<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 1994
REGISTRATION NO. 33-52033
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
SCOTSMAN INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3585 36-3635892
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
775 CORPORATE WOODS PARKWAY
VERNON HILLS, ILLINOIS 60061
(708)215-4500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
DONALD D. HOLMES
SCOTSMAN INDUSTRIES, INC.
775 CORPORATE WOODS PARKWAY
VERNON HILLS, ILLINOIS 60061
(708)215-4447
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
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SHIRLEY M. LUKITSCH ROBERT F. QUAINTANCE, JR.
SCHIFF HARDIN & WAITE DEBEVOISE & PLIMPTON
7200 SEARS TOWER 875 THIRD AVENUE
CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10022
(312)258-5602 (212) 909-6000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SCOTSMAN INDUSTRIES, INC.
CROSS REFERENCE SHEET
Pursuant to item 501 of Regulation S-K showing the location in the Proxy
Statement - Prospectus of the responses to the Items of Part I of Form S-4.
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REGISTRATION STATEMENT ITEM AND CAPTION PROXY STATEMENT - PROSPECTUS CAPTION
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page; Cross-Reference Sheet; Outside Front Cover
Page of Proxy Statement - Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Available Information; Incorporation of Certain Information
by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary
4. Terms of the Transaction................... The Merger, the Share Acquisition and Related Transactions;
The Merger Agreement; The Share Acquisition Agreement;
Certain Provisions Common to the Merger Agreement and the
Share Acquisition Agreement; Comparison of the Rights of
Holders of DFC Common Stock and the Rights of Holders of
Scotsman Common Stock; Comparison of the Rights of Holders
of WAL Ordinary Shares and the Rights of Holders of
Scotsman Common Stock
5. Pro Forma Financial Information............ Unaudited Pro Forma Condensed Consolidated Financial
Statements
6. Material Contracts with the Company Being
Acquired................................. The Merger, the Share Acquisition and Related Transactions
-- Background of the Merger and Share Acquisition
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to Be Underwriters....................... Information Concerning the Merger Shareholders as Selling
Shareholders
8. Interests of Named Experts and Counsel..... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
10. Information With Respect to S-3
Registrants.............................. Incorporation of Certain Information by Reference; Summary
11. Incorporation of Certain Information by
Reference................................ Incorporation of Certain Information by Reference
12. Information With Respect to S-2 or S-3
Registrants.............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information With Respect to Registrants
Other than S-2 or S-3 Registrants........ Not Applicable
15. Information With Respect to S-3
Companies................................ Not Applicable
16. Information With Respect to S-2 or S-3
Companies................................ Not Applicable
17. Information With Respect to Companies Other
than S-2 or S-3 Companies................ Summary; Certain Information Concerning DFC; Certain
Information Concerning WAL; Index to Financial Statements
18. Information if Proxies, Consents or
Authorizations Are To Be Solicited....... Incorporation of Certain Information by Reference; The
Special Meeting; Certain Provisions Common to the Merger
Agreement and the Share Acquisition Agreement -- Agreements
Regarding Election of Directors; Other Related Matters --
Interests of Certain Persons in the Merger and the Share
Acquisition; Certain Information Concerning DFC --
Executive Compensation; Management, -- Certain Beneficial
Owners of DFC Common Stock; Certain Information Concerning
WAL -- Executive Compensation; Management -- Certain
Beneficial Owners of the WAL Ordinary Shares
19. Information if Proxies, Consents or
Authorizations Are Not To Be Solicited or
in an Exchange Offer..................... Not Applicable
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NOTICE OF SPECIAL MEETING OF
THE SHAREHOLDERS OF SCOTSMAN INDUSTRIES, INC.
TO BE HELD APRIL , 1994
To the Shareholders of SCOTSMAN INDUSTRIES, INC.
Notice is hereby given that a special meeting of shareholders (the "Special
Meeting") of Scotsman Industries, Inc. ("Scotsman") will be held at Scotsman's
headquarters at 775 Corporate Woods Parkway, Vernon Hills, Illinois 60061 on
, April , 1994, at 9:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the issuance (the
"Share Issuance") of (a) 1,200,000 shares of common stock of Scotsman
Industries, Inc., par value $.10 per share (the "Scotsman Common Stock"),
together with the related common stock purchase rights (the "Common Stock
Purchase Rights") issued pursuant to the Rights Agreement, dated as of
April 14, 1989, as amended, between Scotsman and Harris Trust and Savings
Bank, to be issued in a merger (the "Merger") between Scotsman Acquisition
Corporation, a wholly-owned subsidiary of Scotsman ("Merger Sub"), and DFC
Holding Corporation ("DFC"), pursuant to which Merger Sub will be merged
with and into DFC and DFC will become a wholly-owned subsidiary of
Scotsman, upon the terms and subject to the conditions set forth in an
Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman,
Merger Sub, DFC, The Delfield Company, a wholly-owned subsidiary of DFC
("Delfield"), Onex Corporation ("Onex"), the holders of the common stock of
DFC named therein, and Continental Bank N.A. ("Continental"), (b) 2,000,000
shares of Series A $0.62 Cumulative Convertible Preferred Stock of
Scotsman, par value $1.00 per share, to be issued in the Merger, together
with the shares of Scotsman Common Stock and related Common Stock Purchase
Rights issuable upon the conversion of such shares, and (c) up to 667,000
additional shares of Scotsman Common Stock, together with the related
Common Stock Purchase Rights, to be issued to the shareholders of DFC and
of Whitlenge Acquisition Limited, an affiliate of DFC ("WAL") (all of the
outstanding shares of which are to be acquired by Scotsman Drink Limited,
an indirect, wholly-owned subsidiary of Scotsman, concurrently with the
Merger, pursuant to a Share Acquisition Agreement, dated as of January 11,
1994, among Scotsman, WAL, Whitlenge Drink Equipment Limited, a
wholly-owned subsidiary of WAL ("Whitlenge"), Onex, Onex U.S. Investments,
Inc., and certain of the holders of the ordinary shares of WAL named
therein) and to Continental, if the businesses of Delfield and Whitlenge
meet a specified level of earnings before interest, income taxes,
depreciation and amortization for their 1994 fiscal years, all as more
fully described in the accompanying Proxy Statement - Prospectus.
2. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only shareholders of record at the close of business on March 14, 1994 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
You are cordially invited to attend the Special Meeting. Whether or not you
plan to attend, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD
TO ASSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING. A PREPAID
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE YOUR SHARES IN PERSON WHETHER OR NOT YOU HAVE PREVIOUSLY
SUBMITTED A PROXY.
By order of the Board of Directors,
Donald D. Holmes
Secretary
March , 1994
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROXY STATEMENT - PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 8, 1994
SCOTSMAN INDUSTRIES, INC.
PROXY STATEMENT - PROSPECTUS
-------------------------
This Proxy Statement - Prospectus is being furnished to the shareholders of
Scotsman Industries, Inc., a Delaware corporation ("Scotsman"), in connection
with the solicitation of proxies by Scotsman's Board of Directors for use at a
special meeting of the shareholders of Scotsman (the "Special Meeting") to be
held on , April , 1994, at 9:00 a.m., local time, at 775 Corporate
Woods Parkway, Vernon Hills, Illinois 60061, and at any adjournment thereof, for
the purpose of considering and voting upon the matters set forth in the
preceding Notice of Special Meeting of the Shareholders of Scotsman Industries,
Inc., as more fully described in this Proxy Statement - Prospectus.
This Proxy Statement - Prospectus also constitutes the prospectus of
Scotsman with respect to the issuance of (i) 1,200,000 shares (the "Scotsman
Fixed Common Shares") of common stock of Scotsman, par value $.10 per share (the
"Scotsman Common Stock"), together with the related common stock purchase rights
(the "Common Stock Purchase Rights") issued pursuant to the Rights Agreement,
dated as of April 14, 1989, as amended (the "Rights Agreement"), between
Scotsman and Harris Trust and Savings Bank (the "Rights Agent"), to be issued in
a merger (the "Merger") between DFC Holding Corporation ("DFC") and Scotsman
Acquisition Corporation, a wholly-owned subsidiary of Scotsman ("Merger Sub"),
upon the terms and subject to the conditions set forth in an Agreement and Plan
of Merger, dated as of January 11, 1994 (the "Merger Agreement"), among
Scotsman, Merger Sub, DFC, The Delfield Company, a wholly-owned subsidiary of
DFC ("Delfield"), Onex Corporation ("Onex"), Onex DHC LLC ("Onex DHC"), Pacific
Mutual Life Insurance Company ("Pacific Mutual"), PM Group Life Insurance Co.
("PM"), EJJM, Matthew O. Diggs, Jr., Timothy C. Collins, W. Joseph Manifold,
Charles R. McCollom, Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella,
Teddy F. Reed, Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust,
John A. Tilmann, Kevin E. McCrone, Michael P. McCrone, and Ronald A. Anderson
(each a "Merger Shareholder" and, collectively, the "Merger Shareholders") and
Continental Bank N.A. ("Continental"), as the holder of a warrant to purchase
194,845 shares of common stock of DFC (the "Warrant"), (ii) 2,000,000 shares of
Series A $0.62 Cumulative Convertible Preferred Stock of Scotsman, par value
$1.00 per share and with a liquidation preference of $11.25 per share (the
"Series A Convertible Preferred Stock"), to be issued in the Merger, which may
be converted into shares of Scotsman Common Stock at an initial conversion rate
of 0.7627 shares of Scotsman Common Stock for each share of Series A Convertible
Preferred Stock so converted, together with the shares of Scotsman Common Stock
and the related Common Stock Purchase Rights issuable upon such conversion,
(iii) up to 667,000 shares of Scotsman Common Stock (the "Scotsman Contingent
Common Shares"), together with the related Common Stock Purchase Rights, to be
issued to Continental, the shareholders of DFC and the shareholders of Whitlenge
Acquisition Limited, an affiliate of DFC ("WAL") (all of the outstanding shares
of which are to be acquired by Scotsman Drink Limited, a wholly-owned, indirect
subsidiary of Scotsman ("Tender Sub") concurrently with the Merger in a share
acquisition (the "Share Acquisition") pursuant to a Share Acquisition Agreement,
dated as of January 11, 1994 (the "Share Acquisition Agreement"), among
Scotsman, WAL, Whitlenge Drink Equipment Limited, a wholly-owned subsidiary of
WAL ("Whitlenge"), Onex, Onex U.S. Investments, Inc. ("Onex U.S."), EJJM,
Matthew O. Diggs, Jr., Timothy C. Collins, Graham F. Cook, Christopher R.L.
Wheeler, Michael de St. Paer and John Rushton (each an "Acquisition Shareholder"
and, collectively, the "Acquisition Shareholders")), if the businesses of
Delfield and Whitlenge meet a specified level of earnings before interest,
income taxes, depreciation and amortization for, with respect to Delfield, the
period beginning January 1, 1994 and ending December 31, 1994, and, with respect
to Whitlenge, the period beginning October 1, 1993 and ending September 30, 1994
(the "Measurement Periods"), as provided in the Merger
(continued on next page)
-------------------------
THE SECURITIES TO WHICH THIS PROXY STATEMENT - PROSPECTUS RELATES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT - PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
The date of this Proxy Statement - Prospectus is March 8, 1994.
<PAGE> 5
Agreement and the Share Acquisition Agreement, and (iv) shares of Series B
Cumulative Preferred Stock, par value $1.00 per share and with a liquidation
preference of $11.25 per share (the "Series B Preferred Stock"), which may be
issued in lieu of a portion of the cash consideration to be paid in the Merger,
as more fully described below. The Scotsman Common Stock to be issued pursuant
to the Merger and the Share Acquisition Agreement (including the Scotsman
Contingent Common Shares), the related Common Stock Purchase Rights, the Series
A Convertible Preferred Stock and the Series B Preferred Stock are collectively
referred to as the "New Scotsman Stock." Each reference to Scotsman Common
Stock, Scotsman Fixed Common Shares and Scotsman Contingent Common Shares in
this Proxy Statement - Prospectus shall be deemed to include the related Common
Stock Purchase Rights. This Prospectus also covers the reoffering and resale, by
the Merger Shareholders, of Scotsman Fixed Common Shares, shares of Series A
Convertible Preferred Stock, and shares of Scotsman Common Stock issuable upon
the conversion of the Series A Convertible Preferred Stock, for a period of up
to 45 days following the effective date of the Merger.
Under the terms of the Merger Agreement and the Share Acquisition
Agreement, in addition to the Scotsman Fixed Common Shares, shares of Series A
Convertible Preferred Stock with an aggregate liquidation preference of $22.5
million, and the Scotsman Contingent Common Shares, Scotsman will pay cash in
the aggregate amount of $30 million to the shareholders of DFC as of the
effective time of the Merger, the shareholders of WAL as of the time of
consummation of the Share Acquisition and the holder of the Warrant. Such
consideration will constitute payment for all of the issued and outstanding
shares of Class A common stock of DFC, par value $.01 per share (the "DFC Common
Stock"), the issued ordinary shares of capital stock of WAL (the "WAL Ordinary
Shares"), the Warrant and, if purchased, the issued 6% Redeemable Cumulative
Preferred Shares of WAL (the "WAL Preferred Shares"). Scotsman will also pay an
additional $150,000 per calendar quarter for each calendar quarter (pro-rated
for any period less than a quarter) between September 30, 1993 and the closing
date of the Merger and the Share Acquisition. If the amount of cash
consideration to be paid in the Merger would otherwise exceed 19% of the total
consideration paid to the Merger Shareholders, then, such number of shares of
Series B Preferred Stock will be issued in lieu of a portion of such cash
consideration, as has an aggregate liquidation preference equal to the amount by
which the cash consideration paid to the Merger Shareholders exceeds 19% of the
total consideration to be paid in the Merger to the Merger Shareholders. The
amount of cash consideration paid to the Merger Shareholders will also be
reduced by the aggregate amount, if any, of certain distributions, redemptions
or repurchases of DFC Common Stock, in an aggregate amount not to exceed $7
million (the "Permitted Distributions"). If the WAL Preferred Shares are not
purchased in the Share Acquisition, the cash consideration paid in the Share
Acquisition will also be reduced by the U.S. dollar equivalent of L2,000,000.
DFC and WAL are affiliated companies. Onex (or one of its affiliates),
EJJM, an Ohio limited partnership of which Matthew O. Diggs, Jr. is the sole
managing general partner, and Timothy C. Collins are the beneficial owners (on a
fully diluted basis) of 47.2%, 20.9% and 3.3%, respectively, of the DFC Common
Stock and 100% of the WAL "B" Ordinary Shares, 94% of the WAL "C" Ordinary
Shares and 6% of the WAL "C" Ordinary Shares, respectively. Immediately
following the consummation of the Merger, the Merger Shareholders will hold, on
a fully diluted basis, an aggregate of 28% of the outstanding Scotsman Common
Stock. Upon consummation of the Merger and the Share Acquisition and the
issuance of the maximum number of Scotsman Contingent Common Shares issuable
under the Merger Agreement and the Share Acquisition Agreement, the shareholders
of DFC and WAL will hold, on a fully diluted basis, an aggregate of
approximately 33% of the outstanding Scotsman Common Stock.
The parties do not intend to proceed with the Merger unless the Share
Acquisition is consummated nor do they intend to consummate the Share
Acquisition unless the Merger is consummated. The Merger Agreement and the Share
Acquisition Agreement will each terminate if the other agreement is terminated.
This Proxy Statement - Prospectus and the accompanying form of proxy are
first being mailed to Scotsman's shareholders on March , 1994.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT - PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SCOTSMAN.
THIS PROXY STATEMENT - PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT - PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF SCOTSMAN, DFC OR WAL SINCE THE DATE OF THIS
PROXY STATEMENT - PROSPECTUS OR THAT INFORMATION IN THIS PROXY STATEMENT -
PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THE DATES THEREOF.
ii
<PAGE> 6
AVAILABLE INFORMATION
Scotsman is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by Scotsman with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Scotsman Common Stock is listed on the New York
Stock Exchange (the "NYSE"), and such reports, proxy statements and other
information concerning Scotsman can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
Scotsman has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the issuance of the New Scotsman Stock and
the reoffering and resale by the Merger Shareholders of Scotsman Fixed Common
Shares, shares of Series A Convertible Preferred Stock, and shares of Scotsman
Common Stock, issuable upon the conversion of the Series A Convertible Preferred
Stock, for a period of 45 days following the effective date of the Merger. See
"Other Related Matters -- Reofferings and Resales of New Scotsman Stock;
Registration Rights Agreement." This Proxy Statement - Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
The information in this Proxy Statement - Prospectus concerning Scotsman
and its subsidiaries has been furnished by Scotsman, certain information
concerning DFC and Delfield has been furnished by DFC, and certain information
concerning WAL, Whitlenge and Whitlenge Drink Equipment, N.V., a wholly-owned
subsidiary of Whitlenge ("WB"), has been furnished by WAL. Neither DFC nor WAL
is subject to the informational requirements of the Exchange Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by Scotsman are hereby
incorporated by reference:
1. Scotsman's Annual Report on Form 10-K for the fiscal year ended
January 3, 1993;
2. Scotsman's Quarterly Reports on Form 10-Q for the quarterly periods
ended April 4, 1993, July 4, 1993 and October 3, 1993;
3. Scotsman's Current Reports on Form 8-K dated December 2, 1993,
January 13, 1994 and February 18, 1994; and
4. The description of the Scotsman Common Stock and Common Stock
Purchase Rights contained in Scotsman's Registration Statement on Form 10,
filed with the Commission on February 14, 1989, as amended by Amendment No.
1 on Form 8, filed with the Commission on March 14, 1989, Amendment No. 2
on Form 8, filed with the Commission on March 23, 1989, Amendment No. 3 on
Form 8, filed with the Commission on March 27, 1989 and Amendment No. 4 on
Form 10/A, filed with the Commission on January 27, 1994.
All documents filed by Scotsman pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Proxy Statement - Prospectus and
prior to the termination of any reoffering and resale of the Scotsman Fixed
Common Shares, shares of Series A Convertible Preferred Stock, and shares of
Scotsman Common Stock, issuable upon the conversion of the Series A Convertible
Preferred Stock, on or before the date 45 days after the effective date of the
Merger shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of such filing. Any statement contained herein or in a
document incorporated by reference or deemed to be incorporated by reference
herein shall be deemed to be
iii
<PAGE> 7
modified or superseded for purposes of this Proxy Statement - Prospectus to the
extent that a statement contained in this Proxy Statement - Prospectus or in any
other subsequently filed document which also is, or is deemed to be,
incorporated by reference in this Proxy Statement - Prospectus modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement - Prospectus.
