<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the quarterly period ended June 30, 1998
---------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-15902
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ESSEF Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0777631
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 Park Drive, Chardon, Ohio 44024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (440) 286-2200
-----------------------------
None
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Former name, former address and former fiscal year, if changed since last
report.
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, as
amended, 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 N/A
----- ----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date.
Class Outstanding at August 11,1998
- --------------------------- -----------------------------
Common Shares, no par value 11,766,341 Shares
Page 1 of 13
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ESSEF CORPORATION
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
Sequential
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1998 and September 30, 1997 ................ 3
Condensed Consolidated Statements of Income -
Three Months and Nine Months Ended June 30, 1998
and 1997 ........................................ 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1998 and 1997 ........ 5
Notes to Condensed Consolidated Financial
Statements ...................................... 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 9-11
Part II - Other Information
Item 1. Legal Proceedings ..................................... 12
Item 2. Changes in Securities ................................. 12
Item 4. Submission of Matters to a Vote of Security
Holders ........................................... 12
Item 6. Exhibits and Reports on Form 8-K ...................... 12
</TABLE>
Page 2 of 13
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, September 30,
1998 1997
----------- -------------
ASSETS (unaudited) (audited)
- ------
Current Assets
Cash and cash equivalents ............... $ 477 $ 1,668
Accounts receivable, net ................ 64,684 39,512
Inventories, net ........................ 47,334 34,597
Prepayments and other ................... 2,473 2,173
--------- ---------
Total current assets ............... 114,968 77,950
Property, plant and equipment, net ............ 69,190 63,820
Goodwill, net ................................. 66,545 60,349
Deferred income taxes ......................... 5,576 5,706
Other ......................................... 11,185 9,058
--------- ---------
$ 267,464 $ 216,883
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Short-term borrowings ................. $ 5,641 $ 5,320
Current maturities of long-term debt .. 1,038 549
Accounts payable ...................... 29,906 20,028
Accrued expenses ...................... 29,869 29,237
Accrued income taxes .................. 9,782 8,668
--------- ---------
Total current liabilities .......... 76,236 63,802
Long-term debt ................................ 108,822 81,658
Other long-term Liabilities ................... 5,109 5,977
Shareholders' Equity
Preferred shares without par value,
authorized 1,000,000 shares,
none issued ........................ ----- -----
Common shares without par value,
authorized 40,000,000 shares, issued
12,264,286 and 12,149,394 shares,
respectively ....................... 32,911 32,234
503,927 Treasury shares at cost .... (7,962) (7,962)
Retained earnings ..................... 52,356 41,099
Foreign currency translation adjustment (8) 75
--------- ---------
Total shareholders' equity .... 76,424 65,446
--------- ---------
$ 267,464 $ 216,883
========= =========
See notes to condensed consolidated financial statements.
Page 3 of 13
<PAGE> 4
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Net sales.................... $137,625 $102,652 $308,999 $198,460
Cost of sales................ 96,143 72,411 224,251 142,937
-------- -------- -------- --------
Gross profit............... 41,482 30,241 84,748 55,523
Operating expenses........... 25,087 18,746 61,378 37,345
-------- -------- -------- --------
Income from operations..... 16,395 11,495 23,370 18,178
Interest and other expense... 2,287 1,643 6,052 2,908
-------- -------- -------- --------
Income before income taxes. 14,108 9,852 17,318 15,270
Provision for income taxes... 4,938 3,448 6,061 5,344
-------- -------- -------- --------
Net income................. $ 9,170 $ 6,404 $ 11,257 $ 9,926
======== ======== ======== ========
Earnings per share:
Basic (a) $.78 $.55 $.96 $.85
======= ======= ======= =======
Diluted (a) $.68 $.49 $.84 $.76
======= ======= ======= =======
Average shares outstanding:
Basic 11,743 11,628 11,702 11,625
======= ======= ======= =======
Diluted 13,582 13,189 13,461 13,137
======= ======= ======= =======
a) Basic and diluted earnings per share have been reported in accordance
with SFAS Number 128, "Earnings Per Share", which was adopted by the
Company effective October 1, 1997. Accordingly, all prior periods have
been restated.
See notes to condensed consolidated financial statements.
Page 4 of 13
<PAGE> 5
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income ..................................... $ 11,257 $ 9,926
Adjustments to reconcile net income to net
cash provided by/(used in) operating activities
Depreciation and amortization ........ 8,903 4,730
Other ................................ (537) 191
Changes in operating assets and liabilities
Accounts receivable ....................... (22,462) (5,042)
Inventories ............................... (9,031) (3,891)
Prepayments and other assets .............. (297) (693)
Accounts payable .......................... 7,079 2,613
Accrued expenses .......................... 126 (1,475)
Accrued and deferred income taxes ......... 1,250 3,440
-------- --------
Net cash provided by/(used in)
operating activities ................ (3,712) 9,799
-------- --------
Cash Flows from Investing Activities
Additions to property, plant and
equipment ................................. (12,806) (10,073)
Business acquisitions .......................... (10,102) (69,830)
Other, net ..................................... (2,758) 4,453
-------- --------
Net cash used in investing activities. (25,666) (75,450)
-------- --------
Cash Flows from Financing Activities
Proceeds from long term debt ................... 27,653 70,924
Increase(decrease) in short-term borrowings .... 321 (1,047)
Proceeds from exercise of stock options ........ 213 87
-------- --------
Net cash provided by financing activities . 28,187 69,964
-------- --------
Net increase (decrease) in cash and
cash equivalents .......................... (1,191) 4,313
Cash and Cash Equivalents
Beginning of period ................................ 1,668 2,620
-------- --------
End of period ...................................... $ 477 $ 6,933
======== ========
Supplemental Cash Flow Information
Interest paid ............................. $ 5,724 $ 2,708
======== ========
Income taxes paid ......................... $ 4,607 $ 1,705
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 13
<PAGE> 6
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal and
recurring adjustments) which, in the opinion of management, are
necessary to present fairly the consolidated financial position of
Essef Corporation and subsidiaries (the "Company") as of June 30,
1998, and the results of operations for the three-month and
nine-month periods ended June 30, 1998 and 1997, and cash flows for
the nine-month periods ended June 30, 1998 and 1997.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1997 Annual Report to Shareholders,
sections of which are incorporated into the Company's Form 10-K filed
for the fiscal year ended September 30, 1997. The results of
operations for the three-month and nine-month periods ended June 30,
1998 may not necessarily be indicative of the operating results for
the full year.
(2) RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts in
order to be consistent with the presentation for the current year.
(3) INVENTORIES
Inventories are valued as follows:
(Dollars in thousands) June 30, September 30,
1998 1997
---- ----
FIFO COST
Raw materials ................. $ 23,246 $ 17,482
Work-in-process ............... 3,267 4,483
Finished goods ................ 22,080 13,857
-------- --------
48,593 35,822
Excess of FIFO over LIFO cost (1,259) (1,225)
-------- --------
Net Inventories .......... $ 47,334 $ 34,597
======== ========
(4) SHORT-TERM BORROWINGS
The Company's European subsidiaries have working capital lines of
credit of approximately $15,000,000. At June 30, 1998 and
Page 6 of 13
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September 30, 1997, $3,383,000 and $3,312,000, respectively, was
outstanding. At June 30, 1998, interest was at rates ranging from
4.35% to 8.5%. In addition, a note payable of $2,258,000 and
$2,008,000 relating to an acquisition was outstanding at June 30,
1998 and September 30, 1997, respectively. At June 30, 1998, the
interest rate on the note was 6%.
