenant
4.3 Multicurrency Credit Agreement, Exhibit 4.1 to the Registrant's
dated as of June 18, 1998, among Form 8-K dated June 5, 1998
Applied Power Inc. and Enerpac B.V.,
as Borrowers, various financial
institutions from time to time party
thereto, as Lenders, The First
National Bank of Chicago, as
Syndication Agent, Societe Generale,
as Documentation Agent, and Bank of
America National Trust and Savings
Association, as Administrative
Agent, arranged by BancAmerica
Robertson Stephens
4.4 Multicurrency Credit Agreement, X
dated as of October 14, 1998, among
Applied Power Inc. and Enerpac B.V.,
as Borrowers, various financial
institutions from time to time party
thereto, as Lenders, The First
National Bank of Chicago, as
Syndication Agent, Societe Generale,
as Documentation Agent, and Bank of
America National Trust and Savings
Association, as Administrative
Agent, arranged by NationsBanc
Montgomery Securities LLC (Replaced
Exhibit 4.3)
4.5 (a) Receivables Purchase Agreement, Exhibit 4.1 to the Registrant's
dated as of November 20, 1997, among Form 10-Q for quarter ended
Applied Power Credit Corporation as November 30, 1997
Seller, Applied Power Inc.
individually and as Servicer and
Barton Capital Corporation as
Purchaser and Societe Generale as
Agent
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- --------- ------------------------------------ ---------------------------------- ------------
<S> <C> <C> <C>
(b) First Amendment to Receivables X
Purchase Agreement dated as of
August 28, 1998
10.1* Employment Agreement dated Exhibit 10.1 to the Registrant's
May 9, 1994 between Applied Form 10-K for fiscal year ended
Power Inc. and Richard G. Sim August 31, 1994
(superseding Employment Agreement
dated July 5, 1985, as amended)
10.2* (a) Applied Power Inc. 1985 Stock Exhibit 10.2(a) to the Registrant's
Option Plan adopted by Board of Form 10-K for fiscal year ended
Directors on August 1, 1985 and August 31, 1989
approved by shareholders on ("1989 10-K")
January 6, 1986, as amended
("1985 Plan")
(b) Amendment to 1985 Plan adopted Exhibit 10.2(b) to 1989 10-K
by Board of Directors on November
8, 1989 and approved by shareholders
on January 13, 1990
(c) Amendment to 1985 Plan adopted Exhibit 10.2(c) to the Registrant's
by Board of Directors on August 9, Form 10-K for fiscal year ended
1990 August 31, 1990 ("1990 10-K")
(d) Amendment to 1985 Plan adopted Exhibit 10.2(d) to 1997 10-K
by Board of Directors on May 8,
1997
10.3* (a) Applied Power Inc. 1987 Exhibit 10.8 to the Registrant's
Nonqualified Stock Option Plan Form 10-K for fiscal year ended
adopted by Board of Directors on August 31, 1987
November 3, 1987 and approved by
shareholders on January 7, 1988
("1987 Plan")
(b) Amendment to 1987 Plan adopted See Exhibit 10.2(b)
by Board of Directors on November
8, 1989 and approved by shareholders
on January 13, 1990
</TABLE>
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
54
<PAGE>
<TABLE>
<CAPTION>
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- --------- ------------------------------------ ---------------------------------- ------------
<S> <C> <C> <C>
(c) Amendment to 1987 Plan adopted Exhibit 10.3(c) to 1997 10-K
by Board of Directors on May 8,
1997
10.4* (a) Applied Power Inc. 1990 Stock Exhibit A to the Registrant's Proxy
Option Plan adopted by Board of Statement dated December 5, 1990
Directors on August 9, 1990 and for 1991 Annual Meeting of
approved by shareholders on Shareholders
January 7, 1991 ("1990 Plan")
(b) Amendment to 1990 Plan adopted Exhibit 10.5(b) to the Registrant's
by Board of Directors on August 10, Form 10-K for fiscal year ended
1992 and approved by shareholders August 31, 1992
on January 7, 1993
(c) Amendment to 1990 Plan adopted Exhibit 10.4(c) to 1997 10-K
by Board of Directors on May 8,
1997
10.5* Description of Fiscal 1999 X
Management Bonus Arrangements
10.6* Description of Fiscal 1998 Exhibit 10.6 to 1997 10-K
Management Bonus Arrangements
10.7* (a) Applied Power Inc. 1989 Exhibit 10.7 to 1989 10-K
Outside Directors' Stock Option
Plan adopted by Board of Directors
on November 8, 1989 and
approved by shareholders on
January 13, 1990 ("1989 Plan")
(b) Amendment to 1989 Plan Exhibit 10.7(b) to 1990 10-K
adopted by Board of Directors on
November 9, 1990 and approved
by shareholders on January 7, 1991
(c) Amendment to 1989 Plan Exhibit 10.7(c) to the Registrant's
adopted by Board of Directors on Form 10-K for fiscal year ended
October 31, 1996 August 31, 1996 ("1996 10-K")
</TABLE>
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
55
<PAGE>
<TABLE>
<CAPTION>
Incorporated Herein Filed
Exhibit Description By Reference To Herewith
- --------- ------------------------------------ ---------------------------------- ------------
<S> <C> <C> <C>
10.8* Outside Directors' Deferred Exhibit 10.8 to the Registrant's
Compensation Plan adopted by Board Form 10-K for fiscal year ended
of Directors on May 4, 1995 August 31, 1995
10.9 Asset Purchase Agreement Exhibit 2.1 to the Registrant's
between Applied Power Inc. and Form 8-K dated October 11, 1996
Wright Line Inc., on the one hand
and Everest Electronic Equipment,
Inc., Wallace H. Twedt, Terry D.
Wells and Robert L. Wells, on the
other hand dated August 27, 1996
10.10* (a) 1996 Stock Plan adopted by Board Annex A to the Registrant's Proxy
of Directors on August 8, 1996 and Statement dated November 19, 1996
proposed for shareholder approval for 1997 Annual Meeting of
on January 8, 1997 Shareholders
(b) Amendment to 1996 Stock Plan Exhibit 10.10(b) to 1997 10-K
adopted by Board of Directors on
May 8, 1997
10.11* Executive Deferred Compensation Exhibit 10.11 to 1996 10-K
Plan adopted by Board of Directors
on October 31, 1996
21 Subsidiaries of the Registrant X
23.1 Consent of Deloitte & Touche LLP X
Milwaukee, Wisconsin
23.2 Consent of Deloitte & Touche LLP X
Los Angeles, California
23.3 Consent of PricewaterhouseCoopers X
LLP
24 Power of Attorney See Signature Page of this report
27.1 Financial Data Schedule X
27.2 Restated Financial Date Schedule X
(fiscal year ended August 31, 1997)
27.3 Restated Financial Data Schedule X
(fiscal year ended August 31, 1996)
</TABLE>
* Management contracts and executive compensation plans and arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
56
<PAGE>
EXHIBIT 4.1
MULTICURRENCY CREDIT AGREEMENT
dated as of October 14, 1998
among
APPLIED POWER INC.,
ENERPAC B.V.,
VARIOUS FINANCIAL INSTITUTIONS,
THE FIRST NATIONAL BANK OF CHICAGO,
as Syndication Agent,
SOCIETE GENERALE,
as Documentation Agent,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
Arranged by
NationsBanc Montgomery Securities LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
CERTAIN DEFINITIONS AND INTERPRETATION
<S> <C>
1.1 Defined Terms................................................... 19
1.2 Other Interpretive Provisions................................... 20
1.3 Accounting Principles........................................... 20
1.4 Currency Equivalents Generally.................................. 20
1.5 Introduction of Euro............................................ 21
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments................................ 22
2.2 Loan Accounts................................................... 22
2.3 Procedure for Committed Borrowing............................... 24
2.4 Conversion and Continuation Elections for Committed Borrowings.. 25
2.5 Utilization of Revolving Commitments in Offshore Currencies..... 27
2.6 Bid Borrowings.................................................. 27
2.7 Procedure for Bid Borrowings.................................... 30
2.8 Reduction of Commitments........................................ 32
2.9 Prepayments..................................................... 32
2.10 Currency Exchange Fluctuations................................. 33
2.11 Repayment...................................................... 33
2.12 Interest....................................................... 34
2.13 Fees........................................................... 35
2.14 Computation of Fees and Interest............................... 35
2.15 Payments by a Borrower......................................... 36
2.16 Payments by the Banks to the Administrative Agent.............. 37
2.17 Sharing of Payments, Etc....................................... 37
ARTICLE III
LOAN NOTE GUARANTIES
3.1 Risk Participations, Drawings and Reimbursements................ 39
3.2 Repayment of Participations..................................... 40
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
3.3 Role of the Loan Note Guarantor............................. 40
3.4 Obligations Absolute........................................ 41
3.5 Cash Collateral Pledge...................................... 42
3.6 Third Party Beneficiary..................................... 42
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes....................................................... 43
4.2 Illegality.................................................. 44
4.3 Increased Costs and Reduction of Return..................... 44
4.4 Funding Losses.............................................. 45
4.5 Inability to Determine Rates................................ 45
4.6 Certificates of Banks....................................... 46
4.7 Substitution of Banks....................................... 46
4.8 Survival.................................................... 46
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions of Initial Loans................................. 47
5.2 Conditions to All Borrowings................................ 48
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Organization, etc........................................... 48
6.2 Authorization; No Conflict.................................. 48
6.3 Validity and Binding Nature................................. 49
6.4 Financial Statements........................................ 51
6.5 No Material Adverse Effect.................................. 51
6.6 Litigation and Contingent Liabilities....................... 51
6.7 Liens....................................................... 51
6.8 Subsidiaries................................................ 51
6.9 Pension and Welfare Plans................................... 52
6.10 Regulated Industry......................................... 52
6.11 Regulations U and X........................................ 52
6.12 Taxes...................................................... 52
6.13 Environmental and Safety Matters........................... 53
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
6.14 Compliance with Law......................................... 53
6.15 Information................................................. 53
6.16 Ownership of Shares......................................... 53
6.17 Ownership of Properties..................................... 53
6.18 Patents, Trademarks, etc.................................... 53
6.19 Insurance................................................... 53
6.20 Solvency.................................................... 54
6.21 Year 2000 Issues............................................ 54
ARTICLE I
COVENANTS
7.1 Reports, Certificates and Other Information.................. 56
7.2 Books, Records and Inspections............................... 56
7.3 Insurance.................................................... 56
7.4 Compliance with Law; Payment of Taxes and Liabilities........ 56
7.5 Maintenance of Existence, etc................................ 56
7.6 Financial Ratios and Restrictions............................ 57
7.7 Mergers, Consolidations and Purchases........................ 57
7.8 Commercial Paper Lines....................................... 58
7.9 Liens........................................................ 58
7.10 Use of Proceeds............................................. 59
7.11 Maintenance of Property..................................... 59
7.12 Employee Benefit Plans...................................... 59
7.13 Business Activities......................................... 59
7.14 Environmental Matters....................................... 60
7.15 Unconditional Purchase Obligations.......................... 60
7.16 Inconsistent Agreements..................................... 60
7.17 Transactions with Affiliates................................ 60
7.18 The Company's and Subsidiaries' Stock....................... 60
7.19 Negative Pledges; Subsidiary Payments....................... 60
7.20 Limitation on Subsidiary Debt............................... 61
7.21 Sales of Assets............................................. 61
7.22 EBITDA...................................................... 61
ARTICLE VIII
EVENTS OF DEFAULT AND THEIR EFFECT
8.1 Events of Default............................................ 63
8.2 Effect of Event of Default................................... 63
</TABLE>
(iv)
<PAGE>
ARTICLE IX
THE ADMINISTRATIVE AGENT
<TABLE>
<S> <C>
9.1 Appointment and Authorization; Administrative Agent......... 64
9.2 Delegation of Duties........................................ 64
9.3 Liability of Administrative Agent........................... 64
9.4 Reliance by Administrative Agent............................ 65
9.5 Notice of Default........................................... 65
9.6 Credit Decision............................................. 66
9.7 Indemnification of Administrative Agent..................... 66
9.8 BofA in Individual Capacity................................. 66
9.9 Successor Administrative Agent.............................. 67
9.10 Withholding Tax............................................ 68
9.11 Documentation and Syndication Agent........................ 68
ARTICLE X
GUARANTEE
10.1 Guarantee from the Company................................. 69
10.2 Expenses................................................... 69
10.3 Waivers.................................................... 69
10.4 No Impairment.............................................. 69
10.5 Waiver of Resort........................................... 70
10.6 Reinstatement.............................................. 70
10.7 Payment.................................................... 70
10.8 Subrogation, Waivers, etc.................................. 70
10.9 Delay, etc................................................. 71
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Waivers..................................... 72
11.2 Notices.................................................... 72
11.3 No Waiver; Cumulative Remedies............................. 72
11.4 Costs and Expenses......................................... 73
11.5 Borrower Indemnification................................... 73
11.6 Payments Set Aside......................................... 74
11.7 Successors and Assigns..................................... 74
</TABLE>
(v)
<PAGE>
<TABLE>
<S> <C>
11.8 Assignments, Participations, etc................... 75
11.9 Confidentiality.................................... 76
11.10 Set-off........................................... 76
11.11 Notification of Addresses, Lending Offices, Etc... 76
11.12 Counterparts...................................... 76
11.13 Severability...................................... 76
11.14 No Third Parties Benefited........................ 77
11.15 Governing Law and Jurisdiction.................... 77
11.16 Waiver of Jury Trial.............................. 78
11.17 Judgment.......................................... 78
11.18 Entire Agreement.................................. 78
</TABLE>
(vi)
<PAGE>
SCHEDULES and EXHIBITS
Schedule 1.1 Disclosure Schedule
Item 6.6 Litigation
Item 6.8 Subsidiaries
Item 6.13 Environmental Matters
Item 6.18 Patents, Trademarks
Item 6.19 Insurance
Item 7.9 Liens
Schedule 1.2 Pricing Grid
Schedule 2.1 Commitments
Schedule 10.2 Lending Offices, Addresses for Notices
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Legal Opinions of Borrowers' U.S. Counsel
Exhibit D-2 Form of Legal Opinion of Netherlands Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F-1 Form of Bid Note
Exhibit F-2 Form of Committed Note
Exhibit G Form of Legal Opinion of Administrative
Agent's Counsel
Exhibit H Form of Invitation for Competitive Bids
Exhibit I Form of Competitive Bid Request
Exhibit J Form of Competitive Bid
(vii)
<PAGE>
MULTICURRENCY CREDIT AGREEMENT
------------------------------
THIS MULTICURRENCY CREDIT AGREEMENT (this "Agreement") dated as of October
---------
[14], 1998 is among APPLIED POWER INC., a Wisconsin corporation (the "Company"),
-------
ENERPAC B.V., a Netherlands corporation ("Enerpac" or the "Subsidiary
-------
Borrower"), the financial institutions listed on the signature pages hereof
(together with their respective successors and assigns, collectively the "Banks"
-----
and individually each a "Bank"), THE FIRST NATIONAL BANK OF CHICAGO, as
----
Syndication Agent, SOCIETE GENERALE, as Documentation Agent, and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent for the Banks.
WHEREAS, the Company, Enerpac, certain financial institutions, The First
National Bank of Chicago, as syndication agent, Societe Generale, as
documentation agent and BofA, as administrative agent, are parties to a
Multicurrency Credit Agreement dated as of June 18, 1998 (the "Existing Credit
Agreement");
WHEREAS, the Company has offered to cause its Subsidiary, APW Enclosure
Systems Limited to purchase the capital stock of Rubicon Group plc pursuant to a
recommended cash offer;
WHEREAS, the Company and the Subsidiary Borrower wish to enter into this
Credit Agreement for the purpose of financing the acquisition of shares of stock
of Rubicon Group plc, repaying the indebtedness under the Existing Credit
Agreement (including refinancing risk participations in certain existing bank
guarantees) and the Bridge Credit Agreement, hereinafter defined, and to provide
for working capital, capital expenditures and other general corporate purposes;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS AND INTERPRETATION
--------------------------------------
I.1 Defined Terms. When used herein the following terms have the following
-------------
meanings (such meanings to be applicable to both the singular and plural forms
of the terms defined):
"Absolute Rate" has the meaning specified in Section 2.7(c).
-------------
"Absolute Rate Bid Loan" means a Bid Loan that bears interest at
----------------------
a rate determined with reference to the Absolute Rate.
<PAGE>
"Acquisition" means any transaction or series of related
-----------
transactions for the purpose of or resulting directly or indirectly, in (a)
the acquisition of all or substantially all of the assets of a Person, or
of any business or division of a Person, (b) the acquisition of in excess
of 50% of the capital stock, partnership interests, membership interests or
equity of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other combination with
another Person (other than a Person that is a Subsidiary) provided that the
Company or the Subsidiary is the surviving entity.
"Administrative Agent" means BofA in its capacity as
--------------------
administrative agent for the Banks hereunder, and any successor
administrative agent arising under Section 9.9.
"Administrative Agent's Payment Office" means (a) in respect of
-------------------------------------
payments in Dollars, the address for payments set forth on Schedule 11.2 or
such other address as the Administrative Agent may from time to time
specify in accordance with Section 11.2, and, (b) in the case of payments
in any Offshore Currency, such address as the Administrative Agent may from
time to time specify in accordance with Section 11.2.
"Administrative Agent-Related Persons" means BofA in its capacity
------------------------------------
as Administrative Agent and any successor agent arising under Section 9.9,
together with their respective Affiliates (including, in the case of BofA,
the Lead Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"Affiliate" means, with respect to any Person, any other Person
---------
which, directly or indirectly, controls, is controlled by or is under
common control with such Person. For purposes of this definition, "control"
(together with the correlative meanings of "controlled by" and "under
common control with") means possession, directly or indirectly, of the
power (a) to vote 5% or more of the securities (on a fully diluted basis)
having ordinary voting power for the directors or managing general partners
(or their equivalent) of such Person or (b) to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreed Alternative Currency" has the meaning specified in
---------------------------
Section 2.5(e).
"Agreement" means this Multicurrency Credit Agreement.
---------
"Applicable Currency" means, as to any particular payment or
-------------------
Loan, Dollars or the Offshore Currency in which it is denominated or is
payable.
<PAGE>
"Applicable Margin" means, with respect to Offshore Rate Loans,
-----------------
the rate set forth opposite "Offshore Margin" on the Pricing Grid for the
applicable Pricing Level. The Applicable Margin as of the Closing Date
shall be 1.125%.
"Applicable Non-Use Fee Rate" means the rate per annum set forth
---------------------------
opposite "Non-Use Fee" on the Pricing Grid for the applicable Pricing
Level. The Applicable Non-Use Fee Rate as of the Closing Date shall be
0.325%.
"Applicable Utilization Fee" means on a day the following rate
--------------------------
per annum based on the following percentage of usage of Commitments:
Rate Usage
---- -----
0% Less than 33%
0.05% Greater than or equal to 33% but less than
66%
0.125% Greater than or equal to 66%.
"Assignee" has the meaning specified in Section 11.8.
--------
"Assignment and Acceptance Agreement" has the meaning specified
-----------------------------------
in Section 11.8.
"Attorney Costs" means and includes all reasonable fees and
--------------
disbursements of any law firm or other external counsel, the reasonable
allocated cost of internal legal services and all reasonable disbursements
of internal counsel.
"Authorized Officer" means, relative to each Borrower, those of
------------------
its officers whose signatures and incumbency shall have been certified to
the Banks pursuant to Section 5.1(d).
"Banking Day" means any day other than a Saturday, Sunday or
-----------
other day on which commercial banks in New York City, Chicago or San
Francisco are authorized or required by law to close and (a) with respect
to disbursements and payments in Dollars, a day on which dealings are
carried on in the applicable offshore Dollar interbank market, and (b) with
respect to any disbursements and payments in and calculations pertaining to
any Offshore Currency Loan, a day on which commercial banks are open for
foreign exchange business in London, England, and on which dealings in the
relevant Offshore Currency are carried on in the applicable offshore
foreign exchange interbank market in which disbursement of or payment in
such Offshore Currency will be made or received hereunder (and, if such
Offshore Currency is Euros, a day on which commercial banks are open in
such financial center as is determined by the Administrative Agent to be
suitable for clearing or settlement of Euros).
3
<PAGE>
"Base Rate" means, for any day, the higher of: (a) 0.50% per
---------
annum above the latest Federal Funds Rate; and (b) the rate of interest in
effect for such day as publicly announced from time to time by BofA in San
Francisco, California, as its "reference rate." (The "reference rate" is a
rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above,
or below such announced rate.) Any change in the reference rate announced
by BofA shall take effect at the opening of business on the day specified
in the public announcement of such change.
"Base Rate Loan" means a Committed Loan that bears interest based
--------------
on the Base Rate.
"Bid Borrowing" means a Borrowing hereunder consisting of one or
-------------
more Bid Loans made to the Company on the same day by one or more Banks.
"Bid Loan" means a Loan by a Bank to the Company under Section
--------
2.6.
"Bid Loan Bank" means, in respect of any Bid Loan, the Bank
-------------
making such Bid Loan to the Company.
"Bid Note" means, a promissory note of the Company, substantially
--------
in the form of Exhibit F-1, duly completed, evidencing Bid Loans made to
the Company, as such Note may be replaced, amended or otherwise modified
from time to time.
"BofA" means Bank of America National Trust and Savings
----
Association, a national banking association.
"Borrower" means the Company or Enerpac, as applicable.
--------
"Borrowing" means a borrowing hereunder consisting of Loans of
---------
the same Type made to a Borrower on the same day by the Banks or a Bank (in
the case of Bid Borrowings) under Article II, and may be a Committed
Borrowing or a Bid Borrowing and, other than in the case of Base Rate
Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
--------------
Section 2.3.
"Bridge Credit Agreement" means the Multicurrency Credit
-----------------------
Agreement dated as of September 4, 1998 among the Company, certain
financial institutions and BofA as agent.
4
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or
------------
other day on which commercial banks in New York City, Chicago or San
Francisco are authorized or required by law to close and, if the applicable
Business Day relates to any Offshore Rate Loan, means a Banking Day.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Capital Lease" means, with respect to any Person, any lease of
-------------
(or other agreement conveying the right to use) any real or personal
property which, in conformity with GAAP, is accounted for as a capital
lease on the balance sheet of such Person.
"Cash Collateralize" means to pledge and deposit with or deliver
------------------
to the Administrative Agent, for the benefit of the Administrative Agent,
the Loan Note Guarantor and the Banks, as collateral for the Loan Note
Guaranty Obligations, cash or deposit account balances pursuant to
documentation in form and substance satisfactory to the Administrative
Agent and the Loan Note Guarantor. Derivatives of such term shall have
corresponding meanings. The Company hereby grants the Administrative Agent,
for the benefit of the Administrative Agent, the Loan Note Guarantor and
the Banks, a security interest in all such cash and deposit account
balances. Cash collateral shall be maintained in blocked, interest bearing
deposit accounts at BofA.
"CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended.
"Closing Date" means the date on which all conditions precedent
------------
set forth in Section 5.1 are satisfied or waived by all Banks (or, in the
case of Section 5.1(i), waived by any Person entitled to receive such
payment).
"Code" means the Internal Revenue Code of 1986.
----
"Commitment", as to each Bank, has the meaning specified in
----------
Section 2.1.
"Committed Borrowing" means a Borrowing hereunder consisting of
-------------------
Committed Loans made on the same day by the Banks ratably according to
their respective Pro Rata Shares and, in the case of Offshore Rate Loans,
having the same Interest Periods.
"Committed Loan" means a Loan by a Bank to a Borrower under
--------------
5
<PAGE>
Section 2.1, and may be an Offshore Rate Loan or a Base Rate Loan (each, a
"Type" of Committed Loan).
----
"Committed Note" means a promissory note of a Borrower
--------------
substantially in the form of Exhibit F-2, duly completed, evidencing
Committed Loans to such Borrower, as such Note may be replaced, amended or
otherwise modified from time to time.
"Company" has the same meaning specified in the Preamble.
------- --------
"Competitive Bid Request" has the meaning specified in Section
-----------------------
2.7(a).
"Compliance Certificate" means a certificate substantially in the
----------------------
form of Exhibit C.
---------
"Computation Period" means any period of four consecutive Fiscal
------------------
Quarters ending on the last day of a Fiscal Quarter.
"Consolidated Interest Expense" means, for any period, the
-----------------------------
consolidated interest expense of the Company and its Subsidiaries for such
period, as determined in accordance with GAAP and in any event including,
without duplication, all commissions, discounts and other fees and charges
owed with respect to letters of credit and banker's acceptances, net costs
under interest rate protection agreements, the portion of any Capital
Leases allocable to consolidated interest expense and losses and discounts
attributable to the sale of receivables and related assets.
"Consolidated Net Income" means, for any period, all amounts
-----------------------
which, in conformity with GAAP, would be included under net income on a
consolidated income statement of the Company and its Subsidiaries for such
period, exclusive of affiliate equity earnings, inclusive of affiliate cash
dividends (to the extent of affiliate equity earnings) and exclusive of
extraordinary and nonrecurring gains. For the fiscal quarter ending August
31, 1998, Consolidated Net Income will not be reduced by fees, expenses and
write downs related to the Zero Acquisition or the Vero Acquisition or
other one-time costs up to a maximum of $60,000,000, as set forth in Item
1.1 of the Disclosure Schedule.
"Contractual Obligation" means, relative to the Company or any
----------------------
Subsidiary, any provision of any security issued by the Company or such
Subsidiary or of any Instrument or undertaking to which the Company or such
Subsidiary is a party or by which it or any of its property is bound.
"Controlled Group" means all members of a controlled group of
----------------
corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Company, are treated as a
single employer under Section 414(b) or
6
<PAGE>
414(c) of the Code or Section 4001 of ERISA.