THIS PROXY STATEMENT - PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS, EXCLUDING
EXHIBITS UNLESS SPECIFICALLY INCORPORATED HEREIN, ARE AVAILABLE, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST TO DONALD D. HOLMES, VICE PRESIDENT-FINANCE AND
SECRETARY, SCOTSMAN INDUSTRIES, INC., 775 CORPORATE WOODS PARKWAY, VERNON HILLS,
ILLINOIS 60061, TELEPHONE NUMBER 708-215-4600. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY APRIL , 1994.
iv
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. iii
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... iii
SUMMARY............................................................................... 1
The Companies....................................................................... 1
The Special Meeting................................................................. 1
Voting Rights and Votes Required for Approval....................................... 1
The Merger and the Share Acquisition................................................ 2
Recommendation of Scotsman's Board of Directors..................................... 2
Opinion of Financial Advisor........................................................ 2
Ownership of Scotsman Shares Following the Merger and the Share Acquisition......... 2
Election of Directors............................................................... 3
Effective Time of the Merger; Expiration Date of the Offer.......................... 3
Conditions to the Merger and the Share Acquisition.................................. 3
Waiver and Amendment; Termination................................................... 4
Series A Convertible Preferred Stock and Series B Preferred Stock................... 5
Fees and Expenses................................................................... 5
Indemnification..................................................................... 6
Proposed Financing.................................................................. 6
Regulatory Matters.................................................................. 6
Market Prices and Dividends......................................................... 6
Selected Historical Financial Data.................................................. 7
Selected Pro Forma Financial Data................................................... 12
Historical and Pro Forma Comparative Per Share Data................................. 12
THE SPECIAL MEETING................................................................... 15
Introduction; Record Date........................................................... 15
Purpose............................................................................. 15
Voting Rights and Votes Required for Approval....................................... 15
Voting and Revocation of Proxies.................................................... 16
Solicitation of Proxies............................................................. 16
THE MERGER, THE SHARE ACQUISITION AND RELATED TRANSACTIONS............................ 16
Background of the Merger and Share Acquisition...................................... 16
Recommendation of Scotsman's Board of Directors..................................... 19
Reasons for the Decision by DFC's Board of Directors to Approve the Merger.......... 20
Opinion of Financial Advisor........................................................ 20
THE MERGER AGREEMENT.................................................................. 23
Terms of the Merger................................................................. 23
Effective Time of the Merger........................................................ 25
Surrender of, and Payment for, the DFC Common Stock Certificates and the Warrant.... 26
Representations and Warranties...................................................... 26
Conditions to the Merger............................................................ 26
Conduct of Business Pending the Merger.............................................. 27
Non-Solicitation Agreement.......................................................... 28
Waiver and Amendment; Termination................................................... 28
THE SHARE ACQUISITION AGREEMENT....................................................... 28
Terms of the Share Acquisition...................................................... 28
The Expiration Date of the Offer.................................................... 29
Representations and Warranties...................................................... 29
Conditions to the Consummation of the Share Acquisition............................. 29
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Conduct of Business Pending the Share Aquisition.................................... 30
Non-Solicitation Agreement.......................................................... 30
Waiver and Amendment; Termination................................................... 31
CERTAIN PROVISIONS COMMON TO THE MERGER AGREEMENT AND THE SHARE ACQUISITION
AGREEMENT........................................................................... 31
Scotsman Contingent Common Shares................................................... 31
Indemnification..................................................................... 33
Fees and Expenses................................................................... 34
Agreements Regarding the Election of Directors...................................... 34
Ownership and Voting of the New Scotsman Stock...................................... 37
Standstill Agreement................................................................ 38
Certain Effects of the Agreements Regarding the Election of Directors and
Standstill Agreements............................................................ 38
OTHER RELATED MATTERS................................................................. 39
Proposed Financing.................................................................. 39
Regulatory Approvals................................................................ 40
Management of DFC and WAL Following the Merger and the Share Acquisition............ 40
Interests of Certain Persons in the Merger and the Share Acquisition................ 40
Non-Competition Agreements.......................................................... 41
Amendment to Rights Agreement....................................................... 41
Amendments to Executive Severance Agreements........................................ 42
Accounting Treatment................................................................ 42
Certain Federal Income Tax Considerations........................................... 42
Reofferings and Resales of New Scotsman Stock; Registration Rights Agreement........ 43
Stock Exchange Listing.............................................................. 44
DESCRIPTION OF THE SERIES A CONVERTIBLE PREFERRED STOCK AND THE SERIES B PREFERRED
STOCK............................................................................... 44
General............................................................................. 44
Series A Convertible Preferred Stock................................................ 45
Series B Preferred Stock............................................................ 51
Certain Federal Income Tax Consequences............................................. 55
COMPARISON OF THE RIGHTS OF HOLDERS OF DFC COMMON STOCK AND THE RIGHTS OF HOLDERS OF
SCOTSMAN COMMON STOCK............................................................... 56
Board of Directors.................................................................. 57
Removal of Directors................................................................ 57
Filing of Vacancies and Newly Created Directorships................................. 57
Actions by Shareholders without a Meeting........................................... 58
Special Meetings of Shareholders.................................................... 58
Advance Notice for Shareholder Nominations of Directors and Shareholder Proposals... 58
Business Combinations with Interested Stockholders.................................. 59
Amendment of Certificate of Incorporation........................................... 62
Amendment of By-Laws................................................................ 62
COMPARISON OF THE RIGHTS OF HOLDERS OF WAL ORDINARY SHARES AND THE RIGHTS OF HOLDERS
OF SCOTSMAN COMMON STOCK............................................................ 63
Voting Rights and Quorum Requirements............................................... 63
Meetings of Shareholders............................................................ 63
Advance Notice of Nominations of Directors and Certain Actions at Shareholder
Meetings......................................................................... 64
Required Vote for Authorization of Certain Corporate Actions and Certain Provisions
Relating to Business Combinations................................................ 64
Dividends........................................................................... 66
</TABLE>
vi
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Preemptive Rights................................................................... 66
Indemnification of Officers and Directors........................................... 66
Board of Directors.................................................................. 67
Borrowing Power of the Board of Directors........................................... 67
Shareholder Rights of Inspection.................................................... 67
INFORMATION CONCERNING THE MERGER SHAREHOLDERS AS SELLING SHAREHOLDERS................ 68
CERTAIN INFORMATION CONCERNING DFC.................................................... 69
Organization of DFC................................................................. 69
The Recapitalization................................................................ 69
Products............................................................................ 70
Sales and Distribution.............................................................. 71
Competition......................................................................... 71
Suppliers........................................................................... 72
Significant Customers............................................................... 72
Backlog............................................................................. 72
Employees........................................................................... 72
Seasonality......................................................................... 72
Facilities.......................................................................... 72
Legal Proceedings................................................................... 73
Environmental and Other Regulatory Matters.......................................... 73
Executive Compensation; Management.................................................. 74
Certain Transactions with Management................................................ 74
Management's Discussion and Analysis: Delfield...................................... 75
Certain Beneficial Owners of DFC Common Stock....................................... 78
CERTAIN INFORMATION CONCERNING WAL.................................................... 79
Products............................................................................ 79
Sales and Distribution.............................................................. 80
Competition......................................................................... 80
Suppliers........................................................................... 80
Significant Customers............................................................... 81
Backlog............................................................................. 81
Employees........................................................................... 81
Facilities.......................................................................... 81
Executive Compensation; Management.................................................. 81
Certain Transactions with Management................................................ 81
Management's Discussion and Analysis: Whitlenge..................................... 82
Certain Beneficial Owners of the WAL Ordinary Shares................................ 84
LEGAL OPINIONS........................................................................ 86
EXPERTS............................................................................... 86
OTHER MATTERS......................................................................... 87
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS....................... 88
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
APPENDICES
Appendix I: Agreement and Plan of Merger
Appendix II: Share Acquisition Agreement
Appendix III: Opinion of William Blair & Company
</TABLE>
vii
<PAGE> 11
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement - Prospectus. This Summary should be read in conjunction
with the more detailed information and financial statements included or
incorporated by reference in this Proxy Statement - Prospectus. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT - PROSPECTUS.
THE COMPANIES
Scotsman. Scotsman is a holding company with subsidiaries engaged in the
manufacture and marketing of refrigeration products primarily for the
foodservice industry, including ice machines, soft drink dispensing equipment,
refrigerators, freezers, and refrigerated bakery equipment. Scotsman conducts
its domestic ice machine business through its Scotsman Ice Systems division,
with facilities located in Fairfax, South Carolina, and its Crystal Tips
division of its wholly-owned subsidiary, Booth, Inc. ("Booth"), located in
Dallas, Texas; its European ice machine business and sales of refrigerators,
freezers and refrigerated bakery equipment through two wholly-owned Italian
subsidiaries, Frimont S.p.A. ("Frimont") and Castel MAC S.p.A. ("Castel MAC");
and its soft-drink dispensing equipment business through Booth. Scotsman's
principal executive offices are located at 775 Corporate Woods Parkway, Vernon
Hills, Illinois 60061, and its telephone number is 708-215-4500.
DFC. DFC is a holding company of which the sole subsidiary is Delfield,
headquartered in Mt. Pleasant, Michigan. Delfield manufactures and markets a
wide range of refrigerated foodservice equipment, including customized and
standard food preparation workstations, upright reach-in refrigerators and other
foodservice equipment, all principally for sale in the United States. DFC's
principal executive offices are located at 980 S. Isabella Road, Mt. Pleasant,
Michigan 48858, and its telephone number is 517-773-7981.
WAL. WAL is a holding company of which the sole direct subsidiary is
Whitlenge, located in Halesowen, England. Whitlenge primarily manufactures and
markets beverage dispensing equipment, including soft drink dispensing equipment
and beer coolers, for use in restaurants, pubs and foodservice facilities in the
United Kingdom and, to a lesser extent, other countries in continental Europe
and the Middle East. WAL's principal executive offices are located at Chancel
Way, Halesowen Industrial Park, Halesowen, West Midlands, U.K. B62 8SE, and its
telephone number is 21-501-2566.
Merger Sub. Merger Sub is a Delaware corporation recently organized by
Scotsman solely for the purpose of effecting the Merger. Merger Sub's principal
executive offices are located at 775 Corporate Woods Parkway, Vernon Hills,
Illinois 60061, and its telephone number is 708-215-4500.
Tender Sub. Tender Sub is a private company limited by shares registered in
England recently organized by Scotsman in the United Kingdom for the purpose of
tendering for and holding the WAL Ordinary Shares to effect the Share
Acquisition. Tender Sub's principal executive offices are located at
and its telephone number is .
THE SPECIAL MEETING
The Special Meeting will be held at Scotsman's headquarters at 775
Corporate Woods Parkway, Vernon Hills, Illinois 60061 on , April ,
1994, at 9:00 a.m., local time, for the purpose of considering and voting upon
the Share Issuance. Only holders of record of Scotsman Common Stock at the close
of business on March 14, 1994 are entitled to notice of and to vote at the
Special Meeting. As of such date, 7,008,254 shares of Scotsman Common Stock were
issued and outstanding and entitled to vote. See "The Special Meeting --
Introduction; Record Date; -- Purpose"
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL
Scotsman's shareholders are not required to approve the Merger Agreement
and the Merger or the Share Acquisition Agreement and the Share Acquisition
under the Delaware General Corporation Law ("DGCL") or other applicable law.
Under the rules of the NYSE, on which the Scotsman Common Stock is listed,
however, the issuance of the Scotsman Fixed Common Shares, the Series A
Convertible Preferred Stock,
1
<PAGE> 12
together with the shares of Scotsman Common Stock issuable upon the conversion
of such shares, and the Scotsman Contingent Common Shares in connection with the
Merger and the Share Acquisition must be approved by Scotsman's shareholders by
a majority of the votes cast on the proposal and the total vote cast must
represent over 50% of the issued and outstanding shares of Scotsman Common
Stock. Each share of Scotsman Common Stock is entitled to one vote on the share
issuance. As of February 15, 1994, Scotsman's directors, officers and their
affiliates held approximately 6.83% of the outstanding Scotsman Common Stock
entitled to vote on the Share Issuance. See "The Special Meeting -- Purpose; --
Voting Rights and Votes Required for Approval."
THE MERGER AND THE SHARE ACQUISITION
The Merger Agreement and the Share Acquisition Agreement provide for the
acquisition by Scotsman of all of the shares of DFC Common Stock, the Warrant
and all of the WAL Ordinary Shares and, under certain circumstances, the WAL
Preferred Shares in exchange for (i) cash in the aggregate amount of $30 million
plus $150,000 per quarter (pro-rated for any period less than a quarter) for
each calendar quarter between September 30, 1993 and the closing date of the
Merger and the Share Acquisition, (ii) 1,200,000 shares of Scotsman Common
Stock, (iii) 2,000,000 shares of Series A Convertible Preferred Stock of
Scotsman, which have an aggregate liquidation preference of $22.5 million and
which are initially convertible into an aggregate of approximately 1,525,000
shares of Scotsman Common Stock, and (iv) up to 667,000 shares of Scotsman
Common Stock if the businesses of Delfield and Whitlenge meet a specified level
of earnings before interest, income taxes, depreciation and amortization for the
Measurement Periods. Under certain circumstances, shares of Series B Preferred
Stock of Scotsman may be issued in lieu of a portion of the cash consideration.
See "The Merger Agreement -- Terms of the Merger" and "The Share Acquisition
Agreement -- Terms of the Share Acquisition."
The Merger Agreement provides that Merger Sub will be merged with and into
DFC and DFC will be the surviving corporation. Although the parties intend the
Merger to constitute a tax-free reorganization, there can be no assurance that
the Internal Revenue Service will concur in such a position. The exchange of WAL
Ordinary Shares for cash and the right to receive Scotsman Contingent Common
Shares will be a taxable exchange for U.S. federal income tax purposes. See
"Other Related Matters -- Certain Federal Income Tax Considerations."
RECOMMENDATION OF SCOTSMAN'S BOARD OF DIRECTORS
Scotsman's Board of Directors unanimously approved the Merger Agreement and
the Share Acquisition Agreement at a meeting at which five of the six members of
the Board of Directors were present. Scotsman's Board of Directors believes that
the Merger and the Share Acquisition are fair to, and in the best interests of,
Scotsman's shareholders and recommends a vote FOR the share issuance. For a
discussion of the factors considered by the Board of Directors in reaching its
conclusions, see "The Merger, the Share Acquisition and Related Transactions --
Background of the Merger and Share Acquisition; -- Recommendation of Scotsman's
Board of Directors."
OPINION OF FINANCIAL ADVISOR
William Blair & Company has rendered its opinion to Scotsman's Board of
Directors that the consideration to be paid by Scotsman in the Merger and Share
Acquisition is fair to Scotsman's shareholders, from a financial point of view.
A copy of William Blair's opinion is attached as Appendix III and should be read
in its entirety with respect to the assumptions made, other matters considered
and limitations on the review which was undertaken. See "The Merger, the Share
Acquisition and Related Transactions -- Opinion of Financial Advisor."
OWNERSHIP OF SCOTSMAN SHARES FOLLOWING THE MERGER AND THE SHARE ACQUISITION
Immediately following the Merger, the shareholders of DFC will hold
approximately 28% of the issued and outstanding shares of Scotsman Common Stock,
based on the number of shares of Scotsman Common Stock outstanding as of
February 15, 1994 and assuming conversion of all of the shares of Series A
2
<PAGE> 13
Convertible Preferred Stock. Assuming conversion of all of the shares of Series
A Convertible Preferred Stock and attainment in full of the 667,000 shares of
Scotsman Contingent Common Stock, the shareholders of DFC and WAL will hold
approximately 33% of the issued and outstanding shares of Scotsman Common Stock,
based on the number of shares outstanding as of February 15, 1994. Such
shareholders have agreed, with respect to the period ending January 11, 1999,
not to acquire any additional voting securities of Scotsman or to take certain
other actions with respect to Scotsman. See "Certain Provisions Common to the
Merger Agreement and the Share Acquisition Agreement -- Standstill Agreement."
ELECTION OF DIRECTORS
On or before the effective date of the Merger and the Share Acquisition,
Scotsman has agreed to increase the size of its Board of Directors from seven to
eight directors and to appoint Matthew O. Diggs, Jr. to the newly created
directorship and Timothy C. Collins to the existing vacancy on Scotsman's Board.
So long as the shareholders of DFC and WAL (together, in each case, with certain
permitted transferees) own, on a fully diluted basis, at least 50% of the number
of shares of Scotsman Common Stock issued to them in connection with the Merger
and the Share Acquisition (representing approximately 16% of the total number of
shares expected to be outstanding on a fully diluted basis immediately after
consummation of the Merger and the Share Acquisition), they will be entitled to
designate two nominees for election to Scotsman's Board of Directors. If at any
time such shareholders own fewer than 50% but more than 33% of the number of
shares of Scotsman Common Stock issued to them in connection with the Merger and
the Share Acquisition (representing approximately 11% of the total number of
shares expected to be outstanding on a fully diluted basis immediately after
consummation of the Merger and the Share Acquisition), they will be entitled to
designate one nominee. If such shareholders own fewer than 33% of the number of
shares issued to them in connection with the Merger and the Share Acquisition,
they will have no further right to designate any nominee.
So long as the shareholders of DFC and WAL are entitled to designate at
least one nominee for election to Scotsman's Board, subject to limited
exceptions, Scotsman will cause the size of its Board not to exceed eight
directors and such shareholders have agreed to vote all shares of capital stock
of Scotsman owned by them in favor of all of the nominees for election to
Scotsman's Board recommended by Scotsman's Board. The Merger Shareholders and
the Acquisition Shareholders have also entered into a separate agreement under
which they have granted, to Onex, an irrevocable proxy to vote all of the New
Scotsman Stock and have allocated, among themselves, the power to designate the
person or persons who are to be nominated as directors. See "Certain Provisions
Common to the Merger Agreement and the Share Acquisition Agreement -- Agreements
Regarding Election of Directors; -- Ownership and Voting of the New Scotsman
Stock."
EFFECTIVE TIME OF THE MERGER; EXPIRATION DATE OF THE OFFER
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware in accordance with the
requirements of Delaware law. The offer to purchase the WAL Ordinary Shares and,
under certain circumstances, the WAL Preferred Shares, will, unless extended,
expire on the date of such filing. The parties intend to file a Certificate of
Merger and to accept for payment the WAL Ordinary Shares and, under certain
circumstances, the WAL Preferred Shares, tendered pursuant to the offer as
promptly as possible following the Special Meeting, subject to the satisfaction
or waiver of the conditions provided for in the Merger Agreement and the Share
Acquisition Agreement. The parties currently anticipate that the Merger and
Share Acquisition will occur on or about April , 1994, although there can be
no assurance as to whether or when the Merger and the Share Acquisition will
occur. See "The Merger Agreement -- Effective Time of the Merger" and "The Share
Acquisition Agreement -- The Expiration Date of the Offer."
