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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 January 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
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Commission file number 0-22798
SPECIALTY EQUIPMENT COMPANIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-3337593
(State of (I.R.S. Employer
incorporation) Identification No.)
1245 Corporate Boulevard, Suite 401
Aurora, Illinois 60504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 585-5111
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each Exchange on which registered:
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<S> <C>
Common Stock (par value $.01 per share) NASDAQ Stock Market
</TABLE>
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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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.
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Aggregate market value at March 23, 1998 of the voting stock held by
non-affiliates of the Registrant -- $199,166,307 (based on a closing price of
$17-7/8 per share on that date as reported on the Nasdaq Stock Market). (The
Registrant has assumed that all directors, executive officers and holders of 40%
or more of the shares of Common Stock are affiliates for the purposes of this
calculation.)
As of March 23, 1998, 18,079,499 shares of the Common Stock, $.01 par value, of
the Regristrant were outstanding.
Documents Incorporated By Reference:
A portion of the Company's Proxy Statement relating to its 1998 Annual
Meeting of Stockholders is incorporated by reference in Part III hereof.
The Exhibit Index is located on page 45.
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PART I
ITEM 1. BUSINESS
GENERAl
Specialty Equipment Companies, Inc. ("Specialty" or the "Company") is a
manufacturer of a diversified line of highly engineered commercial and
institutional foodservice equipment used by customers in the foodservice
equipment market segment including, more specifically, a variety of quick
service restaurant chains, convenience store chains, specialty chains, soft
drink bottlers, brewers and institutional foodservice operators. The Company
emphasizes the engineering and development of specially designed,
state-of-the-art foodservice equipment, and sells a broad array of standardized
foodservice equipment and related products.
The Company conducts its business through Specialty Equipment Manufacturing
Corporation ("Specialty Mfg."), a wholly owned subsidiary, and its four
operating divisions (Taylor Company, Beverage-Air, Wells
Manufacturing/Bloomfield Industries and World Dryer) and a wholly-owned
subsidiary of the parent corporation, Gamko Holding, B.V. The first of these
businesses began in 1920 when Wells produced its first waffle baker. Taylor
provided its first ice cream freezer to a restaurant in 1926 and has been
providing shake machines to McDonald's since the 1950's. Beverage-Air started
making refrigerated cabinets in 1944, and Bloomfield coffee service products
were introduced in the 1950's. World Dryer introduced its first warm air hand
dryer in 1951 and Gamko produced its first cooler in 1965.
GLOBAL BRANDS
Beverage-Air
Beverage-Air is one of the two leading manufacturers (in sales) of
commercial refrigeration equipment for the soft drink bottling market and is one
of several leading manufacturers (in sales) of such equipment for the
foodservice market. Beverage-Air sells products under the Beverage-Air(R),
Marketeer(R) and Maxi-Marketeer(R) brand names. Its product offerings include
vertical and horizontal reach-in merchandising coolers, freezers, refrigerators,
pizza and food preparation units, school milk coolers, self-contained beer
dispensing units, delicatessen and floral display cases.
Specialty acquired Beverage-Air in November 1986 to broaden Specialty's
product offerings to the national quick service restaurant and convenience store
chains. Specialty's management believed that Beverage-Air's product lines and
engineering capabilities were well-suited to support development of customized
refrigeration products for the major chains. Since its acquisition by Specialty,
Beverage-Air's sales to foodservice companies, particularly the major national
restaurant chains, has grown substantially. Beverage-Air has advanced its
product testing capabilities and has successfully completed the Underwriter
Laboratories ("UL") client test data criterion. These capabilities will allow
for faster equipment development in response to key chain account product
development programs.
In the foodservice market, Beverage-Air generates revenue principally
through sales to large restaurants, hotel kitchens, supermarkets and convenience
stores. Beverage-Air's major product lines in this market include stainless
steel refrigerators and freezers, delicatessen display cases, pizza and food
preparation tables, refrigerated display cases and beer dispensing equipment.
Beverage-Air's foodservice products are serviced primarily through independent
service organizations.
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In 1998, Beverage-Air will begin marketing The Breeze(TM), the industry's
first open air-curtain merchandiser with product pulldown capability. In the
soft drink bottling market, Beverage-Air markets its products to bottlers around
the world, generally affiliated with the major soft drink companies, which
purchase the coolers for placement in supermarkets, convenience stores and
special venues. The Company has worked with the bottlers to customize these
coolers to meet their marketing needs. For example, the Company has designed
several unique point-of-purchase soft drink merchandisers for use in the express
check-out lanes of supermarkets. In addition, the Company has developed a new
line of curved-front vertical merchandisers (Maxi-Marketeers) and a new Contour
Cooler(TM) for the international bottler market.
Beverage-Air has a product development staff focused on developing products
for the markets it serves worldwide. In addition to research and development
activities focused on domestic and international sales, resources have been
dedicated to product development activities related to design, performance and
agency approvals specifically for international markets, since these are markets
targeted by its major customers. Recently, changes in the Food and Drug
Administration unified food codes have driven specification changes for
refrigerated preparation equipment. The changes required a complete redesign of
Beverage-Air's existing core product line and will generate replacement
equipment sales, especially to the quick service restaurant chains. It is
through this strategy of integrated marketing that Beverage-Air has been able to
grow its existing customer base in key emerging markets.
In 1996, Beverage-Air completed construction of a 60,000 square foot
manufacturing facility in Honea Path, South Carolina. The addition of this
facility allows Beverage-Air's Spartanburg facility to be dedicated to the
manufacturing of merchandising equipment for the foodservice and soft drink
bottler industry. Management believes that this facility has reduced lead times
and increased the Company's ability to obtain large domestic and international
orders.
Taylor
Founded in 1926, Taylor is the world's largest designer and manufacturer
(in sales) of soft serve ice cream, frozen yogurt and shake equipment. Taylor
also designs and manufactures batch ice cream and frozen beverage dispensing
equipment. Taylor's engineering and manufacturing capabilities afforded them the
opportunity several years ago to extend their equipment offerings from only
"cold" equipment into "hot," or cooking, equipment. As a result, in 1985 they
began manufacturing and shipping automated two-sided grills worldwide, that both
increase speed of cooking and assures product safety through consistent
temperature profiles and quick recovery. In addition, Taylor manufactures flat
grills and customized hot and cold food preparation/holding cabinets. This
expanded line of both hot and cold equipment is supported by a strong
distributor network that is committed to sales and service to the food service
industry. Taylor's sales are primarily attributable to domestic and
international new store growth and the addition of equipment to existing stores'
equipment packages, remodeling and retrofitting of existing store kitchens
(primarily driven by the addition and substitution of menu items) and
replacement of older equipment.
Because of its manufacturing capabilities in both hot and cold equipment
Taylor's active product development program is a focus of the Company's growth
prospects. Special engineering groups concentrate on individual product lines to
develop new technologies that address food service operators' concerns of labor,
reliability, maintenance and service costs. Proprietary hardware and software is
developed, tested and implemented in-house. Taylor products feature technologies
such as Softech(R), a patented, integrated memory system designed to control all
necessary modes of refrigeration and to control automatically the hardness or
viscosity of the frozen product and Labor Saver(TM) heat treatment equipment for
soft serve and shake freezers that reduces cleaning and maintenance costs. Other
advanced technologies include a beater designed with molded scraper blades,
solid-state thermistor controls and a double-insulated freezing cylinder. In
1998, Taylor will begin marketing Razzle(R), a frozen dessert program made with
soft serve ice cream or frozen yogurt and blended with a choice of mix-ins,
including hard candies and cookies. Taylor supplies the customer using the
Razzle(R) product with equipment, including a mixer and a specially designed
patented blending spoon, as well as cups, lids and promotional support. Taylor
has also developed additional refrigeration and cooking equipment to expand its
product lines, including the development of two specialized ovens for baking and
holding applications, and frozen carbonated and non-carbonated beverage
equipment. In 1997, Taylor embarked on a development program entitled Freezer
and Grill of the Future. As a result of this program, the company anticipates
the roll-out of a new generation of soft serve and shake equipment beginning in
early 1999.
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As a major supplier to global quick service restaurant and convenience
store chains, Taylor has long maintained close relationships with these
customers. These relationships have enabled Taylor to customize its product
offerings to provide these customers with specialized equipment for their
particular needs and preferences. As a result of this applications engineering
approach, Taylor was able to expand its line of products into cooking and
heating equipment, to complement its position in cold dispensing equipment. In
1985, Taylor successfully developed two-sided cooking technology in cooperation
with McDonald's. Leveraging these efforts, the company also manufacturers a line
of specialized grills for the general market distributed through its global
network of distribution.
Management believes that Taylor's global distributor network is a major
factor in Taylor's leading worldwide market position, as it allows Taylor to
offer U.S. and international customers reliable and consistent service
worldwide. This network consists of a worldwide group of more than 140
independent stocking and servicing distributors. These distributors employ more
than 600 full-time salespeople and operate fleets of specialized service
vehicles to provide reliable and consistent sales and service coverage
throughout their respective territories. Management believes that most of these
distributors and their personnel derive most of their revenue from the sale and
servicing of Taylor products and thus are likely to have a continuing commitment
to selling and servicing Taylor products and protecting Taylor's reputation.
In 1995, a long range service plan, titled Service 2000, began with the
objective to enhance current programs for achieving service excellence. To
initiate this strategy, an advanced communication network was developed to track
service performance and to provide a benchmark for measuring continuous
improvement. With the continuing evolution and development of new equipment
technology, Taylor completed a 25,000 square foot addition to their
manufacturing facility in February 1997 to house the Taylor
Technical/Development Center. This state-of-the-art facility is dedicated to
maintaining the level of professional service necessary to sell and service new
equipment as well as to expanding their current service network training. In
addition, the facility provides a technical resource center which is expected to
help Taylor develop its generations of foodservice and restaurant equipment.
During fiscal 1997 Taylor applied for and received ISO 9001 certification.
The International Standards Organization ("ISO") designation is issued by a
qualified registrar after assessing the Company's quality systems and finding
them in compliance with ISO standards. Management believes the designation is
not only a demonstration of the level of the Company's manufacturing and product
quality, but also provides the Company with a competitive advantage because of
the prestige related to ISO certification.
Wells/Bloomfield
Wells was founded in 1920 and has been producing electric cooking products
for more than 75 years. The company designs, manufactures and markets a broad
line of warming and cooking equipment sold under the Wells(TM) name. The Wells
product line consists primarily of electric counter top and built-in appliances
(including fryers, griddles, food warmers, toasters, hot plates, waffle bakers,
convection ovens and broilers) sold principally through independent foodservice
equipment dealers and distributors. Besides restaurant chains, supermarkets and
convenience store outlets, ultimate users of Wells equipment include independent
restaurants, recreation outlets, hotels, schools and hospitals. Wells has
developed larger, specialized products for major restaurant chains. Recently
Wells introduced a refrigerated built-in buffet unit which will complement its
modular warmer line marketed to foodservice consultants and specifiers. Wells
introduced Crispy Lite(TM), a product line that gives store operators a complete
fried and roasted chicken program, including pressure fryers, rotisserie ovens,
storage and merchandising equipment all in one package. The Crispy Lite(TM)
product line is targeted at convenience stores and supermarkets.
Bloomfield designs, manufactures and markets a coffee and tea beverage
equipment product line that includes brewers, glass coffee decanters, insulated
beverage dispensers and related accessories. Recently Wells/Bloomfield
introduced a powder cappuccino dispenser and fully automatic espresso machine
under the name Cafe Elite(TM). In 1997 Bloomfield introduced its Electronic Brew
Control(TM) ("EBC(TM)") coffee equipment. EBC(TM) has the capability of
providing consistently superior brewing results, with less operator attention
and training. In addition, Bloomfield has designed and developed Satellite
Brewing Systems, Multi-Brewers and Docking Stations which they believe will
enhance their competitive position with the quick service restaurant chains. The
Bloomfield product line is sold directly to office coffee service customers and
independent coffee roasters and through independent foodservice equipment
dealers and distributors. Ultimate users of the Bloomfield equipment include
major restaurants, hotels, convenience stores and offices. Beverage equipment
products and supplies account for substantially all of Bloomfield's sales.
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Consistent with the Company's customized product development and marketing
strategy, Wells/Bloomfield has designed specialized cooking and warming products
and specialized coffee and tea brewing equipment to serve the needs of
particular national chains. These products have been approved and are purchased
by several leading national chains, including McDonald's, Boston Market,
Wendy's, Hardee's, 7-Eleven stores and others.
Gamko
Gamko is a leading manufacturer of commercial refrigeration equipment in
The Netherlands. Gamko sells products under the Euro-Line(TM), Eco-Line(TM),
Party-Cooler(TM) and Maxi Glass(TM) brand names. Its product offerings include
modular and traditionally designed beverage and bottle display coolers,
dispensing and keg coolers, food display and waste disposal coolers.
Specialty acquired Gamko in August 1997 to broaden Specialty's
manufacturing and marketing efforts in Europe to meet the demands of the rapid
expansion of the global quick service restaurant chains and soft drink beverage
companies. In addition, the acquisition affords Specialty entry into the global
brewery refrigeration and beer dispensing equipment market. Specialty's
management believes that Gamko's product lines and engineering capabilities were
well-suited to support development of customized refrigeration products for the
major chains. Gamko has also been successful with application engineering
concepts which Specialty believes will drive product development and solve
customer needs.
In the brewery market, Gamko markets its products to brewers around the
world, although mostly to brewers affiliated with the major international
breweries, which purchase the equipment for placement in supermarkets,
restaurants, bars, taverns and special venues. The Company has worked with the
brewers to customize these coolers to meet their marketing needs. In the soft
drink bottler market, Gamko has developed cooling products aimed at marketing
programs of the major soft drink companies. Specialty intends to use the
strength of its domestic refrigeration unit, Beverage-Air, to expand Gamko's
merchandiser equipment line. In the foodservice market, Gamko generates revenue
principally through sales to distributors. Gamko's major product lines in this
sector include food display, food preparation coolers and catering equipment for
the restaurant and catering industry. It has also designed a unique waste
disposal cooler for use in hotels, restaurants and butcher shops. The waste
disposal cooler prevents the development of bacteria and odors in these
applications. Gamko's foodservice products are serviced primarily through
independent service organizations.
Gamko has a product development staff focused on developing products for
the markets it serves worldwide. In addition to research and development
activities focused on both West and East European sales, resources have been
dedicated to product development activities related to design, performance and
agency approvals specifically for international markets. It is through this
strategy of integrated marketing that Gamko is beginning to grow its existing
customer base in emerging markets, including by joint venture manufacturing and
marketing efforts in East Europe and Southeast Asia.
World Dryer
Founded in 1950, World Dryer designs, manufactures and markets commercial,
wall-mounted cast iron and stainless steel warm-air hand and hair dryers under
the World(R) Dryer, Airspeed(TM), No-Touch(TM), and Airstyle(TM) names and is
the leader (in sales) among domestic and international manufacturers of such
products. Uniquely positioned as the global leader of the electric warm-air hand
dryer industry, World Dryer designs, manufactures and markets its product line
for application in public washrooms. Its core product, the World Model A cast
iron hand dryer is distributed in more than 80 countries worldwide. World Dryer
products have long been approved and purchased by several major national
restaurant chains and can be found in public restrooms throughout the world.
World Dryer has expanded its line with new models targeted for specific markets,
and has introduced a less expensive, plastic encased line of hand dryers under
the Electric Aire(TM) name. World Dryer acquired Electric Aire(TM) in 1994 and
maintained the brand name for specific market niches.
World Dryer has designed a line of hand sanitation systems to address the
critical issues of food safety in the hospitality and healthcare industries. The
automatic hand washstation is a multi-functional unit that dispenses soap, water
and warm air or paper. The washstation features monitoring and warning functions
to provide monitorable compliance with state and federal health codes for
kitchen employee hand sanitation. The Washstation has been recommended by a
major quick service restaurant chain to its operators as one solution for its
hand sanitation policy. World Dryer has also developed and markets a line of
No-Touch(TM) dryers, soap dispensers and automatic faucets for the foodservice
industry.
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During fiscal 1997 World Dryer applied for and received ISO 9002
certification. As with the ISO certification for Taylor, management believes the
designation is not only a demonstration of World Dryer's manufacturing and
product quality, but also a competitive advantage for the Company.
Management believes that World Dryer's marketing efforts, which emphasize
key sanitation issues, environmental benefits, such as waste paper reduction,
and lower end user cost, are a major factor in the continued success of World
Dryer.
Organizational and Financial History
The Company was incorporated under the laws of the state of Delaware in
1984. The Company acquired each of its currently active operations (other than
Beverage-Air and Gamko) in January 1985 from Beatrice Companies, Inc. Specialty
acquired Beverage-Air from Gerlach Industries, Inc. in November 1986. The
Company completed an initial public offering in 1987 and was acquired by SPE
Acquisition, Inc. ("SPE") in a management-led leveraged buy-out in 1988.
Principally because of slow growth in the foodservice equipment industry, the
Company was unable to service its debt incurred in the 1988 leveraged buy-out.
Accordingly, the Company and SPE filed for bankruptcy under Chapter 11 on
December 24, 1991. The Company emerged from Chapter 11 on March 31, 1992 (the
"1992 Reorganization"). In August 1997, the Company acquired Gamko Holding, B.V.
based in The Netherlands. On January 31, 1998, pursuant to a Plan of Internal
Restructuring, approved by the Company's stockholders at the Annual Meeting of
Stockholders held on April 30, 1997, the Company organized Specialty Mfg. a
wholly owned subsidiary of the Company. As part of the formation of Specialty
Mfg., the Company contributed substantially all of its operating assets, other
than its intellectual property, stock in its other subsidiaries and certain
other rights, to Specialty Mfg., which assumed substantially all of the
Company's liabilities. Beverage-Air, Taylor, Wells/Bloomfield and World Dryer
are operating divisions of Specialty Mfg.
On December 1, 1993, the Company completed a refinancing plan (the
"Refinancing"). The Refinancing consisted of a $185 million public offering of
11-3/8% Senior Subordinated Notes due 2003 (the "Notes") and a new senior
secured loan facility (the "Bank Credit Agreement") with Barclays Business
Credit, Inc. (now part of Fleet Capital Corporation) and certain other lenders
which provided the Company a $50 million line of credit, as amended, and a $15
million term loan. The Former Credit Facility was repaid in full in December
1993 from the proceeds of the Refinancing.
On December 1, 1996, the Company entered into a credit agreement with
several banks and Bank of America, Illinois, as agent for the banks (as amended
and restated, the "BA Credit Agreement"). The BA Credit Agreement provides for
an unsecured $60 million credit facility which includes an unsecured line of
credit of $45 million and a $15 million facility for letters of credit. The BA
Credit Agreement replaced the prior bank credit agreement. As of January 31,
1998, the Company had no borrowings on the line of credit. In addition, during
fiscal 1996 and 1997, the Company acquired a total of $36 million of the Notes
($149 million of the original $185 million of the Notes remain outstanding.)
In connection with the formation of Specialty Mfg., the Company and
Specialty Mfg. entered into a supplemental indenture the principal purpose of
which was to make the Company and Specialty Mfg. jointly and severally liable
for the obligations under the Notes and the related indenture. Furthermore, the
BA Credit Agreement was amended and restated to, among other things, make
Specialty Mfg. a borrower thereunder, jointly and severally liable with the
Company.
Commercial Foodservice Industry Overview
The Company generally treats the commercial foodservice equipment industry
as being divided into four customer categories: full service restaurants, quick
service restaurants, retail outlets, such as supermarkets and convenience
stores, and public and private institutions (schools, hospitals, hotels,
corrections facilities and other governmental facilities). The Company primarily
serves customers in the quick service restaurant and retail outlet categories.
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The foodservice market, and particularly the quick service restaurant and
retail outlet categories, has experienced stable long-term growth since 1992 in
response to both population growth and other demographic changes, principally
the emergence of families with multiple wage-earners, causing greater demand for
convenience in food preparation and consumption. The growth has been primarily a
result of quick service restaurant chains accelerating domestic and
international unit expansion, remodeling to facilitate menu and layout changes
in response to competitive pressures in the industry and modernizing their
equipment. This growth followed a three year period where there was little
growth in the market for foodservice equipment due in part to the general
decline in the world economy and a general maturation of the foodservice
industry. According to published industry sources, domestic sales of foodservice
equipment increased 5.0% to $6.52 billion in 1997 and are projected to grow by
an additional 5.2% in 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Growth in the foodservice equipment market results primarily from new store
openings, replacement of equipment, store unit remodeling upgrade programs and
purchases of equipment to support new menu items. Management believes that the
domestic growth in new stores for many of these chains has slowed, but that the
previously opened stores have entered remodeling and equipment replacement
phases. Management also believes that the competition resulting from slower
growth in the domestic foodservice industry has caused quick service restaurant
chains to make more frequent menu and format modifications, increasing their
demand for more flexible equipment. In addition, management anticipates that the
demand for labor saving and energy efficient equipment will also increase.
Furthermore, management believes that convenience stores and supermarkets
continue to increase their sales of prepared and fast foods, which leads to
increased demand for the types of products manufactured by the Company. Finally,
openings of quick service restaurants in non-traditional sites, such as retail
stores, recreational facilities, supermarkets and airports, continue to present
an opportunity for the Company.
Throughout the world, the concentration of quick service restaurants is
substantially lower than in the United States. The more limited penetration of
quick service restaurants outside the United States provides domestic quick
service restaurant chains with opportunities for international expansion and, as
a result, several leading domestic chains have embarked upon significant
international expansion. Internationally, the unit growth of the four largest
quick service restaurant chains was 17% in 1996. The Company's largest customer,
McDonald's, accounts for more than 50% of all international sales realized by
the four largest U.S. restaurant chains. In fiscal 1998, approximately 32.1% of
the Company's sales were of products intended for use outside the United States
compared with 31.2% in fiscal 1997. Despite the opportunities, the international
markets present significant competitive risks, particularly the high cost of
maintaining service capabilities which in the United States has been important
in establishing and maintaining the Company's market position.
BUSINESS STRATEGY
The Company's business strategy is to maintain and improve its position as
a leader in the foodservice equipment industry. The key elements of this
strategy include the following:
Focusing on Major National Chains
The major global quick service restaurant chains, convenience store chains
and specialty chains lead the foodservice industry by focusing on menu
innovation, productivity, sanitation, energy efficiency and environmental
issues. To serve these customers, the Company designs specialized foodservice
equipment to meet the specific performance requirements and appearance
characteristics of the chains, to respond quickly and effectively to changes in
the chains' competitive environment and to dedicate manufacturing capacity to
deliveries of new or modified equipment as part of the chains' changes in
marketing programs. In many cases, the Company is one of only two or three
manufacturers whose product satisfies the equipment specifications of major
national chains for a particular item. The Company maintains an active product
development program with an emphasis on engineered products to meet special
applications. The Company organizes product design and sales teams to work
closely with the national chains in developing applications to meet their
specific requirements and operates manufacturing facilities designed for
flexible assembly procedures and short production runs.
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The Company also attempts to anticipate the needs of its customers and
conducts internal research and development to design equipment to advance the
state of the art in the foodservice market. Taylor has developed Razzle(R)
equipment for use with its soft serve freezers that is designed to enhance
foodservice outlets frozen dessert menus. Beverage-Air has been involved in
developing point of purchase displays to be used by merchandisers, such as The
Breeze(TM) and Contour Cooler(TM) products sold to soft drink bottlers to market
their products in retail checkout areas and other special points of
distribution. Wells/Bloomfield's has developed EBC for the quick service
restaurant chains which is capable of providing superior brewing results with
less operator attention. World Dryer's hand sanitation station meets regulatory
requirements for proper hand washing. The Company's research and development
results from a combination of company and customer sponsored research
activities. The Company spent aproximately $4.1 million, $4.8 million and $6.9
million, in fiscal 1996, 1997 and 1998, respectively, on research and
development.
Capitalizing on the Opportunities Presented by the Significant
International Expansion of the Major Quick Service Restaurant Chains
Management believes that the international expansion of the major national
quick service restaurant chains, including the Company's largest customer, is
resulting in significant growth in the foodservice equipment industry.
Management believes that the expansion of the major chains internationally is
presenting an opportunity for growth for the Company as well. To capitalize upon
this opportunity, the Company has, among other things, increased its
international distribution and service support networks and in 1997 it acquired
Gamko, its first manufacturing facility outside of North America. In addition
during 1997, the Company established an international advisory board to chart
the future direction of the Company's international marketing plan. The advisory
board is comprised of a U.S. division president, the Company's chief executive
officer and chairman, and two newly created positions, a chief international
officer and an international relationship partner.
Leveraging its Long-Term Relationships With Existing Major Customers
The Company's strategy reflects its historic relationships with the major
national quick service restaurant chains as a result of the high penetration
rate of Taylor's soft serve ice cream freezers throughout that market.
Management believes that these relationships have developed in large part
because of the Company's extensive distribution and service network and its
customized manufacturing capabilities, initially implemented at Taylor, that
enable it to produce equipment to meet the high-quality and volume needs of each
of its customers. In addition, Specialty intends to use the strength of its
domestic refrigeration unit Beverage-Air, to expand Gamko's merchandiser
equipment line. Based upon these relationships, the Company has been able to
employ an integrated marketing approach which has expanded the customer base for
each division. For example, Bloomfield coffee makers, Beverage-Air refrigeration
equipment, Wells warmers and World Dryer hand dryers are now approved for use in
McDonald's, Burger King, Wendy's and Hardee's, and other restaurants.
Developing New Products and Line Extensions by Extending Engineering
Expertise to Standardized Foodservice Equipment
Another element of the Company's strategy is to adapt certain product
features developed for the national chain accounts to enhance the Company's
overall product line. Management believes that a large portion of the equipment
and related products used in the foodservice industry is standardized and
consequently subject to price competition, including import competition and
purchasing considerations based on volume and freight costs. By improving some
of these standard product features by using innovations developed in its
applications engineering programs, the Company can differentiate its products
and thus compete on bases other than price. In some cases, innovations developed
by the Company for national chains have created new products for its general
product lines and have enabled the Company to achieve manufacturing cost
efficiencies by facilitating longer production runs. For example, the Company
developed a grill, similar to the "two-sided" grill it developed for McDonald's,
that it markets to the general foodservice industry.
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OPERATIONS OUTSIDE THE UNITED STATES
The Company has several international sales outlets. Its Gamko subsidiary
manufactures refrigeration equipment in The Netherlands and has sales offices in
the United Kingdom, France, The Netherlands and Germany. The Company's Canadian
subsidiary, Bloomfield Industries Canada Limited, manufactures a portion of the
Bloomfield line at its Mississauga, Ontario plant and markets the entire
Bloomfield product line throughout Canada. Taylor has a foreign sales subsidiary
in Rome, Italy, Taylor Freezer International, S.r.l., which administers certain
of Taylor's export sales. All divisions have relationships with dealers and
distributors which taken together provide sales and service support for the
Company's products in more than 112 countries worldwide.
WORLDWIDE MARKETING AND DISTRIBUTION
Management believes that a key to the Company's long-term relationships
with its principal customers is its worldwide marketing, distribution and
service network. These customers require a high degree of responsiveness in
product development, production, delivery and service on a worldwide basis.
Management believes that the Company's extensive distribution and service
network, particularly at Taylor, gives it a competitive advantage in the markets
in which it competes. Furthermore, the Company believes that it enjoys a
favorable strategic position as a result of the relationships that each of its
operating units has developed through the years with various customers. The
Company believes that these relationships help implement its integrated
marketing efforts, which have expanded the customer base for each of its global
brands.
The Company's global brands are marketed through a combination of field
sales personnel, consisting of direct salespeople, commissioned agents and
distributor salespeople. Each global brand has its own marketing, sales and
service programs. The following table summarizes the primary distribution
mechanisms employed by the Company:
<TABLE>
<CAPTION>
GLOBAL BRANDS PRINCIPAL DISTRIBUTION METHODS
<S> <C>
Taylor - Independent distributor network consisting of 47 North American and
99 international distributors
- Direct sales support to national chains
Beverage-Air - Network of 38 independent representative firms and more than 1,500
foodservice equipment dealers and bottlers
- Direct sales to soft drink bottlers
Wells/Bloomfield - Network of 120 representative firms, more than
1,500 foodservice equipment dealers and
suppliers and 250 authorized service centers
- Direct sales to office coffee services
World Dryer - Electrical, plumbing and janitorial supply distributors
- Building contractors
- Foodservice equipment dealers
- Catalog supply houses
Gamko - Direct sales offices in France, The Netherlands, Germany and the United
Kingdom
- Direct sales to major breweries
- Foodservice equipment dealers and suppliers
</TABLE>
Typically, the Company designs and produces equipment which satisfies the
specifications of major national chains, bottlers and brewers, and markets that
equipment through extensive networks of independent dealers, distributors and
sales representatives directly to the chains, bottlers and brewers and
restaurant operators. Management believes that the Company's marketing and
distribution network is one of its major strengths as it allows the Company to
consistently deliver high-quality customer service. Many dealers and
distributors in this network have been associated with the Company and its
businesses for more than 20 years. The Company also sells certain products
directly to the chains.
COMPETITION
In general, the foodservice industry is highly competitive with competition
primarily based on price, product features, quality, reliability,
serviceability, field service and name recognition with no one method of
competition being generally more important than any of the others. The Company
believes that it is competitive on these bases.
9
<PAGE> 10
The Company's competitors include companies that manufacture a variety of
foodservice equipment products and those that specialize in a particular
product. While the Company is one of the largest manufacturers in an industry
which is characterized by many small producers and a fragmented market, some of
its competitors are units of operations which are larger than the Company and
possess greater financial and personnel resources. Also, during periods of poor
economic conditions, the Company faces competition from used equipment,
particularly equipment originally manufactured by the Company, which presents a
lower cost, acceptable quality alternative to newly manufactured equipment.
Management believes that price will continue to be a major competitive factor.
Outside the United States, the Company faces many local competitors throughout
its product lines.
COMPONENTS AND SUPPLIES
Most of the Company's component purchases are for standard commodity-type
materials such as stainless steel, coatings and electrical components. Such
components are generally available from many suppliers, and the Company has not
experienced any significant shortages. The Company also purchases custom
components produced to its specifications. The Company believes it enjoys good
relationships with its suppliers. No long-term supply contracts are used,
although the Company occasionally purchases some materials in advance as a hedge
against price increases.
BACKLOG
The Company's backlog of unshipped orders was approximately $62.0 million
at February 28, 1998, compared with $37.2 million at February 28, 1997. The
Company expects to deliver its existing backlog during the current fiscal year.
EMPLOYEES
As of February 28, 1998, the Company employed 2,565 persons, of whom 23 at
Bloomfield's manufacturing facility in Forestview, Illinois were covered by
collective bargaining agreements. The Company generally considers its
relationships with employees to be satisfactory and has not experienced a work
stoppage due to a labor dispute in more than 10 years.
PATENTS AND TRADEMARKS
The Company holds numerous patents and trademarks registered in the United
States and foreign countries for various products. The Company believes that an
integral part of its strength is its ability to capitalize on its tradenames,
several of which are widely recognized, and it takes such actions as it
determines necessary to protect these names. The Company's rights in its
trademarks will continue for so long as it uses the marks and takes the
necessary actions to protect its rights. The Company's trademark registrations
in the United States and most foreign countries are required to be renewed
periodically, and the Company intends to do so based upon its continued use of
such marks. Frequently, the Company's products, and certain of their features,
are patented, but management believes that no individual patent is material to
the Company's business as a whole.
DEPENDENCE ON MAJOR CUSTOMERS
During fiscal 1996, 1997 and 1998, sales to McDonald's restaurants (both
McDonald's owned and independently franchised) accounted for approximately 22%,
20% and 15%, respectively, of the Company's revenue. The decline in the sales
percentage for fiscal 1998 was a result of the increased overall revenue of the
Company combined with a decrease in sales to McDonald'. The decrease in sales
is primarily attributable to a successful McDonald' freezer trade-in program in
fiscal 1997 and a reduction in the purchase of two-sided cooking grills by
McDonald's in the current fiscal year. Because of the importance of McDonald's
as a customer, if sales to McDonald's were to substantially decrease without a
corresponding increase to other customers, such decrease would have a material
adverse effect on the Company's financial position. While management believes
its relationship with McDonald's is favorable, the Company has no contracts with
McDonald's assuring it of any sales beyond those reflected in its backlog.
10
<PAGE> 11
The Company's financial performance is tied closely to its major customers'
demand for large quantities of mass produced customized products, or roll-outs.
For example, in fiscal 1994 through the first six months of fiscal 1996, the
Company's improved performance can be partially attributed to a significant rise
in the number of orders for refrigerated point-of-purchase displays by soft
drink bottlers. In the past, large roll-outs of products such as Taylor's
two-sided grill have been similarly significant to the Company's performance.
However, the ability to predict which customers and which products will
experience roll-outs is limited, and there can be no assurances that in any year
the Company will receive orders for any such roll-outs.
REGULATION AND ENVIRONMENTAL COMPLIANCE
The Company is subject to the Federal Occupational Safety and Health Act
and other laws regulating safety and noise exposure levels in the production
areas of its facilities. The Company's facilities are subject to numerous
federal, state and local laws and regulations designed to protect the
environment. Environmental laws and regulations that are material to the
Company's operations include the Clean Air Act, which regulates air emissions
and the phase-out of chlorofluorocarbons ("CFCs"), the Clean Water Act, which
regulates discharges to waters of the United States, the Resource Conservation
and Recovery Act, which regulates the handling and disposal of hazardous
substances, the Comprehensive Environmental Response Compensation and Liability
Act, which applies to cleanup of hazardous waste and the Emergency Planning and
Community Right to Know Act, which applies to disclosure of information on the
use of hazardous substances. Environmental laws and regulations that are
material to the Company's operations also include state counterparts to these
federal laws. In addition, the Company's European subsidiary, Gamko Holding
B.V., is subject to the laws and regulations with regard to safety and the
environment in The Netherlands. Management believes that the Company is in
compliance with all applicable laws and regulations and believes that continued
compliance with these laws and regulations will not require significant capital
expenditures or affect the Company's future operations. See "-Legal
Proceedings."