(5) LONG-TERM DEBT
In May, 1998, the Company amended its existing unsecured
multi-currency revolving loan facility ("Credit Facility"),
increasing it $50,000,000, bringing the total facility to
$185,0000. The Credit Facility now matures April 30, 2003 and may
be extended in one-year increments with the approval of the bank
group. The Credit Facility includes commitment reductions at
specified dates and for events throughout the term of the loan,
however, the commitment does not reduce below $135,000,000.
Interest rates are based on increments over the LIBOR or foreign
currency equivalent rate. A 25 basis points facility fee is payable
on the total amount of the commitment. As of June 30, 1998,
interest rates ranged from 6.375% to 6.50%. The Company is in
compliance with all of its covenants under its credit facilities.
In May 1997, the Company entered into an interest rate swap
agreement with a commercial bank which effectively converts
$30,000,000 of its floating rate debt to a fixed rate of 6.33%. The
effective interest rate on this fixed portion of debt was 7.33% at
June 30, 1998. The Company does not use derivatives for trading
purposes.
Long-term debt consists of the following:
(In thousands)
March 31, September 30,
1998 1997
---- ----
Revolving credit facilities $ 106,905 $ 79,700
Other ..................... 2,955 2,507
-------- -------
109,860 82,207
Less current maturities ... (1,038) (549)
--------- --------
Long-term debt ............ $ 108,822 $ 81,658
========= ========
(6) ANTHONY & SYLVAN INITIAL PUBLIC OFFERING AND SPIN-OFF
On May 8, 1998, the Company announced plans for an initial public
offering and subsequent tax-free spin-off of its Swimming Pool
Sales and Installation Segment, into a new company to be known as
Page 7 of 13
<PAGE> 8
Anthony & Sylvan Pools. The Company plans to file a registration
statement with the U.S. Securities and Exchange Commission for the
initial public offering later this calendar year. The tax-free
spin-off is subject to obtaining a favorable tax ruling from the
Internal Revenue Service. In order for the spin-off to be tax-free
at least 80% of the shares of Anthony & Sylvan must be
distributed. Accordingly, the percentage of shares of Anthony &
Sylvan to be initially issued will likely be in the range of 15 to
20 percent. The spin-off is expected to follow the offering by
several months.
(7) LITIGATION
There has been no material change to the status of the litigation
referred to in the Company's 1997 Annual Report to Shareholders,
sections of which are incorporated in the Company's Form 10-K filed
for the fiscal year ended September 30, 1997.
(8) SUBSEQUENT EVENTS
On July 8, 1998, the Company completed the sale of its subsidiary
Enpac Corporation. No material gain or loss will be recognized on
the sale.
On July 22, 1998, the Company completed the acquisition of
substantially all of the operating assets of Rainbow Lifegard,
Inc., Rainbow Molding, Inc. and Kencar, Inc., collectively known as
Rainbow for approximately $25,000,000 which was financed under the
Company's Credit Facility. Rainbow, with revenues of approximately
$25,000,000 for the year ended January 31, 1998 is a leading
manufacturer of accessory products for pools, spas and aquariums
including chlorinators, skimmers, brushes and filters.
Page 8 of 13
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH
THREE MONTHS ENDED JUNE 30, 1997
Net sales of $137,625,000 for the third quarter of fiscal 1998 increased 34%
over fiscal 1997 net sales of $102,652,000. The increase in sales was
attributable to the Swimming Pool and Spa Equipment Segment and the Swimming
Pool Sales and Installation Segment, both of which benefited from the
acquisition of General Aquatics on May 1, 1997. This increase was partially
offset by a lower than expected sales increase in the Water Treatment and
Systems Equipment Segment. This resulted from the slowdown in Asian projects,
declining oil prices that have reduced capital available for water treatment
projects and the worldwide over supply of computer chips which has slowed the
demand for ultra-pure water systems in that industry.
Gross profit increased slightly from 29.5% to 30.1% due to improved gross profit
margins in the Swimming Pool and Spa Equipment Segment as a result of
consolidation and reorganization programs implemented subsequent to the
acquisition of General Aquatics on May 1, 1997.
Operating expenses, consisting of engineering and development, selling, and
administrative expenses, as a percentage of sales decreased from 18.3% to 18.2%.
Cost savings attributable to the consolidation and reorganization programs
implemented in the Swimming Pool and Spa Equipment Segment subsequent to the
acquisition of General Aquatics, and lower stock compensation expense due to a
reduction in the number of eligible stock options were offset by the higher cost
structure of the Swimming Pool Sales and Installation Segment, acquired with
General Aquatics on May, 1, 1997.
Interest and other expense increased by $644,000 to $2,287,000. The increase was
the result of increased borrowings, which were used to finance the acquisition
of General Aquatics in the third quarter of fiscal 1997.
The Company's effective tax rate was 35% in both periods.
As a result of the above items, net income of $9,170,000 or $.68 per diluted
share, increased $2,766,000 from $6,404,000 or $.49 per diluted share.
Page 9 of 13
<PAGE> 10
NINE MONTHS ENDED JUNE 30, 1998 COMPARED WITH
NINE MONTHS ENDED JUNE 30, 1997
Net sales of $308,999,000 increased 56% over fiscal 1997 net sales of
$198,460,000. The increase in sales was primarily attributable to the Swimming
Pool Sales and Installation Segment and the Swimming Pool and Spa Equipment
Segment, both of which benefited from the acquisition of General Aquatics on May
1, 1997. The remaining increase was attributable to a stronger European
contribution to Water Treatment and Systems Equipment Segment, partially offset
by the slowdown in Asian projects, declining oil prices that have reduced
capital available for water treatment projects and the worldwide over supply of
computer chips which has slowed the demand for ultra-pure water systems in that
industry.
Gross Profit decreased from 28.0% of sales to 27.4%. The decrease was entirely
attributable to the inclusion of the Swimming Pool Sales and Installation
Segment which was created upon the acquisition of General Aquatics. The first
and second quarters which are seasonally the slowest for this segment were not
included in last years results, and as such, the inclusion of a full year's
results in fiscal 1998 reduces the overall gross profit margin.
Operating expenses, consisting of engineering and development, selling, and
administrative expenses, as a percentage of sales increased from 18.8% to 19.9%.
The increase is primarily attributable to the inclusion of the off-season first
and second quarters for the Pool Sales and Installation Segment, which was
acquired with General Aquatics on May 1, 1997. This increase was partially
offset by cost savings attributable to the consolidation and reorganization
programs implemented in the Swimming Pool and Spa Equipment Segment, following
the acquisition of General Aquatics, and lower stock compensation expense due to
a reduction in the number of eligible stock options.
Interest and other expense increased by $3,144,000 to $6,052,000. The increase
was the result of increased borrowings, which were used to finance the
acquisition of General Aquatics in the third quarter of fiscal 1997.
The Company's effective tax rate was 35% in both periods.