CONDITIONS TO THE MERGER AND THE SHARE ACQUISITION
The respective obligations of the parties to consummate the Merger and the
Share Acquisition are subject to the satisfaction or waiver of certain
conditions, including the approval of the Share Issuance by the requisite vote
of the holders of Scotsman Common Stock as described herein, the unanimous
adoption of the
3
<PAGE> 14
Merger Agreement by the holders of DFC Common Stock and the tender pursuant to
the tender offer of all the WAL Ordinary Shares. In addition, it is a condition
to Scotsman's obligations that the ten-day average closing price for Scotsman
Common Stock prior to the date of the Special Meeting shall not have been more
than $14.50 per share and it is a condition to the obligations of DFC, Delfield,
WAL, Whitlenge and the shareholders of DFC and WAL that such average closing
price shall not have been less than $10.50 per share. Such conditions may be
waived by the parties. The respective obligations of the parties are also
subject to satisfaction or waiver of various other conditions. See "The Merger
Agreement -- Conditions to the Merger," "The Share Acquisition Agreement --
Conditions to the Share Acquisition." ALTHOUGH SCOTSMAN HAS RECEIVED WRITTEN
COMMITMENTS FROM LENDERS TO PROVIDE THE FINANCING NECESSARY TO CONSUMMATE THE
MERGER AND THE SHARE ACQUISITION, SCOTSMAN'S OBLIGATIONS TO CONSUMMATE THE
MERGER AND THE SHARE ACQUISITION ARE NOT CONDITIONED UPON THE CONSUMMATION OF
SUCH FINANCING. See "Other Related Matters -- Proposed Financing."
WAIVER AND AMENDMENT; TERMINATION
Each of the Merger Agreement and the Share Acquisition Agreement provides
that the parties thereto may amend, modify or supplement such Agreement by
mutual agreement in writing. Each such Agreement may be terminated (i) by mutual
consent, (ii) by certain parties thereto in the event of material breaches of
certain covenants contained therein or in the event that any of the conditions
precedent to its obligations has not been satisfied or waived at such time as
such condition can no longer be satisfied or (iii) by certain parties thereto if
the Merger and the Share Acquisition have not been consummated on or before May
1, 1994. The Merger Agreement and the Share Acquisition Agreement will each
terminate if the other agreement is terminated. See "The Merger Agreement --
Waiver and Amendment; Termination" and "The Share Acquisition Agreement --
Waiver and Amendment; Termination."
4
<PAGE> 15
SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B PREFERRED STOCK
The Series A Convertible Preferred Stock will have the following terms:
<TABLE>
<S> <C>
Dividend Rate...................... $0.62 per share per annum.
Conversion......................... Convertible at an initial conversion price of $14.75 per
share of Scotsman Common Stock (equivalent to an initial
conversion rate of 0.7627 shares of Scotsman Common
Stock per share of Series A Convertible Preferred
Stock), subject to adjustment under certain conditions.
Liquidation Preference............. $11.25 per share, plus accrued and unpaid dividends.
Redemption......................... Redeemable at the option of Scotsman except (i) not
redeemable prior to May 1, 1999 unless the closing price
per share for Scotsman Common Stock equals or exceeds
140% of the conversion price then in effect for any
period of at least 10 consecutive trading days; and (ii)
not redeemable in the event of arrearages in the payment
of dividends for eight quarterly dividend periods.
Redemption Prices.................. $11.87 if redeemed during the twelve-month period
beginning May 1, 1994 and thereafter at prices declining
annually to $11.25 on and after May 1, 2004, plus, in
each case, accrued and unpaid dividends.
Voting Rights...................... Entitled to 1/10 vote per share on matters on which
holders of Scotsman Common Stock are entitled to vote.
In the case of certain transactions, entitled to one
vote for each share of Scotsman Common Stock into which
the Series A Convertible Preferred Stock is convertible.
Right to Elect Directors........... In the event of certain arrearages in the payment of
dividends, holders of Series A Convertible Preferred
Stock will be entitled to elect two additional directors
of Scotsman.
</TABLE>
If shares of Series B Preferred Stock are issued pursuant to the Merger
Agreement, such Series B Preferred Stock will have the following terms:
<TABLE>
<S> <C>
Dividend Rate...................... To be determined as described herein.
Liquidation Preference............. $11.25 per share, plus accrued and unpaid dividends.
Redemption......................... Redeemable at the option of Scotsman on or after May 1,
1999 at a price of $11.25 per share plus accrued and
unpaid dividends. Each holder of Series B Preferred
Stock will have the right, at its option after May 1,
1999, to require Scotsman to redeem all of its Series B
Preferred Stock at a price of $11.25 per share plus
accrued and unpaid dividends.
Voting Rights...................... Entitled to 1/10 vote per share on matters on which
holders of Scotsman common Stock are entitled to vote.
</TABLE>
See "Description of the Series A Convertible Preferred Stock and the Series
B Preferred Stock."
FEES AND EXPENSES
All fees and expenses of DFC, WAL, Delfield, Whitlenge, the Merger
Shareholders and the Acquisition Shareholders shall be borne by the Merger
Shareholders and the Acquisition Shareholders, except for $500,000 of such fees
and expenses which shall be borne by Scotsman, DFC and Delfield. If the Merger
Agreement and the Share Acquisition Agreement are terminated for certain reasons
as described herein,
5
<PAGE> 16
DFC, Delfield and the Acquisition Shareholders will be obligated to pay to
Scotsman (i) a fee of $3 million if, within one year of such termination, they
engage in a specified transaction reflecting a higher valuation of DFC,
Delfield, WAL or Whitlenge, and (ii) up to $1 million of Scotsman's expenses.
Except as described above, each of the parties will bear its own costs and
expenses in connection with the preparation, negotiation and performance of the
Merger Agreement and the Share Acquisition Agreement. See "Certain Provisions
Common to the Merger Agreement and the Share Acquisition Agreement -- Fees and
Expenses."
INDEMNIFICATION
The Merger Shareholders and the Acquisition Shareholders are required to
indemnify Scotsman in an aggregate amount of up to $30 million for losses and
expenses arising out of (i) breaches of representations and warranties and
post-closing covenants contained in the Merger Agreement or the Share
Acquisition Agreement and (ii) certain existing suits and proceedings and any
other suits, claims or proceedings in connection with the Indianapolis Athletic
Club fire. See "Certain Information Concerning DFC -- Legal Proceedings." The
indemnification obligation for each shareholder is limited in the aggregate to
its allocable share of $30 million and is limited with respect to losses and
expenses for each individual matter to its allocable share of such losses and
expenses. Scotsman is required to indemnify such shareholders in an aggregate
amount of up to $30 million for losses or expenses arising out of breaches of
representations and warranties and post-closing covenants of Scotsman contained
in the Merger Agreement or the Share Acquisition Agreement. See "Certain
Provisions Common to the Merger Agreement and the Share Acquisition Agreement --
Indemnification."
PROPOSED FINANCING
In order to provide the financing for the cash to be paid by Scotsman for
the WAL Ordinary Shares pursuant to the Share Acquisition Agreement, the cash
portion of the consideration to be paid by Scotsman with respect to the DFC
Common Stock and the Warrant in the Merger, refinancing of up to $50 million of
outstanding indebtedness of DFC, Delfield and Whitlenge (depending, in part, on
the amount of Permitted Distributions, if any), replacement letters of credit
for approximately $9 million of Scotsman's outstanding industrial revenue bonds,
working capital for Scotsman and its subsidiaries after the Merger and the Share
Acquisition have been consummated, and transaction costs associated with the
Merger and Share Acquisition, Scotsman intends to obtain a new credit facility
in the amount of $90 million from a group of lenders. If Scotsman is unable to
obtain an amendment to the existing agreement under which $20 million of its
11.43% Senior Notes due May 1, 1998 are presently outstanding in order to
facilitate the Merger and the Share Acquisition, then the new credit facility
will be in the amount of $110 million and a portion of the proceeds thereunder
will be used to refinance the term notes. Scotsman has received a commitment
letter from The First National Bank of Chicago to provide a portion of a new
credit facility and commitments from other lenders to provide the balance of the
new credit facility. SCOTSMAN'S OBLIGATIONS TO CONSUMMATE THE SHARE ACQUISITION
AND THE MERGER ARE NOT CONDITIONED UPON THE CONSUMMATION OF THE FINANCING
NECESSARY TO PAY THE CASH CONSIDERATION SPECIFIED IN THE SHARE ACQUISITION
AGREEMENT AND THE MERGER AGREEMENT, TO REFINANCE THE OUTSTANDING DEBT OF
WHITLENGE, DFC AND DELFIELD AND TO PROVIDE REPLACEMENT LETTERS OF CREDIT FOR THE
OUTSTANDING INDUSTRIAL REVENUE BONDS OF SCOTSMAN. See "Other Related Matters --
Proposed Financing."
REGULATORY MATTERS
Scotsman, DFC and WAL have filed with the FTC and the Antitrust Division of
the Department of Justice notification and certain other information required
under the HSR Act. Consummation of the Merger is subject to expiration of the
waiting period under the HSR Act. Such waiting period has expired. See "Other
Related Matters -- Regulatory Approvals."
MARKET PRICES AND DIVIDENDS
Scotsman Common Stock is listed and traded on the NYSE under the symbol
"SCT." The Series A Convertible Preferred Stock and the Series B Preferred Stock
are not, and will not be, listed or traded on a national securities exchange.
The table below indicates the high and low sales prices per share of Scotsman
Common Stock as quoted on the NYSE and the dividends declared per share, during
the periods indicated.
6
<PAGE> 17
Dividends are declared at the discretion of the Board of Directors and may be
discontinued at any time if the Board of Directors should determine that it is
in the best interests of Scotsman to eliminate the payment of dividends. See
"The Merger, the Share Acquisition and Related Transactions -- Opinion of
Financial Advisor." Scotsman's existing long-term debt agreements restrict the
amount of dividends payable by Scotsman and it is expected that certain
provisions of the new credit facility to be entered into in connection with the
Merger and the Share Acquisition may also restrict Scotsman's ability to pay
dividends. See "Other Related Matters -- Proposed Financing."
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1991
First Quarter....................................... 9 5/8 6 1/8 $ 0.025
Second Quarter...................................... 9 1/2 7 3/8 $ 0.025
Third Quarter....................................... 8 5/8 6 1/4 $ 0.025
Fourth Quarter...................................... 8 5/8 6 $ 0.025
1992
First Quarter....................................... 9 1/2 7 1/8 $ 0.025
Second Quarter...................................... 10 5/8 8 $ 0.025
Third Quarter....................................... 9 5/8 8 $ 0.025
Fourth Quarter...................................... 9 7/8 8 3/4 $ 0.025
1993
First Quarter....................................... 11 3/4 9 1/8 $ 0.025
Second Quarter...................................... 13 1/4 11 $ 0.025
Third Quarter....................................... 13 7/8 11 1/8 $ 0.025
Fourth Quarter...................................... 14 3/8 11 3/4 $ 0.025
1994
First Quarter (through March 3, 1994)............... 16 7/8 14 $ 0.025
</TABLE>
On December 1, 1993, the last full trading day prior to issuance of a press
release announcing that Scotsman and Onex had entered into a letter of intent
with respect to the Merger and the Share Acquisition, the last sale price per
share of Scotsman Common Stock was $12.875. On January 12, 1994, the last full
trading day prior to the issuance of a press release announcing that the Merger
Agreement and Share Acquisition Agreement had been signed, the last sale price
per share of Scotsman Common Stock was $14.00. On March , 1994, the last full
trading day for which information was available prior to the printing and
mailing of this Proxy Statement - Prospectus, the last sale price per share
reported for Scotsman Common Stock was $ . No established trading market
exists for DFC Common Stock or the WAL Ordinary Shares.
On February 17, 1994, the Board of Directors of Scotsman declared a cash
dividend of $0.025 per share on Scotsman Common Stock. The dividend is payable
on April 15, 1994 to holders of record of Scotsman Common Stock on March 31,
1994. Holders of record of DFC Common Stock will not be entitled to receive this
dividend on Scotsman Common Stock issued in the Merger.
SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SCOTSMAN
COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE MARKET PRICE OF SCOTSMAN
COMMON STOCK AT OR AFTER THE EFFECTIVE TIME OF THE MERGER AND THE SHARE
ACQUISITION.
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth, on an historical basis, certain selected
consolidated financial data for Scotsman, DFC and WAL. This summary has been
derived from, and should be read in conjunction with, the consolidated financial
statements of Scotsman and the related notes thereto and Scotsman management's
discussion and analysis of financial conditions and results of operations,
incorporated herein by reference, the consolidated financial statements of DFC
and the related notes thereto and DFC management's discussion and analysis of
financial condition and results of operations included elsewhere in this Proxy
Statement - Prospectus, and the consolidated financial statements of WAL and
Whitlenge and the related notes thereto
7
<PAGE> 18
and WAL management's discussion and analysis of financial condition and results
of operations included elsewhere in this Proxy Statement - Prospectus. Dollars
and British pounds sterling are in thousands, except for per share data.
The consolidated financial statements of Whitlenge are reported in British
pounds sterling in accordance with accounting principles generally accepted in
the United Kingdom ("U.K. GAAP") and contain reconciliations of income and
equity from U.K. GAAP to U.S. generally accepted accounting principles ("U.S.
GAAP"). On March 3, 1994, the exchange rate for British pounds sterling and U.S.
dollars, as reported in The Wall Street Journal on the following business day,
was 1.4965 U.S. dollars per British pound sterling. The following table sets
forth certain information concerning the exchange rate for British pounds
sterling and U.S. dollars on the dates and for the periods indicated. The
exchange rate used is the noon buying rate in New York City for cable transfers
in British pounds sterling as certified for customs purposes by the Federal
Reserve Bank of New York.
<TABLE>
<CAPTION>
NUMBER OF U.S. DOLLARS
PER BRITISH POUND STERLING
------------------------------------
AS AT END
OF PERIOD HIGH LOW AVERAGE
--------- ---- ---- -------
<S> <C> <C> <C> <C>
Three Months Ending December 31, 1993.......................... 1.48 1.54 1.47 1.49
Fiscal Year Ending September 30, 1993.......................... 1.50 1.73 1.42 1.51
Three Months Ending December 31, 1992.......................... 1.51 1.73 1.50 1.58
Six Months Ending September 30, 1992........................... 1.78 2.00 1.71 1.87
Six Months Ending March 31, 1992............................... 1.74 1.89 1.70 1.78
Fiscal Year Ending September 30, 1991.......................... 1.75 2.00 1.60 1.80
Fiscal Year Ending September 30, 1990.......................... 1.87 1.95 1.55 1.71
Fiscal Year Ending September 30, 1989.......................... 1.62 1.87 1.52 1.69
</TABLE>
Interim unaudited information for Scotsman for the nine-month period and
for WAL for the three-month period indicated in the following tables reflect, in
the opinion of the managements of Scotsman and WAL, respectively, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information. Results for the nine-month period ended
October 3, 1993 and the three-month period ended December 31, 1993, are not
necessarily indicative of results which may be expected for the year as a whole.
8
<PAGE> 19
SCOTSMAN
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------- FISCAL YEARS ENDED
SEPT. ------------------------------------------------------
OCT. 3, 27, JAN. 3, DEC. 29, DEC. 30, DEC. 31, JAN. 1,
1993 1992 1993 1991 1990 1989 1989
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) ($000S)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $131,829 $136,468 $168,674 $164,126 $179,857 $174,383 $174,287
Income before income
taxes..................... 12,892 10,230 10,185 936 12,320 13,747 20,075
Net income (loss) before
cumulative effect of
accounting changes........ 7,173 6,489 6,392 (1,674)(1) 7,412 7,465 11,748
Net income (loss) before
cumulative effect of
accounting changes per
share(2).................. 1.02 0.91 0.90 (0.24)(1) 1.05 -- --
Total assets(3)............. 113,672 115,595 96,103 112,808 133,706 141,082 118,829
Long-term debt and
capitalized lease
obligations, excluding
current portion(3)........ 29,503 29,626 29,589 29,807 48,663 58,750 9,250
Cash dividends declared per
common share.............. 0.075 0.075 0.10 0.10 0.10 0.075 --
Ratio of earnings to
combined fixed charges and
dividend requirements on
preferred stock(4)........ 4.46 3.47 2.89 1.14 2.45 3.05 9.08
</TABLE>
- ------------------------
(1) The net loss of $1.674 million for 1991 included losses incurred on the
disposition of the Halsey Taylor business ($1,000) and a reserve for the
planned disposition of the Glenco-Star business ($5,000). In addition,
these two businesses combined included a $1.3 million net loss from
operations in 1991.
(2) The calculation of net income (loss) before cumulative effect of accounting
changes per share for the nine months ended October 3, 1993 and September
27, 1992 and for the fiscal years 1992, 1991 and 1990 was based on
6,998,644; 7,107,990; 7,096,976; 7,098,968 and 7,086,825 weighted average
shares of common stock, respectively. The net income per share calculation
does not reflect the dilutive effect of stock options as the dilutive
effect is immaterial. Net income per share has been provided only for full
years subsequent to April 14, 1989, the date on which shares of Scotsman
Common Stock were first distributed to the holders of record of the common
stock of Household International, Inc., as amounts for prior years would
not be meaningful.
(3) At period end.
(4) The ratio of earnings to combined fixed charges and dividend requirements on
preferred stock is calculated as pretax income plus fixed charges to fixed
charges where fixed charges represent interest expense and the interest
portion on lease obligations.