The Company has made substantial investments in investigating and testing
potential refrigerants and updating its product lines to use component parts
that comply with the 1990 Amendments to the Clean Air Act, which institute a
phase-out of the production and consumption of certain CFCs. Beverage-Air has
eliminated components using CFCs from its medium temperature applications
equipment, and Taylor has converted its low temperature compressor equipment
away from components using CFCs. In both cases, the CFC based components have
been replaced by components using hydrofluorocarbons, which are believed to be
environmentally safer. In fiscal 1996, Beverage-Air was awarded the EPA's
"Stratospheric Protection Award" for its efforts in meeting required conversion
of refrigerants and eliminating CFC based components. The Company is continuing
its efforts to reduce the number of its products using CFC based components.
New legislation and regulations, as well as revisions to existing laws and
regulations at the local, state and federal levels, may be proposed in the
future concerning environmental matters and the foodservice equipment industry.
Such proposals could affect the Company's operations, result in material capital
expenditures, affect the desirability of the Company's existing products and/or
could limit or create opportunities for the Company with respect to modification
to existing products, and with respect to new products. While the Company is not
aware of any proposed local, state or federal environmental statutes or
regulations which will materially affect its operations or the market for its
products or result in material capital expenditures, it cannot predict the
effect from any possible future legislation or regulations. During fiscal 1998,
other than normal equipment considerations, there were no material capital
expenditures for environmental control facilities and no future material
expenditures are anticipated.
SEASONALITY
The Company experiences seasonal fluctuations in working capital
requirements of approximately $10 million to $15 million, with working capital
requirements generally peaking in February and March due to offering extended
payment terms to distributors on soft serve ice cream, frozen drink and yogurt
machine shipments before the spring and summer selling season.
11
<PAGE> 12
ITEM 2. PROPERTIES
FACILITIES AND MANUFACTURING
The Company's manufacturing facilities are generally equipped to process
products from raw materials to finished products. Management believes that the
Company's equipment and facilities are well-maintained and generally are, and
will continue to be, adequate for the Company's present and immediate future
needs.
Since 1992, the Company has developed a Total Quality Management program at
each of its principal operating divisions. As part of this program, during
fiscal 1997, Taylor and World Dryer were certified under the International
Standards Organization as ISO 9000 companies.
Metal fabrication, finishing, sub-assembly and assembly operations are
conducted at the facilities. Among major categories of equipment installed at
individual locations are numerically controlled turret presses, robotic and
conventional welding equipment, electrostatic powder coating facilities,
polishing equipment, numerically controlled machining centers, computer assisted
design systems and product testing and quality assurance measurement devices.
The following table sets forth certain information relating to the
Company's principal facilities:
<TABLE>
<CAPTION>
Approx. Square Owned/Date of
Division Locations Use Footage Lease Expiration
-------- --------- --- ------- ----------------
<S> <C> <C> <C> <C>
Taylor Rockton, IL Manufacturing and office
facilities 336,000 Owned
Technical training facility 25,000 Owned
Warehouse facility 7,600 Month-to-Month
Warehouse facility 28,800 December 2001
Warehouse facility 5,600 Month-to-Month
Rosemont, IL Warehouse and office facility 10,500 April 2001
Beverage-Air Spartanburg, SC Manufacturing, office and 323,000 Owned
warehouse facilities
Warehouse facility 53,000 December 1998
Honea Path, SC Manufacturing facility 60,000 Owned
Brookville, PA Manufacturing facility 145,000 December 2000
Wells/Bloomfield Verdi, NV Manufacturing and office
facilities 90,000 June 2002
Manufacturing and office
facilities 18,000 Owned
Manufacturing facility 24,300 Owned
Sparks, NV Warehouse facility 28,000 March 2000
Mississauga, Manufacturing and 37,200 October 2000
Ontario, Canada office facilities
Forestview, IL Decanter manufacturing facility 43,000 July 1999
World Dryer Berkeley, IL Manufacturing and office 50,000 February 2003
facilities
Gamko Etten-Leur, The Manufacturing and office 131,000 April 1998
Netherlands facilities
Executive Office Aurora, IL Office facility 5,100 November 2000
</TABLE>
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
Litigation
The Company was a defendant along with other defendants in an action filed
on July 20, 1995 entitled "Thermodyne Food Service Products, Inc. and AFTEC,
Inc. v. McDonald's Corporation, et al." in the United States District Court,
Northern District of Illinois, Eastern Division. Plaintiffs alleged that the
Company and other defendants misappropriated trade secrets in connection with
the Company's development of an oven for McDonald's and OSI. As a result of a
ruling on a motion to dismiss, all the claims against the Company other than the
trade secret claim were dismissed. The case was settled by the terms of a
confidential settlement agreement dated May 28, 1997 pursuant to which one of
the defendants agreed to make a settlement payment in a confidential amount.
Although the Company is not required under the terms of this settlement
agreement to pay any damages or make any settlement payments, it is possible
that the codefendant who did make a settlement payment will seek a contribution
from the Company. The Company has not established a reserve in its financial
statements relating to this matter.
The Company and certain of its current and former directors are named as
defendants in an action filed by Virginia A. Noerr, who claims to own shares of
the Company's common stock. The action "Noerr v. Greenwood et al.," C.A. No.
14320, is pending in the Court of Chancery for the State of Delaware in and for
New Castle County, Delaware. Plaintiff purports to bring this action both as a
class action on behalf of all stockholders of record on April 2, 1993 and
derivatively for the benefit of the Company. Plaintiff's complaint, which has
twice been amended, asserts that (i) the defendants breached their fiduciary
duties to the Company by soliciting stockholder approval of the Company's
Executive Long-Term Incentive Plan and Non-Employee Directors Long-Term
Incentive Plan by means of a misleading proxy statement and (ii) the Board
breached its fiduciary duty in approving such option plans. The complaint seeks
an order declaring the stockholder approval of those option plans void,
canceling the options granted thereunder, enjoining the directors exercising any
such options, imposing a constructive trust for the benefit of the Company upon
any profits the individual named defendants may have made through exercise of
their options, requiring an accounting in connection therewith, and awarding
unspecified damages plus plaintiff's attorneys' fees and expenses also in an
unspecified amount. The most recent amended complaint was filed after the court
granted in part the defendants' joint motion to dismiss the complaint, striking
certain non-disclosure claims; the court's order, however, denied the remainder
of defendants' motion to dismiss. The Company and the individual defendants
believe that the allegations made in the complaint as amended are without merit
and are factually incorrect and the Company intends to contest these allegations
vigorously. The individual defendants have each made demand upon the Company for
indemnification with respect to this action. The Company believes that if the
Company were liable to the individual defendants for indemnification, the
uninsured portion of such liability would not be material to the Company.
Environmental and Related Matters
On May 5, 1994, the Company (doing business as Taylor Freezer Company) was
among more than 80 parties notified as potential third-party defendants in an
action involving the clean up of the MIG/Dewane Landfill near Belvidere,
Illinois. A third-party complaint has been filed by the principal owners and
operators of the landfill. Those owners and operators were sued by the principal
users of the landfill who in turn had been sued by the Environmental Protection
Agency ("EPA") in April, 1992. The complaint seeks contribution for the proposed
clean up of the site. The Company has not received settlement offers from the
EPA, but it settled its alleged liability with the private plaintiffs for
$54,000 for the costs associated with the remedial investigation of the site.
The Company has not settled its alleged liability for clean up costs at the
site. Beatrice Company (ConAgra) has assumed defense of the matter and has
agreed to defend and indemnify the Company for claims related to the MIG/Dewane
site to the extent they are related to Taylor and the events giving rise to the
claims occurring during the Beatrice Company (ConAgra) period of ownership.
Based upon presently available information, management does not believe this
matter will have a material effect on the Company's results of operation or
financial condition.
The Company has also received notice of potential environmental actions
from (i) the South Carolina Department of Health and Environmental Control
("SCDHEC") and the EPA with respect to drums of hazardous waste materials
disposed of in South Carolina, (ii) the SCDHEC with respect to the clean up of
the Unisphere Hazardous Waste Site in Spartanburg County, South Carolina, and
(iii) the Nevada Department of Conservation and Natural Resources, Division of
Environmental Protection ("NDEP"), which issued a finding of alleged violation
and order relating to alleged soil and ground water contamination.
13
<PAGE> 14
With respect to the SCDHEC matter discussed in (i) above, management is
unable to determine the existence or amount of its potential liabilities because
no formal proceedings have been commenced and no notifications have been
received regarding this matter since December, 1992. The Company has reason to
believe that this site will be the subject of no further action by the EPA. With
respect to the SCDHEC matter discussed in (ii) above, management is unable to
determine the existence or amount of its potential liability, if any, because
the use of the site by Beverage-Air occurred prior to the purchase of the
Beverage-Air assets by the Company from Gerlach Industries in November, 1986.
With respect to the NDEP matter discussed in (iii) above, the Company has spent
approximately $318,000 to conduct tests and to implement a remediation program,
but given the pendency of the Company's appeal and its uncertain outcome,
management cannot estimate what, if any, additional expenditures might be
required.
Routine Matters
In addition, the Company is routinely involved in other litigation,
including environmental matters, incidental to its business. Such routine claims
are being vigorously contested and management does not believe that the outcome
of such litigation will have a material adverse effect upon the financial
condition of the Company.
Letters of Credit
As of January 31, 1998, the Company had letters of credit outstanding
totaling $10.0 million, which guarantee various business activities, including
$6.5 million of letters of credit which guarantee the Industrial Project Revenue
Bonds.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of the year ended January 31, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Year First Joined
Specialty or a
Predecessor
Name Age Business Position and Offices Held
---- --- -------- -------------------------
<S> <C> <C> <C>
Daniel B. Greenwood 78 1955 Director and Chairman of the Board
Jeffrey P. Rhodenbaugh 43 1986 Chief Executive Officer, President, Chief
Operating Officer, Chief Executive Officer of
Taylor and Director
Donald K. McKay 66 1977 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
William W. Robertson 67 1970 Chairman, Chief Executive Officer and President
of Beverage-Air
</TABLE>
Mr. Greenwood has served as Chairman of the Board since January 1985. He
also served as Chief Executive Officer from that date until September 1988 and
from November 18, 1993 to January 31, 1995. On February 1, 1995, Mr. Greenwood
resigned as Chief Executive Officer upon the election to such office of Mr.
William E. Dotterweich. Mr. Greenwood has served as a director since January
1985. Prior to January 1985, he was employed by Taylor for 30 years, most
recently as President.
Mr. Rhodenbaugh has been President and Chief Operating Officer of the
Company and Chief Executive Officer of Taylor since September 1996. He became
Chief Executive Officer of the Company on May 1, 1997 upon Mr. Dotterweich's
retirement. He was elected to the Board of Directors on April 30, 1997. He was
President of Beverage-Air from March 1996 to September 1996. From April 1993 to
March 1996 he served as Executive Vice President of Beverage-Air. He also served
a Vice President of Marketing of the Company from January 1991 to September
1996. He served as President of Wells from January 1990 to January 1991 and as
Wells' Vice President of Sales and Marketing from 1986 to January 1990. Mr.
Rhodenbaugh joined Wells after nine years at Hobart Corporation as a field sales
employee and national account manager. Mr. Rhodenbaugh serves on the board of
directors and executive committee and, in 1997, he served as president of the
North American Association of Food Equipment Manufacturers (NAFEM).
14
<PAGE> 15
Mr. McKay has served as Executive Vice-President, Chief Financial Officer,
Treasurer and Secretary since April 1989. From January 1985 until April 1989,
Mr. McKay served as Vice President of Finance, Treasurer and Secretary. From
September 1988 to March 1992, Mr. McKay served as a director of the Company.
From 1977 to January 1985, Mr. McKay was employed by Beatrice, most recently as
Vice-President of its Commercial Equipment Division.
Mr. Robertson has been employed by Beverage-Air since 1970 and has been
Chairman and Chief Executive Officer of Beverage-Air since March 1, 1996. From
1974 until March 1, 1996 and since September 1996 Mr. Robertson has served as
President of Beverage-Air. From April 1987 to March 1992 Mr. Robertson served as
a director of the Company.
PART II
ITEM 5. MARKETS FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Common Stock of the Company were listed and began trading on
the Nasdaq Stock Market on December 1, 1993. As of the close of business on
March 23, 1998, there were approximately 60 holders of record of the shares of
Common Stock of the Company. The Company estimates that there are approximately
1,300 beneficial holders of its Common Stock as of the close of business on
March 23, 1998. The closing price of the Company's stock on March 23, 1998 as
reported by the Nasdaq Stock Market was $17-7/8. The following table sets forth
the market price per share for the Common Stock of the Company.
<TABLE>
<CAPTION>
Market Price
High Low
---- ---
<S> <C> <C>
Period from February 1, 1996 to April 30, 1996 15-1/8 10-7/8
Period from May 1, 1996 to July 31, 1996 15-3/4 10-1/4
Period from August 1, 1996 to October 31, 1996 13-3/4 10-3/8
Period from November 1, 1996 to January 31, 1997 14-1/4 11
Period from February 1, 1997 to April 30, 1997 14-1/8 12-1/8
Period from May 1, 1997 to July 31, 1997 16-1/4 12-1/4
Period from August 1, 1997 to October 31, 1997 17-1/2 14-3/4
Period from November 1, 1997 to January 31, 1998 17-3/8 15-1/2
</TABLE>
The Company has paid no dividends on its Common Stock and it is the
Company's present intention to not pay dividends in the foreseeable future. The
Company's ability to pay dividends is restricted by covenants contained in the
BA Credit Agreement and the indenture for the Notes.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial and
operating data for the Company and its predecessors for the periods and at the
dates indicated. The selected consolidated operating and financial data, at or
for each of the full fiscal years, presented below was derived from the
Consolidated Financial Statements of the Company, which were audited by KPMG
Peat Marwick LLP, independent auditors. The table should be read in conjunction
with the Consolidated Financial Statements, related notes, and other financial
information.
15
<PAGE> 16
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands, except ratio and per share data)
YEARS ENDED JANUARY 31,
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue $ 320,873 $ 371,730 $ 392,512 $ 401,230 $ 433,121
Gross margin 98,981 119,273 123,747 122,110 133,899
Earnings (loss) from operations before
interest expense and income taxes (34,219) (18,311) 39,379 60,723 63,043
Earnings (loss) before extraordinary item (58,420) (53,996) 8,911 34,122 37,542
Net earnings (loss) (58,420) (53,996) 8,693 32,338 37,542
Net earnings (loss) per common share (3.56) (3.29) 0.44 1.61 1.86
Interest expense 17,117 22,997 21,010 18,714 15,944
Pro forma interest expenses (4) 24,382 - - - -
Ratio of earnings to fixed charges (1) - - 1.81x 3.07x 3.85x
FINANCIAL RATIOS AND OTHER DATA:
EBITDA (2) $ 45,537 $ 60,629 $ 65,973 $ 66,992 $ 68,882
Depreciation 4,540 3,954 4,309 4,616 4,871
Amortization (3) 75,216 74,986 22,285 1,653 968
Capital expenditures 4,295 6,693 5,666 9,185 4,715
Ratio of EBITDA to interest expense 2.66x 2.64x 3.14x 3.58x 4.32x
Ratio of EBITDA to pro forma interest expense 1.87x - - - -
Ratio of EBITDA less capital expenditures to
interest expense 2.41x 2.35x 2.87x 3.09x 4.02x
Ratio of EBITDA less capital expenditures to
pro forma interest expense (4) 1.69x - - - -
<CAPTION>
JANUARY 31,
BALANCE SHEET DATA (AT PERIOD END): 1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $ 231,630 $ 168,576 $ 180,235 $ 176,916 $ 241,450
Cash and cash equivalents, including
restricted cash equivalents 2,803 6,907 34,320 10,846 42,609
Long-term debt, including current installments 219,416 199,179 193,215 155,581 177,986
Total other liabilities 79,455 90,192 94,641 92,566 102,275
Total stockholders' deficit (67,241) (120,795) (107,621) (71,231) (38,811)
</TABLE>
1. For purposes of determining this ratio, earnings consist of earnings
(loss) from operations before income tax expense (benefit) plus
interest expense and amortization of deferred financing costs. Fixed
charges consist of interest expense, plus amortization of deferred
financing costs. Earnings were insufficient to cover fixed charges by
$51.3 million and $41.3 million for fiscal 1994 and 1995, respectively.
2. EBITDA is defined as earnings from operations before interest expense,
income tax expense (benefit), depreciation and amortization. EBITDA
does not represent earnings from operating activities as defined by
generally accepted accounting principles and should not be considered
as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity, but
rather provides additional information related to debt service
capability.
3. Amortization expense includes the amortization of deferred financing
costs, reorganization value in excess of amounts allocable to
identifiable assets, goodwill, other intangible assets and unearned
compensation.
4. Pro forma interest expense, the ratio of EBITDA to pro forma interest
expense, and the ratio of EBITDA less capital expenditures to pro forma
interest expense, are calculated assuming the Refinancing had occurred
on February 1, 1993 (instead of December 1, 1993).
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
A substantial portion of the Company's revenue is derived from new
foodservice equipment requirements generated by openings of new facilities by
national quick service restaurant chains, convenience store chains and specialty
chains or their need to replace existing equipment. Since 1991, the foodservice
equipment market has grown, primarily as a result of the domestic and
international growth of the major U.S. restaurant chains. In 1996 (the most
recent available data), the domestic operating unit growth rate of U. S. major
restaurant chains was 5.7%. In addition, the major quick service restaurant
chains have commenced significant international expansion. In 1996, the
operating unit growth rate of the four largest U.S. restaurant chains in
international markets was approximately 17% which is nearly double its growth
rate of 9.5% in 1989. The Company's largest customer, McDonald's, alone accounts
for more than 50% of all international sales realized by the four largest U.S.
restaurant chains (source: Technomics Top 100). Also, the Company's customers in
the quick service restaurant industry have increased their demand for newer
equipment, due in part to international expansion, menu expansion efforts,
remodeling of existing stores and an increased emphasis on improved sanitation
and labor and energy efficiency. Management believes that, given the Company's
historic relationships with the major quick service restaurant chains, bottlers
and brewers, the Company is well positioned to capitalize upon these growth
opportunities. Also, the Company has made certain operational changes which
management believes have contributed to the Company's improved results.
The Company's financial performance is tied closely to its major customers'
demands for large quantities of mass produced customized products, or roll-outs.
For example, from fiscal 1994 through the first six months of fiscal 1996, the
Company's improved performance can be partially attributed to a continuing
significant rise in the number of orders for refrigerated point-of-purchase
displays by soft drink bottlers, primarily those associated with Coca-Cola and
PepsiCo products. During the last six months of fiscal 1996, the sales order
backlog and demand for refrigerators from the soft drink bottlers returned to
its historic pattern of being lower in the months of August through January as a
result of lower demand from the bottler industry for point-of-purchase units.
However, during fiscal 1997 and 1998, sales of refrigeration equipment to the
soft drink bottler industry increased, particularly internationally. In the
past, large roll-outs of products such as Taylor's "two-sided" grill have been
similarly significant to the Company's performance. However, the ability to
predict which customers and which products will experience roll-outs is limited,
and there can be no assurances that in any year the Company will receive orders
for any roll-outs.
RESULTS OF OPERATION
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1997.
Revenue. Revenue for fiscal 1998 increased 7.9% to $433.1 million compared
with $401.2 million for the prior fiscal year. The revenue increase was
primarily attributable to increased sales of refrigeration equipment to the soft
drink bottlers and sales by Gamko of $12.8 million which was acquired in August
1997. Sales were offset, in part, by a decline in domestic sales of equipment to
the Company's largest customer. The decline in the sales to this customer is
primarily attributable to a successful freezer trade-in program in fiscal 1997
and a reduction in the purchase of two-sided cooking grills by this customer.
Although the Company is no longer the sole supplier of two-sided cooking grills
to this customer, it has continued to receive a dominant share of that business.
There is no assurance that the Company will maintain such dominant share. See
"Item 1 - Dependence on Major Customer." Revenue attributable to sales of
products for use outside the United States increased by 11.0% in fiscal 1998, as
compared with fiscal 1997. The increase is attributable to sales of
refrigeration equipment by Gamko. Fiscal 1998 revenue from sales of products for
use outside the United States constituted 32.1% of revenue compared with 31.2%
in fiscal 1997.
Gross Margin. Gross margin for fiscal 1998 increased 9.7% to $133.9 million,
compared with $122.1 million in fiscal 1997. As a percent of revenue, gross
margin increased from 30.4% in fiscal 1997 to 30.9% in fiscal 1998. The increase
is primarily attributable to a favorable sales mix, due in part to the
integration of Gamko.
17
<PAGE> 18
Selling, General and Administrative Expenses (SG&A). SG&A expenses for fiscal
1998 increased 17.0% to $69.9 million compared with $59.7 million in fiscal
1997. As a percent of revenue, SG&A increased from 14.9% to 16.1% of revenue,
respectively, in fiscal 1998 as compared to fiscal 1997. The increase in fiscal
1998 SG&A expenses was due to favorable casualty insurance experience in the
prior year, higher selling, sales promotion and increased research and
development expenses in fiscal 1998 and the integration of Gamko.
Amortization. Amortization for fiscal 1998 decreased 41.4% to $1.0 million,
compared with $1.7 million in fiscal 1997.
Interest Expense. Interest expense for fiscal 1998 decreased 14.8% to $15.9
million from $18.7 million in fiscal 1997. The decrease is principally due to
repurchasing $31.0 million of the outstanding Notes in fiscal 1997 and reducing
net outstanding debt by $9.4 million in fiscal 1998.
Income Taxes. Income tax expense for fiscal 1998 increased 21.2% to $9.6
million from $7.9 million in fiscal 1997 due to increased earnings. Tax expense
for fiscal 1998 included recognition of tax benefits related to deferred tax
assets of $7.1 million, of which $5.1 million was due to a reduction in the
valuation allowance. Tax expense for fiscal 1997 included the recognition of
$7.2 million of tax benefits related to deferred tax assets, of which $5.1
million was due to a reduction in the valuation allowance.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1996.
Revenue. Revenue for fiscal 1997 increased 2.2% to $401.2 million compared
with $392.5 million for the prior fiscal year. The revenue increase was
primarily attributable to increased sales of ice cream freezer equipment and
increased sales of cooking equipment. Sales were offset, in part, by a decline
in sales of refrigeration equipment to the domestic bottlers. Revenue
attributable to sales of products for use outside the United States increased by
18.4% in fiscal 1997, as compared with fiscal 1996. The increase is attributable
to increased sales of refrigeration equipment to the international bottlers and
increased sales of ice cream freezer and cooking equipment to the Company's
largest customer. Fiscal 1997 revenue from sales of products for use outside the
United Sates constituted 31.2% of revenue compared with 26.7% in fiscal 1996.
Gross Margin. Gross margin for fiscal 1997 decreased 1.3% to $122.1 million,
compared with $123.7 million in fiscal 1996. As a percent of revenue, gross
margin declined from 31.5% in fiscal 1996 to 30.4% in fiscal 1997. The decline
in gross margin percentage was largely due to higher direct material costs,
primarily stainless steel.
Selling, General and Administrative Expenses (SG&A). SG&A expenses for fiscal
1997 decreased 3.8% to $59.7 million compared with $62.1 million in fiscal 1996.
As a percent of revenue, SG&A declined from 15.8% to 14.9% of revenue,
respectively, in fiscal 1997 as compared to fiscal 1996. The decrease in fiscal
1996 SG&A expenses was primarily due to favorable casualty insurance experience
during fiscal 1997, lower product warranty expense and a continuation of cost
reduction efforts initiated in fiscal 1996 and 1997.
Amortization. Amortization for fiscal 1997 decreased 92.6% to $1.7 million,
compared with $22.3 million in fiscal 1996. The decline was due to the
completion of the amortization period of the "Excess Reorganization Value" on
March 31, 1995. The Excess Reorganization Value was amortized over three years
beginning April 1992.
Interest Expense. Interest expense for fiscal 1997 decreased 10.9% to $18.7
million from $21.0 million in fiscal 1996. The decrease is principally due to a
decrease in total borrowings.
Income Taxes. Income tax expense for fiscal 1997 decreased 16.6% to $7.9
million from $9.5 million in fiscal 1996. The decrease in tax expense is largely
attributable to the recognition of tax benefits related to deferred tax assets
of $7.2 million of which $5.1 million was due to a reduction in the valuation
allowance for deferred tax assets. This effect was offset partially by increased
earnings before taxes and amortization of approximately $3.0 million, which
increased income tax expense by approximately $1.2 million.
18
<PAGE> 19
The following table sets forth selected operating data as a percentage of net
revenue:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 (%) 1997 (%) 1998 (%)
-------- -------- --------
<S> <C> <C> <C>
Beverage-Air 39.0 40.2 43.4
Taylor 42.5 42.4 36.9
Gamko - - 3.0
Wells/Bloomfield 14.9 14.1 13.4
World Dryer 3.6 3.3 3.3
----- ----- -----
Net revenue 100.0 100.0 100.0
Gross margin 31.5 30.4 30.9
Selling, general and administrative expenses 15.8 14.9 16.1
Amortization 5.7 0.4 0.2
----- ----- -----
Earnings from operations 10.0 15.1 14.6
Interest expense, net (5.4) (4.7) (3.7)
Income taxes (2.3) (1.9) (2.2)
----- ----- -----
Earnings before extraordinary item 2.3 8.5 8.7
===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Total cash flows provided by operations were $40.8 million, $24.0 million and
$47.0 million in fiscal 1996, 1997 and 1998, respectively. These amounts
primarily represent net earnings (loss) plus depreciation and amortization and
the impact of cash flows from working capital requirements. Total cash flows
from operations for fiscal 1998 resulted from an increase in net earnings and
cash flows from working capital.
Net cash used in investing activities amounted to $7.7 million, $7.7 million,
and $25.9 million in fiscal 1996, 1997 and 1998, respectively. The increase is
attributable to $21.6 million used for acquisition of businesses, primarily
Gamko, partially offset by lower capital expenditures of $4.5 million in fiscal
1998. Capital expenditures were $4.7 million in fiscal 1998 compared to $9.2
million in fiscal 1997. The Company's capital expenditures in fiscal 1998, of
$4.7 million, decreased compared to the prior year as a result of the addition
of a new Beverage-Air manufacturing facility and the addition of Taylor's
Technical/Development Center in the prior year. The Company expects capital
spending to be approximately $9.0 million in the next fiscal year. It is
anticipated that the expenditures for tooling, machinery and equipment will be
funded in part from short term investments of $2.7 million made by the Company
from proceeds from Industrial Project Revenue Bond financing.
Net cash provided by (used in) financing activities amounted to $(5.2)
million, $(37.9) million and $10.8 million in fiscal 1996, 1997 and 1998,
respectively. In fiscal 1998, in connection with the Gamko acquisition, the
Company obtained bank financing of $18.0 million. In fiscal 1996, the Company
repaid in full its senior term loan of $15.0 million, repaid $7.0 million of its
line of credit and acquired $5.0 million of its Notes. In fiscal 1997, the
Company acquired $31.0 million of its Notes. In fiscal 1997, the Company
recorded an extraordinary loss of $1.8 million (net of taxes) for the premium
paid on the early extinguishment of the Notes. The BA Credit Agreement provides
for a $60 million credit facility which includes an unsecured line of credit of
$45 million and a $15 million facility for letters of credit.
The Company's BA Credit Agreement expires on November 30, 1998. The first
call date on the Notes is December 1, 1998. The Company believes that given the
current interest rate environment and the Company's improved credit position it
may be able to refinance the Notes and the BA Credit Agreement under more
favorable terms, although there can be no assurance that such refinancing will
be possible.
19
<PAGE> 20
As of January 31, 1998, the Company had no borrowings under the BA Credit
Agreement for working capital purposes and $10.0 million for letters of credit.
The amount available for additional borrowings under this facility was
approximately $45.0 million at January 31, 1998. Interest rates under the Bank
Credit Agreement equal the Bank Rate, as defined (5.65% at January 31, 1998)
plus 0.40% for the revolving line of credit (at the Company's option the
interest can be the lender's base rate (8.50% at January 31, 1998) for the
revolving line of credit). The Company reported working capital of $56.6 million
at January 31, 1998. The Company's average operating working capital (defined as
average monthly gross accounts receivable and net inventory less accounts
payable) as a percentage of sales declined from 23% during fiscal 1995 to 21%
during fiscal 1998.
In September 1997, the Company announced its intention to acquire up to $10
million of its common stock in open market and private transactions. As of
January 31, 1998, the Company had acquired 403,896 shares at a total cost of
$6,579,000.
The Company's earnings from operations were sufficient to cover fixed charges
by $18.4 million, $42.0 million and $47.1 for fiscal 1996, fiscal 1997 and
fiscal 1998, respectively. The Company's earnings before interest, taxes,
depreciation and amortization (EBITDA) exceeded its fixed charges by $43.3
million, $48.3 million and $52.4 million for fiscal 1996, 1997 and 1998,
respectively.
The Company had four financial covenants to meet at January 31, 1998 under
the BA Credit Agreement dated December 1, 1993 - a liquidity ratio covenant at
January 31, 1998 of at least 1.25:1.00; a senior funded debt to cash flow ratio
covenant as of January 31, 1998 of not greater than 2.00:1.00; a total funded
debt to cash flow ratio for the twelve months ended January 31, 1998 of not
greater than 3.50:1.00; and an interest coverage ratio of at least 2.00:1.00.
The Company met each of these covenants as it reported a liquidity ratio of
24.95:1.00 at January 31, 1998; a senior funded debt to cash flow ratio of
0.09:1.00 as of January 31, 1998; a total funded debt to cash flow ratio for the
twelve months ended January 31, 1998 of 2.53:1.00; and an interest coverage
ratio for the twelve months ended January 31, 1998 of 4.03:1.00.
Management believes that the sources of capital described above, together
with internally generated funds, will be adequate to meet the Company's
anticipated capital and cash requirements for the foreseeable future, including
debt service and corporate income taxes. The Company experiences certain
seasonal fluctuations in its working capital requirements. See "Item 1 -
Seasonality."
IMPACT OF INFLATION
Management does not believe that inflation has had a material impact on the
Company's operations during fiscal 1998. Management believes that the Company
may face increasing costs in the upcoming fiscal year as a result of inflation
which the Company may not fully be able to offset with increased productivity or
pass on to its customers due to competitive factors within the industry.
ACCOUNTING STANDARDS
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires the prominent display of comprehensive income and its
components in the financial statements. The Company is required to comply with
SFAS No. 130 in fiscal year 1999 and estimates its adoption will not have a
material effect on the consolidated financial statements.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements.
The Company is required to comply with SFAS No. 131 in fiscal year 1999 and
estimates its adoption will not have a material effect on the consolidated
financial statements.
In February, 1998, the FASB issued SFAS No. 132, "Employers Disclosures About
Pension and Postretirement Benefits," which amends certain financial statement
disclosures. The Company is required to comply with SFAS No. 132 in fiscal year
1999 and estimates its adoption will not have a material effect on the
consolidated financial statements.
20
<PAGE> 21
YEAR 2000
In 1996, the Company began converting its computer systems to be Year 2000
compliant (i.e., to recognize the difference between '99 and '00 as one year
instead of negative 99 years). The Company expects to be Year 2000 compliant on
or before December 31, 1998. As part of this project the Company is also
monitoring the Year 2000 compliance status of its major distributors and
suppliers. Total costs of the project through January 31, 1998 have been
approximately $175,000. The costs to complete the project are estimated to be
approximately $275,000. The costs are being funded through operating cash flows
and are expensed as incurred.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report on
Form 10-K, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated and discussed herein. These factors include:
general economic conditions and their impact on the growth of the quick service
restaurant and soft drink bottler industries, the Company's dependence on its
major customer and key management personnel, the effects of competition, the
significance of the Company's outstanding indebtedness and other factors
detailed elsewhere from time to time in the Company's filings with the
Securities and Exchange Commission.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the Financial Statements and Supplementary Data
as required by Item 8 of Part II of Form 10-K.