"Conversion/Continuation Date" means any date on which, under
----------------------------
Section 2.4, a Borrower (a) converts Committed Loans of one Type to another
Type, or (b) continues as Committed Loans of the same Type, but with a new
Interest Period, Committed Loans having Interest Periods expiring on such
date.
"Debt" of any Person means, without duplication, (a) all
----
indebtedness of such Person for borrowed money, whether or not evidenced by
bonds, debentures, notes or similar instruments (including, without
limitation, in the case of Applied Power Limited and APW Enclosure Systems
Limited, the Loan Notes), (b) all obligations of such Person as lessee
under Capital Leases which have been recorded as liabilities on a balance
sheet of such Person, (c) all obligations of such Person to pay the
deferred purchase price of property or services (other than current
accounts payable in the ordinary course of business), (d) all indebtedness
secured by a Lien on the property of such Person, whether or not such
indebtedness shall have been assumed by such Person (it being understood
that if such Person has not assumed or otherwise become personally liable
for any such indebtedness, the amount of the Debt of such Person in
connection therewith shall be limited to the lesser of the face amount of
such indebtedness or the fair market value of all property of such Person
securing such indebtedness), (e) all obligations, contingent or otherwise,
with respect to the face amount of all letters of credit (whether or not
drawn) and banker's acceptances issued for the account of such Person, (f)
all obligations of such Person in respect of Swap Contracts, (g) all
Suretyship Liabilities of such Person, (h) all Debt (as defined above) of
any partnership in which such Person is a general partner and (i) the
outstanding principal amount then owed to investors in connection with the
sale of the Company's accounts receivable. The amount of the Debt of any
Person in respect of Swap Contracts shall be deemed to be the unrealized
net loss position of such Person thereunder (determined for each
counterparty individually, but netted for all Swap Contracts maintained
with such counterparty).
"Debt to EBITDA Ratio" means as at the end of any Fiscal Quarter,
--------------------
the ratio of (a) Funded Debt as at such date to (b) EBITDA for the four
Fiscal Quarter period then ending.
"Default" means any event which if it continues uncured will,
-------
with lapse of time or notice or lapse of time and notice, constitute an
Event of Default.
"Determination Date" has the meaning specified in Section 2.5(a).
------------------
"Deutsche Mark" means lawful money of the Federal Republic of
-------------
Germany.
"Disclosure Schedule" means the Disclosure Schedule attached
-------------------
hereto as
7
<PAGE>
Schedule 1.1.
"Dollar Equivalent" means, at any time, (a) as to any amount
-----------------
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in
Dollars as determined by the Administrative Agent at such time on the basis
of the Spot Rate for the purchase of Dollars with such Offshore Currency on
the most recent Determination Date provided for in Section 2.5(a).
"Dollar(s)" and the sign "$" mean lawful money of the United
--------- -
States of America.
"Domestic Subsidiary" means a Subsidiary that is created or
-------------------
organized in or under the law of the United States, any State thereof or
the Commonwealth of Puerto Rico.
"EBITDA" means, for any Computation Period (or for the purpose of
------
Section 7.22 for any Fiscal Quarter) the sum of (a) Consolidated Net Income
------------
for such period, plus (b) the aggregate amount deducted with respect to
----
federal, state, local and foreign income taxes in determining such
Consolidated Net Income, plus (c) Consolidated Interest Expense for such
----
period; plus (d) depreciation and amortization; provided, however, that if
----
the Company or any of its Subsidiaries shall have made an Acquisition
during a Computation Period, EBITDA shall be calculated as if the
Acquisition had been made on the first day of such Computation Period.
"Eligible Assignee" means (a) a commercial bank organized under
-----------------
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $250,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision of any such country, and having a combined capital and surplus
of at least $250,000,000, provided that such bank is acting through a
branch or agency located in the United States; and (c) a Person that is
primarily engaged in the business of commercial banking and that is (i) a
Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Enerpac" has the meaning specified in the preamble.
-------
"Environmental Laws" means all applicable federal, state or local
------------------
statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) relating to public
health and safety and protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as
8
<PAGE>
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"Eurodollar Reserve Percentage" has the meaning specified in the
-----------------------------
definition of "Offshore Rate".
"Euro" means the single currency of participating member states
----
of the European Union.
"Event of Default" means any of the events described in Section
----------------
8.1.
"Existing Credit Agreement" has the meaning specified in the
-------------------------
recitals.
"Federal Funds Rate" means, for any day, the rate set forth in
------------------
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Administrative Agent
of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of three
leading brokers of Federal funds transactions in New York City selected by
the Administrative Agent.
"Fee Letter" has the meaning specified in Section 2.13(a).
----------
"Fiscal Quarter" means any fiscal quarter of a Fiscal Year.
--------------
"Fiscal Year" means the fiscal year of the Company and its
-----------
Subsidiaries, which period shall be the 12-month period ending on August 31
of each year.
"Fixed Charge Coverage Ratio" means, for any Computation Period,
---------------------------
the ratio of
(a) the sum of
(i) Consolidated Net Income for such period,
plus
----
(ii) the aggregate amount deducted in respect of federal,
state, local and foreign income taxes in determining
such Consolidated Net Income,
9
<PAGE>
plus
----
(iii) Consolidated Interest Expense for such period,
plus
----
(iv) the aggregate amount deducted in respect of leases
that were not Capital Leases in determining such
Consolidated Net Income,
to
--
(b) the sum of
(i) Consolidated Interest Expense for such period,
plus
----
(ii) the aggregate amount deducted in respect of leases
that were not Capital Leases in determining such
Consolidated Net Income.
"FRB" means the Board of Governors of the Federal Reserve System, and
---
any Governmental Authority succeeding to any of its principal functions.
"French Francs" means lawful money of the Republic of France.
-------------
"FX Trading Office" means the Foreign Exchange Trading Center #5193,
-----------------
San Francisco, California, of BofA, or such other of BofA's offices as BofA
may designate from time to time.
"Funded Debt" of any Person at any date of determination means the sum
-----------
of all Debt described in clauses (a), (b) and (i) of the definition of
----------- --- ---
"Debt".
-----
"Further Taxes" means any and all present or future taxes, levies,
-------------
assessments, imposts, duties, deductions, fees, withholdings or similar
charges (including, without limitation, net income taxes and franchise
taxes), and all liabilities with respect thereto, imposed by any
jurisdiction on account of Taxes or Other Taxes payable or paid pursuant to
Section 4.1.
"GAAP" means generally accepted accounting principles set forth from
----
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of
10
<PAGE>
comparable stature and authority within the U.S. accounting profession),
which except as provided in Section 1.3 are applicable to the circumstances
as of the date of determination.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Guilders" means lawful money of the Netherlands.
--------
"Hazardous Material" means
------------------
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act;
(c) any crude oil, petroleum product or fraction thereof
(excluding gasoline and oil in motor vehicles, small amounts of
cleaners and similar items used in the ordinary course of business);
or
(d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any
Environmental Law.
"Impermissible Change in Control" means at any time,
-------------------------------
(a) the failure of the Company to own, directly or indirectly,
free and clear of all Liens or other encumbrances, 99% of the issued
and outstanding shares of capital stock of the Subsidiary Borrower; or
(b) any Person or group of Persons acting in concert which are
unacceptable to the Required Banks have obtained control of more than
50% of the issued and outstanding shares of capital stock of the
Company having the power to elect a majority of directors of the
Company.
"Indemnified Liabilities" has the meaning specified in Section 11.5.
-----------------------
"Indemnified Person" has the meaning specified in Section 11.5.
------------------
11
<PAGE>
"Instrument" means any contract, agreement, letter of credit,
----------
indenture, mortgage, document or writing (whether by formal agreement,
letter or otherwise) under which any obligation is evidenced, assumed or
undertaken, or any Lien (or right or interest therein) is granted or
perfected.
"Interest Payment Date" means, as to any Loan other than a Base Rate
---------------------
Loan, the last day of each Interest Period applicable to such Loan and, as
to any Base Rate Loan, the last Business Day of each February, May, August
and November, provided, however, that (a) if any Interest Period for an
-------- -------
Offshore Rate Loan exceeds three months, the date that falls three months
after the beginning of such Interest Period and after each Interest Payment
Date thereafter is also an Interest Payment Date, and (b) as to any Bid
Loan, such intervening dates prior to the maturity thereof as may be
specified by the Company and agreed to by the applicable Bid Loan Bank in
the applicable Competitive Bid shall also be Interest Payment Dates.
"Interest Period" means, (a) as to any Offshore Rate Loan, the period
---------------
commencing on the Borrowing Date of such Loan, or (in the case of any
Offshore Rate Loan in Dollars) on the Conversion/Continuation Date on which
the Loan is converted into or continued as an Offshore Rate Loan, and
ending on the date one, two, three or, if available for the requested
Applicable Currency, six months thereafter as selected by the Borrower in
its Notice of Borrowing, Notice of Conversion/Continuation or Competitive
Bid Request, as the case may be and (b) as to any Absolute Rate Bid Loan, a
period of not less than 7 days and not more than 183 days as selected by
the Company in the applicable Competitive Bid Request;
provided that:
--------
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless, in the case of an Offshore Rate Loan,
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall
end on the preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period;
(iii) no Interest Period for any Loan shall extend beyond the
Termination Date; and
12
<PAGE>
(iv) no Interest Period shall extend beyond a scheduled
commitment reduction date, if the outstanding Loans with Interest
Periods extending beyond such scheduled commitment reduction date and
Loan Note Guaranty Obligations would exceed the aggregate Commitments,
after giving effect to such reduction.
"Investment" means, with respect to any Person:
----------
(a) any loan or advance made by such Person to any other Person;
and
(b) any capital contribution made by such Person to, or
ownership or similar interest held by such Person in, any other
Person.
The amount of any Investment shall be the original principal or
capital amount thereof less all returns of principal or equity thereon (and
without adjustment by reason of the financial condition of such other
Person) and shall, if made by the transfer or exchange of property other
than cash, be deemed to have been made in an original principal or capital
amount equal to the fair market value of such property.
"Invitation for Competitive Bids" means a solicitation for Competitive
-------------------------------
Bids, substantially in the form of Exhibit H.
"Italian Lire" means the lawful currency of the Republic of Italy.
------------
"Lead Arranger" means NationsBanc Montgomery Securities LLC.
-------------
"Lending Office" means, as to any Bank, the office or offices of such
--------------
Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 10.2, or such
other office or offices as such Bank may from time to time notify the
Company and the Administrative Agent.
"Lien" means, when used with respect to any Person, any interest of
----
any other Person in any real or personal property, asset or other right
owned or being purchased or acquired by such Person which secures payment
or performance of any obligation and shall include any mortgage, lien,
encumbrance, charge or other security interest of any kind, whether arising
by contract, as a matter of law, by judicial process or otherwise.
"Loan" means an extension of credit by a Bank to the Company or the
----
Subsidiary Borrower under Article II or Article III, and may be a Committed
Loan or (for the Company only) a Bid Loan or a Loan Note Advance. A Loan
may be a Base Rate Loan or an Offshore Rate Loan (each a "Type" of Loan).
"Loan Documents" means this Agreement, any Notes, the Fee Letter, the
--------------
Loan
13
<PAGE>
Note Guaranties and all other documents delivered to the Administrative
Agent or any Bank in connection herewith.
"Loan Note Advance" means an advance pursuant to Section 3.1.
----------------- -----------
"Loan Note Guaranties" means (i) a payment guaranty of the Loan Note
--------------------
Guarantor of the Loan Notes pursuant to the Deed constituting Floating Rate
Unsecured Loan Notes due 2003 with respect to the Vero Acquisition and (ii)
a payment guaranty of the Loan Note Guarantor of the Loan Notes pursuant to
the Deed constituting Floating Rate Unsecured Loan Notes due 2003 with
respect to the Rubicon Acquisition.
"Loan Note Guarantor" means Bank of America National Trust and Savings
-------------------
Association, London branch.
"Loan Note Guaranty Obligations" means at any time the sum of (a) the
------------------------------
aggregate undrawn amount of the Loan Note Guaranties (using an assumed
interest rate of the higher of (i) 6% per annum or (ii) the actual rate)
plus (b) the amount of all unreimbursed drawings under the Loan Note
Guaranties, including all Loan Note Advances.
"Loan Notes" means (i) notes issued by Applied Power Limited to
----------
individual Vero shareholders pursuant to the Deed constituting Floating
Rate Unsecured Loan Notes due 2003, as payment for shares tendered and (ii)
notes issued by APW Enclosure Systems Limited to individual Rubicon
shareholders pursuant to the Deed constituting Floating Rate Unsecured Loan
Notes due 2003, as payment for shares tendered.
"Margin Stock" means any "margin stock" as defined in Regulation U of
------------
the Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
financial condition, operations, business, assets or prospects of the
Company and its Subsidiaries taken as a whole or (b) the ability of the
Company or the Subsidiary Borrower to timely and fully perform any of its
payment or other material obligations under this Agreement or any Note.
"Minimum Tranche" means, in respect of Committed Loans comprising part
---------------
of the same Borrowing, or to be converted or continued under Section 2.4,
(a) in the case of Base Rate Loans, $10,000,000 or any multiple of
$1,000,000 in excess thereof, and (b) in the case of Offshore Rate Loans,
the Dollar Equivalent amount of $10,000,000 or any multiple of 1,000,000
units of the Applicable Currency in excess thereof.
"Notes" means, collectively, the Bid Notes and the Committed Notes;
-----
and Note means any individual Bid Note or Committed Note.
----
14
<PAGE>
"Notice of Borrowing" means a notice in substantially the form of
-------------------
Exhibit A.
"Notice of Conversion/Continuation" means a notice in substantially
---------------------------------
the form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
-----------
covenants and duties arising under any Loan Document, owing by the Company
or the Subsidiary Borrower to any Bank, the Administrative Agent, or any
Indemnified Person or by Applied Power Limited or the Company with respect
to the Loan Note Guaranty Obligations, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"Offshore Currency" means Guilders, Sterling, Deutsche Marks, Yen,
-----------------
French Francs, Italian Lire, Swiss Francs and Euros.
"Offshore Currency Loan" means any Offshore Rate Loan denominated in
----------------------
an Offshore Currency.
"Offshore Rate" means, for any Interest Period, with respect to
-------------
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined by
the Administrative Agent as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any Interest
-----------------------------
Period the maximum reserve percentage (expressed as a decimal, rounded
upward to the next 1/100th of 1%) in effect on such day (whether or
not applicable to any Bank) under regulations issued from time to time
by the FRB for determining the maximum reserve requirement (including
any emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined by the
-----
Administrative Agent to be the arithmetic mean (rounded upward to the
next 1/16th of 1%) of the rates of interest per annum notified to the
Administrative Agent by BofA as the rate of interest at which deposits
in Dollars or other Applicable Currencies in the approximate amount of
the amount of the Loan to be made or continued as, or converted into,
an Offshore Rate Loan by BofA and having a maturity comparable
15
<PAGE>
to such Interest Period would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m. (London
time) two Business Days prior to (or in the case of an Offshore
Currency Loan in Euros, on such other date as is customary in the
relevant offshore interbank market) the commencement of such Interest
Period.
The Offshore Rate shall be adjusted automatically as to all Offshore
Rate Loans then outstanding as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Committed Loan that bears interest based
------------------
on the Offshore Rate, and may be an Offshore Currency Loan or a Loan
denominated in Dollars.
"Organic Document" means, relative to each of the Borrowers, its
----------------
certificate of incorporation, its by-laws, any other constituent documents
and all shareholder agreements, voting trusts and similar arrangements
applicable to any of its capital stock.
"Other Taxes" means any present or future stamp, court or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution,
delivery, performance, enforcement or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents.
"Overnight Rate" means, for any day, the rate of interest per annum at
--------------
which overnight deposits in the Applicable Currency, in an amount
approximately equal to the amount with respect to which such rate is being
determined, would be offered for such day by BofA's London Branch to major
banks in the London or other applicable offshore interbank market.
"Participant" has the meaning specified in Section 11.8(d).
-----------
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in
------------
section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which
the Company or any corporation, trade or business that is, along with the
Company, a member of a Controlled Group may have any liability, including
any liability by reason of having been a substantial employer within the
meaning of section 4063 of ERISA at any time during the preceding five
years, or by reason of being deemed to be a contributing sponsor under
section 4069 of ERISA.
16
<PAGE>
"Permitted Receivables Securitization" means any receivables purchase
------------------------------------
agreement entered into by the Company (as such agreement may be amended,
modified, or refinanced).
"Person" means any natural person, corporation, partnership, trust,
------
limited liability company, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity, whether acting in an individual,
fiduciary or other capacity.
"Pricing Grid" means the Pricing Grid set forth on Schedule 1.2.
------------
"Pricing Level" means the Pricing Level on the Pricing Grid which is
-------------
applicable from time to time in accordance with Section 2.12.
"Pro Rata Share" means, as to any Bank at any time, the percentage
--------------
equivalent (expressed as a decimal, rounded to the ninth decimal place) at
such time of such Bank's Commitment divided by the combined Commitments of
all Banks.
"Release" means a "release", as such term is defined in CERCLA.
-------
"Required Banks" means Banks having an aggregate Pro Rata Share of the
--------------
Commitments of 51% or more; provided that after the Commitments have been
--------
irrevocably terminated (through lapse of time, pursuant to Section 7.2 or
otherwise), "Required Banks" shall mean one or more Banks having an
--------------
aggregate of 51% or more of the sum of the principal amount of all
outstanding Loans.
"Requirement of Law" means, as to any Person, any law (statutory or
------------------
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"Resource Conservation and Recovery Act" means the Resource
--------------------------------------
Conservation and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect
-- ---
from time to time.
"Rubicon" means Rubicon Group plc.
-------
"Rubicon Acquisition" means the acquisition by APW Enclosure Systems
-------------------
Limited, a wholly owned Subsidiary of the Company, of all or substantially
all the capital stock of Rubicon.
"Same Day Funds" means (a) with respect to disbursements and payments
--------------
in Dollars, immediately available funds, and (b) with respect to
disbursements and payments
17
<PAGE>
in an Offshore Currency, same day or other funds as may be determined by
the Administrative Agent to be customary in the place of disbursement or
payment for the settlement of international banking transactions in the
relevant Offshore Currency.
"SEC" means the Securities and Exchange Commission.
---
"Shareholders' Equity" means, at any date of determination, all
--------------------
amounts which would be included under shareholders' equity on a
consolidated balance sheet of the Company and its Subsidiaries or the
Subsidiary Borrower and its Subsidiaries, as the case may be.
"Solvent" means, as to any Person at any time, that (a) the fair value
-------
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities)
as such value is established and liabilities evaluated for purposes of
Section 101(31) of the Bankruptcy Code and, in the alternative, for
purposes of the Illinois Uniform Fraudulent Transfer Act; (b) the present
fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liability of such Person
on its debts as they become absolute and matured; (c) such Person is able
to realize upon its property and pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they
mature in the normal course of business; (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature; and (e)
such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute unreasonably small capital.
"Spot Rate" for a currency means the rate quoted by BofA as the spot
---------
rate for the purchase by BofA of such currency with another currency
through its FX Trading Office at approximately 8:00 a.m. (San Francisco
time) on the date two Banking Days prior to the date as of which the
foreign exchange computation is made.
"Sterling" means lawful money of the United Kingdom.
--------
"Subsidiary" means, with respect to any Person, any corporation of
----------
which such Person and/or its other Subsidiaries own, directly or
indirectly, such number of outstanding shares as have more than 50% of the
ordinary voting power for the election of directors. Unless the context
otherwise requires, each reference to Subsidiaries herein shall be a
reference to Subsidiaries of the Company.
"Subsidiary Borrower" has the meaning specified in the preamble.
-------------------
"Suretyship Liability" means any agreement, undertaking or other
--------------------
contractual arrangement by which any Person guarantees, endorses or
otherwise becomes or is
18
<PAGE>
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to or otherwise to
invest in a debtor, or otherwise to assure a creditor against loss) any
indebtedness, obligation or other liability (including accounts payable) of
any other Person (other than by endorsements of instruments in the course
of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person. The amount of any
Person's obligation under any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the
indebtedness, obligation or other liability guaranteed thereby.
"Swap Contract" means any agreement, whether or not in writing,
-------------
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or
any combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"Swiss Francs" means lawful money of Switzerland.
------------
"Tangible Net Assets" means, as of any date, the consolidated total
-------------------
assets of the Company and its Subsidiaries minus all intangible assets of
the Company and its Subsidiaries, as each would be shown on a consolidated
balance sheet of the Company and its Subsidiaries prepared in accordance
with GAAP as of that date.
"Taxes" means any and all present or future taxes, levies,
-----
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the case
of each Bank and the Administrative Agent, respectively, taxes imposed on
or measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the
Administrative Agent, as the case may be, is organized or maintains a
lending office.
"Termination Date" means the earlier to occur of (a) October 14, 2003,
----------------
or (b) the date on which the Commitments terminate pursuant to Section 8.2
or are reduced to zero pursuant to Section 2.8.
"Type" has the meaning specified in the definition of "Loan".
----
"United States" or "U.S." means the United States of America, its 50
------------- ----
States, the District of Columbia and the Commonwealth of Puerto Rico.
"Vero" means Vero Group plc.
----
19
<PAGE>
"Vero Acquisition" means the acquisition by Applied Power Limited, a
----------------
wholly owned subsidiary of the Company, of all or substantially all the
capital stock of Vero.
"Welfare Plan" means a "welfare plan", as such term is defined in
------------
section 3(1) of ERISA.
"Yen" means lawful money of Japan.
---
"Zero" means Zero Corporation, a Delaware corporation.
----
"Zero Acquisition" means the acquisition by the Company or a wholly
----------------
owned Subsidiary of the Company of all or substantially all the capital
stock of Zero.
I.2 Other Interpretive Provisions. (a) The meanings of defined terms are
-----------------------------
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and
the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
20
<PAGE>
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Administrative Agent or the Banks
by way of consent, approval or waiver shall be deemed modified by the phrase "in
its/their sole discretion."
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Administrative
Agent, the Borrowers and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Banks or the Administrative
Agent merely because of the Administrative Agent's or Banks' involvement in
their preparation.
I.3 Accounting Principles. References to financial statements include
----------------------
notes thereto in accordance with GAAP; and accounting terms used but not defined
herein shall be construed in accordance with GAAP, and whenever the character or
amount of any asset or liability or item of income or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made, for purposes hereof, such determination or computation shall be made in
accordance with GAAP; provided that such determinations and computations with
--------
respect to financial covenants and ratios hereunder shall be made in accordance
with GAAP as in effect on the date hereof.
I.4 Currency Equivalents Generally. For all purposes of this Agreement
------------------------------
(but not for purposes of the preparation of any financial statements delivered
pursuant hereto), the equivalent in any Offshore Currency or other currency of
an amount in Dollars, and the equivalent in Dollars of an amount in any Offshore
Currency or other currency, shall be determined at the Spot Rate.
I.5 Introduction of Euro. For the avoidance of doubt, the parties hereto
--------------------
affirm and agree that neither the fixation of the conversion rate of any
Offshore Currency of a country that is a member of the European Union against
the Euro as a single currency, in accordance with the Treaty Establishing the
European Economic Community, as amended by the Treaty on the European Union (the
Maastricht Treaty), nor the conversion of any Obligations under the Loan
Documents from an Offshore Currency of a country that is a member of the
European Union into Euros, shall require the early termination of this Agreement
or the prepayment of any amount due under the Loan Documents or create any
liability of one party to another party for any direct or consequential loss
arising from any of such events. As of the date that any such Offshore Currency
is no longer the lawful currency of its respective country, all payment
obligations under the Loan Documents that would otherwise be in such Offshore
Currency shall thereafter be satisfied in Euros.
21
<PAGE>
If more than one currency or currency unit are at the same time recognized
by the laws of any country as the lawful currency of that country, then:
(a) any reference in this Agreement to, and any Obligations arising
under this Agreement or the Loan Documents in, the currency of that country
shall be translated into, or paid into, the lawful currency or currency
unit of that country designated by the Administrative Agent; and
(b) any translation from one currency or currency unit to another
shall be at the official rate of exchange legally recognized by the central
bank of the country issuing such currency for the conversion of that
currency or currency unit into the other, rounded up or down by the
Administrative Agent acting in accordance with any applicable law on
rounding or, if there is no such law, acting reasonably in accordance with
its market practice.
If a change in any currency of a country occurs, this Agreement will be
amended to the extent the Administrative Agent (acting reasonably) specifies to
be necessary to reflect the change in currency and to put the Banks in the same
position, so far as possible, that they would have been in if no change in
currency had occurred.
ARTICLE II
THE CREDITS
-----------
II.1 Amounts and Terms of Commitments. Each Bank severally agrees, on
--------------------------------
the terms and conditions set forth herein, to make loans in Dollars, Offshore
Currencies and Agreed Alternative Currencies to the Borrowers (each such loan,
a "Committed Loan") from time to time on any Business Day during the period
--------------
from the Closing Date to the Termination Date, in an aggregate principal Dollar
Equivalent amount not to exceed at any time outstanding the amount set forth
opposite such Bank's name in Schedule 2.1 under the heading "Commitment" (such
amount as the same may be reduced pursuant to Section 2.8 or as a result of one
or more assignments pursuant to Section 11.8, the Bank's "Commitment");
----------
provided, however, that, after giving effect to any Borrowing of Committed
- -------- -------
Loans, the aggregate principal Dollar Equivalent amount of all outstanding Loans
plus Loan Note Guaranty Obligations shall not exceed the combined Commitments;
provided further, that in no event shall the aggregate principal Dollar
Equivalent of all outstanding Committed Loans of the Subsidiary Borrower exceed
the lesser of (x) $200,000,000 and (y) the combined Commitments. Within the
limits of each Bank's Commitment, and subject to the other terms and conditions
hereof, the Borrowers may borrow under this Section 2.1, prepay pursuant to
Section 2.9 and reborrow pursuant to this Section 2.1.
II.2 Loan Accounts.