9
<PAGE> 20
<TABLE>
<CAPTION>
DFC DELFIELD
------------------------------------------------------- ------------------------------
PERIOD PERIOD
FROM FROM
NINE MONTHS YEAR YEAR APRIL 27, OCTOBER 1, YEAR ENDED
ENDED SEPT. 30, ENDED ENDED 1991 TO 1990 TO SEPTEMBER 30,
----------------- DEC. 31, DEC. 31, DEC. 31,(1) APRIL 26, -----------------
1993 1992 1993 1992(4) 1991 1991 1990 1989
------- ------- --------- --------- ----------- ---------- ------- -------
(UNAUDITED) ($000S) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $70,660 $61,723 $93,650 $79,800 $50,890 $ 37,303 $70,865 $69,079
Income before extraordinary
item....................... 4,275 4,512 4,324 4,665 2,157 712 2,649 2,838
Income before extraordinary
item per share(2).......... .67 .92 .67 .95 .45
Total assets(5).............. 45,214 41,755 44,055 38,010 38,401 38,134 39,489 36,372
Long-term debt and
capitalized lease
obligations, excluding
current portion(3)(5)...... 28,061 11,400 27,301 28,192 13,758 4,470 4,520 4,665
</TABLE>
- -------------------------
(1) On April 27, 1991, the Delfield Division of Alco was acquired by DFC,
resulting in the year end change from September 30 to December 31.
(2) The calculation of income before extraordinary item per share for the nine
months ended September 30, 1993 and 1992, the years ended December 31, 1993
and 1992 and the period from April 27, 1991 to December 31, 1991 was based
on 6,424,817; 4,800,000; 6,429,904; 4,812,295 and 4,661,538 weighted
average shares of common stock, respectively, and $0, $90, $0, $120 and $80
of preferred stock dividends. Income before extraordinary item per share is
not presented for the period from April 27, 1991 to December 31, 1991 and
the fiscal years ended September 30, 1990 and 1989 as it is not comparable
to the other periods.
(3) The indebtedness of the Delfield Division consisted primarily of industrial
revenue bonds. The Delfield Division's working capital requirements were
funded by its parent through division equity; accordingly, the Delfield
Division's long-term debt and related interest expense were substantially
less than that of DFC. Debt of DFC includes indebtedness incurred in
connection with the acquisition of Delfield and the recapitalization of
DFC. See "Certain Information Concerning DFC -- Organization of DFC; -- The
Recapitalization."
(4) Cash dividends per common share for DFC are not presented as DFC has not
paid any dividends on its common stock except for a special dividend on
December 31, 1992 of $2.94 per share.
(5) At period end.
10
<PAGE> 21
<TABLE>
<CAPTION>
WAL WHITLENGE
------------------------------------------------ -------------------------------------------------
THREE MONTHS FISCAL YEAR SIX MONTHS SIX MONTHS FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED DECEMBER 31 ENDED ENDED ENDED ENDED ENDED ENDED
----------------------- SEPT. 30, SEPT. 30, MAR. 31, SEPT. 30, SEPT. 30, SEPT. 30,
1993 1992 1993 1992 1992(1) 1991 1990 1989
----------- ---------- ----------- ---------- ---------- ----------- ----------- -----------
(UNAUDITED) (pounds), U.K. GAAP
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... (pound)3,432 (pound)3,312 (pound)13,970 (pound)6,812 (pound)5,820 (pound)10,810 (pound)11,601 (pound)9,428
Net income.............. 259 278 836 629 496 1,030 1,135 1,430
Net income attributable
to common
shareholders.......... 229 248 716 549 496 1,030 1,135 1,430
Net income per
share(2).............. .229 .248 .7160 .5490 .0012 .0025 3.7833 4.7667
Total assets(4)......... 7,179 -- 7,782 7,687 7,706 6,906 7,649 5,952
Equity(4)............... 1,039 -- 810 95 5,358 4,862 670 3,597
Long-term debt and
capitalized lease
obligations, excluding
current
portion(3)(4)......... 2,796 -- 2,781 4,179 43 0 0 0
Cash dividends declared
per ordinary share.... 0 0 0 0 0 .0022 13.54 4.33
(pounds), U.S. GAAP
Net income(5)........... 238 257 761 452 547 1,092 1,135 1,430
Net income attributable
to common
shareholders.......... 208 227 641 372 547 1,092 1,135 1,430
Equity(5)............... 2,216 -- 2,008 1,368 5,346 4,799 670 3,597
</TABLE>
- -------------------------
(1) On April 1, 1992, Whitlenge was acquired by WAL.
(2) The calculation of net income per share for the three months ended December
31, 1993 and 1992, the year ended September 30, 1993, the six months ended
September 30, 1992 and March 31, 1992 and the years ended September 30,
1991, 1990 and 1989 was based on 1,000,000; 1,000,000; 1,000,000;
1,000,000; 406,500,000; 397,596,896; 300,000 and 300,000 weighted average
shares, respectively, and (pound)30, (pound)30, (pound)120, (pound)80,
(pound)0, (pound)0, (pound)0 and (pound)0 of preferred stock dividends.
(3) The long-term debt beginning in 1992 is a result of the acquisition of
Whitlenge by WAL.
(4) At period end.
(5) The differences between U.K. GAAP and U.S. GAAP primarily relate to the
recognition of deferred tax assets in accordance with SFAS 109, accounting
for pension costs in accordance with SFAS 87 and the recording of goodwill
and related amortization. There were no significant differences for fiscal
1989 or 1990.
11
<PAGE> 22
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth certain pro forma historical information for
Scotsman giving effect to the Merger and the Share Acquisition as of the
nine-month period ended October 3, 1993 and the fiscal year ended January 3,
1993. The following pro forma information should be read in conjunction with the
unaudited pro forma financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement - Prospectus. See "Pro Forma
Condensed Financial Information." The pro forma financial information is not
necessarily indicative of the results that would have occurred had the Merger
and Share Acquisition been consummated on the dates indicated or the results
that may occur in the future.
SCOTSMAN INDUSTRIES, INC.
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 3, 1993 FOR THE FISCAL YEAR ENDED JANUARY 3, 1993
----------------------------------------------- -----------------------------------------------
DFC AND PRO DFC AND PRO
WAL FORMA(1) PRO WAL FORMA(1) PRO
SCOTSMAN COMBINED ADJUSTMENTS FORMA SCOTSMAN COMBINED ADJUSTMENTS FORMA
-------- -------- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $131,829 $86,722 $ 0 $218,551 $168,674 $102,898 $ 0 $271,572
Income from
Operations(2)............ 16,220 10,449 (896) 25,773 14,860 11,909 (1,185) 25,584
Interest expense, net...... 3,328 2,165 1,430 6,923 4,675 1,920 1,631 8,226
Net income before
extraordinary item and
cumulative effect of
accounting changes....... 7,173 5,030 (1,916) 10,287 6,392 6,484 (2,383) 10,493
Net income per share before
extraordinary items and
cumulative effect of
account changes(3)....... $1.02 $1.06 $0.90 $1.07
Average Shares
Outstanding.............. 6,999 9,724 7,097 9,822
Cash dividends declared per
common share............. $0.075 $0.075 $0.10 $0.10
</TABLE>
- -------------------------
(1) See the notes to the "Pro Forma Condensed Financial Information" for
discussion of these adjustments.
(2) Pro forma income from operations before depreciation and amortization is
$30,199 and $31,622 for the nine months ended October 3, 1993 and the
fiscal year ended January 3, 1993, respectively.
(3) The calculation of net income per share before extraordinary item and
cumulative effect of accounting changes for the nine months ended October
3, 1993 and the year ended January 3, 1993 was based on 9,724,000 and
9,822,000 weighted average shares of common stock, respectively. These
weighted average shares were calculated as if all 2,000,000 shares of
Series A Convertible Preferred Stock were converted into Scotsman Common
Stock at the beginning of the period.
<TABLE>
<CAPTION>
AS OF OCTOBER 3, 1993
-----------------------------------------------
DFC AND PRO
WAL FORMA(1) PRO
SCOTSMAN COMBINED ADJUSTMENTS FORMA
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Total assets........................................................... $113,672 $61,881 $67,975 $243,528
Long-term debt and capitalized lease obligations, excluding current
obligations.......................................................... 29,503 32,231 30,300 92,034
Total shareholders' equity............................................. 35,378 692 36,808 72,878
</TABLE>
- -------------------------
(1) See the notes to the "Pro Forma Condensed Financial Information" for
discussion of these adjustments.
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following summary presents selected comparative per share data for
Scotsman Common Stock, DFC Common Stock and the WAL Ordinary Shares on an
historical basis and unaudited per share data for Scotsman on a pro forma basis,
assuming the Merger and Share Acquisition had been effective as of October 3,
1993 and the fiscal year ended January 3, 1993. The data presented should be
read in conjunction with the historical consolidated financial statements of
Scotsman and the related notes thereto incorporated by
12
<PAGE> 23
reference herein and the consolidated financial statements and the related notes
thereto of DFC, WAL and Whitlenge included elsewhere in this Proxy Statement -
Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- ---------------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
OCT. 3, YEAR ENDED OCT. 3, YEAR ENDED
SCOTSMAN 1993 JAN. 3, 1993 1993 JAN. 3, 1993
- ------------------------------------------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
$
Book value per share(1)......................... $ 5.05 $ 4.19 $ 7.49 --
Cash dividends declared per common share........ 0.075 0.10 0.075 0.10
Net income before extraordinary item
and cumulative effect of accounting changes
per share..................................... 1.02 .90 1.06 1.07
</TABLE>
- -------------------------
(1) At period end.
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT(1)
------------------------------------------------ -------------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DFC SEPT. 30, 1993 DEC. 31, 1993 DEC. 31, 1992 SEPT. 30, 1993 DEC. 31, 1992
- -------------------------------- -------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$
Book value per share(2)......... $(0.36) $ (0.35) $ (1.07) $ 1.40 --
Cash dividends declared per
common share.................. 0.00 0.00 2.94 .0141 .0190
Net income before extraordinary
item per share................ 0.67 0.67 0.95 .1988 .2037
</TABLE>
- -------------------------
(1) The equivalent pro forma per share amounts were calculated by multiplying
the pro forma income (loss) from continuing operations per share, pro forma
book value per share and pro forma dividends per share of Scotsman by the
exchange ratio of the shares of Scotsman Common Stock issued to the Merger
Shareholders to the shares of DFC Common Stock given up by the Merger
Shareholders so that per share amounts are equated to the respective values
for one share of DFC Common Stock. The shareholders of DFC will also
receive .3125 and .3174 shares of Series A Convertible Preferred Stock and
$2.31 and $2.35 of cash per common share given up for the nine months ended
September 30, 1993 and the year ended December 31, 1992, respectively. In
addition, the Merger Shareholders will receive the right to receive a
portion of the Scotsman Contingent Common Shares, if the businesses of
Delfield and Whitlenge meet a specified level of earnings before interest,
income taxes, depreciation and amortization for their 1994 fiscal years.
(2) At period end.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
THREE MONTHS EQUIVALENT(1)
ENDED --------------
DEC. 31, YEAR ENDED YEAR ENDED
WAL 1993 SEPT. 30, 1993 SEPT. 30, 1993
- ------------------------------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
Book value per share(2)................................ (pound)(.961) (pound)(1.19) N/A
Cash dividends declared per ordinary share............. 0.00 0.00 N/A
Net income per share................................... (.229) .716 N/A
</TABLE>
- -------------------------
(1) The equivalent pro forma per share amounts were not calculated for WAL as
the Acquisition Shareholders will not receive Scotsman Common Stock upon
consummation of the Share Acquisition. Instead, the Acquisition
Shareholders will receive $12.51 per WAL Ordinary Share and the right to
receive a portion of the Scotsman Contingent Common Shares, if the
businesses of Delfield and Whitlenge meet a specified level of earnings
before interest, income taxes, depreciation and amortization for their 1994
fiscal years.
(2) At period end.
13
<PAGE> 24
RECENT DEVELOPMENTS WITH RESPECT TO SCOTSMAN
On February 18, 1994, Scotsman reported 1993 net income of $7.4 million or
$1.06 per share, up 16% from 1992 earnings, on sales of $164.0 million. The
results compare to 1992 net income of $6.4 million, or $.90 per share, on sales
of $168.7 million.
For the fourth quarter of 1993, Scotsman reported net income of $209,000,
or $.03 per share, on sales of $32.1 million. For the same quarter in 1992,
Scotsman lost $97,000, or $.01 per share, on sales of $32.2 million. The fourth
quarter is traditionally a down quarter for Scotsman, primarily due to the
seasonality of Scotsman's ice machine businesses.
Full year sales of $164.0 million were impacted approximately $12 million
when compared to 1992 due to translation of the sales of Scotsman's Italian
businesses at weaker lira rates. Fiscal year 1993 sales of on-going businesses
(excluding the 1992 sales of Scotsman's Glenco-Star division, which was divested
in September, 1992), using constant foreign exchange rates, were up 12 percent
compared to 1992.
14
<PAGE> 25
THE SPECIAL MEETING
INTRODUCTION; RECORD DATE
This Proxy Statement - Prospectus is being furnished to Scotsman's
shareholders in connection with the solicitation of proxies by Scotsman's Board
of Directors for use at a Special Meeting of Shareholders to be held at
Scotsman's headquarters at 775 Corporate Woods Parkway, Vernon Hills, Illinois
60061 on , April , 1994, at 9:00 a.m., local time, and at any
adjournments thereof. This Proxy Statement - Prospectus is first being mailed to
Scotsman's shareholders on March , 1993. Only holders of record of Scotsman
Common Stock at the close of business on March 14, 1994 (the "Record Date"), are
entitled to notice of, and to vote at, the Special Meeting or any adjournments
thereof.
PURPOSE
The Special Meeting will be held for the purpose of considering and voting
upon a proposal to approve the issuance (the "Share Issuance") of (i) 1,200,000
shares of Scotsman Common Stock, in the Merger, (ii) 2,000,000 shares of Series
A Convertible Preferred Stock in the Merger, together with the shares of
Scotsman Common Stock issuable upon the conversion of such shares, and (iii) up
to 667,000 Scotsman Contingent Common Shares to the shareholders of DFC and WAL
and the holder of the Warrant, if the businesses of Delfield and Whitlenge meet
a specified level of earnings before interest, income taxes, depreciation and
amortization during the Measurement Periods, as provided in the Merger Agreement
and the Share Acquisition Agreement. See "Certain Provisions Common to the
Merger Agreement and the Share Acquisition Agreement -- Scotsman Contingent
Common Shares."
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL
On the Record Date, 7,008,254 shares of Scotsman Common Stock were issued
and outstanding. Each holder of record of shares of Scotsman Common Stock is
entitled to cast one vote on the Share Issuance and on each other matter
presented to a vote of the shareholders at the Special Meeting for each share of
Scotsman Common Stock registered in such holder's name. Under Scotsman's
by-laws, action may be taken by the shareholders only at an annual or special
meeting at which a quorum is present. The presence, in person or by proxy, of
the holders of record of shares representing a majority of the outstanding
shares of Scotsman Common Stock entitled to be voted on the Share Issuance will
constitute a quorum for the purpose of the Special Meeting. The inspectors of
election will treat abstentions as shares that are present and entitled to be
voted for purposes of determining the presence of a quorum. If a broker
indicates on the proxy that it does not have discretionary authority to vote
certain shares on the Share Issuance, those shares will be considered present,
but not entitled to be voted, and will therefore not be counted for purposes of
determining the presence of a quorum.
Scotsman's shareholders are not required to approve the Merger Agreement
and the Merger or the Share Acquisition Agreement and the Share Acquisition
under the DGCL or other applicable law. Under the rules of the NYSE on which the
Scotsman Common Stock is listed, however, the Share Issuance must be approved by
Scotsman's shareholders by a majority of the votes cast on the proposal to
approve the Share Issuance, and the total vote cast must represent over 50% of
the issued and outstanding shares of Scotsman Common Stock. Broker non-votes and
abstentions will not be counted as votes cast for or against the proposal to
approve the Share Issuance. They will also not be counted as votes cast for
purposes of determining whether the total vote cast on the proposal to approve
the Share Issuance exceeds 50% of the issued and outstanding shares of Scotsman
Common Stock.
As of February 15, 1994, directors and executive officers of Scotsman and
their affiliates owned beneficially an aggregate of 478,658 shares of Scotsman
Common Stock or approximately 6.83% of the shares of Scotsman Common Stock
outstanding on such date. It is expected that these shares will be voted in
favor of the Share Issuance.
Scotsman's shareholders have no dissenters' rights or rights of appraisal
in connection with the Share Issuance.
15
<PAGE> 26
VOTING AND REVOCATION OF PROXIES
Shares of Scotsman Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF NO INSTRUCTIONS ARE
INDICATED ON A PROPERLY SIGNED AND RETURNED PROXY, SUCH PROXY WILL BE VOTED FOR
THE PROPOSAL TO APPROVE THE SHARE ISSUANCE. Any shareholder who has given a
proxy may revoke it at any time prior to its exercise at the Special Meeting by
(i) giving written notice of such revocation to the Secretary of Scotsman, (ii)
properly submitting to Scotsman a duly executed proxy bearing a later date or
(iii) appearing in person at the Special Meeting and voting in person. All
written notices of revocation and other communications with respect to the
revocation of proxies should be addressed as follows: Scotsman Industries, Inc.,
775 Corporate Woods Parkway, Vernon Hills, Illinois 60061, Attention: Donald D.
Holmes, Secretary. Attendance at the Special Meeting will not, in and of itself,
constitute a revocation of a proxy.
Scotsman's Board of Directors is not aware of any business to be acted upon
at the Special Meeting other than as described herein. Under Scotsman's by-laws,
only such business may be conducted at a special meeting of shareholders as
shall have been brought before the meeting pursuant to the Board of Directors'
notice of meeting. If, however, other matters are properly brought before the
Special Meeting, or any adjournments thereof, the persons appointed as proxies
will have discretion to vote or act on such matters according to their best
judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Scotsman may solicit proxies in person or by telephone, telegram or other forms
of communications. Such directors, officers and employees will receive no
compensation for such services, other than the compensation which such persons
otherwise receive for their services as directors, officers or employees.
Arrangements will also be made with brokerage firms and other custodians,
nominees and fiduciaries, to forward solicitation material to the beneficial
owners of shares of Scotsman Common Stock held of record by such persons, and
Scotsman will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
with such solicitation. Scotsman anticipates that such out-of-pocket expenses
will amount in the aggregate to $8,350.
In addition, Scotsman has retained Morrow & Co., Inc. to aid in the
solicitation of proxies. The fees to be paid to such firm for such services are
not expected to exceed $6,500, plus reimbursement for out-of-pocket costs and
expenses. Scotsman will bear the cost of soliciting of proxies for the Special
Meeting.