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Specialty Equipment Companies, Inc.:
We have audited the accompanying consolidated balance sheets of Specialty
Equipment Companies, Inc. (the "Company") and subsidiaries as of January 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended January 31, 1998. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in Item 14(a)(2). These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Specialty
Equipment Companies, Inc. and subsidiaries as of January 31, 1997 and 1998 and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related 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.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 19, 1998
22
<PAGE> 23
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,787 $ 39,947
Accounts receivable, net 53,486 63,043
Inventories 55,311 54,030
Deferred tax assets, net 10,210 15,310
Other current assets 5,637 3,143
-------- --------
Total current assets 132,431 175,473
Property, plant and equipment, net 34,217 38,743
Restricted cash equivalents 3,059 2,662
Goodwill - 15,645
Other intangibles, net 5,861 7,973
Other assets 1,348 954
-------- --------
Total assets $176,916 $241,450
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt $ 141 $ 18,395
Accounts payable 25,371 26,425
Accrued liabilities 59,852 68,748
Accrued income taxes 4,939 5,340
-------- --------
Total current liabilities 90,303 118,908
Long-term debt, excluding current installments 155,440 159,591
Other non-current liabilities 2,404 1,762
Stockholders' equity (deficit):
Common stock, $.01 par value, 25,000,000 shares authorized,
17,985,918 and 18,082,804 shares issued and outstanding at
January 31, 1997 and 1998, respectively 180 181
Additional paid-in capital 54,501 58,298
Accumulated deficit (125,583) (88,041)
Foreign currency translation adjustment (191) (308)
Other (138) (2,327)
Treasury stock, at cost, 403,896 shares at January 31, 1998 - (6,614)
-------- --------
Total stockholders' deficit (71,231) (38,811)
-------- --------
Total liabilities and stockholders' deficit $176,916 $241,450
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
23
<PAGE> 24
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended January 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenue $ 392,512 $401,230 $433,121
Cost of sales 268,765 279,120 299,222
--------- -------- --------
Gross margin 123,747 122,110 133,899
Selling, general and administrative expenses 62,083 59,734 69,888
Amortization 22,285 1,653 968
--------- -------- --------
Earnings from operations 39,379 60,723 63,043
Interest expense, net 21,010 18,714 15,944
--------- -------- --------
Earnings from operations before income taxes 18,369 42,009 47,099
Income taxes 9,458 7,887 9,557
--------- -------- --------
Earnings before extraordinary item 8,911 34,122 37,542
Extraordinary item (218) (1,784) -
--------- -------- --------
Net earnings $ 8,693 $ 32,338 $ 37,542
--------- -------- --------
Basic earnings per share before extraordinary item $ 0.53 $ 1.95 $ 2.07
Extraordinary item (0.01) (0.10) -
--------- -------- --------
Basic earnings per share $ 0.52 $ 1.85 $ 2.07
========= ======== ========
Diluted earnings per share before extraordinary item $ 0.45 $ 1.70 $ 1.86
Extraordinary item (0.01) (0.09) -
--------- -------- --------
Diluted earnings per share $ 0.44 $ 1.61 $ 1.86
========= ======== ========
Weighted average shares outstanding - basic 16,872 17,514 18,143
Weighted average shares outstanding - diluted 19,709 20,058 20,205
</TABLE>
The accompanying notes are an integral part of these consolidated statements
24
<PAGE> 25
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Foreign
Additional Currency Treasury
Common Paid-in Accumulated Translation Stock and
Stock Capital Deficit Adjustment Other Total
----- ------- ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995 $ 164 $45,962 $ (166,614) $ (275) $ (32) $(120,795)
Net earnings - - 8,693 - - 8,693
Exercise of stock options 9 860 - - - 869
Tax benefit of stock options - 4,073 4,073
Minimum pension liability - - - - (504) (504)
Foreign currency translation - - - 43 - 43
----- ------- ---------- ------ -------- ---------
Balance at January 31, 1996 173 50,895 (157,921) (232) (536) (107,621)
Net earnings - - 32,338 - - 32,338
Exercise of stock options 7 789 - - - 796
Tax benefit of stock options - 3,354 - - - 3,354
Options cancelled for taxes - (1,052) - - - (1,052)
Utilization of NOL carryforward - 515 - - - 515
Minimum pension liability - - - - 398 398
Foreign currency translation - - - 41 - 41
----- ------- ---------- ------ -------- ---------
Balance at January 31, 1997 180 54,501 (125,583) (191) (138) (71,231)
Net earnings - - 37,542 - - 37,542
Exercise of stock options 1 1,525 - - - 1,526
Tax benefit of stock options - 3,065 - - - 3,065
Options cancelled for taxes - (1,885) - - - (1,885)
Treasury stock - - - - (6,614) (6,614)
Utilization of NOL carryforward - 1,092 - - - 1,092
Minimum pension liability - - - - (2,189) (2,189)
Foreign currency translation - - - (117) - (117)
----- ------- ---------- ------ -------- ---------
Balance at January 31, 1998 $ 181 $58,298 $ (88,041) $ (308) $ (8,941) $ (38,811)
===== ======= ========== ====== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE> 26
SPECIALTY EQUIPMENT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended January 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 8,693 $ 32,338 $ 37,542
Items not affecting cash:
Depreciation 4,307 4,584 4,856
Amortization 22,414 2,303 968
Deferred taxes (5,105) (5,105) (5,100)
Utilization of net operating loss carryforward 1,742 1,092 1,092
Changes in current assets and liabilities (excluding
effects of business acquired):
Accounts receivable (381) (8,027) (4,787)
Inventories 2,260 (3,341) 4,335
Other current assets (2,249) 41 3,141
Accounts payable and other current liabilities, excluding
current installments of long-term debt 9,118 89 4,944
------- ------- --------
Net cash flows provided by operating activities 40,799 23,974 46,991
Cash flows from investing activities:
Additions to property, plant and equipment (5,666) (9,185) (4,715)
Disposal of property, plant and equipment 198 38 49
Cash equivalents restricted for capital additions (2,210) 2,814 397
Businesses acquired - (1,321) (21,584)
------- ------- --------
Net cash used in investing activities (7,678) (7,654) (25,853)
------- ------- --------
Cash flows from financing activities:
Net decrease in revolving credit facilities (6,967) - -
Proceeds from long-term debt 6,400 - 18,000
Repayments of long-term debt (5,397) (37,601) (264)
Financing costs (111) - -
Proceeds from exercise of stock options 869 796 1,526
Options cancelled for taxes - (1,052) (1,885)
Acquisition of treasury stock - - (6,614)
------- ------- --------
Net cash provided by (used in) financing activities (5,206) (37,857) 10,763
------- ------- --------
Other, net (2,712) 877 259
------- ------- --------
Net increase (decrease) in cash 25,203 (20,660) 32,160
Cash:
Beginning of period 3,244 28,447 7,787
------- ------- --------
End of period $28,447 $ 7,787 $ 39,947
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26
<PAGE> 27
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
1. ORGANIZATION OF BUSINESS
Specialty Equipment Companies, Inc. (the "Company") is a manufacturer of a
diversified line of highly engineered commercial and institutional foodservice
equipment that is used by a variety of quick service restaurant chains,
convenience store chains, specialty chains, soft drink bottlers and
institutional foodservice operators.
The Company was incorporated on November 28, 1984 in the State of Delaware.
All of the significant U. S. operations are divisions of Specialty Equipment
Manufacturing Corporation, a wholly-owned subsidiary of the Company, which was
organized on January 31, 1998. Quaboes B.V., acquired in order to facilitate the
acquisition of Gamko Holding B.V. ("Gamko"), and Gamko are wholly-owned
subsidiaries of the Company, based in The Netherlands. World Dryer Co., Limited
is a division of Bloomfield Industries Canada Limited, which is a wholly-owned
subsidiary of the Company. Taylor Freezer International, S.r.l., Taylor Freezer
(Cyprus) Ltd., Taylor-Chicago Corp. and Coolpart B.V. are wholly-owned
subsidiaries of the Company. FM Manufacturing, Inc. (formerly known as Market
Forge Co.) is a wholly-owned subsidiary, but has not had any operations since
October 1993. Included in revenue for fiscal 1996, 1997 and 1998 are $105.9,
$125.4 and $139.1 million, respectively, of export sales, principally to Europe,
Asia and Latin America. Sales to one customer approximated 22%, 20% and 15%,
respectively, of revenue in fiscal years 1996, 1997 and 1998.
Effective August 1, 1997, a wholly owned subsidiary of the Company acquired
Gamko for $21 million in cash. Gamko is based in The Netherlands and is engaged
in the manufacture and sale of refrigeration equipment to the foodservice
industry. The acquisition has been accounted for by the purchase method and,
accordingly, the results of operations of Gamko have been included in the
Company's consolidated financial statements from August 1, 1997. The excess of
the purchase price over the fair value of the net identifiable assets acquired
has been recorded as goodwill and is being amortized on a straight-line basis
over 40 years. The purchase agreement also provides for additional payments
contingent on Gamko meeting certain earnings objectives. The additional
payments, if any, will be accounted for as additional goodwill.
The following unaudited pro forma financial information presents the combined
results of operations of Specialty Equipment Companies, Inc. and Gamko as if the
acquisition had occurred as of the beginning of fiscal 1997 and fiscal 1998,
after given effect to certain adjustments, including amortization of goodwill,
additional depreciation expense, increased interest expense on debt related to
the acquisition, and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and Gamko constituted a single entity during such
periods. ($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Years Ended January 31,
1997 1998
---- ----
(unaudited)
<S> <C> <C>
Net sales $ 424,469 $ 445,781
========= =========
Net earnings $ 32,887 $ 38,246
========= =========
Diluted earnings per share $ 1.64 $ 1.89
========= =========
</TABLE>
27
<PAGE> 28
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Fresh Start Accounting
The Company has implemented, as of March 31, 1992, the recommended accounting
for entities emerging from Chapter 11 reorganization set forth in SOP 90-7.
Following the 1992 Reorganization, the Company recorded Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets ("Reorganization Value") of
$187.3 million. The Company amortized Reorganization Value during the three year
period ending March 31, 1995, which significantly affected net loss and
stockholders' equity. Such amortization, however, did not affect the Company's
cash flow.
b. Principles of Consolidation and Report Preparation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation. Certain reclassifications have
been made to the prior years' financial statements to conform with the current
year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported results of operations, financial position and various
disclosures. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
The Company considers all short-term deposits with a maturity of three months
or less to be cash equivalents.
d. Inventories
The Company values domestic inventories at the lower of last-in, first-out
(LIFO) cost or market.
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated over the
estimated useful lives of the respective assets using the straight-line method
for financial statement purposes and using the modified accelerated cost
recovery system for income tax purposes. Depreciable lives are principally 40
years for buildings and building improvements and 10 to 14 years for machinery
and equipment. Repair and maintenance costs are expensed as incurred.
f. Restricted Cash Equivalents
Restricted cash equivalents represent amounts designated for capital
additions which were received from the placement of Industrial Project Revenue
Bonds in excess of amounts expended on the projects through January 31, 1998.
The amounts are invested in tax exempt, cash equivalent instruments.
g. Goodwill and Intangible Assets
Intangible assets relate to the businesses acquired, proprietary trademarks
and patents, and covenants not to compete. The intangible assets are being
amortized over an average useful life of three to 15 years using the
straight-line method. Goodwill is being amortized over 40 years.
h. Warranty Reserves
Warranty reserves are accrued at the time of sale based on historical
experience and current product mix. Product warranties generally provide one
year coverage on parts and 90 days on labor, with certain exceptions.
28
<PAGE> 29
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
i. Income Taxes
The asset and liability method is used in accounting for income taxes. Under
this method deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
j. Foreign Currency Translation
The accounts of Bloomfield Industries Canada Limited and Gamko are translated
into U.S. dollars in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52. Assets and liabilities are translated at the year-end exchange
rate. Revenue and expenses are translated using a weighted average rate for the
year. The adjustment resulting from translation is reflected as an adjustment to
equity in the accompanying consolidated financial statements. Gains and losses
from foreign currency transactions are included in results of operations
currently.
k. Statements of Cash Flows
Cash paid for interest and income taxes is as follows: ($ in thousands)
<TABLE>
<CAPTION>
Years Ended January 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Interest, net $ 21,121 $ 19,329 $ 15,972
Income taxes 10,826 6,580 7,112
</TABLE>
l. Pensions and Postretirement Benefits
The Company offers pension plans which cover substantially all employees and
a postretirement medical benefit plan to retirees at one of its divisions. The
Company has recognized the liabilities for these plans pursuant to an actuarial
valuation of the benefits and costs of these programs using costs, asset return
and inflation factors deemed appropriate and reasonable. The discount rate used
to determine the liabilities recognized was 7.75% in 1997 and 6.75% in 1998. The
benefits for the postretirement medical benefit plan are paid on a current basis
and are not prefunded.
m. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of the
short maturity of these financial instruments. The fair value, based on market
prices, of the Senior Subordinated Notes (see Note 9) is $161.9 million (face
value $149.0 million). The Bank Credit Agreement (see Note 9) is at variable
interest rates tied to market rates and accordingly, the Company considers the
fair value to be the same as its carrying value.
n. Earnings Per Share of Common Stock
Effective January 31, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, Earnings per Share. Statement No. 128
replaces the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any diluted effects of options and convertible
securities. Diluted earnings per share is computed similarly to fully diluted
earnings per share. All earnings per share amounts for all periods presented
have been restated to conform to the requirements of Statement No. 128. The
difference in basic weighted average shares outstanding and diluted weighted
average shares outstanding results from stock options and warrants. The dilutive
effect of the options and warrants were $0.08, $0.24 and $0.21 in fiscal 1996,
1997 and 1998, respectively.
29
<PAGE> 30
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
o. Stock Option Plans
Prior to February 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
On February 1, 1996 the Company adopted SFAS No. 123, Accounting for Stock
Based Compensation, which permits entities to recognize as expense over the
vesting period the fair value of stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25.
p. Research and Development Expenses
Research and development costs are charged to expense when incurred. Total
research and development costs charged to expense were $4.1 million, $4.8
million and $6.9 million in fiscal 1996, 1997 and 1998, respectively.
q. Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer.
r. Advertising Costs
Advertising costs are charged to expense when incurred. Total advertising
costs charged to expense were $5.0 million, $7.6 million and $8.4 million in
fiscal 1996, 1997 and 1998, respectively.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
($ in thousands)
<S> <C> <C>
Accounts receivable $ 58,145 $ 66,998
Less: allowance for doubtful accounts 4,659 3,955
-------- --------
Total $ 53,486 $ 63,043
======== ========
</TABLE>
Substantially all of the Company's receivables represent sales made directly,
or indirectly through distributors, to the foodservice and beverage industry.
30
<PAGE> 31
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
($ in thousands)
<S> <C> <C>
Raw material $ 27,082 $ 28,602
Work in process 8,005 8,885
Finished goods 20,224 16,624
-------- --------
Subtotal 55,311 54,111
Less: excess of FIFO cost over LIFO - 81
-------- --------
Total $ 55,311 $ 54,030
======== ========
</TABLE>
LIFO has a de minimis effect in fiscal 1997.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
($ in thousands)
<S> <C> <C>
Land $ 897 $ 897
Buidlings and building improvements 17,004 22,306
Machinery and equipment 26,289 36,945
Construction in progress 8,999 4,039
Fixed assets under capital leases 705 3,185
-------- --------
Total 53,894 67,372
Less: accumulated depreciation and amortization 19,677 28,629
-------- --------
Net property, plant and equipment $ 34,217 $ 38,743
======== ========
</TABLE>
7. GOODWILL AND INTANGIBLES
<TABLE>
<CAPTION>
Years Ended January 31,
January 31,
1997 1998
---- ----
($ in thousands)
<S> <C> <C>
Goodwill $ - $ 15,843
Less: accumulated amortization - 198
------- --------
$ - $ 15,645
======= ========
Intangible consist of the following:
Patents $ 991 $ 991
Other intangibles 49,571 52,076
Deferred pension costs 1,603 1,961
------- --------
Total 52,165 55,028
Less: accumulated amortization 46,304 47,055
------- --------
Net intangibles $ 5,861 $ 7,973
======= ========
</TABLE>
31
<PAGE> 32
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
($ in thousands)
<S> <C> <C>
Accrued insurance premiums and self-
insurance reserves $ 13,150 $ 13,689
Accrued payroll and other compensation 12,123 16,958
Accrued warranty reserves 7,052 6,664
Accrued discontinued product lines 4,997 4,860
Accrued retiree medical expense 5,854 6,995
Accrued interest 2,911 2,883
Other 13,765 16,699
-------- --------
Total $ 59,852 $ 68,748
======== ========
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
($ in thousands)
<S> <C> <C>
Revolving line of credit (a) $ - $ -
11-3/8% senior subordinated notes due 2003 (b) 149,040 149,040
Industrial project revenue bonds due 2008 (c) 6,400 6,400
Other long-term debt (d) - 18,711
Capitalized leases (e) 141 3,835
-------- --------
155,581 177,986
Less: current installments 141 18,395
-------- --------
Total long-term debt $155,440 $159,591
======== ========
</TABLE>
(a) BA Credit Agreement
The BA Credit Agreement provides for an unsecured $45.0 million revolving
line of credit, as amended, and a $15.0 million letter of credit facility. As of
January 31, 1998 the Company had no borrowings on its revolving line of credit.
The BA Credit Agreement expires on November 30, 1998.
Interest rates under the BA Credit Agreement equal the Bank Rate, as defined
(5.65% at January 31, 1998) plus 0.40% for the revolving line of credit (at the
Company's option the interest can be the lender's base rate (8.50% at January
31, 1998) for the revolving line of credit.)
(b) Senior Subordinated Notes
In December 1993 the Company issued $185.0 million, 11-3/8% Senior
Subordinated Notes. Interest is payable semiannually on June 1 and December 1.
The principal is due in 2003. The Notes are unsecured and are subordinate to the
Bank Credit Agreement. The Notes contain various financial and operational
covenants and early redemption provisions and prohibit the payment of dividends.
In July 1995, the Company acquired $5 million of the Notes on the open market.
In August 1996, the Company acquired $31 million of the Notes in the open
market. The loss on the early extinguishment of the debt, including deferred
financing costs associated with its issuance, is reflected in the statements of
operations as an extraordinary item.
32
<PAGE> 33
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
(c) Industrial Project Revenue Bonds
In September 1994 the Company issued $6.5 million of variable interest rate
Industrial Project Revenue Bonds due 2008 ("2008 IRBs"). In August 1996 the
Company redeemed the 2008 IRBs. In February 1995 the Company issued $6.4 million
of variable interest rate Industrial Project Revenue Bonds ("2009 IRBs").
Interest is payable monthly and the principal is due in 2009. The 2009 IRBs are
secured by an irrevocable letter of credit for $6.5 million. Proceeds from the
issuance not currently necessary for the capital improvement project are
invested in tax exempt, cash equivalent instruments. The invested balance at
January 31, 1998 was $2.7 million and is classified as a long-term asset on the
Company's balance sheet.
(d) Other Long-Term Debt
Other long-term debt consists principally of an $18 million, variable
interest rate, 12-year demand term loan, due 2009, incurred in connection with
the acquisition of Gamko. As of January 31, 1998 the interest rate was 5.625%.
(e) Leased property and leasehold interests
Leased property and leasehold interests under capital leases are included in
property, plant and equipment. Future minimum payments under noncancelable
leases as of January 31, 1998 are as follows: ($ in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ending Capital Operating
January 31, Leases Leases
------ ------
<S> <C> <C>
1999 $ 582 $ 2,201
2000 582 1,829
2001 552 1,320
2002 380 795
2003 278 448
Thereafter 4,663 24
------- -------
Total payments 7,037 6,617
Less: interest 3,202 -
------- -------
Total capital leases $ 3,835 $ 6,617
======= =======
</TABLE>
Rent expense under operating leases amounted to $2.1 million, $2.3 million
and $3.0 million for the fiscal years ended January 31, 1996, 1997 and 1998,
respectively.
33
<PAGE> 34
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
10. INCOME TAXES
The components of income tax expense consist of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
($ in thousands)
<S> <C> <C> <C>
Year ended January 31, 1996
Federal $ 12,392 $ (4,319) $ 8,073
State 2,056 (786) 1,270
Foreign 115 - 115
-------- -------- -------
Total $ 14,563 $ (5,105) $ 9,458
Year ended January 31, 1997
Federal $ 11,270 $ (4,319) $ 6,951
State 1,544 (786) 758
Foreign 178 - 178
-------- -------- -------
Total $ 12,992 $ (5,105) $ 7,887
Year ended January 31, 1998
Federal $ 12,374 $ (4,315) $ 8,059
State 1,684 (785) 899
Foreign 599 - 599
-------- -------- -------
Total $ 14,657 $ (5,100) $ 9,557
======== ======== =======
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35 percent to pretax loss as a result of the
following: ($ in thousands)
<TABLE>
<CAPTION>
Years Ended January 31,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) computed at the
Federal statutory rate $ 6,429 $ 14,703 $ 16,513
Increase (reduction) in income taxes resulting from:
Amortization of Reorganization Value 3,093 - -
Change in valuation of temporary differences - (7,945) (5,933)
State income taxes, net of Federal income
tax benefit 1,415 1,149 1,471
Foreign sales corporation (1,141) (1,393) (1,394)
Other, net (338) 1,373 (1,100)
------- ------- -------
Provision for income taxes $ 9,458 $ 7,887 $ 9,557
======= ======= =======
</TABLE>
The benefits in fiscal 1996 and 1997 of the utilization of $2.8 million (tax
effected $1.1 million) of net operating loss carryforwards ("NOLs") that existed
prior to the Plan of Reorganization ("POR") pursuant to the Company's 1992
Reorganization, reduced the Reorganization Value through fiscal 1996 until such
balances were exhausted and thereafter reduced other intangibles existing at the
date of reorganization until exhausted and thereafter beginning in fiscal 1997
were recorded as a direct addition to additional paid-in capital.
34
<PAGE> 35
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
<S> <C> <C>
Deferred taxes: ($ in thousands)
Allowance for doubtful accounts $ 1,805 $ 740
Intangibles, due to differences in amortization 13,365 13,250
Accrued liabilities, principally due to accruals for compensated absences,
self-insurance liability reserves, warranties, pension, discontinued
product lines and postretirement benefits other than pensions 14,985 15,400
Net operating loss carryforwards 6,280 5,175
-------- --------
Total gross deferred tax assets 36,435 34,565
Less valuation allowance (22,125) (15,100)
-------- --------
Net deferred tax assets 14,310 19,465
-------- --------
Deferred tax liabilities:
Inventories, principally due to additional costs inventoried for
tax purposes pursuant to the IRC and tax
basis difference resulting from the 1992 Reorganization (2,525) (2,700)
Property, plant and equipment, principally due to
differences in depreciation (1,575) (1,455)
-------- --------
Total deferred tax liabilities (4,100) (4,155)
-------- --------
Net deferred taxes $ 10,210 $ 15,310
======== ========
</TABLE>
The net change in the total valuation allowance for fiscal 1997 and 1998 was
a decrease of $8.5 million and $7.0 million, respectively. There was no change
in the valuation allowance in fiscal 1996. The Company believes that the
valuation allowance is sufficient to reduce the net deferred tax asset to an
amount that will more likely than not be realized. The Company will continue to
review the need for this valuation allowance and make adjustments as deemed
appropriate. The Company has approximately $13.3 million in NOLs. However, there
are a number of issues that may arise which, if determined adversely, could
limit the amount and/or use of available NOLs. These issues include the
availability of certain deductions previously claimed by the Company and the
applicability of certain provisions of the Internal Revenue Code of 1986, as
amended, (the "IRC") generally limiting the availability of NOLs following
certain changes in ownership. The NOLs are available through fiscal 2008.
Earnings before income taxes include foreign income of $297,000, $493,000 and
$1,433,000 in the years ended January 31, 1996, 1997 and 1998, respectively.
11. PENSION AND BENEFIT PLANS
Pension and Profit Sharing Plans
The Company has non-contributory defined benefit plans in place covering
substantially all employees. Annual contributions to the plans are equal to the
minimum amount required to meet funding standards of the Internal Revenue Code.
These contributions are deductible for Federal income tax purposes. Benefits for
these plans are based primarily on years of service or qualifying compensation,
or both, of the participants. The plans' assets are invested in various pooled
arrangements consisting of equities, fixed income, real estate, venture capital
and short-term obligations.
35
<PAGE> 36
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
The following sets forth the plans' funded status and amounts recognized in
the Company's consolidated financial statements as of January 31: ($ in
thousands)
<TABLE>
<CAPTION>
1997 1998
---- ----
Assets ABO Assets ABO
Exceed Exceed Exceed Exceed
ABO Assets ABO Assets
--- ------ --- ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations ("ABO")
including vested benefits of $27,561
in 1997 and $34,867 in 1998 $ 20,461 $ 7,617 $ - $ 35,794
Projected benefit obligation ("PBO") 25,191 7,617 - 41,935
Plan assets at fair value 22,890 7,078 - 32,764
-------- ------- --- -------
Plan assets deficient of PBO (2,301) (539) - (9,171)
Unrecognized net gain (loss) (1,117) (354) - 4,826
Unrecognized prior service cost (67) 1,411 - 1,290
Unrecognized net obligation (318) 463 - (538)
-------- ------- --- -------
(Accrued) prepaid pension cost (3,803) 981 - (3,593)
Minimum liability - (1,520) - (2,899)
-------- ------- --- -------
Total pension liability $ (3,803) $ (539) $ - $(6,492)
======== ======= === =======
<CAPTION>
Net pension cost includes the Years Ended January 31,
following components: ($ in thousands) 1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost $ 1,544 $ 1,747 $ 1,733
Interest cost on PBO 2,052 2,218 2,508
Actual return on plan assets (4,990) (3,572) (3,375)
Net amortization 2,801 1,215 598
------- ------- -------
Net period pension cost $ 1,407 $ 1,608 $ 1,464
======= ======= =======
</TABLE>
The assumed discount rate in determining the actuarial present value of the
projected benefit obligation is 7.25%, 7.75% and 6.75% in fiscal 1996, 1997 and
1998, respectively, for all plans. For plans in which benefits are based on
qualifying compensation the assumed rate of increase is 3.5% for fiscal 1996,
1997 and fiscal 1998. The expected return on net assets is 10% per annum for
fiscal 1996, 1997 and 1998 for all plans.
SFAS No. 87 requires the Company to record a minimum pension liability
relating to certain unfunded pension obligations, establish an intangible asset
relating thereto and reduce stockholders' equity. As a result, a minimum pension
liability was increased to $2,899,000, a related intangible asset was reduced to
$1,338,000, and deferred pension costs in stockholders' equity were increased to
$1,561,000 at January 31, 1998. The increase in the minimum pension liability at
January 31, 1998 resulted mainly from a decrease in the discount rate.
36
<PAGE> 37
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
The Company maintains an unfunded supplemental retirement plan for certain
participants in its pension plans to provide benefits in excess of amounts
permitted to be paid from such plans under the provisions of the IRC. At January
31, 1997 and 1998 the Company accrued a liability $1,554,000 and $1,986,000,
respectively, for this plan. In addition, the Company recorded a minimum
liability of $1,388,000, a related intangible asset for $622,000 and a reduction
in equity of $766,000, at January 31, 1998.
In addition to the Company plans, the Company contributed $22,000, $21,000
and $27,000 to a multi-employer union pension plan for fiscal years 1996, 1997
and 1998, respectively.
Postretirement Benefits other than Pensions
The Company offers a postretirement medical benefit plan to retirees at one
of its divisions. The Company continues to fund these benefit costs on a
pay-as-you-go basis, with the retiree paying a portion of the cost. Effective
July 1, 1994, contributions by employees retiring on or after January 1, 1992
were set at 20% of the obligation. This represents a change from a scale of
contribution percentages that ultimately increased to 100%. As a result, a prior
service cost component increased the APBO (as defined below) by $3.0 million.
This amount is amortized into expense over the expected average future service
of the plan participants. The total liability as of January 31, 1997 and 1998 is
included in accrued liabilities and is as follows:
<TABLE>
<CAPTION>
January 31,
1997 1998
---- ----
Accumulated postretirement benefit obligation ($ in thousands)
("APBO"):
<S> <C> <C>
Retirees $ 2,104 $ 2,465
Fully eligible active employees 463 544
Other active employees 5,786 6,593
------- -------
8,353 9,602
Unrecognized net loss (32) (386)
Unrecognized prior service cost (2,467) (2,221)
------- -------
Amount recognized in balance sheet $ 5,854 $ 6,995
======= =======
<CAPTION>
Years Ended January 31,
Net periodic retirement benefit cost included the 1996 1997 1998
following components: ---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Service costs of benefits earned $ 328 $ 463 $ 463
Interest cost on APBO 486 581 639
Net amortization 212 246 246
------- ------- -------
Net periodic postretirement benefit expense $ 1,026 $ 1,290 $ 1,348
======= ======= =======
</TABLE>
For measuring the postretirement benefit obligation, a 8.0% annual increase
in health care cost trends was assumed for the following fiscal year declining
to 5.00% in future years. The discount rate used was 7.25%, 7.75% and 6.75% in
fiscal 1996, 1997 and 1998, respectively. If the health care cost assumptions
were increased by 1%, the APBO as of January 31, 1998 would be increased by 22%.
The effect of this change on the sum of the service cost and interest cost
components on net periodic postretirement benefit costs for fiscal 1998 would be
an increase of 15%.
37
<PAGE> 38
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in litigation and claims incidental to its business. The
ultimate outcome of these matters cannot presently be determined because of the
uncertainties inherent in litigation. However, such claims are being vigorously
contested and management does not believe that it is probable that the ultimate
outcome of the loss contingencies relating to such litigation and claims will
have, individually or in the aggregate, a material adverse impact upon the
financial condition or results of operations of the Company.
Environmental and Related Matters
The Company received notice of potential environmental actions from (i)
the South Carolina Department of Health and Environmental Control ("CDHEC" and
the EPA with respect to drums of hazardous waste materials disposed of in South
Carolina, (ii) the SCDHEC with respect to the clean up of the Unisphere
Hazardous Waste Site in Spartanburg County, South Carolina, and (iii) the Nevada
Department of Conservation and Natural Resources, Division of Environmental
Protection ("DEP", which issued a finding of alleged violation and order
relating to alleged soil and ground water contamination. With respect to the
SCDHEC matter discussed in (i) above, management is unable to determine the
existence or amount of its potential liabilities because no formal proceedings
have been commenced and no notifications have been received regarding this
matter since December, 1992. The Company has reason to believe that this site
will be the subject of no further action by the EPA. With respect to the SCDHEC
matter discussed in (ii) above, management is unable to determine the existence
or amount of its potential liability, if any, because the use of the site by
Beverage-Air occurred prior to the purchase of the Beverage-Air assets by the
Company from Gerlach Industries in November, 1986. With respect to the NDEP
matter discussed in (iii) above, the Company has spent approximately $318,000 to
conduct tests and to implement a remediation program, but given the pendency of
the Company's appeal and its uncertain outcome, management cannot estimate what,
if any, additional expenditures might be required, though they are not expected
to materially affect the financial position or results of operations of the
Company.
Letters of Credit
As of January 31, 1998, the Company had letters of credit outstanding
totaling $10.0 million, which guarantee various business activities, including
$6.5 million of letters of credit which guarantee the Industrial Project Revenue
Bonds.
38
<PAGE> 39
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
13. TREASURY STOCK
In September 1997, the Company announced its intention to acquire up to $10
million of its common stock in open market and private transactions. As of
January 31, 1998, the Company had acquired 403,896 shares at a total cost of
$6,579,000.
14. STOCK OPTION PLAN AND STOCK WARRANT
On May 6, 1993, the stockholders approved long-term incentive plans for both
non-employee directors and employees. Pursuant to the Non-Employee Directors
Long-Term Incentive Plan (the "Director Plan") each non-employee director was
granted an option to purchase 175,241 shares of common stock at a price of $1.00
per share (which was not less than management's determination of the fair market
value of the underlying shares on the dates of grant). The aggregate shares
under the Director Plan totaled 876,205 shares. The options under the Director
Plan all vested and became exercisable on May 6, 1995. All options awarded
pursuant to the Director Plan expire on May 6, 2000.
The Executive Long-Term Incentive Plan, as amended, (the "Employee Plan")
allows for the issue of a total of 4,004,814 shares of the Company's common
stock. All of the options granted are at an exercise price which is not less
than management's determination of the fair market value of the underlying
shares at the respective dates of grant.
The following sets forth information with respect to options issued and
outstanding:
<TABLE>
<CAPTION>
Average
Option Range of
Shares Price Option Prices
------ ----- -------------
<S> <C> <C> <C>
Options outstanding at January 31, 1995 4,572,269 $ 1.82 $1.00-10.00
(666,250 exercisable)
Options exercised (868,537) (1.00) 1.00
---------- ------ -----------
Options outstanding at January 31, 1996
(3,223,732 exercisable) 3,703,732 2.02 1.00-10.00
Options granted 50,000 12.00 12.00
Options exercised (671,358) (1.08) 1.00-5.25
Options cancelled (86,837) (1.21) 1.00-5.25
---------- ------ -----------
Options outstanding at January 31, 1997
(2,945,537 exercisable) 2,995,537 2.42 1.00-12.00
Options granted 100,000 12.97 12.50-13.44
Options exercised (503,282) 8.00 1.00-10.25
Options cancelled (125,618) (1.22) 1.00-10.25
Options outstanding at January 31, 1998 ---------- ------ -----------
(2,316,637 exercisable) 2,466,637 $ 2.87 $1.00-13.44
========== ====== ===========
</TABLE>
The options exercisable at January 31, 1998 have an average exercise price of
$2.24 per share and range of exercise prices of $1.00 to $10.00 per share. The
weighted average remaining contractual life of the options currently outstanding
is 2.5 years.
A non-employee director has an exercisable stock warrant to purchase
1,136,747 shares of Common Stock at approximately $2.01 per share expiring on
July 31, 1999. The warrant was issued in connection with the POR and was
subsequently acquired by a non-employee director, prior to his election as a
director.
39
<PAGE> 40
SPECIALTY EQUIPMENT COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1997 AND 1998
At January 31, 1998, there were 138,750 additional shares available for grant
under the Employee Plan. The per share weighted-average fair value of stock
options granted during fiscal 1997 and 1998 was $3.53 and $4.95, respectively on
the date of grant using the Black Scholes option-pricing model. The following
are weighted-average assumptions used in determining the fair value of stock
options: Expected dividend yield 0%, risk-free interest rate of 6.38% and 5.42%,
an expected life of 4.5 years and a volatility rate of 40% and 35%, in fiscal
1997 and 1998, respectively. Had compensation cost for the Company's stock
option plans been determined consistent with the fair value method of SFAS No.