-------------
22
<PAGE>
(a) The Committed Loans made by each Bank shall be evidenced by one
or more loan accounts or records maintained by such Bank in the ordinary course
of business. The Bid Loans made by each Bank shall be evidenced by a Bid Note
from the Company payable to the order of such Bank. Each Bank shall record in
its records, or at its option on the Schedule attached to its Bid Note all such
Bid Loans and any repayment in whole or part thereof. The loan accounts or
records or schedules, as the case may be, maintained by the Administrative Agent
and each Bank shall be rebuttable presumptive evidence of the amount of the
Loans made by the Banks to each Borrower and the interest and payments thereon.
Any failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrowers hereunder to pay any amount
owing with respect to the Loans.
(b) Upon the request of any Bank made through the Administrative
Agent, the Committed Loans made by such Bank may be evidenced by one or more
Notes. Each such Bank may also endorse on the schedules annexed to its Note(s)
the date, amount and maturity of each Committed Loan made by it and the amount
of each payment of principal made by the applicable Borrower with respect
thereto. Each such Bank is irrevocably authorized by the applicable Borrower to
endorse its Note(s) and each Bank's record shall be rebuttable presumptive
evidence; provided, however, that the failure of a Bank to make, or an error in
-------- -------
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the applicable Borrower hereunder or under any such
Note to such Bank.
II.3 Procedure for Committed Borrowing.
---------------------------------
(a) Each Committed Borrowing shall be made upon a Borrower's
irrevocable written notice delivered to the Administrative Agent in the form of
a Notice of Borrowing (which notice must be received by the Administrative Agent
prior to 8:30 a.m. (San Francisco time) (i) three Business Days prior to the
requested Borrowing Date, in the case of Offshore Rate Loans denominated in
Dollars; and (ii) four Business Days prior to the requested Borrowing Date, in
the case of Offshore Currency Loans and (iii) on the requested Borrowing Date,
in the case of Base Rate Loans, specifying:
(A) the amount of the Committed Borrowing, which shall be
in an aggregate amount not less than the Minimum Tranche;
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type of Loans comprising the Committed Borrowing;
(D) the duration of the Interest Period applicable to such
Committed Loans included in such notice. If the Notice of Borrowing
fails to
23
<PAGE>
specify the duration of the Interest Period for any Committed
Borrowing comprised of Offshore Rate Loans, such Interest Period shall
be one month; and
(E) in the case of a Borrowing comprised of Offshore
Currency Loans, the Applicable Currency;
provided, however, that with respect to the Borrowing to be made on the Closing
- -------- -------
Date, the Notice of Borrowing for Offshore Rate Loans and an appropriate
indemnification letter shall be delivered to the Administrative Agent not later
than 8:30 a.m. (San Francisco time) four Business Days before the Closing Date.
(b) The Dollar Equivalent amount of any Borrowing in an Offshore
Currency will be determined by the Administrative Agent for such Borrowing on
the Determination Date therefor in accordance with Section 2.5(a). Upon receipt
of the Notice of Borrowing, the Administrative Agent will promptly notify each
Bank thereof and of the amount of such Bank's Pro Rata Share of the Borrowing.
In the case of a Borrowing comprised of Offshore Currency Loans, such notice
will provide the approximate amount of each Bank's Pro Rata Share of the
Borrowing, and the Administrative Agent will, upon the determination of Dollar
Equivalent amount of the Borrowing as specified in the Notice of Borrowing,
promptly notify each Bank of the exact amount of such Bank's Pro Rata Share of
the Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Administrative Agent for the account of the Company
or the Subsidiary Borrower, as the case may be, at the Administrative Agent's
Payment Office on the Borrowing Date requested by the Borrower in Same Day Funds
and in the requested currency (i) in the case of a Borrowing comprised of Loans
in Dollars, by 11:00 a.m. (San Francisco time), (ii) in the case of a Borrowing
comprised of Offshore Currency Loans, by such time as the Administrative Agent
may determine to be necessary for such funds to be credited on such date in
accordance with normal banking practices in the place of payment. The proceeds
of all such Loans will then be made available to the applicable Borrower by the
Administrative Agent by wire transfer in accordance with written instructions
provided to the Administrative Agent by the applicable Borrower of like funds as
received by the Administrative Agent; provided that the Administrative Agent
shall disburse such funds as it has received from the Banks to the applicable
Borrower (x) in the case of Loans denominated in Dollars, no later then 1:00
p.m. (San Francisco time) and (y) in the case of Offshore Currency Loans, no
later than two hours after the funding deadline specified by the Administrative
Agent under clause (ii) above.
(d) After giving effect to any Committed Borrowing, there may not be
more than ten different Interest Periods in effect in respect of all Committed
Loans and Bid Loans together then outstanding.
II.4 Conversion and Continuation Elections for Committed Borrowings.
--------------------------------------------------------------
24
<PAGE>
(a) The Borrowers may, upon irrevocable written notice to the
Administrative Agent in accordance with Section 2.4(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of any other Type of Committed Loans denominated in Dollars, to convert any
such Committed Loans (or any part thereof in an amount not less than the
Minimum Tranche) into Committed Loans in Dollars of any other Type; or
(ii) elect, as of the last day of the applicable Interest Period,
to continue any Committed Loans having Interest Periods expiring on such
day (or any part thereof in an amount not less than the Minimum Tranche);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
- --------
respect of any Committed Borrowing is reduced, by payment, prepayment, or
conversion of part thereof to be less than $10,000,000, such Offshore Rate Loans
shall automatically convert into Base Rate Loans in the Dollar Equivalent of
such Offshore Rate Loans, and on and after such date the right of the Borrowers
to continue such Committed Loans as, and convert such Committed Loans into,
Offshore Rate Loans shall terminate.
(b) The Borrowers shall deliver a Notice of Conversion/Continuation
to be received by the Administrative Agent not later than 8:30 a.m. (San
Francisco time) at least (i) three Business Days in advance of the
Conversion/Continuation Date, if the Committed Loans are to be converted into or
continued as Offshore Rate Loans denominated in Dollars; (ii) four Business Days
in advance of the Conversion/Continuation Date, if the Committed Loans are to be
converted into or continued as Offshore Currency Loans; and (iii) on the
Conversion/Continuation Date, if the Loans denominated in Dollars are to be
converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Committed Loans to be converted
or continued;
(C) the Type of Committed Loans resulting from the proposed
conversion or continuation;
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period; and
(E) if applicable, the Applicable Currency.
25
<PAGE>
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans in Dollars, the Borrowers have failed to select timely a new
Interest Period to be applicable to such Offshore Rate Loans, as the case may
be, or if any Default or Event of Default then exists, the Borrowers shall be
deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans
denominated in Dollars effective as of the expiration date of such Interest
Period. If the Borrowers have failed to select a new Interest Period to be
applicable to Offshore Currency Loans prior to the fourth Business Day in
advance of the expiration date of the current Interest Period applicable thereto
as provided in Section 2.4(b), or if any Default or Event of Default shall then
exist, subject to the provisions of Section 2.5(d), the Borrowers shall be
deemed to have elected to pay such Offshore Currency Loans and borrow Base Rate
Loans denominated in Dollars.
(d) The Administrative Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by the Company, the Administrative Agent will promptly notify each Bank
of the details of any automatic conversion. All conversions and continuations
shall be made ratably according to the respective outstanding principal amounts
of the Committed Loans with respect to which the notice was given held by each
Bank.
(e) Unless the Required Banks otherwise agree, during the existence
of a Default or Event of Default, the Borrowers may not elect to have a
Committed Loan in Dollars converted into or continued as an Offshore Rate Loan
or an Offshore Currency Loan.
(f) After giving effect to any conversion or continuation of
Committed Loans, there may not be more than ten different Interest Periods in
effect in respect of all Committed Loans and Bid Loans together then
outstanding.
II.5 Utilization of Revolving Commitments in Offshore Currencies.
-----------------------------------------------------------
(a) The Administrative Agent will determine the Dollar Equivalent
amount with respect to any (i) Borrowing comprised of Offshore Currency Loans as
of the requested Borrowing Date and as of any requested continuation date, (ii)
outstanding Offshore Currency Loans and Loan Note Guaranty Obligations as of the
last Banking Day of each month, and, during the occurrence and continuation of
an Event of Default, such other dates as may be requested by the Required Banks
(but in no event more frequently than once a week) (each such date under clauses
(i) and (ii) a "Determination Date").
------------------
(b) In the case of a proposed Borrowing comprised of Offshore
Currency Loans, the Banks shall be under no obligation to make Offshore Currency
Loans in the requested Offshore Currency as part of such Borrowing if the
Administrative Agent has received notice from the Required Banks by 12:30 p.m.
(San Francisco time) three Business Days prior to the
26
<PAGE>
day of such Borrowing that deposits in the relevant Offshore Currency (in the
applicable amounts) are not being offered to such Banks in the interbank
eurocurrency market for such Interest Period in which event the Administrative
Agent will give notice to the applicable Borrower no later than 1:30 p.m. (San
Francisco time) on the third Business Day prior to the requested date of such
Borrowing that the Borrowing in the requested Offshore Currency is not then
available, and notice thereof also will be given promptly by the Administrative
Agent to the Banks. If the Administrative Agent shall have so notified the
applicable Borrower that any such Borrowing in a requested Offshore Currency is
not then available, the Notice of Borrowing relating to such requested Borrowing
shall be deemed to be withdrawn, the Borrowing requested therein shall not occur
and the Administrative Agent will promptly so notify each Bank.
(c) In the case of a proposed continuation of Offshore Currency
Loans for an additional Interest Period pursuant to Section 2.4, the Banks shall
be under no obligation to continue such Offshore Currency Loans if the
Administrative Agent has received notice from the Required Banks by 12:30
p.m.(San Francisco time) three Business Days prior to the day of such
continuation that deposits in the relevant Offshore Currency (in the applicable
amounts) are not being offered to such Banks in the interbank eurocurrency
market for such Interest Period in which event the Administrative Agent will
give notice to the applicable Borrower not later than 1:30 p.m. (San Francisco
time) on the third Business Day prior to the requested date of such continuation
that the continuation of such Offshore Currency Loans in the relevant Offshore
Currency is not then available, and notice thereof also will be given promptly
by the Administrative Agent to the Banks. If the Administrative Agent shall have
so notified the applicable Borrower that any such continuation of Offshore
Currency Loans is not then available, any Notice of Continuation with respect
thereto shall be deemed withdrawn and such Offshore Currency Loans shall be
repaid on the last day of the Interest Period with respect to any such Offshore
Currency Loans.
(d) Notwithstanding anything herein to the contrary, during the
existence of a Default or an Event of Default, unless the Required Banks
otherwise agree, all outstanding Offshore Currency Loans shall be redenominated
and converted into their Dollar Equivalent of Base Rate Loans in Dollars on the
last day of the Interest Period applicable to any such Offshore Currency Loans.
(e) The Borrowers shall be entitled to request that Committed Loans
hereunder also be permitted to be made in any other lawful currency constituting
a eurocurrency (other than Dollars), in addition to the eurocurrencies specified
in the definition of "Offshore Currency" herein, that in the opinion of the
Administrative Agent and the Banks is at such time freely traded in the offshore
interbank foreign exchange markets and is freely transferable and freely
convertible into Dollars (an "Agreed Alternative Currency"). The applicable
---------------------------
Borrower shall deliver to the Administrative Agent any request for designation
of an Agreed Alternative Currency in accordance with Section 10.2, to be
received by the Administrative Agent not later than 10:00 a.m. (San Francisco
time) at least ten Business Days in advance of the date of any
27
<PAGE>
Borrowing hereunder proposed to be made in such Agreed Alternative Currency.
Upon receipt of any such request the Administrative Agent will promptly notify
the Banks thereof, and each Bank will respond to such request within two
Business Days of receipt thereof. Each Bank may grant or decline such request in
its sole discretion; provided that no such Loan shall be made unless all the
--------
Banks consent. The Administrative Agent will promptly notify the Borrowers of
the acceptance or rejection of any such request and, if accepted, the time
requirements for requesting Borrowings in such Agreed Alternative Currency.
II.6 Bid Borrowings. In addition to Committed Borrowings pursuant to
--------------
Section 2.3, each Bank severally agrees that the Company may, as set forth in
Section 2.7, from time to time request the Banks prior to the Termination Date
to submit offers to make Bid Loans in Dollars to the Company; provided,
--------
however, that the Banks may, but shall have no obligation to, submit such offers
- -------
and the Company may, but shall have no obligation to, accept any such offers
and, if such offers are accepted by the Company, to make such Bid Loans; and
provided, further, that at no time shall (a) the outstanding aggregate principal
- -------- -------
amount of all Bid Loans made by all Banks, plus the outstanding aggregate
principal amount of all Committed Loans made by all Banks, plus the outstanding
Loan Note Guaranty Obligations exceed the combined Commitments; or (b) the
number of Interest Periods for Bid Loans then outstanding plus the number of
Interest Periods for Committed Loans then outstanding exceed ten. The Subsidiary
Borrower shall not be entitled to request Bid Loans and the Company shall only
be entitled to request Bid Loans in Dollars.
II.7 Procedure for Bid Borrowings.
----------------------------
(a) When the Company wishes to request the Banks to submit offers
to make Bid Loans hereunder, it shall transmit to the Administrative Agent by
telephone call followed promptly by facsimile transmission a notice in
substantially the form of Exhibit I (a "Competitive Bid Request") so as to be
--------- -----------------------
received no later than 8:00 a.m. (San Francisco time) one Business Day prior to
the date of a proposed Bid Borrowing, specifying:
(i) the date of such Bid Borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Bid Borrowing, which
shall be a minimum amount of $5,000,000 or in multiples of $1,000,000 in
excess thereof; and
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of "Interest Period"
herein.
Subject to Section 2.7(c), the Company may not request Competitive Bids for more
than three Interest Periods in a single Competitive Bid Request and may not
request Competitive Bids more than once in any period of five Business Days.
28
<PAGE>
(b) Upon receipt of a Competitive Bid Request, the Administrative
Agent will promptly send to the Banks by facsimile transmission an Invitation
for Competitive Bids, which shall constitute an invitation by the Company to
each Bank to submit Competitive Bids offering to make the Bid Loans to which
such Competitive Bid Request relates in accordance with this Section 2.7.
(c) (i) Each Bank may at its discretion submit a Competitive Bid
containing an offer or offers to make Bid Loans in response to any
Invitation for Competitive Bids. Each Competitive Bid must comply with the
requirements of this Section 2.7(c) and must be submitted to the
Administrative Agent by facsimile transmission at the Administrative
Agent's office for notices set forth on the signature pages hereto not
later than 6:30 a.m. (San Francisco time) on the proposed date of
Borrowing; provided that Competitive Bids submitted by BofA (or any
--------
Affiliate of BofA) in the capacity of a Bank may be submitted, and may only
be submitted, if BofA or such Affiliate notifies the Administrative Agent
of the terms of the offer or offers contained therein not later than 6:15
a.m. (San Francisco time) on the proposed date of Borrowing.
(ii) Each Competitive Bid shall be in substantially the form of
Exhibit J, specifying therein:
(A) the proposed date of Borrowing;
(B) the principal amount of each Bid Loan for which such
Competitive Bid is being made, which principal amount (x) may be equal
to, greater than or less than the Commitment of the quoting Bank, (y)
must be $5,000,000 or in multiples of $1,000,000 in excess thereof,
and (z) may not exceed the principal amount of Bid Loans for which
Competitive Bids were requested;
(C) the rate of interest per annum expressed in multiples
of 1/1000th of one basis point (the "Absolute Rate") offered for each
-------------
such Bid Loan; and
(D) the identity of the quoting Bank.
A Competitive Bid may contain up to three separate offers by the quoting
Bank with respect to each Interest Period specified in the related
Invitation for Competitive Bids.
(iii) Any Competitive Bid shall be disregarded if it:
(A) is not substantially in conformity with Exhibit H or
29
<PAGE>
does not specify all of the information required by Section
2.7(c)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Competitive Bids; or
(D) arrives after the time set forth in Section
2.7(c)(i).
(d) Promptly on receipt and not later than 7:00 a.m. (San Francisco
time) on the proposed date of Borrowing of an Absolute Rate Bid Loan, the
Administrative Agent will notify the Company of the terms (i) of any Competitive
Bid submitted by a Bank that is in accordance with Section 2.7(c), and (ii) of
any Competitive Bid that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid submitted by such Bank with respect to the same
Competitive Bid Request. Any such subsequent Competitive Bid shall be
disregarded by the Administrative Agent unless such subsequent Competitive Bid
is submitted solely to correct a manifest error in such former Competitive Bid
and only if received within the times set forth in Section 2.7(c). The
Administrative Agent's notice to the Company shall specify (1) the aggregate
principal amount of Bid Loans for which offers have been received for each
Interest Period specified in the related Competitive Bid Request; and (2) the
respective principal amounts and Absolute Rates so offered. Subject only to the
provisions of Sections 4.2, 4.5 and 5.2 hereof and the provisions of this
Section 2.7(d), any Competitive Bid shall be irrevocable except with the written
consent of the Administrative Agent given on the written instructions of the
Company.
(e) Not later than 7:30 a.m. (San Francisco time) on the proposed
date of Borrowing, the Company shall notify the Administrative Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to Section
2.7(d). The Company shall be under no obligation to accept any offer and may
choose to reject all offers. In the case of acceptance, such notice shall
specify the aggregate principal amount of offers for each Interest Period that
is accepted. The Company may accept any Competitive Bid in whole or in part;
provided that:
- --------
(i) the aggregate principal amount of each Bid Borrowing
may not exceed the applicable amount set forth in the related
Competitive Bid Request;
(ii) the principal amount of each Bid Borrowing must be
$5,000,000 or in any multiple of $1,000,000 in excess thereof;
(iii) acceptance of offers may only be made on the basis of
ascending Absolute Rates within each Interest Period; and
(iv) the Company may not accept any offer that is
described in
30
<PAGE>
Section 2.7(c)(iii) or that otherwise fails to comply with the requirements
of this Agreement.
(f) If offers are made by two or more Banks with the same Absolute
Rates for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest Period, the principal
amount of Bid Loans in respect of which such offers are accepted shall be
allocated by the Administrative Agent among such Banks as nearly as possible (in
such multiples, not less than $1,000,000, as the Administrative Agent may deem
appropriate) in proportion to the aggregate principal amounts of such offers.
Determination by the Administrative Agent of the amounts of Bid Loans shall be
conclusive in the absence of manifest error.
(g) (i) The Administrative Agent will promptly notify each Bank
having submitted a Competitive Bid if its offer has been accepted and, if
its offer has been accepted, of the amount of the Bid Loan or Bid Loans to
be made by it on the date of the Bid Borrowing.
(ii) Each Bank, which has received notice pursuant to
Section 2.7(g)(i) that its Competitive Bid has been accepted, shall make
the amounts of such Bid Loans available to the Administrative Agent for the
account of the Company at the Administrative Agent's Payment Office, by
11:00 a.m. (San Francisco time) on such date of Bid Borrowing, in funds
immediately available to the Administrative Agent for the account of the
Company at the Administrative Agent's Payment Office.
(iii) Promptly following each Bid Borrowing, the
Administrative Agent shall notify each Bank of the ranges of bids submitted
and the highest and lowest Bids accepted for each Interest Period requested
by the Company and the aggregate amount borrowed pursuant to such Bid
Borrowing.
(h) If, on or prior to the proposed date of Borrowing, the
Commitments have not been terminated and if, on such proposed date of Borrowing
all applicable conditions to funding referenced in Sections 4.2, 4.5 and 5.2
hereof are satisfied, the Banks whose offers the Company has accepted will fund
each Bid Loan so accepted. Nothing in this Section 2.7 shall be construed as a
right of first offer in favor of the Banks or to otherwise limit the ability of
the Company to request and accept credit facilities from any Person (including
any of the Banks), provided that no Default or Event of Default would otherwise
arise or exist as a result of the Company executing, delivering or performing
under such credit facilities.
II.8 Reduction of Commitments. (a) Voluntary Termination or Reduction of
------------------------ -------------------------------------
Commitments. The Company may, upon not less than five Business Days' prior
- -----------
notice to the Administrative Agent, terminate the Commitments, or permanently
reduce the Commitments by
31
<PAGE>
an aggregate minimum Dollar Equivalent amount of $5,000,000 or any Dollar
Equivalent multiple of $1,000,000 in excess thereof; unless, after giving effect
------
thereto and to any prepayments of Loans made on the effective date thereof, the
then-outstanding principal Dollar Equivalent amount of the Loans plus the Loan
Note Guaranty Obligations would exceed the amount of the combined Commitments
then in effect. Once reduced in accordance with this Section, the Commitments
may not be increased. Any reduction of the Commitments shall be applied to each
Bank according to its Pro Rata Share and shall decrease the scheduled reductions
in Section 2.8(b) (i) proportionately if such reduction shall be in the amount
--------------
of $50,000,000 or more or (ii) in inverse order of maturities if such reduction
shall be less than $50,000,000.
(b) Scheduled Mandatory Reduction of Commitment. The aggregate
-------------------------------------------
Commitments shall be reduced quarterly on the last Business Day of each
February, May, August and November, commencing November 30, 1999 in the
following amounts on each of the following dates:
<TABLE>
<CAPTION>
Amount
--------
Date Per Date
---- --------
<S> <C>
November 30, 1999 $10,000,000
February 29, 2000 $10,000,000
May 31, 2000 $10,000,000
August 31, 2000 $10,000,000
November 30, 2000 $12,000,000
February 28, 2001 $12,000,000
May 31, 2001 $12,000,000
August 31, 2001 $12,000,000
November 30, 2001 $14,000,000
February 28, 2002 $14,000,000
May 31, 2002 $14,000,000
August 31, 2002 $14,000,000
November 30, 2002 $18,666,667
February 28, 2003 $18,666,666
May 31, 2003 $18,666,666
</TABLE>
Upon any such reduction, any outstanding Loans in excess of the reduced
Commitments (minus the Loan Note Guaranty Obligations) shall be repaid
immediately. Any reduction of the Commitments shall be applied to each Bank's
Commitment according to its Pro Rata Share. If the outstanding Loan Note
Guaranties exceed the reduced Commitments, the Company shall
32
<PAGE>
Cash Collateralize the excess.
(c) Issuance of Debt. If at the time of the issuance of any Funded
----------------
Debt (other than the Obligations) (in excess of $20,000,000 over the amount of
Funded Debt at the end of the prior Fiscal Year) after the date hereof the ratio
of Funded Debt at such time to EBITDA as of the end of the last Fiscal Quarter
shall be the following amounts, the Commitments shall be permanently reduced at
such time by the amount of the following percentages of net proceeds of such
Debt:
Ratio Percentage
----- ----------
Greater than 3.0 to 1.0 100%
Less than or equal to 3.0 to 1.0 but greater 50%
than 2.5 to 1.0
Less than or equal to 2.5 to 1.0 0%
Any reduction of the Commitments shall be applied to each Bank according to its
Pro Rata Share and shall decrease the scheduled reductions under clause (b)
proportionately. Upon any such reduction, any outstanding Loans in excess of the
reduced Commitments shall be repaid immediately.
II.9 Prepayments.
-----------
(a) Subject to Section 3.4, the Borrowers may, at any time or
from time to time, by giving the Administrative Agent irrevocable notice not
later than (i) 8:30 a.m. (San Francisco time) on the date of the proposed
prepayment, in the case of Base Rate Loans and (ii) 8:30 a.m. (San Francisco
time) three Business Days prior to the proposed payment date, in the case of
Offshore Rate Loans, ratably prepay Committed Loans in whole or in part, in
amounts equal to the Minimum Tranche. Such notice of prepayment shall specify
the date and amount of such prepayment and the Type(s) of Committed Loans to be
prepaid and the Applicable Currency. The Administrative Agent will promptly
notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata
Share of such prepayment. If such notice is given by a Borrower, such Borrower
shall make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to each such date on the amount prepaid and any amounts required pursuant to
Section 4.4.
(b) Bid Loans may not be voluntarily prepaid.
II.10 Currency Exchange Fluctuations. If on any Determination Date the
------------------------------
Administrative
33
<PAGE>
Agent shall have determined that the aggregate Dollar Equivalent principal
amount of all Loans and Loan Note Guaranty Obligations then outstanding exceeds
the combined Commitments of the Banks by more than $500,000, due to a change in
applicable rates of exchange between Dollars and Offshore Currencies, then the
----
Administrative Agent shall give notice to the Borrowers that a prepayment is
required under this Section, and the Borrowers agree thereupon to make
prepayments of Loans (and if all Loans shall be fully paid, Cash Collateralize
the Loan Note Guaranty Obligations) such that, after giving effect to such
prepayment the aggregate Dollar Equivalent amount of all Loans and Loan Note
Guaranty Obligations does not exceed the combined Commitments. Prepayments of
Loans under this Section 2.10 shall be applied (and, to the extent necessary,
made in the Applicable Currency) to repay first, Base Rate Loans and second,
Offshore Rate Loans. Any prepayment of an Offshore Rate Loan shall be subject to
the provisions of Section 4.4.
II.11 Repayment.
---------
(a) The Borrowers shall repay to the Banks on the Termination
Date the aggregate principal amount of all Committed Loans outstanding on such
date.
(b) The Company shall repay each Bid Loan on the last day of the
relevant Interest Period.
II.12 Interest.
--------
(a) Each Committed Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Offshore Rate plus the Applicable Margin or the Base Rate, as the
case may be (and subject to the Borrower's right to convert to other Types of
Loans under Section 2.4). Each Bid Loan shall bear interest on the outstanding
principal amount thereof from the relevant Borrowing Date at a rate per annum
equal to the Absolute Rate.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Offshore Rate Loans under Section 2.8, 2.9 or 2.10 for the portion of the
Loans so prepaid and upon payment (including prepayment) in full thereof and,
during the existence of any Event of Default, interest shall be paid on demand
of the Administrative Agent at the request or with the consent of the Required
Banks.