THE MERGER, THE SHARE ACQUISITION AND RELATED TRANSACTIONS
This section of the Proxy Statement - Prospectus describes certain aspects
of the proposed Merger, Share Acquisition and related transactions. A
significant portion of the description included in this section and under the
captions "The Merger Agreement," "The Share Acquisition Agreement" and "Certain
Provisions Common to the Merger Agreement and the Share Acquisition Agreement"
relates to the Merger Agreement and Share Acquisition Agreement, which are
attached as Appendix I and Appendix II, respectively, to this Proxy Statement -
Prospectus and are incorporated herein by reference. ALL SHAREHOLDERS ARE URGED
TO READ THE MERGER AGREEMENT AND THE SHARE ACQUISITION AGREEMENT, AS WELL AS THE
OTHER APPENDICES, IN THEIR ENTIRETY.
BACKGROUND OF THE MERGER AND SHARE ACQUISITION
Scotsman became a publicly held company on April 14, 1989, when Scotsman
was spun off from Household International, Inc. Since the spin-off, Scotsman has
reduced its debt to equity ratio from four-to-one to under one-to-one and sold
two businesses that it believed were under-performing in the attempt to position
itself for future growth. Consistent with that strategy, Scotsman has made two
small, strategic acquisitions intended to strengthen its core domestic and
European ice machine businesses and has been seeking opportunities, through
acquisitions, to expand into other product lines that fit well with its existing
16
<PAGE> 27
technology, distribution channels and customers and to increase its presence in
certain geographic markets. Scotsman, however, is not currently involved in any
negotiations to acquire any companies other than DFC and WAL.
In April of 1993, Timothy C. Collins, a Managing Director of Onex
Investment Corp. (New York), called Richard C. Osborne, the Chairman of the
Board, President and Chief Executive Officer of Scotsman, to inform him that the
principal shareholders of DFC and WAL had been planning either to effect an
initial public offering of the stock of DFC and WAL in the near future or,
alternatively, to sell DFC and WAL to a company such as Scotsman. DFC and WAL
had prepared certain presentations for use by potential underwriters or analysts
in connection with the proposed public offering, and Mr. Collins forwarded
copies of those materials to Mr. Osborne. Mr. Osborne had several follow-up
conversations with Mr. Collins and Matthew O. Diggs, Jr., the Chairman of the
Board of DFC and WAL. At a meeting of Scotsman's Board of Directors on May 20,
1993, Mr. Osborne informed the Board of his conversations with Mr. Collins and
Mr. Diggs, but indicated that the discussions were very preliminary.
Mr. Osborne's conversations with Mr. Collins and Mr. Diggs continued in
June and July of 1993. On June 11, 1993, Mr. Osborne and Donald D. Holmes,
Scotsman's Vice President-Finance, met with Mr. Collins to discuss the
possibility of an acquisition of DFC and WAL by Scotsman. Scotsman was
subsequently furnished with copies of financial projections prepared on behalf
of DFC and WAL. On July 16, 1993, Mr. Holmes met with Mr. Collins and
representatives of DFC's public accountants to discuss DFC's financial
statements and financial projections. On July 28, 1993, Scotsman engaged William
Blair & Company ("William Blair") to act as financial advisor in connection with
the proposed acquisition and to render a fairness opinion.
At its August 12, 1993 meeting, Scotsman's Board of Directors further
considered the possibility of an acquisition of DFC and WAL by Scotsman,
including a review of the businesses of DFC and WAL and the strategic fit of
such an acquisition. Representatives of William Blair provided a preliminary
analysis of a proposed financial structure and a preliminary view of the value
range for the acquisition, outlined its potential benefits to Scotsman's
shareholders, and reviewed certain related issues, including the increased
leverage which would result if the acquisition were pursued and the possible
need to restructure Scotsman's financing arrangements. It was the consensus of
the Board that management should seek further information concerning DFC's
financial projections and the value of the transaction.
On October 13, 1993, Mr. Osborne, Mr. Holmes and representatives of William
Blair met with Mr. Diggs, members of DFC's management, and Michael de St. Paer,
the Managing Director of Whitlenge, to discuss further the nature of Delfield's
and Whitlenge's businesses, the results of their operations to date for the 1993
fiscal year, and their outlook for 1994 and beyond. The parties also discussed
their views concerning their respective valuations of DFC and WAL's businesses
and their differences with respect to those valuations.
At its October 14, 1993 meeting, the Board of Directors was given an update
on the status of the discussions relating to DFC and WAL and the results of the
October 13, 1993 meeting. In the effort to reconcile the differences with
respect to the parties' valuations of DFC and WAL, the Board considered the
possibility of increasing the consideration payable by Scotsman for DFC and WAL,
subject to DFC's and WAL's attainment of certain financial objectives. The Board
authorized management to discuss such a possibility with the representatives of
DFC and WAL.
On October 22, 1993, representatives of Scotsman, DFC and WAL, including
investment bankers and counsel, met to discuss the possible terms of a
transaction. At that meeting, the parties reached a tentative understanding that
they would seek to negotiate the terms of an acquisition involving a base price
of $67.5 million, to be paid in an as then undetermined combination of cash,
Scotsman Common Stock and preferred stock, and the contingent right to receive
up to 667,000 additional shares of Scotsman Common Stock if Delfield and
Whitlenge met certain financial objectives. The parties also discussed other
possible terms of the transaction, including standstill provisions and
provisions for reimbursement of expenses, and reviewed a draft term sheet which
had been prepared by representatives of DFC and WAL.
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Following the October 22, 1993 meeting, the representatives of the parties
negotiated a term sheet with respect to the proposed acquisition of DFC and WAL.
The parties also began an investigation and review with respect to each other.
On November 9, 1993, Scotsman's Board of Directors met and reviewed, among
other things, the status of negotiations relating to the proposed acquisition.
The Board also considered the equity position in Scotsman which would be held by
the Merger Shareholders and the Acquisition Shareholders, the standstill
agreements being sought from them and related governance issues. Management of
Scotsman and representatives of William Blair reviewed with the Board the
principal economic terms which Scotsman sought to include in the proposed
acquisition and the projected financial impact of the acquisition under various
scenarios.
At a meeting of Scotsman's Board of Directors on November 29, 1993, the
Board reviewed, among other things, the status of the negotiations, a draft term
sheet, the ongoing investigation of DFC and WAL by Scotsman, the status of
discussions regarding the financing to be obtained in order to consummate the
proposed acquisition and certain related matters. Representatives of William
Blair who were present at the meeting furnished the Board with an oral fairness
opinion. Such representatives reviewed with the Board the principal economic
terms of the proposed acquisition and the financial impact of the acquisition
under various scenarios. See "Opinion of Financial Advisor -- Discounted Cash
Flow." They also reviewed the adequacy of projected cash flows to meet
anticipated debt amortization requirements in connection with the acquisition,
including in their discussions the assumption that Scotsman's Board might
decide, during the period covered by the projections, to conserve cash flow
through the elimination of the payment of dividends to Scotsman's shareholders.
The Board also considered, among other things, the standstill agreements to be
entered into by the Merger Shareholders and the Acquisition Shareholders and
DFC's potential liability with respect to the Indianapolis Athletic Club fire
described under "Certain Information Concerning DFC -- Legal Proceedings."
On December 1, 1993, Scotsman's Board of Directors met again to review a
draft letter of intent and revised term sheet and matters relating to the
Indianapolis Athletic Club fire, including the availability of insurance and
indemnification for any liability resulting from the fire. Representatives of
William Blair attended the meeting and confirmed that the oral fairness opinion
given at the November 29, 1993 meeting remained unchanged. The Board of
Directors approved the letter of intent and term sheet for the acquisition of
DFC and WAL, and the parties signed the letter of intent on December 2, 1993.
Scotsman's investigation and review of DFC and WAL and negotiation of the
definitive agreements continued throughout December and early January. On
December 16, 1993, Scotsman's Board of Directors met and reviewed the status of
the negotiations relating to the definitive agreement and related matters and
the status of discussions regarding the financing to be obtained in order to
consummate the acquisition. On January 4, 1994, Scotsman's Board of Directors
met and reviewed the terms of draft definitive agreements. Representatives of
William Blair furnished the Board with an updated analysis of the financial
terms of the acquisition and furnished to the Board William Blair's written
fairness opinion. The Board unanimously approved the forms of the definitive
Merger Agreement and Share Acquisition Agreement. Five of Scotsman's six
directors were present at the meeting, and the absent director, George D.
Kennedy, has indicated that he would have voted for the approval of the Merger
Agreement and the Share Acquisition Agreement had he been able to attend the
meeting. Following finalization of the documentation and resolution of certain
remaining issues, the parties signed the Merger Agreement and the Share
Acquisition Agreement on January 12, 1994. The Board of Directors formally
approved the issuance of the New Scotsman Stock in connection with the Merger
and the Share Acquisition at a meeting held on February 17, 1994. On March ,
1994, the Merger Agreement and the Share Purchase Agreement were amended in
certain technical respects.
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RECOMMENDATION OF SCOTSMAN'S BOARD OF DIRECTORS
In reaching its decision to approve the Merger Agreement, the Share
Acquisition Agreement and the Share Issuance in connection with the Merger and
the Share Acquisition, Scotsman's Board of Directors considered, without
assigning relative weight to, a number of factors. Those factors included:
1. The extent to which the Merger and Share Acquisition are consistent
with Scotsman's long-term strategy to promote growth through expansion into
new product lines on the refrigerated or "cold side" of the foodservice
equipment industry and expansion of its geographic markets. The Board of
Directors believes that the businesses of DFC and WAL constitute an
unusually good "fit" with Scotsman's existing businesses, both in terms of
product lines and geographic markets. Although Scotsman currently
manufactures ice machines in both the domestic and European markets with
worldwide distribution, the manufacture and sale of soft-drink dispensing
equipment, through Booth, are limited primarily to the domestic market and
the manufacture and sale of refrigerated foodservice and bakery equipment,
through Castel MAC, are limited primarily to the European market. WAL's
sales of soft-drink dispensing and beer cooling equipment in the United
Kingdom (and to a more limited extent in the European market) complement
Booth's sales of soft-drink dispensing equipment in the United States, and
Delfield's sales of refrigerated foodservice equipment, primarily in the
United States, complement Castel MAC's sales of refrigerated foodservice
and bakery equipment in Europe, giving Scotsman a greater presence on a
worldwide basis. Scotsman, Delfield and Whitlenge also share the same kinds
of customers, the same kinds of technologies and the same types of
suppliers, thus providing additional opportunities for cross-marketing,
shared research and cost savings.
2. The strength and growth potential of Delfield and Whitlenge. The
Board of Directors believes that Delfield has strong national accounts, its
product lines have good growth potential, and it has wide brand name
recognition. Scotsman's greater international presence in the
drink-dispensing business, as the result of its acquisition of Whitlenge,
may also make both Booth and Whitlenge more attractive suppliers for
soft-drink customers which sell in an international market.
3. Information concerning the financial condition, results of
operations and prospects of Scotsman, DFC and Whitlenge on a stand-alone
and a combined basis, including the more highly leveraged condition of DFC
and WAL and the fact that Scotsman would be required to record a
significant amount of goodwill in connection with the transaction.
4. The terms of the Merger Agreement and the Share Acquisition
Agreement, including the indemnification obligations of the Merger
Shareholders and the Acquisition Shareholders which require the Merger
Shareholders and the Acquisition Shareholders to indemnify Scotsman, DFC
and Delfield after the effective time of the Merger and Share Acquisition
for, among other things, liabilities and expenses arising from suits or
other claims or proceedings in connection with the Indianapolis Athletic
Club fire. See "Certain Provisions Common to the Merger Agreement and the
Share Acquisition Agreement -- Indemnification" and "Certain Information
Concerning DFC -- Legal Proceedings."
5. The increase in Scotsman's leverage ratios as a result of the
Merger and the Share Acquisition, the need to restructure Scotsman's
existing credit facilities and the adequacy of its cash flow to cover
additional debt requirements. See "Opinion of Financial Advisor -- Pro
Forma Merger Analysis."
6. The fact that the Merger Shareholders and Acquisition Shareholders
would acquire a minority (rather than a majority) interest in Scotsman and
agreed that they would not, for a period of five years from the date of the
Merger Agreement and the Share Acquisition Agreement, acquire any
additional voting securities of Scotsman or take certain other actions with
respect to Scotsman. See "Certain Provisions Common to the Merger Agreement
and the Share Acquisition Agreement -- Standstill Agreement."
7. The positive effect of the Merger and Share Acquisition on
Scotsman's earnings per share in 1994 and 1995 under certain circumstances
and the possible dilutive effect under the downside case considered by the
Board. See "Opinion of Financial Advisor -- Pro Forma Merger Analysis."
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8. The opinion of William Blair as to the fairness to Scotsman's
shareholders, from a financial point of view, of the consideration paid by
Scotsman in the Merger and the Share Acquisition. See "Opinion of Financial
Advisor."
BASED ON THE FOREGOING REASONS AND OTHER FACTORS DEEMED RELEVANT BY THE
BOARD, SCOTSMAN'S BOARD OF DIRECTORS RECOMMENDS THAT SCOTSMAN'S SHAREHOLDERS
VOTE FOR THE SHARE ISSUANCE UPON CONSUMMATION OF THE MERGER AND THE SHARE
ACQUISITION.
REASONS FOR THE DECISION BY DFC'S BOARD OF DIRECTORS TO APPROVE THE MERGER
DFC's Board of Directors unanimously approved the Merger Agreement and the
transactions contemplated thereby at a meeting of DFC's Board of Directors held
on December 23, 1993. DFC's Board of Directors made such approval based on its
belief that the terms of the Merger are fair and in the best interests of DFC
and its shareholders. In reaching its conclusion, DFC's Board of Directors
considered a number of factors, including without limitation, (i) information
concerning the financial performance and condition, business operations, capital
levels, asset quality and prospects of Scotsman, Delfield and Whitlenge and
their projected future values and prospects on a combined basis, as compared
with the projected future values and prospects of Delfield as a separate entity,
(ii) current industry, economic and market conditions, (iii) the structure of
the transaction, (iv) the terms of the Merger Agreement, including the
consideration to be received by the Merger Shareholders, and of the other
documents executed in connection with the Merger, (v) the strategic advantages
of the combination of Scotsman, Delfield and Whitlenge and the ability of the
combined enterprise to compete in the relevant markets and (vi) the impact of
the Merger on the employees and the customers served.
The Board of Directors of DFC determined that the Merger would be the best
alternative for achieving its strategic objectives. The board determined that
this alternative would be superior to an initial public offering because of,
among other factors, the resulting stronger financial resources, the potential
for earnings growth, stronger managerial resources and the compatibility of
strategic direction.
OPINION OF FINANCIAL ADVISOR
Scotsman engaged William Blair to act as its financial advisor in
connection with the Merger and the Share Acquisition and requested that William
Blair render an opinion regarding the fairness, from a financial point of view,
to the shareholders of Scotsman, of the consideration to be paid by Scotsman in
the proposed acquisition by Scotsman of 100% of the capital stock of each of DFC
and WAL (together referred to, in this section, as the "Companies"). In several
meetings with Scotsman's Board of Directors, William Blair provided various
summaries and updates of analyses regarding the financial terms and conditions
of the Merger and the Share Acquisition as such terms and conditions evolved
through the course of the negotiations. William Blair delivered its written
opinion dated January 4, 1994 which provides that, based upon and subject to the
factors and assumptions set forth in such opinion, the consideration to be paid
by Scotsman in the Merger and the Share Acquisition is fair to the shareholders
of Scotsman, from a financial point of view. No limitations were imposed by
Scotsman with respect to the investigations made or the procedures followed by
William Blair in rendering its opinion. The full text of William Blair's
opinion, which sets forth certain assumptions made and matters considered and
limitations on the review undertaken, is attached as Appendix III to this Proxy
Statement - Prospectus. The summary of William Blair's opinion set forth in this
Proxy Statement - Prospectus is qualified in its entirety by reference to the
opinion.
In arriving at its fairness opinion, William Blair reviewed the financial
terms and conditions of the Merger Agreement and the Share Acquisition
Agreement, including, but not limited to, (i) the number of Scotsman Fixed
Common Shares, shares of Series A Convertible Preferred Stock and Scotsman
Contingent Common Shares to be issued in connection with the Merger and the
Share Acquisition, (ii) the fair value of the shares of Scotsman Common Stock,
Series A Convertible Preferred Stock, cash and other consideration to be paid in
the Merger and the Share Acquisition, (iii) the terms of the Series A
Convertible Preferred Stock and the Series B Preferred Stock, (iv) the financing
conditions and expectations with respect to such financing, and
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(v) the indemnification and standstill provisions included in the Merger
Agreement and the Share Acquisition Agreement. William Blair also reviewed
certain other information, including certain publicly available business and
financial information relating to Scotsman and the Companies, certain market
information regarding Scotsman, certain internal financial analyses and
forecasts for the Companies prepared by the managements of the Companies, and
certain internal financial information and forecasts of Scotsman prepared by the
management of Scotsman. William Blair also had discussions with the members of
the senior managements of the Companies and Scotsman to discuss the Merger and
the Share Acquisition and has considered other matters which William Blair
deemed relevant to its inquiry. The opinion is necessarily based on economic,
market and other conditions in effect on, and the information made available to
William Blair as of, the date of the analyses.
Summaries of Valuation Analyses. In connection with its opinion and the
presentation of its opinion to Scotsman's Board of Directors, William Blair
performed three valuation analyses: (1) a comparison with publicly traded
comparable companies, (2) a discounted cash flow analysis and (3) an analysis of
prices and terms of certain recent comparable acquisitions. Such analyses are
summarized below.
Comparable Companies
William Blair analyzed the relative performance and outlook for the
Companies by comparing certain financial and market information for the
Companies with the corresponding data and statistics of six publicly traded
companies including Scotsman, Welbilt Corporation, Premark International,
Kysor Industrial, Falcon Products and Lancer Corporation. While no company
in this comparable group is identical to the Companies, they were chosen
principally because they are engaged in the manufacture of equipment and
fixtures for the food service and related industries. Among the information
considered were revenues, earnings before interest and taxes ("EBIT"), EBIT
plus depreciation and amortization, net income, capitalization, EBIT
margins, EBIT plus depreciation and amortization margins, net income
margins, and growth in revenues, EBIT, EBIT plus depreciation and
amortization, and net income. It was noted that the multiples of total
enterprise value (defined as the market value of the common equity, plus
total debt less cash and equivalents) to EBIT and EBIT plus depreciation
and amortization implied by the consideration to be paid by Scotsman by the
terms of the Merger and the Share Acquisition compared favorably, from
Scotsman's perspective, to the median of corresponding multiples of the
comparable companies. Such multiples implied for the Companies were based
on estimated results for their fiscal years ending in 1993. Further,
multiples of equity value to net income of the Companies, historically and
prospectively, generally revealed favorable comparisons. At the November
29, 1993 meeting of the Board of Directors, in preparation for a review of
a final draft of a letter of intent, Blair's report indicated that such
implied multiples for the Companies were: 0.85 times the latest 12 months'
revenues (compared to a range of 1.32 to 0.41 for the comparable companies,
with a median multiple of 0.76); 7.3 times EBIT (14.9 to 5.5 for the
comparables -- median 9.8); 6.4 times EBIT plus depreciation and
amortization (9.2 to 4.0 for the comparables -- median 7.4); 10.8 times
estimated 1993 net income (20.0 to 11.8 for the comparables -- median
16.3); and 8.9 times estimated 1994 net income (17.9 to 9.9 for the
comparables -- median 13.5). All such comparisons were made both with and
without giving effect to the issuance of additional consideration if the
Companies achieve specified performance targets for their fiscal years
ending in 1994, as provided in the Merger Agreement and the Share
Acquisition Agreement. It was also noted that, in making these comparisons
with the comparable group of publicly traded companies, no premium for
control was applied to the prevailing market values of comparable
companies. Application of such a control premium to the equity values of
the comparable companies would cause a more favorable comparison, from
Scotsman's perspective, with the multiples for the Companies implied by the
Merger and the Share Acquisition.