As a result of the above items, net income of $11,257,000 or $.84 per diluted
share, increased $1,332,000 from $9,925,000 or $.76 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, funded debt was $115,501,000, an increase of $27,974,000 from
September 30, 1997. The increase was primarily attributable to a combination of
capital expenditures and acquisition payments of $12,806,000 and $10,102,000,
respectively, for the first nine months of fiscal 1998. Capital expenditures
relate primarily to
Page 10 of 13
<PAGE> 11
investments made in the Swimming Pool and Spa Equipment Segment plants following
the acquisition of General Aquatics. Acquisition payments were attributable to
add-on acquisitions in the Swimming Pool and Spa Equipment and Swimming Pool
Sales and Installation Segments. Cash used in operating activities for the first
nine months of fiscal 1998 of $3,712,000 includes the normal seasonal working
capital increase.
On May 12, 1998, the Company amended its existing credit agreement. The
amendment included an increase of $50,000,000 in the unsecured multi-currency
revolving facility and a one-year extension of the loan maturity date to April
30, 2003. After the amendment, the total facility is $185,000,000. The Company
believes that funds available under its Credit Facility and funds generated from
operations will be sufficient to satisfy its anticipated operating needs and
capital improvements for the foreseeable future.
The Company is involved in various claims and lawsuits incidental to its
business, including product liability claims which are covered by insurance
after certain deductibles. As discussed in Note 16 of the Consolidated Financial
Statements, included in the Annual Report to Shareholders for the year ended
September 30, 1997, one such lawsuit involves claims against the Company and
other defendents which exceed $200 million, for which management believes it has
meritorious defenses. Although the Company believes that its reserves are
adequate, a significant increase in the aggregate amount of claims could have an
adverse effect on the deductible level or upon the Company's ability to obtain
product liability coverage for certain product lines. While the ultimate result
of these contingencies cannot be predicted with certainty, based on information
presently available, management does not expect these matters to have a material
adverse effect on the consolidated financial position, results of operations or
cash flows of the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this report and
other materials filed with the Securites and Exchange Commission (as well as
information included in oral or other written statements made or to be made by
the Company) contains statements that are forward-looking. Such statements may
relate to plans for future expansion, plant integrations and consolidations,
business development activities, other capital spending, financing or the
effects of regulation and competition. Such information involves important risks
and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to those relating to product
development activities, actual costs of plant integrations and consolidations,
dependence on existing management, global economic and market conditions, the
impact of weather on pool businesses, and changes in federal or state laws.
Page 11 of 13
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material change to the status of the legal
proceedings referred to in the 1997 Form 10-K during the period
covered by this report.
ITEM 2. CHANGES IN SECURITIES
No change.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.2 Amendment No. 2 to Credit Agreement
between Essef Corporation, National City
Bank and ABN Amro Bank N.V. dated as of
May 1, 1998
11 Earnings Per Share
13 Independent Public Accountants' Review
Report
15 Independent Public Accountants'
Awareness Letter
27 Financial Data Schedule
(b) Form 8-K
The following reports filed on Form 8-K are incorporated by
reference.
Filed 8/5/98
------------
Asset Purchase Agreement among Rainbow Acquisition Corporation,
The Price Family Trust UAD 11697, Price-Presby Companies, Inc.,
Rainbow Molding, Inc., Rainbow Lifeguard, Inc. and Kencar, Inc
dated June 1, 1998.
Page 12 of 13
<PAGE> 13
SIGNATURE
Pursuant to the requirements 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.
ESSEF Corporation
(Registrant)
Thomas B. Waldin
-----------------------------
THOMAS B. WALDIN
President and
Chief Executive Officer
(Principal Executive Officer)
Stuart D. Neidus
-----------------------------
STUART D. NEIDUS
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
Date: August 10, 1998
Page 13 of 13
<PAGE> 1
EXHIBIT 10.2
Amendment No. 2 to Credit Agreement among Essef Corporation,
National City Bank and ABN Amro Bank N.V.
dated as of May 1, 1997
<PAGE> 2
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of May 1, 1998 ("this
Amendment"), among ESSEF CORPORATION, an Ohio corporation (herein, together
with its successors and assigns, the "BORROWER"); the financial institutions
listed on the signature pages hereof (the "LENDERS"); NATIONAL CITY BANK, a
national banking association, as Administrative Agent (the "ADMINISTRATIVE
AGENT") for the Lenders under the Credit Agreement; and ABN AMRO BANK N. V., as
Syndication Agent under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, the Administrative Agent and the
Syndication Agent entered into the Credit Agreement, dated as of April 28,
1997, as amended by Amendment No. 1 thereto, dated as of July 1, 1997 (herein,
as so amended, referred to as the "CREDIT AGREEMENT"; with the terms defined
therein, or the definitions of which are incorporated therein, being used
herein as so defined).
(2)
(3) The parties hereto desire to increase the Total General Revolving
Commitment from U.S.$135,000,000 to U.S.$185,000,000, with such increase being
allocated among the Lenders in proportion to their existing General Revolving
Commitments, and to make certain other changes in the terms and provisions of
the Credit Agreement, all as more fully set forth below.
(4)
(5) NOW, THEREFORE, the parties hereby agree as follows:
(6)
2. SECTION AMENDMENTS.
3.
3.1. REVISED COMMITMENT AMOUNTS. Effective on the Effective Date (as
hereinafter defined), the Total General Revolving Commitment is increased from
U.S.$135,000,000 to U.S.$185,000,000, the Total Swing Line Revolving Commitment
is increased from U.S.$5,000,000 to U.S.$10,000,000, the respective Commitments
of the Lenders shall be as specified in Annex I hereto, and Annex I to the
Credit Agreement shall be replaced and superseded by Annex I hereto.
3.2.
3.3. LOAN PRICING. Effective on the Effective Date, section 2.8(g) of the
Credit Agreement is amended and restated in its entirety to read as follows,
and the revisions reflected below shall be fully applicable to any Eurocurrency
Loans outstanding on and after the Effective Date (with any Eurocurrency Loans
which are outstanding on the Effective Date continuing to bear interest at the
rate or rates in effect prior to the Effective Date of this Amendment for any
period up to but excluding the Effective Date of this Amendment):
3.4.
(g) As used herein, the term "APPLICABLE EUROCURRENCY MARGIN",
as applied to any Loan which is a Eurocurrency Loan, means the
particular rate per annum determined by the Administrative Agent in
accordance with the Pricing Grid Table which appears below, based on
the Borrower's ratio of Total Indebtedness to EBITDA as referred to
in section 9.7 and such Pricing Grid Table, and following provisions:
(A) INITIAL PRICING. Initially, until changed hereunder in
accordance with the following provisions, the Applicable
Eurocurrency Margin will be the rate per annum determined by the
Administrative Agent on the basis of the certificate of the
Borrower referred to in section 3.3 of Amendment No. 2, which
certificate contains a computation of the Borrower's ratio of
Total Indebtedness to EBITDA as referred to in
<PAGE> 3
section 9.7, as adjusted on a PRO FORMA basis to reflect the
completion of any Specified Acquisition as to which a closing
has taken place, and such Pricing Grid Table.