(c) Any change in the Applicable Margin or Applicable Non-Use
Fee Rate resulting from a change in the Pricing Level in accordance with the
Pricing Grid shall be effective 60 days (or, in the case of the last Fiscal
Quarter of any Fiscal Year, 90 days, respectively) after the end of each Fiscal
Quarter based on the Debt to EBITDA Ratio as of the last day of such Fiscal
Quarter; it being understood that if the Company fails to deliver the
-------------------
34
<PAGE>
financial statements or certificate required by Section 7.1(a), 7.1(b) or 7.1(c)
by the 60th day (or, if applicable, the 90th day) after any Fiscal Quarter,
commencing on such 60th or 90th day, as applicable, until the date such
financial statements or certificate are delivered, the Pricing Level in effect
shall be in Pricing Level VIII.
(d) After maturity of any Loan (whether by acceleration or otherwise),
such Loan shall bear interest on the unpaid principal amount thereof at a rate
per annum equal to (i) for any Base Rate Loan the sum of two percent (2%) plus
the Base Rate from time to time in effect; and (ii) for any Offshore Rate Loan,
the sum of three percent (3%) plus the rate of interest in effect thereon at the
time of such default until the end of the Interest Period applicable thereto
and, thereafter, if such Loan is denominated in Dollars, at a rate per annum
equal to the sum of two percent (2%) plus the Base Rate from time to time in
effect or, if such Loan is denominated in another Applicable Currency, at a rate
per annum equal to the sum of the Applicable Margin for Offshore Rate Loans plus
three percent (3%) plus the rate of interest per annum as determined by the
Administrative Agent (rounded upwards, if necessary to the nearest whole
multiple of one-sixteenth of one percent (1/16%) at which overnight or weekend
deposits of the Applicable Currency (or, if such amount due remains unpaid more
than three Business Days, then for such other period of time not longer than one
month as the Administrative Agent may elect in its absolute discretion) for
delivery in immediately available and freely transferrable funds would be
offered by the Administrative Agent to major banks in the interbank market upon
request of such major banks for the applicable period as determined above and in
an amount comparable to the unpaid principal amount of any such Offshore Rate
Loan or, if the Administrative Agent is not placing deposits in such Applicable
Currency in the interbank market, then the Administrative Agent's cost of funds
in such Applicable Currency for such period).
II.13 Fees.
----
(a) Arrangement Agency Fees. The Company shall pay an
-----------------------
arrangement fee to the Lead Arranger for the Lead Arranger's own account, and
shall pay an agency fee to the Administrative Agent for the Administrative
Agent's own account, as required by the letter agreement ("Fee Letter") between
----------
the Company, the Lead Arranger and the Administrative Agent dated September 21,
1998, as supplemented.
(b) Non-Use Fees. The Company shall pay to the Administrative
------------
Agent for the account of each Bank a non-use fee on the daily unused portion of
such Bank's Commitment, computed on a quarterly basis in arrears on the last
Business Day of each February, May, August and November commencing November 30,
1998 based upon the daily utilization for that quarter as calculated by the
Administrative Agent, equal to the Applicable Non-Use Fee Rate. Such non-use fee
shall accrue from the Closing Date to the Termination Date and shall be due and
payable quarterly in arrears on the last Business Day of each February, May,
August and November commencing on November 30, 1998 through the Termination
Date, with the final payment to be made on the Termination Date. For purposes of
calculating the non-use fee, Loan
35
<PAGE>
Note Guaranty Obligations shall be deemed usages of the Commitments but Bid
Loans shall not be deemed usage of the Commitments. The non-use fees provided in
this Section 2.13(b) shall accrue at all times after the above-mentioned
---------------
commencement date, including at any time during which one or more conditions in
Article V are not met.
(c) Utilization Fees. The Company shall pay to the
----------------
Administrative Agent for the account of each Bank a utilization fee on the daily
used portion of such Bank's Commitment, computed on a quarterly basis in arrears
on the last Business Day of each February, May, August and November commencing
November 30, 1998 based upon the daily utilization for that quarter as
calculated by the Administrative Agent, equal to the Applicable Utilization Fee
Rate. Such utilization fee shall accrue from the Closing Date to the Termination
Date and shall be due and payable quarterly in arrears on the last Business Day
of each February, May, August and November commencing on November 30, 1998
through the Termination Date, with the final payment to be made on the
Termination Date. For purposes of calculating the utilization fee, Bid Loans and
Loan Note Guaranty Obligations (except to the extent such Loan Note Guaranty
Obligations have been Cash Collateralized) shall be deemed usage of the
Commitments by each Bank based on its Pro Rata Share. The utilization fees
provided in this Section 2.13(c) shall accrue at all times after the above-
mentioned commencement date, including at any time during which one or more
conditions in Article V are not met.
(d) Loan Note Guaranty Fees. The Company shall pay to the
-----------------------
Administrative Agent for the account of each Bank a Loan Note Guaranty fee on
the daily amount of such Bank's Pro Rata Share of the Loan Note Guaranty
Obligations, computed on a quarterly basis in arrears on the last Business Day
of each February, May, August and November commencing November 30, 1998 based
upon the daily amount for that quarter as calculated by the Administrative
Agent, equal to said Bank's Pro Rata Share of the Loan Note Guaranty Obligations
times the Applicable Margin. Such Loan Note Guaranty fee shall accrue from the
Closing Date to the Termination Date and shall be due and payable quarterly in
arrears on the last Business Day of each February, May, August and November
commencing on November 30, 1998 through the Termination Date, with the final
payment to be made on the Termination Date.
II.14 Computation of Fees and Interest.
--------------------------------
(a) All computations of fees and interest shall be made on the
basis of a 360-day year and actual days elapsed (which results in more interest
being paid than if computed on the basis of a 365-day year); provided that if
--------
the Borrowers and the Administrative Agent mutually determine that a different
convention or practice arises with respect to Euros in the London interbank
market, computation of interest on Loans denominated in Euros shall be made
based on such convention or practice. Interest and fees shall accrue during each
period during which interest or fees are computed from the first day thereof to
the last day thereof.
36
<PAGE>
(b) For purposes of determining utilization of each Bank's
Commitment in order to calculate the non-use fee, the utilization fee and the
Loan Note Guaranty fee due under Section 2.13, the amount of any outstanding
Offshore Currency Loans and the Loan Note Guaranty Obligations on any date shall
be determined based upon the Dollar Equivalent amount as of the most recent
Determination Date with respect to such Offshore Currency Loans and the Loan
Note Guaranty Obligations.
(c) Each determination of an interest rate or a Dollar
Equivalent amount by the Administrative Agent shall be conclusive and binding on
the Company and the Banks in the absence of manifest error.
II.15 Payments by a Borrower.
----------------------
(a) All payments to be made by a Borrower shall be made without
set-off, deduction, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by a Borrower shall be made to the Administrative
Agent for the account of the Banks at the Administrative Agent's Payment Office,
and, with respect to principal of, interest on, and any other amounts relating
to, any Offshore Currency Loan, shall be made in the Offshore Currency in which
such Loan is denominated or payable, and, with respect to all other amounts
payable hereunder, shall be made in Dollars. Such payments shall be made in Same
Day Funds, and (i) in the case of Offshore Currency payments, no later than such
time on the dates specified herein as may be determined by the Administrative
Agent to be necessary for such payment to be credited on such date in accordance
with normal banking procedures in the place of payment, and (ii) in the case of
any Dollar payments, no later than 11:00 a.m. (San Francisco time) on the date
specified herein. The Administrative Agent will promptly distribute to each Bank
its Pro Rata Share (or other applicable share as expressly provided herein) of
such principal, interest, fees or other amounts, in like funds as received. Any
payment which is received by the Administrative Agent later than 11:00 a.m. (San
Francisco time), or later than the time specified by the Administrative Agent as
provided in clause (i) above (in the case of Offshore Currency payments), shall
be deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Administrative Agent receives notice from a
Borrower prior to the date on which any payment is due to the Banks that said
Borrower will not make such payment in full as and when required, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
37
<PAGE>
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent such Borrower has not made such
payment in full to the Administrative Agent, each Bank shall repay to the
Administrative Agent on demand such amount distributed to such Bank, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Bank until the date repaid.
II.16 Payments by the Banks to the Administrative Agent.
-------------------------------------------------
(a) Unless the Administrative Agent receives notice from a Bank
on or prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least one Business Day prior to the date of such Committed
Borrowing, that such Bank will not make available as and when required hereunder
to the Administrative Agent for the account of the applicable Borrower the
amount of that Bank's Pro Rata Share of the Committed Borrowing, the
Administrative Agent may assume that each Bank has made such amount available to
the Administrative Agent in immediately available funds on the Borrowing Date
and the Administrative Agent may (but shall not be so required), in reliance
upon such assumption, make available to the applicable Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its full
amount available to the Administrative Agent in immediately available funds and
the Administrative Agent in such circumstances has made available to the
applicable Borrower such amount, that Bank shall on the Business Day following
such Borrowing Date make such amount available to the Administrative Agent,
together with interest at the Federal Funds Rate for each day during such
period. A notice of the Administrative Agent submitted to any Bank with respect
to amounts owing under this Section 2.16(a) shall be conclusive, absent manifest
error. If such amount is so made available, such payment to the Administrative
Agent shall constitute such Bank's Loan on the date of Borrowing for all
purposes of this Agreement. If such amount is not made available to the
Administrative Agent on the Business Day following the Borrowing Date, the
Administrative Agent will notify the applicable Borrower of such failure to fund
and, upon demand by the Administrative Agent, such Borrower shall pay such
amount to the Administrative Agent for the Administrative Agent's account,
together with interest thereon for each day elapsed since the date of such
Committed Borrowing, at a rate per annum equal to the interest rate applicable
at the time to the Committed Loans comprising such Committed Borrowing.
(b) The failure of any Bank to make any Committed Loan or Loan
Note Advance on any Borrowing Date shall not relieve any other Bank of any
obligation hereunder to make a Committed Loan on such Borrowing Date, but no
Bank shall be responsible for the failure of any other Bank to make the
Committed Loan to be made by such other Bank on any Borrowing Date.
II.17 Sharing of Payments, Etc. If, other than as expressly provided
------------------------
elsewhere herein, any Bank shall obtain on account of the Committed Loans or
Loan Note Advances made by it any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or
38
<PAGE>
otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a)
notify the Administrative Agent of such fact, and (b) purchase from the other
Banks such participations in the Committed Loans or Loan Note Advances made by
them as shall be necessary to cause such purchasing Bank to share the excess
payment pro rata with each of them; provided, however, that if all or any
-------- -------
portion of such excess payment is thereafter recovered from the purchasing Bank,
such purchase shall to that extent be rescinded and each other Bank shall repay
to the purchasing Bank the purchase price paid therefor, together with an amount
equal to such paying Bank's ratable share (according to the proportion of (i)
the amount of such paying Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrowers agree that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 11.10) with respect to
such participation as fully as if such Bank were the direct creditor of such
Borrower in the amount of such participation. The Administrative Agent will
keep records (which shall be conclusive and binding in the absence of manifest
error) of participations purchased under this Section and will in each case
notify the Banks following any such purchases or repayments.
ARTICLE III
LOAN NOTE GUARANTIES
--------------------
III.1 Risk Participations, Drawings and Reimbursements.
------------------------------------------------
(a) Each Bank shall be deemed to, and hereby irrevocably and
unconditionally purchases from the Loan Note Guarantor a participation in the
Loan Note Guaranties and each drawing thereunder in an amount equal to the
product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount
available to be drawn under the Loan Note Guaranties and the amount of such
drawing, respectively, in Sterling. For purposes of Section 2.1, the Loan Note
-----------
Guaranties shall be deemed to utilize the Commitment of each Bank by an amount
equal to the amount of such participation.
(b) In the event of any request for a drawing under the Loan
Note Guaranties by the beneficiary or transferee thereof, the Loan Note
Guarantor will promptly notify the Administrative Agent and the Company of the
request and of the day on which the Loan Note Guarantor is to pay the holders of
the Loan Notes (which payment date is not to be less than one day later). The
Company agrees to reimburse the Loan Note Guarantor prior to 9:00 a.m. (Chicago
time), on each date that any amount is paid by the Loan Note Guarantor under the
Loan Note Guaranties (each such date, an "Honor Date"), in an amount equal to
----------
the amount in Sterling of the amount so paid by the Loan Note Guarantor. In the
event the Company fails to reimburse the Loan Note Guarantor for the full amount
of any drawing under the Loan Note Guaranties by 9:00 a.m. (Chicago time) on the
Honor Date, the Loan Note Guarantor will promptly notify the
39
<PAGE>
Administrative Agent who will in turn promptly notify each Bank. Unless notified
by the Company to convert an unreimbursed drawing into Committed Loans or, if
the Company requests a conversion of an unreimbursed drawing into Committed
Loans but the unreimbursed drawing is not converted because of the Company's
failure to satisfy the conditions set forth in Section 5.2, each Bank will be
-----------
deemed to be obligated to make a Loan Note Advance to the Company in Dollars in
the Dollar Equivalent (determined as of the Honor Date) of such Bank's Pro Rata
Share of such drawing and such Loan Note Advances shall bear interest at a rate
per annum equal to the Base Rate plus 2% per annum and shall be immediately due
and payable by the Company to the Administrative Agent for the benefit of the
Banks. If for any reason the Loan Note Advances cannot be made, the Banks should
be deemed to have purchased a participation in the Company's obligation to
reimburse the amount paid by the Loan Note Guarantor. Any notice given by the
Loan Note Guarantor or the Administrative Agent pursuant to this Section 3.1(b)
--------------
may be oral if immediately confirmed in writing (including by facsimile);
provided that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
(c) With respect to any unreimbursed drawing that the Company
requests be converted into a Committed Loan and that satisfies the conditions
set forth in Section 5.2, each Bank shall upon any notice make available to the
-----------
Administrative Agent for the account of the Loan Note Guarantor an amount in
Dollars equal to the Dollar Equivalent Amount (as indicated in such notice) of
the amount in Sterling and in immediately available funds equal to its Pro Rata
Share of the amount of such drawing, whereupon the participating Banks shall
each be deemed to have made a Committed Loan consisting of a Base Rate Loan to
the Company in that amount. If the Banks shall be deemed to have made Loan Note
Advances or to have purchased a participation in the Company's reimbursement
obligation, each Bank shall make available the amount of its Loan Note Advance
or the amount of such reimbursement obligation in Dollars to the Administrative
Agent and in immediately available funds. If any Bank so notified fails to make
available to the Administrative Agent for the account of the Loan Note Guarantor
the amount of such Bank's Pro Rata Share of the amount of such unreimbursed
drawing or the amount of its Loan Note Advance by no later than 1:00 p.m.
(Chicago time) on the Honor Date, then interest shall accrue on such Bank's
obligation to make such payment, from the Honor Date to the date such Bank makes
such payment, at a rate per annum equal to the Federal Funds Rate in effect from
time to time during such period. The Administrative Agent shall promptly give
notice of the occurrence of the Honor Date, but failure of the Administrative
Agent to give any such notice on the Honor Date or in sufficient time to enable
any Bank to effect such payment on such date shall not relieve such Bank from
its obligations under this Section 3.1.
-----------
(d) Provided that the Loan Note Guarantor has paid a drawing
under the Loan Note Guaranties substantially in accordance with their terms,
each Bank's obligation in accordance with this Agreement to make the Committed
Loans or Loan Note Advances or to purchase a participation, as contemplated by
this Section 3.1, as a result of a drawing under the Loan Note Guaranties, shall
-------
be absolute and unconditional and shall not be affected by any
40
<PAGE>
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Loan Note Guarantor, the
Company or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing; provided, however, that each Bank's obligation
--------
to make Committed Loans under this Section 3.1 is subject to the conditions set
-----------
forth in Section 5.2. Nothing in this Section 3.1(d) is intended to, and shall
------------
not preclude, any Bank from pursuing, after payment, such rights and remedies as
it may have against the Loan Note Guarantor in the event such drawing is
wrongfully paid as a result of the Loan Note Guarantor's gross negligence or
wilful misconduct.
III.2 Repayment of Participations. (a) Upon (and only upon) receipt by
---------------------------
the Administrative Agent of immediately available funds from the Company (i) in
reimbursement of any payment made by the Loan Note Guarantor under the Loan Note
Guaranties with respect to which any Bank has paid the Administrative Agent for
the account of the Loan Note Guarantor for such Bank's participation in the Loan
Note Guaranties pursuant to Section 3.1, (ii) in payment of interest thereon or
------------
(iii) in repayment of Loan Note Advances or payment of the Company's
reimbursement obligations hereunder, the Administrative Agent will pay to such
Bank, in the same funds as those received by the Administrative Agent, the
amount of such Bank's Pro Rata Share of such funds, and the Loan Note Guarantor
shall receive the amount of the Pro Rata Share of such funds of any Bank that
did not so pay the Administrative Agent for the account of the Loan Note
Guarantor.
(b) If the Administrative Agent or the Loan Note Guarantor is
required at any time to pay to the Company, or to a trustee, receiver,
liquidator, custodian, or any official in any insolvency proceeding, any portion
of the payments made by the Company to the Administrative Agent for the account
of the Loan Note Guarantor pursuant to Section 3.2(a) in reimbursement of a
--------------
payment made under the Loan Note Guaranty or interest thereon, each Bank shall,
on demand of the Administrative Agent, forthwith pay to the Administrative Agent
or the Loan Note Guarantor the amount of its Pro Rata Share of any amounts so
paid by the Administrative Agent or the Loan Note Guarantor plus interest
thereon from the date such demand is made to the date such amounts are paid by
such Bank to the Administrative Agent or the Loan Note Guarantor at a rate per
annum equal to the Federal Funds Rate in effect from time to time.
III.3 Role of the Loan Note Guarantor. (a) Each Bank and the Company agree
-------------------------------
that, in paying any drawing under the Loan Note Guaranties, the Loan Note
Guarantor shall not have any responsibility to obtain any document (other than
any certificates expressly required by the Loan Note Guaranties) or to ascertain
or inquire as to the validity or accuracy of any such document or the authority
of the Person executing or delivering any such document.
(b) No Administrative Agent-Related Person nor any of the
respective correspondents, participants or assignees of the Loan Note Guarantor
shall be liable to any Bank
41
<PAGE>
for: (i) any action taken or omitted in connection herewith at the request or
with the approval of the Required Banks; (ii) any action taken or omitted in the
absence of gross negligence or willful misconduct; or (iii) the due execution,
effectiveness, validity or enforceability of any document related to the Loan
Note Guaranties.
(c) The Company hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of the Loan Note
Guaranties; provided, however, that this assumption is not intended to, and
--------
shall not, preclude the Company's pursuing such rights and remedies as it may
have against the beneficiary or transferee at law or under any other agreement.
No Administrative Agent-Related Person, nor any of the respective
correspondents, participants or assignees of the Loan Note Guarantor (including
the Banks), shall be liable or responsible for any of the matters described in
clauses (i) through (vii) of Section 3.4; provided, however, anything in such
- ------------------------- ----------- --------
clauses to the contrary notwithstanding, that the Company may have a claim
against the Loan Note Guarantor, and the Loan Note Guarantor may be liable to
the Company, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by the Company which the Company
proves were caused by the Loan Note Guarantor's willful misconduct or gross
negligence or the Loan Note Guarantor's willful failure to pay under the Loan
Note Guaranties after the presentation to it by the beneficiary of
certificate(s) reasonably complying with the terms and conditions of the Loan
Note Guaranties. In furtherance and not in limitation of the foregoing: (i) the
Loan Note Guarantor may accept documents that appear on their face to be in
order, without responsibility for further investigation; and (ii) the Loan Note
Guarantor shall not be responsible for the validity or sufficiency of any
instrument transferring or purporting to transfer the Loan Note Guaranties or
the rights or benefits thereunder or assigning the proceeds thereof, in whole or
in part, in accordance with the terms of the Loan Note Guaranties which may
prove to be invalid or ineffective for any reason.
III.4 Obligations Absolute. Provided that the Loan Note Guarantor has
---------------------
paid a drawing under the Loan Note Guaranties substantially in accordance with
their terms, the obligations of the Company under this Agreement and any
document related to the Loan Note Guaranties to reimburse the Loan Note
Guarantor, the Administrative Agent or the Banks for a drawing under the Loan
Note Guaranties, and to repay any Loan Note Advances and any drawing under the
Loan Note Guaranties converted into Committed Loans, shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other document related to the Loan Note Guaranties under
all circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement or
any document related to the Loan Note Guaranties;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of the Company in
respect of the Loan Note Guaranties or any other amendment or waiver of or
any consent to departure from all or
42
<PAGE>
any of the documents related to the Loan Note Guaranties, which have been
previously agreed to by the Company;
(iii) the existence of any claim, set-off, defense or other
right that the Company may have at any time against any beneficiary or any
transferee of the Loan Note Guaranties (or any Person for whom any such
beneficiary or any such transferee may be acting), the Loan Note Guarantor
or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the documents related to the Loan
Note Guaranties or any unrelated transaction;
(iv) any draft, demand, certificate or other document presented
under the Loan Note Guaranties proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under the
Loan Note Guaranties;
(v) any payment by the Loan Note Guarantor under the Loan Note
Guaranties against presentation of a draft or certificate that reasonably
complies with the terms of the Loan Note Guaranties; or any payment made by
the Loan Note Guarantor under the Loan Note Guaranties to any Person
purporting to be (and providing reasonable evidence of its status as) a
trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, administrator, receiver or other representative of
or successor to any beneficiary or any transferee of the Loan Note
Guaranties, including any arising in connection with any insolvency
proceeding;
(vi) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from any
other guarantee, for all or any of the obligations of the Company in
respect of the Loan Note Guaranties; or
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Company or a guarantor.
III.5 Cash Collateral Pledge. Upon (i) the request of the
----------------------
Administrative Agent, (A) if the Loan Note Guarantor has honored any full or
partial drawing request on the Loan Note Guaranties and such drawing has
resulted in a Loan Note Advance hereunder, or (B) if, as of the Termination
Date, the Loan Note Guaranties may for any reason remain outstanding and
partially or wholly undrawn, or (ii) the occurrence of the circumstances
described in Section 2.10 requiring the Company to Cash Collateralize the Loan
Note Guaranties, then the Company shall immediately Cash Collateralize the Loan
Note Guaranty Obligations in an amount equal to such Loan Note Guaranty
Obligations or in the amount required under Section 2.10, respectively. If the
Loan Note Guaranties expire without the application of such Cash Collateral in
full, or if all Loan Note Advances with respect to the Loan Note Guaranties have
been paid in full by the
43
<PAGE>
Company, then as long as there is no Event of Default in existence and so long
as no such application shall be made within 25 days of the expiration of the
Loan Note Guaranties, the Administrative Agent shall return to the Company any
cash or deposit account balances, together with all interest thereon, that were
used by the Company to Cash Collateralize the Loan Note Guaranties pursuant to
this Section 3.5 and were not applied to Loan Note Advances.
-----------
III.6 Third Party Beneficiary. This Article III has been entered into
-----------------------
for the benefit of the Loan Note Guarantor, which has relied thereon in issuing
the Loan Note Guaranties. This Article III shall survive the termination of the
Agreement and may not be amended without the consent of the Loan Note Guarantor.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
IV.1 Taxes.
-----
(a) Any and all payments by the Borrowers to each Bank or the
Administrative Agent under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction or withholding for, any Taxes. In
addition, the Borrowers shall pay all Other Taxes and Further Taxes.
(b) If the Company shall be required by law to deduct or withhold any
Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Bank or the Administrative Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section)
such Bank or the Administrative Agent, as the case may be, receives and
retains an amount equal to the sum it would have received and retained had
no such deductions or withholdings been made;
(ii) the Borrowers shall make such deductions and withholdings;
(iii) the Borrowers shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) the Borrowers shall also pay to each Bank or the
Administrative Agent for the account of such Bank, at the time interest is
paid, Further Taxes in an amount that the respective Bank specifies as
necessary to preserve the after-tax yield the
44
<PAGE>
Bank would have received if such Taxes, Other Taxes or Further Taxes had
not been imposed.
(c) Each Borrower agrees to indemnify and hold harmless each Bank and
the Administrative Agent for the full amount of (i) Taxes, (ii) Other Taxes, and
(iii) Further Taxes in the amount that the respective Bank reasonably specifies
as necessary to preserve the after-tax yield the Bank would have received if
such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes
were correctly or legally asserted. Payment under this indemnification shall be
made within 30 days after the date the Bank or the Administrative Agent makes
written demand therefor.
(d) Within 30 days after the date of any payment by the Borrowers of
Taxes, Other Taxes or Further Taxes, the Borrowers shall furnish to each Bank or
the Administrative Agent the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment satisfactory to such
Bank or the Administrative Agent.
(e) If a Borrower is required to pay additional amounts to any Bank
or the Administrative Agent pursuant to Section 4.1(b) or (c) then such Bank
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Borrowers which may thereafter accrue, if such change
in the sole judgment of such Bank is not otherwise disadvantageous to such Bank.
IV.2 Illegality.
----------
(a) If any Bank determines that the introduction of any Requirement
of Law, or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make Offshore Rate Loans
(including Offshore Rate Loans in any Applicable Currency), then, on notice
thereof by the Bank to the Borrowers through the Administrative Agent, any
obligation of that Bank to make Offshore Rate Loans shall be suspended until the
Bank notifies the Administrative Agent and the Borrowers that the circumstances
giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any Offshore
Rate Loan, the Borrowers shall, upon its receipt of notice of such fact and
demand from such Bank (with a copy to the Administrative Agent), prepay in full
such Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 4.4, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to
45
<PAGE>
maintain such Offshore Rate Loan. If a Borrower is required to so prepay any
Offshore Rate Loan, then concurrently with such prepayment, such Borrower shall
borrow from the affected Bank, in the Dollar Equivalent amount of such
repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain Offshore Rate
Loans has been so terminated or suspended, the Company may elect, by giving
notice to the Bank through the Administrative Agent that all Loans which would
otherwise be made by the Bank as Offshore Rate Loans shall be instead Base Rate
Loans.