Discounted Cash Flow
Using a discounted cash flow ("DCF") analysis, William Blair
calculated the net present value of the unleveraged free cash flows that
the Companies could produce over a nine-year period from 1994 through 2002
if the Companies performed in accordance with the forecasts of the
Companies' managements for 1994 and with certain assumptions made by
William Blair and the management of
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Scotsman for subsequent periods. William Blair considered three scenarios
of the Companies' operating performance: planned, conservative and downside
cases. These cases assumed variants of projected growth in revenues and
variants of projected EBIT margins ranging from a modest decline to a
modest increase compared with historical results. The planned case assumed
the Companies would achieve annual revenue growth of 11.1% in 1994, 10.0%
in 1995 and 8.0% thereafter (compared to an average of 6.9% from 1990 to
1992) and assumed they would achieve EBIT margins of 12.8% in all years
(compared to an average of 10.5% during 1990-1992). The conservative case
assumed revenue growth of 8.9% in 1994, 5.0% in 1995 and 6.0% thereafter,
and EBIT margins of 11.7% in all years. The downside case assumed revenue
growth of 4.4% in 1994 and 4.0% thereafter and EBIT margins of 10.2% in all
years. In each case, projections were made as to income tax effects,
depreciation expense, capital expenditures, and working capital changes,
resulting in projections of annual "free cash flow". In calculating the
"terminal value," William Blair assumed multiples of total enterprise value
to EBIT ranging from 5 to 7 times, such multiples believed by William Blair
to be appropriate for such an analysis. The annual and terminal year free
cash flows were discounted to determine a net present value of the
unleveraged equity value of the Companies. Discount rates in a range of 9%
to 12% were chosen based upon an analysis of the weighted average cost of
capital of the comparable group of companies. The DCF analyses indicated a
valuation of the equity of the Companies for the planned case in a range of
$95 to $103 million, substantially in excess of the value of the
consideration to be paid in the Merger and the Share Acquisition; a range
of $67 to $74 million or approximately equivalent to such value for the
conservative case; and a range of $44 to $49 million or substantially less
than such value for the downside case. William Blair and the management of
Scotsman believe that the planned and conservative cases are more likely to
be achieved than the downside case. As a result, William Blair believes
that the value of the equity of the Companies implied by the Merger and the
Share Acquisition compares favorably, from Scotsman's perspective, to the
values indicated by the discounted cash flow analyses.
Comparable Acquisitions
William Blair reviewed acquisitions of nine companies engaged in the
manufacture of a variety of equipment and products which had certain
business, operating and financial characteristics similar to those of the
Companies. These transactions occurred during the period 1990-1993 and were
generally of comparable size to the Merger and the Share Acquisition, with
the total enterprise value of the acquisition targets ranging from
approximately $27 million to $128 million with a median of $52.7 million.
The transactions listed on the basis of acquiree/acquiror were: Heekin Can
Inc./Ball Corp.; Syro Steel Co./Trinity Industries Inc.; Mor-Flo
Industries/SABH Inc.; Frem Corp./Ekco Group Inc.; Emerson Quiet Kool
Corp./Fedders Corp.; Barden Corp./FAG Bearings Corp.; Sundstrand Corp.-Heat
Transfer/Modine Manufacturing Co.; Buell Industries Inc./Illinois Tool
Works Inc.; and Howe Richardson Inc./Staveley Industries PLC. Among the
statistics considered by William Blair were the multiples of total
enterprise value to latest 12 months' revenues, EBIT and EBIT plus
depreciation and amortization in each such acquisition. The multiples of
EBIT and EBIT plus depreciation and amortization implied by the
consideration to be paid in the Merger and the Share Acquisition were 7.3
and 6.4, respectively; they compared favorably, from Scotsman's
perspective, to the corresponding multiples in a range of 17.6 to 4.9
(median 8.9) and 9.6 to 4.4 (median 8.0), respectively, for the
transactions reviewed. The opposite was true of the Companies' multiple of
0.85 times revenues, compared to a range of 1.23 to 0.26 (median 0.48) for
the transactions reviewed.
The companies and transactions used in the foregoing analyses as a
comparison are not necessarily substantially comparable to Scotsman or the
Companies or the Merger and the Share Acquisition. Accordingly, an analysis of
the results of the foregoing involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Companies and other factors that could affect the public trading value of
companies to which they are being compared.
Pro Forma Merger Analysis. In addition to performing the valuation
methodologies described above, William Blair reviewed and analyzed the estimated
effects of the Merger and the Share Acquisition on Scotsman's projected earnings
per share, capitalization ratios and interest coverage ratios in each of 1994
and 1995, and projected cash flow generation in each of 1994 through 1997. In
connection with this review,
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William Blair considered the financial projections of the Companies and Scotsman
prepared by their respective managements and several variations thereof
including, consistent with other analyses, planned, conservative and downside
cases. William Blair noted that, due to the amount of the Companies'
stockholders' equity relative to the value of the consideration to be paid in
the Merger and the Share Acquisition, a substantial amount of goodwill would
result from the Merger and the Share Acquisition to the extent that Scotsman's
tangible net worth would initially be a deficit. William Blair then prepared an
arithmetic combination of the financial data relating to Scotsman and the
Companies, taking into account the increased amortization expense and increased
interest expense resulting from the transaction. The combined financial
information and projections indicated that the Merger and the Share Acquisition
would be accretive to Scotsman earnings per share in 1994 and 1995 in each of
the planned and conservative cases and dilutive in such years in the downside
case. William Blair noted that Scotsman's capitalization would be more highly
leveraged than prior to the transaction. In addition, William Blair noted that
in each of the scenarios considered regarding the operating performance of the
Companies, sufficient cash was projected to be generated through the operations
of the business to service the higher levels of debt. William Blair also noted
that no synergies or cost savings resulting from the Merger or the Share
Acquisition were assumed for the purposes of any of its analyses. Any such
benefits resulting from the Merger or the Share Acquisition would cause more
favorable combined results of operations. The actual results achieved by
Scotsman, the Companies, and Scotsman and the Companies combined may vary from
projected results and any such variations may be material.
The analyses set forth above are not necessarily indicative of actual
values, which may be significantly more or less than suggested by the analyses.
The preparation of a fairness opinion is not necessarily susceptible to partial
analysis. William Blair believes that its analyses must be considered as a whole
and that selecting portions of its analyses, without considering all analyses,
would create an incomplete view of the process underlying its opinion.
William Blair is a nationally recognized investment banking firm regularly
engaged in the valuation of investment securities in connection with public
offerings, private placements, business combinations, estate and tax valuations
and similar transactions. William Blair was selected by Scotsman as its
financial advisor because of its extensive prior experience reputation and
expertise in corporate finance and in providing such opinions in prior
transactions.
In connection with William Blair's engagement as financial advisor,
Scotsman has paid William Blair retainer fees totalling $60,000 and an opinion
fee of $100,000 as of this date. If the Merger and the Share Acquisition are
consummated, Scotsman will pay William Blair an additional fee of $390,000. In
addition Scotsman has agreed, among other things, to reimburse William Blair for
all reasonable out-of-pocket expenses incurred in connection with the services
provided by William Blair, and to indemnify and hold harmless William Blair and
certain related parties to the full extent lawful from and against certain
liabilities, including certain liabilities under the federal securities laws, in
connection with its engagement.
THE MERGER AGREEMENT
TERMS OF THE MERGER
At the Effective Time (as defined below), Merger Sub will be merged with
and into DFC, and DFC will be the surviving corporation. The Restated
Certificate of Incorporation and by-laws of DFC, as in effect immediately prior
to the Effective Time, will continue in effect as the Restated Certificate of
Incorporation and by-laws of the surviving corporation.
Each share of DFC Common Stock issued and outstanding immediately prior to
the Effective Time will be converted into a pro rata portion (based upon the
aggregate number of shares of DFC Common Stock issued and outstanding
immediately prior to the Effective Time) of (i) 1,200,000 shares of Scotsman
Common Stock (ii) 2,000,000 shares of Series A Convertible Preferred Stock, with
an aggregate liquidation preference of $22.5 million, and (iii) the right to
receive in cash the sum of (A) $13,947,490.00, (B) $113,566.65 for each
consecutive three-month period between September 30, 1993 and the Effective
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Date (as defined below) (each, a "Three Month Period"), and (C) the product
obtained by multiplying $1,261.85 by the number of calendar days in the period
from the day following the end of the latest three month period to the Effective
Date (inclusive) (such calendar days being hereafter referred to as "Stub
Days"). Such amounts in cash are collectively referred to as the "Cash
Consideration". The Cash Consideration or the portion of the Cash Consideration
payable to particular holders of DFC Common Stock may be subject to adjustment,
as more fully described below. Each holder of DFC Common Stock immediately prior
to the Effective Time will also receive, in exchange for such shares of DFC
Common Stock, the nontransferable contingent right to receive such holder's pro
rata portion (based upon the percentage of the issued and outstanding DFC Common
Stock held by such holder immediately prior to the Effective Time) of 97.06552%
of the Scotsman Contingent Common Shares issuable to holders of DFC Common Stock
and the Warrant under the Merger Agreement. See "Certain Provisions Common to
the Merger Agreement and the Share Acquisition Agreement -- Scotsman Contingent
Common Shares." For a description of the terms of the Series A Convertible
Preferred Stock, see "Description of the Series A Convertible Preferred Stock
and the Series B Preferred Stock -- Series A Convertible Preferred Stock."
At the Effective Time, the Warrant will also be purchased by Scotsman or
Merger Sub for (i) cash in an amount equal to the sum of (A) $630,510.00, (B)
$3,433.35 for each Three Month Period and (C) the product obtained by
multiplying $38.15 by the number of Stub Days, and (ii) the nontransferable
contingent right to receive 2.93448% of the Scotsman Contingent Common Shares
issuable to holders of DFC Common Stock and the Warrant under the Merger
Agreement. See "Certain Provisions Common to the Merger Agreement and the Share
Acquisition Agreement -- Scotsman Contingent Common Shares." If Scotsman and
Continental agree in writing on or before the day on which such Scotsman
Contingent Common Shares are to be issued, Scotsman may pay to Continental, in
lieu of the Scotsman Contingent Common Shares which Continental would have
otherwise been entitled to receive under the Merger Agreement, the cash value of
such shares, determined on the basis of the Closing Price (as defined below) of
Scotsman Common Stock as of the business day preceding the date on which such
Scotsman Contingent Common Shares are to be issued.
The amount of the Cash Consideration or of the portion of the Cash
Consideration payable to an individual holder of DFC Common Stock may be subject
to adjustment in the following two instances. First, under the terms of the
Merger Agreement, prior to the Effective Time, DFC has the right (i) to make a
pro rata cash distribution to all holders of DFC Common Stock, or (ii) to redeem
or repurchase, on a non pro rata basis, shares of DFC Common Stock. The
aggregate amount distributed, or paid in connection with the redemption or
repurchase of shares of DFC Common Stock, may not exceed $7 million. In the
event that DFC makes a pro rata cash distribution to all holders of DFC Common
Stock, the Cash Consideration will be reduced by the amount of such
distribution. In the event that DFC redeems or repurchases shares of DFC Common
Stock on other than a pro rata basis, the pro rata portion of the Cash
Consideration otherwise payable to the holders of DFC Common Stock who have had
shares of DFC Common Stock redeemed or repurchased by DFC prior to the Effective
Time will be reduced by an amount equal to the amount paid to such holder in
redemption or repurchase of such shares of DFC Common Stock.
Second, if the sum of the Cash Consideration and the aggregate amount of
cash to be paid in lieu of fractional shares issuable in the Merger (together,
the "Initial Cash Component") exceeds the Maximum Cash Component (as defined
below), then, in lieu of the right to receive a pro rata portion of the Cash
Consideration, each share of DFC Common Stock issued and outstanding immediately
prior to the Effective Time will be converted, in part, into the right to
receive a pro rata portion of (i) the Maximum Cash Component and (ii) a number
of shares (the "Substitution Number") of Series B Preferred Stock having a
liquidation preference equal to the excess of the Initial Cash Component over
the Maximum Cash Component. The Merger Agreement defines the Maximum Cash
Component as the product obtained by multiplying (i) .19 by (ii) the sum of (A)
the product obtained by multiplying 1,200,000 by the Adjusted Value (as defined
below) of the Scotsman Common Stock on the Effective Date, (B) $22.5 million,
and (C) the Initial Cash Component. For a description of the terms of the Series
B Preferred Stock see "Description of the Series A Convertible Preferred Stock
and the Series B Preferred Stock -- Series B Preferred Stock".
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Adjusted Value is defined as the lesser of (i) the arithmetic mean of the
high and low trading prices on the NYSE of Scotsman Common Stock on the
Effective Date (as reported in the NYSE Composite Transactions) and (ii) the
Closing Price (as defined below) of Scotsman Common Stock on the Effective Date.
If, however, the lesser of these two amounts is more than 10% higher than the
arithmetic mean of the high and low trading prices on the NYSE of Scotsman
Common Stock (as reported in the NYSE Composite Transactions) for the preceding
10 trading business days, the Adjusted Value will be such arithmetic mean.
No fractional shares of Scotsman Common Stock, Series A Convertible
Preferred Stock or Series B Preferred Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of DFC Common Stock who
would otherwise have been entitled to receive a fraction of a share of Scotsman
Common Stock (after taking into account all certificates evidencing DFC Common
Stock delivered by such holder) will receive, in lieu thereof, a cash amount
equal to the value of such fractional share based upon the Closing Price of
Scotsman Common Stock on the last business day prior to the Effective Date. The
Closing Price of Scotsman Common Stock is defined as the last sale price, or the
closing bid price if no sale occurred, of Scotsman Common Stock on the principal
securities exchange on which Scotsman Common Stock is listed, if so listed, or
if not listed, the mean between the closing high bid and low asked quotations of
Scotsman Common Stock on the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted or, if not so
quoted, the fair market value of Scotsman Common Stock. Scotsman Common Stock is
currently listed on the NYSE.
Each holder of DFC Common Stock who would otherwise have been entitled to
receive a fraction of a share of Series A Convertible Preferred Stock or Series
B Preferred Stock, respectively (after taking into account all certificates
evidencing DFC Common Stock delivered by such holder), will receive, in lieu
thereof, a cash amount equal to the value of such fractional share based upon
the liquidation value of the Series A Convertible Preferred Stock or Series B
Preferred Stock, respectively. In determining the Substitution Number of Series
B Preferred Stock, due account will be taken of cash issued in lieu of
fractional shares of Series B Preferred Stock.
The Merger Agreement provides that, in the event that any reclassification,
stock split, stock dividend or similar change with respect to Scotsman Common
Stock occurs after the date of the Merger Agreement but before the Effective
Time, an appropriate adjustment will be made in the number of shares of Scotsman
Common Stock and/or the kind of securities issued as Scotsman Fixed Common
Shares or to be issued as Scotsman Contingent Common Shares. Similar adjustments
will be made with respect to the Scotsman Contingent Common Shares upon the
occurrence of certain events after the Effective Time but prior to the date of
issuance of such shares. See "Certain Provisions Common to the Merger Agreement
and the Share Acquisition Agreement -- Scotsman Contingent Common Shares."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time (the "Effective Time") and on
the date (the "Effective Date") that a duly executed and acknowledged
Certificate of Merger is filed with the Secretary of State of the State of
Delaware in accordance with the requirements of Delaware law. The parties intend
to make such a filing as promptly as possible following the Special Meeting,
provided that the Share Issuance is approved by a vote which complies with the
requirements of the NYSE, the Merger and the Merger Agreement are approved by
the affirmative vote of the holders of a majority of the outstanding shares of
DFC Common Stock, and all other conditions precedent to consummation of the
Merger are satisfied or waived. See "Conditions to the Merger." The parties
currently anticipate that the Merger will occur on or about April , 1994,
although there can be no assurance as to whether or when the Merger will occur.
Scotsman and DFC each have the right to terminate the Merger Agreement if the
Merger has not been consummated on or before May 1, 1994.
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<PAGE> 36
SURRENDER OF, AND PAYMENT FOR, DFC COMMON STOCK CERTIFICATES AND THE WARRANT
At or after the Effective Time, each holder of record of a certificate or
certificates representing issued and outstanding shares of DFC Common Stock and
the holder of record of the certificate representing the Warrant may surrender
such certificate or certificates. Upon such surrender, Scotsman will immediately
deliver or cause to be delivered, in exchange for the certificates, cash
(including all amounts payable in lieu of fractional shares or interests), by
wire transfer in immediately available funds to the account or accounts
designated, in writing, by such holder, and/or one or more certificates
representing the aggregate number of whole shares of New Scotsman Stock (other
than the Series B Preferred Stock) into which the DFC Common Stock represented
by the surrendered certificates shall in part have been converted or for which
the Warrant shall in part have been purchased. The aggregate amount of cash
payable on the Effective Date to all holders of DFC Common Stock will
nonetheless be limited to $8 million. Any additional cash due to a holder of DFC
Common Stock and any shares of Series B Preferred Stock issuable to a holder of
DFC Common Stock pursuant to the Merger will be paid or issued, as the case may
be, on the second business day after the Effective Date, after the Maximum Cash
Component has been determined.