(i) PRICING CHANGES BASED ON COMPLETION OF A SPECIFIED
ACQUISITION. If the Borrower completes after the effective date
of Amendment No. 2 any Specified Acquisition, it will within 10
Business Days following closing of the particular Specified
Acquisition deliver to the Administrative Agent a certificate of
a responsible financial officer of the Borrower containing
calculations in reasonable detail as to the computation of the
Borrower's ratio of (x) Total Indebtedness outstanding on the
date such Specified Acquisition was completed, to (y) EBITDA for
the Testing Period ended on the last day of the most recent
fiscal quarter of the Borrower, adjusted, to the extent
necessary, to reflect on a PRO FORMA basis, consistent with the
PRO FORMA requirements contained in section 9.2(f), the
completion of all Specified Acquisitions as to which a closing
has taken place, as if such Specified Acquisition had been
completed and any Indebtedness incurred or assumed in connection
therewith had been outstanding for the entire Testing Period
used in the computation of such ratio. Such certificate shall be
used by the Administrative Agent in the determination of any
change in the Applicable Eurocurrency Margin which may be
justified by the contents of such certificate. Any such change
in the Applicable Eurocurrency Margin shall be determined by the
Administrative Agent promptly and notified to the Borrower and
the Lenders, with the effective date of such change to be such
date as may be specified by the Administrative Agent upon not
less than two Business Days' prior notice to the Borrower and
the Lenders. Changes in the Applicable Eurocurrency Margin made
pursuant to this paragraph (ii) with reference to the Borrower's
EBITDA for a Testing Period ended with a particular fiscal
quarter shall control over any changes in the Applicable
Eurocurrency Margin which would otherwise be made pursuant to
paragraph (iii) below with reference to the same Testing Period.
(i) PRICING CHANGES BASED ON FINANCIAL STATEMENTS. Beginning
with the fiscal quarter of the Borrower ended on or nearest to
June 30, 1998, and continuing with each fiscal quarter
thereafter, the Administrative Agent will determine the
Applicable Eurocurrency Margin for any Loan in accordance with
the Pricing Grid Table, based on the Borrower's ratio of (x)
Total Indebtedness as of the end of its fiscal quarter, to (y)
EBITDA for the Testing Period then ended, as referred to in
section 9.7 and identified in such Table. Changes in the
Applicable Eurocurrency Margin based upon changes in such ratio
shall become effective on the first day of the month following
the receipt by the Administrative Agent pursuant to section
8.1(a) or (b) of the financial statements of the Borrower,
accompanied by the certificate and calculations referred to in
section 8.1(c), demonstrating the computation of such ratio,
based upon the ratio in effect at the end of the applicable
period covered (in whole or in part) by such financial
statements.
2
<PAGE> 4
(i) PRICING CHANGES IF FINANCIAL STATEMENTS NOT TIMELY. If any
financial statements referred to in section 8.1(a) or (b), or
the related certificate referred to in section 8.1(d), are not
timely delivered, the Administrative Agent may determine the
Applicable Eurocurrency Margin based upon a good faith estimate
by the Borrower of such ratio as in effect at the end of the
applicable period to be covered (in whole or in part) by such
financial statements, PROVIDED, that if upon delivery of such
delinquent financial statements and related certificate, such
financial statements indicate that such good faith estimate was
incorrect and, as a result thereof, the Applicable Eurocurrency
Margin for any Revolving Loans was too low at such
determination, the Applicable Eurocurrency Margin for such
Revolving Loans shall be increased, as appropriate, with
retroactive effect to the date of the change made on the basis
of such determination, and the Borrower will immediately pay to
the Administrative Agent, for the account of the Lenders having
Commitments in respect of the Facility under which such
Revolving Loans were incurred all additional interest due by
reason of such increased Applicable Eurocurrency Margin.
(i) DETERMINATION AND NOTICE OF PRICING CHANGES, ETC. Any
changes in the Applicable Eurocurrency Margin shall be
determined by the Administrative Agent in accordance with the
above provisions and the Administrative Agent will promptly
provide notice of such determinations to the Borrower and the
Lenders. Any such determination by the Administrative Agent
pursuant to this section 2.8(g) shall be conclusive and binding
absent manifest error.
PRICING GRID TABLE
(EXPRESSED IN BASIS POINTS)
<TABLE>
<CAPTION>
<S> <C> <C>
============================================= ================================== ===================================
APPLICABLE APPLICABLE
TOTAL INDEBTEDNESS/EBITDA RATIO EUROCURRENCY MARGIN FACILITY FEE RATE
============================================= ================================= ===================================
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C> <C>
Greater than 4.00 to 1.00 100 37.5
- --------------------------------------------- -------------------------------- ----------------------------------
Greater than 3.50 to 1.00 but less than
or equal to 4.00 to 1.00 82.5 30
- --------------------------------------------- -------------------------------- ----------------------------------
Greater than 3.00 to 1.00 but less than
or equal to 3.50 to 1.00 75 25
- --------------------------------------------- -------------------------------- ----------------------------------
Greater than 2.75 to 1.00 but less than
or equal to 3.00 to 1.00 50 25
- --------------------------------------------- -------------------------------- ----------------------------------
Greater than 2.25 to 1.00 but less than
or equal to 2.75 to 1.00 42.5 20
- --------------------------------------------- -------------------------------- ----------------------------------
Greater than 1.75 to 1.00 but less than
or equal to 2.25 to 1.00 32.5 17.5
- --------------------------------------------- -------------------------------- ----------------------------------
Greater than 1.25 to 1.00 but less than
or equal to 1.75 to 1.00 27.5 12.5
- --------------------------------------------- -------------------------------- ----------------------------------
Less than or equal to 1.25 to 1.00 22.5 10
- --------------------------------------------- -------------------------------- ----------------------------------
</TABLE>
1.1. FACILITY FEE PROVISIONS. Effective on the Effective Date, section 4.1(a)
of the Credit Agreement is amended and restated in its entirety to read as
follows, and the revisions reflected below shall be fully applicable from and
after the Effective Date, but with any Facility Fee accruing for any period
ending prior to the Effective Date being payable at the rate in effect prior to
the Effective Date of this Amendment:
1.2.
(a) The Borrower agrees to pay to the Administrative Agent a
Facility Fee ("FACILITY FEE") for the account of each
Non-Defaulting Lender which has a General Revolving Commitment,
for the period from and including the Effective Date to but not
including the date the Total General Revolving Commitment has
been terminated, on the average daily amount of the Total
General Revolving Commitment, whether used or unused, at the
Applicable Facility Fee Rate, payable quarterly in arrears on
the first Business Day of each April, July, October and January,
commencing on the first Business Day of July 1997.
As used herein, the term "APPLICABLE FACILITY FEE RATE"
means the particular rate per annum determined by the
Administrative Agent in accordance with the Pricing Grid Table
which appears in section 2.8(g), based on the Borrower's ratio
of Total Indebtedness to EBITDA as referred to in section 9.7
and such Pricing Grid Table, and following provisions:
(A) INITIAL PRICING. Initially, until changed hereunder in
accordance with the following provisions, the Applicable
Facility Fee Rate will be the rate per annum determined by
the Administrative Agent on the basis of the certificate of
the Borrower referred to in section 3.3 of Amendment No. 2,
which certificate contains a computation of the Borrower's
ratio of Total Indebtedness to EBITDA as referred to in
4
<PAGE> 6
section 9.7, as adjusted on a PRO FORMA basis to reflect
the completion of any Specified Acquisition as to which a
closing has taken place, and such Pricing Grid Table.