123, Accounting for Stock Based Compensation, the Company's fiscal 1997 and 1998
results of operations would not have been materially different from the amounts
reported. No option awards were made in fiscal 1996.
15. QUARTERLY RESULTS
The quarterly data has not been audited by the Company's independent
auditors. (in thousands, except share amounts)
<TABLE>
<CAPTION>
Fiscal 1998
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $ 109,242 $ 113,146 $ 107,694 $ 103,039
Gross margin 32,933 34,680 33,162 33,124
Net earnings 8,213 8,073 7,175 14,081
Basic earnings per share $ 0.46 $ 0.44 $ 0.39 $ 0.78
Diluted earnings per share $ 0.41 $ 0.40 $ 0.35 $ 0.70
Average shares outstanding-basic 18,020 18,178 18,284 18,139
Average shares outstanding-diluted 20,106 20,188 20,233 20,006
<CAPTION>
Fiscal 1997
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $ 105,305 $ 105,030 $ 102,775 $ 88,120
Gross margin 32,644 32,606 30,824 26,036
Net earnings 7,077 6,879 4,573 13,809
Basic earnings per share $ 0.41 $ 0.40 $ 0.26 $ 0.78
Diluted earnings per share $ 0.36 $ 0.35 $ 0.23 $ 0.69
Average shares outstanding-basic 17,344 17,407 17,513 17,756
Average shares outstanding-diluted 19,826 19,887 19,876 20,037
</TABLE>
The Company's fiscal 1997 and 1998 fourth quarter earnings include a
reduction in income tax expense due to the reduction of the valuation allowance
related to deferred tax assets.
40
<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has no items to report under Item 9 of this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 as to the Directors of the
Company is incorporated herein by reference to the information set forth
under the caption "Election of Directors" in the Company's definitive Proxy
Statement for the 1998 Annual Meeting of Stockholders, since such Proxy
Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A. Information required by this Item 10 as to the executive
officers of the Company is included in Part I of this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days after the end of the
Company's fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is incorporated by reference to the
information set forth under the caption "Voting Securities and Principal
Stockholders" in the Company's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders, since such Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days after the end of the
Company's fiscal year pursuant to Regulation 14A.
41
<PAGE> 42
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K
(a)(1) Financial Statements
The following Financial Statements of the Registrant and its
subsidiaries are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report 22
Consolidated Balance Sheets as of January 31, 1997 and 1998 23
Statements of Operations for the years ended January 31, 1996, 1997 and 1998 24
Statements of Stockholders' Equity (Deficit) for the years ended January 31, 1996, 1997 and 25
1998
Statements of Cash Flows for the years ended January 31, 1996, 1997 and 1998 26
Notes to Consolidated Financial Statements 27
(a)(2) Financial Statement Schedules
The following Financial Statement Schedules of the Registrant are included in Item 14 thereof:
Independent Auditors' Report 22
Schedule II - Valuation and Qualifying Accounts 44
</TABLE>
All other schedules for which provision is made in the applicable accounting and
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
Reference is made to the Exhibit Index set forth herein.
(b) No reports on Form 8-K were filed during the quarter ended January 31, 1998.
42
<PAGE> 43
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 on the 13th day of
April, 1998.
SPECIALTY EQUIPMENT COMPANIES, INC.
By: /s/ JEFFREY P. RHODENBAUGH
--------------------------
Chief Executive Officer
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 indicated on April 13, 1998:
<TABLE>
<CAPTION>
Signature Title
<S> <C>
DANIEL B. GREENWOOD* Chairman of the Board and Director
- ---------------------------
Daniel B. Greenwood
/s/ JEFFREY P. RHODENBAUGH President, Chief Executive and Chief Operating Officer
- --------------------------- and Director (Principal Executive Officer)
Jeffrey P. Rhodenbaugh
/s/ DONALD K. MC KAY Executive Vice President, Chief Financial Officer,
- --------------------------- Treasurer and Secretary (Principal Accounting and
Donald K. McKay Financial Officer)
WILLIAM E. DOTTERWEICH* Director
- ---------------------------
William E. Dotterweich
AVRAM A. GLAZER* Director
- ---------------------------
Avram A. Glazer
KEVIN E. GLAZER* Director
- ---------------------------
Kevin E. Glazer
MALCOLM I. GLAZER* Director
- ---------------------------
Malcolm I. Glazer
CHARLES E. HUTCHINSON* Director
- ---------------------------
Charles E. Hutchinson
RICHARD A. KENT* Director
- ---------------------------
Richard A. Kent
BARRY L. MacLEAN* Director
- ---------------------------
Barry L. MacLean
*By /s/ DONALD K. MC KAY
- ---------------------------
Donald K. McKay
Attorney-in-Fact
</TABLE>
43
<PAGE> 44
SCHEDULE II
SPECIALTY EQUIPMENT COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
of Year Expenses Deductions End of Year
------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended January 31, 1996
Allowance for doubtful accounts $ 5,003 $ 1,694 $ 1,168 $ 5,529
Inventory reserves $ 3,708 $ 233 $ 740 $ 3,201
Valuation allowance for deferred tax assets $ 30,585 $ - $ - $ 30,585
Year ended January 31, 1997
Allowance for doubtful accounts $ 5,529 $ 3 $ 873 $ 4,659
Inventory reserves $ 3,201 $ 26 $ 641 $ 2,586
Valuation allowance for deferred tax assets $ 30,585 $ - $ 8,460 $ 22,125
Year ended January 31, 1998
Allowance for doubtful accounts $ 4,659 $ 248 $ 952 $ 3,955
Inventory reserves $ 2,586 $ 130 $ 200 $ 2,516
Valuation allowance for deferred tax assets $ 22,125 $ - $ 7,025 $ 15,100
</TABLE>
44
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------ -----------
<S> <C>
2.1+ Plan of Reorganization, dated February 5, 1992.
2.2+ Order of the United States Bankruptcy Court for the Northern
District of Illinois, Western Division, entered March 17, 1992,
confirming the Company's Plan of Reorganization.
3.1@ Amended and Restated Certificate of Incorporation of the Company.
3.2@ Amended and Restated By-laws of the Company.
4.1* Indenture, dated as of December 1, 1993, by and between the Company and Harris Trust
and Savings Bank, as Trustee, including form of Note.
4.2# Supplemental Indenture, dated January 31, 1998, by and between
the Company, Specialty Equipment Manufacturing Corporation and
Harris Trust and Savings Bank, as Trustee.
4.3# Amended and Restated Credit Agreement, dated as of January 31,
1998 among Specialty Equipment Companies, Inc. and Specialty
Equipment Manufacturing Corporation, as borrower, Bank of America
National Trust and Savings Association, as Agent, and the other
financial institutions party hereto.
10.1+ Specialty Equipment Companies, Inc. Executive Long-Term Incentive Plan.
10.2* First Amendment to Executive Long-Term Incentive Plan.
10.3** Second Amendment to Specialty Equipment Companies, Inc. Executive Long-Term
Incentive Plan, effective June 6, 1994.
10.4+ Specialty Equipment Companies, Inc. Non-Employees Director Long-Term Incentive Plan.
10.5+ Specialty Equipment Companies, Inc. Restricted Stock Plan.
10.6- Specialty Equipment Companies Retirement Income Plan amended and restated effective
January 31, 1987.
10.7$ Specialty Equipment Companies, Inc. Supplemental Retirement Plan, executed November
25, 1991.
10.8+ Employment Retention Agreement, dated December 19, 1991, by and between Specialty
Equipment Companies, Inc. and Daniel B. Greenwood.
10.9++ First Amendment to Employee Retention Agreement, dated December 19, 1993, by and
between Specialty Equipment Companies, Inc. and Daniel B. Greenwood.
10.10- Second Amendment to Employee Retention Agreement, dated December 19, 1995, by and
between Specialty Equipment Companies, Inc. and Daniel B. Greenwood.
10.11+ Employment Retention Agreement, dated December 19, 1991, by and between Specialty
Equipment Companies, Inc. and Donald K. McKay.
10.12++ First Amendment to Employee Retention Agreement, dated December
19, 1993, by and between Specialty Equipment Companies, Inc. and
Donald K. McKay.
10.13- Second Amendment to Employee Retention Agreement, dated December
19, 1995, by and between Specialty Equipment Companies, Inc. and
Donald K. McKay.
10.14+ Employment Retention Agreement, dated December 19, 1991, by and between Specialty
Equipment Companies, Inc. and William W. Robertson.
10.15++ First Amendment to Employee Retention Agreement, dated December 19, 1993, by and
between Specialty Equipment Companies, Inc. and William W. Robertson.
10.16- Second Amendment to Employee Retention Agreement, dated December 19, 1995, by and
between Specialty Equipment Companies, Inc. and William W. Robertson.
10.17++ Employment Retention Agreement, dated December 19, 1991, by and between Specialty
Equipment Companies, Inc. and Jeffrey P. Rhodenbaugh.
10.18++ First Amendment to Employment Retention Agreement, dated December 19, 1993, by and
between Specialty Equipment Companies, Inc. and Jeffrey P. Rhodenbaugh.
10.19- Second Amendment to Employment Retention Agreement, dated December 19, 1995, by and
between Specialty Equipment Companies, Inc. and Jeffrey P. Rhodenbaugh.
10.20+ Sublease, dated July 28, 1972, by and between Beverage-Air
Company and Tannetics, Inc; Assignment of Sublease, dated March
30, 1973, by and between Buffington Company, as successor to
Beverage-Air Company, and Herman L. Buffington; Amendment to
Sublease, dated September 8, 1989, by and between the Herman L.
Buffington Irrevocable Trust and Specialty Equipment Companies,
Inc.
10.21(1) Lease, dated December 5, 1994, between Community Cash Stores of
Spartanburg, SC and Specialty Equipment Companies, Inc.,
Beverage-Air division.
10.22+ Lease, dated May 1, 1992, by and between Wells Enterprises and
Wells Manufacturing Company.
10.23(1) Lease, dated March 31, 1995, by and between Dermody Industrial
Group and Wells Manufacturing Company.
10.24+ Lease, dated June 28, 1990, by and between Orlando Corporation
and Bloomfield Industries Canada Limited.
10.25+ Lease, dated July 1, 1993, by and between New York Life Insurance
Company and Specialty Equipment Companies, Inc.
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.26- First Amendment to Lease, dated August 15, 1995, by and between
New York Life Insurance Company and Specialty Equipment
Companies, Inc.
10.27+ Sublease, dated January 31, 1993, by and between Arrow Uniform Rental, Inc. and
Specialty Equipment Companies, Inc.
10.28(1) Lease, dated January 3, 1995 by and between Brouillette, Inc. and Taylor Company.
10.29- Lease, dated August 30, 1995, between Lakewood Realty and Mortgage Corporation and
Specialty Equipment Companies, Inc.
10.30(1) Irrevocable Letter of Credit, dated February 22, 1995, in the
amount of $6.5 million issued by Barclays Bank, PLC, in favor of
Amalgamated Bank of Chicago, and Trustee under the Trust
Indenture, dated as of February 22, 1995 between the State of
South Carolina and Amalgamated Bank of Chicago.
10.31(1) Pledge Agreement, dated as of February 1, 1995, among Specialty
Equipment Companies, Inc., Shawmut Capital Corporation as
guarantor, and Barclays Bank PLC, New York Branch, covering $6.4
million State of South Carolina Industrial Project Revenue Bonds,
Series 1995 (Specialty Equipment Companies, Inc. Project).
10.32+ First Amendment to Pledge Agreement, dated as of February 15,
1997, among Specialty Equipment Companies, Inc., Barclays Bank
PLC, on behalf of itself and as agent for Shawmut Capital Corp.,
Bank of America Illinois and Amalgamated Bank of Chicago.
10.33+ Warrant to purchase Common Stock of the Company, originally
issued March 31, 1992, reregistered December 27, 1996 to the
Malcolm I. Glazer Family Limited Partnership.
10.34+ Form of Indemnification Agreement for the directors and certain
officers of the Company.
10.35& Stock Purchase Agreement between Specialty Equipment Companies, Inc. and Quaboes
B.V. and Shareholders of Gamko Holding B.V. and of Coolpart B.V., dated August 11,
1997.
10.36# Instrument of Transfer and Assumption Agreement dated January 31, 1998, between
Specialty Equipment Companies, Inc. (the "Parent") and Specialty Equipment
Manufacturing Corporation (the "Operating Subsidiary").
10.37# License Agreement dated January 31, 1998 by and between Specialty
Equipment Companies, Inc., ("Licensor") and Specialty Equipment
Manufacturing Corporation.
10.38# Management and Administrative Services Agreement dated January 31, 1998, between
Specialty Equipment Companies, Inc., and Specialty Equipment Manufacturing
Corporation.
12.1# Statement Re: Computation of Ratios of Earnings to Fixed Charges
21.1# Subsidiaries of Specialty Equipment Companies, Inc.
23.1# Consent of KPMG Peat Marwick LLP.
24.1# Powers of Attorney of Mr. Kent dated March 24, 1998, Messrs.
Greenwood, Hutchinson , Dotterweich and MacLean dated March 25,
1998, Mssrs. M. Glazer and A. Glazer dated March 30, 1998, and
Mr. K. Glazer dated March 31, 1998.
27.1# Financial data schedule.
</TABLE>
- --------------------------------------------------------------------------------
+ Incorporated herein by reference to the applicable exhibit to the
Company's Registration Statement on Form S-1, as amended, initially filed
with the Securities and Exchange Commission on September 3, 1993
(Registration No. 33-68404).
* Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended October 31,
1993, as filed with the Securities and Exchange Commission on December
15, 1993.
++ Incorporated herein by reference to the applicable exhibit to the
Company's Annual Report on Form 10-K for the year ended January 31, 1994,
as filed with the Securities and Exchange Commission on March 25, 1994.
@ Incorporated herein by reference to the applicable exhibit to the
Company's Form 8-K, as filed with the Securities and Exchange Commission
on May 12, 1994.
** Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 30,
1994, as filed with the Securities and Exchange Commission on June 14,
1994.
(i) Incorporated herein by reference to the applicable exhibit to the
Company's Annual Report on Form 10-K for the year ended January 31, 1995,
as filed with the Securities and Exchange Commission on March 28, 1995.
- Incorporated herein by reference to the applicable exhibit to the
Company's Annual Report on Form 10-K for the year ended January 31, 1996,
as filed with the Securities and Exchange Commission on March 26, 1996.
$ Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 30,
1996, as filed with the Securities and Exchange Commission on June 13,
1996.
= Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended October 31,
1996, as filed with the Securities and Exchange Commission on December
15, 1996.
+ Incorporated herein by reference to the applicable exhibit to the
Company's Annual Report on Form 10-K for the year ended January 31, 1997,
as filed with the Securities and Exchange Commission on March 27, 1997.
& Incorporated herein by reference to the applicable exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended October 31,
1997, as filed with the Securities and Exchange Commission on December
15, 1997.
# Filed herewith.
46
<PAGE> 1
EXHIBIT 4.2
SPECIALTY EQUIPMENT COMPANIES, INC.,
Co-Issuer
and
SPECIALTY EQUIPMENT MANUFACTURING CORPORATION,
Co-Issuer
TO
HARRIS TRUST AND SAVINGS BANK,
Trustee
Supplemental Indenture
Dated as of January 31, 1998
$185,000,000
11-3/8% Senior Subordinated Notes due 2003
<PAGE> 2
SUPPLEMENTAL INDENTURE, dated as of January 31, 1998 (herein called this
"Supplemental Indenture") among SPECIALTY EQUIPMENT COMPANIES, INC., a
corporation duly organized under the laws of the State of Delaware, as one
Co-Issuer (herein called "Specialty"), having its principal office at 1245
Corporate Boulevard, Suite 401, Aurora, Illinois 60504, SPECIALTY EQUIPMENT
MANUFACTURING CORPORATION, a corporation duly organized under the laws of the
State of Delaware, as the other Co-Issuer (herein called "Manufacturing"),
having its principal office at 1245 Corporate Boulevard, Suite 401, Aurora,
Illinois 60504, and HARRIS TRUST AND SAVINGS BANK, a banking corporation duly
organized and existing under the laws of the State of Illinois, as Trustee
(herein called the "Trustee").
RECITALS
Specialty and the Trustee are parties to that certain Indenture, dated as
of December 1, 1993 (herein called the "Indenture"), governing Specialty's
11-3/8% Senior Subordinated Notes due 2003 (herein called the "Securities")
issued thereunder.
Specialty, in accordance to the terms of a Plan of Internal Restructuring
duly adopted by Specialty's Board of Directors and Stockholders, has formed
Manufacturing as a wholly owned subsidiary and intends to effect the transfer to
Manufacturing of substantially all of the assets and related liabilities of
Specialty's operating, manufacturing, sales and marketing assets and certain
assets related to other operations (but not Specialty's intellectual property
rights, other than pursuant to licenses of such rights by Specialty to
Manufacturing).
Pursuant to Section 8.01 of the Indenture, Specialty is prohibited from
selling, assigning, conveying, transferring, leasing or otherwise disposing of
substantially all of its properties and assets to any Person (whether in a
single transaction or a series of related transactions) unless it meets certain
conditions set forth in that Section of the Indenture, including, without
limitation, that the Person which acquires substantially all of the properties
and assets of Specialty and its Subsidiaries on a Consolidated basis assume by a
supplemental indenture in a form reasonably satisfactory to the Trustee, all the
obligations of Specialty under the Securities and the Indenture, and that the
Indenture remain in full force and effect.
All things necessary having been done to make this Supplemental Indenture a
valid agreement of Specialty and Manufacturing in accordance with its terms, and
the Trustee agreeing that this form is reasonably satisfactory to it:
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for equal and proportionate benefit of the Holders of the Securities, as
follows:
ARTICLE I
SUPPLEMENT; DEFINITIONS
SECTION 1.1 Supplement of Indenture. This Supplemental Indenture
supplements and forms a part of the Indenture and is entered into by the Trustee
without the consent of any Holders pursuant to Section 801 and Section 901 of
the Indenture to cause Manufacturing to assume all the obligations of Specialty
under the Securities and the Indenture as a co-obligor jointly and severally
liable with Specialty, and to confirm that the Indenture remains in full force
and effect.
<PAGE> 3
SECTION 1.2 Definitions. For all purposes of this Supplemental Indenture,
except as otherwise provided herein or unless the context requires, capitalized
terms that are defined in the Indenture have the same respective meanings
herein.
ARTICLE II
ASSUMPTION OF OBLIGATIONS
SECTION 2.1 Assumption of Obligations. For value received, Manufacturing
unconditionally assumes all of the obligations of Specialty under the Securities
and the Indenture as a co-obligor, jointly and severally liable with Specialty
therefor.
SECTION 2.2 No Discharge of Specialty. Notwithstanding the provisions of
Section 8.02 of the Indenture, the assumption of the obligations of Specialty
under the Securities and the Indenture by Manufacturing shall not discharge
Specialty from any of its obligations and covenants under the Indenture and the
Securities, but rather, Specialty shall remain obligated with respect thereto as
a co-obligor, jointly and severally with Manufacturing.
SECTION 2.3 Joint and Several Obligations. Each of Specialty and
Manufacturing shall have joint and several liability with respect to all
obligations under the Indenture and the Securities. Each of Specialty and
Manufacturing hereby acknowledges that the Indenture and the Securities are the
independent and several obligation of each of them and may be enforced against
either of them separately, whether or not enforcement of any right or remedy
hereunder has been sought against any other party hereto. Each of Specialty and
Manufacturing hereby expressly waives, with respect to any of the amounts owing
under the Indenture or any Security, diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that any party exhaust
any right, power or remedy or proceed against any other party under the
Indenture, the Securities or any other supplemental indenture related thereto,
or security for any of such obligations.
SECTION 2.4 Amendment of the Definition of Company. Upon the effectiveness
of this Supplemental Indenture, the definition of "Company" pursuant to Section
101 of the Indenture shall mean Specialty and Manufacturing, individually and
collectively, or where the context so indicates, on a Consolidated basis, until
a successor Person shall have become such pursuant to the applicable provisions
of the Indenture, and thereafter "Company" shall mean such successor Person.
ARTICLE III
EFFECT UPON COVENANTS
SECTION 3.1 Change of Control. The parties acknowledge and agree that for
the purpose of Section 1017 of the Indenture the ownership of more than 50% of
the total voting power of all classes of the Voting Capital of Manufacturing by
Specialty shall not constitute a Change of Control.
SECTION 3.2 Limitations on Restricted Payments. The parties acknowledge and
agree that for the purposes of Section 1009 of the Indenture, the term
"Company's Capital Stock" shall relate solely to the Capital Stock of Specialty
so long as Manufacturing remains a Wholly Owned Subsidiary of Specialty; and
provided further that any restriction upon the payment of dividends by
Manufacturing to Specialty pursuant hereto shall not constitute a default
pursuant to Section 1011 of the Indenture.
ARTICLE IV
SUBORDINATION
<PAGE> 4
SECTION 4.1 Subordination. It is acknowledged and agreed that for the
purposes of the Indenture and the Securities that the term "Senior Indebtedness"
includes Indebtedness of both Specialty and Manufacturing to extent such
Indebtedness otherwise falls within the definition thereof.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Effect of Supplemental Indenture. This Supplemental Indenture
supplements and forms a part of the Indenture and modifies the Indenture as
provided herein; and every Holder of Securities heretofore or hereafter
authenticated and delivered under the Indenture shall be bound hereby. Except as
otherwise modified or supplemented hereby or by any previous supplemental
indentures, the Indenture remains in full force and effect.
SECTION 5.2 Reference in Securities to Supplemental Indenture. Securities
authenticated and delivered after the execution of this Supplemental Indenture
may bear a notation in form approved by the Trustee as to any matter provided
for herein.
SECTION 5.3 Conflict with Trust Indenture Act. If and to the extent that
any provision hereof limits, qualifies or conflicts with any provision of the
TIA or another provision which is required or deemed to be included in this
Supplemental Indenture by any of the provisions of the TIA, the provision or
requirement of the TIA shall control. If any provision of this Supplemental
Indenture modifies or excludes any provision of the TIA that may be so modified
or excluded, such provision of the TIA shall be deemed to apply to this
Supplemental Indenture as so modified or to be excluded, as the case may be.
SECTION 5.4 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 5.5 Successors and Assigns. All covenants and agreements in this
Supplemental Indenture by Specialty and Manufacturing shall bind their
respective successors and assigns, whether so expressed or not.
SECTION 5.6 Separability Clause. In case any provision of this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 5.7 Benefits of Indenture. Nothing in this Supplemental Indenture,
express or implied, shall give to any Person, other than the parties hereto, any
Paying Agent, any Securities Registrar and their successors hereunder and the
Holders and, with respect to any provisions hereof relating to the right of
holders of Senior Indebtedness, the holders of Senior Indebtedness, any benefit
or any legal or equitable right, remedy or claim under this Supplemental
Indenture. The Trustee shall not be deemed to owe any fiduciary duty to any
holder of Senior Indebtedness or any holder of any other obligation of Specialty
Manufacturing, other than to Holders of the Securities. It is expressly
acknowledged that the provisions of Article IV hereof and any other provisions
(hereof or of the Indenture) relating to the subordination of the Securities or
the rights of the holders of Senior Indebtedness, are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
SECTION 5.8 Governing Law. This Supplemental Indenture shall be governed by
and construed in accordance with the law of the State of New York. This
Supplemental Indenture is subject to the provisions of the TIA that are required
to be part hereof and shall, to the extent applicable, be governed by such
provisions.
<PAGE> 5
SECTION 5.9 No Recourse Against Others. A director, officer, employee or
stockholder, as such, of either Specialty or Manufacturing or any other obligor
on the Securities shall not have any liability for any obligations of the
Specialty or Manufacturing or such obligor, as the case may be, under the
Securities or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of such obligations or their creation. Each Holder by accepting
any of the Securities waives and releases all such liability.
SECTION 5.10 Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all such counterparts together constitute but one and the same Supplemental
Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the day and year first above written.
SPECIALTY EQUIPMENT COMPANIES, INC.
By:_______________________________
Name:
Title:
SPECIALTY EQUIPMENT MANUFACTURING
CORPORATION
By:_______________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK, AS TRUSTEE
By:_______________________________
Name:
Title:
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION
PAGE
----
<S> <C>
ARTICLE I SUPPLEMENT; DEFINITIONS.................................................................. 2
SECTION 1.1 Supplement of Indenture..................................................... 2
SECTION 1.2 Definitions................................................................. 2
ARTICLE II ASSUMPTION OF OBLIGATIONS............................................................... 2
SECTION 2.1 Assumption of Obligations................................................... 2
SECTION 2.2 No Discharge of Specialty................................................... 2
SECTION 2.3 Joint and Several Obligations............................................... 2
SECTION 2.4 Amendment of the Definition of Company...................................... 3
ARTICLE III EFFECT UPON COVENANTS.................................................................. 3
SECTION 3.1 Change of Control........................................................... 3
SECTION 3.2 Limitations on Restricted Payments.......................................... 3
ARTICLE IV SUBORDINATION........................................................................... 3
SECTION 4.1 Subordination............................................................... 3
ARTICLE V MISCELLANEOUS........................................................................... 3
SECTION 5.1 Effect of Supplemental Indenture............................................ 3
SECTION 5.2 Reference in Securities to Supplemental Indenture........................... 4
SECTION 5.3 Conflict with Trust Indenture Act........................................... 4
SECTION 5.4 Effect of Headings and Table of Contents.................................... 4
SECTION 5.5 Successors and Assigns...................................................... 4
SECTION 5.6 Separability Clause......................................................... 4
SECTION 5.7 Benefits of Indenture....................................................... 4
SECTION 5.8 Governing Law............................................................... 4
SECTION 5.9 No Recourse Against Others.................................................. 5
SECTION 5.10 Counterparts................................................................ 5
</TABLE>
<PAGE> 1
EXHIBIT 4.3
- --------------------------------------------------------------------------------
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of January 31, 1998
among
SPECIALTY EQUIPMENT COMPANIES, INC.
and
SPECIALTY EQUIPMENT MANUFACTURING CORPORATION,
as Borrowers,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent,
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................................ 1
1.1 Certain Defined Terms...................................................................... 1
1.2 Other Interpretive Provisions.............................................................. 17
1.3 Accounting Principles...................................................................... 18
ARTICLE 2 THE CREDITS................................................................................ 18
2.1 Amounts and Terms of Commitments........................................................... 18
2.2 Loan Accounts.............................................................................. 18
2.3 Procedure for Borrowing.................................................................... 18
2.4 Conversion and Continuation Elections...................................................... 19
2.5 Voluntary Termination or Reduction of Commitments.......................................... 21
2.6 Optional Prepayments....................................................................... 21
2.7 Letters of Credit.......................................................................... 22
2.8 Repayment.................................................................................. 26
2.9 Interest................................................................................... 26
2.10 Fees....................................................................................... 27
(a) Agency Fee........................................................................... 27
(b) Unused Loan Fee...................................................................... 27
(c) L/C Fees............................................................................. 27
2.11 Computation of Fees and Interest........................................................... 28
2.12 Payments by Borrowers...................................................................... 28
2.13 Payments by the Banks to the Agent......................................................... 29
2.14 Sharing of Payments, Etc................................................................... 29
2.15 Appointment of Borrower Representative..................................................... 30
ARTICLE 3 TAXES, YIELD PROTECTION AND ILLEGALITY..................................................... 30
3.1 Taxes...................................................................................... 30
3.2 Illegality................................................................................. 32
3.3 Increased Costs and Reduction of Return.................................................... 32
3.4 Funding Losses............................................................................. 33
3.5 Inability to Determine Rates............................................................... 34
3.6 Reserves on Offshore Rate Loans............................................................ 34
3.7 Certificates of Banks...................................................................... 35
3.8 Substitution of Banks...................................................................... 35
3.9 Survival................................................................................... 35
ARTICLE 4 CONDITIONS PRECEDENT....................................................................... 35
4.1 Conditions of Initial Loans................................................................ 35
(a) Credit Agreement and Notes........................................................... 35
(b) Resolutions; Incumbency.............................................................. 35
(c) Organization Documents; Good Standing................................................ 36
(d) Legal Opinion........................................................................ 36
(e) Payment of Fees...................................................................... 36
(f) Certificate.......................................................................... 36
(g) Other Documents...................................................................... 37
4.2 Conditions to All Borrowings............................................................... 37
(a) Notice of Borrowing or Conversion/Continuation....................................... 37
(b) Continuation of Representations and Warranties....................................... 37
(c) No Existing Default.................................................................. 37
ARTICLE 5 REPRESENTATIONS AND WARRANTIES............................................................. 37
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
5.1 Corporate Existence and Power................................................................. 37
5.2 Corporate Authorization; No Contravention..................................................... 38
5.3 Governmental Authorization.................................................................... 38
5.4 Binding Effect................................................................................ 38
5.5 Litigation.................................................................................... 38
5.6 No Default.................................................................................... 39
5.7 ERISA Compliance.............................................................................. 39
5.8 Use of Proceeds; Margin Regulations........................................................... 40
5.9 Title to Properties........................................................................... 40
5.10 Taxes......................................................................................... 40
5.11 Financial Condition........................................................................... 40
5.12 Environmental Matters......................................................................... 41
5.13 Regulated Entities............................................................................ 41
5.14 No Burdensome Restrictions.................................................................... 41
5.15 Copyrights, Patents, Trademarks and Licenses, etc............................................. 41
5.16 Subsidiaries.................................................................................. 41
5.17 Insurance..................................................................................... 41
5.18 Swap Obligations.............................................................................. 42
5.19 Full Disclosure............................................................................... 42
5.20 Subordinated Debt............................................................................. 42
5.21 Transfer of Operating Assets.................................................................. 42
ARTICLE 6 AFFIRMATIVE COVENANTS......................................................................... 42
6.1 Financial Statements.......................................................................... 42
6.2 Certificates; Other Information............................................................... 43
6.3 Notices....................................................................................... 43
6.4 Preservation of Corporate Existence, Etc...................................................... 44
6.5 Maintenance of Property....................................................................... 45
6.6 Insurance..................................................................................... 45
6.7 Payment of Obligations........................................................................ 45
6.8 Compliance with Laws.......................................................................... 46
6.9 Compliance with ERISA......................................................................... 46
6.10 Inspection of Property and Books and Records.................................................. 46
6.11 Environmental Laws............................................................................ 46
6.12 Use of Proceeds............................................................................... 46
ARTICLE 7 NEGATIVE COVENANTS............................................................................ 47
7.1 Limitation on Liens........................................................................... 47
7.2 Negative Pledge Agreements.................................................................... 48
7.3 Disposition of Assets......................................................................... 48
7.4 Consolidations and Mergers.................................................................... 49
7.5 Loans and Investments......................................................................... 49
7.6 Limitation on Indebtedness.................................................................... 50
7.7 Transactions with Affiliates.................................................................. 50
7.8 Use of Proceeds............................................................................... 51
7.9 Contingent Obligations........................................................................ 51
7.10 Joint Ventures................................................................................ 51
7.11 Lease Obligations............................................................................. 51
7.12 Restricted Payments........................................................................... 51
7.13 ERISA......................................................................................... 52
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
7.14 Change in Business............................................................................ 52
7.15 Accounting Changes............................................................................ 52
7.16 Amendment of Indenture........................................................................ 52
7.17 Consolidated Liquidity Ratio.................................................................. 52
7.18 Consolidated Senior Funded Debt to Cash Flow Ratio............................................ 52
7.19 Consolidated Total Funded Debt to Cash Flow Ratio............................................. 53
7.20 Consolidated Interest Coverage Ratio.......................................................... 53
ARTICLE 8 EVENTS OF DEFAULT............................................................................. 53
8.1 Event of Default.............................................................................. 53
(a) Non-Payment............................................................................. 53
(b) Representation or Warranty.............................................................. 53
(c) Specific Defaults....................................................................... 53
(d) Other Defaults.......................................................................... 53
(e) Cross-Default........................................................................... 53
(f) Insolvency; Voluntary Proceedings....................................................... 54
(g) Involuntary Proceedings................................................................. 54
(h) ERISA................................................................................... 54
(i) Monetary Judgments...................................................................... 54
(j) Non-Monetary Judgments.................................................................. 55
(k) Change of Control....................................................................... 55
(l) Loss of Licenses........................................................................ 55
(m) Invalidity of Subordination Provisions.................................................. 55
8.2 Remedies...................................................................................... 55
8.3 Rights Not Exclusive.......................................................................... 56
ARTICLE 9 THE AGENT..................................................................................... 56
9.1 Appointment and Authorization; "Agent"........................................................ 56
9.2 Delegation of Duties.......................................................................... 56
9.3 Liability of Agent............................................................................ 56
9.4 Reliance by Agent............................................................................. 57
9.5 Notice of Default............................................................................. 57
9.6 Credit Decision............................................................................... 57
9.7 Indemnification of Agent...................................................................... 58
9.8 Agent in Individual Capacity.................................................................. 58
9.9 Successor Agent............................................................................... 59
9.10 Withholding Tax............................................................................... 59
ARTICLE 10 MISCELLANEOUS................................................................................. 60
10.1 Amendment and Restatement; Amendments and Waivers............................................. 61
10.2 Notices....................................................................................... 62
10.3 No Waiver; Cumulative Remedies................................................................ 63
10.4 Costs and Expenses............................................................................ 63
10.5 Borrowers' Indemnification.................................................................... 63
10.6 Payments Set Aside............................................................................ 64
10.7 Successors and Assigns........................................................................ 64
10.8 Assignments, Participations, etc.............................................................. 64
10.9 Confidentiality............................................................................... 65
10.10 Set-off....................................................................................... 66
10.11 Automatic Debits of Fees...................................................................... 66
</TABLE>
iii
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<TABLE>
Section Page
<S> <C>
10.12 Notification of Addresses, Lending Offices, Etc............................................... 67
10.13 Counterparts.................................................................................. 67
10.14 Severability.................................................................................. 67
10.15 No Third Parties Benefited.................................................................... 67
10.16 Designated Senior Indebtedness................................................................ 67
10.17 Governing Law and Jurisdiction................................................................ 67
10.18 Waiver of Jury Trial.......................................................................... 68
10.19 Joint and Several Liability................................................................... 68
10.20 Entire Agreement.............................................................................. 68
</TABLE>
iv
<PAGE> 6
SCHEDULES AND EXHIBITS
SCHEDULES
Schedule 2.1 Commitments
Schedule 5.5 Litigation
Schedule 5.7 ERISA
Schedule 5.11 Permitted Liabilities
Schedule 5.12 Environmental Matters
Schedule 5.16 Subsidiaries and Minority Interests
Schedule 5.17 Insurance Matters
Schedule 7.1 Permitted Liens
Schedule 7.6 Permitted Indebtedness
Schedule 7.7 Transactions With Affiliates
Schedule 7.9 Contingent Obligations
Schedule 10.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Borrowers' Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
v
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is entered
into as of January 31, 1998, among SPECIALTY EQUIPMENT COMPANIES, INC., a
Delaware corporation ("Holding Co."), and its Wholly-Owned Subsidiary, SPECIALTY
EQUIPMENT MANUFACTURING CORPORATION, a Delaware corporation ("Operating Co.")