The stock transfer books of DFC will be closed and no transfer of DFC
Common Stock or the Warrant will be made after the close of business on the
business day preceding the Effective Date. Until surrendered, each outstanding
certificate representing issued and outstanding shares of record of DFC Common
Stock or the Warrant will not be transferable on the books of the surviving
corporation or of Scotsman, but will be deemed to evidence the right to receive
such cash and/or the number of whole shares of New Scotsman Stock, as the case
may be, into which the DFC Common Stock shall have been converted or for which
the Warrant shall have been purchased. No dividends or other distributions paid
on Scotsman Common Stock, Series A Convertible Preferred Stock or Series B
Preferred Stock after the Effective Date will be paid to the holder of a
certificate or certificates which represented issued and outstanding shares of
DFC Common Stock or the Warrant until such time as such certificate or
certificates are surrendered to Scotsman. Upon the surrender of such certificate
or certificates and the issuance, in exchange therefor, of certificates
evidencing Scotsman Common Stock, Series A Convertible Preferred Stock and
Series B Preferred Stock, Scotsman will pay to or at the direction of the holder
of the certificate or certificates all such dividends and distributions (without
interest).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things, the organization and capitalization of
Scotsman, DFC and Delfield, the authorization and enforceability of the Merger
Agreement, the financial statements of DFC and Delfield and certain documents
filed by Scotsman with the Commission, operations of Scotsman and DFC since the
date of the most recent audited balance sheet of each company, compliance with
laws, and litigation. The representations and warranties of the Merger
Shareholders also relate, among other things, to ownership of DFC Common Stock
by the Merger Shareholders, the assets, real property, personal property, leased
property, accounts receivable, inventories, and intellectual property of
Delfield, taxes, undisclosed liabilities, product warranties offered by
Delfield, employee benefit plans, insurance, employee and labor relations,
customers and suppliers and environmental matters.
CONDITIONS TO THE MERGER
The parties are not obligated to consummate the Merger unless the Share
Issuance has been approved by the requisite vote of the holders of the Scotsman
Common Stock, the Merger and the Merger Agreement have been approved by the
affirmative vote of all of the issued and outstanding shares of DFC Common
Stock, and no holder of DFC Common Stock has delivered a written demand for
appraisal of such shareholders' DFC Common Stock under Section 262 of the DGCL.
Each of the Merger Shareholders who was a holder of record of DFC Common Stock
as of January 11, 1994 has entered into a DFC Custody Agreement, dated January
11, 1994 (the "DFC Custody Agreement"), pursuant to which such Merger
Shareholder has, among other things, (i) granted to Onex DHC a proxy to vote, in
its sole discretion, all of the shares of DFC Common Stock held by such Merger
Shareholder in favor of the Merger and (ii) agreed that it will not
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<PAGE> 37
exercise appraisal rights under Section 262 of the DGCL with respect to its
shares of DFC Common Stock. Continental, as holder of the Warrant, has also
entered into an Agreement, dated as of January 11, 1994, with Onex DHC and DFC,
pursuant to which it has agreed that, so long as the Merger Agreement remains in
effect, either (i) it will not exercise the Warrant, or (ii) if it does exercise
the Warrant, it will vote all shares of DFC Common Stock received upon exercise
of the Warrant as directed by Onex DHC and will not, in connection with the
Merger, exercise any rights of appraisal pursuant to Section 262 of the DGCL.
The obligations of Scotsman and Merger Sub to consummate the Merger are
also subject to the satisfaction (or waiver) of the following conditions: (i)
certain of the Merger Shareholders shall have entered into noncompetition
agreements with Scotsman; (ii) Scotsman shall have received the resignations of
each of the directors of DFC and Delfield, effective as of the Effective Date;
(iii) the Management Advisory Agreement, dated May 1, 1991, between DFC,
Delfield and Onex U.S., the Management Advisory Agreement, dated May 1, 1991,
between DFC, Delfield and The Diggs Group, and the Stockholders' Agreement,
dated May 1, 1991, as amended, among certain Merger Shareholders shall have been
terminated, and (iv) the average Closing Price of the Scotsman Common Stock for
the ten trading days prior to the date of the Special Meeting shall not have
been more than $14.50. The obligations of DFC, Delfield and the Merger
Shareholders to consummate the Merger are also subject to satisfaction (or
waiver by DFC) of the condition that the average Closing Price of the Scotsman
Common Stock for the ten trading days prior to the date of the Special Meeting
shall not have been less than $10.50.
The Merger Agreement also contains certain mutual conditions to the
obligations of the parties, including the following: (i) all of the issued WAL
Ordinary Shares shall have been tendered, accompanied by a stock transfer form
executed in blank, and accepted for payment by Tender Sub, and either (A) all of
the WAL Preferred Shares shall have been tendered, accompanied by a stock
transfer form executed in blank, and not withdrawn, (B) all of the issued WAL
Preferred Shares shall have been purchased by Tender Sub or Scotsman for an
aggregate purchase price not exceeding L2 million plus accrued dividends, or (C)
Scotsman shall be satisfied, in its reasonable judgment, that after giving
effect to a contribution of L2 million plus accrued dividends to WAL's ordinary
share capital or a subscription for additional WAL Ordinary Shares equal to such
amount, WAL will be able to redeem all of the issued WAL Preferred Shares,
without certain specified adverse consequences and at no further cost to
Scotsman, Tender Sub, WAL or Whitlenge, (ii) the parties shall have received all
governmental approvals reasonably necessary to consummate the transactions
contemplated by the Merger Agreement (including those necessary to prevent a
Material Adverse Effect (as defined in the Merger Agreement) on DFC and
Delfield, on the one hand, or on Scotsman and its subsidiaries, on the other
hand, in each case taken as a whole, (iii) Scotsman and the Merger Shareholders
shall have entered into the Registration Rights Agreement (as described below),
(iv) the NYSE shall have approved for listing, upon official notice of issuance,
the Scotsman Fixed Common Shares, the Scotsman Contingent Common Shares, and the
shares of Scotsman Common Stock issuable upon conversion of the Series A
Convertible Preferred Stock, and (v) other conditions customary in such
agreements, including (A) the absence of any material breach by the other party
in the performance of its obligations under the Merger Agreement, and (B) the
continued accuracy, on the Effective Date, of the representations and warranties
of the other party contained in the Merger Agreement (except for certain
permitted changes in the representations and, with respect to certain
representations and warranties, changes which are not material). ALTHOUGH
SCOTSMAN HAS RECEIVED WRITTEN COMMITMENTS FROM LENDERS TO PROVIDE THE FINANCING
NECESSARY TO CONSUMMATE THE MERGER, SCOTSMAN'S OBLIGATIONS TO CONSUMMATE THE
MERGER ARE NOT CONDITIONED UPON THE CONSUMMATION OF SUCH FINANCING. See "Other
Related Matters -- Proposed Financing."
No assurance can be given as to when or if all of the conditions precedent
to the Merger can or will be satisfied or waived by the party permitted to waive
any such condition.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Merger Agreement, DFC, Delfield and Scotsman have each agreed to
conduct their businesses in the ordinary course pending the Merger and to use
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current officers and preserve their
relationships with customers and suppliers and other entities.
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<PAGE> 38
NON-SOLICITATION AGREEMENT
Under the Merger Agreement, DFC and Delfield have also agreed that, between
the date of the Merger Agreement and the Effective Date, neither they nor any of
their affiliates will, nor will they authorize or permit any of their officers,
directors, employees, advisers or representatives to, (i) solicit, initiate or
encourage any proposal for a merger or other business combination involving DFC
or Delfield or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in, or any voting securities of, DFC or Delfield
or a substantial portion of the assets of Delfield (any of the foregoing
constituting a "DFC Acquisition Proposal"), (ii) enter into any agreement with
respect to a DFC Acquisition Proposal or (iii) except to the extent required by
law as advised by counsel in writing, participate in any discussions or
negotiations regarding, or furnish to any person any information for the purpose
of facilitating the making of, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, a DFC Acquisition Proposal.
WAIVER AND AMENDMENT; TERMINATION
The Merger Agreement provides that the parties may amend, modify and
supplement the Merger Agreement by mutual agreement in writing.
The Merger Agreement will terminate upon any termination of the Share
Acquisition Agreement. The Merger Agreement may also be terminated at any time
prior to the Effective Date (i) by the mutual consent of Scotsman and DFC, (ii)
by Scotsman, upon any material breach of certain covenants contained in the
Merger Agreement by DFC, Delfield or any of the Merger Shareholders, (iii) by
DFC, upon any material breach of certain covenants contained in the Merger
Agreement by Scotsman or Merger Sub, (iv) by Scotsman, if any of the conditions
precedent to its obligation to proceed with the Merger have not been satisfied
(or waived by Scotsman) at such time as such condition can no longer be
satisfied, (v) by DFC, if any of the conditions precedent to the obligations of
DFC, Delfield and the Merger Shareholders to proceed with the Merger have not
been satisfied (or waived by such parties) at such time as such condition can no
longer be satisfied, or (vi) by Scotsman or DFC, if the Merger has not been
consummated on or before May 1, 1994.
THE SHARE ACQUISITION AGREEMENT
TERMS OF THE SHARE ACQUISITION
Pursuant to the terms of the Share Acquisition Agreement, Scotsman is
obligated to make, or to cause Tender Sub to make, a tender offer to purchase
all of the issued WAL Ordinary Shares at a cash purchase price equal to the Cash
Amounts (as defined below) payable with respect to the WAL "A" Ordinary Shares,
the WAL "B" Ordinary Shares and the WAL "C" Ordinary Shares, respectively. If
requested by the Stockholder Representative (as such term is defined in "Certain
Provisions Common to the Merger Agreement -- Scotsman Common Shares") on or
before the fifth business day prior to the commencement of the tender offer,
Scotsman or Tender Sub is also obligated to make a tender offer to purchase all
of the issued WAL Preferred Shares at the Cash Amount payable for the WAL
Preferred Shares. Any amount paid with respect to a class of WAL Ordinary Shares
will be allocated among the sellers of such class of shares pro rata in
accordance with the respective amounts of shares of such class held by such
sellers immediately prior to the Expiration Date (each a "Pro Rata Share"). Each
seller of WAL Ordinary Shares will also be entitled to receive such seller's Pro
Rata Share of the number of Scotsman Contingent Common Shares, if any, issued in
respect of the class of WAL Ordinary Shares held by such seller. See "Certain
Provisions Common to the Merger Agreement and the Share Acquisition Agreement --
Scotsman Contingent Common Shares."
If the Stockholder Representative shall have requested Scotsman or Tender
Sub to make a tender offer for the WAL Preferred Shares, Cash Amount shall mean,
(i) with respect to the WAL "A" Ordinary Shares, the sum of (A) $1,866,300, (B)
$4,950 for each Three Month Period, and (C) the product obtained by multiplying
$55 by the number of Stub Days, (ii) with respect to the WAL "B" Ordinary
Shares, the sum of (A) $7,983,585, (ii) $20,460 for each Three Month Period, and
(C) the product obtained by multiplying $227.34 by the number of Stub Days,
(iii) with respect to the WAL "C" Ordinary Shares, the sum of (A) $2,592,115,
(B) $7,590 for each Three Month Period, and (C) the product obtained by
multiplying
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<PAGE> 39
$84.33 by the number of Stub Days, and (iv) with respect to each WAL
Preferred Share, $149 per share plus accrued dividends to the Expiration Date
(as defined below). If, on the other hand, the Stockholder Representative shall
not have requested Scotsman or Tender Sub, as the case may be, to make a tender
offer for all of the WAL Preferred Shares or if Scotsman or Tender Sub shall
have purchased, on or before the Expiration Date, all of the issued WAL
Preferred Shares for an aggregate purchase price not exceeding (pound)2 million
plus accrued dividends, the Cash Amounts with respect to the WAL "A" Ordinary
Shares, the WAL "B" Ordinary Shares and the WAL "C" Ordinary Shares will be
adjusted by (i) increasing such Cash Amounts by $447,000, $1,847,600 and
$685,400, respectively, and (ii) reducing such Cash Amounts by an aggregate
amount (the "Purchase Price Reduction Amount") equal to the U.S. dollar
equivalent (based upon the applicable exchange rate set forth in The Wall
Street Journal on the business day immediately preceding the Expiration Date)
of (A) (pound)2 million or (B) in the event that Scotsman or Tender Sub shall
have purchased the WAL Preferred Shares, the amount of the purchase price paid
(excluding the amount of any accrued dividends included in such price). If such
an adjustment is made, the Cash Amounts with respect to the WAL "A" Ordinary
Shares, the WAL "B" Ordinary Shares and the WAL "C" Ordinary Shares will be
reduced by 15%, 62% and 23%, respectively, of the Purchase Price Reduction
Amount. Such Cash Amounts shall be paid by wire transfer of immediately
available funds in U.S. dollars to the account or accounts designated in
writing to Scotsman or Tender Sub, as the case may be, by each seller of WAL
Ordinary Shares and/or WAL Preferred Shares pursuant to the tender offer.
THE EXPIRATION DATE OF THE OFFER
The offer to purchase the WAL Ordinary Shares shall expire at 9:00 a.m.,
New York time, on the Effective Date or such other time (the "Effective Time")
and/or date (the "Effective Date") as may be agreed upon by Scotsman and WAL.
Scotsman intends to accept for payment the WAL Ordinary Shares and the WAL
Preferred Shares, if any, tendered pursuant to the Share Acquisition Agreement
as promptly as possible following the satisfaction or waiver of all conditions
precedent to its right and obligation to accept such shares. The parties
currently anticipate that the Share Acquisition will be consummated on or about
April , 1994, although there can be no assurance as to whether or when the
Share Acquisition will be consummated. See "Conditions to the Consummation of
the Share Acquisition." Scotsman and WAL each have the right to terminate the
Share Acquisition Agreement if the Share Acquisition has not been consummated on
or before May 1, 1994.
REPRESENTATIONS AND WARRANTIES
The Share Acquisition Agreement contains various representations and
warranties relating to, among other things, the organization and capitalization
of Scotsman, WAL, Whitlenge and WB, the authorization and enforceability of the
Share Acquisition Agreement, the financial statements of WAL and Whitlenge and
certain documents filed by Scotsman with the Commission, operations of Scotsman
and WAL since the date of the most recent audited balance sheet of each company,
compliance with laws, and litigation. The representations and warranties of the
Acquisition Shareholders also relate, among other things, to ownership of the
WAL Ordinary Shares by the Acquisition Shareholders, the assets, real property,
personal property, leased property, accounts receivable, inventories, and
intellectual property of Whitlenge, taxes, undisclosed liabilities, product
warranties offered by Whitlenge and WB, employee benefit plans, insurance,
employee and labor relations, customers and suppliers and environmental matters.
CONDITIONS TO THE CONSUMMATION OF THE SHARE ACQUISITION
The parties are not obligated to consummate the Share Acquisition unless
the Share Issuance has been approved by the requisite vote of the holders of the
Scotsman Common Stock, the tender offer has been unanimously accepted by the
holders of all of the WAL Ordinary Shares, and all of the WAL Ordinary Shares
have in fact been tendered, accompanied by a share transfer form endorsed in
blank, and, if tendered, not withdrawn.
The obligation of Scotsman or Tender Sub to consummate the Share
Acquisition are also subject to the satisfaction (or waiver) of the following
conditions: (i) certain of the Acquisition Shareholders shall have entered into
noncompetition agreements with Scotsman, (ii) Scotsman shall have received the
resignations of
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each director of WAL, Whitlenge or WB, effective upon the Expiration Date, that
it shall have requested to resign, (iii) the Management Agreement, dated April
1, 1992, between WAL, Whitlenge and Onex U.S., the Management Advisory
Agreement, dated April 1, 1992, between WAL, Whitlenge and The Diggs Group, and
the Shareholders' Agreement, dated April 1, 1992, shall have been terminated,
(iv) either (A) all of the WAL Preferred Shares shall have been tendered,
accompanied by a stock transfer form executed in blank, and, if tendered, not
withdrawn, (B) all of the WAL Preferred Shares shall have been purchased by
Tender Sub or Scotsman for an aggregate purchase price not exceeding L2 million
plus accrued dividends, or (C) Scotsman shall be satisfied, in its reasonable
judgment, that; after giving effect to a contribution of L2 million (plus
accrued dividends) to WAL's ordinary share capital or a subscription for
additional WAL Ordinary Shares equal to such amount, WAL will be able to redeem
all of the issued WAL Preferred Shares, without certain specified adverse
consequences and at no further cost to Scotsman, Tender Sub, WAL or Whitlenge,
(v) the terms of the Service Contracts between Whitlenge, certain Acquisition
Shareholders and certain other employees of WAL shall have been extended until
April 1, 1995 and shall remain in full force and effect, and (vi) the average
Closing Price of the Scotsman Common Stock for the ten trading days prior to the
date of the Special Meeting shall not have been more than $14.50. The
obligations of the Acquisition Shareholders to consummate the Share Acquisition
are also subject to satisfaction (or waiver) of the condition that the average
Closing Price of the Scotsman Common Stock for the ten trading days prior to the
date of the Special Meeting shall not have been less than $10.50.
The Share Acquisition Agreement also contains certain mutual conditions to
the obligations of the parties, including the following: (i) the Merger
Agreement shall continue in full force and effect, and the Merger shall have
been consummated simultaneously with the consummation of the Share Acquisition,
(ii) the parties shall have received all governmental approvals reasonably
necessary to consummate the transactions contemplated by the Share Acquisition
Agreement (including those necessary to prevent a Material Adverse Effect (as
defined in the Share Acquisition Agreement) on WAL, Whitlenge and WB, on the one
hand, or on Scotsman and its subsidiaries, on the other hand, in each case taken
as a whole, (iii) WAL and Whitlenge shall have received consents to the
transactions contemplated by the Share Acquisition Agreement under all material
contracts to which WAL, Whitlenge or WB is a party which are necessary to
prevent a Material Adverse Effect (as defined in the Share Acquisition
Agreement) on WAL, Whitlenge and WB, taken as whole, (iv) Scotsman and the
Acquisition Shareholders shall have entered into the Registration Rights
Agreement (as described below), (v) the NYSE shall have approved for listing,
upon official notice of issuance, the Scotsman Contingent Shares issuable under
the Share Acquisition Agreement, and (vi) other conditions customary in such
agreements, including (A) the absence of any material breach by the other party
in the performance of its obligations under the Share Acquisition Agreement and
(B) the continued accuracy, on the Expiration Date, of the representations and
warranties of the other party contained in the Share Acquisition Agreement
(except for certain permitted changes in the representations and, with respect
to certain representations and warranties, changes which are not material).