(i) PRICING CHANGES BASED ON COMPLETION OF A SPECIFIED
ACQUISITION. If the Borrower completes after the effective
date of Amendment No. 2 any Specified Acquisition, it will
within 10 Business Days following closing of the particular
Specified Acquisition deliver to the Administrative Agent a
certificate of a responsible financial officer of the
Borrower containing calculations in reasonable detail as to
the computation of the Borrower's ratio of (x) Total
Indebtedness outstanding on the date such Specified
Acquisition was completed, to (y) EBITDA for the Testing
Period ended on the last day of the most recent fiscal
quarter of the Borrower, adjusted, to the extent necessary,
to reflect on a PRO FORMA basis, consistent with the PRO
FORMA requirements contained in section 9.2(f), the
completion of all Specified Acquisitions as to which a
closing has taken place, as if such Specified Acquisition
had been completed and any Indebtedness incurred or assumed
in connection therewith had been outstanding for the entire
Testing Period used in the computation of such ratio. Such
certificate shall be used by the Administrative Agent in
the determination of any change in the Applicable Facility
Fee Rate which may be justified by the contents of such
certificate. Any such change in the Applicable Facility Fee
Rate shall be determined by the Administrative Agent
promptly and notified to the Borrower and the Lenders, with
the effective date of such change to be such date as may be
specified by the Administrative Agent upon not less than
two Business Days' prior notice to the Borrower and the
Lenders. Changes in the Applicable Facility Fee Rate made
pursuant to this paragraph (ii) with reference to the
Borrower's EBITDA for a Testing Period ended with a
particular fiscal quarter shall control over any changes in
the Applicable Facility Fee Rate which would otherwise be
made pursuant to paragraph (iii) below with reference to
the same Testing Period.
(i) PRICING CHANGES BASED ON FINANCIAL STATEMENTS.
Beginning with the fiscal quarter of the Borrower ended on
or nearest to June 30, 1998, and continuing with each
fiscal quarter thereafter, the Administrative Agent will
determine the Applicable Facility Fee Rate in accordance
with the Pricing Grid Table, based on the Borrower's ratio
of (x)Total Indebtedness as of the end of its fiscal
quarter, to (y) EBITDA for the Testing Period then ended,
as referred to in section 9.7 and identified in such Table.
Changes in the Applicable Facility Fee Rate based upon
changes in such ratio shall become effective on the first
day of the month following the receipt by the
Administrative Agent pursuant to section 8.1(a) or (b) of
the financial statements of the Borrower, accompanied by
the certificate and calculations referred to in section
8.1(c), demonstrating the computation of such ratio, based
upon the ratio in effect at the end of the applicable
period covered (in whole or in part) by such financial
statements.
5
<PAGE> 7
(i) PRICING CHANGES IF FINANCIAL STATEMENTS NOT TIMELY. If
any financial statements referred to in section 8.1(a) or
(b), or the related certificate referred to in section
8.1(d), are not timely delivered, the Administrative Agent
may determine the Applicable Facility Fee Rate based upon a
good faith estimate by the Borrower of such ratio as in
effect at the end of the applicable period to be covered
(in whole or in part) by such financial statements,
PROVIDED, that if upon delivery of such delinquent
financial statements and related certificate, such
financial statements indicate that such good faith estimate
was incorrect and, as a result thereof, the Applicable
Facility Fee Rate was too low at such determination, the
Applicable Facility Fee Rate shall be increased, as
appropriate, with retroactive effect to the date of the
change made on the basis of such determination, and the
Borrower will immediately pay to the Administrative Agent
for the account of the Lenders all additional Facility Fee
due by reason of such increased Applicable Facility Fee
Rate.
(i) DETERMINATION AND NOTICE OF PRICING CHANGES, ETC. Any
changes in the Applicable Facility Fee Rate shall be
determined by the Administrative Agent in accordance with
the above provisions and the Administrative Agent will
promptly provide notice of such determinations to the
Borrower and the Lenders. Any such determination by the
Administrative Agent pursuant to this section 4.1(a) shall
be conclusive and binding absent manifest error.
(a) EXTENSION OF MATURITY. Effective on the Effective Date, the date "April 30,
2002" contained in the definition of the term "Maturity Date" in section 1.1 of
the Credit Agreement is changed to "April 30, 2003"; and the date "February 1,
2000" contained in section 4.4 of the Credit Agreement is changed to "February
1, 2001".
(b)
(c) REDUCTION OF TOTAL GENERAL REVOLVING COMMITMENT. Effective on the Effective
Date, the amount "$100 million" which appears in section 4.3(c) of the Credit
Agreement is changed to "$135 million".
(d)
(e) Effective on the Effective Date, section 4.3(d) of the Credit Agreement is
amended and restated to read in its entirety as follows:
(f)
(i) (d) The Borrower will, pursuant to section 4.2 or this section
4.3(d), without premium or penalty, permanently reduce the Total General
Revolving Loan Commitment by at least $7,000,000, on or before September
30, 1999, at least an additional $10,000,000, on or before September 30,
2000, at least an additional $14,000,000, on or before September 30,
2001, and at least an additional $19,000,000, on or before September 30,
2002. Any such reduction shall apply to proportionately and permanently
reduce the General Revolving Loan Commitment of each of the affected
Lenders, and any partial reduction of the Total General Revolving Loan
Commitment pursuant to this section 4.3(d) shall be in an amount which is
an
6
<PAGE> 8
integral multiple of $500,000. The Borrower will provide prompt written
notice to the Administrative Agent at its Notice Office (which notice
the Administrative Agent shall promptly transmit to each of the Lenders)
of any reduction of the Total General Revolving Loan Commitment pursuant
to this section 4.3(d), specifying the date and amount of the reduction.
1.1. TOTAL INDEBTEDNESS/EBITDA RATIO. Effective on the Effective Date, section
9.7 of the Credit Agreement is amended and restated to read in its entirety as
follows:
1.2.
(i) 9.7. TOTAL INDEBTEDNESS/EBITDA RATIO. The Borrower will not at any
time permit the ratio of the amount of Total Indebtedness outstanding at
such time to EBITDA for any Testing Period ending during any period or on
any date shown below to exceed the ratio shown below for any applicable
period or date:
<TABLE>
<CAPTION>
========================================= =======================================
PERIOD RATIO
========================================= =======================================
<C> <C>
12/31/97 through 6/29/98 4.25 to 1.00
- ----------------------------------------- ---------------------------------------
6/30/98 through 9/30/98 4.00 to 1.00
- ----------------------------------------- ---------------------------------------
10/1/98 through 12/31/98 3.50 to 1.00
- ----------------------------------------- ---------------------------------------
Testing Period ended 3/31/99 3.75 to 1.00
- ----------------------------------------- ---------------------------------------
4/1/99 through 9/30/99 3.50 to 1.00
- ----------------------------------------- ---------------------------------------
Thereafter 3.00 to 1.00
========================================= =======================================
</TABLE>
A. CHANGES CONCERNING CERTAIN DEFINITIONS. Effective on the Effective Date,
section 1.1 of the Credit Agreement is amended by adding definitions of the
terms "Amendment No. 2" and "Specified Acquisitions" in appropriate alphabetic
order, and by amending and restating the definition of the term "Permitted
Acquisition", as specified below:
B.
"AMENDMENT NO. 2" shall mean Amendment No. 2 to Credit
Agreement, dated as of May 1, 1998, among the Borrower, the Lenders
party thereto, and the Administrative Agent.