(d) Before giving any notice to the Administrative Agent under this
Section, the affected Bank shall designate a different Lending Office with
respect to its Offshore Rate Loans if such designation will avoid the need for
giving such notice or making such demand and will not, in the judgment of the
Bank, be illegal or otherwise disadvantageous to the Bank.
IV.3 Increased Costs and Reduction of Return.
---------------------------------------
(a) If any Bank determines that, due to either (i) the introduction
of or any change in or in the interpretation of any law or regulation after the
Closing Date or (ii) the compliance by that Bank with any guideline or request
from any central bank or other Governmental Authority after the Closing Date
(whether or not having the force of law), there shall be any increase in the
cost to such Bank of agreeing to make or making, funding or maintaining any
Offshore Rate Loans, then the Borrowers shall be liable for, and shall from time
to time, within 10 days after demand (with a copy of such demand to be sent to
the Administrative Agent), pay to the Administrative Agent for the account of
such Bank, additional amounts as are sufficient to compensate such Bank for such
increased costs.
(b) If any Bank shall have determined that (i) the introduction after
the Closing Date of any Capital Adequacy Regulation, (ii) any change after the
Closing Date in any Capital Adequacy Regulation, (iii) any change after the
Closing Date in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation adopted after the Closing Date, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration such Bank's or
such corporation's policies with respect to capital adequacy and such Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to the Borrowers through
the Administrative Agent, the Borrowers shall pay to the Bank, from time to time
as specified by the Bank, additional amounts sufficient to compensate the Bank
for such increase.
IV.4 Funding Losses. each Bank and hold each Bank
--------------
46
<PAGE>
harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
(a) the failure of the Borrowers to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Borrowers to borrow, continue or convert a
Committed Loan after the Borrowers have given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Borrowers to make any prepayment of any
Committed Loan in accordance with any notice delivered under Section 2.8;
(d) the prepayment (including pursuant to Section 2.8, 2.9 or 2.10)
or other payment (including after acceleration thereof) of any Offshore Rate
Loan or Absolute Rate Bid Loan on a day that is not the last day of the relevant
Interest Period; or
(e) the automatic conversion under Section 2.4 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained.
IV.5 Inability to Determine Rates. If the Required Banks determine that
----------------------------
for any reason adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan, or that the Offshore Rate for any requested Interest Period
with respect to a proposed Offshore Rate Loan does not adequately and fairly
reflect the cost to such Banks of funding such Loan, the Administrative Agent
will promptly so notify the Company and each Bank. Thereafter, the obligation of
the Banks to make or maintain Offshore Rate Loans hereunder shall be suspended
until the Administrative Agent upon the instruction of the Required Banks
revokes such notice in writing. Upon receipt of such notice, the Borrowers may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If the Borrowers do not revoke such Notice, the Banks shall
make, convert or continue the Committed Loans, as proposed by the Borrowers, in
the amount specified in the applicable notice submitted by the Borrowers, but
such Committed Loans shall be made, converted or continued as Base Rate Loans
instead of Offshore Rate Loans. In the case of any Offshore Currency Loans, the
Borrowing or continuation shall be in an aggregate amount equal to the Dollar
Equivalent amount of the originally requested Borrowing or continuation in the
Offshore Currency, and to that end any outstanding Offshore Currency Loans which
are the subject of any continuation shall be redenominated and converted into
Base Rate Loans in Dollars with effect from the last day of the Interest Period
with respect to any such Offshore Currency Loans.
47
<PAGE>
IV.6 Certificates of Banks. Any Bank claiming reimbursement or
---------------------
compensation under this Article IV shall deliver to the Borrowers (with a copy
to the Administrative Agent) a certificate setting forth in reasonable detail
the amount payable to the Bank hereunder and such certificate shall be
conclusive and binding on the Borrowers in the absence of manifest error. In
determining the amount payable to the Bank pursuant to this Article IV, each
Bank shall act reasonably and in good faith and will, to the extent the
increased costs or reductions in amounts received or receivable relate to such
Bank's loans in general (including the Loans) and are not specifically
attributable to the Loans and other amounts due hereunder, use averaging and
attribution methods which are reasonable and which cover all loans similar to
the Loans made by such Bank.
IV.7 Substitution of Banks. Upon the receipt by either Borrower from any
---------------------
Bank (an "Affected Bank") of a claim for compensation under Section 4.1, 4.2 or
-------------
4.3, the Company may: (i) request the Affected Bank to cooperate with the
Company in its efforts to obtain a replacement bank or financial institution
satisfactory to the Company to acquire and assume all or a ratable part of all
of such Affected Bank's Loans and Commitment (a "Replacement Bank"); (ii)
----------------
request one more of the other Banks to acquire and assume all or part of such
Affected Bank's Loans and Commitment; or (iii) designate a Replacement Bank. Any
such designation of a Replacement Bank under clause (i) or (iii) shall be
subject to the prior written consent of the Administrative Agent (which consent
shall not be unreasonably withheld).
IV.8 Survival. The agreements and obligations of the Borrowers in this
--------
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
--------------------
V.1 Conditions of Initial Loans. The obligation of each Bank to make its
---------------------------
initial Committed Loan hereunder, and to receive through the Administrative
Agent the initial Competitive Bid Request is subject to the condition that the
Administrative Agent have received on or before the Closing Date all of the
following, in form and substance satisfactory to the Administrative Agent, and
in sufficient copies for each Bank:
(a) Credit Agreement. This Agreement executed by each party hereto.
----------------
(b) Notes. A Bid Note of the Company payable to the order of each
-----
Bank and, if requested by a Bank, one Committed Note of each Borrower payable to
the order of each Bank.
48
<PAGE>
(c) Resolutions. Certified copies of resolutions of the Board of
-----------
Directors of each Borrower authorizing or ratifying the execution, delivery and
performance by such Borrower of this Agreement and the other documents provided
for in this Agreement to be executed by such Borrower.
(d) Incumbency and Signatures. A certificate of the Secretary or an
-------------------------
Assistant Secretary of each Borrower certifying the names of the officer or
officers of each Borrower authorized to sign this Agreement and the other
documents provided for in this Agreement to be executed by such Borrower,
together with a sample of the true signature of each such officer (it being
understood that the Administrative Agent and each Bank may conclusively rely on
such certificate until formally advised by a like certificate of any changes
therein).
(e) Opinion of Counsel for the Company. The opinion of Quarles &
----------------------------------
Brady, counsel for the Company, in the form of Exhibit D-1 and Loeff Claeys
Verbeke, counsel for the Subsidiary Borrower, in the form of Exhibit D-2.
(f) Opinion of Counsel for the Administrative Agent. The opinion of
-----------------------------------------------
Mayer, Brown & Platt, counsel for the Administrative Agent, in the form of
Exhibit G.
(g) Termination of Existing Credit Agreement and Bridge Credit
----------------------------------------------------------
Agreement. Evidence, reasonably satisfactory to the Administrative Agent, that
- ---------
all "Commitments" under and as defined in the Existing Credit Agreement and the
Bridge Credit Agreement have been terminated and all obligations of the Company
thereunder have been, or concurrently with the making of the initial Loans will
be, paid in full.
(h) Rubicon Acquisition. The Rubicon Acquisition shall have been
-------------------
consummated, or shall concurrently be consummated, substantially in compliance
with the Recommended Cash Offer by Goldman Sachs International on behalf of APW
Enclosure Systems Limited dated September 8, 1998.
(i) Payment of Fees. Evidence of payment by the Company of all
---------------
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, plus such additional amounts of Attorney Costs
as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to
be incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Company and
BofA), including any such costs, fees and expenses arising under or referenced
in Sections 2.13 and 11.4.
(j) Other Documents. Such other approvals, opinions, documents or
---------------
materials as the Administrative Agent or any Bank may request.
49
<PAGE>
V.2 Conditions to All Borrowings. The obligation of each Bank to make any
----------------------------
Committed Loan to be made by it and the obligation of any Bank to make any Bid
Loan as to which the Company has accepted the relevant Competitive Bid
(including its initial Loan) is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date:
(a) Notice of Borrowing. As to any Committed Loan, the
-------------------
Administrative Agent shall have received (with, in the case of the initial Loan
only, a copy for each Bank) a Notice of Borrowing.
(b) Continuation of Representations and Warranties. The
----------------------------------------------
representations and warranties in Article VI (excluding, except in the case of
the initial Loan hereunder, Sections 6.6 and 6.8) shall be true and correct on
and as of such Borrowing Date with the same effect as if made on and as of such
Borrowing Date.
(c) No Existing Default. No Default or Event of Default shall exist
-------------------
or shall result from such Borrowing.
Each Notice of Borrowing and Competitive Bid Request submitted by the Company
hereunder shall constitute a representation and warranty by the Company
hereunder, as of the date of each such notice or request and as of each
Borrowing Date that the conditions in Section 5.2 are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Banks to enter into this Agreement and to make Loans
hereunder, each Borrower represents and warrants to the Administrative Agent and
the Banks as follows:
VI.1 Organization, etc. Each of the Company and each Subsidiary is a
-----------------
corporation duly incorporated, validly existing and in good standing (or similar
concept under applicable state law) under the laws of the jurisdiction of its
incorporation. Each of the Company and each Subsidiary is duly qualified to do
business, and is in good standing, in all other jurisdictions where failure to
so qualify would have a Material Adverse Effect. Each of the Company and each
Subsidiary has all requisite corporate power to own or lease the properties used
in its business and to carry on its business as now being conducted. Each of the
Borrowers has full power and authority as proposed to be conducted, and to
execute and deliver this Agreement and the other Loan Documents and to engage in
the transactions contemplated by this Agreement.
VI.2 Authorization; No Conflict. The execution and delivery of this
--------------------------
Agreement, the borrowings hereunder, the execution and delivery of the other
Loan Documents, and the
50
<PAGE>
performance by each Borrower of its obligations under this Agreement and the
other Loan Documents to which it is a party are within each of the Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
have received all necessary governmental and regulatory approval, and do not and
will not contravene or conflict with, or result in the creation or imposition of
a lien under, any provision of law or of the charter or by-laws of such Borrower
or of any agreement, instrument, order or decree that is binding upon such
Borrower or any Subsidiary.
VI.3 Validity and Binding Nature. This Agreement and each other Loan
---------------------------
Document to which it is a party constitute the legal, valid, and binding
obligations of each Borrower enforceable against such Borrower in accordance
with their respective terms, except to the extent enforceability thereof is
limited by bankruptcy, insolvency or other laws relating to, or affecting the
enforcement of, creditors' rights in general, and by general principles of
equity.
VI.4 Financial Statements.
--------------------
(a) All balance sheets, all statements of earnings, stockholders'
equity and cash flow, and all other financial information which have been
furnished by or on behalf of the Subsidiary Borrower and the Company to the
Bank, including (i) the audited consolidated balance sheet at August 31, 1997
and the related audited consolidated statements of earnings, stock holders'
equity and cash flow, for the Fiscal Year then ended, of the Company and its
Subsidiaries, certified by Deloitte & Touche, LLP, (ii) the unaudited
consolidated balance sheet dated May 31, 1998 and the related unaudited
consolidated statements of earnings and cash flow, for the Fiscal Quarter then
ended, of the Company and its Subsidiaries, as appearing in the report of the
Company on Form 10-Q for such Fiscal Quarter filed by the Company with the U.S.
Securities and Exchange Commission, and (iii) the unaudited consolidated balance
sheet at May 31, 1998 and related consolidated statements of earnings and
shareholders equity of the Subsidiary Borrower and its Subsidiaries, have been
prepared in accordance with GAAP consistently applied, except where not
applicable thereto or as otherwise disclosed therein, throughout the periods
involved and present fairly (subject to normal year-end adjustments, if
applicable) the financial condition of the Company and its Subsidiaries or the
Subsidiary Borrower and Subsidiaries, as the case may be, as at the dates
thereof and the results of their operations for the periods then ended. The
Company and its Subsidiaries did not have as of such dates any material
contingent liability or liabilities for taxes, long-term leases or unusual
forward or long-term commitments which are not reflected in the financial
statements described above, and which, in accordance with GAAP, should have been
reflected in such financial statements.
(b) With respect to any representation and warranty which is deemed
to be made after the date hereof by the Subsidiary Borrower or the Company, the
balance sheet and statements of earnings, shareholders' equity and cash flow,
which as of such date shall most recently have been furnished by or on behalf of
the Subsidiary Borrower or the Company to the Banks for the purposes of or in
connection with this Agreement shall have been prepared in
51
<PAGE>
accordance with GAAP consistently applied (except as disclosed therein), and
shall present fairly the consolidated financial condition of the corporations
covered thereby as at the dates thereof for the periods then ended, subject, in
the case of quarterly financial statements, to normal year-end audit
adjustments.
(c) To the best of the Company's knowledge, all balance sheets, all
statements of earnings, stockholders' equity and cash flow, and all other
financial information furnished by or on behalf of Rubicon to the Administrative
Agent and the Banks, including (i) the audited consolidated balance sheet at May
31, 1998 and audited consolidated statements of earnings, stockholders' equity
and cash flow for the fiscal year then ended, of Rubicon and its Subsidiaries,
certified by PriceWaterhouseCoopers have been prepared in accordance with United
Kingdom generally accepted accounting principles consistently applied, except
where not applicable thereto or as otherwise disclosed therein, throughout the
period involved and present fairly the financial condition of Rubicon and its
Subsidiaries, as at the date thereof and the results of their operations for the
period then ended. To the best of the Company's knowledge, Rubicon and its
Subsidiaries did not have as of such date any material contingent liability or
liabilities for taxes, long-term leases or unusual forward or long-term
commitments which are not reflected in the financial statements described above,
and which, in accordance with United Kingdom generally accepted accounting
principles, should have been reflected in such financial statements.
(d) To the best of the Company's knowledge, all balance sheets, all
statements of earnings, stockholders' equity and cash flow, and all other
financial information furnished by or on behalf of VERO to the Administrative
Agent and the Banks, including the audited consolidated balance sheet at
December 31, 1997 and audited consolidated statements of earnings, stockholders'
equity and cash flow for the fiscal year then ended of VERO and its
Subsidiaries, certified by Ernst and Young, have been prepared in accordance
with United Kingdom generally accepted accounting principles consistently
applied, except where not applicable thereto or as otherwise disclosed therein,
throughout the period involved and present fairly the financial condition of
VERO and its Subsidiaries, as at the date thereof and the results of their
operations for the period then ended. To the best of the Company's knowledge,
VERO and its Subsidiaries did not have as of such date any material contingent
liability or liabilities for taxes, long-term leases or unusual forward or long-
term commitments which are not reflected in the financial statements described
above, and which, in accordance with United Kingdom generally accepted
accounting principles, should have been reflected in such financial statements.
(e) To the best of the Company's knowledge, all balance sheets, all
statements of earnings, stockholders' equity and cash flow, and all other
financial information furnished by or on behalf of Zero to the Administrative
Agent and the Banks, including (i) the audited consolidated balance sheet at
March 31, 1998 and audited consolidated statements of earnings, stockholders'
equity and cash flow for the fiscal year then ended and (ii) the unaudited
consolidated balance sheet dated June 30, 1998 and the related unaudited
consolidated statements of earnings, stockholders' equity and cash flow, for the
fiscal period then ended, of Zero and its
52
<PAGE>
Subsidiaries, certified in the case of the audited financial statements by
Deloitte & Touche, have been prepared in accordance with GAAP consistently
applied, except where not applicable thereto or as otherwise disclosed therein,
throughout the periods involved and present fairly the financial condition of
Zero and its Subsidiaries, as at the dates thereof and the results of their
operations for the periods then ended. To the best of the Company's knowledge,
Zero and its Subsidiaries did not have as of such dates any material contingent
liability or liabilities for taxes, long-term leases or unusual forward or long-
term commitments which are not reflected in the financial statements described
above, and which, in accordance with GAAP, should have been reflected in such
financial statements.
(f) Pro Forma Financial Statement. Preliminary balance sheet and pro
-----------------------------
forma financial statements of the Company and its Subsidiaries as of August 31,
1998, giving effect to the Vero Acquisition, the Zero Acquisition and the
Rubicon Acquisition, fairly present the financial condition of the Company and
its Subsidiaries as of the date thereof.
VI.5 No Material Adverse Effect. No event has occurred or condition has
--------------------------
arisen that has had or is reasonably likely to have a Material Adverse Effect
since August 31, 1997 with respect to the Company and its Subsidiaries, and, to
the best of the Company's knowledge, since December 31, 1997 with respect to
VERO and its Subsidiaries, since March 31, 1998 with respect to Zero and its
Subsidiaries and, to the best of the Company's knowledge, since May 31, 1998
with respect to Rubicon and its Subsidiaries.
VI.6 Litigation and Contingent Liabilities. To the best of each Borrower's
-------------------------------------
knowledge, no litigation (including, without limitation, derivative actions),
arbitration proceedings or governmental or regulatory proceedings are pending or
threatened against the Company or any Subsidiary that would, if adversely
determined, be reasonably likely to have a Material Adverse Effect, except as
set forth in Item 6.6 of the Disclosure Schedule. Other than any liability
incident to such litigation or proceedings, neither the Company nor any
Subsidiary has any contingent liabilities, except as provided for or disclosed
in the financial statements referred to in Section 6.4, which would if adversely
determined be reasonably likely to have a Material Adverse Effect.
VI.7 Liens. None of the assets of the Company or any Subsidiary is subject
-----
to any Lien, except as permitted by Section 7.9.
VI.8 Subsidiaries. Item 6.8 of the Disclosure Schedule correctly sets
------------
forth the corporate name, jurisdiction of incorporation and ownership of each
Subsidiary of the Company. Such Subsidiaries and each corporation becoming a
Subsidiary of the Company after the date hereof is and will be a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and each Subsidiary of the Company is and will be
duly qualified to do business in each other jurisdiction where failure to so
qualify would have a Material Adverse Effect.
53
<PAGE>
VI.9 Pension and Welfare Plans. During the twelve-consecutive-month period
-------------------------
prior to the date of the execution and delivery of this Agreement or the making
of any Loan hereunder, no steps have been taken to terminate any Pension Plan,
and no contribution failure has occurred with respect to any Pension Plan
sufficient to give rise to a lien under Section 302(f) of ERISA. No condition
exists or event or transaction has occurred with respect to any Pension Plan
which could result in the incurrence by the Borrowers of any material liability,
fine or penalty. Except as disclosed in footnote K of the Company's 1997 annual
report, neither the Borrowers nor any of the Subsidiaries have any contingent
liability with respect to any post-retirement benefit under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of subtitle B
of title I of ERISA.
VI.10 Regulated Industry. Neither the Company nor any Subsidiary is (a) an
------------------
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended, or (b) 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.
VI.11 Regulations U and X. Neither the Company nor any Subsidiary is
-------------------
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Loan will be used for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any Margin Stock or maintaining or
extending credit to others for such purpose.
VI.12 Taxes. Each of the Company and each Subsidiary has filed all federal
-----
and all other material tax returns and reports required by law to have been
filed by it and has paid all taxes and governmental charges thereby shown to be
owing, except any such taxes or charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves shall have
been set aside on its books.
VI.13 Environmental and Safety Matters. The Company and each Subsidiary is
--------------------------------
in substantial compliance with all federal, state and local laws, ordinances and
regulations relating to safety and industrial hygiene or to environmental
condition, including, without limitation, all Environmental Laws in
jurisdictions in which the Company or any Subsidiary owns or operates, or has
owned or operated, a facility or site, or arranges or has arranged for disposal
or treatment of Hazardous Material, accepts or has accepted for transport any
Hazardous Material or holds or has held any interest in real property or
otherwise, except as disclosed on Item 6.13 of the Disclosure Schedule. No
demand, claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry, whether brought by any governmental authority, private
person or entity or otherwise, arising under, relating to or in connection with
any Environmental Laws is pending or, to the best of the Borrowers' knowledge,
after due investigation, threatened against the
54
<PAGE>
Company or any of its Subsidiaries, any real property in which the Company or
any such Subsidiary holds or has held an interest or any past or present
operation of the Company or any Subsidiary, except as disclosed on Item 6.13 of
the Disclosure Schedule. Neither the Company nor any of its Subsidiaries (i) is,
to the best of the Borrower's knowledge, after due investigation, the subject of
any federal or state investigation evaluating whether any remedial action is
needed to respond to a Release of any Hazardous Material into the environment,
(ii) has received any notice of any Hazardous Material in or upon any of its
properties in violation of any Environmental Laws, or (iii) knows of any basis
for any such investigation, notice or violation, except as disclosed on Item
6.13 of the Disclosure Schedule. No Release, threatened Release or disposal of
Hazardous Material is occurring or has occurred on, under or to any real
property in which the Company or any of its Subsidiaries holds any interest or
performs any of its operations in violation of any Environmental Law except as
disclosed on Item 6.13 of the Disclosure Schedule. None of the matters disclosed
on such Schedule has had or is reasonably likely to have a Material Adverse
Effect.
VI.14 Compliance with Law. Except as otherwise disclosed in the Disclosure
-------------------
Schedule, each of the Company and each Subsidiary is in compliance with all
statutes, judicial and administrative orders, permits and governmental rules and
regulations which are material to its business or the non-compliance with which
has had or is reasonably likely to have a Material Adverse Effect.
VI.15 Information. All information heretofore or contemporaneously herewith
-----------
furnished by the Borrowers or any Subsidiary to any Bank for purposes of or in
connection with this Agreement and the transactions contemplated hereby is, and
all information hereafter furnished by or on behalf of the Borrower or any
Subsidiary to any Bank pursuant hereto or in connection herewith will be, true
and accurate in every material respect on the date as of which such information
is dated or certified, and such information, taken as a whole, does not and will
not omit to state any material fact necessary to make such information, taken as
a whole, not misleading.
VI.16 Ownership of Shares. Not less than ninety-nine percent (99%) of the
-------------------
issued and outstanding shares of capital stock of the Subsidiary Borrower are
directly or indirectly owned by the Company.
VI.17 Ownership of Properties. Each of the Company and each Subsidiary owns
-----------------------
good and marketable title to or holds valid leasehold interests in all of its
material properties and assets, real and personal, of any nature whatsoever,
free and clear of all Liens except as permitted pursuant to Section 7.9 and none
of them are in default beyond the expiration of any applicable grace period of
any material obligation under any leases creating any of their leasehold
interests in real property, and none of such property is subject to any Lien
except as permitted pursuant to Section 7.9.
55
<PAGE>
VI.18 Patents, Trademarks, etc. Each of the Company and each Subsidiary
-------------------------
owns or licenses and possesses all such patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights and copyrights as the Company considers necessary for the conduct of the
businesses of the Company and such Subsidiaries as now conducted without,
individually or in the aggregate, any infringement upon rights of other persons
which would be reasonably likely to have a Material Adverse Effect.
VI.19 Insurance. The Company and its Subsidiaries maintain with responsible
---------
insurance companies insurance (including insurance against claims and
liabilities arising out of the manufacture or distribution of any products) with
respect to their properties and businesses against such casualties and
contingencies and of such types and in such amounts as is customary in the case
of similar businesses, except as may be disclosed in Item 6.19 of the Disclosure
Schedule.
VI.20 Solvency. Each of the Borrowers is Solvent.
--------
VI.21 Year 2000 Issues. The Company and its Subsidiaries have developed and
----------------
implemented a program to address on a timely basis the "Year 2000 Problem" (that
is the risk that computer applications used by the Company or its Subsidiaries
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior and any date after December 31, 1999) and
reasonably anticipates that the cost to the Company and its Subsidiaries of
resolving the Year 2000 Problem and the reasonably foreseeable consequences of
the Year 2000 Problem to the Company and its Subsidiaries, will not result in a
Material Adverse Effect.
VI.22 Rubicon. To the best of the Company's knowledge, the representations
and warranties set forth in Sections 6.6 through 6.15, Sections 6.17 through
------------ ---- -------------
6.19 and 6.21 are true and correct as if Rubicon were a Subsidiary of the
- ---- ----
Company.
ARTICLE VII
COVENANTS
---------
Until the expiration or termination of the Commitments, and thereafter
until all obligations of the Borrowers hereunder are paid in full, each Borrower
agrees that, unless at any time the Required Banks shall otherwise expressly
consent in writing, it will:
VII.1 Reports, Certificates and Other Information. Furnish to the
-------------------------------------------
Administrative Agent and each Bank:
(a) Audit Report. Promptly when available and in any event within
------------
90 days after the close of each Fiscal Year,
56
<PAGE>
(i) in the case of the Company a copy of the annual audit report of
the Company and its Subsidiaries for such Fiscal Year, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such Fiscal Year and consolidated statements of earnings and cash
flow of the Company and its Subsidiaries for such Fiscal Year certified,
without qualification as to going concern or scope, by independent auditors
of recognized national standing selected by the Company and reasonably
acceptable to the Required Banks, (ii) in the case of the Subsidiary
Borrower, unaudited consolidated balance sheet at the close of such Fiscal
Year and related consolidated statements of earnings and shareholders
equity for such Fiscal Year, of the Subsidiary Borrower and its
Subsidiaries certified by the chief financial officer or the Treasurer of
the Subsidiary Borrower, and (iii) in the case of the Company, an unaudited
consolidating balance sheet and statements of earnings and cash flow of
such Fiscal Year, with comparable information at the close of and for the
prior Fiscal Year.