(Holding Co. and Operating Co. sometimes collectively referred to herein as
"Borrowers", and individually as "Borrower"), the several financial institutions
from time to time party to this Agreement (collectively, the "Banks", and
individually, a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, successor by merger to Bank of America Illinois, as agent for the
Banks.
WHEREAS, Holding Co., the financial institutions named therein, and the
Agent entered into that certain Credit Agreement, dated as of December 1, 1996,
as amended by a First Amendment to Credit Agreement, dated as of January 15,
1997, and a Second Amendment to Credit Agreement, dated as of February 13, 1997
(the "Original Credit Agreement");
WHEREAS, Holding Co. desires to transfer to Operating Co., pursuant to
Holding Co.'s Plan of Internal Restructuring, substantially all of the assets
and related liabilities of Holding Co.'s operating, manufacturing, sales and
marketing assets (but not Holding Co.'s intellectual property rights, other than
pursuant to licenses of such rights by Holding Co. to Operating Co.), and the
Banks and the Agent are willing to consent to such transfer provided that
Operating Co. becomes a party to the Original Credit Agreement as a borrower;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, and of any loans or extensions of credit heretofore,
now or hereafter made to or for the benefit of Borrowers by the Banks, the
parties hereto hereby agree to add Operating Co. as a party to the Original
Credit Agreement as a borrower and to amend and restate the Original Credit
Agreement as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms have the following meanings:
"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
Borrower or the Subsidiary is the surviving entity.
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities,
membership interests, by contract, or otherwise.
"AGENT" means BA in its capacity as agent for the Banks hereunder, and
any successor agent arising under Section 9.9.
<PAGE> 8
"AGENT-RELATED PERSONS" means BA and any successor agent arising under
Section 9.9, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"AGENT'S PAYMENT OFFICE" means the address for payments set forth on
Schedule 10.2 or such other address as the Agent may from time to time specify.
"Agreement" means this Amended and Restated Credit Agreement.
"Applicable Margin" means
(i) with respect to Reference Rate Loans, 0%;
(ii) with respect to Fixed Rate Loans, 0.40%; and
(iii) with respect to Offshore Rate Loans, 0.40%.
The Applicable Margin with respect to Fixed Rate Loans and with respect to
Offshore Rate Loans will be increased to 0.625% for each day during which the
outstanding principal amount of the Revolving Loan is greater than $25,000,000,
unless and until Revolving Loan proceeds in an amount equal to $25,000,000 or
more have been applied by Borrowers to repurchase Senior Subordinated Notes.
"ASSIGNEE" has the meaning specified in subsection 10.8(a).
"ATTORNEY COSTS" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"BA" means Bank of America National Trust and Savings Association,
successor by merger to Bank of America Illinois.
"BANK" has the meaning specified in the introductory clause hereto.
"BANKERS aCCEPTANCES" means bankers acceptances issued by the Issuing
Bank upon acceptance by the Issuing Bank of time drafts presented pursuant to
Letters of Credit."
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.).
"BORROWER REPRESENTATIVE" means Holding Co.
"BORROWING" means a borrowing hereunder consisting of Loans of the
same Type made to Borrowers on the same day by the Banks under Article 2, and,
other than in the case of Reference Rate Loans, having the same Interest Period.
"BORROWING DATE" means any date on which a Borrowing occurs under
Section 2.3.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago, Illinois are authorized or required by
law to close and, if the applicable Business Day relates to any Offshore Rate
Loan, means such a day on which dealings are carried on in the applicable
offshore dollar interbank market.
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<PAGE> 9
"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 EXPENDITURES" means all payments, including, without
limitation, payments for Capital Lease Obligations, for any fixed assets or
improvements, or replacements, substitutions or additions thereto, that
have a useful life of more than one year and which are required to be
capitalized under GAAP.
"CAPITAL LEASE" shall mean any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for
as capital leases on a balance sheet of such Person under GAAP and, for the
purposes of this Agreement, the amount of such obligations at any time
shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"CAPITAL LEASE OBLIGATIONS" of any Person shall mean the obligations
of such Person to pay rent or other amounts under any Capital Lease.
"CHANGE OF CONTROL" means (a) the acquisition by any Person, or two or
more Persons acting in concert, including, without limitation, any
acquisition effected by means of a merger or consolidation, of beneficial
ownership (within the meaning of Rule 13d-3 of the SEC under the Exchange
Act) of 50% or more of the outstanding shares of voting stock of Holding
Co., or (b) during any period of 25 consecutive calendar months, commencing
on November 1, 1996, the ceasing of those individuals (the "Continuing
Directors") who (i) were directors of Holding Co. on the first day of each
such period or (ii) subsequently became directors of Holding Co. and whose
initial election or initial nomination for election subsequent to that date
was approved by a majority of the Continuing Directors then on the board of
directors of Holding Co., to constitute a majority of the board of
directors of Holding Co.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 4.1 are satisfied or waived by all Banks (or, in the case
of subsection 4.1(f), waived by the Person entitled to receive such
payment).
"CODE" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"COMMITMENT", as to each Bank, has the meaning specified in Section
2.1.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit C.
"CONSOLIDATED CASH FLOW FROM OPERATIONS" shall mean, for any period,
Consolidated Net Income for such period plus the aggregate amount deducted
in determining such Consolidated Net Income in respect of the following,
each determined in accordance with GAAP: (i) Consolidated Interest Expense,
(ii) income taxes, (iii) depreciation, depletion and amortization,
(iv) non-cash charges for non-recurring or extraordinary items, and (v)
repurchase premiums incurred in connection with purchases of the Senior
Subordinated Notes.
"CONSOLIDATED CURRENT ASSETS" means, at any date of determination
thereof, the aggregate amount of all cash, accounts receivable and
inventory of Borrowers and their Subsidiaries.
"CONSOLIDATED CURRENT ASSETS TO SENIOR FUNDED DEBT RATIO" means the
ratio of (i) Consolidated Current Assets, to (ii) the aggregate Funded Debt
of Borrowers and their Subsidiaries, excluding Subordinated Debt, computed
on a consolidated basis.
"CONSOLIDATED INTEREST COVERAGE RATIO" shall mean the ratio of (i)
Consolidated Cash Flow from Operations to (ii) Consolidated Interest
Expense.
-3-
<PAGE> 10
"CONSOLIDATED INTEREST EXPENSE" shall mean gross interest expense of
Borrowers and their Subsidiaries computed on a consolidated basis in
accordance with GAAP, including, without limitation, amortization of debt
discounts and the portion of any Capital Lease Obligation allocable to
interest expense.
"CONSOLIDATED LIQUIDITY RATIO" shall mean the ratio of
(i) Consolidated Current Assets, to (ii) the aggregate Funded Debt of
Borrowers and their Subsidiaries, excluding Subordinated Debt, computed on
a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" shall mean, for any period, the aggregate
net income (or net deficit) of Borrowers and their Subsidiaries for such
period computed on a consolidated basis in accordance with GAAP.
"CONSOLIDATED SENIOR FUNDED DEBT TO CASH FLOW RATIO" means the ratio
of (i) the aggregate Funded Debt of Borrowers and their Subsidiaries,
excluding Subordinated Debt, computed on a consolidated basis in accordance
with GAAP, to (ii) Consolidated Cash Flow From Operations for the four
immediately preceding fiscal quarters.
"CONSOLIDATED TOTAL FUNDED DEBT TO CASH FLOW RATIO" means the ratio of
(i) the aggregate Funded Debt of Borrowers and their Subsidiaries computed
on a consolidated basis in accordance with GAAP, to (ii) Consolidated Cash
Flow From Operations for the four immediately preceding fiscal quarters.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of another
Person (the "primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary obligations or
any security therefor, (ii) to advance or provide funds for the payment or
discharge of any such primary obligation, or to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase
any materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered, or (d) in
respect of any Swap Contract. The amount of any Contingent Obligation
shall, in the case of Guaranty Obligations, be deemed equal to the stated
or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, and in the
case of other Contingent Obligations other than in respect of Swap
Contracts, shall be equal to the maximum reasonably anticipated liability
in respect thereof and, in the case of Contingent Obligations in respect of
Swap Contracts, shall be equal to the Swap Termination Value.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"CONVERSION/CONTINUATION DATE" means any date on which, under
Section 2.4, Borrowers (a) convert Loans of one Type to another Type, or (b)
continue as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
-4-
<PAGE> 11
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"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 $100,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital
and surplus of at least $100,000,000, 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.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and
land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with any Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by any Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which
it was a substantial employer (as defined in Section 4001(a)(2) of ERISA)
or a cessation of operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any
Borrower or any ERISA Affiliate from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice
of intent to terminate, the treatment of a Plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the commencement of proceedings by
the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon any
Borrower or any ERISA Affiliate.
"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the
definition of "Offshore Rate".
"EVENT OF Default" means any of the events or circumstances specified
in Section 8.1.
"EXCHANGE aCT" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
-5-
<PAGE> 12
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"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 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 Agent.
"FEE LETTER" has the meaning specified in subsection 2.10(a).
"FIXED RATE" means the fixed interest rate per annum, determined
solely by the Agent the first day of the applicable Interest Period for any
Fixed Rate Loan, as the rate at which the Agent would be able to borrow
funds in the Money Market in the amount of such Fixed Rate Loan and for a
term equal to the applicable Interest Period. The Fixed Rate shall include
adjustments for reserve requirements, federal deposit insurance and any
other similar adjustment which the Agent deems appropriate. The Fixed Rate
is the Agent's estimate only and neither the Agent nor the Banks are under
any obligation to purchase or actually match funds for any transaction.
"FIXED RATE LOAN" means a Loan that bears interest based on the Fixed
Rate.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"FUNDED DEBT" means, at any date of determination thereof, the total
of (a) all Indebtedness, that has a final maturity, or that is extendible
or renewable at the option of the obligor to a date, one year or more after
the date on which such Indebtedness is incurred, excluding all principal
payments in respect thereof required to be made within one year from the
date as of which Funded Debt is being determined, (b) all Guaranty
Obligations with respect to such Indebtedness of others, and (c) in the
case of Borrowers, the aggregate outstanding principal amount of all
Revolving Loan borrowings to the extent not included in clause (a) above.
"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 amounts payable or paid pursuant to Section 3.1.
"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 comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the Closing Date.
"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.
"GUARANTY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation".
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<PAGE> 13
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of
such property); (f) all obligations with respect to capital leases; (g) all
indebtedness referred to in clauses (a) through (f) above secured by (or
for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon or in property (including
accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (a) through
(g) above. For all purposes of this Agreement, the Indebtedness of any
Person shall include all recourse Indebtedness of any partnership or joint
venture or limited liability company in which such Person is a general
partner or a joint venturer or a member.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 10.5.
"INDEMNIFIED PERSON" has the meaning specified in Section 10.5.
"INDEPENDENT AUDITOR" has the meaning specified in subsection 6.1(a).
"INDENTURE" means the Indenture, dated as of December 1, 1993, between
Holding Co. and Harris Trust and Savings Bank, as Trustee, as amended by a
Supplemental Indenture, dated as of December 1, 1993, among Holding Co.,
Bloomfield Industries Canada Limited and Harris Trust and Savings Bank, as
Trustee, and by a Supplemental Indenture, dated as of January 31, 1998,
among Borrowers and Harris Trust and Savings Bank, as Trustee.
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial
portion of its creditors; undertaken under U.S. Federal, state or foreign
law, including the Bankruptcy Code.
"INTEREST PAYMENT DATE" means, as to any Loan other than a Reference
Rate Loan, the last day of each Interest Period applicable to such Loan
and, as to any Reference Rate Loan, the last Business Day of each calendar
quarter and each date such Loan is converted into another Type of Loan,
provided, however, that 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.
"INTEREST PERIOD" means, (a) as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or 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 six months thereafter as selected by Borrowers in its Notice of
Borrowing or Notice of Conversion/Continuation; and (b) as to any Fixed
Rate Loan, the period commencing on the Borrowing Date of such Loan or on
the Conversion/Continuation Date on which the Loan is converted into or
continued as a Fixed Rate Loan, and ending on the day one through 30
consecutive days thereafter, as selected by Borrowers in its Notice of
Borrowing or Notice of Conversion/Continuation;
7
<PAGE> 14
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; and
(iii) no Interest Period for any Loan shall extend beyond
the Termination Date.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"ISSUING BANK" means BA in its capacity as issuer of Letters of
Credit pursuant to Section 2.7.
"JOINT VENTURE" means a single-purpose corporation, partnership,
limited liability company, joint venture or other similar legal
arrangement (whether created by contract or conducted through a
separate legal entity) now or hereafter formed by any Borrower or any
of its Subsidiaries with another Person in order to conduct a common
venture or enterprise with such Person.
"LC DISBURSEMENT" shall mean any payment or disbursement made by
the Issuing Bank under or pursuant to a Letter of Credit or a Bankers
Acceptance.
"LC EXPOSURE" shall mean, without duplication, at any time, the
sum of (a) the aggregate undrawn amount of all Letters of Credit
outstanding at such time, plus (b) the aggregate unpaid amount of all
Bankers Acceptances outstanding at such time, plus (c) the aggregate
amount which has been drawn under Letters of Credit or paid under
Bankers Acceptances but for which the Issuing Bank or the Banks, as
the case may be, have not been reimbursed by Borrowers at such time.
"LC FACILITY COMMITMENT" shall have the meaning given such term
in Section 2.7.
"LC ISSUANCE FEE" shall have the meaning given such term in
subsection 2.10(c).
"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 Borrowers and the Agent.
"LETTERS OF CREDIT" means letters of credit issued by the Issuing
Bank for the account of any Borrower pursuant to Section 2.7.
"LETTER OF CREDIT FACILITY" means the letter of credit facility
established for Letters of Credit pursuant to Section 2.7.
"LIEN" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale
or other title retention agreement, the interest of a lessor under a
capital lease, any financing
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<PAGE> 15
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner
of the asset to which such lien relates as debtor, under the Uniform
Commercial Code or any comparable law) and any contingent or other
agreement to provide any of the foregoing, but not including the
interest of a lessor under an operating lease.
"LOAN" means an extension of credit by a Bank to Borrowers under
Article 2, and may be a Reference Rate Loan, Fixed Rate Loan or an
Offshore Rate Loan (each, a "Type" of Loan).
"LOAN DOCUMENTS" means this Agreement, any Notes, the Fee Letter
and all other documents delivered to the Agent or any Bank in
connection herewith.
"MAJORITY BANKS" means at any time Banks then holding at least
66-2/3% of the then aggregate unpaid principal amount of the Loans,
or, if no such principal amount is then outstanding, Banks then having
at least 66-2/3% of the Commitments.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in,
or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of any
Borrower or Borrowers and their Subsidiaries taken as a whole; (b) a
material impairment of the ability of any Borrower or any Subsidiary
to perform under any Loan Document and to avoid any Event of Default;
or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability against any Borrower or any Subsidiary of any
Loan Document.
"MONEY MARKET" means one or more wholesale funding markets
available to the Agent including domestic negotiable certificates of
deposit, eurodollar deposits, bank deposits notes or appropriate money
market instruments selected by the Agent.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which any Borrower or any
ERISA Affiliate makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has made,
or been obligated to make, contributions.
"NOTE" means a promissory note executed by Borrowers in favor of
a Bank pursuant to Section 2.2, in substantially the form of Exhibit
F.
"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 Borrowers to any Bank, the Agent, or any Indemnified Person,
whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or
hereafter arising.
"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 Agent as follows:
Offshore Rate = LIBOR
-------
1.00 - Eurodollar Reserve Percentage
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<PAGE> 16
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 Agent to be the rate of interest per annum quoted by BA
(rounded upward, if necessary, to the next 1/16th of 1%) as the
rate of interest at which dollar deposits in the approximate
amount of the amount of the Loan to be made or continued as, or
converted into, an Offshore Rate Loan by BA and having a maturity
comparable 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
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 Loan that bears interest based on
the Offshore Rate.
"ORGANIZATION DOCUMENTS" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement,
and all applicable resolutions of the board of directors (or any
committee thereof) of such corporation.
"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.
"PARTICIPANT" has the meaning specified in subsection 10.8(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA which any Borrower sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any
time during the immediately preceding five (5) plan years.
"PERMITTED LIENS" has the meaning specified in Section 7.1.
"PLAN" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which any Borrower sponsors or maintains or to which any
Borrower makes, is making, or is obligated to make contributions and
includes any Pension Plan.
"PLAN OF INTERNAL RESTRUCTURING" means the Plan of Internal
Restructuring adopted by the Board of Directors of Holding Co. and
approved by the stockholders of Holding Co. at the Annual Meeting of
Stockholders of Holding Co. on April 30, 1997.
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<PAGE> 17
"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.
"REFERENCE RATE" means the publicly announced reference rate of
interest of BA or any Bank acting as successor agent pursuant to
Section 9.9 hereof, as in effect from time to time, which rate is not
intended to be the lowest or most favorable rate offered by BA or such
Bank in effect at any time.
"REFERENCE RATE LOAN" means a Loan that bears interest based on
the Reference Rate.
"REPLACEMENT BANK" has the meaning specified in Section 3.8.
"REPORTABLE EVENT" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"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.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of Holding Co., or any other officer having substantially
the same authority and responsibility; or, with respect to compliance
with financial covenants, the chief financial officer or the treasurer
of Holding Co., or any other officer having substantially the same
authority and responsibility.
"REVOLVING LOAN" has the meaning specified in Section 2.1.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SENIOR SUBORDINATED NOTES" means Holding Co.'s 11-3/8% Senior
Subordinated Notes due 2003 issued pursuant to the Indenture which are
outstanding on the Closing Date.
"SUBORDINATED DEBT" means that portion of the Indebtedness of any
Borrower and its Subsidiaries which is subordinated in a manner
satisfactory in form and substance to the Banks as to right and time
of payment of principal and interest thereon to any and all of the
Obligations.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other
business entity of which more than 50% of the voting stock, membership
interests or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of any
Borrower.
"SURETY INSTRUMENTS" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties,
shipside bonds, surety bonds and similar instruments.
"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
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<PAGE> 18
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.
"SWAP TERMINATION VALUE" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or
after the date such Swap Contracts have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and (b)
for any date prior to the date referenced in clause (a) the amount(s)
determined as the mark-to-market value(s) for such Swap Contracts, as
determined by any Borrower based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Swap Contracts
(which may include any Bank).
"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 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 Agent, as the case may be, is organized or
maintains a lending office.
"TERMINATION DATE" means the earlier to occur of:
(a) November 30, 1998; and
(b) the date on which the Commitments terminate in
accordance with the provisions of this Agreement.
"TYPE" has the meaning specified in the definition of "Loan."
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"UNITED STATES" AND "U.S." each means the United States of
America.
"UNUSED LOAN FEE" has the meaning specified in subsection 2.10(b).
"UNIFORM CUSTOMS" has the meaning specified in subsection 2.7(d).
"WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other
than directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock
of every other class, in each case, at the time as of which any determination
is being made, is owned, beneficially and of record, by any Borrower, or by one
or more of the other Wholly-Owned Subsidiaries, or both.
1.2 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 subsection, Section, Schedule and Exhibit references are
to this Agreement unless otherwise specified.
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<PAGE> 19
(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.
(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 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 Agent, Borrowers and
the other parties, and are the products of all parties. Accordingly, they shall
not be construed against the Banks or the Agent merely because of the Agent's or
Banks' involvement in their preparation.
1.3 ACCOUNTING PRINCIPLES.
(a) Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of Borrowers.
ARTICLE 2
THE CREDITS
2.1 AMOUNTS AND TERMS OF COMMITMENTS. Each Bank severally agrees,
on the terms and conditions set forth herein, to make loans to Borrowers (each
such loan, a "Revolving Loan") from time to time on any Business Day during the
period from the Closing Date to the Termination Date, in an aggregate amount
not to exceed at any time outstanding, together with the Bank's Pro Rata Share
of the L/C Facility Commitment, the amount set forth on Schedule 2.1 (such
amount as the same may be reduced under Section 2.5 or as a result of one or
more assignments under Section 10.8, the Bank's "Commitment"); provided,
however, that, after giving effect to any Borrowing of Revolving Loans, the
aggregate principal amount of all outstanding Revolving Loans, together with
the L/C Facility Commitment, shall not at any time exceed the combined
Commitments. Within the limits of each Bank's Commitment, and subject to the
other
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<PAGE> 20
terms and conditions hereof, Borrowers may borrow under this subsection 2.1,
prepay under Section 2.6 and reborrow under this subsection 2.1.
2.2 LOAN ACCOUNTS. The 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 loan accounts or records maintained by the Agent
and each Bank shall be of the amount of the Loans made by the Banks to
Borrowers 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 Borrowers hereunder to pay any amount owing with respect to the
Loans. Upon the request of any Bank made through the Agent, the Loans made by
such Bank may be evidenced by one or more Notes, instead of or in addition to
loan accounts.
2.3 PROCEDURE FOR BORROWING.
(a) Each Borrowing shall be made upon Borrower Representative's
irrevocable written notice delivered to the Agent in the form of a Notice of
Borrowing (which notice must be received by the Agent prior to 10:00 a.m.
(Chicago time) (i) three Business Days prior to the requested Borrowing Date, in
the case of Offshore Rate Loans; (ii) on the requested Borrowing Date, in the
case of Fixed Rate Loans, and (iii) on the requested Borrowing Date, in the case
of Reference Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $1,000,000 or any multiple of $500,000 in
excess thereof;
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type of Loans comprising the Borrowing; provided
that if the Notice of Borrowing fails to specify the type of Loan, the
Loan shall be a Reference Rate Loan; and
(D) the duration of the Interest Period applicable to such
Loans included in such notice. If the Notice of Borrowing fails to
specify the duration of the Interest Period for any Borrowing comprised
of Fixed Rate Loans or Offshore Rate Loans, such Interest Period shall be
one day or one month, respectively.
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
10:00 a.m. (Chicago time) one Business Day before the Closing Date and such
Borrowing will consist of Reference Rate Loans only.
(b) The Agent will promptly notify each Bank of its receipt of
any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of Borrowers at the Agent's
Payment Office by 2:00 p.m. (Chicago time) on the Borrowing Date requested by
Borrower Representative in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to Borrowers by the Agent
at such office by crediting the account of Borrowers on the books of BA (or the
commercial banking Affiliate of any successor agent appointed pursuant to
Section 9.9 hereof, as applicable) with the aggregate of the amounts made
available to the Agent by the Banks and in like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than five different Interest Periods
in effect.
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<PAGE> 21
2.4 CONVERSION AND CONTINUATION ELECTIONS.
(a) Borrower Representative may, upon irrevocable written
notice to the Agent in accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of
Reference Rate Loans, or as of the last day of the applicable Interest
Period, in the case of any other Type of Loans, to convert any such
Loans (or any part thereof in an amount not less than $1,000,000 or
that is in an integral multiple of $500,000 in excess thereof) into
Loans of any other Type; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Loans having Interest Periods
expiring on such day (or any part thereof in an amount not less than
$1,000,000, or that is in an integral multiple of $500,000 in excess
thereof);
provided, that if at any time the aggregate amount of Fixed Rate Loans or
Offshore Rate Loans in respect of any Borrowing is reduced, by payment,
prepayment, or conversion of part thereof to be less than $1,000,000, such
Fixed Rate Loans or Offshore Rate Loans shall automatically convert into
Reference Rate Loans, and on and after such date the right of Borrowers to
continue such Loans as, and convert such Loans into, Offshore Rate Loans or
Fixed Rate Loans, as the case may be, shall terminate.
(b) Borrower Representative shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later than 10:00 a.m.
(Chicago time) at least (i) three Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or
continued as Offshore Rate Loans; (ii) on the Conversion/Continuation Date, if
the Loans are to be converted into or continued as Fixed Rate Loans; and (iii)
on the Conversion/Continuation Date, if the Loans are to be converted into
Reference Rate Loans, specifying:
(A) the proposed Conversion/Continuation
Date;
(B) the aggregate amount of Loans to be
converted or continued;
(C) the Type of Loans resulting from the
proposed conversion or continuation; and
(D) other than in the case of
conversions into Reference Rate Loans, the duration of the
requested Interest Period.
(c) If upon the expiration of any Interest Period
applicable to Fixed Rate Loans or Offshore Rate Loans, Borrowers have failed to
select timely a new Interest Period to be applicable to such Fixed Rate Loans
or Offshore Rate Loans, as the case may be, or if any Default or Event of
Default then exists, Borrowers shall be deemed to have elected to convert such
Fixed Rate Loans or Offshore Rate Loans into Reference Rate Loans effective as
of the expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by Borrower Representative, the 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 Loans with respect to which the notice was given held by each Bank.
(e) Unless the Majority Banks otherwise consent, during
the existence of a Default or Event of Default, Borrowers may not elect to have
a Loan converted into or continued as an Offshore Rate Loan or a Fixed Rate
Loan.
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(f) After giving effect to any conversion or continuation
of Loans, unless the Agent shall otherwise consent, there may not be more than
five different Interest Periods in effect.
2.5 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. Borrowers
may, upon not less than five Business Days' prior notice to the Agent,
terminate the Commitments and this Agreement, or permanently reduce the
Commitments by an aggregate minimum amount of $1,000,000 or any multiple of
$500,000 in excess thereof; unless, after giving effect thereto and to any
prepayments of Loans made on the effective date thereof, the sum of the
then-outstanding principal amount of the Loans, plus the L/C Facility
Commitment 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. All accrued commitment fees to, but not
including the effective date of any reduction or termination of Commitments,
shall be paid on the effective date of such reduction or termination. Upon the
termination of the Commitments, this Agreement shall terminate, except for the
provisions of Article 3, Section 10.5 and such other provisions hereof which
are specified as surviving the payment of the Obligations.
2.6 OPTIONAL PREPAYMENTS. Subject to Section 3.4, Borrowers may, at
any time or from time to time, upon irrevocable notice to the Agent, prepay
outstanding Loans in whole or in part, in minimum amounts of $1,000,000 or any
multiple of $500,000 in excess thereof, with such notice to be received by the
Agent not later than 10:00 a.m. (Chicago time) one Business Day prior to any
such prepayment. Such notice of prepayment shall specify the date and amount
of such prepayment and the Loans to be prepaid. The 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 Borrowers, Borrowers 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 3.4. Reference Rate Loans may be prepaid without prior notice. Unless
the Agent is instructed otherwise by Borrowers in writing, any prepayments
pursuant to this Section 2.6 shall be applied first to any Reference Rate
Loans. Borrowers may from time to time (upon notice and procedures stated in
Section 2.3 hereof) reborrow amounts which have been paid by Borrowers as
optional prepayments.
2.7 LETTERS OF CREDIT.
(a) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, the Issuing Bank agrees, at
any time and from time to time on or after the Closing Date until the
Termination Date, to issue and deliver or to extend the expiry of Letters of
Credit and/or Bankers Acceptances for the account of any Borrower in an
aggregate undrawn amount at any one time outstanding which does not exceed (i)
$19,000,000 during the period from January 15, 1997 through and including April
14, 1997, and (ii) $15,000,000 at all other times (the "L/C Facility
Commitment"); provided, however, that the Issuing Bank shall not issue or
extend the expiry of any Letter of Credit or Bankers Acceptance if, immediately
after giving effect to such issuance or extension the aggregate outstanding
principal balance of the Revolving Loans and the LC Exposure would exceed the
aggregate Commitments. Each Letter of Credit (x) shall be in a form approved
in writing by Borrower Representative, the Agent and the Issuing Bank, (y)
shall be in a minimum principal amount of $5,000 and (z) shall permit drawings
upon the presentation of one or more sight drafts, or one or more time drafts
for a period not to exceed six months, and such other documents as shall be
specified by Borrower Representative in the applicable notice and Application
delivered pursuant to subsection 2.7(c) below.
(b) Each Letter of Credit shall by its terms expire not later than
the earlier of (i) the first anniversary of the date of issuance or extension
(subject to extension for additional one-year periods by the Issuing Bank as
contemplated by paragraph (a) above) and (ii) the Termination Date. Each
Bankers Acceptance shall have a term of six months or less. Each Letter of
Credit and each Bankers Acceptance shall by its terms provide for payment of
drawings in dollars.
(c) Borrower Representative shall give the Issuing Bank written or
telecopy notice not later than 10:00 a.m., Chicago time, two Business Days (or
such shorter period as shall be acceptable to the Issuing Bank and the
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<PAGE> 23
Agent) prior to any proposed issuance of a Letter of Credit. Each such notice
shall refer to this Agreement and shall specify (i) the date on which such
Letter of Credit is to be issued (which shall be a Business Day), the face
amount of such Letter of Credit (which shall be an amount in dollars), (ii) the
name and address of the beneficiary, (iii) whether such Letter of Credit shall
permit a single drawing or multiple drawings, (iv) the form of the sight draft
or time draft, as the case may be, and any other documents required to be
presented at the time of any drawing (together with the exact wording of such
documents or copies thereof) and (v) the expiry date of such Letter of Credit
(which shall conform to the provisions of paragraph (b) above). At the time of
each request by Borrower Representative that a Letter of Credit be issued, the
Issuing Bank, at its option, may require Borrowers to execute and deliver to
the Issuing Bank an application for such Letter of Credit in the form
customarily prescribed by the Issuing Bank to issue Letters of Credit (the
"Applications"). This Agreement supersedes any terms of the Applications which
are inconsistent with the terms hereof. The Issuing Bank shall give the Agent,
which shall in turn give to each Bank, prompt written or telecopy advice of any
notice received from Borrower Representative pursuant to this subsection.
(d) By the issuance of a Letter of Credit or Bankers Acceptance and
without any further action on the part of the Issuing Bank or the Banks in
respect thereof, the Issuing Bank hereby grants to each Bank, and each Bank
hereby agrees to and does acquire from the Issuing Bank, a participation in
such Letter of Credit or Bankers Acceptance equal to such Bank's pro rata
share, of the face amount of such Letter of Credit or Bankers Acceptance,
effective upon the issuance of such Letter of Credit or Bankers Acceptance;
provided, however, that no Bank shall be required to acquire participations in
Letters of Credit or Bankers Acceptances that would result in its Pro Rata
Share, based upon its Commitment, of the LC Exposure exceeding its Commitment.
In consideration and in furtherance of the foregoing, each Bank hereby
absolutely and unconditionally agrees to pay to the Agent, on behalf of the
Issuing Bank, in accordance with subsection (f) below, such Bank's Pro Rata
Share, of each unreimbursed LC Disbursement made by the Issuing Bank; provided,
however, that the Banks shall not be obligated to make any such payment with
respect to any wrongful payment or disbursement made under any Letter of Credit
as a result of the failure in any material respect of the Issuing Bank or any
confirming bank to comply with the obligations imposed on it with respect to
such Letter of Credit by the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce, Publication No. 500
and subsequent revisions (the "Uniform Customs") or applicable law.
(e) Each Bank acknowledges and agrees that its acquisition of
participations pursuant to subsection (d) above in respect of Letters of Credit
and Bankers Acceptances is absolute and unconditional and shall not be affected
by any circumstance whatsoever, including the occurrence and continuance of any
Default or Event of Default hereunder, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(f) Promptly after it shall have ascertained that any draft and any
accompanying documents presented under a Letter of Credit or Bankers Acceptance
appear to be in conformity with the terms and conditions of such Letter of
Credit or Bankers Acceptance, the Issuing Bank shall give written or telecopy
notice to Borrowers and the Agent of the receipt and amount of such draft and
the date on which payment thereon will be made. If the Agent shall not have
received from Borrowers the payment required pursuant to subsection (g) below
by 12:00 noon, Chicago time, one Business Day after the date on which payment
of a draft presented under any Letter of Credit or Bankers Acceptance has been
made, the Agent shall promptly so notify the Issuing Bank and each Bank,
specifying in the notice to each Bank such Bank's Pro Rata Share of such LC
Disbursement. Each Bank shall pay to the Agent, not later than 2:00 p.m.,
Chicago time, on such date, such Bank's percentage of such LC Disbursement,
which the Agent shall promptly pay to the Issuing Bank. The Agent will
promptly remit to each Bank such Bank's percentage of any amounts subsequently
received by the Agent from Borrowers in respect of such LC Disbursement;
provided that (i) amounts so received for the account of any Bank prior to
payment by such Bank of amounts required to be paid by it hereunder in respect
of any LC Disbursement and (ii) amounts representing interest on any LC
Disbursement for the period prior to the payment by such Bank of such amounts
shall in each case be remitted to the Issuing Bank.