"PERMITTED ACQUISITIONS" shall mean and include, exclusive of
expenditures (including the purchase of adjacent land) to expand then
existing facilities owned by the Borrower or any Subsidiary on the
Effective Date or acquired pursuant to a Permitted Acquisition, and
exclusive of any loans, advances or investments otherwise permitted
pursuant to section 9.5: (i)
7
<PAGE> 9
acquisitions (whether by purchase, lease or otherwise) of facilities
and businesses operated by persons who are not Subsidiaries of the
Borrower, and (ii) acquisitions of equity or other similar interests
in such persons; PROVIDED, that, unless the Required Lenders
otherwise consent, with respect to any transaction referred to in the
foregoing clauses (i) and (ii), no such transaction shall be
considered a Permitted Acquisition if
(A) such transaction is actively opposed by the
Board of Directors (or similar governing body) of the selling
person or the person whose equity interests are to be
acquired;
(B) the aggregate consideration for such transaction
(and any related contemporaneous acquisition transaction with
the same or related persons), including the principal amount
of any assumed Indebtedness and (without duplication) any
Indebtedness of any acquired person or persons, exceeds
$30,000,000; PROVIDED that this condition shall not apply to
any transaction completed after October 1, 1999 if at the
time such transaction is completed the ratio of the
Borrower's (x) Total Indebtedness to (y) EBITDA for the
Testing Period then ended, has not exceeded 3.00 to 1.00 for
each of the two consecutive fiscal quarters most recently
ended for which financial information has been furnished to
the Lenders; or
(C) as a result thereof the Borrower or any
Subsidiary acquires any equity interest in any person and
such person does not by virtue of such transaction become a
Subsidiary of the Borrower.
"SPECIFIED ACQUISITION" shall mean any of the three
acquisition transactions identified to the Lenders at the time
Amendment No. 2 became effective, PROVIDED no such acquisition
transaction shall be considered a Specified Acquisition, unless (i)
such transaction is completed in compliance with all applicable
material legal requirements, (ii) such transaction is for aggregate
consideration, exclusive of adjustments for changes in the acquired
working capital, not in excess of the amount identified to the Lenders
at the time Amendment No. 2 became effective, and (iii) after giving
effect to such transaction on a PRO FORMA basis, the PRO FORMA ratio
of the Borrower's Total Indebtedness to EBITDA does not exceed 4.15 to
1.00, as such PRO FORMA ratio may be computed in a manner consistent
with the PRO FORMA requirements contained in section 9.2(f).
A. CONSOLIDATIONS, MERGERS, ACQUISITIONS OR SALES OF ASSETS. Effective on the
Effective Date, clauses (d) and (f) of section 9.2 of the Credit Agreement are
changed, so that after giving effect to such changes, section 9.2 of the Credit
Agreement reads in its entirety as follows:
B.
9.2. CONSOLIDATION, MERGER OR SALE OF ASSETS, ETC. The
Borrower will not, and will not permit any Subsidiary to, wind up,
liquidate or dissolve its affairs, or enter into any
8
<PAGE> 10
transaction of merger or consolidation or sell or otherwise dispose
of any of its property or assets (but excluding any sale or
disposition of obsolete or excess furniture, fixtures or equipment or
excess vacant land in the ordinary course of business), or purchase,
lease or otherwise acquire (in one transaction or a series of related
transactions) all or any part of the property or assets of any person
(excluding any purchases, leases or other acquisitions of property or
assets in, and for use in, the ordinary course of business) or agree
to do any of the foregoing at any future time, EXCEPT that the
following shall be permitted:
1. CAPITAL EXPENDITURES: capital expenditures by the Borrower and its
Subsidiaries for furniture, fixtures, equipment, improvements to Real
Property, or for the acquisition of improved or unimproved facilities
or Real Property other than on a "going concern" basis;
1. SALES OF RECEIVABLES: sales of receivables in transactions
permitted by section 9.4(d);
1. PERMITTED INVESTMENTS: the investments permitted pursuant to
section 9.5;
a) CERTAIN ACQUISITIONS: the following: the General Aquatics
Acquisition as contemplated by the Acquisition Documents; and the
Specified Acquisitions;
a) CERTAIN INTERCOMPANY MERGERS, ETC.: if no Default or Event of
Default shall have occurred and be continuing or would result
therefrom, the merger or consolidation of any Wholly-Owned Subsidiary
with or into the Borrower or another Wholly-Owned Subsidiary, so long
as in any merger or consolidation involving the Borrower the Borrower
is the surviving or continuing corporation, or the liquidation or
dissolution of any Subsidiary, or the transfer or other disposition
of any property by the Borrower to any Wholly-Owned Subsidiary or by
any Wholly-Owned Subsidiary to the Borrower or any other Wholly-Owned
Subsidiary of the Borrower;
a) PERMITTED ACQUISITIONS: if no Default or Event of Default shall
have occurred and be continuing or would result therefrom, the
Borrower or any Subsidiary may make Permitted Acquisitions, PROVIDED
that at least five Business Days prior to the date of any such
Permitted Acquisition which involves consideration (including the
amount of any assumed Indebtedness and (without duplication) any
outstanding Indebtedness of any person which becomes a Subsidiary as
a result of such Permitted Acquisition) of $10,000,000 or more, the
Borrower shall have delivered to the Administrative Agent an
officer's certificate executed on behalf of the Borrower by an
Authorized Officer of the Borrower, which certificate shall contain
the date such
9
<PAGE> 11
Permitted Acquisition is scheduled to be consummated, contain the
estimated purchase price of such Permitted Acquisition, contain a
description of the property and/or assets acquired in connection with
such Permitted Acquisition, demonstrate that at the time of making
any such Permitted Acquisition the covenants contained in sections
9.7 and 9.8 shall be complied with on a PRO FORMA basis as if the
properties and/or assets so acquired had been owned by the Borrower,
and the Indebtedness assumed and/or incurred to acquire and/or
finance same has been outstanding, for the four fiscal quarter period
immediately preceding such acquisition (without giving effect to any
credit for unobtained or unrealized gains in connection with such
Permitted Acquisition, but taking into account such adjustments to
the overhead of such properties and assets as may reasonably
determined and specified by the Borrower to reflect the overhead
generally applicable to similar properties and assets owned by the
Borrower and its Subsidiaries, as and to the extent the
Administrative Agent determines (acting on instructions from the
Required Lenders) such adjustments to be reasonable and appropriate
under the particular circumstances), and if requested by the
Administrative Agent, attach thereto a true and correct copy of the
then proposed purchase agreement, merger agreement or similar
agreement, partnership agreement and/or other contract entered into
in connection with such Permitted Acquisition; and the aggregate
consideration for such transaction and all other Permitted
Acquisitions completed after May 1, 1998 and on or before September
30, 1999 (exclusive of the Specified Acquisitions permitted under
section 9.2(d) hereof), including the principal amount of any assumed
Indebtedness and (without duplication) any Indebtedness of any
acquired person or persons, does not exceed $40,000,000;
(1) PERMITTED DISPOSITIONS: if no Default or Event of Default shall
have occurred and be continuing or would result therefrom, the
Borrower or any of its Subsidiaries may sell any property, land or
building (including any related receivables or other intangible
assets) to any person which is not a Subsidiary of the Borrower, or
sell the entire capital stock (or other equity interests) and
Indebtedness of any Subsidiary owned by the Borrower or any other
Subsidiary to any person which is not a Subsidiary of the Borrower,
or permit any Subsidiary to be merged or consolidated with a person
which is not an Affiliate of the Borrower, or consummate any other
Asset Sale with a person who is not a Subsidiary of the Borrower;
PROVIDED that the consideration for such transaction represents fair