(b) Interim Reports. Promptly when available and in any event within
---------------
60 days after the end of each Fiscal Quarter (except the last Fiscal Quarter of
each Fiscal Year), consolidated balance sheets of the Company and its
Subsidiaries and the Subsidiary Borrower and its Subsidiaries as of the end of
such Fiscal Quarter, consolidated statements of earnings and (only in the case
of the Company) a consolidated statement of cash flow for such Fiscal Quarter
and for the period beginning with the first day of such Fiscal Year and ending
on the last day of such Fiscal Quarter of the Company or the Subsidiary
Borrower, as the case may be, and its respective Subsidiaries, with comparable
information at the close of and for the corresponding Fiscal Quarter of the
prior Fiscal Year and for the corresponding portion of such prior Fiscal Year,
together with a certificate of the chief financial officer or the Treasurer of
the Company or the Subsidiary Borrower, as the case may be, to the effect that
such financial statements fairly present the financial condition and results of
operations of the Company and its Subsidiaries as of the date and periods
indicated (subject to normal year-end adjustments).
(c) Compliance Certificate. Concurrently with each set of financial
----------------------
statements delivered pursuant to Section 7.1(a) and 7.1(b), a Compliance
Certificate executed by the chief financial officer or the Treasurer of the
Company.
(d) Reports to SEC. Promptly upon the filing or sending thereof, a
--------------
copy of any annual, periodic or special report or registration statement
(inclusive of exhibits thereto) filed by the Company or any Subsidiary with the
SEC or any securities exchange.
(e) Notice of Default, Year 2000 Litigation and ERISA Matters.
---------------------------------------------------------
Immediately upon becoming aware of any of the following, written notice
describing the same and the steps being taken by the Company or the Subsidiary
affected thereby with respect thereto: (i) the occurrence of an Event of
Default or a Default; (ii) any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by the Company to the Banks
which has been instituted or, to the knowledge of the Company, is threatened
against the Company or any
57
<PAGE>
Subsidiary or to which any of the properties of any thereof is subject which, if
adversely determined, is reasonably likely to have a Material Adverse Effect;
(iii) any event which would cause the Year 2000 Problem not to be resolved on a
timely basis; (iv) the institution of any steps by the Company, any of its
Subsidiaries or any other Person to terminate any Pension Plan, or the failure
to make a required contribution to any Pension Plan if such failure is
sufficient to give rise to a lien under Section 302(f) of ERISA, or the taking
of any action with respect to a Pension Plan which could result in the
requirement that the Company furnish a bond or other security to the PBGC or
such Pension Plan, or the occurrence of any event with respect to any Pension
Plan which could result in the incurrence by the Company of any material
liability, fine or penalty, or any material increase in the contingent liability
of the Company with respect to any post-retirement Welfare Plan benefit; and (v)
any other event or occurrence which has had or is reasonably likely to have a
Material Adverse Effect.
(f) Loan Note Guaranty Obligations. Promptly upon any payment on the
------------------------------
Loan Notes or the setting of any interest rate with respect thereto, a
certificate as to the amount of such payment and such rate and the then amount
of the Loan Note Guaranty Obligations.
(g) Other Information. From time to time such other information
-----------------
concerning the Company and its Subsidiaries as any Bank or the Administrative
Agent may reasonably request.
VII.2 Books, Records and Inspections. Keep, and cause each Subsidiary to
------------------------------
keep, its books and records reflecting all of its business affairs and
transactions in accordance with sound business practices sufficient to allow the
preparation of financial statements in accordance with GAAP; and permit, and
cause each Subsidiary to permit, any Bank or the Administrative Agent or any
representative thereof, at reasonable times and on reasonable notice, to visit
any or all of its offices, to discuss its financial matters with its officers
and its independent auditors (and the Company hereby authorizes such independent
auditors to discuss such financial matters with any Bank or the Administrative
Agent or any representative thereof), and to examine (and, at the Company's or
such Subsidiary's expense, make copies of) any of its books or other corporate
records.
VII.3 Insurance. Maintain, and cause each Subsidiary to maintain, with
---------
responsible and financially-sound insurance companies or associations, insurance
in such amounts and covering such risks as is usually maintained by companies
engaged in similar businesses and owning similar properties similarly situated,
except as disclosed in Item 6.19 of the Disclosure Schedule.
VII.4 Compliance with Law; Payment of Taxes and Liabilities. (a) Comply,
-----------------------------------------------------
and cause each Subsidiary to comply, in all material respects with all
applicable laws, rules, regulations and orders; and (b) pay, and cause each
Subsidiary to pay, prior to delinquency, all taxes and other governmental
charges against it or any of its property, provided, however, that the foregoing
-------- -------
shall not require the Company or any Subsidiary to pay any such tax or charge so
long as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its
58
<PAGE>
books adequate reserves with respect thereto.
VII.5 Maintenance of Existence, etc. Maintain and preserve, and (subject to
------------------------------
Section 7.7) cause each Subsidiary to maintain and preserve, (a) its existence
and good standing in the jurisdiction of its organization and (b) its foreign
qualification in each other jurisdiction where the nature of its business makes
such qualification necessary (except in those instances in which the failure to
be qualified or in good standing will not have a Material Adverse Effect).
VII.6 Financial Ratios and Restrictions.
---------------------------------
(a) Minimum Shareholders Equity. Not permit at any time Shareholders
---------------------------
Equity for any Borrower to be less than $1.
(b) Fixed Charge Coverage Ratio. Not permit the Fixed Charge
---------------------------
Coverage Ratio of the Company and its Subsidiaries to be less than 1.75 to 1.0.
(c) Debt to EBITDA Ratio. Not permit the Debt to EBITDA Ratio of the
--------------------
Company and its Subsidiaries to exceed 4.25 to 1.0 at any time through February
28, 1999, 4.00 to 1.0 at any time thereafter through August 31, 1999, 3.75 to
1.0 at any time thereafter through February 29, 2000, 3.50 to 1.0 at any time
thereafter through August 31, 2000 or 3.25 to 1.0 at any time thereafter.
VII.7 Mergers, Consolidations and Purchases. Not, and not permit any
-------------------------------------
Subsidiary to, be a party to any merger or consolidation, or purchase or
otherwise acquire all or a substantial portion of the business or, assets of, or
any stock of any class of, or any partnership or joint venture interest in, any
other Person, except for:
(a) The Rubicon Acquisition;
(b) any such merger or consolidation, by any Subsidiary into or with
the Company or into or with any wholly-owned Subsidiary;
(c) any such purchase or other acquisition by the Company or a
Subsidiary Borrower of the assets or stock of any wholly-owned Subsidiary;
or
(d) any acquisition if (i) (A) such acquisition is an acquisition of
assets, or (B) such acquisition is by merger and the Company or a wholly-
owned Subsidiary is the surviving corporation, or (C) after such
acquisition the Company (if it is the acquiring entity) or a Subsidiary
owns (x) at least a majority of the securities of each class having
ordinary voting power of, or a majority of the ownership interest in, the
acquired Person which acquisition is approved by the board of directors of
the acquired entity or (y) more than 10% but less than a majority of the
securities of each class having ordinary voting power of, or more than 10%
but less than a majority of the ownership interest in, the
59
<PAGE>
acquired Person and, immediately after giving effect to any acquisition
described in this subclause (y), the aggregate book value of all such
-------------
minority Investments in the equity securities or other ownership interests
of other Persons by the Company and its Subsidiaries does not exceed 10% of
the Tangible Net Assets of the Company and its Subsidiaries, (ii) no Event
of Default or Default exists or would result therefrom, (iii) the Company
would be in compliance on a proforma basis, giving effect to such
acquisition, with all covenants in this Agreement; (iv) prior to the
consummation of such acquisition, the Company provides to each Bank notice
of such acquisition and, if the purchase price of such acquisition is
$25,000,000 or more, a certificate of the chief financial officer or the
treasurer of the Company (attaching computations to demonstrate compliance
with all financial covenants hereunder) stating that such acquisition
complies with this Section 7.7 and that any other conditions under this
Agreement relating to such acquisition have been satisfied and (v) if the
acquisition occurs prior to September 1, 1999 and has a purchase price of
$75,000,000 or more and if after giving effect thereto the Debt to EBITDA
Ratio on a pro forma basis would exceed 3.0 to 1.0, the Required Banks
shall have consented to such acquisition.
VII.8 Commercial Paper Lines. Not, and not permit any of its Subsidiaries
----------------------
to, create, incur, assume or suffer to exist or otherwise become or be liable in
respect of any Debt with respect to unsecured commercial paper except to the
extent the Company or such Subsidiary has unused unsecured lines of credit or
other availability backing up such commercial paper.
VII.9 Liens. Not, and not permit any Subsidiary to, create or permit to
-----
exist any Lien on any of its real or personal properties, assets or rights of
whatsoever nature, whether now owned or hereafter acquired, except (a) Liens for
taxes or other governmental charges not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and, in each case, for which it maintains adequate reserves; (b)
Liens arising in the ordinary course of business (such as (i) Liens of carriers,
warehousemen, mechanics and materialmen and other similar Liens imposed by law
and (ii) Liens incurred in connection with worker's compensation, unemployment
compensation and other types of social security (excluding Liens arising under
ERISA) or in connection with surety and appeal bonds, bids, performance bonds
and similar obligations) for sums not overdue or being contested in good faith
by appropriate proceedings and not involving any deposits or advances or
borrowed money or the deferred purchase price of property or services, and, in
each case, for which it maintains adequate reserves; (c) Liens identified on
Item 7.9 of the Disclosure Schedule; (d) Liens in connection with Capital Leases
- --------
(in amounts not in excess of $5,000,000); (e) any Lien arising in connection
with the acquisition of fixed assets (whether real or personal property) (other
than an acquisition described in clause (i) of this Section) after the date
hereof, and attaching only to the property being acquired, provided that the
principal amount of the Debt secured by each such Lien shall not exceed the
purchase price of the applicable fixed asset and the aggregate amount of all
Debt secured by such Liens shall not at any time exceed $5,000,000; (f)
attachments, judgments and other similar Liens, for sums not exceeding
$2,000,000, arising in connection
60
<PAGE>
with court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings; (g) other Liens
incidental to the conduct of the business of the Company or a Subsidiary or the
ownership of its property or assets, including easements, rights of way,
restrictions, minor defects or irregularities in title and other similar Liens,
which Liens were not incurred in connection with the borrowing of money and do
not, in any case or in the aggregate, interfere in any material respect with the
ordinary conduct of the business of the Company or any Subsidiary; (h) building
restrictions, zoning laws and other statutes, laws, rules, regulations,
ordinances and restrictions, and any amendments thereto, now or at any time
hereafter adopted by any governmental authority having jurisdiction; (i) any
Lien existing on any asset of any corporation which becomes a Subsidiary of the
Company after the date hereof, which Lien was not created in contemplation of
such event, provided that (x) Liens on current assets of such corporation shall
--------
be discharged within 120 days after such corporation becomes a Subsidiary of the
Company and (y) the aggregate amount of Debt secured by all such Liens does not
at any time exceed $10,000,000; (j) Cash Collateral pursuant to the Loan
Documents; and (k) other Liens securing obligations not at any time exceeding
$20,000,000.
VII.10 Use of Proceeds. Use the proceeds of the Loans to repay its Debt
---------------
under the Bridge Credit Agreement (if any) and the Existing Credit Agreement and
to provide for working capital, capital expenditures and for other general
corporate purposes including the Rubicon Acquisition; and not use or permit any
proceeds of any Loan to be used, either directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of (a) "purchasing or carrying" any
Margin Stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended from time to time, or (b) purchasing or
otherwise acquiring any stock of any Person if such Person (or its board of
directors) has (i) announced that it will oppose such purchase or other
acquisition or (ii) commenced any litigation which alleges that such purchase or
other acquisition violates, or will violate, any applicable law.
VII.11 Maintenance of Property. Maintain, and cause each Subsidiary to
-----------------------
maintain, its properties which are material to the conduct of its business in
good working order and condition (ordinary wear and tear excepted ).
VII.12 Employee Benefit Plans. Maintain, and cause each Subsidiary to
----------------------
maintain, each Pension Plan in compliance in all material respects with all
applicable Requirements of Law and regulations.
VII.13 Business Activities. Not make any substantial change in the nature
-------------------
of the business of the Company and its Subsidiaries, taken as a whole, from that
engaged in on the date of this Agreement.
VII.14 Environmental Matters.
---------------------
61
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(a) Environmental Obligations. (i) Comply, and cause each Subsidiary
-------------------------
to comply, in a reasonable manner with any applicable Federal or state judicial
or administrative order requiring the performance at any real property owned,
operated, or leased by the Company or any Subsidiary of activities in response
to any Release or threatened Release of any Hazardous Material, except for the
period of time that the Company or such Subsidiary is diligently in good faith
contesting such order; (ii) use and operate, and cause each Subsidiary to use
and operate, all of its facilities and properties in material compliance with
all Environmental Laws; (iii) keep, and cause each Subsidiary to keep, all
necessary permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material compliance
therewith; (iv) handle, and cause each Subsidiary to handle, all Hazardous
Materials in material compliance with all applicable Environmental Laws; and (v)
not, and not permit any Subsidiary to, commence disposal of any Hazardous
Material into or onto any real property owned, operated or leased by the Company
or any Subsidiary nor allow any Lien imposed pursuant to any Environmental Law
to attach to any such real property.
(b) Environmental Information. Within 60 days of receipt thereof,
-------------------------
notify the Administrative Agent of the receipt by the Company or any Subsidiary
of any written claim, demand, proceeding, action or notice of liability by any
Person arising out of or relating to the Release or threatened Release of any
Hazardous Material, except for any release or threatened release with respect to
which the maximum liability of the Company and its Subsidiaries is reasonably
expected to be less than $1,000,000; and within 60 days of any Release,
threatened Release, or disposal of any Hazardous Material reported to any
governmental regulatory authority at any real property owned, operated or leased
by the Company or any Subsidiary notify the Administrative Agent of such
release, threat of release or disposal, except for any release, threat of
release or disposal with respect to which the maximum liability of the Company
and its Subsidiaries is reasonably expected to be less than $1,000,000.
VII.15 Unconditional Purchase Obligations. Not, and not permit any
----------------------------------
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.
VII.16 Inconsistent Agreements. Not, and not permit any Subsidiary to,
-----------------------
enter into any agreement containing any provision which would be violated or
breached by any borrowing by a Borrower hereunder or by the performance by the
Company or any Subsidiary of any of its obligations hereunder.
VII.17 Transactions with Affiliates. Not, and not permit any Subsidiary to,
----------------------------
enter into or permit to exist any transaction, arrangement or contract with any
of its Affiliates (other than the Company or any wholly-owned Subsidiary) or any
officer or director of the Company or any Affiliate which is on terms less
favorable than would be available from a Person which is not an Affiliate.
Nothing in this Section 7.17 shall prohibit any transaction expressly permitted
by
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Section 7.7 or Section 7.21.
VII.18 The Company's and Subsidiaries' Stock. The Company will not, nor
-------------------------------------
will it permit any of its Subsidiaries to, purchase or otherwise acquire any
shares of capital stock of the Company; and, except pursuant to transactions
permitted by Section 7.7 not take any action, or permit any of its Subsidiaries
to take any action, which will, so long as any shares of capital stock or
indebtedness of any corporation which is a Subsidiary at the date of this
Agreement are owned by the Company or any Subsidiary, result in a decrease in
the percentage of the outstanding shares in capital stock of such corporation
owned at the date of this Agreement by the Company and Subsidiaries.
VII.19 Negative Pledges; Subsidiary Payments. The Company will not, nor
-------------------------------------
will it permit any Subsidiary to, enter into any agreement (excluding this
Agreement) (a) prohibiting the creation or assumption of any Lien upon their
respective properties, revenues, or assets, whether now owned or hereafter
acquired; (b) which would restrict the ability of any Subsidiary to pay or make
dividends or distributions in cash or kind, to make loans, advances or other
payments of whatsoever nature, or to make transfers or distributions of all or
any part of its assets, in each case to the Company or to any corporation as to
which such Subsidiary is a Subsidiary; or (c) which would require the consent or
waiver of any third party to any amendment to this Agreement or any other Loan
Document.
VII.20 Limitation on Subsidiary Debt. The Company shall not permit the
-----------------------------
Subsidiaries to create, incur, assume, suffer to exist, or otherwise become or
remain directly or indirectly liable with respect to, any Debt (other than Debt
of the Subsidiary Borrower under this Agreement, Debt of a Subsidiary to the
Company or private placement debt of Zero not in excess of $50,000,000) in
excess at any time outstanding of 17% of the net worth of the Company and the
Subsidiaries on a consolidated basis.
VII.21 Sales of Assets. The Company shall not, and shall not permit any
---------------
Subsidiary to, except in the ordinary course of its business, sell, transfer,
convey or lease all or a substantial part of its assets, or sell or assign with
or without recourse any receivables, except for:
(a) any such sale, transfer, conveyance, lease or assignment of or
by any Subsidiary to the Company or to any wholly-owned Subsidiary; or
(b) so long as no Event of Default or Default exists or would result
therefrom, (i) the Permitted Receivables Securitization, (ii) any sale,
transfer, conveyance or lease within 18 months after the Zero Acquisition
of any assets acquired in the Zero Acquisition so long as the aggregate
thereof shall not exceed $30,000,000 and (iii) any sale, transfer,
conveyance or lease of any other asset provided that the aggregate book
value (disregarding any write-downs of such book value other than ordinary
depreciation and amortization) of all assets disposed of pursuant to this
clause (b)(iii) in any Fiscal
---------------
63
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Year do not exceed 8% of Tangible Net Assets (measured as of the last day
of the most recently ended Fiscal Year).
VII.22 EBITDA. The Company shall deliver to the Administrative Agent
------
within 30 days after the date hereof a calculation of EBITDA for the Fiscal
Quarters ended November 30, 1997, February 28, 1998, May 31, 1998, August 31,
1998, calculated on a pro forma basis, as if the Vero Acquisition, the Zero
Acquisition and the Rubicon Acquisition had taken place on September 1, 1997.
ARTICLE VIII
EVENTS OF DEFAULT AND THEIR EFFECT
----------------------------------
VIII.1 Events of Default. Each of the following shall constitute an Event
-----------------
of Default under this Agreement:
(a) Non-Payment of Loans, etc. Default in the payment when due of
-------------------------
the principal of any Loan; or default, and continuance thereof for five Business
Days, in the payment when due of any interest on any Loan or any fees or other
amounts payable by the Borrowers hereunder or with respect to the Loan Note
Guaranty Obligations.
(b) Non-Payment of Other Indebtedness for Borrowed Money. Default
----------------------------------------------------
in the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any other Debt of, or guaranteed by, the Company
or any Subsidiary in excess in the aggregate of $2,000,000; or default in the
performance or observance of any obligation or condition with respect to any
such other indebtedness in excess in the aggregate of $2,000,000 if the effect
of such default is to accelerate the maturity of any such indebtedness or to
permit the holder or holders thereof, or any trustee or agent for such holders,
to cause such indebtedness to become due and payable prior to its expressed
maturity.
(c) Warranties. Any representation or warranty made by either
----------
Borrower herein or in any Loan Document is breached, or is false or misleading,
in any material respect, or any schedule, certificate, financial statement,
report, notice or other writing furnished by the Borrowers to the Administrative
Agent or any Bank is false or misleading in any material respect on the date as
of which the facts therein set forth are stated or certified.
(d) Bankruptcy, Insolvency, etc. The Company or any Subsidiary
---------------------------
becomes insolvent (it being understood that a Subsidiary shall not be deemed to
be insolvent solely because it has negative net worth) or generally fails to
pay, or admits in writing its inability to pay, debts as they become due; or the
Company or any Subsidiary applies for, consents to or acquiesces in the
appointment of a trustee, receiver or other custodian for the Company or such
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Subsidiary or any property thereof, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for the
Company or any Subsidiary or for a substantial part of its property and is not
discharged within 30 days; or any bankruptcy, reorganization, debt arrangement
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding (except the voluntary dissolution, not
under any bankruptcy or insolvency law, of a Subsidiary), is commenced in
respect of the Company or any Subsidiary, and, if such case or proceeding is not
commenced by the Company or such Subsidiary, it is consented to or acquiesced in
by the Company or such Subsidiary or remains for 30 days undismissed or an order
for relief is entered in any such involuntary bankruptcy; or the Company or any
Subsidiary takes any corporate action to authorize, or in furtherance of, any of
the foregoing.
(e) Non-Compliance with Certain Covenants. Failure by the Borrowers
-------------------------------------
to comply with or to perform any provision of Section 7.6 through 7.10, 7.16,
7.18, 7.19, 7.20 or 7.21.
(f) Non-Compliance with Other Provisions of this Agreement. Failure
------------------------------------------------------
by the Borrowers to comply with or to perform any provision of this Agreement or
any other Loan Document (if such failure does not constitute an Event of Default
under any of the other provisions of this Section 8.1), and continuance of such
failure for 30 days after notice thereof to the Company from the Administrative
Agent or any Bank.
(g) Pension Plans. (i) Institution of any steps by the Company or
-------------
any other Person to terminate a Pension Plan if as a result of such termination
the Company or any Subsidiary could be required to make a contribution to such
Pension Plan, or could incur a liability or obligation to such Pension Plan, in
excess of $1,000,000, or (ii) a contribution failure occurs with respect to any
Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA.
(h) Judgments. Final judgments which exceed an aggregate of
---------
$2,000,000 (excluding any portion thereof which is covered by insurance
maintained with a responsible insurance company which has accepted a tender of
defense and indemnification without reservation of rights) shall be rendered
against the Company or any Subsidiary and shall not have been discharged or
vacated or had execution thereof stayed pending appeal within 30 days after
entry or filing of such judgments.
(i) Change of Control. An Impermissible Change of Control shall
-----------------
occur.
(j) Material Adverse Effect. Any event shall occur which, in the
-----------------------
opinion of the Required Banks, has had or is reasonably likely to have a
Material Adverse Effect.
(k) Guaranty. The obligations of the Company under Article X shall
--------
cease to be
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in full force and effect or the Company shall contest in any manner the
validity, binding nature or enforceability of Article X, other than in respect
of the full and indefeasible payment of the Obligations and the termination of
the Commitments.
VIII.2 Effect of Event of Default. If any Event of Default described in
--------------------------
Section 8.1(d) shall occur, the Commitments (if they have not theretofore
terminated) shall immediately terminate and all Loans and all interest and other
amounts due hereunder shall become immediately due and payable, all without
presentment, demand or notice of any kind (all of which are hereby expressly
waived by the Borrowers); and, in the case of any other Event of Default, the
Administrative Agent may with the consent of the Required Banks, and shall upon
written request of the Required Banks, declare the Commitments (if they have not
theretofore terminated) to be terminated and/or all Loans and all interest and
other amounts due hereunder to be due and payable, whereupon the Commitments (if
they have not theretofore terminated) shall immediately terminate and/or all
Loans and all interest and other amounts due hereunder shall become immediately
due and payable, all without presentment, demand or notice of any kind (all of
which are hereby expressly waived by the Borrowers). The Administrative Agent
shall promptly advise the Borrowers and each Bank of any such declaration, but
failure to do so shall not impair the effect of such declaration.
Notwithstanding the foregoing, the effect as an Event of Default of any event
described in Section 8.1(a) or Section 8.1(d) may be waived by the written
concurrence of all of the Banks, and the effect as an Event of Default of any
other event described in Section 8.1 may be waived by the written concurrence of
the Required Banks.
ARTICLE IX
THE ADMINISTRATIVE AGENT
------------------------
IX.1 Appointment and Authorization; Administrative Agent. Each Bank hereby
---------------------------------------------------
irrevocably (subject to Section 9.9) appoints, designates and authorizes the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Administrative Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Administrative Agent. Without limiting the generality of the foregoing sentence,
the use of the term "agent" in this Agreement with reference to the
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
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IX.2 Delegation of Duties. The Administrative Agent may execute any of its
--------------------
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agent or attorney-in-
fact that it selects with reasonable care.
IX.3 Liability of Administrative Agent. None of the Administrative Agent-
---------------------------------
Related Persons shall (i) be liable for any action taken or omitted to be taken
by any of them under or in connection with this Agreement or any other Loan
Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of the Banks for any recital, statement, representation or warranty made by the
Company or any Subsidiary or Affiliate of the Company, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of the Borrowers or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Administrative
Agent-Related Person shall be under any obligation to any Bank to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
IX.4 Reliance by Administrative Agent.
--------------------------------
(a) The Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Required Banks and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all of the Banks.
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(b) For purposes of determining compliance with the conditions
specified in Section 5.1, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Administrative Agent to such Bank
for consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to the Bank.
IX.5 Notice of Default. The Administrative Agent shall not be deemed to
-----------------
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Administrative Agent for the account of the Banks,
unless the Administrative Agent shall have received written notice from a Bank
or the Company referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". The
Administrative Agent will notify the Banks of its receipt of any such notice.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as may be requested by the Required Banks in accordance with
Article VIII; provided, however, that unless and until the Administrative Agent
-------- -------
has received any such request, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable or in the best
interest of the Banks.
IX.6 Credit Decision. Each Bank acknowledges that none of the
---------------
Administrative Agent-Related Persons has made any representation or warranty to
it, and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Company and its Subsidiaries, shall be deemed to
constitute any representation or warranty by any Administrative Agent-Related
Person to any Bank. Each Bank represents to the Administrative Agent that it
has, independently and without reliance upon any Administrative Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Borrowers hereunder. Each Bank also
represents that it will, independently and without reliance upon any
Administrative Agent-Related Person and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigations as it
deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrowers.
Except for notices, reports and other documents expressly herein required to be
furnished to the Banks by the Administrative Agent, the Administrative Agent
shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Borrowers which may
come into the possession of any of the Agent-Related Persons.
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<PAGE>
IX.7 Indemnification of Administrative Agent. Whether or not the
---------------------------------------
transactions contemplated hereby are consummated, the Banks shall indemnify upon
demand the Administrative Agent-Related Persons (to the extent not reimbursed by
or on behalf of the Borrowers and without limiting the obligation of the
Borrowers to do so), pro rata, from and against any and all Indemnified
Liabilities; provided, however, that no Bank shall be liable for the payment to
-------- -------
the Administrative Agent-Related Persons of any portion of such Indemnified
Liabilities resulting from such Person's gross negligence or willful misconduct.