(g) If the Issuing Bank shall pay any draft presented under a Letter
of Credit or Bankers Acceptance under circumstances entitling it to
reimbursement under succeeding provisions of this subsection (g), Borrowers
shall pay to the Issuing Bank or to the Agent for the account of the Issuing
Bank or, if the Agent shall have received the
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<PAGE> 24
payments provided in subsection (f) above with respect to such drawing, for the
accounts of the Banks, an amount equal to the amount of such draft before 12:00
noon, Chicago time, on the Business Day immediately following the date of
payment of such draft, together with interest on such amount at a rate per
annum equal to the interest rate in effect for Reference Rate Loans from (and
including) the date of payment of such draft to (but excluding) the date of
such payment by Borrowers. The obligation of Borrowers to pay the amounts
referred to above in this subsection (g) shall be absolute, unconditional and
irrevocable and shall be satisfied strictly in accordance with their terms
irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
Bankers Acceptance;
(ii) the existence of any claim, setoff, defense or other right which
any Borrower or any other Person may at any time have against the
beneficiary under any Letter of Credit, the Agent, the Issuing Bank, any
confirming bank or any Bank (other than the defense of payment in
accordance with the terms of this Agreement or a defense based on the
failure in any material respect of the Issuing Bank or confirming bank
to comply with the obligations imposed on it with respect to such Letter
of Credit by the Uniform Customs or applicable law) or any other Person
in connection with this Agreement or any other transaction;
(iii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect; provided
that payment by the Issuing Bank or confirming bank under such Letter of
Credit against presentation of such draft or document shall not have
constituted a failure in any material respect by the Issuing Bank or
confirming bank to comply with the obligations imposed on it with
respect to such Letter of Credit by the Uniform Customs or applicable
law.
(iv) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document which does not comply in any
immaterial respect with the terms of such Letter of Credit; provided
that such payment shall not have constituted gross negligence or wilful
misconduct; or
(v) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing; provided that such other circumstance
or event shall not have been the.result of gross negligence or wilful
misconduct of the Issuing Bank.
It is understood that in making any payment under a Letter of Credit (x)
the Issuing Bank's exclusive reliance on the documents presented to it under
such Letter of Credit as to any and all matters set forth therein, including,
without limitation, reliance on the amount of any draft presented under such
Letter of Credit, whether or not the amount due to the beneficiary equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be forged, fraudulent or invalid in any respect, if
such document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever, and (y) any noncompliance in any
immaterial respect of the documents presented under a Letter of Credit with the
terms thereof shall, in either case, not be deemed a failure in any material
respect by the Issuing Bank or confirming bank to comply with the obligations
imposed on it with respect to such Letter of Credit by the Uniform Customs or
applicable law.
(h) Neither the Issuing Bank nor its correspondents or agents, or
any bank(s) or financial institution(s) used by the Issuing Bank in connection
with the issuance of Letters of Credit ("Correspondent"), shall be responsible
for (i) the use which may be made of the Letters of Credit or Bankers
Acceptances or for any acts or omissions of the user(s) of the Letters of
Credit or Bankers Acceptances; (ii) the existence, character, quality,
quantity, condition, packing or value of the property purporting to be
represented by the documents required by the terms of any Letters of Credit or
Bankers Acceptances or presented in connection therewith ("Documents"); (iii)
the time, place, manner or order in which shipment is made; (iv) except as
otherwise provided in subsection 2.7(g)(iii), the validity, sufficiency,
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or genuineness of Documents, or of any endorsements thereon, even if such
Documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent, or forged; (v) partial or incomplete shipment, or
failure or omission to ship any or all of the property referred to in the
Letters of Credit, Bankers Acceptances or the Documents; (vi) the character,
adequacy, validity or genuineness of any insurance or solvency or
responsibility of any insurer or any other risk connected with insurance; (vii)
any deviation from instructions, delay, default or fraud by the shipper or
anyone else in connection with the property referred to in the Letters of
Credit, Bankers Acceptances or the Documents or the shipping thereof; (viii)
the insolvency, responsibility or relationship to the property of any party
issuing any documents in connection with the property referred to in the
Letters of Credit; (ix) delay in arrival or failure to arrive of either the
property referred to in the Letters of Credit or the Documents; (x) delay in
giving or failure to give notice of arrival or any other notice; (xi) any
breach of contract between the shipper(s) or vendor(s) and the consignee(s) or
buyer(s); (xii) failure of any instrument to bear any reference or adequate
reference to the Letter of Credit or Bankers Acceptances or failure of
Documents to accompany any instrument at negotiation, or failure of any person
to note the amount of any instrument on the reverse of the Letter of Credit or
Bankers Acceptances or to send forward Documents apart from instruments as
required by the terms of the Letter of Credit or Bankers Acceptances or to send
forward Documents apart from instruments as required by the terms of the Letter
of Credit or Bankers Acceptances, each of which provisions, if contained in the
Letter of Credit or itself, it is agreed may be waived by the Issuing Bank or
Correspondent; or (xiii) errors, omissions, interruptions or delays in
transmission or delivery of any messages by mail, cable, telegraph, wireless or
otherwise, whether or not they may be in cipher. Further, the Issuing Bank
shall not be responsible for any act, error, neglect or default, omission,
insolvency or failure in business of any of its Correspondents. The occurrence
of any one or more of the contingencies referred to in the preceding sentences
of this subsection 2.7(h) shall not affect, impair or prevent the vesting of
any of the Issuing Bank's rights or powers hereunder or Borrowers' obligation
to make reimbursement. Borrowers shall promptly examine (i) the copy of the
Letter of Credit or Bankers Acceptance (and of any amendments thereof) sent to
it by the Issuing Bank or Correspondent and (ii) all documents and instruments
delivered to it from time to time by the Issuing Bank or Correspondent, and, in
the event of any claim of noncompliance with Borrowers' instructions or other
irregularity, will promptly notify the Issuing Bank and Correspondent thereof
in writing, Borrowers being conclusively deemed to have waived any such claim
against the Issuing Bank and Correspondent unless such notice is given within
two Business Days following receipt by Borrowers of such Letter of Credit,
amendment, document or instrument.
(i) Upon any transfer, sale, delivery, surrender or endorsement of
any bill of lading, warehouse receipt or other Document at any time(s) held by
the Issuing Bank, or held for its account by any of its correspondents or
agents, or any bank or financial institution used by the Issuing Bank in
connection with the issuance of Letters of Credit or Bankers Acceptances,
relative to the Letter of Credit or Bankers Acceptance, Borrowers will
indemnify and hold the Issuing Bank and any such correspondent(s), agent(s),
bank(s) and financial institution(s), harmless from and against each and every
claim, demand, action or suit which may arise against the Issuing Bank or any
correspondent(s), agent(s), bank(s) and financial institution(s), by reason
thereof."
2.8 REPAYMENT. Borrowers shall repay to the Banks on the Revolving
Termination Date the aggregate principal amount of Revolving Loans outstanding
on such date.
2.9 INTEREST.
(a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Fixed Rate, the Offshore Rate or the Reference Rate, as the case
may be (and subject to Borrowers right to convert to other Types of Loans under
Section 2.4), plus the Applicable Margin.
(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 Loans under Section 2.6 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
Agent at the request or with the consent of the Majority Banks.
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(c) Notwithstanding subsection (a) of this Section, while
any Event of Default exists or after acceleration, Borrowers shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal amount of all outstanding Loans and other Obligations, at
a rate per annum which is determined by adding 2% per annum to the Applicable
Margin then in effect for such Loans and, in the case of Obligations not
subject to an Applicable Margin, at a rate per annum equal to the Reference
Rate plus 2%; provided, however, that, on and after the expiration of any
Interest Period applicable to any Offshore Rate Loan or Fixed Rate Loan
outstanding on the date of occurrence of such Event of Default or acceleration,
the principal amount of such Loan shall, during the continuation of such Event
of Default or after acceleration, bear interest at a rate per annum equal to
the Reference Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of Borrowers to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Bank would be contrary
to the provisions of any law applicable to such Bank limiting the highest rate
of interest that may be lawfully contracted for, charged or received by such
Bank, and in such event Borrowers shall pay such Bank interest at the highest
rate permitted by applicable law.
2.10 FEES.
(a) AGENCY FEE. Holding Co. shall pay an agency fee to the
Agent for the Agent's own account, as required by the letter agreement ("Fee
Letter") between Holding Co. and the Agent dated November 15, 1996.
(b) UNUSED LOAN FEE. If during any calendar quarter prior
to the Termination Date (or portion of the calendar quarter for 1996 and the
calendar quarter in which the Termination Date occurs), the average daily
balance of the Revolving Loan is less than $45,000,000, Borrowers shall pay to
Agent, for the ratable benefit of the Banks, in addition to any interest, late
charges or liquidated damages due under this Agreement, an amount ("Unused Loan
Fee") equal to the quotient of (i) an amount equal to (A) the positive
difference between $45,000,000 and the average daily balance of the Revolving
Loan during such calendar quarter (or portion of the calendar quarter for 1996
and the calendar quarter in which the Termination Date occurs), multiplied by
(B) a rate equal to 0.15%, divided by (ii) four. The amount of any Unused
Revolving Loan Fee shall be payable within five days after determination
thereof by Agent and notice to Borrowers of the amount thereof.
(c) L/C FEES. Borrowers agree to pay (i) to the Agent, for
the ratable benefit of the Banks, a per annum fee ("LC Issuance Fee"), payable
quarterly, in arrears, prorated for any period less than one year based on the
Issuing Bank's customary practices, (a) with respect to the Letters of Credit
which are cash collateralized in a manner acceptable to the Issuing Bank, equal
to 0.125% of the undrawn face amount of such Letter of Credit from time to
time, and (b) with respect to all other Letters of Credit, equal to 0.375% of
the undrawn face amount of such Letter of Credit from time to time, and in any
event the LC Issuance Fee shall not be less than $150, plus (ii) to the Issuing
Bank, for the Issuing Bank's own account and not for the account of any Bank,
in addition to the LC Issuance Fee, the Issuing Bank's standard administrative
operating fees and charges in effect from time to time for issuing and
administering any Letter of Credit. In the event the Issuing Bank consents to
the extension of the term ("Extended Term") of a Letter of Credit beyond the
term specified in subsection 2.7(b) ("Extended Letter of Credit"), then
Borrowers shall pay an additional LC Issuance Fee with respect to each Extended
Letter of Credit for each year or partial year the terms of such Extended
Letter of Credit extends beyond the term specified in subsection 2.7(b). With
respect to the payment of any fees or expenses that become due hereunder,
Borrowers authorize and direct the Agent, at its option, to cause such payment
to be paid when due by charging such payment as a Revolving Loan advance
against the Revolving Loan Commitment established pursuant to Section 2.1 of
this Agreement.
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<PAGE> 27
2.11 COMPUTATION OF FEES AND INTEREST.
(a) All computations of interest for Reference Rate Loans
when the Reference Rate is determined by BA's "reference rate" shall be made on
the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed. All other 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). Interest and fees
shall accrue during each period during which interest or such fees are computed
from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on Borrowers and the Banks in the absence of
manifest error. The Agent will, at the request of Borrowers or any Bank,
deliver to Borrowers or the Bank, as the case may be, a statement showing the
quotations used by the Agent in determining any interest rate and the resulting
interest rate.
2.12 PAYMENTS BY BORROWERS.
(a) All payments to be made by Borrowers shall be made
without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by Borrowers shall be made to the Agent for the
account of the Banks at the Agent's Payment Office, and shall be made in
dollars and in immediately available funds, no later than 1:00 p.m. (Chicago
time) on the date specified herein. The Agent will promptly distribute to each
Bank its Pro Rata Share (or other applicable share as expressly provided
herein) of such payment in like funds as received. Any payment received by the
Agent later than 1:00 p.m. (Chicago time) 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 Agent receives notice from Borrowers prior
to the date on which any payment is due to the Banks that Borrowers will not
make such payment in full as and when required, the Agent may assume that
Borrowers have made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required),
in reliance upon such assumption, distribute to each Bank on such due date an
amount equal to the amount then due such Bank. If and to the extent Borrowers
have not made such payment in full to the Agent, each Bank shall repay to the
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.
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<PAGE> 28
2.13 PAYMENTS BY THE BANKS TO THE AGENT.
(a) Unless the 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 Borrowing, that such
Bank will not make available as and when required hereunder to the Agent for
the account of Borrowers the amount of that Bank's Pro Rata Share of the
Borrowing, the Agent may assume that each Bank has made such amount available
to the Agent in immediately available funds on the Borrowing Date and the Agent
may (but shall not be so required), in reliance upon such assumption, make
available to Borrowers on such date a corresponding amount. If and to the
extent any Bank shall not have made its full amount available to the Agent in
immediately available funds and the Agent in such circumstances has made
available to Borrowers such amount, that Bank shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Bank with respect to amounts owing under
this subsection (a) shall be conclusive, absent manifest error. If such amount
is so made available, such payment to the 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 Agent on the Business Day following the
Borrowing Date, the Agent will notify Borrowers of such failure to fund and,
upon demand by the Agent, Borrowers shall pay such amount to the Agent for the
Agent's account, together with interest thereon for each day elapsed since the
date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any
Borrowing Date shall not relieve any other Bank of any obligation hereunder to
make a Loan on such Borrowing Date, but no Bank shall be responsible for the
failure of any other Bank to make the Loan to be made by such other Bank on any
Borrowing Date.
2.14 SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans 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. 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 10.10) with respect to such participation as fully as if such Bank
were the direct creditor of Borrowers in the amount of such participation. The
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.
2.15 APPOINTMENT OF BORROWER REPRESENTATIVE. Each Borrower hereby
designates Holding Co. as its representative and agent on its behalf for the
purposes of issuing Notices of Borrowing and Notices of
Conversion/Continuation, giving instructions with respect to the disbursement
of the proceeds of the Loans, selecting interest rate options, requesting
Letters of Credit and Bankers Acceptances, giving and receiving all other
notices and consents hereunder or under any of the other Loan Documents and
taking all other actions (including in respect of compliance with covenants) on
behalf of any Borrower or Borrowers under the Loan Documents. Borrower
Representative hereby accepts such appointment. Agent and each Bank may regard
any notice or other communication pursuant to any Loan Document from Borrower
Representative as a notice or communication from all Borrowers, and may give
any notice or communication required or permitted to be given to any Borrower
or Borrowers hereunder to Borrower Representative on behalf of such Borrower or
Borrowers. Each Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding
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upon and enforceable against such Borrower to the same extent as if the same
had been made directly by such Borrower.
ARTICLE 3
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 TAXES.
(a) Any and all payments by Borrowers to each Bank or the
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,
Borrowers shall pay all Other Taxes.
(b) If Borrowers 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 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 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) Borrowers shall make such deductions and
withholdings;
(iii) Borrowers shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) Borrowers shall also pay to each Bank or the
Agent for the account of such Bank, at the time interest is paid,
Further Taxes in the amount that the respective Bank 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.
(c) Borrowers agree to indemnify and hold harmless each
Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii)
Further Taxes in the amount that the respective Bank 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 Agent makes written demand
therefor.
(d) If any Bank becomes entitled to claim any
indemnification payment pursuant to this Section 3.1, it shall notify Borrowers
thereof within 90 days after such Bank becomes aware of the nature and extent
of such claim and shall also notify Agent thereof. A certificate as to any
additional amounts payable pursuant to this Section 3.1 submitted by a Bank to
Borrowers shall be conclusive absent manifest error. Such certificate shall
outline in reasonable detail the computation of any amounts claimed by it under
this Section 3.1 and the assumptions underlying such computation. No Bank
shall, however, be required to disclose, in such certificate or otherwise, any
proprietary or confidential information. No Bank shall be entitled to any
indemnification payment under this Section 3.1 unless it shall have notified
Borrowers that it will demand indemnification not later than 90 days after the
date on which the Bank becomes aware of the nature and extent of the claim.
(e) Within 30 days after the date of any payment by
Borrowers of Taxes, Other Taxes or Further Taxes, Borrowers shall furnish to
each Bank or the Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to such Bank or the
Agent.
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(f) If Borrowers are required to pay any amount to any Bank
or the Agent pursuant to subsection (b) or (c) of this Section, 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 Borrowers which may thereafter accrue,
if such change in the sole judgment of such Bank is not otherwise
disadvantageous to such Bank.
3.2 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, then, on notice thereof by the Bank to Borrowers through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and 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, Borrowers shall, upon its receipt of notice of such
fact and demand from such Bank (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 3.4, 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 maintain such Offshore Rate Loan. If Borrowers are
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, Borrowers shall borrow from the affected Bank, in the amount of
such repayment, a Reference Rate Loan.
(c) If the obligation of any Bank to make or maintain
Offshore Rate Loans has been so terminated or suspended, Borrowers may elect,
by giving notice to the Bank through the Agent that all Loans which would
otherwise be made by the Bank as Offshore Rate Loans shall be instead Reference
Rate Loans.
(d) Before giving any notice to the 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.
3.3 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 or (ii) the compliance by that Bank with any guideline or request
from any central bank or other Governmental Authority (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 or
Fixed Rate Loans, then Borrowers shall be liable for, and shall from time to
time, upon demand (with a copy of such demand to be sent to the Agent), pay to
the 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 of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change 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, 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 Commitments, loans,
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credits or obligations under this Agreement, then, upon demand of such Bank to
Borrowers through the Agent, 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.
(c) Upon receiving a demand to pay amounts pursuant to
subsection 3.3(a) or 3.3(b), Borrowers may require the applicable Bank to
provide an opinion from such Bank's legal counsel or independent accountants to
the effect that (i) events of the type described in subsection 3.3(a) or
3.3(b), as the case may be, have occurred, and (ii) as a result of the
occurrence of such events, the Bank has incurred costs of the type described in
subsection 3.3(a) or 3.3(b), as the case may be. The fees and expenses of the
legal counsel or independent accountants of the Bank shall be borne by
Borrowers.
3.4 FUNDING LOSSES. Borrowers shall reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of:
(a) the failure of Borrowers to make on a timely basis any
payment of principal of any Offshore Rate Loan or Fixed Rate Loan;
(b) the failure of Borrowers to borrow, continue or convert
a Loan after Borrowers have given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of Borrowers to make any prepayment in
accordance with any notice delivered under Section 2.6;
(d) the prepayment or other payment (including after
acceleration thereof) of an Offshore Rate Loan or a Fixed Rate 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 or Fixed Rate Loan to a Reference 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 Fixed Rate Loans
or from fees payable to terminate the deposits from which such funds were
obtained. For purposes of calculating amounts payable by Borrowers to the
Banks under this Section and under subsection 3.3(a), (i) each Offshore Rate
Loan made by a Bank (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at the LIBOR used
in determining the Offshore Rate for such Offshore Rate Loan by a matching
deposit or other borrowing in the interbank eurodollar market for a comparable
amount and for a comparable period, whether or not such Offshore Rate Loan is
in fact so funded, and (ii) each Fixed Rate Loan made by a Bank (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the rate used in determining the Fixed Rate for
such Fixed Rate Loan by the issuance of Agent's certificate of deposit in a
comparable amount and for a comparable period, whether or not such Fixed Rate
Loan is in fact so funded.
3.5 INABILITY TO DETERMINE RATES. If the Agent determines that for
any reason adequate and reasonable means do not exist for determining the
Offshore Rate or the Fixed Rate for any requested Interest Period with respect
to a proposed Offshore Rate Loan or Fixed Rate Loan, or that the Offshore Rate
or the Fixed Rate applicable pursuant to subsection 2.9(a) for any requested
Interest Period with respect to a proposed Offshore Rate Loan or Fixed Rate
Loan does not adequately and fairly reflect the cost to the Banks of funding
such Loan, the Agent will promptly so notify Borrowers and each Bank.
Thereafter, the obligation of the Banks to make or maintain Fixed Rate Loans or
Offshore Rate Loans, as the case may be, hereunder shall be suspended until the
Agent upon the instruction of the Majority Banks revokes such notice in
writing. Upon receipt of such notice, Borrowers may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted by it. If
Borrowers do not revoke such Notice, the Banks shall make, convert or continue
the Loans, as proposed by Borrowers, in the amount specified in the applicable
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notice submitted by Borrowers, but such Loans shall be made, converted or
continued as Reference Rate Loans instead of Fixed Rate Loans or Offshore Rate
Loans, as the case may be.
3.6 RESERVES ON OFFSHORE RATE LOANS. Borrowers shall pay to each
Bank, as long as such Bank shall be required under regulations of the FRB to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), additional costs on the unpaid principal amount of each Offshore
Rate Loan equal to the actual costs of such reserves allocated to such Loan by
the Bank (as determined by the Bank in good faith, which determination shall be
conclusive), payable on each date on which interest is payable on such Loan,
provided Borrowers shall have received at least 15 days' prior written notice
(with a copy to the Agent) of such additional interest from the Bank. If a
Bank fails to give notice 15 days prior to the relevant Interest Payment Date,
such additional interest shall be payable 15 days from receipt of such notice.
3.7 CERTIFICATES OF BANKS. Any Bank claiming reimbursement or
compensation under this Article 3 shall deliver to Borrowers (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Bank hereunder and such certificate shall be conclusive and binding on
Borrowers in the absence of manifest error.
3.8 SUBSTITUTION OF BANKS. Upon the receipt by Borrowers from any
Bank (an "Affected Bank") of a claim for compensation under Section 3.3,
Borrowers may: (i) request the Affected Bank to use its best efforts to obtain
a replacement bank or financial institution satisfactory to Borrowers 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 Agent (which consent shall not be unreasonably withheld).
3.9 SURVIVAL. The agreements and obligations of Borrowers in this
Article 3 shall survive the payment of all other Obligations.
ARTICLE 4
CONDITIONS PRECEDENT
4.1 CONDITIONS OF INITIAL LOANS. The obligation of each Bank to make
its initial Loan hereunder is subject to the condition that the Agent shall
have received on or before the Closing Date all of the following, in form and
substance reasonably satisfactory to the Agent and each Bank, and in sufficient
copies for each Bank:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the
Notes executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of
directors of each Borrower and each Subsidiary that may become party to
a Loan Document authorizing the transactions contemplated hereby,
certified as of the Closing Date by the Secretary or an Assistant
Secretary of such Person; and
(ii) A certificate of the Secretary or Assistant
Secretary of each Borrower, and each Subsidiary that may become party to
a Loan Document certifying the names and true signatures of the officers
of such Borrower or such Subsidiary authorized to execute, deliver and
perform, as applicable, this Agreement, and all other Loan Documents to
be delivered by it hereunder;
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(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation
and the bylaws of each Borrower and each Subsidiary party to any Loan
Document as in effect on the Closing Date, certified by the Secretary or
Assistant Secretary of such Borrower or such Subsidiary as of the
Closing Date; and
(ii) a good standing certificate for each Borrower
and each Subsidiary party to any Loan Document from the Secretary of
State (or similar, applicable Governmental Authority) of its
state of incorporation and each state where such Borrower or such
Subsidiary is qualified to do business as a foreign corporation as of a
recent date, together with a bring-down certificate by facsimile, dated
the Closing Date;
(d) LEGAL OPINION. An opinion of Sonnenschein, Nath &
Rosenthal, counsel to Borrowers and addressed to the Agent and the Banks,
substantially in the form of Exhibit D;
(e) PAYMENT OF FEES. Evidence of payment by Borrowers 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 BA to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute BA'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
Borrowers and BA); including any such costs, fees and expenses arising under or
referenced in Sections 2.10 and 10.04;
(f) CERTIFICATE. A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article 5 are true and correct on and as of such date, as though made
on and as of such date;
(ii) no Default or Event of Default exists or would
result from the initial Borrowing; and
(iii) there has occurred since July 31, 1996 no
event or circumstance that has resulted or could reasonably be expected
to result in a Material Adverse Effect; and
(g) OTHER DOCUMENTS. Such other approvals, opinions,
documents or materials as the Agent or any Bank may reasonably request.
4.2 CONDITIONS TO ALL BORROWINGS. The obligation of each Bank to
make any Loan to be made by it (including its initial Loan) or to continue or
convert any Loan under Section 2.4 is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date or
Conversion/Continuation Date:
(a) NOTICE OF BORROWING OR CONVERSION/CONTINUATION. The
Agent shall have received (with, in the case of the initial Loan only, a copy
for each Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article 5 shall be true and correct on and as
of such Borrowing Date or Conversion/Continuation Date with the same effect as
if made on and as of such Borrowing Date or Conversion/Continuation Date
(except to the extent such representations and warranties expressly refer to an
earlier date, in which case they shall be true and correct as of such earlier
date); provided, however, that Borrowers may from time to time update the
information set forth in the Schedules referred to in Article 5 for changes
occurring subsequent to the Closing Date so long as the new matters set forth
in the updated Schedules have not resulted in, and cannot reasonably be
expected to result in, a Material Adverse Effect; and
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<PAGE> 34
(c) NO EXISTING DEFAULT. No Default or Event of Default
shall exist or shall result from such Borrowing or continuation or conversion.
Each Notice of Borrowing and Notice of Conversion/Continuation submitted by
Borrowers hereunder shall constitute a representation and warranty by Borrowers
hereunder, as of the date of each such notice and as of each Borrowing Date or
Conversion/Continuation Date, as applicable, that the conditions in this
Section 4.2 are satisfied.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Borrowers, jointly and severally, represent and warrant to the Agent and
each Bank that:
5.1 CORPORATE EXISTENCE AND POWER. Each Borrower and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets, carry on
its business and to execute, deliver, and perform its obligations under the
Loan Documents;
(c) is duly qualified as a foreign corporation and is
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (c) or clause (d), to the extent
that the failure to do so could not reasonably be expected to have a Material
Adverse Effect.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by each Borrower and its Subsidiaries of this
Agreement and each other Loan Document to which such Person is party, have been
duly authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any of that Person's
Organization Documents;
(b) conflict with or result in any breach or contravention
of, or the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
5.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, Borrowers or any
of their Subsidiaries of this Agreement or any other Loan Document.
5.4 BINDING EFFECT. This Agreement and each other Loan Document to
which any Borrower or any of its Subsidiaries is a party constitute the legal,
valid and binding obligations of such Borrower and any of its
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Subsidiaries to the extent it is a party thereto, enforceable against such
Person in accordance with their respective terms.
5.5 LITIGATION. Except as specifically disclosed in Schedule 5.5,
there are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of Borrowers, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against any Borrower, or its
Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or thereby;
or
(b) if determined adversely to such Borrower or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin
or restrain the execution, delivery or performance of this Agreement or any
other Loan Document, or directing that the transactions provided for herein or
therein not be consummated as herein or therein provided.
5.6 NO DEFAULT. No Default or Event of Default exists or would
result from the incurring of any Obligations by Borrowers. As of the Closing
Date, neither any Borrower nor any Subsidiary is in default under or with
respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a
Material Adverse Effect, or that would, if such default had occurred after the
Closing Date, create an Event of Default under subsection 8.1(e).
5.7 ERISA COMPLIANCE. Except as specifically disclosed in Schedule
5.7:
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the IRS and to the best
knowledge of Borrowers, nothing has occurred which would cause the loss of such
qualification. Each Borrower and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of
Borrowers, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect. There has been
no prohibited transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither any Borrower nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither any Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither any Borrower nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
5.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans
are to be used solely for the purposes set forth in and permitted by Section
6.12 and Section 7.7. Neither any Borrower nor any Subsidiary is generally
engaged in the business of purchasing or selling Margin Stock or extending
credit for the purpose of purchasing or carrying Margin Stock.
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5.9 TITLE TO PROPERTIES. Each Borrower and each Subsidiary has good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, the
property of each Borrower and its Subsidiaries is subject to no Liens, other
than Permitted Liens.
5.10 TAXES. Each Borrower and its Subsidiaries has filed all Federal
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided
in accordance with GAAP. There is no proposed tax assessment against any
Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 FINANCIAL CONDITION.
(a) The unaudited consolidated financial statements of Holding
Co. and its Subsidiaries dated July 31, 1996, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for the
fiscal quarter ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, subject to ordinary, good
faith year end audit adjustments;
(ii) fairly present the financial condition of
Holding Co. and its Subsidiaries as of the date thereof and results
of operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule
5.11, show all material indebtedness and other liabilities, direct
or contingent, of Holding Co. and its consolidated Subsidiaries as of
the date thereof, including liabilities for taxes, material commitments
and Contingent Obligations.
(b) Since July 31, 1996, there has been no Material Adverse
Effect.
5.12 ENVIRONMENTAL MATTERS. Except as specifically disclosed in
Schedule 5.12, each Borrower and its Subsidiaries are in compliance with all
applicable Environmental Laws and no Environmental Claims have been asserted
against any Borrower or any of its Subsidiaries which in either case could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
5.13 REGULATED ENTITIES. No Borrower, no Person controlling any
Borrower, and no Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. No Borrower is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
5.14 NO BURDENSOME RESTRICTIONS. Neither any Borrower nor any
Subsidiary is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, any of
which could reasonably be expected to have a Material Adverse Effect.
5.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. Each
Borrower or its Subsidiaries own or are licensed or otherwise have the right to
use all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of their respective businesses, without conflict
with the rights of any other Person. To the best knowledge of Borrowers, no
slogan or other advertising device, product, process, method, substance, part
or other material now employed, or now
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contemplated to be employed, by any Borrower or any Subsidiary infringes upon
any rights held by any other Person. Except as specifically disclosed in
Schedule 5.5, no claim or litigation regarding any of the foregoing is pending
or threatened, and no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or, to the
knowledge of Borrowers, proposed, which, in either case, could reasonably be
expected to have a Material Adverse Effect.
5.16 SUBSIDIARIES. As of the Closing Date, Borrowers have no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
5.16 hereto and has no equity investments in any other corporation or entity
other than those specifically disclosed in part (b) of Schedule 5.16.
5.17 INSURANCE. Except as specifically disclosed in Schedule 5.17,
the properties of each Borrower and its Subsidiaries are insured with
financially sound and reputable insurance companies not Affiliates of any
Borrower, in such amounts, with such deductibles and covering such risks as are
customarily carried by companies engaged in similar businesses and owning
similar properties in localities where Borrower or such Subsidiary operates.
Agent and each Bank acknowledge and agree that the insurance coverages and
insurers set forth in the summary of insurance provided by Borrowers prior to
the Closing Date satisfies the requirements of this Section 5.17 as of the
Closing Date.
5.18 SWAP OBLIGATIONS. Neither any Borrower nor any of its
Subsidiaries has incurred any outstanding obligations under any Swap Contracts.
5.19 FULL DISCLOSURE. None of the representations or warranties made
by any Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of any Borrower or any Subsidiary in connection with the Loan
Documents, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading as of the time when made or delivered.
5.20 SUBORDINATED DEBT. The subordination provisions of the
Indenture and the Senior Subordinated Notes are enforceable against the holders
of the Senior Subordinated Notes by Agent and the Banks. All Obligations,
including the Obligations to pay principal of and interest on the Obligations,
constitute Senior Indebtedness entitled to the benefits of the subordination
provisions contained in the Indenture and the Senior Subordinated Notes. The
principal of and interest on the Notes and all other Obligations will
constitute "senior indebtedness" as that or any similar term is or may be used
in any other instrument evidencing or applicable to any other Subordinated
Debt. Borrowers acknowledge that Agent and each Bank are entering into this
Agreement and are extending the Commitments in reliance upon the subordination
provisions of the Indenture and the Senior Subordinated Notes and this Section
5.20.
5.21 TRANSFER OF OPERATING ASSETS. Pursuant to the Plan of Internal
Restructuring, substantially all of the assets and related liabilities of
Holding Co.'s operating, manufacturing, sales and marketing assets (but not
Holding Co.'s intellectual property rights, other than pursuant to licenses of
such rights by Holding Co. to Operating Co.), have been transferred by Holding
Co. to Operating Co., effective as of January 31, 1998.
ARTICLE 6
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
6.1 FINANCIAL STATEMENTS. Borrowers shall deliver to the Agent, in
form and detail satisfactory to the Agent and the Majority Banks, with
sufficient copies for each Bank:
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(a) as soon as available, but not later than 90 days after
the end of each fiscal year (commencing with the fiscal year ended January 31,
1997), a copy of the audited consolidated balance sheet of Borrowers and their
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of KMG Peat Marwick LLP or another
nationally-recognized independent public accounting firm ("Independent
Auditor") which report shall state that such consolidated financial statements
present fairly the financial position for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years. Such opinion shall
not be qualified or limited as to the scope of audit or the financial condition
of Borrowers and their Subsidiaries as a going concern; and
(b) as soon as available, but not later than 45 days after
the end of each of the first three fiscal quarters of each fiscal year
(commencing with the fiscal quarter ended October 31, 1996), a copy of the
unaudited consolidated balance sheet of Borrowers and their Subsidiaries as of
the end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by a Responsible
Officer as fairly presenting, in accordance with GAAP (subject to ordinary,
good faith year-end audit adjustments), the financial position and the results
of operations of Borrowers and their Subsidiaries.