value (as determined by management of the Borrower), all such assets,
capital stock (or other equity interests) and Indebtedness or
Subsidiary so disposed of during any fiscal year of the Borrower
shall not have an aggregate fair value which is greater than an
amount equal to 5% of the Total Net Assets of the Borrower as at the
end of its most recently completed fiscal year prior thereto for
which financial statements have been delivered pursuant to section
8.1(a), all such assets, capital stock (or other equity interests)
and Indebtedness or Subsidiary so disposed of after March 31, 1997
shall not at any time on a cumulative
10
<PAGE> 12
basis have an aggregate fair value which is greater than an amount
equal to 10% of the Total Net Assets of the Borrower as at the end of
its most recently completed fiscal year prior thereto for which
financial statements have been delivered pursuant to section 8.1(a),
in the case of any such transaction involving consideration in excess
of $10,000,000, at least five Business Days prior to the date of
completion of such transaction the Borrower shall have delivered to
the Administrative Agent an officer's certificate executed on behalf
of the Borrower by an Authorized Officer of the Borrower, which
certificate shall contain a description of the proposed transaction,
the date such transaction is scheduled to be consummated, the
estimated purchase price or other consideration for such transaction,
financial information pertaining to compliance with the preceding
clauses (B) and (C), and which shall (if requested by the
Administrative Agent) include a certified copy of the draft or
definitive documentation pertaining thereto, and contemporaneously
therewith, the Borrower prepays Loans as and to the extent
contemplated by section 5.2(c); and PROVIDED, FURTHER, that the
restrictions contained in this section 9.2(g) shall not apply to, and
there shall be excluded from any computations under this section
9.2(g), any isolated sales or other dispositions of assets having a
value less than $500,000, the sale of certain currently-owned Real
Property located in Daytona Beach, Florida, and any dispositions of
certain property, assets and business identified to the Lenders in a
letter dated as of the date hereof which makes reference to this
section 9.2(g); and
1. LEASES: the Borrower or any of its Subsidiaries may enter into
leases of property or assets not constituting Permitted Acquisitions
in the ordinary course of business not otherwise in violation of this
Agreement.
11
<PAGE> 13
I. SECTION REPRESENTATIONS AND WARRANTIES.
II.
III. The Borrower represents and warrants as follows:
IV.
a) CURRENT FINANCIAL STATEMENTS, ETC. The Borrower has furnished to the
Lenders and the Administrative Agent complete and correct copies of the
audited consolidated balance sheets of the Borrower and its consolidated
subsidiaries as of September 30, 1997 and September 30, 1996 and the related
audited consolidated statements of income, shareholders' equity, and cash
flows of the Borrower and its consolidated subsidiaries for the fiscal years
then ended, accompanied by the report thereon of Deloitte & Touche LLP; and
the condensed consolidated balance sheets of the Borrower and its consolidated
subsidiaries as of December 31, 1997 and December 31, 1996, and the related
condensed consolidated statements of income and of cash flows of the Borrower
and its consolidated subsidiaries for the three months ended December 31, 1997
and December 31, 1996, as included in the Borrower's Report on Form 10-Q filed
with the SEC. All such financial statements have been prepared in accordance
with GAAP, consistently applied (except as stated therein), and fairly present
the financial position of the Borrower and its consolidated subsidiaries as of
the respective dates indicated and the consolidated results of their
operations and cash flows for the respective periods indicated, subject in the
case of any such financial statements which are unaudited, to normal audit
adjustments, none of which will involve a Material Adverse Effect.
A. AUTHORIZATION, VALIDITY AND BINDING EFFECT. This Amendment has been duly
authorized by all necessary corporate action on the part of the Borrower, has
been duly executed and delivered by a duly authorized officer or officers of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms.
B.
C. REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The representations and
warranties of the Borrower contained in the Credit Agreement, as amended
hereby, are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent that such representations and
warranties expressly relate to a specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct when
made.
D.
E. NO EVENT OF DEFAULT, ETC. No condition or event has occurred or exists
which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
F.
G. COMPLIANCE. The Borrower is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby, and the other
Credit Documents to which it is a party.
H.
I.
12
<PAGE> 14
II. SECTION EFFECTIVENESS OF AMENDMENTS.
III.
IV. This Amendment shall become effective if and when, on a date (the
"EFFECTIVE DATE") on or prior to June 15, 1998, the following conditions shall
have been satisfied:
V.
A. EXECUTION OF AMENDMENT. This Amendment shall have been executed by the
Borrower and the Administrative Agent and counterparts hereof as so executed
shall have been delivered to the Administrative Agent; the Acknowledgment and
Consent appended hereto shall have been executed by the Credit Parties named
therein, and counterparts thereof as so executed shall have been delivered to
the Administrative Agent; and the Administrative Agent shall have been notified
by the Lenders party hereto that such Lenders have executed this Amendment
(which notification may be by facsimile or other written confirmation of such
execution).
A. FEES. The Borrower shall have paid to the Administrative Agent for its own
account and for the account of the Lenders all fees which the Borrower has
agreed to pay in connection with this Amendment.
B.
C. CERTIFICATE OF THE BORROWER. Not later than two Business Days prior to the
Effective Date, the Borrower shall have delivered to the Administrative Agent a
certificate of a responsible financial officer of the Borrower containing
calculations in reasonable detail as to the computation of the Borrower's ratio
of (x) Total Indebtedness as of the date of such certificate, to (y) EBITDA for
the Testing Period ended on the last day of the most recent fiscal quarter of
the Borrower, adjusted to reflect on a PRO FORMA basis, consistent with the PRO
FORMA requirements contained in section 9.2(f) of the Credit Agreement, as
amended hereby, the completion of any of the Specified Acquisitions as to which
a closing has or will take place on or prior to the Effective Date, as if such
Specified Acquisition had been completed and any Indebtedness incurred or
assumed in connection therewith had been outstanding for the entire Testing
Period used in the computation of such ratio. Such certificate shall be used by
the Administrative Agent in the determination of the initial Applicable
Eurocurrency Margin referred to in section 2.8(g) of the Credit Agreement, as
amended hereby, and the initial Facility Fee Rate referred to in section 4.1(a)
of the Credit Agreement, as amended hereby, and the Administrative Agent shall
notify the Borrower and the Lenders of such determination on the Effective
Date.
D.
E. CORPORATE RESOLUTIONS AND APPROVALS. The Administrative Agent shall have
received, in sufficient quantity for the Administrative Agent and the Lenders,
certified copies of the resolutions of the Board of Directors of the Borrower,
approving this Amendment and any other documents contemplated hereby to which
the Borrower is or may become a party, and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
the execution, delivery and performance by the Borrower of this Amendment and
such other documents to which it is or may become a party.
F.
13
<PAGE> 15
G. INCUMBENCY CERTIFICATE. The Administrative Agent shall have received, in
sufficient quantity for the Administrative Agent and the Lenders, a certificate
of the Secretary or an Assistant Secretary of the Borrower, certifying the
names and true signatures of the officers of the Borrower authorized to sign
this Amendment and the other documents contemplated hereby to which the
Borrower is a party and any other documents to which the Borrower is a party
which may be executed and delivered in connection herewith.