Without limitation of the foregoing, each Bank shall reimburse the
Administrative Agent upon demand for its ratable share of any costs or out-of-
pocket expenses (including Attorney Costs) incurred by the Administrative Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Administrative
Agent is not reimbursed for such expenses by or on behalf of the Borrowers. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Administrative Agent.
IX.8 BofA in Individual Capacity. BofA and its Affiliates may make loans
---------------------------
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Administrative Agent
hereunder and without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, BofA or its Affiliates may receive
information regarding the Company or its Affiliates (including information that
may be subject to confidentiality obligations in favor of the Company or such
Subsidiary) and acknowledge that neither BofA nor the Administrative Agent shall
be under any obligation to provide such information to them. With respect to its
Loans, BofA shall have the same rights and powers under this Agreement as any
other Bank and may exercise the same as though BofA were not the Administrative
Agent.
IX.9 Successor Administrative Agent. The Administrative Agent may, and at
------------------------------
the request of the Required Banks shall, resign as Administrative Agent upon 30
days' notice to the Banks. If the Administrative Agent resigns under this
Agreement, the Required Banks shall appoint from among the Banks a successor
agent for the Banks. If no successor agent is appointed prior to the effective
date of the resignation of the Administrative Agent, the Administrative Agent
may appoint, after consulting with the Banks and the Company, a successor agent
from among the Banks. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor agent and the retiring Administrative Agent's
appointment, powers and duties as Administrative Agent shall be terminated.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article VIII and Sections 9.4 and
9.5 shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent under this Agreement. If no
69
<PAGE>
successor agent has accepted appointment as Administrative Agent by the date
which is 30 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the Banks shall perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Banks
appoint a successor agent as provided for above.
IX.10 Withholding Tax.
---------------
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Administrative Agent, to deliver to the
Administrative Agent:
(i) if such Bank claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, two properly
completed and executed copies of IRS Forms 1001 before the payment of any
interest in the first calendar year and before the payment of any interest
in each third succeeding calendar year during which interest may be paid
under this Agreement;
(ii) if such Bank claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such Bank,
two properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such Bank and
in each succeeding taxable year of such Bank during which interest may be
paid under this Agreement; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Administrative Agent of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of either Borrower to such Bank, such Bank agrees to notify the
Administrative Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of either Borrower to such Bank. To the extent
of such percentage amount, the Administrative Agent will treat such Bank's IRS
Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding
tax by filing
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IRS Form 4224 with the Administrative Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
either Borrower to such Bank, such Bank agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Administrative Agent may withhold from any interest payment
to such Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. However, if the forms or other documentation
required by Section 8.10(a) are not delivered to the Administrative Agent, then
the Administrative Agent may withhold from any interest payment to such Bank not
providing such forms or other documentation an amount equivalent to the
applicable withholding tax imposed by Sections 1441 and 1442 of the Code,
without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did
not properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered, was not properly executed, or
because such Bank failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Bank shall indemnify the
Administrative Agent fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to the
Administrative Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this Section
9.10(e) shall survive the payment of all Obligations and the resignation or
replacement of the Administrative Agent.
IX.11 Documentation and Syndication Agent. None of the Banks identified on
-----------------------------------
the facing page or signature pages of this Agreement as a "documentation agent"
or "syndication agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to all
Banks as such. Without limiting the foregoing, none of the Banks so identified
as a "documentation agent" or "syndication agent" shall have or be deemed to
have any fiduciary relationship with any Bank. Each Bank acknowledges that it
has not relied, and will not rely, on any of the Banks so identified in deciding
to enter into this Agreement or in taking or not taking action hereunder.
ARTICLE X
GUARANTEE
---------
X.1 Guarantee from the Company. In order to induce the Banks to agree to
--------------------------
make Loans to the Subsidiary Borrower under this Agreement and to induce the
Loan Note Guarantor to issue
71
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the Loan Note Guaranties, the Company hereby unconditionally and irrevocably
guarantees (as primary obligor and not merely as surety) to and for the benefit
of the Banks and the Administrative Agent the due and punctual payment of all
Obligations (whether or not allowed as a claim in a bankruptcy proceeding of the
Subsidiary Borrower) of the Subsidiary Borrower (the "Guaranteed Indebtedness").
-----------------------
X.2 Expenses. The Company irrevocably and unconditionally agrees to pay
--------
any and all expenses, including reasonable attorneys' fees and disbursements,
incurred by any of the Banks or the Administrative Agent in enforcing its rights
under or in connection with this Article X.
X.3 Waivers. The Company agrees that the Guaranteed Indebtedness may be
-------
extended or renewed, in whole or in part, without notice to or further assent
from it and without impairing its obligations under this Article X. The Company
hereby waives (a) presentation to, demand of payment from, and protest and
notice of protest concerning the Guaranteed Indebtedness, (b) protest for
nonpayment of principal of or interest on the Guaranteed Indebtedness and (c)
all other notices to which it might otherwise be entitled as guarantor of the
Guaranteed Indebtedness.
X.4 No Impairment. The obligations of the Company under this Article X
-------------
shall not be impaired by reason of any claim or waiver, release, surrender or
compromise with respect to the Subsidiary Borrower, and shall not be subject to
any defense or set-off by reason of the unenforceability, in whole or in part,
of the Guaranteed Indebtedness or any provision of this Agreement with respect
to the Subsidiary Borrower. The obligations of the Company hereunder with
respect to its guaranty of the obligations of the Subsidiary Borrower hereunder
shall not be impaired by (a) any lack of validity or enforceability of this
Agreement or any other Loan Document with respect to the Subsidiary Borrower,
(b) the failure of any of the Banks or the Administrative Agent to assert any
claim or demand or to enforce any right or remedy against the Subsidiary
Borrower or any other Person hereunder or under the other Loan Documents or with
respect to this Agreement or the other Loan Documents, (c) any extension or
renewal, in whole or in part, of this Agreement or any other Loan Documents, (d)
any rescission, waiver, release, compromise, amendment or modification of, or
any consent to departure from, any of the terms or provisions of this Agreement
or the other Loan Documents or any agreement, (e) any failure by any Person in
the performance of any obligation with respect to this Agreement or any other
Loan Documents, (f) any act by the Administrative Agent or any Bank to obtain or
retain a Lien upon or a security interest in any property to secure any
Guaranteed Indebtedness, or to release any security for any of the Guaranteed
Indebtedness, (g) any exchange, release or nonperfection of any Lien, (h) any
bankruptcy of the Subsidiary Borrower or any other Person, or (i) any other act
or omission which may or might in any manner vary the risk of the Subsidiary
Borrower, or which would otherwise operate as a discharge of or other defense
available to the Subsidiary Borrower, as a matter of law.
X.5 Waiver of Resort. The Company agrees that this Section 10 constitutes
----------------
a guaranty
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of payment and not merely of collection and waives any right to require that any
resort be had by the Administrative Agent or any of the Banks to any security
held by it for the payment of the Guaranteed Indebtedness or to any balance or
any deposit account or credit on the books of the Administrative Agent or any
Bank in favor of the Subsidiary Borrower or any of its Subsidiaries.
X.6 Reinstatement. The Company agrees that this Article X shall continue
-------------
to be effective or be reinstated, as the case may be, if at any time any part of
any payment of principal of, or interest on, the Guaranteed Indebtedness is
stayed, rescinded or must otherwise be returned by any Bank or the
Administrative Agent upon the bankruptcy or reorganization of the Subsidiary
Borrower or any other Person.
X.7 Payment. Upon the failure of the Subsidiary Borrower to pay any of
-------
the Guaranteed Indebtedness when and as the same shall become due, whether at
maturity, by acceleration or otherwise, the Company hereby promises to, and
will, immediately on demand by any Bank or the Administrative Agent, pay or
cause to be paid to the Banks or the Administrative Agent, as the case may be,
an amount equal to the full amount of the Guaranteed Indebtedness then due. All
such payments shall be in the currency in which the Guaranteed Indebtedness is
denominated.
X.8 Subrogation, Waivers, etc. The Company hereby agrees that, until such
-------------------------
time as all of the Obligations shall have been finally paid in full in cash and
performed in full, all Commitments shall have terminated, and this guarantee
shall have been discontinued, no payment made by or on account of the Company
pursuant to this Article X shall entitle the Company, by subrogation or
otherwise, to any payment by the Subsidiary Borrower or from or out of any
property of the Subsidiary Borrower, and the Company shall not exercise any
right or remedy against the Subsidiary Borrower or any property of the
Subsidiary Borrower by reason of any performance by the Company of its
obligations under this Article IX, including any claim or other rights which it
may now or hereafter acquire against the Subsidiary Borrower that arise from the
existence, payment, performance or enforcement of the guarantee under this
Article IX, including any right of subrogation, reimbursement, exoneration,
contribution, indemnification, any right to participate in any claim or remedy
of the Banks or the Administrative Agent, as the case may be, against the
Subsidiary Borrower or any collateral now or hereafter pledged to the Banks, the
Administrative Agent or any other Person acting on behalf of the Banks by the
Subsidiary Borrower, whether or not such claim, remedy or right arises in
equity, at law or under contract, directly or indirectly, is for cash or other
property or arises by set-off or in any other manner (as payment or security on
account of such claim or other rights). If any amount shall be paid to the
Company in violation of the preceding sentence and the Obligations shall not
then have been paid in full, all Commitments shall not have terminated, such
amount shall be deemed to have been paid to the Company for the benefit of, and
held in trust for the benefit of, the Banks or the Administrative Agent, as
applicable, and shall forthwith be paid to the Banks or the Administrative
Agent, as applicable. The Company acknowledges that it has received and will
receive direct and indirect benefits from the financing arrangements
contemplated by this
73
<PAGE>
Agreement and the other Loan Documents and that the forbearance set forth in
this Section 10.8 is knowingly granted in contemplation of such benefits.
X.9 Delay, etc. No delay on the part of any of the Banks or the
----------
Administrative Agent in exercising any rights under this Article X or failure to
exercise the same shall operate as a waiver of such rights. No notice to or
demand on the Company shall be deemed to be a waiver of any obligation of any
Borrower or the right of the Banks or the Administrative Agent to take further
action without notice or demand as provided herein.
ARTICLE XI
MISCELLANEOUS
-------------
XI.1 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document, and no consent with respect to any
departure by either Borrower therefrom, shall be effective unless the same shall
be in writing and signed by the Required Banks (or by the Administrative Agent
(or in the case of the Loan Note Guaranty, the Loan Note Guarantor) at the
written request of the Required Banks) and the Borrowers and acknowledged by the
Administrative Agent, and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no such waiver, amendment, or consent shall, unless in
- -------- -------
writing and signed by all the Banks and the Borrowers and acknowledged by the
Administrative Agent, do any of the following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.2) or increase the amount of the
Loan Note Guaranties;
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder;
(e) release the Company from any of its obligations under Article V
or Article X;
74
<PAGE>
or
(f) amend this Section or the definition of "Required Banks" or
Section 2.17, Article X or any provision herein providing for consent or other
action by all Banks;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by the Administrative Agent in addition to the Required Banks
or all the Banks, as the case may be, affect the rights or duties of the
Administrative Agent under this Agreement or any other Loan Document, and (ii)
the Fee Letter may be amended, or rights or privileges thereunder waived, in a
writing executed by the parties thereto.
XI.2 Notices.
-------
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by a Borrower by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on Schedule 11.2, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on Schedule 11.2; or, as directed to the Company or the Administrative
Agent, to such other address as shall be designated by such party in a written
notice to the other parties, and as directed to any other party, at such other
address as shall be designated by such party in a written notice to the Company
and the Administrative Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or IX shall not be effective until actually
received by the Administrative Agent.
(c) Any agreement of the Administrative Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrowers. The Administrative Agent and the Banks
shall be entitled to rely on the authority of any Person purporting to be a
Person authorized by the Borrowers to give such notice and the Administrative
Agent and the Banks shall not have any liability to the Borrowers or other
Person on account of any action taken or not taken by the Administrative Agent
or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of the Borrowers to repay the Loans shall not be affected in any way
or to any extent by any failure by the Administrative Agent and the Banks to
receive written confirmation of any telephonic or facsimile notice or the
receipt by the Administrative Agent and the Banks of a confirmation which is at
variance with the terms understood by the Administrative Agent and the Banks to
be contained in the telephonic or
75
<PAGE>
facsimile notice.
XI.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Administrative Agent or any Bank, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.
XI.4 Costs and Expenses. Each Borrower shall:
------------------
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Administrative
Agent) within five Business Days after demand for all reasonable costs and
expenses incurred by BofA (including in its capacity as Administrative Agent) in
connection with the development, preparation, delivery, administration and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
reasonable Attorney Costs incurred by BofA (including in its capacity as
Administrative Agent) with respect thereto; and
(b) pay or reimburse the Administrative Agent, the Lead
Arranger and each Bank within five Business Days after demand for all reasonable
costs and expenses (including Attorney Costs) incurred by them in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding).
XI.5 Borrower Indemnification. Whether or not the transactions
------------------------
contemplated hereby are consummated, each Borrower shall indemnify, defend and
hold the Administrative Agent-Related Persons, and each Bank and each of its
respective officers, directors, employees, counsel, agents and attorneys-in-fact
(each, an "Indemnified Person") harmless from and against any and all
------------------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses and disbursements (including Attorney Costs) of any
kind or nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Administrative Agent or replacement of any Bank) be imposed on, incurred by or
asserted against any such Person in any way relating to or arising out of this
Agreement or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any insolvency
proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or the use of the proceeds thereof, or related to any Offshore
Currency Transactions entered into in connection herewith, whether or not any
Indemnified Person is a
76
<PAGE>
party thereto (all the foregoing, collectively, the "Indemnified Liabilities");
-----------------------
provided, that the Company shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities resulting from the gross
negligence or willful misconduct of such Indemnified Person. The agreements in
this Section shall survive payment of all other Obligations.
XI.6 Payments Set Aside. To the extent that a Borrower makes a payment to
------------------
the Administrative Agent or the Banks, or the Administrative Agent or the Banks
exercise their right of set-off, and such payment or the proceeds of such set-
off or any part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside or required (including pursuant to any settlement
entered into by the Administrative Agent or such Bank in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred, and (b) each Bank severally agrees to pay to the
Administrative Agent upon demand its pro rata share of any amount so recovered
from or repaid by the Administrative Agent.
XI.7 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that neither Borrower may assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Administrative Agent and each Bank.
XI.8 Assignments, Participations, etc.
---------------------------------
(a) Any Bank may, with the written consent of the Company at all
times other than during the existence of an Event of Default and the
Administrative Agent and the Loan Note Guarantor, which consents shall not be
unreasonably withheld, at any time assign and delegate to one or more Eligible
Assignees (provided that no written consent of the Company or the Administrative
Agent or the Loan Note Guarantor shall be required in connection with any
assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate
of such Bank) (each an "Assignee") all, or any ratable part of all, of the
--------
Loans, the Commitments and the other rights and obligations of such Bank
hereunder, in a minimum amount of the lesser of (i) $5,000,000 or (ii) the full
amount of the Loans, the Commitments and the other rights and obligations of
such Bank; provided, however, that the Borrowers and the Administrative Agent
-------- -------
may continue to deal solely and directly with such Bank in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to the Borrowers and the
Administrative Agent by such Bank and the Assignee; (ii) such Bank and its
Assignee shall have delivered to the Company and the Administrative Agent an
Assignment and Acceptance in the form of Exhibit E ("Assignment and Acceptance")
-------------------------
and (iii) the assignor Bank or Assignee has paid to the Administrative Agent a
processing fee in the
77
<PAGE>
amount of $5,000.
(b) From and after the date that the Administrative Agent notifies
the assignor Bank that it has received (and provided its consent with respect
to) an executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent
that rights and obligations hereunder and under the other Loan Documents have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
--- -----
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "Participant") participating
-----------
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "Originating Bank") hereunder and under the other Loan Documents;
----------------
provided, however, that (i) the Originating Bank's obligations under this
- -------- -------
Agreement shall remain unchanged, (ii) the Originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Borrower and the
Administrative Agent shall continue to deal solely and directly with the
Originating Bank in connection with the Originating Bank's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no Bank
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of the Banks as
described in the first proviso to Section 11.1. In the case of any such
----- -------
participation, the Participant shall be entitled to the benefit of Sections 4.1,
4.3 and 11.5 as though it were also a Bank hereunder provided that all amounts
payable by the Borrowers hereunder shall be determined as if such Originating
Bank had not sold such participation. If amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Bank under
this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the
78
<PAGE>
FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank
may enforce such pledge or security interest in any manner permitted under
applicable law.
XI.9 Confidentiality. Each Bank agrees to take and to cause its Affiliates
---------------
to take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information identified as "confidential" or "secret" by
the Company and provided to it by the Company or any Subsidiary, or by the
Administrative Agent on such Company's or Subsidiary's behalf, under this
Agreement or any other Loan Document, and neither it nor any of its Affiliates
shall use any such information other than in connection with or in enforcement
of this Agreement and the other Loan Documents or in connection with other
business now or hereafter existing or contemplated with the Company or any
Subsidiary; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Bank, or
(ii) was or becomes available on a non-confidential basis from a source other
than the Company, provided that such source is not bound by a confidentiality
agreement with the Company known to the Bank; provided, however, that any Bank
-------- -------
may disclose such information (A) at the request or pursuant to any requirement
of any Governmental Authority to which the Bank is subject or in connection with
an examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable requirement of law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the
Administrative Agent, any Bank, or their respective Affiliates may be party; (E)
to the extent reasonably required in connection with the exercise of any remedy
hereunder or under any other Loan Document; (F) to such Bank's independent
auditors and other professional advisors; (G) to any Participant or Assignee,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Banks hereunder; (H)
as to any Bank or its Affiliate, as expressly permitted under the terms of any
other document or agreement regarding confidentiality to which the Company or
any Subsidiary is party or is deemed party with such Bank or such Affiliate; and
(I) to its Affiliates.
XI.10 Set-off. In addition to any rights and remedies of the Banks
-------
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to either Borrower, any such notice being waived by each Borrower
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing by, such Bank to or for the
credit or the account of each Borrower against any and all Obligations owing to
such Bank, now or hereafter existing, irrespective of whether or not the
Administrative Agent or such Bank shall have made demand under this Agreement or
any Loan Document and although such Obligations may be contingent or unmatured.
Each Bank agrees promptly to notify the Company and the Administrative Agent
after any such set-off and application made by such Bank; provided, however,
-------- -------
that the failure to give such notice shall not affect the validity of such set-
off and application.
79
<PAGE>
XI.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall
-----------------------------------------------
notify the Administrative Agent in writing of any changes in the address to
which notices to the Bank should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
XI.12 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
XI.13 Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
XI.14 No Third Parties Benefited. This Agreement is made and entered into
--------------------------
for the sole protection and legal benefit of the Borrowers, the Banks, the
Administrative Agent and the Administrative Agent-Related Persons, and their
permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.
XI.15 Governing Law and Jurisdiction.
------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE ADMINISTRATIVE AGENT
AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT AND
THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-
EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE
ADMINISTRATIVE AGENT, AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
---------
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
- ----------
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE BORROWERS, THE ADMINISTRATIVE AGENT, AND THE BANKS EACH
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS
80
<PAGE>
LAW.
XI.16 Waiver of Jury Trial. THE BORROWERS, THE BANKS, AND THE
--------------------
ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY ADMINISTRATIVE AGENT-RELATED
PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE BORROWERS, THE BANKS, AND THE ADMINISTRATIVE AGENT
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
XI.17 Judgment. If, for the purposes of obtaining judgment in any court, it
--------
is necessary to convert a sum due hereunder or any other Loan Document in one
currency into another currency, the rate of exchange used shall be that at which
in accordance with normal banking procedures the Administrative Agent could
purchase the first currency with such other currency on the Business Day
preceding that on which final judgment is given. The obligation of the Borrowers
in respect of any such sum due from it to the Administrative Agent hereunder or
under the other Loan Documents shall, notwithstanding any judgment in a currency
(the "Judgment Currency") other than that in which such sum is denominated in
accordance with the applicable provisions of this Agreement (the "Agreement
Currency"), be discharged only to the extent that on the Business Day following
receipt by the Administrative Agent of any sum adjudged to be so due in the
Judgment Currency, the Administrative Agent may in accordance with normal
banking procedures purchase the Agreement Currency with the Judgment Currency.
If the amount of the Agreement Currency so purchased is less than the sum
originally due to the Administrative Agent in the Agreement Currency, the
Company agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify the Administrative Agent or the Person to whom such obligation was
owing against such loss. If the amount of the Agreement currency so purchased is
greater than the sum originally due to the Administrative Agent in such
currency, the Administrative Agent agrees to return the amount of any excess to
the Company (or to any other Person who may be entitled thereto under applicable
law).
81
<PAGE>
XI.18 Entire Agreement. This Agreement, together with the other Loan
----------------
Documents, embodies the entire agreement and understanding among the Company,
the Banks and the Administrative Agent, and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
82
<PAGE>
Delivered at Chicago, Illinois as of the day and year first above written.
APPLIED POWER INC.
By: /s/ James Maxwell IV
----------------------
Title: Assistant Treasurer
---------------------
ENERPAC B.V.
By: /s/ James Maxwell IV
----------------------
Title: Authorized Representative
---------------------------
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent and a Bank
By: /s/ M. H. Claggett
------------------
Title: Vice President
----------------
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO, as
Syndication Agent and as a Bank
By: /s/ Robert F. Barnett III
-------------------------
Title: Senior Vice President
------------------------
<PAGE>
SOCIETE GENERALE, CHICAGO BRANCH, as
Documentation Agent and as a Bank
By: /s/ Joseph A. Philbin
-----------------------
Title: Director
--------------------
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ J. Andrew Phelps
----------------------
Title: Bank Officer
-------------------
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
By: /s/ Hajime Watanabe
-------------------------------------
Title: Deputy General Manager
----------------------------------
<PAGE>
BANKBOSTON, N.A.
By: /s/ Jack M. Harcourt
----------------------
Title: Authorized Officer
-------------------
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Alan M. Holman
--------------------
Title: Vice President
-----------------
<PAGE>
HARRIS TRUST & SAVINGS BANK
By: /s/ Catherine C. Ciolek
------------------------
Title: Vice President
---------------------
<PAGE>
M&I MARSHALL & ILSLEY BANK
By: /s/ James R. Miller
-----------------------
Title: Vice President
--------------------
By: /s/ James P. McMullen
-----------------------
Title: Vice President
--------------------
<PAGE>
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By: /s/ Gordon R. Holtby
--------------------
Title: Vice President & Manager
------------------------
<PAGE>
CREDIT LYONNAIS CHICAGO BRANCH
By: /s/ Nigel R. Carter
---------------------
Title: Vice President
----------------
<PAGE>
WACHOVIA BANK, N.A.
By: /s/ Debra L. Coheley
--------------------
Title: Senior Vice President
---------------------
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Joel Glodowski
------------------
Title: Managing Director
-----------------
By: /s/ Chris T. Horgan
-------------------
Title: Vice President
--------------
<PAGE>
BANK OF NEW YORK
By: /s/ Mark Familo
-----------------
Title: Vice President
----------------
<PAGE>
NATIONAL WESTMINSTER BANK PLC
By: /s/ Peter J. Stringer
-----------------------
Title: Senior Vice President
-----------------------
<PAGE>
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Caroline V. Krider
------------------------
Title: Vice President
----------------
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.,
Chicago Branch
By: /s/ Nobuyasu Fukatsu
----------------------
Title: Vice President
----------------
<PAGE>
THE ROYAL BANK OF SCOTLAND plc
By: /s/ Scott W. Barton
---------------------
Title: Vice President
----------------
<PAGE>
SCHEDULE 1.2
Pricing Grid
<TABLE>
<CAPTION>
=======================================================================================================================
PRICING PRICING PRICING PRICING PRICING PRICING PRICING PRICING
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI LEVEL VII LEVEL VIII
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Debt to less than greater greater greater greater greater greater greater
or equal to than than than than than than than
1.50 1.50 2.00 2.50 3.00 3.50 3.75 4.00
EBITDA less than less than less than less than less than less than
or equal to or equal to or equal to or equal to or equal to or equal to
2.00 2.50 3.00 3.50 3.75 4.00
- --------------------------------------------------------------------------------------------------------------------
Offshore 0.275% 0.375% 0.500% 0.625% 0.750% 1.00% 1.125% 1.375%
Margin
- --------------------------------------------------------------------------------------------------------------------
Non-Use Fee 0.1125% 0.125% 0.150% 0.175% 0.225% 0.275% 0.325% 0.375%
Rate
====================================================================================================================
====================================================================================================================
</TABLE>
<PAGE>
SCHEDULE 2.1
Commitments and
Pro Rata Shares
<TABLE>
<CAPTION>
Bank Commitment Pro Rata
---- ---------- --------
Share
-----
<S> <C> <C>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION $145,000,000 17.05882353%
THE FIRST NATIONAL BANK OF CHICAGO $100,000,000 11.76470588%
SOCIETE GENERALE, CHICAGO BRANCH $ 85,000,000 10.00000000%
CREDIT SUISSE FIRST BOSTON $ 60,000,000 7.05882353%
FIRST UNION NATIONAL BANK $ 60,000,000 7.05882353%
THE ROYAL BANK OF SCOTLAND PLC $ 45,000,000 5.29411765%
NATIONAL WESTMINSTER BANK PLC $ 40,000,000 4.70588235%
U.S. BANK, NATIONAL ASSOCIATION $ 40,000,000 4.70588235%
BANKBOSTON, N.A. $ 35,000,000 4.11764706%
HARRIS TRUST & SAVINGS BANK $ 35,000,000 4.11764706%
M&I MARSHALL & ILSLEY BANK $ 35,000,000 4.11764706%
WACHOVIA BANK, N.A. $ 35,000,000 4.11764706%
BANK OF NEW YORK $ 25,000,000 2.94117647%
THE BANK OF TOKYO-MITSUBISHI LTD. CHICAGO BRANCH $ 25,000,000 2.94117647%
CREDIT LYONNAIS CHICAGO BRANCH $ 25,000,000 2.94117647%
FIRSTAR BANK MILWAUKEE, N.A $ 25,000,000 2.94117647%
THE SANWA BANK LIMITED, CHICAGO BRANCH $ 25,000,000 2.94117647%
THE DAI-ICHI KANGYO BANK, LTD. $ 10,000,000 1.17647059%
TOTAL $850,000,000 100.00%
</TABLE>
<PAGE>
SCHEDULE 10.2
Offshore and Domestic Lending Offices,
Addresses for Notices
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
As Administrative Agent
Bank of America National Trust
and Savings Association
Agency Management Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520
Attention: Elizabeth Chao
Telephone: (510) 675-8375
Facsimile: (510) 675-8500
Notices (other than Borrowing Notices and Notices of Conversion/Continuation):
Bank of America National Trust and Savings Association
231 S. LaSalle Street
Chicago, IL 60201
Attention: M.H. Claggett, Vice President
Telephone: (312) 828-1549
Facsimile: (312) 987-1276
ADMINISTRATIVE AGENT'S PAYMENT OFFICE
- -------------------------------------
Bank of America National Trust
and Savings Association
Agency Management Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520
ABA No. 121-000-358
For Credit to Account No.: 12336-14489
Attn: Elizabeth Chao
Ref: Applied Power Inc.