6.2 CERTIFICATES; OTHER INFORMATION. Borrowers shall furnish to the
Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsection 6.1(a), a statement of performance versus
financial covenants included in Holding Co.'s annual report;
(b) concurrently with the delivery of the financial
statements referred to in subsections 6.1(a) and (b), a Compliance Certificate
executed by a Responsible Officer;
(c) promptly, copies of all financial statements and
reports that any Borrower sends to its shareholders, and copies of all
financial statements and regular, periodical or special reports (including
Forms 10K, 10Q and 8K) that any Borrower or any Subsidiary may make to, or file
with, the SEC;
(d) Within 30 days after the beginning of each fiscal year
Borrowers' "corporate business plan" in form and content reasonably acceptable
to Agent together with appropriate supporting details as reasonably requested
by Agent; and
(e) promptly, such additional information regarding the
business, financial or corporate affairs of any Borrower or any Subsidiary as
the Agent, at the request of any Bank, may from time to time reasonably
request.
6.3 NOTICES. Borrowers shall promptly notify the Agent and each
Bank:
(a) of the occurrence of any Default or Event of Default,
and of the occurrence or existence of any event or circumstance that
foreseeably will become a Default or Event of Default;
(b) of (i) any breach or non-performance of, or any default
under, a Contractual Obligation of any Borrower or any Subsidiary; (ii) any
dispute, litigation, investigation, proceeding or suspension between any
Borrower or any Subsidiary and any Governmental Authority; (iii) the
commencement of, or any material development in, any litigation or proceeding
affecting any Borrower or any Subsidiary; including pursuant to any applicable
Environmental Laws; or (iv) any change in the financial condition or operations
of any Borrower or any Subsidiary, which has resulted, or is likely to result,
in a Material Adverse Effect;
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(c) of the occurrence of any of the following events
affecting any Borrower or any ERISA Affiliate (but in no event more than 10
days after such event), and deliver to the Agent and each Bank a copy of any
notice with respect to such event that is filed with a Governmental Authority
and any notice delivered by a Governmental Authority to any Borrower or any
ERISA Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by any
Borrower or any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan
subject to Section 412 of the Code, if such amendment results in a
material increase in contributions or Unfunded Pension Liability.
(d) of any material change in accounting policies or
financial reporting practices by any Borrower or any of its consolidated
Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action (if any) the affected Borrower or
any affected Subsidiary proposes to take with respect thereto and at what time.
Each notice under subsection 6.3(a) shall describe with particularity any and
all clauses or provisions of this Agreement or other Loan Document that have
been (or foreseeably will be) breached or violated.
6.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. Each Borrower shall,
and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state or
jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business except
in connection with transactions permitted by Section 7.3 and sales of assets
permitted by Section 7.2;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which could
reasonably be expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY. Each Borrower shall maintain, and
shall cause each Subsidiary to maintain, and preserve all its property which is
used or useful in its business in good working order and condition, ordinary
wear and tear excepted, except as permitted by Section 7.2. Each Borrower and
each Subsidiary shall use the standard of care typical in the industry in the
operation and maintenance of its facilities.
6.6 INSURANCE. Each Borrower shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons. Agent and each Bank
acknowledge and agree that the insurance coverages and insurers set forth in
the summary of insurance provided by Borrowers prior to the Closing Date
satisfied the requirements of this Section 6.6 as of the Closing Date.
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6.7 PAYMENT OF OBLIGATIONS. Each Borrower shall, and shall cause
each Subsidiary to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by such Borrower or such
Subsidiary;
(b) all lawful claims which, if unpaid, would by law become
a Lien (other than a Permitted Lien) upon its property; and
(c) all indebtedness, as and when due and payable, but
subject to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.
6.8 COMPLIANCE WITH LAWS. Each Borrower shall comply, and shall
cause each Subsidiary to comply, in all material respects with all Requirements
of Law of any Governmental Authority having jurisdiction over it or its
business (including the Federal Fair Labor Standards Act), except such as may
be contested in good faith or as to which a bona fide dispute may exist.
6.9 COMPLIANCE WITH ERISA. Each Borrower shall, and shall cause
each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) cause each Plan which is qualified under Section
401(a) of the Code to maintain such qualification; and (c) make all required
contributions to any Plan subject to Section 412 of the Code.
6.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. Each Borrower
shall maintain and shall cause each Subsidiary to maintain proper books of
record and account, in conformity with GAAP consistently applied. Each
Borrower shall permit, and shall cause each Subsidiary to permit,
representatives and independent contractors of the Agent or any Bank to visit
and inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and make copies thereof or
abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, at such reasonable times during normal business hours and as often
as may be reasonably desired, upon reasonable advance notice to Borrowers. If
any Default or Event of Default exists, such inspection shall be at the expense
of Borrowers, otherwise it shall be at the expense of the Banks. If any
Default or Event of Default exists, such inspection may be conducted at any
time during normal business hours and without advance notice.
6.11 ENVIRONMENTAL LAWS. Each Borrower shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
6.12 USE OF PROCEEDS. Borrowers shall use the proceeds of the Loans
for working capital and other general corporate purposes not in contravention
of any Requirement of Law or of any Loan Document.
ARTICLE 7
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Majority Banks
waive compliance in writing:
7.1 LIMITATION ON LIENS. No Borrower shall, or shall suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
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(a) any Lien existing on property of any Borrower or any
Subsidiary on the Closing Date and set forth in Schedule 7.1 securing
Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other
governmental charges which are not delinquent or remain payable without
penalty, or to the extent that non-payment thereof is permitted by Section 6.7,
provided that no notice of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary
course of business which are not delinquent or remain payable without penalty
or which are being contested in good faith and by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of the
property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting
of pledges or deposits required in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation;
(f) Liens on the property of any Borrower or any Subsidiary
securing (i) the non-delinquent performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, (ii) contingent
obligations on surety and appeal bonds, and (iii) other non-delinquent
obligations of a like nature; in each case, incurred in the ordinary course of
business, provided all such Liens in the aggregate would not (even if enforced)
cause a Material Adverse Effect;
(g) Liens consisting of judgment or judicial attachment
liens, provided that the enforcement of such Liens is effectively stayed and
all such liens in the aggregate at any time outstanding for Borrowers and their
Subsidiaries do not exceed $500,000;
(h) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, do not interfere with the ordinary conduct of the businesses of
Borrowers and their Subsidiaries;
(i) purchase money security interests on any property
acquired or held by Borrowers or their Subsidiaries in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such property; provided that
(i) such Lien attaches solely to the property so acquired in such transaction,
(ii) the principal amount of the debt secured thereby does not exceed 100% of
the cost of such property, and (iii) the principal amount of the Indebtedness
secured by any and all such purchase money security interests shall not at any
time exceed, together with Indebtedness permitted under subsection 7.6(e),
$500,000;
(j) Liens securing obligations in respect of capital leases
on assets subject to such leases, provided that such capital leases are
otherwise permitted hereunder;
(k) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; provided that, except for deposits serving as
cash collateral for Letters of Credit, (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by Borrower in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by any Borrower or any
Subsidiary to provide collateral to the depository institution;
(l) Liens on any property securing Indebtedness permitted
to be incurred pursuant to subsections 7.6(d) and (g).
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7.2 NEGATIVE PLEDGE AGREEMENTS. No Borrower shall, or shall suffer
or permit any Subsidiary to, directly or indirectly, become subject to any
contractual restriction (other than restrictions set forth in this Agreement)
that would limit or preclude such Borrower or such Subsidiary from granting
liens on its assets to secure Indebtedness that is senior in right of payment
to the Senior Subordinated Notes.
7.3 DISPOSITION OF ASSETS. No Borrower shall, or shall suffer or
permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any property (including accounts and notes receivable, with or without
recourse) or enter into any agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment
is exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions of inventory by any Borrower or any
Subsidiary to any Borrower or any Subsidiary pursuant to reasonable business
requirements;
(d) transfers of assets by any Subsidiary to any Borrower;
and
(e) dispositions not otherwise permitted hereunder which
are made for fair market value; provided, that (i) at the time of any
disposition, no Event of Default shall exist or shall result from such
disposition, (ii) the aggregate sales price from such disposition shall be paid
in cash, and (iii) the aggregate value of all assets so sold by Borrowers and
their Subsidiaries, together, shall not exceed in any fiscal year $500,000.
7.4 CONSOLIDATIONS AND MERGERS. No Borrower shall, or shall suffer
or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, or to liquidate or
dissolve its business, except:
(a) any Subsidiary may merge with any Borrower, provided
that Borrower shall be the continuing or surviving corporation, or with any one
or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation; and
(b) any Subsidiary may sell all or substantially all of its
assets (upon voluntary liquidation or otherwise), to any Borrower or another
Wholly-Owned Subsidiary.
7.5 LOANS AND INVESTMENTS. No Borrower shall purchase or acquire,
or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of any Borrower (together, "Investments"), except for:
(a) Investments held by any Borrower or Subsidiary in the
form of cash equivalents or short term marketable securities;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business;
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(c) extensions of credit by any Borrower to any of its
Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to another
of its Wholly-Owned Subsidiaries;
(d) Investments incurred in order to consummate
Acquisitions otherwise permitted herein, provided that (i) Borrowers deliver to
the Agent not less than 30 days prior written notice of any such Acquisition,
(ii) the total consideration paid for any such Acquisition shall not exceed
$20,000,000 at the time of such Investment, (iii) such Acquisitions are
undertaken in accordance with all applicable Requirements of Law, and (iv) the
prior, effective written consent or approval to such Acquisition of the board
of directors or equivalent governing body of the acquiree is obtained.
7.6 LIMITATION ON INDEBTEDNESS. No Borrower shall, or shall suffer
or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 7.9;
(c) Indebtedness evidenced by the Senior Subordinated
Notes;
(d) Indebtedness existing on the Closing Date and set forth
in Schedule 7.6;
(e) Indebtedness secured by Liens permitted by subsection
7.1(i) in an aggregate amount outstanding not to exceed $500,000;
(f) Indebtedness incurred in connection with leases
permitted pursuant to Section 7.11; and
(g) Indebtedness incurred for business purposes which,
together with additional Indebtedness permitted by the foregoing subsections of
this Section 7.6 (excluding Indebtedness represented by the Senior Subordinated
Notes and Indebtedness incurred under this Agreement) does not exceed
$8,000,000 in the aggregate at any time outstanding.
7.7 TRANSACTIONS WITH AFFILIATES. No Borrower shall, or and shall
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of Borrower, except upon fair and reasonable terms no less favorable
to such Borrower or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of such Borrower or
such Subsidiary; provided, however, that the provisions of this Section 7.7
shall not preclude the loans to certain executive officers of Holding Co.
described on Schedule 7.7, or any transaction between Borrowers.
7.8 USE OF PROCEEDS. No Borrower shall, or shall suffer or permit
any Subsidiary to, use any portion of the Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of any Borrower or others incurred to purchase or carry
Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying
any Margin Stock, or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
7.9 CONTINGENT OBLIGATIONS. No Borrower shall, or shall suffer or
permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary
course of business; and
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(b) Contingent Obligations of Borrowers and their
Subsidiaries existing as of the Closing Date and listed in Schedule 7.9.
7.10 JOINT VENTURES. No Borrower shall, or shall suffer or permit
any Subsidiary to enter into any Joint Venture, other than in the ordinary
course of business and other than foreign joint ventures related to the current
lines of business of Borrowers and their Subsidiaries.
7.11 LEASE OBLIGATIONS. No Borrower shall, or shall suffer or permit
any Subsidiary to, create or suffer to exist any obligations for the payment of
rent for any property under lease or agreement to lease, except for:
(a) leases of Borrowers and of Subsidiaries in existence on
the Closing Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by any Borrower or any
Subsidiary after the Closing Date in the ordinary course of business;
(c) leases entered into by any Borrower or any Subsidiary
after the Closing Date pursuant to sale-leaseback transactions permitted under
subsection 7.2(d);
(d) capital leases other than those permitted under clauses
(a) and (c) of this Section, entered into by any Borrower or any Subsidiary
after the Closing Date to finance the acquisition of equipment; provided that
the aggregate annual rental payments for all such capital leases shall not
exceed in any fiscal year $2,000,000.
7.12 RESTRICTED PAYMENTS. No Borrower shall, or shall suffer or
permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding; except
that:
(a) any Borrower and any Wholly-Owned Subsidiary may
declare and make dividend payments or other distributions payable solely in its
common stock;
(b) any Borrower and any Wholly-Owned Subsidiary may
purchase, redeem or otherwise acquire shares of its common stock or warrants or
options to acquire any such shares with the proceeds received from the
substantially concurrent issue of new shares of its common stock;
(c) any Borrower and any Wholly-Owned Subsidiary may
declare or pay cash dividends to its stockholders solely out of net income of
Borrowers and their Subsidiaries arising after January 31, 1996 and computed on
a cumulative consolidated basis, provided, that, immediately after giving
effect to such proposed action, no Default or Event of Default would exist; and
(d) any Subsidiary may pay dividends to any Borrower.
7.13 ERISA. No Borrower shall, or shall suffer or permit any of its
ERISA Affiliates to: (a) engage in a prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan which has resulted
or could reasonably expected to result in liability of Borrowers in an
aggregate amount in excess of $100,000; or (b) engage in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
7.14 CHANGE IN BUSINESS. No Borrower shall, or shall suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by Borrower and its
Subsidiaries on the date hereof.
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7.15 ACCOUNTING CHANGES. No Borrower shall, or shall suffer or
permit any Subsidiary to, make any significant change in accounting treatment
or reporting practices, except as required by GAAP, or change the fiscal year
of any Borrower or of any Subsidiary.
7.16 AMENDMENT OF INDENTURE. Borrowers shall not participate in or
permit any modification of the Indenture which would in any respect amend,
modify or impair the extent and manner in which the subordination provisions of
the Indenture extend to the benefit of the Banks with respect to the
Obligations.
7.17 CONSOLIDATED LIQUIDITY RATIO. Borrowers shall not permit their
Consolidated Liquidity Ratio as of the end of any fiscal quarter to be less
than 1.25 to 1.0.
7.18 CONSOLIDATED SENIOR FUNDED DEBT TO CASH FLOW RATIO. Borrowers
shall not permit their Consolidated Senior Funded Debt to Cash Flow Ratio as of
the end of any fiscal quarter to exceed 2.0 to 1.0.
7.19 CONSOLIDATED TOTAL FUNDED DEBT TO CASH FLOW RATIO. Borrowers
shall not permit their Consolidated Total Funded Debt to Cash Flow Ratio as of
the end of any fiscal quarter to exceed 3.5 to 1.0.
7.20 CONSOLIDATED INTEREST COVERAGE RATIO. Borrowers shall not
permit their Consolidated Interest Coverage Ratio for any period of four
consecutive fiscal quarters to be less than 2.0 to 1.0.
ARTICLE 8
EVENTS OF DEFAULT
8.1 EVENT OF DEFAULT. Any of the following shall constitute an
"Event of Default":
(a) NON-PAYMENT. Borrowers fail to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii) within
five days after the same becomes due, any interest, fee or any other amount
payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or
warranty by any Borrower or any Subsidiary made or deemed made herein, in any
other Loan Document, or which is contained in any certificate, document or
financial or other statement by any Borrower, any Subsidiary, or any
Responsible Officer, furnished at any time under this Agreement, or in or under
any other Loan Document, is incorrect in any material respect on or as of the
date made or deemed made; or
(c) SPECIFIC DEFAULTS. Any Borrower fails to perform or
observe any term, covenant or agreement contained in any of Section 6.1, 6.2,
6.3 or 6.9 or in Article 7; or
(d) OTHER DEFAULTS. Any Borrower or any Subsidiary party
thereto fails to perform or observe any other term or covenant contained in
this Agreement or any other Loan Document, and such default shall continue
unremedied for a period of 20 days after the date upon which written notice
thereof is given to Borrowers by the Agent or any Bank; or
(e) CROSS-DEFAULT. Any Borrower or any Subsidiary (A)
fails to make any payment in respect of any Indebtedness or Contingent
Obligation, having an aggregate principal amount (including undrawn committed
or available amounts and including amounts owing to all creditors under any
combined or syndicated credit arrangement) of more than $3,000,000 when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such failure;
or (B) fails to perform or observe any other condition or covenant, or any
other event shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, and such failure
continues after the applicable grace or notice period, if any, specified in the
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relevant document on the date of such failure if the effect of such failure,
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause such Indebtedness to be declared to be due and payable
prior to its stated maturity, or such Contingent Obligation to become payable
or cash collateral in respect thereof to be demanded; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. Any Borrower or any
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary
Insolvency Proceeding is commenced or filed against any Borrower or any
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of any Borrower's or
any Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) any Borrower or any Subsidiary admits the
material allegations of a petition against it in any Insolvency Proceeding, or
an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) any Borrower or any Subsidiary acquiesces in
the appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to
a Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of any Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess
of $100,000, (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $100,000; or (iii) any Borrower or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal liability
under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount
in excess of $100,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against any Borrower or any Subsidiary involving in the aggregate a liability
(to the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $500,000 or more, and the same shall
remain unsatisfied, unvacated and unstayed pending appeal for a period of 10
days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment,
order or decree is entered against any Borrower or any Subsidiary which does or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) CHANGE OF CONTROL. There occurs any Change of Control;
or
(l) LOSS OF LICENSES. Any Governmental Authority revokes
or fails to renew any material license, permit or franchise of any Borrower or
any Subsidiary, or any Borrower or any Subsidiary for any reason loses any
material license, permit or franchise, or any Borrower or any Subsidiary
suffers the imposition of any restraining order, escrow, suspension or impound
of funds in connection with any proceeding (judicial or administrative) with
respect to any material license, permit or franchise; or
(m) INVALIDITY OF SUBORDINATION PROVISIONS. The
subordination provisions of the Indenture or any agreement or instrument
governing any other Subordinated Debt is for any reason revoked or invalidated,
or otherwise cease to be in full force and effect, any Person contests in any
manner the validity or enforceability thereof
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or denies that it has any further liability or obligation thereunder, or the
Indebtedness hereunder is for any reason subordinated or does not have the
priority contemplated by this Agreement or such subordination provisions.
8.2 REMEDIES. If any Event of Default occurs, the Agent shall, at
the request of, or may, with the consent of, the Required Banks,
(a) declare the commitment of each Bank to make Loans to be
terminated, whereupon such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding
Loans, all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by Borrowers; and
(c) exercise on behalf of itself and the Banks all rights
and remedies available to it and the Banks under the Loan Documents or
applicable law;
provided, however, that upon the occurrence of any event specified in
subsection (f) or (g) of Section 8.1 (in the case of clause (i) of subsection
(g) upon the expiration of the 60-day period mentioned therein), the obligation
of each Bank to make Loans shall automatically terminate and the unpaid
principal amount of all outstanding Loans and all interest and other amounts as
aforesaid shall automatically become due and payable without further act of the
Agent or any Bank.
8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE 9
THE AGENT
9.1 APPOINTMENT AND AUTHORIZATION; "AGENT". Each Bank hereby
irrevocably (subject to Section 9.9) appoints, designates and authorizes the
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 Agent shall not have any
duties or responsibilities, except those expressly set forth herein, nor shall
the 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 Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with
reference to the 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.
9.2 DELEGATION OF DUTIES. The 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 Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.3 LIABILITY OF AGENT. None of the 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
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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 any Borrower or
any Subsidiary or Affiliate of any Borrower, 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
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 any Borrower
or any other party to any Loan Document to perform its obligations hereunder or
thereunder. No 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 any Borrower or any
Subsidiary or Affiliate of any Borrower.
9.4 RELIANCE BY AGENT.
(a) The 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 Borrowers), independent accountants and other experts selected by the Agent.
The 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 Majority 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 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 Majority Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the
conditions specified in Section 4.1, 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 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.
9.5 NOTICE OF DEFAULT. The 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 Agent for the account of the Banks, unless the Agent
shall have received written notice from a Bank or Borrowers referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Banks in
accordance with Article 8; provided, however, that unless and until the Agent
has received any such request, the 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.
9.6 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by the Agent hereinafter taken, including any review of the affairs of
Borrowers and their Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Agent that it has, independently and without reliance upon
any 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
credit worthiness of Borrowers and their 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 Borrowers
hereunder. Each Bank also represents that it will, independently and without
reliance upon any 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,
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prospects, operations, property, financial and other condition and credit
worthiness of Borrowers. Except for notices, reports and other documents
expressly herein required to be furnished to the Banks by the Agent, the 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 credit worthiness of Borrowers which may come
into the possession of any of the Agent-Related Persons.
9.7 INDEMNIFICATION OF AGENT. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of
Borrowers and without limiting the obligation of 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 Agent-Related Persons of any
portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the
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 Agent is
not reimbursed for such expenses by or on behalf of Borrowers. The undertaking
in this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
9.8 AGENT IN INDIVIDUAL CAPACITY. BA 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 any Borrower and its
Subsidiaries and Affiliates as though BA were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that,
pursuant to such activities, BA or its Affiliates may receive information
regarding any Borrower or its Affiliates (including information that may be
subject to confidentiality obligations in favor of such Borrower or such
Affiliates) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BA shall have the
same rights and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent, and the terms "Bank" and "Banks"
include BA in its individual capacity.
9.9 SUCCESSOR AGENT. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If
the Agent resigns under this Agreement, the Majority Banks shall appoint from
among the Banks a successor agent for the Banks which successor agent shall be
approved by Borrowers. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and Borrowers, 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 Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article 9 and Sections 10.4 and 10.5 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above.
9.10 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 Agent, to deliver to the 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 Form 1001 before the
payment of
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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 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 Borrowers to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of Borrowers to such Bank. To the extent of
such percentage amount, the 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 IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
Borrowers 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 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 subsection (a) of this Section are not delivered to the Agent, then
the 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 Agent did
not properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed,
or because such Bank failed to notify the 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 Agent fully
for all amounts paid, directly or indirectly, by the Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Agent under this Section, together
with all costs and expenses (including Attorney Costs). The obligation of the
Banks under this subsection shall survive the payment of all Obligations and
the resignation or replacement of the Agent.
ARTICLE 10
MISCELLANEOUS
10.1 AMENDMENT AND RESTATEMENT; AMENDMENTS AND WAIVERS.
(a) This Agreement amends and restates in its entirety the
Original Credit Agreement and, upon the effectiveness of this Agreement,
the terms and provisions of the Original Credit Agreement shall, subject
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to this Section 10.1(a), be superseded hereby and thereby. All
references to "Credit Agreement" contained in the other Loan Documents
delivered in connection with the Original Credit Agreement shall be
deemed to refer to this Amended and Restated Credit Agreement.
Notwithstanding the amendment and restatement of the Original Credit
Agreement by this Agreement, the Obligations owing to the Banks and the
Agent by Borrower under the Original Credit Agreement remain
outstanding as of the date hereof and constitute continuing Borrowers'
Obligations hereunder. The Obligations shall in all respects be
continuing, and this Agreement shall not be deemed to evidence or result
in a novation or repayment and reborrowing of the Obligations. In
furtherance of and without limiting the foregoing, from and after the
date of this Agreement, the terms, conditions and covenants governing
the Obligations shall be solely as set forth in this Agreement, which
shall supersede the Original Credit Agreement in its entirety.
(b) No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any
departure by any Borrower or any applicable Subsidiary therefrom, shall
be effective unless the same shall be in writing and signed by the
Majority Banks (or by the Agent at the written request of the Majority
Banks) and Borrowers and acknowledged by the 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 Borrowers and acknowledged by the Agent, do any of
the following:
(i) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to Section 8.2);
(ii) 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;
(iii) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable hereunder or
under any other Loan Document;
(iv) 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; or
(v) amend this Section, or Section 2.14, or any provision
herein providing for consent or other action by all Banks;
and, provided further, that (vi) no amendment, waiver or consent shall, unless
in writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.
10.2 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 Borrowers or Borrower Representative by facsimile (i)
shall be immediately confirmed by a telephone call to the recipient at the
number specified on Schedule 10.2, 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 10.2; or, as
directed to Borrowers or the 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 Borrowers and the 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
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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 2 or 9 to the Agent shall not be
effective until actually received by the Agent.
(c) Any agreement of the Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of Borrowers. The Agent and the Banks shall be entitled to
rely on the authority of any Person purporting to be a Person authorized by
Borrowers to give such notice and the Agent and the Banks shall not have any
liability to Borrowers or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of Borrowers to repay the Loans shall not be affected
in any way or to any extent by any failure by the Agent and the Banks to
receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agent and the Banks of a confirmation which is at variance with
the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the 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.
10.4 COSTS AND EXPENSES. Borrowers shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BA (including in its capacity as Agent) and each
Bank within five Business Days after demand (subject to subsection 4.1(f)) for
all reasonable costs and expenses incurred by BA (including in its capacity as
Agent) and each Bank in connection with the development, preparation, delivery
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 BA (including in its capacity as Agent)
and any Bank with respect thereto; and
(b) pay or reimburse the Agent and each Bank within five
Business Days after demand (subject to subsection 4.1(f)) 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).
10.5 BORROWERS' INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, each Borrower, jointly and severally,
shall indemnify, defend and hold the 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 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, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that Borrowers shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
resulting solely from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations.
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10.6 PAYMENTS SET ASIDE. To the extent that Borrowers make a payment
to the Agent or the Banks, or the 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
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 Agent upon demand
its pro rata share of any amount so recovered from or repaid by the Agent.
10.7 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 Borrowers may not assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of the Agent and each Bank.
10.8 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Any Bank may, with the written consent of the Agent,
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 Agent 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
equal to the lesser of (i) $5,000,000 or (ii) the remaining amount of such
Bank's Commitments; provided, however, that Borrowers and the 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 Borrowers
and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee
shall have delivered to Borrowers and the Agent an Assignment and Acceptance in
the form of Exhibit E ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (iii) the assignor Bank or Assignee has
paid to the Agent a processing fee in the amount of $2,500.
(b) From and after the date that the 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) Within five Business Days after its receipt of notice
by the Agent that it has received an executed Assignment and Acceptance and
payment of the processing fee, Borrowers shall execute and deliver to the
Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and,
if the assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Loans retained by the assignor
Bank (such Notes to be in exchange for, but not in payment of, the Notes held
by such Bank). 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 Borrowers (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
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Bank shall remain solely responsible for the performance of such obligations,
(_)(iii) Borrowers and the 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 10.1. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections
3.1, 3.3 and 10.5 as though it were also a Bank hereunder, and 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 and the Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
10.9 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 Borrowers and provided to it by any Borrower or any Subsidiary, or
by the Agent on such Borrower's or such 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 any Borrower 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 any Borrower, provided that such source is not bound by a confidentiality
agreement with any Borrower 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 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 any Borrower
or any Subsidiary is party or is deemed party with such Bank or such Affiliate;
and (I) to its Affiliates.
10.10 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 Borrowers, any such notice being waived by Borrowers 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 any Borrower against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the 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 Borrowers and the 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.
10.11 AUTOMATIC DEBITS OF FEES. With respect to any fee, or any other
cost or expense (including Attorney Costs) due and payable to the Agent, BA or
BA under the Loan Documents, Borrowers hereby irrevocably authorize
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<PAGE> 55
BA to debit any deposit account of any Borrower with BA in an amount such that
the aggregate amount debited from all such deposit accounts does not exceed
such fee or other cost or expense. If there are insufficient funds in such
deposit accounts to cover the amount of the fee or other cost or expense then
due, such debits will be reversed (in whole or in part, in BA's sole
discretion) and such amount not debited shall be deemed to be unpaid. No such
debit under this Section shall be deemed a set-off.
10.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank
shall notify the 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 Agent shall reasonably request.
10.13 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.
10.14 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.
10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of Borrowers, the Banks, the
Agent and the 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.
10.16 DESIGNATED SENIOR INDEBTEDNESS. The Obligations are hereby
designated by Borrowers as "Designated Senior Indebtedness", as defined in the
Indenture.
10.17 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT
THE 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 BORROWERS, THE AGENT AND
THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF BORROWERS, THE 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.
BORROWERS, THE 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 LAW.
10.18 WAIVER OF JURY TRIAL. BORROWERS, THE BANKS AND THE 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 AGENT-RELATED PERSON, PARTICIPANT OR
ASSIGNEE, WHETHER WITH RESPECT TO
-49-
<PAGE> 56
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWERS, THE BANKS AND THE 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.
10.19 JOINT AND SEVERAL LIABILITY. Each Borrower hereby agrees that
such Borrower is jointly and severally liable for the full and prompt payment
(whether at stated maturity, by acceleration or otherwise) and performance of,
all Obligations owed or hereafter owing to the Agent and the Banks by each
other Borrower.
10.20 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among Borrowers, the
Banks and the Agent, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 57
IN WITNESS WHEREOF, the Borrowers, the Banks and the Agent have caused
this Agreement to be duly executed by their respective authorized officers as
of the day and year first above written.
SPECIALTY EQUIPMENT COMPANIES, INC.
By:
------------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
SPECIALTY EQUIPMENT MANUFACTURING CORPORATION
By:
------------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent
By:
------------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank
By:
------------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
HARRIS TRUST AND SAVINGS BANK, as a Bank
By:
------------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as a Bank
By:
------------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
-51-
<PAGE> 1
EXHIBIT 10.36
INSTRUMENT OF TRANSFER AND
ASSUMPTION AGREEMENT
THIS INSTRUMENT OF TRANSFER AND ASSUMPTION AGREEMENT (the "Agreement")
is made as of the 31st day of January, 1998, between Specialty Equipment
Companies, Inc. (the "Parent") and Specialty Equipment Manufacturing Corporation
(the "Operating Subsidiary").
RECITALS
A. Operating Subsidiary has been formed to enable Parent and its
consolidated subsidiaries to achieve certain operating, tax and other benefits
through the transfer to Operating Subsidiary of substantially all of the
operational functions heretofore performed by Parent.
B. To effectuate the transfer of the functions described in Recital A
above, Parent shall transfer to Operating Subsidiary certain assets and
liabilities of Parent, which relate to the functions which are being
transferred, based on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and mutual undertakings
hereinafter set forth, and intending to be legally bound, the parties hereto
agree as follows:
1. For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Parent does hereby assign, transfer, convey and deliver to
Operating Subsidiary all of the assets, rights and properties of the
Corporation, except for the assets set forth on Schedule A hereto (the "Excluded
Assets"). All of the assets being contributed to Operating Subsidiary by Parent
are referred to herein as the "Transferred Assets".
2. Operating Subsidiary does hereby become obligated, assumes and
agrees to pay, satisfy, discharge and/or perform all of the obligations,
liabilities, covenants, undertakings and agreements of Parent, except for the
obligations, liabilities, covenants, undertakings and agreements set forth on
Schedule B hereto (the "Excluded Liabilities"). All of the obligations,
liabilities, covenants, undertakings and agreements being assumed by Operating
Subsidiary are referred to herein as the "Assumed Obligations". To the extent
that Parent pays any amounts resulting from obligations included in the Assumed
Obligations, Operating Subsidiary agrees to indemnify Parent for any such
payment, regardless of whether or not Parent has remained jointly and severally
liable under the contract giving rise to such obligation and payment; provided,
however, that Operating Subsidiary shall not be obligated to indemnify Parent
for any such payment made by Parent to the extent that such payment is with
respect to borrowings subsequent to the date hereof under that certain Credit
Agreement with Bank of America Illinois and certain other financial
institutions, dated as of December 1, 1996, as amended thereafter, solely for
the benefit of Parent.
3. Nothing contained herein is intended to be construed or shall be
construed as enlarging or extending in any manner or to any extent the period of
limitations prescribed by any statute of limitations applicable, to any of the
Assumed Obligations or as enlarging or extending to any extent or in any manner
whatsoever the rights which any owner, holder or obligee of any Assumed
Obligations has had, now has or hereafter can, shall or may have or as rendering
valid or enforceable against Operating Subsidiary any liability assumed which
for any reason would not have been valid or enforceable against Parent.
4. This Agreement and the covenants, agreements, undertakings,
assumptions, warranties and representations herein shall be binding on and inure
to the benefit of Parent and Operating Subsidiary and their respective
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of January 31, 1998.
<PAGE> 2
SPECIALTY EQUIPMENT COMPANIES, INC., a
Delaware corporation
By:
Name:
Title:
SPECIALTY EQUIPMENT MANUFACTURING
CORPORATION, a Delaware corporation
By:
Name:
Title:
-2-
<PAGE> 3
SCHEDULE A
Excluded Assets
- - The common stock and other securities issued to Parent by the following
entities:
-- FM Manufacturing, Inc.
-- Bloomfield Industries - Canada Limited
-- Taylor Freezer International, S.r.l.
-- Taylor Freezer (Cyprus) Ltd.
-- Taylor - Chicago Corp.
-- Quaboes B.V.
-- Specialty Equipment Manufacturing Corporation
-- Specialty Equipment Foreign Sales Corporation
- - All right, title and interest in all the designs, patents, patent
applications, service marks, trademarks, trademark applications, trade
names, trade secrets, goodwill and copyrights of Parent which has been
licensed by Parent to Operating Subsidiary under that License Agreement
dated January 31, 1998.
- - Employment Retention Agreements between Parent and the following
executive officers: Daniel B. Greenwood, William E. Dotterweich,
Donald K. McKay, Jeffrey P. Rhodenbaugh, Scott Wulbert, Doug Johnson
and Wayne Best.
- - Indemnification Agreements between Parent and each of its current and
former directors and executive officers.
- - Corporate books and records of Parent
- - All right, title and interest of Parent in the following contracts:
- Office Lease between Parent and Lakewoods Realty and Mortgage
Corporation dated August 30, 1995
- Stock Purchase Agreement between Parent and Quaboes B.V. and
Shareholders of Gamko Holdings B.V. and of Coolpart B.V.
dated August 11, 1997
- - All of the equipment, furniture and supplies at 1245 Corporate
Boulevard, Aurora, Illinois 60504.