H.
I. OPINION OF COUNSEL. On the Effective Date, the Administrative Agent shall
have received an opinion, addressed to the Administrative Agent and each of the
Lenders and dated the Effective Date, from Squire, Sanders & Dempsey LLP,
special counsel to the Borrower, substantially in the form of Exhibit A hereto
and covering such other matters incident to the transactions contemplated
hereby as the Administrative Agent may reasonably request, such opinion to be
in form and substance satisfactory to the Administrative Agent.
J.
II. SECTION NOTICE OF EFFECTIVE DATE.
III.
After this Amendment becomes effective as provided herein, the
Administrative Agent will promptly furnish a copy of this Amendment to each
Lender and the Borrower and confirm the specific Effective Date hereof.
I. SECTION RATIFICATIONS.
II.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
I. SECTION MISCELLANEOUS.
II.
A. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure to
the benefit of the Borrower, each Lender and the Administrative Agent and their
respective permitted successors and assigns.
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and no investigation by the Administrative Agent or any Lender
or any subsequent Loan or issuance of a Letter of Credit shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them.
B.
14
<PAGE> 16
C. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all other
agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
D. EXPENSES. As provided in the Credit Agreement, but without limiting any
terms or provisions thereof, the Borrower agrees to pay on demand all costs and
expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, and execution of this Amendment, including without
limitation the costs and fees of the Administrative Agent's special legal
counsel, regardless of whether this Amendment becomes effective in accordance
with the terms hereof, and all costs and expenses incurred by the
Administrative Agent or any Lender in connection with the enforcement or
preservation of any rights under the Credit Agreement, as amended hereby.
E.
F. SEVERABILITY. Any term or provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
G.
H. APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Ohio.
I.
J. HEADINGS. The headings, captions and arrangements used in this Amendment
are for convenience only and shall not affect the interpretation of this
Amendment.
K.
L. ENTIRE AGREEMENT. This Amendment is specifically limited to the matters
expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
M.
N. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
O.
P.
[The balance of this page is intentionally blank;
the next page is the signature page.]
15
<PAGE> 17
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered as of the date first above written.
<TABLE>
<CAPTION>
ESSEF CORPORATION CORESTATES BANK, N. A.
<S> <C>
By:______________________________ By:______________________________
Vice President-Finance Vice President
NATIONAL CITY BANK, FLEET NATIONAL BANK
individually and as Administrative Agent
By:______________________________
By:______________________________ Vice President
Vice President
ABN AMRO BANK N. V., HARRIS TRUST AND SAVINGS BANK
Individually and as Syndication Agent
By:______________________________ By:______________________________
Title: Vice President
And:_____________________________
Title:
THE BANK OF NEW YORK PNC BANK, NATIONAL ASSOCIATION
By:______________________________ By:______________________________
Vice President Vice President
BANK ONE, N. A. SOCIETE GENERALE,
Chicago Branch
By:______________________________
Vice President By:______________________________
Vice President
</TABLE>
16
<PAGE> 18
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and
effect of sections 6 and 10 of the Subsidiary Guaranty (as such term is defined
in the Credit Agreement referred to in the Amendment No. 2 to Credit Agreement
(the "AMENDMENT"), to which this Acknowledgment and Consent is appended), each
of the undersigned hereby unconditionally and irrevocably (i) acknowledges
receipt of a copy of the Credit Agreement and the Amendment, and (ii) consents
to all of the terms and provisions of the Credit Agreement as amended by the
Amendment.
Capitalized terms which are used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement referred to
herein. This Acknowledgment and Consent is for the benefit of the Lenders, the
Administrative Agent, and the Syndication Agent, any other person who is a
third party beneficiary of the Subsidiary Guaranty, and their respective
successors and assigns. No term or provision of this Acknowledgment and Consent
may be modified or otherwise changed without the prior written consent of the
Administrative Agent, given as provided in the Credit Agreement. This
Acknowledgment and Consent shall be binding upon the successors and assigns of
each of the undersigned. This Acknowledgment and Consent may be executed by any
of the undersigned in separate counterparts, each of which shall be an original
and all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and
delivered this Acknowledgment and Consent as of the date of the Amendment
referred to herein.
ENPAC Corporation
ADVANCED STRUCTURES, INC.
PAC-FAB, INC.
PUREX POOL SYSTEMS, INC.
COMPOOL, INC.
SANFORD TECHNOLOGY CORPORATION
GENERAL ACQUATICS CORPORATION
ANTHONY AND SYLVAN POOLS CORPORATION
By:________________________________________
Vice President and/or Treasurer
or Assistant Treasurer of each
of the above corporations
<PAGE> 1
EXHIBIT 11
EARNINGS PER SHARE
The computation of basic and diluted earnings per share is as follows:
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares
outstanding 11,743 11,628 11,702 11,625
Add equivalent shares for
stock options (a) 1,839 1,561 1,759 1,512
------- ------- ------- -------
Average shares outstanding for
computation of earnings per
share 13,582 13,189 13,461 13,137
======= ======= ======= =======
Net Income $ 9,170 $ 6,404 $11,257 $ 9,926
======= ======= ======= =======
EARNINGS PER SHARE:
Basic $ .78 $ .55 $ .96 $ .85
======= ======= ======= =======
Diluted $ .68 $ .49 $ .84 $ .76
======= ======= ======= =======
</TABLE>
(a) Computed under the "Treasury Stock Method" using the average market price
for the respective period.
<PAGE> 1
EXHIBIT 13
INDEPENDENT PUBLIC ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
Essef Corporation
Chardon, Ohio
We have reviewed the accompanying condensed consolidated balance sheet of
Essef Corporation and Subsidiaries (the "Company") as of June 30, 1998, and
the related condensed consolidated statements of income for the three-month
and nine-month periods ended June 30, 1998 and 1997, and their cash flows for
the nine-month periods ended June 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of September 30,
1997, and the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented herein) and in
our report dated November 19, 1997, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
September 30, 1997 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
July 17, 1998
<PAGE> 1
EXHIBIT 15
INDEPENDENT PUBLIC ACCOUNTANTS' AWARENESS LETTER
August 11, 1998
Essef Corporation and Subsidiaries
220 Park Drive
Chardon, Ohio
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of Essef Corporation and Subsidiaries for the periods
ended June 30, 1998 and 1997, as indicated in our report dated July 17, 1998;
because we did not do an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, is
incorporated by reference in Registration Statement No. 33-17758 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 477
<SECURITIES> 0
<RECEIVABLES> 64,684
<ALLOWANCES> 0
<INVENTORY> 47,334
<CURRENT-ASSETS> 114,968
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 267,464
<CURRENT-LIABILITIES> 76,236
<BONDS> 0
0
0
<COMMON> 24,969
<OTHER-SE> 51,475
<TOTAL-LIABILITY-AND-EQUITY> 267,464
<SALES> 137,625
<TOTAL-REVENUES> 137,625
<CGS> 96,143
<TOTAL-COSTS> 121,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,287
<INCOME-PRETAX> 14,108
<INCOME-TAX> 4,938
<INCOME-CONTINUING> 9,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,170
<EPS-PRIMARY> 78
<EPS-DILUTED> 68
</TABLE>