<PAGE>
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
As a Bank
Domestic and Offshore Lending Office:
Bank of America National Trust
and Savings Association
200 West Jackson Boulevard, 9th Floor
Chicago, IL 60606
Attention: Marion Alongi
Telephone: (312) 828-6212
Facsimile: (312) 974-9626
Notices (other than Borrowing Notices and Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
231 S. LaSalle Street
Chicago, IL 60201
Attention: M.H. Claggett, Vice President
Telephone: (312) 828-6212
Facsimile: (312) 974-9626
<PAGE>
The First National Bank of Chicago
- ----------------------------------
as a Bank
Domestic and Offshore Lending Office:
One First National Plaza
Chicago, IL 60670
Attention: Rosario Guzman
Telephone: (312) 732-7874
Facsimile: (312) 732-2715
The First National Bank of Chicago
London Branch
1 Triton Square
London
NW1 3FN
Attention: Dot O'Flaherty
Telephone: (44 171) 903-4150
Facsimile: (44 171) 903-4148
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Attention: Jerry Kane
Telephone: (312) 732-1614
Facsimile: (312) 732-1117
<PAGE>
First Union National Bank
- -------------------------
as a Bank
Domestic and Offshore Lending Office:
One First Union Center
301 South College Street
Charlotte, NC 28288-0749
Attention: Lisa VanNote
Telephone: (704) 374-4282
Facsimile: (704) 374-2802
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
First Union National Bank
One First Union Center
301 South College Street
Charlotte, NC 28288-0749
Attention: Mark Feller
Telephone: (704) 374-7074
Facsimile: (704) 374-3300
Societe Generale, Chicago Branch
- --------------------------------
as a Bank
Domestic and Offshore Lending Office:
181 W. Madison St.
Suite 3400
Chicago, IL 60602
Attention: Joseph Philbin
Telephone: (312) 578-5005
Facsimile: (312) 578-5099
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
Societe Generale, Chicago Branch
181 W. Madison St.
Suite 3400
Chicago, IL 60602
<PAGE>
Attention: Joseph Philbin
Telephone: (312) 578-5005
Facsimile: (312) 578-5099
The Bank of Tokyo-Mitsubishi, Ltd. Chicago Branch
- --------------------------------------------------
as a Bank
Domestic and Offshore Lending Office:
The Bank of Tokyo-Mitsubishi Ltd. Chicago Branch
227 W. Monroe
Suite 2300
Chicago, IL 60606
Attention: Jean Chaney/Julie Galligan
Telephone: (312) 696-4712/4711
Facsimile: (312) 696-4532
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
The Bank of Tokyo-Mitsubishi Ltd. Chicago Branch
227 W. Monroe
Suite 2300
Chicago, IL 60606
Attention: Wayne Yamanaka
Telephone: (312) 696-4664
Facsimile: (312) 696-4535
BankBoston, N.A.
- ----------------
as a Bank
Domestic and Offshore Lending Office:
BankBoston, N.A.
100 Federal Street
Lg. Corp. 01-09-04
Boston, MA 02110
Attention: Jack M. Harcourt
Telephone: (617) 434-7548
Facsimile: (617) 434-0816
<PAGE>
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
BankBoston, N.A.
100 Federal Street
Lg. Corp. 01-09-04
Boston, MA 02110
Attention: Jack M. Harcourt
Telephone: (617) 434-7548
Facsimile: (617) 434-0816
U.S. Bank National Association
- ------------------------------
as a Bank
Domestic and Offshore Lending Office:
U.S. Bank National Association
201 W. Wisconsin Avenue
Milwaukee, WI 53259
Attention: Alan Holman, Vice President
Telephone: (414) 227-5505
Facsimile: (414) 227-5881
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
U.S. Bank National Association
201 W. Wisconsin Avenue
Milwaukee, WI 53259
Attention: Alan Holman, Vice President
Telephone: (414) 227-5505
Facsimile: (414) 227-5881
Harris Trust & Savings Bank
- ---------------------------
as a Bank
Domestic and Offshore Lending Office:
Harris Trust & Savings Bank
111 West Monroe Street - 10E
Chicago, IL 60603
Attention: Anita Mei
<PAGE>
Telephone: (312) 461-3818
Facsimile: (312) 293-5283
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation):
Harris Trust & Savings Bank
111 West Monroe Street - 10W
Chicago, IL 60603
Attention: Sunny Harnet/Andrew Peterson
Telephone: (312) 461-5724/6537
Facsimile: (312) 293-5040
M&I Marshall & Ilsley Bank
- --------------------------
as a Bank
Domestic and Offshore Lending Office:
M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202
Attention: James R. Miller
Telephone: (414) 765-7779
Facsimile: (414) 765-7625
Notices (other than Borrowing Notices and Notices of Conversion/Continuation):
M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee, WI 53202
Attention: James R. Miller
Telephone: (414) 765-7779
Facsimile: (414) 765-7625
The Sanwa Bank, Limited, Chicago Branch
- ---------------------------------------
as a Bank
Domestic and Offshore Lending Offices
The Sanwa Bank, Limited, Chicago Branch
10 S. Wacker Drive
31st Floor
Chicago, IL 60606
Attention: Gordon R Holtby
<PAGE>
Telephone: (312) 993-4325
Facsimile: (312) 346-6677
Notices (other than Borrowing Notices and Notices
of Conversion/Continuation:
The Sanwa Bank Limited, Chicago Branch
10 S. Wacker Drive
31st Floor
Chicago, IL 60606
Attention: Gordon R. Holtby
Telephone: (312) 993-4325
Facsimile: (312) 346-6677
Credit Lyonnais Chicago Branch
- ------------------------------
as a Bank
Domestic and Offshore Lending Office:
Credit Lyonnais Chicago Branch
227 W. Monroe Street, 38th Floor
Chicago, IL 60606
Attention: Michelle Evans
Telephone: (312) 220-7319
Facsimile: (312) 641-5834
Notes (other than Borrowing Notices and
Notices of Conversion/Continuation):
Credit Lyonnais Chicago Branch
227 W. Monroe Street, 38th Floor
Chicago, IL 60606
Attention: Nigel Carter
Telephone: (312) 220-7310
Facsimile: (312) 641-0527
Wachovia Bank, N.A.
- -------------------
as a Bank
Domestic and Offshore Lending Office:
Wachovia Corporate Services, Inc.
<PAGE>
70 West Madison Street
Suite 2440
Chicago, IL 60602
Attention: Cynthia Comber
Telephone: (312) 795-4335
Facsimile: (312) 853-0693
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Wachovia Corporate Services, Inc.
70 West Madison Street
Suite 2440
Chicago, IL 60602
Attention: James D. Heinz
Telephone: (312) 795-4343
Facsimile: (312) 853-0693
The Bank of New York
- --------------------
as a Bank
Domestic and Offshore Lending Office:
The Bank of New York
One Wall Street, 19th Floor
New York, NY 10286
Attention: Mark Familo
Telephone: (212) 635-1165
Facsimile: (212) 635-1208/09
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
The Bank of New York
One Wall Street, 19th Floor
New York, NY 10286
Attention: Maxine Roach
Telephone: (212) 635-8208
Facsimile: (212) 635-7923/24
Firstar Bank Milwaukee, N.A.
- ----------------------------
as a Bank
<PAGE>
Domestic and Offshore Lending Office:
Firstar Bank Milwaukee, N.A.
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Attention: Caroline Krider/John Reinke
Telephone: (414) 765-5971/(414) 765-4569
Facsimile: (414) 765-4632
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Firstar Bank Milwaukee, N.A.
777 E. Wisconsin Avenue
Milwaukee, WI 53202
Attention: Frank Martins
Telephone: (414) 765-5952
Facsimile: (414) 765-5062
Credit Suisse First Boston
- --------------------------
as a Bank
Domestic and Offshore Lending Office:
Credit Suisse First Boston
Client Services - Loan Administrator
Five World Trade Center, 8th Floor
New York, NY 10048
Attention: Ron Davis
Telephone: (212) 322-1865
Facsimile: (212) 335-0593
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010-3629
Attention: David W. Kratovil
Telephone: (212) 325-9155
<PAGE>
Facsimile: (212) 325-8309
National Westminster Bank Plc
- -----------------------------
as a Bank
Domestic and Offshore Lending Office:
National Westminster Bank Plc
1 Federal Street
Mail Stop MAOFD06C
Boston, MA 02110
Attention: Peter Stringer
Telephone: (617) 346-4909
Facsimile: (617) 346-4732
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
National Westminster Bank Plc
1 Federal Street
Mail Stop MAOFD06C
Boston, MA 02110
Attention: Peter Stringer
Telephone: (617) 346-4909
Facsimile: (617) 346-4732
The Dai-Ichi Kangyo Bank, Ltd., Chicago Branch
- ----------------------------------------------
as a Bank
Domestic and Offshore Lending Office:
The Dai-Ichi Kangyo Bank, Ltd., Chicago Branch
10 South Wacker Drive
26th Floor
Chicago, IL 60606
Attention: Josie Fugman
Telephone: (312) 715 6451
Facsimile: (312) 828-2011
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
<PAGE>
The Dai-Ichi Kangyo Bank, Ltd.,
Chicago Branch
10 South Wacker Drive
26th Floor
Chicago, IL 60606
Attention: Ted Sachs
Telephone: (312) 715-8393
Facsimile: (312) 876-0154
The Royal Bank of Scotland plc
- ------------------------------
Domestic and Offshore Lending Office:
The Royal Bank of Scotland plc
88 Pine Street
Wall Street Plaza
New York, NY 10005
Attention: Fernando Reyes
Telephone: (212) 269-1700
Facsimile: (212) 344-4065
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
The Royal Bank of Scotland PLC
88 Pine Street
Wall Street Plaza
New York, NY 10005
Attention: Scott Barton
Telephone: (212) 269-1706
Facsimile: (212) 480-0791
<PAGE>
EXHIBIT 4.5
FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT dated as of August
28, 1998 (the "Amendment") is entered into among APPLIED POWER CREDIT
CORPORATION, a Nevada corporation ("Seller"), APPLIED POWER INC., a Wisconsin
corporation, individually and as the initial Servicer (the "Servicer"), BARTON
CAPITAL CORPORATION, a Delaware corporation, as the Purchaser (the "Purchaser"),
and SOCIETE GENERALE, a banking corporation organized under the laws of France,
acting through its Chicago Branch, as agent for the Purchaser (in such capacity,
the "Agent").
R E C I T A L S
- - - - - - - -
A. The Seller, the Servicer, the Purchaser and the Agent have entered into
that certain Receivables Purchase Agreement, dated as of November 20, 1997 (the
"Receivables Purchase Agreement") pursuant to which Seller will sell to
Purchaser certain Undivided Interests in all outstanding Pool Receivables
purchased by Seller from the Originators pursuant to the Purchase and Sale
Agreement (as defined in the Receivables Purchase Agreement).
B. The parties to the Receivables Purchase Agreement desire to enter into
this Amendment to amend the Receivables Purchase Agreement.
1. Certain Defined Terms. Capitalized terms used but not defined herein
shall have the meanings set forth for such terms in Schedule I to the
Receivables Purchase Agreement.
2. Amendments to Receivables Purchase Agreement. The Receivables Purchase
Agreement is hereby amended as follows:
(a) Section 1.03(a) of the Receivables Purchase Agreement is hereby
amended by deleting the amount "$80,000,000" where it appears in such
Section and inserting in lieu thereof the amount "$90,000,000."
(b) The definition of "Demand Note" set forth in Schedule I to the
Receivables Purchase Agreement is hereby amended in its entirety as
follows:
"Demand Note" means the Amended and Restated Demand Promissory
Note, in the original principal amount of $14,400,000 issued by API to
Seller.
3. Effect of Amendment. This Amendment shall become effective upon (i)
the execution of such Amendment by all of the parties hereto, and (ii) receipt
by the Agent of the
<PAGE>
written consent of the Majority Purchasers (as defined in the Stand-By Purchase
Agreement). Except as expressly amended and modified by this Amendment, all
provisions of the Receivables Purchase Agreement shall remain in full force and
effect. After this Amendment becomes effective, all references in each of the
Agreements to "this Agreement", "hereof", "herein", or words of similar effect
referring to such Agreement shall be deemed to be references to the Receivables
Purchase Agreement, as amended by this Amendment. This Amendment shall not be
deemed to expressly or impliedly waive, amend or supplement any provision of the
Agreements other than as set forth herein.
4. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, and each
counterpart shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
5. Governing Law. This Amendment shall be governed by, and construed in
accordance with the law of the State of Illinois without regard to any otherwise
applicable principles of conflicts of law.
6. Section Headings. The various headings of this Amendment are inserted
for convenience only and shall not affect the meaning or interpretation of this
Amendment or the Receivables Purchase Agreement or any provision hereof or
thereof.
[signature pages on next page]
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
APPLIED POWER CREDIT CORPORATION
By: /s/ Richard Carroll
--------------------
Name: Richard D. Carroll
Title: Treasurer
APPLIED POWER INC.
By: /s/ James Maxwell IV
---------------------
Name: James Maxwell IV
Title: Assistant Treasurer
3
<PAGE>
BARTON CAPITAL CORPORATION
By: /s/ Juliana Johnson
--------------------
Name: Juliana C Johnson
Title: Vice President
SOCIETE GENERALE,
as the Agent
By: /s/ Bradley P. Summers
-----------------------
Name: Bradley P. Summers
Title: Director
By: /s/ C. Steve Coffman
---------------------
Name: C. Steve Coffman
Title: Associate
4
<PAGE>
EXHIBIT 10.5
(1998 10-K)
F'99 Bonus Plan Measurements and Criteria
The fiscal 1999 bonus plan measurements and criteria for the executive staff and
business unit leaders has not yet been approved by the Compensation Committee of
the Board of Directors. Based on previous years' bonus plan measurements, it is
anticipated that the fiscal 1999 bonus plan for executive staff will consist of
the following: a) 50% APW Shareholder Value Generated (SVG); and b) 50% APW
Earnings Per Share (EPS). Measurements for the multi-business unit leaders'
bonuses are expected to consist of the following: a) 80% of the respective units
CMM; and b) 20% APW Financial Results (SVG and EPS).
Supporting Definitions:
- -----------------------
Earnings Per Share = Net Income / Average Number of Common and Common Equivalent
Shares Outstanding during the period.
Shareholder Value Generated = Operating Profit (before amortization) less 8% of
Assets Deployed.
Assets Deployed = Adjusted Assets less Operating Liabilities.
CMM = Internal Operating Profit - (20% x Monthly Net Assets)
The fiscal 1999 bonus plan measurements and criteria for the executive staff and
business units leaders is expected to be approved by the Compensation Committee
of the Board of Directors at the January Board meeting following the Annual
Meeting of Shareholders. Details regarding the approved plan will be filed at a
later date.
<PAGE>
EXHIBIT 21
(1998 10-K)
The following table sets forth the name and jurisdiction of incorporation of the
Registrant's significant subsidiaries. All subsidiaries are 100% owned except as
noted.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
UNITED STATES:
- --------------
AA Manufacturing Company, Inc. Texas
Air Cargo Equipment Corporation California
Air Cooling Technology, Inc. California
Ancor Products Inc. California
Applied Power Credit Corporation Nevada
Applied Power International Ltd. Nevada
Applied Power Investments II Inc. Nevada
Barry Controls Corporation Delaware
Barry Wright Corporation Massachusetts
CalTerm, Inc. Nevada
CalTerm Taiwan, Inc. Nevada
Cambridge Aeroflo, Inc. Massachusetts
DCW Holding Inc. Oklahoma
Del City Wire Inc. Oklahoma
Eder Inc. Wisconsin
Electronic Solutions Nevada
GB Electrical, Inc. Wisconsin
McLean Midwest Corporation Minnesota
Milwaukee Cylinder Company, Inc. (Dormant) Wisconsin
Mox-Med Inc. (formerly known as Moxness Products Inc.) Wisconsin
New England Controls, Inc. Connecticut
Nielsen Hardware Corporation Connecticut
Precision Fabrication Technology Inc. Indiana
Premier Industries Inc. New Hampshire
VERO Electronics Inc. New York
Versa Medical Technologies, Inc. (Dormant) Wisconsin
Versa Technologies, Inc. Delaware
Wright Line Inc. Massachusetts
Wright Line International Inc. Delaware
Zero Corporation Delaware
Zero - East Corporation Massachusetts
Zero Enclosures, Inc. California
Zero Integrated Systems California
Zero International, Inc. California
Zero Manufacturing Corporation (Dormant) California
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
OUTSIDE THE UNITED STATES:
- --------------------------
AIC (Hong Kong) Ltd. (49%) Hong Kong
Air Cargo Equipment Ltd. United Kingdom
AP International Corporation (Dormant) Barbados
Apitech Europa B.V. (Dormant) Netherlands
Applied Power Distribution GmbH Germany
Applied Power Asia Pte. Ltd. Singapore
Applied Power Australia Limited Australia
Applied Power Canada Ltd. Ontario, Canada
Applied Power do Brasil Equipamente Ltda. (Dormant) Brazil
Applied Power Europa B.V. (Dormant) Netherlands
Applied Power Europe S.A. France
Applied Power Export Corp. US Virgin Islands
Applied Power (Far East) Ltd. Japan
Applied Power Finance B.V. (Dormant) Netherlands
Applied Power GmbH Germany
Applied Power Holding GmbH Germany
Applied Power Hytec (M) Sdn. Bhd. Malaysia
Applied Power International, S.A. France
Applied Power International, S.A. Switzerland
Applied Power Italiana S.p.A. Italy
Applied Power Japan, Ltd. Japan
Applied Power Korea Ltd. South Korea
Applied Power Ltd. (Dormant) United Kingdom
Applied Power (Mexico) S. de R.L. de C.V. Mexico
Applied Power Moscow CIS
Applied Power New Zealand Limited New Zealand
APW Enclosures, Ltd. Ireland
APW Enclosure Systems Ltd. United Kingdom
APW Finance Ltd. United Kingdom
APW Holdings B.V. Netherlands
Barry Controls GmbH Germany
Barry Controls U.K. Ltd. United Kingdom
C Fab Manufacturing Ltd. Ireland
C Fab Developments Ltd. Ireland
Danica Supplies Limited United Kingdom
Danica Supply AS Denmark
Electronics Packaging Limited (Dormant) United Kingdom
Enerpac Asia Pte. Ltd. Singapore
Enerpac Canada Ltd. Canada
Enerpac Nederland B.V. Netherlands
Enerpac Hydraulic Technology (India) Pte. Ltd. India
Enerpac Ltd. United Kingdom
Enerpac S.A. France
Grupo Industrial Baja Tec S.A. Mexico
Hormann Electronics Ltd. Ireland
Hormann Security Systems Ltd. Ireland
Imhof-Bedco Limited (Dormant) United Kingdom
Imhof-Bedco Special Products Ltd. (Dormant) United Kingdom
Imhof-Bedco Standard Products Ltd. (Dormant) United Kingdom
Norelem S.A. France
Pertesco Ltd. (Dormant) United Kingdom
Power-Packer do Brasil Ltd. Brazil
Power-Packer Espana, S.A. Spain
Power-Packer Europa B.V. Netherlands
Power Packer France, S.A. France
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
Productos Aeros, S.A. Mexico
Samuel Groves and Company Ltd. United Kingdom
Shanghai Blackhawk Machinery Co. Ltd. China
VERO Austin Electronics (China) Limited Hong Kong
VERO Circuitboards Limited (Dormant) United Kingdom
VERO Connectors Limited (Dormant) United Kingdom
VERO Distribution Limited (Dormant) United Kingdom
VERO Electronics AB Sweden
VERO Electronics (Exports) Ltd. (Dormant) United Kingdom
VERO Electronics GmbH Germany
VERO Electronics Ltd. United Kingdom
VERO Electronics Overseas Investments Ltd. United Kingdom
VERO Electronics Pte Limited Singapore
VERO Electronics S.A. France
VERO Electronics SrL Italy
VERO Group plc United Kingdom
VERO President Systems Limited India
Wright Line Europe, B.V. Netherlands
Zero McLean Europe Ltd. United Kingdom
</TABLE>
All of the foregoing subsidiaries are included in the consolidated financial
statements filed herewith.
<PAGE>
INDEPENDENT AUDITORS' CONSENT Exhibit 23.1
(1998 10-K)
We consent to the incorporation by reference in the following Registration
Statements of Applied Power Inc. of our report dated September 25, 1997 (October
16, 1997 as to Note O), appearing in the Annual Report on Form 10-K of Applied
Power Inc. for the year ended August 31, 1998: Form S-8 Nos. 33-18140, 33-21250,
33-24197, 33-38719, 33-38720, 33-62658, 333-42353, 333-46469, 333-61279, 333-
61281, 333-61389 and Form S-3 No. 333-47493.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
November 20, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT Exhibit 23.2
(1998 10-K)
We consent to the incorporation by reference in Registration Statements Nos. 33-
18140, 33-21250, 33-24197, 33-38719, 33-38720, 33-62658, 333-42353, 333-46469,
333-61279, 333-61281 and 333-61389 on Form S-8 and No. 333-47493 on Form S-3 of
Applied Power Inc. of our report dated May 11, 1998 (related to the consolidated
financial statements of ZERO Corporation and subsidiaries not presented
separately herein), appearing in this Annual Report on Form 10-K of Applied
Power Inc.
DELOITTE & TOUCHE LLP
Los Angeles, California
November 20, 1998
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.3
(1998 10-K)
We consent to the incorporation by reference in Registration Statements of
Applied Power Inc. on Form S-3 No. 333-47493, Form S-8 No. 33-18140, No. 33-
21250, No. 33-24197, No. 33-38719, No. 33-38720, No. 33-62658, No. 333-42353,
No. 333-46469, No. 333-61279, No. 333-61281 and No. 333-61389 of our report
dated September 30, 1998, appearing in this Annual Report on Form 10-K of
Applied Power Inc. for the year ended August 31, 1998.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
November 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the audited financial statements of Applied Power Inc. for the year ended August
31, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 6,349
<SECURITIES> 0
<RECEIVABLES> 154,138
<ALLOWANCES> 6,758
<INVENTORY> 164,786
<CURRENT-ASSETS> 364,564
<PP&E> 418,215
<DEPRECIATION> 193,045
<TOTAL-ASSETS> 1,174,722
<CURRENT-LIABILITIES> 260,708
<BONDS> 512,557
0
0
<COMMON> 7,725
<OTHER-SE> 334,157
<TOTAL-LIABILITY-AND-EQUITY> 1,174,722
<SALES> 1,230,689
<TOTAL-REVENUES> 1,230,689
<CGS> 835,716
<TOTAL-COSTS> 835,716
<OTHER-EXPENSES> 29,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,531
<INCOME-PRETAX> 57,385
<INCOME-TAX> 30,698
<INCOME-CONTINUING> 26,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,687
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.66
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the audited financial statements of Applied Power Inc. for the year ended August
31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 22,047
<SECURITIES> 0
<RECEIVABLES> 125,599
<ALLOWANCES> 4,936
<INVENTORY> 150,771
<CURRENT-ASSETS> 317,254
<PP&E> 288,577
<DEPRECIATION> 153,622
<TOTAL-ASSETS> 649,546
<CURRENT-LIABILITIES> 149,282
<BONDS> 153,166
0
0
<COMMON> 2,927
<OTHER-SE> 302,434
<TOTAL-LIABILITY-AND-EQUITY> 649,546
<SALES> 897,758
<TOTAL-REVENUES> 897,758
<CGS> 570,551
<TOTAL-COSTS> 570,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,158
<INCOME-PRETAX> 89,224
<INCOME-TAX> 31,299
<INCOME-CONTINUING> 57,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,925
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.47
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the audited financial statements of Applied Power Inc. for the year ended August
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 8,019
<SECURITIES> 0
<RECEIVABLES> 107,658
<ALLOWANCES> 4,938
<INVENTORY> 152,209
<CURRENT-ASSETS> 285,353
<PP&E> 257,525
<DEPRECIATION> 141,568
<TOTAL-ASSETS> 547,078
<CURRENT-LIABILITIES> 128,004
<BONDS> 128,073
0
0
<COMMON> 2,893
<OTHER-SE> 250,393
<TOTAL-LIABILITY-AND-EQUITY> 547,078
<SALES> 777,462
<TOTAL-REVENUES> 777,462
<CGS> 486,991
<TOTAL-COSTS> 486,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,892
<INCOME-PRETAX> 77,414
<INCOME-TAX> 26,735
<INCOME-CONTINUING> 50,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,679
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.22
</TABLE>