<PAGE> 4
SCHEDULE B
Excluded Liabilities
The accrued expenses of Parent as of the date hereof.
All current taxes payable as of the date hereof.
Parent's obligations under the following contracts:
- Market Forge Co. Retiree Life and Health Insurance Benefit
Plan, effective November 1, 1993
- Guaranty, executed in favor of the United Steel Workers of
America, AFL-CIO-CLC, MF Acquisition Corp., and Market Forge
Co., effective November 1, 1993
- Stock Purchase Agreement between Parent and Quaboes B.V. and
Shareholders of Gamko Holdings B.V. and of Coolpart B.V. dated
August 11, 1997
- Office Lease between Parent and Lakewoods Realty and Mortgage
Corporation dated August 30, 1995
- Employment Retention Agreements between Parent and the
following executive officers: Daniel B. Greenwood, William E.
Dotterweich, Donald K. McKay, Jeffrey P. Rhodenbaugh, Scott
Wulbert, Doug Johnson and Wayne Best.
- Indemnification Agreements between Parent and each of its
current and former directors and executive officers.
<PAGE> 1
EXHIBIT 10.37
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is entered into as of this 31st
day of January, 1998 by and between SPECIALTY EQUIPMENT COMPANIES, INC., a
corporation organized and existing under the laws of the State of Delaware
("Licensor") and having its principal office at 1245 Corporate Boulevard,
Aurora, Illinois 60504, and SPECIALTY EQUIPMENT MANUFACTURING CORPORATION, a
corporation organized and existing under the laws of the State of Delaware
("Licensee"), having its principal office at 1245 Corporate Boulevard, Aurora,
Illinois 60504.
W I T N E S E T H:
WHEREAS, Licensor has undergone a corporate restructuring resulting in
Licensor being reconstituted principally as a holding company and Licensee being
organized to perform the manufacturing, sales and product development activities
performed heretofore by Licensor;
WHEREAS, Licensor is the owner of certain service marks, trademarks
and patents;
WHEREAS, Licensee wishes to acquire, and Licensor is willing to grant
to, Licensee the right to use certain of these service marks, trademarks and
patents in connection with Licensee's business (the business heretofore
performed by Licensor) under the terms and conditions described below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Grant of License. Licensor hereby grants to Licensee a world-wide,
non-exclusive non-transferrable license in the following intellectual property:
(a) the right to use the trademarks and service marks listed on Exhibit A
attached hereto (the "Licensed Marks"), (b) the right to use the patents listed
on Exhibit B attached hereto, including any subsequent improvements made thereto
by Licensee (the "Licensed Patents"), (c) the right to use any confidential,
technical, manufacturing or other information known to Licensor now or in the
future, which is significant to the subject matter of the Licensed Patents
("Know-How"); (d) the devices manufactured as described in or covered by any of
the Licensed Patents or Know-How ("Products"); and (e) the means and methods
described in or covered by any of the Licensed Patents or Know-How ("Methods",
collectively with the Licensed Marks, the Licensed Patents, the Know-How, the
Products and the Methods, the "Licensed Intellectual Property").
2. Compensation. Licensee agrees to pay to Licensor as compensation for
the license granted pursuant hereto the sum (i) 4% of the quarterly gross
receipts received by Licensee for any products sold which bear any of the
Licensed Marks and (ii) 4% of the quarterly gross receipts received by Licensee
from the Products manufactured by or on behalf of Licensee which are covered by
the Licensed Patents, the Know-How or the Methods. The percentages shown in the
preceding sentence shall be subject to adjustment as mutually agreed upon by the
parties after completion of a valuation study currently in progress. The
compensation payable hereunder shall be due and payable by Licensee on a
quarterly basis based on a calendar year.
3. Standards and Other Covenants. Licensee agrees that the standard of
services provided in connection with a Licensed Mark and the quality of products
bearing a Licensed Mark shall be at least equivalent to those adopted or used by
Licensor with respect to the Licensed Marks. To insure the maintenance of such
standards and quality, Licensor shall have the right to investigate, from time
to time upon two (2) business days advance written notice, the facilities,
operations and products of Licensee, and Licensee shall cooperate with Licensor
in making such investigations and shall make available to Licensor such samples,
books and records as Licensor shall reasonably request in connection with
Licensor's efforts to maintain such standards and quality. If, in the sole
discretion of Licensor, such standards or quality are not being maintained by
Licensee, Licensor may terminate this Agreement as provided in Section 5 hereof.
Licensee agrees that it shall mark or cause to be marked the
<PAGE> 2
products manufactured or sold by it in the United States using the
Licensed Patents under this Agreement in accordance with the statutes of the
United States relating to the marking of patented articles.
4. Manufacture of Products. Licensee may engage third parties in the
development and manufacture of the Products. Licensee shall have the right to
disclose the Know-How to any such third party under written non-disclosure
agreements (to be in a form reasonably acceptable to Licensor) for use in
connection with the functions being performed by such third party. All such
disclosures are to be expressly agreed to by Licensor, and such agreement will
not be unreasonably withheld.
5. Termination. This Agreement shall become effective as of the date
first written above. The License granted hereunder, or any portion thereof,
shall terminate upon the occurrence of any of the following events:
(a) If Licensor's right to use all or any of the Licensed
Intellectual Property terminates, Licensee's rights
and privileges to use any such Licensed Intellectual
Property or any portion thereof shall likewise
terminate;
(b) If Licensee shall apply for or consent to the
appointment of a receiver, trustee or liquidator of
Licensee or of all or a substantial part of its
assets, liquidate such by itself, file a voluntary
petition in bankruptcy, be unable or admit in writing
its inability to pay its debts as they become due,
make a general assignment for the benefit of its
creditors, make a trust or mortgage for the benefit
of its creditors, file a petition or any answer
seeking reorganization or arrangement with creditors
or to take advantage of any insolvency law, file an
answer admitting the material allegations of a
petition filed against Licensee in any bankruptcy,
reorganization or insolvency proceedings, or if an
order, judgment or decree shall be entered by any
court of competent jurisdiction, on the application
of a creditor, adjudicating Licensee a bankrupt or
insolvent or approving a petition seeking
reorganization of Licensee or appointing a receiver,
trustee or liquidator of Licensee or of all or a
substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in
effect for a period of 60 consecutive days from the
filing thereof, or shall take any action towards its
dissolution or termination;
(c) In the event Licensee does not maintain the standards
and quality of services and products specified in
Section 3, and fails to commence to improve such
standards and quality within 30 days after written
notice from Licensor or shall thereafter fail to
continue diligently to make such improvements until
the required standards and quality have been reached;
(d) If Licensee shall fail to make any payment required
hereunder when due and shall fail to cure such
default within seven (7) days after written notice
from Licensor; or
(e) If Licensee shall default under any of the other
provisions of this Agreement and shall fail to cure
such default within 30 days after written notice from
Licensor;
then upon the occurrence of any such event, this Agreement and all rights of
Licensee hereunder shall terminate immediately upon written notice by Licensor
to Licensee; provided, however, that the provisions of this Agreement with
respect to any actions required to be taken by Licensee upon such termination
shall continue in full force and effect and shall be enforceable by Licensor.
Notwithstanding the foregoing, Licensor shall not have the right to terminate
this Agreement for any default described in subsection (e) above if within the
30-day grace period provided, Licensee shall have commenced and shall diligently
pursue all actions necessary to cure such default. Upon termination of this
Agreement, Licensee further agrees to immediately discontinue all use of the
Licensed Intellectual Property and any terms or marks confusingly similar to any
of the Licensed Marks, to cooperate with Licensor or its appointed agent to
apply to the appropriate authorities to cancel any fictitious name or other
filing or registration, and, upon Licensee's request, to file such documents as
are required by the appropriate governmental, professional or regulatory body to
signify Licensee's consent to any and all uses of the
<PAGE> 3
Licensed Intellectual Property by any other person or entity designated by
Licensor, and to destroy all printed materials owned by Licensee which bear any
Licensed Mark subject to the License.
6. Registration of Licensed Intellectual Property. Licensee agrees to
make all filings, to bring all proceedings and to take all other actions
necessary to preserve and protect the Licensed Intellectual Property from any
existing, potential or threatened infringement, abandonment, forfeiture or other
loss, to the extent that such Licensed Intellectual Property has been exposed to
any such danger by reason of Licensee's use thereof. Licensee shall be
responsible for all payments including without limitation payments of any
maintenance fees required to keep in force any of the Licensed Patents. Licensee
will also make all filings, bring all proceedings and take all other actions
necessary to secure any additional rights in the Licensed Intellectual Property
available by reason of Licensee's use thereof. In this connection, Licensee
agrees that Licensor may, in Licensor's sole discretion, join in any filing or
proceeding made or commenced by Licensee provided that Licensee agrees that all
such actions shall be taken at Licensee's own expense, and that it will
indemnify and save Licensor harmless from any liabilities or expenses incurred
or resulting therefrom. Licensor, on its part, agrees that it will make all
filings, bring all proceedings, and take all other actions necessary to protect
the Licensed Intellectual Property from any such danger, except with respect to
the filings, proceedings and actions which Licensee is obligated to make, bring
or take under the provisions of this Section 6, and which Licensor does not, in
its sole discretion, determine to pursue itself. In the event that any of the
Licensed Intellectual Property is threatened with infringement, abandonment,
forfeiture or other loss as a result of any actions, suits, conditions or
occurrences which are not clearly the sole responsibility of either Licensor or
Licensee hereunder, then Licensor and Licensee shall cooperate and join with
each other in taking all steps necessary to protect such Licensed Intellectual
Property, and all liabilities and expenses imposed or incurred shall be borne
equally by the two parties. In the event that either Licensor or Licensee shall
fail to fulfill its obligations under this Section 6, then the other party shall
have the right to make all filings, bring all proceedings and take any other
actions which it deems necessary or appropriate to accomplish the objectives
contemplated by this Section 6, and the defaulting party shall reimburse such
other party for all liabilities and expenses incurred in connection therewith,
and each party hereby appoints the other party as its attorney-in-fact to make
all such filings, bring all such proceedings and take all other actions, in its
name, place and stead, which such other party deems necessary or appropriate to
carry out the foregoing; the rights granted under this sentence shall be in
addition to any other remedies available to the parties under this Agreement.
7. Representations and Warranties of Licensor. Licensor represents and
warrants that it is the owner of the Licensed Intellectual Property and that no
other person has the right, power or authority to use the Licensed Intellectual
Property in the jurisdictions in which Licensee is hereby granted the right and
license to the Licensed Intellectual Property, and that to the best of
Licensor's knowledge no other person is using the Licensed Intellectual Property
in connection with the services and products discussed herein, and no other
person has the right or standing to prevent the use by Licensee of such Licensed
Intellectual Property in the manner and in the countries, territories and
possessions contemplated by this Agreement. Licensor also represents and
warrants that it has the right to disclose to Licensee the Know-How and that it
has or will fully disclose the Licensed Patents and Know-How to Licensee.
Licensee also represents and warrants that to its knowledge none of the Licensed
Patents are now being infringed nor aware of any conduct that may result in
infringement.
8. Ownership of Licensed Intellectual Property. Licensee acknowledges
that Licensor is the owner of the Licensed Intellectual Property (including any
improvements made thereto by Licensee), and of the goodwill pertaining thereto
and that any goodwill arising from Licensee's use of the Licensed Intellectual
Property shall inure to the benefit of and shall be the sole and exclusive
property of the Licensor and nothing herein shall constitute a transfer of any
goodwill now existing or hereafter created related to the Licensed Intellectual
Property. Licensee agrees, subject to the rights and privileges granted
hereunder, that the same shall remain the sole and exclusive property of
Licensor, and upon termination of all or any part of the rights and privileges
granted hereunder because of default by Licensee, or otherwise, Licensee will
immediately cease and desist from the use of the Licensed Intellectual Property
(including any improvements made thereto by Licensee). Upon such termination,
Licensee agrees that it will execute all documents and instruments, and make all
filings, necessary to assign and transfer to Licensor any and all of its rights
in the Licensed Intellectual Property (including any additional rights therein
secured by reason of Licensee's use thereof); and upon failure of Licensee to so
act, Licensor shall have the right to execute such documents and instruments,
and make such filings, on behalf of Licensee, and Licensee hereby appoints
Licensor its attorney-in-fact to execute all such documents and
<PAGE> 4
instruments, and to make all such filings, and to take all
other steps necessary to effect such assignments and transfers in the name,
place and stead of Licensee.
9. Assignability. Except with the prior written consent of Licensor,
the license granted herein shall neither be assignable nor transferable in any
manner whatsoever, nor shall the Licensee have the right to grant any
sublicenses of any Licensed Intellectual Property, provided that Licensee shall
have the right to assign this Agreement in its entirety to the surviving
corporation in connection with any merger or consolidation of Licensee, or to
any corporation or other person or entity which shall acquire all or
substantially all of its assets without Licensor's consent.
10. Disclaimer of Agency. This Agreement shall not constitute Licensee
as the legal representative, partner or agent of Licensor, or joint venturer
with Licensor, nor shall Licensee have the right or authority to assume or
create any liability or any obligation of any kind, express or implied, against
or in the name of or on behalf of Licensor.
11. Notices. All notices, demands or requests which under the
provisions of this Agreement or otherwise may or must be given, shall be in
writing and shall be given or made by mailing the same by prepaid, registered or
certified mail to:
Licensor: Specialty Equipment Companies, Inc.
1245 Corporate Boulevard
Aurora, Illinois 60504
Attention: Donald McKay
Telephone: (630) 585-2913
Telecopy: (630) 585-9450
Licensee: Specialty Equipment Manufacturing Corporation
1245 Corporate Boulevard
Aurora, Illinois 60504
Attention: Scott Wulbert
Telephone: (630) 585-2912
Telecopy: (630) 585-9450
Any notice, demand or request given or made hereunder shall be deemed so given
or made when deposited in the United States mail. Any party may designate by
notice in writing a new or other address to which any such notice, demand or
request shall thereafter be given or made; such notice of new or other address
to become effective upon receipt.
12. Confidentiality. Licensee acknowledges that the Know-How is
confidential and secret and that necessary disclosures to others during the term
of this Agreement will be protected by Licensee. This protection will be
consistent with the treatment of other confidential disclosures made by Licensee
and will include where appropriate confidentiality agreements when Know-How is
disclosed to third parties. The foregoing obligations will not apply to any part
of the Know-How that is or becomes generally known through no fault of Licensee.
13. Miscellaneous.
(a) This Agreement shall be construed in accordance with
the laws of the State of Illinois.
(b) The headings of the sections of this Agreement are
for convenience only and shall not affect the
construction of this Agreement.
(c) The remedies granted hereunder are cumulative and are
not intended to be exclusive of any other remedies to
which either party may be lawfully entitled in case
of any breach or threatened breach of the terms and
provisions hereof.
<PAGE> 5
(d) Any provision of this Agreement prohibited or
otherwise invalidated by law or by court decree shall
be ineffective to the extent of such prohibition or
invalidity, without in any way invalidating or
affecting the remaining provisions of this Agreement.
(e) This Agreement constitutes the entire agreement and
understanding between the parties hereto in
connection with the subject matter hereof between the
parties hereto and supersede all previous
negotiations, commitments and writings, and may not
be changed or modified in any manner, orally or
otherwise, except by an instrument in writing signed
by a duly authorized officer or representative of
each of the parties hereto.
(f) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an
original, and said counterparts shall constitute one
and the same instrument which may be sufficiently
evidenced by the counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LICENSOR:
SPECIALTY EQUIPMENT COMPANIES, INC.
a Delaware corporation
By:________________________________________
Its:______________________________
LICENSEE:
SPECIALTY EQUIPMENT MANUFACTURING CORPORATION
a Delaware corporation
By:________________________________________
Its:______________________________
<PAGE> 6
EXHIBIT A
Licensed Marks
<TABLE>
<CAPTION>
====================================================================================================================
Date of Registration with United
Description of States Patent and Trademark Office
Licensed Mark Registration Number
====================================================================================================================
<S> <C> <C>
====================================================================================================================
====================================================================================================================
</TABLE>
[SEE ATTACHED LIST]
EXHIBIT B
Licensed Patents
<TABLE>
<CAPTION>
====================================================================================================================
Date of Registration with United
Description of States Patent and Trademark Office
Mark Registration Number
====================================================================================================================
<S> <C> <C>
====================================================================================================================
====================================================================================================================
</TABLE>
[SEE ATTACHED LIST]
<PAGE> 1
EXHIBIT 10.38
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
THIS MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement")
is made as of January 31, 1998, between Specialty Equipment Companies, Inc., a
Delaware corporation ("Specialty"), and Specialty Equipment Manufacturing
Corporation, a Delaware corporation ("Operating Subsidiary").
WHEREAS, Specialty has the management and administrative headquarters
and personnel available to assist Operating Subsidiary in the conduct of its
business that Operating Subsidiary would like to utilize in connection with its
business; and
WHEREAS, Operating Subsidiary desires to utilize the services and
experience of Specialty in connection with its business as set forth in this
Agreement; and
NOW, THEREFORE, in consideration of the premises, covenants and
agreements hereinafter contained and other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Management and Administrative Duties.
During the term of this Agreement, Specialty will perform, or will
cause to be performed, for the benefit of Operating Subsidiary such
administrative, legal, financial, accounting and managerial duties as may be
agreed upon by the parties from time to time (the "Duties"). In performing the
Duties, Specialty shall spend such time as is reasonably required to discharge
such Duties. Notwithstanding the foregoing, this Agreement shall in no way
restrict, in any manner, Operating Subsidiary's ability to obtain services from
any person or entity other than Specialty, or Specialty's ability to engage in
or provide services to any other business, venture or enterprise.
2. Quarterly Payment.
2.1 Amount of Quarterly Payment. Operating Subsidiary will pay
to Specialty, with respect to each calendar quarter during the term of this
Agreement in which Duties are performed, an amount (the "Quarterly Payment")
equal to the aggregate direct and indirect costs and expenses incurred by
Specialty in connection with the performance of the Duties and shall include the
following: (i) all direct costs incurred to perform the Duties, including
out-of-pocket expenses, (ii) all fees of third parties, including fees and
expenses of consultants, attorneys, accountants and other experts and (iii) a
reasonably allocable portion of the overhead expenses relating to the
performance of the Duties (such allocable portion to be based upon the portion
of the revenue of Specialty and its subsidiaries on a consolidated basis
represented by the revenue of Operating Subsidiary).
2.2 Payments. For each quarter in which Duties are performed,
Specialty will submit to Operating Subsidiary a statement with its calculation
of the Quarterly Payment. Operating Subsidiary shall pay the full amount of the
Quarterly Payment within ten (10) days after receipt of the applicable
statement, except as may be otherwise agreed by the parties.
3. Management Fees. As consideration for the performance of the Duties
by Specialty for the benefit of Operating Subsidiary, Operating Subsidiary will
pay to Specialty a management fee with respect to each fiscal quarter in which
Duties are performed (the "Management Fee"). The Management Fee shall be equal
to ten percent (10%) of the portion of the aggregate Quarterly Payments
constituting salary and fringe benefits of employees of Specialty. Operating
Subsidiary shall pay the Management Fee no later than forty-five (45) days after
the end of the fiscal quarter for which such Management Fee is due. The parties
hereby agree that, upon the request of either party, they will revise the
Management Fee as necessary to ensure that charges are equivalent to those which
would be negotiated on an arms-length basis.
<PAGE> 2
4. Performance. All obligations of Specialty to be performed under this
Agreement shall be performed with reasonable care and pursuant to the good faith
business judgment of Specialty.
5. Limitation of Liability.
5.1 Liability. Specialty and its affiliates, employees and
agents ("Specialty Parties") shall not be liable to Operating Subsidiary, its
affiliates, or to any officer, director, employee, consultant or agent of
Operating Subsidiary or its affiliates ("Op Sub Parties"), for any cost, damage,
expense or loss, including without limitation any special, indirect,
consequential or punitive damages (i) allegedly arising out of Specialty's or
any affiliate's failure to perform or misperformance of any obligation performed
hereunder, or (ii) as a result of Specialty's or any affiliate's, officer's,
director's, employee's, consultant's or agent's reliance on any advice or data
that Specialty or any of its affiliates may provide pursuant to this Agreement.
Operating Subsidiary, on behalf of itself and the other Op Sub Parties, hereby
agrees not to sue or assert any claim or action against any Specialty Party,
which arises from or relates to the services provided by any of the Specialty
Parties hereunder, excluding any claim arising from the gross negligence of any
Specialty Party and/or the willful and wanton misconduct of any Specialty Party
which was taken with the intent to harm any one or more of the Op Sub Parties.
5.2 Right to Indemnification. In the event that Specialty, any
of its employees, officers, directors, agents or shareholders (each an
"Indemnitee", collectively, the "Indemnitees") was or is made a party or was or
is threatened to be made a party to or were or are involved in or called as a
witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and any appeal therefrom (hereinafter,
collectively a "proceeding") related in any manner whatsoever to the duties
performed by any Indemnitee hereunder, such Indemnitee shall be indemnified and
held harmless by Operating Subsidiary to the fullest extent permitted under the
Delaware General Corporation Law (the "DGCL"), as the same now exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits Operating Subsidiary to provide broader
indemnification rights than the DGCL permitted the corporation to provide prior
to such amendment) against all expenses (including, but not limited to,
attorneys' fees and expenses of litigation) and all liabilities and losses
(including, but not limited to, judgments; fines; liabilities under ERISA for
damages, excise taxes or penalties; damages, fines or penalties arising out of
violation of any law related to the protection of the public health, welfare or
the environment; and amounts paid or to be paid in settlement) incurred or
suffered by such person in connection therewith; provided, that except as
provided in Section 5.4 hereof, Operating Subsidiary shall indemnify any such
person seeking indemnity in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of Operating Subsidiary.
5.3 Expenses. Expenses, including attorneys' fees, incurred by
an Indemnitee in defending or otherwise being involved in a proceeding shall be
paid by Operating Subsidiary in advance of the final disposition of such
proceeding, including any appeal therefrom, upon receipt of an undertaking (the
"Undertaking") by or on behalf of an Indemnitee to repay such amount if it shall
ultimately be determined that such Indemnitee is not entitled to be indemnified
by the Operating Subsidiary; provided that in connection with a proceeding (or
part thereof) initiated by such Indemnitee, except as provided in Section 5.4
hereof, Operating Subsidiary shall pay such expenses in advance of the final
disposition only if such proceeding (or part thereof) was authorized by the
Board of Directors of Operating Subsidiary. The Undertaking shall provide that
if such Indemnitee has commenced proceedings in a court of competent
jurisdiction to secure a determination that he should be indemnified by
Operating Subsidiary, he shall not be obligated to repay Operating Subsidiary
during the pendency of such proceeding.
5.4 Protection of Rights. If a claim under Section 5.2 or any
agreement ("Other Agreement") providing indemnification to an Indemnitee is not
promptly paid in full by Operating Subsidiary after a written claim has been
received by Operating Subsidiary or if expenses pursuant to Section 5.3 or an
Other Agreement have not been promptly advanced after a written request for such
advancement accompanied by the Undertaking has been received by Operating
Subsidiary, the claimant may at any time thereafter bring suit against Operating
Subsidiary to recover the unpaid amount of the claim or the advancement of
expenses. If successful, in whole or in part, in such suit an Indemnitee shall
also be entitled to be paid the reasonable expense thereof. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required Undertaking has been tendered to
<PAGE> 3
Operating Subsidiary) that such Indemnitee has not met the standards of
conduct which make it permissible under the DGCL for Operating Subsidiary to
indemnify Indemnitee for the amount claimed, but the burden of proving such
defense shall be on Operating Subsidiary. Neither the failure of Operating
Subsidiary (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of an Indemnitee
is proper in the circumstances because such Indemnitee has met the applicable
standard of conduct required under the DGCL, nor an actual determination by
Operating Subsidiary (including its Board of Directors, independent legal
counsel, or its stockholders) that an Indemnitee had not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that Indemnitee had not met the applicable standard of conduct.
5.5 No Presumption. For purposes of this Agreement, the
termination of any proceeding, by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere or its
equivalent, shall not create a presumption that an Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification or contribution is not permitted by applicable
law.
5.6 Non-Exclusivity of Rights. The rights conferred on
Indemnitees by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of
Operating Subsidiary's Certificate of Incorporation or By-Laws, other agreement,
vote of stockholders or directors or otherwise.
5.7 Subrogation. In the event of any payment under this
Agreement to an Indemnitee, Operating Subsidiary shall be subrogated to the
extent of such payment to all of the rights of recovery of such Indemnitee, who
shall execute all papers required and shall do everything that may be necessary
to secure such rights, including execution of such documents as are necessary to
enable Operating Subsidiary to bring suit to enforce such rights.
6. Term and Termination.
6.1 Except as otherwise provided herein, this Agreement will
commence on the date hereof and end on the first anniversary thereof.
Thereafter, this Agreement shall continue for consecutive one-year renewal terms
until it is terminated in accordance with this Section 6 and shall remain in
full force until termination. Upon termination of this Agreement, Operating
Subsidiary shall pay to Specialty all Quarterly Payments and Management Fees
incurred or accrued through the effective date of the termination.
6.2 This Agreement may be terminated by either party upon six
(6) months prior written notice to the other party.
6.3 This Agreement is terminable by either party if the other
party shall breach any of the material terms or conditions set forth in the
Agreement and shall fail to correct such breach within thirty (30) days after
notice of the breach is given. Any exercise or failure to exercise such
termination right shall not bar the recovery of any damages resulting from such
breach.
6.4 Specialty shall also have the right to terminate this
Agreement if:
(a) a court having jurisdiction shall enter a decree
or order for relief in respect of Operating Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law nor or hereafter in effect or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Operating Subsidiary or for any substantial part of its
property, or ordering the winding-up or liquidation of its affairs and
such decree or order shall remain unstayed and in effect for a period
of sixty (60) consecutive days; or
(b) Operating Subsidiary shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, shall consent to the entry of an order for
relief in an involuntary case under any such law, or shall consent to
the appointment of or
<PAGE> 4
taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequester (or other similar official) of Operating
Subsidiary or for any substantial part of its property, or shall make
any general assignment for the benefit of creditors, or shall fail to
pay its debts as they become due; or
(c) any order, judgment or decree is entered in any
proceeding decreeing the dissolution of Operating Subsidiary and such
order, judgment or decree remains unstayed and in effect for more than
sixty (60) days; or
(d) any other event shall arise whereby Operating
Subsidiary rights under this Agreement might, by operation of law or
otherwise devolve upon or pass to any person, firm, corporation or
other entity other than Operating Subsidiary.
6.5 The provisions of Sections 5, 6.5, 8 and 9 shall survive
termination of this Agreement for any reason. The provisions hereof shall apply
to the acts or omissions taken by any Specialty Party, notwithstanding that
subsequent thereto such party ceased to be a Specialty Party.
7. Assignment. Specialty shall have the right to assign this
Agreement but Operating Subsidiary shall not assign, transfer or otherwise
encumber this Agreement without prior written approval of Specialty.
8. Relationship of the Parties. In all matters relating to this
Agreement, each party hereto shall be solely responsible for the acts of its
employees, and employees of one party shall not be considered employees of the
other party. Except as otherwise provided herein, no party shall have any right,
power or authority to create any obligation, express or implied, on behalf of
any other party, and neither party shall have any liability for the debts or
obligations of the other (except as expressly provided otherwise in writing).
Nothing in this Agreement is intended to create or constitute a joint venture or
partnership between the parties hereto or persons referred to herein.
9. Miscellaneous.
9.1 This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the parties. Nothing contained in this
Agreement is intended to confer upon any person, other than the parties and
their respective permitted successors, assigns and nominees, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
9.2 This Agreement shall be governed by and construed in
accordance with the laws of the state of Illinois.
9.3 All notices and demands hereunder shall be given in
writing (which includes telecopy, telegraph and other wire transmission) with
receipt or confirmation, as appropriate, requested, and sent to the principal
office of the party (or to such other address as such person shall specify by
notice hereunder).
9.4 The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.5 This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.6 This Agreement constitutes the entire agreement between
the parties and supersedes all prior agreements, representations, warranties,
statements, promises, information, arrangement and understandings, whether oral
or written, express or implied, with respect to the subject matter of this
Agreement.
9.7 Any amendment or supplement made to this Agreement shall
not be valid unless in writing, signed by each of the parties to this Agreement.
9.8 Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be
<PAGE> 5
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the minimum extent of such prohibition or invalidity,
without invalidating the remainder of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Management
and Administrative Services Agreement as of the date first above written.
SPECIALTY EQUIPMENT COMPANIES, INC.
By:_______________________________________
Name:_____________________________________
Its:______________________________________
SPECIALTY EQUIPMENT MANUFACTURING CORPORATION
By:_______________________________________
Name:_____________________________________
Its:______________________________________
<PAGE> 1
EXHIBIT 12.1
STATEMENT RE:
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended January 31,
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) from operations
before income taxes $(51,336) $(41,308) $ 18,369 $ 42,009 $ 47,099
Interest expenses (1) 17,117 22,997 21,010 18,714 15,944
Amortization of deferred financing costs 783 1,828 1,670 1,479 587
Total $(33,436) $(16,483) $ 41,049 $ 62,202 $ 63,630
Fixed charges:
Interest expense (1) $ 17,117 $ 22,997 $ 21,010 $ 18,714 $ 15,944
Amortization of deferred financing costs 783 1,828 1,670 1,479 587
-------- -------- -------- -------- --------
Total $ 17,900 $ 24,825 $ 22,680 $ 20,193 $ 16,531
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (2) (2) 1.81x 3.07x 3.85x
</TABLE>
(1) Interest expense includes interest income, but excludes amortization of
deferred financing costs.
(2) Earnings were insufficient to cover fixed charges by $51.3 million
and $41.3 million for the years ended January 31, 1994 and 1995,
respectively.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SPECIALTY EQUIPMENT COMPANIES, INC.
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation or Organization
---------- ---------------------------------------------
<S> <C>
Bloomfield Industries Canada Limited Ontario, Canada
Coolpart B.V. The Netherlands
FM Manufacturing, Inc. Delaware
Gamko Holding B.V. The Netherlands
Quaboes B.V. The Netherlands
Specialty Equipment Foreign Sales Corporation Delaware
Specialty Equipment Manufacturing Corporation Delaware
Taylor-Chicago Corporation Illinois
Taylor Freezer (Cyprus) Limited Cyprus
Taylor Freezer International S.r.l. Rome, Italy
</TABLE>
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Specialty Equipment Companies, Inc.
We consent to incorporation by reference in the registration statement (No.
33-74604) on Form S-8 of Specialty Equipment Companies, Inc. of our report dated
March 19, 1998, relating to the consolidated balance sheets of Specialty
Equipment Companies, Inc. and subsidiaries as of January 31, 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows and related schedule for each of the years in the
three-year period ended January 31, 1998, which report appears in the January
31, 1998 annual report on Form 10-K of Specialty Equipment Companies, Inc.
KPMG PEAT MARWICK LLP
Chicago, Illinois
April 9, 1998
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Richard Kent
---------------------
Richard Kent
Dated: March 24, 1998
<PAGE> 2
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Daniel B. Greenwood
--------------------------
Daniel B. Greenwood
Dated: March 25, 1998
<PAGE> 3
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Charles Hutchinson
-----------------------
Charles Hutchinson
Dated: March 25, 1998
<PAGE> 4
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ William E. Dotterweich
-----------------------------
William E. Dotterweich
Dated: March 25, 1998
<PAGE> 5
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Barry MacLean
------------------------
Barry MacLean
Dated: March 25, 1998
<PAGE> 6
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Malcolm Glazer
----------------------
Malcolm Glazer
Dated: March 30, 1998
<PAGE> 7
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Avram Glazer
-----------------
Avram Glazer
Dated: March 30, 1998
<PAGE> 8
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose signature
appears below hereby appoints Jeffrey P. Rhodenbaugh and Donald K. McKay, and
each of them, any one of whom may act without the joinder of the other, as his
attorney-in-fact with full power of substitution and resubstitution to sign on
his behalf in any and all capacities, and to sign and file all amendments and
post-effective amendments to, the Annual Report on Form 10-K ("Form 10-K") to be
filed under the Securities and Exchange Act of 1934 by Specialty Equipment
Companies, Inc., a Delaware corporation, on or about April 13, 1998, and any and
all other documents that may be required in connection with the filing of the
Form 10-K, which amendments may make such changes and additions to the Form 10-K
as such attorney-in-fact may deem necessary or appropriate.
/s/ Kevin Glazer
------------------------
Kevin Glazer
Dated: March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 39,947
<SECURITIES> 0
<RECEIVABLES> 66,998
<ALLOWANCES> (3,955)
<INVENTORY> 54,030
<CURRENT-ASSETS> 175,473
<PP&E> 67,372
<DEPRECIATION> 28,629
<TOTAL-ASSETS> 241,450
<CURRENT-LIABILITIES> 118,908
<BONDS> 159,591
0
0
<COMMON> 181
<OTHER-SE> (38,992)
<TOTAL-LIABILITY-AND-EQUITY> 241,450
<SALES> 433,121
<TOTAL-REVENUES> 433,121
<CGS> 299,222
<TOTAL-COSTS> 299,222
<OTHER-EXPENSES> 70,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,944
<INCOME-PRETAX> 47,099
<INCOME-TAX> 9,557
<INCOME-CONTINUING> 37,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,542
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 1.86
</TABLE>