ALTHOUGH SCOTSMAN HAS RECEIVED WRITTEN COMMITMENTS FROM LENDERS TO PROVIDE THE
FINANCING NECESSARY TO CONSUMMATE THE SHARE ACQUISITION, SCOTSMAN'S OBLIGATIONS
TO CONSUMMATE THE SHARE ACQUISITION ARE NOT CONDITIONED UPON THE CONSUMMATION OF
SUCH FINANCING. See "Other Related Matters -- Proposed Financing."
No assurance can be given as to when or if all of the conditions precedent
to the Share Acquisition can or will be satisfied or waived by the party
permitted to waive any such condition.
CONDUCT OF BUSINESS PENDING THE SHARE ACQUISITION
Under the Share Acquisition Agreement, WAL, Whitlenge and Scotsman have
each agreed (and WAL and Whitlenge have agreed to cause WB) to conduct their
respective businesses in the ordinary course pending the consummation of the
Share Acquisition and to use reasonable efforts to preserve intact their current
business organizations, keep available the services of their current officers
and preserve their relationships with customers and suppliers and other
entities.
NON-SOLICITATION AGREEMENT
Under the Share Acquisition Agreement, WAL, Whitlenge and their affiliates
have also agreed that, between the date of the Share Acquisition Agreement and
the Effective Date, they will not, nor will they
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authorize or permit any of their officers, directors, employees, advisers or
representatives, to (i) solicit, initiate or encourage any proposal for a merger
or other business combination involving WAL, Whitlenge or WB or any proposal or
offer to acquire in any manner, directly or indirectly, an equity interest in,
or any voting securities of, WAL, Whitlenge or WB or a substantial portion of
the assets of Whitlenge or WB (any of the foregoing constituting a "WAL
Acquisition Proposal"), (ii) enter into any agreement with respect to a WAL
Acquisition Proposal or (iii) except to the extent required by law as advised by
counsel in writing, participate in any discussions or negotiations regarding, or
furnish to any person any information for the purpose of facilitating the making
of, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, a WAL
Acquisition Proposal.
WAIVER AND AMENDMENT; TERMINATION
The Share Acquisition Agreement provides that the parties may amend, modify
and supplement the Share Acquisition Agreement by mutual agreement in writing.
The Share Acquisition Agreement will terminate upon any termination of the
Merger Agreement. The Share Acquisition Agreement may also be terminated at any
time prior to the Expiration Date (i) by the mutual consent of Scotsman and WAL,
(ii) by Scotsman upon any material breach of certain covenants contained in the
Share Acquisition Agreement by WAL, Whitlenge or any of the Acquisition
Shareholders, (iii) by WAL, upon any material breach of certain covenants
contained in the Share Acquisition Agreement by Scotsman, (iv) by Scotsman, if
any of the conditions precedent to its obligation to consummate the Share
Acquisition has not been satisfied (or waived by Scotsman) at such time as such
condition can no longer be satisfied, (v) by WAL, if any of the conditions
precedent to its obligation to consummate the Share Acquisition has not been
satisfied (or waived by WAL, Whitlenge and the Acquisition Shareholders) at such
time as such condition can no longer be satisfied, or (vi) by Scotsman or WAL,
if the Share Acquisition has not been consummated on or before May 1, 1994.
CERTAIN PROVISIONS COMMON TO THE
MERGER AGREEMENT AND THE SHARE ACQUISITION AGREEMENT
SCOTSMAN CONTINGENT COMMON SHARES
Under the terms of the Merger Agreement and the Share Acquisition
Agreement, the holders of DFC Common Stock and the Warrant as of the Effective
Date and the sellers of WAL Ordinary Shares shall be entitled to receive up to
667,000 Scotsman Contingent Common Shares if combined earnings before interest,
income taxes, depreciation and amortization of Delfield and Whitlenge for the
Measurement Periods ("EBITDA") equals or exceeds $17 million. More specifically,
the Merger Agreement and Share Acquisition Agreement provide that:
(i) If EBITDA is less than $17 million, no Scotsman Contingent Common
Shares shall be issued;
(ii) If EBITDA is equal to or greater than $17 million and less than
$17.5 million, Scotsman shall deliver,
(A) to the holders of DFC Common Stock and the Warrant immediately
prior to the Effective Time, their respective portion of a number of
Scotsman Contingent Common Shares equal to the number obtained by
multiplying (1) 520,260 by (2) the quotient obtained by dividing (a) the
excess of EBITDA over $17 million by (b) $500,000, and
(B) to the sellers of the WAL Ordinary Shares purchased by Scotsman
in the Share Acquisition, their respective portions, as described below,
of a number of Scotsman Contingent Common Shares equal to the number
obtained by multiplying (1) 146,740 by (2) the quotient obtained by
dividing (a) the excess of EBITDA over $17 million by (b) $500,000; and
(iii) If EBITDA is equal to or greater than $17.5 million, Scotsman
(A) shall deliver to the holders of DFC Common Stock and the Warrant
immediately prior to the Effective Time, their respective portions of
520,260 Scotsman Contingent Common Shares and (B) shall deliver, or cause
Tender Sub to deliver, to the sellers of the WAL Ordinary Shares purchased
by Scotsman, their respective portions, as described below, of 146,740
Scotsman Contingent Common Shares.
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<PAGE> 42
The sellers of WAL "A" Ordinary Shares, WAL "B" Ordinary Shares and WAL "C"
Ordinary Shares will be entitled to receive an aggregate of 15%, 62% and 23%,
respectively, of the total number of Scotsman Contingent Common Shares, if any,
issued to the sellers of the WAL Ordinary Shares, in each case to be allocated
among the sellers of each such class of shares in accordance with their
respective Pro Rata Shares.
Subject to certain exceptions set forth in Section 2.2 of the Merger
Agreement, EBITDA is to be determined in accordance with generally accepted
accounting principles applied on a basis consistent with those applied in DFC's
1992 audited, and September 30, 1993 unaudited interim, balance sheets and
statements of income, as delivered to Scotsman prior to the execution of the
Merger Agreement. EBITDA is also to be computed without regard to any
adjustments which may be recorded by Scotsman as a result of the transactions
contemplated by the Merger Agreement or the Share Acquisition Agreement or any
expenses recorded by Delfield or Whitlenge in connection with the Merger or the
Share Acquisition and in accordance with certain other agreed upon principles
specified in the Merger Agreement. Under the Merger Agreement and the Share
Acquisition Agreement, Scotsman has also agreed to conduct the business of
Delfield and Whitlenge, during the Measurement Periods, in accordance with
certain agreed-upon operating principles, consistent with the practices and
policies of Delfield and Whitlenge as in effect on the closing of the Merger and
Share Acquisition.
In the event that certain events specified in the Merger Agreement and the
Share Acquisition Agreement take place between the date of the Merger Agreement
and the Share Acquisition and the date on which Scotsman Contingent Common
Shares become issuable, an appropriate adjustment will be made in the number of
shares of Scotsman Common Stock and/or the kind of securities issued as Scotsman
Contingent Common Shares in order to provide the holders of DFC Common Stock and
the Warrant as of the Effective Time of the Merger and the sellers of the WAL
Ordinary Shares with the same number of shares of Scotsman Common Stock and/or
such securities that they would have received had the issuance of the Scotsman
Contingent Common Shares occurred immediately prior to such event. Such events
include: (i) any stock split, stock dividend, reclassification or similar change
with respect to the Scotsman Common Stock, (ii) any conversion, change, exchange
or reclassification of Scotsman Common Stock into another security or form of
property pursuant to any merger, consolidation, acquisition of business and
assets, reorganization or recapitalization, and (iii) certain distributions to
holders of Scotsman Common Stock of cash in an aggregate amount that, combined
together with all other such distributions made exclusively in cash within the
preceding 12 months in respect of which no adjustment has been made, exceeds 15%
of Scotsman's market capitalization on the record date for such distribution
(being the product of the then current market price of the Scotsman Common Stock
and the number of outstanding shares of Scotsman Common Stock).
No later than 90 days after the end of its fiscal year ended January 1,
1995, Scotsman is required to deliver to Onex, as stockholder representative
(the "Stockholder Representative"), a notice specifying the amount of EBITDA,
together with the principal calculations made in such determination. If Onex is
unable or unwilling to serve as Stockholder Representative, then Matthew O.
Diggs, Jr., will assume the position. If Matthew O. Diggs, Jr. is unable or
unwilling to serve as Stockholder Representative, then those persons who would
be entitled to receive 50% or more of the Scotsman Contingent Common Shares
issuable pursuant to the Merger Agreement and the Share Acquisition Agreement
shall appoint, by written instrument delivered to Scotsman, the person who is to
serve as Stockholder Representative.
The Stockholder Representative will have the right to object to Scotsman's
calculation of EBITDA within 45 days of receipt of Scotsman's notice of such
calculation. In the event that Scotsman and the Stockholder Representative are
unable to resolve their differences within 30 days of the expiration of such 45-
day period, any unresolved objections will be submitted for resolution to the
Detroit, Michigan office of KPMG Peat Marwick (or such other national accounting
firm acceptable to both Scotsman and the Stockholder Representative). The amount
of EBITDA, as determined by such accounting firm and giving effect to any other
adjustments previously agreed upon by Scotsman and the Stockholder
Representative, will be final and binding for purposes of the Merger Agreement
and the Share Acquisition Agreement.
The right to receive Scotsman Contingent Common Shares, if any, shall not
be assignable or transferable except by operation of law. A certificate for any
whole Scotsman Contingent Common Shares which become
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<PAGE> 43
issuable under the Merger Agreement or the Share Acquisition Agreement shall be
mailed, in accordance with the customary practice of Scotsman or its transfer
agent, to holders of DFC Common Stock and the Warrant as of the Effective Time
of the Merger and the sellers of the WAL Ordinary Shares, their respective
successors by operation of law, or any Permitted Transferee (as defined below),
as applicable. No fractional shares of Scotsman Contingent Common Stock will be
issued. Instead, the Merger Agreement and the Share Acquisition Agreement both
provide that each person who would otherwise receive a fraction of a share of
Scotsman Contingent Common Stock will receive, in lieu thereof, a cash amount
equal to the value of such fractional share based upon the Closing Price (as
defined above) of Scotsman Common Stock on the last business day prior to the
issuance of the Scotsman Contingent Common Stock. In the event that any dividend
or other distribution is paid to the holders of record of Scotsman Common Stock
on or after the date of final determination of EBITDA but before the date of
issuance of the Scotsman Contingent Common Shares, Scotsman will also pay, on
the date of such issuance, to each person to whom such Scotsman Contingent
Common Shares are issued, the amount (without interest) of the dividends or
distributions payable with respect to the number of whole Scotsman Contingent
Common Shares issued to such person.
INDEMNIFICATION
The Merger Agreement and the Share Acquisition Agreement each provide that,
from and after the Effective Time and the Expiration Time, the Merger
Shareholders and the Acquisition Shareholders will indemnify Scotsman, DFC,
Delfield, WAL, Whitlenge and WB, together, in each case, with their
subsidiaries, affiliates and successors, in an aggregate amount of up to $30
million, for any losses or expenses incurred in connection with, or arising out
of (i) any failure of the Merger Shareholders or the Acquisition Shareholders to
perform, after the Effective Time or the Expiration Time, any of their
obligations which were to be performed after such date under the Merger
Agreement or the Share Acquisition Agreement, (ii) any breach of (A) any
representation or warranty of DFC, Delfield, or any Merger Shareholder or WAL,
Whitlenge or any Acquisition Shareholder contained in the Merger Agreement or
the Share Acquisition Agreement or any related documents, and (iii) certain
existing proceedings in which Delfield has been named as a defendant, including
certain existing claims and proceedings arising out of a fire that occurred on
February 5, 1992 at the Indianapolis Athletic Club and any other claim, suit,
action or proceeding relating to or arising out of such fire. See "Certain
Information Concerning DFC -- Legal Proceedings." Each individual Merger
Shareholder or Acquisition Shareholder is obligated to pay only that percentage
of each individual loss or expense equal to the percentage of such shareholder's
combined interest in DFC and WAL as of the Effective Date and the Expiration
Date or, in the aggregate, an amount equal to such percentage times $30 million.
Scotsman and the corporation surviving the Merger between DFC and Merger
Sub (in the case of the Merger Shareholders) are also required, from and after
the Effective Time and the Expiration Time, to indemnify the Merger Shareholders
and the Acquisition Shareholders, together, in each case, with their
subsidiaries, affiliates and successors, in an aggregate amount of up to $30
million, for any losses or expenses incurred in connection with, or arising out
of (i) Scotsman's, or such surviving corporation's, failure to perform, after
the Effective Time or the Expiration Time, any of the obligations which were to
be performed by them after such date under the Merger Agreement or the Share
Acquisition Agreement, or (ii) any breach of any representation or warranty of
any representation of Scotsman or Merger Sub contained in the Merger Agreement,
the Share Acquisition Agreement or any related documents. Under certain
circumstances, Scotsman may be required to pay up to 81% of such amount in
shares of Series B Preferred Stock (valued for such purpose at 100% of its
liquidation preference) and the remainder in cash.
An indemnifying party is obligated to provide such indemnification only to
the extent that the aggregate amount of the losses and expenses incurred by the
indemnified parties exceeds $250,000. Such indemnification obligations will
continue indefinitely with respect to breaches of post-closing covenants and of
a limited number of representations and warranties contained in the Merger
Agreement and the Share Acquisition Agreement. The parties will be obligated to
provide indemnification with respect to breaches of most of the representations
and warranties contained in the Merger and Share Acquisition Agreement, however,
only if such breach occurs before the third, or in other instances, the fourth
anniversary of the Effective Date or the Expiration Date. The Merger Agreement
and Share Acquisition Agreement both provide that, in the event that the Merger
or the Share Acquisition, as the case may be, is consummated, such
indemnification will
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<PAGE> 44
constitute the sole remedy for any claim against any party for breach of the
Merger Agreement or the Share Acquisition Agreement, respectively, or in
connection with any of the transactions contemplated thereby (other than a claim
for breach of the noncompetition agreements entered into pursuant to the Merger
Agreement or the Share Acquisition Agreement, as the case may be, or of the
Registration Rights Agreement (as defined below) or certain other specified
breaches).
FEES AND EXPENSES
The Merger Agreement and Share Acquisition Agreement each provide that,
subject to the exceptions set forth below, each of the parties will bear its own
costs and expenses in connection with the preparation, negotiation and
performance of the Merger Agreement and the Share Acquisition Agreement and the
consummation of the transactions contemplated thereby. DFC and Delfield are to
bear $390,000 of the expenses incurred by DFC, Delfield and the Merger
Shareholders in connection with the Merger Agreement, and Scotsman is to bear
$110,000 of the expenses incurred by WAL, Whitlenge and the Acquisition
Shareholders. The Merger Shareholders and the Acquisition Shareholders,
respectively, are to bear the remainder of such expenses.
Notwithstanding the foregoing, DFC and Delfield are obligated to pay up to
$1 million of Scotsman's and Merger Sub's expenses (less expenses in an amount
up to $220,000 paid by the Acquisition Shareholders to Scotsman under the Share
Acquisition Agreement) if (i) the Merger Agreement is terminated (A) by
Scotsman, because the Merger Agreement has not been unanimously approved by the
holders of all of the DFC Common Stock, or (B) by DFC, if any holder of DFC
Common Stock has delivered to DFC a written demand for appraisal of such DFC
Common Stock under Section 262 of the DGCL, or (ii) the Share Acquisition
Agreement is terminated because the tender offer has not been unanimously
accepted by all holders of WAL Ordinary Shares or all of the WAL Ordinary Shares
have not been tendered or if tendered, any of the WAL Ordinary Shares have been
withdrawn. The Acquisition Shareholders are similarly obligated to pay up to $1
million of Scotsman's expenses (less expenses in an amount up to $780,000 paid
to Scotsman and Merger Sub by DFC and Delfield) if the Share Acquisition
Agreement is terminated because the tender offer has not been unanimously
accepted by all holders of WAL Ordinary Shares or all of the WAL Ordinary Shares
have not been tendered or if tendered, any of WAL Ordinary Shares have been
withdrawn, or the Merger Agreement is terminated for either of the reasons set
forth in clauses (i) and (ii) of the preceding sentence. Following a termination
of either the Merger Agreement or the Share Acquisition Agreement for one or
more of the reasons set forth in the preceding two sentences, DFC, Delfield, and
the Acquisition Shareholders are obligated to pay, in addition to any amounts
due for expenses under the preceding two sentences, a fee in the aggregate
amount of $3 million (with $2,340,000 of that amount to be paid by DFC and
Delfield and $660,000 of that amount to be paid by the Acquisition
Shareholders), if, within one year of such termination, any of DFC, Delfield,
WAL, Whitlenge or any combination thereof effects an initial public offering of
its shares or if any person or persons acquires, in one or a related series of
transactions, a substantial portion of the assets of Delfield and Whitlenge or
more than 50% of the shares of capital stock of DFC, Delfield, WAL or Whitlenge,
in each case for a per share consideration (or the equivalent thereof)
representing a valuation of DFC, Delfield, WAL or Whitlenge greater than that
represented by the Merger Agreement or the Share Acquisition Agreement.
AGREEMENTS REGARDING THE ELECTION OF DIRECTORS
Scotsman. Under the terms of the Merger Agreement, Scotsman has agreed, on
or before the Effective Date, to increase the size of its board of directors
from seven to eight directors, with the additional directorship to be in the
class of directors whose term expires at the 1996 annual meeting of
shareholders. Scotsman has further agreed to appoint Timothy C. Collins to the
currently existing vacancy in the class of directors whose
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<PAGE> 45
term expires at the 1995 annual meeting of shareholders and to appoint Matthew
O. Diggs, Jr. to the newly created directorship. The following table sets forth
certain information about Mr. Collins and Mr. Diggs.
<TABLE>
<CAPTION>
NO. OF SHARES OF
SCOTSMAN COMMON STOCK
TO BE BENEFICIALLY
OWNED IMMEDIATELY PERCENT
PRINCIPAL OCCUPATION AND AFTER OF
NAME AND AGE OTHER DIRECTORSHIPS THE EFFECTIVE TIME CLASS(1)
- ------------------------------ ------------------------------- --------------------- -------
<S> <C> <C> <C>
Timothy C. Collins (37)....... Mr. Collins is a Managing 89,647(2) .92%
Director of Onex Investment
Corp. (New York), a management
company for the U.S.
investments of Onex, and has
held that position since 1990.
From 1988 to 1990, he was a
Vice President of Lazard Freres
& Co., an investment banking
firm. He has been a director of
DFC since 1991 and of WAL since
1992. Such positions will
terminate as of the Effective
Date.
Matthew O. Diggs, Jr. (61).... Mr. Diggs is the Chief 570,128(3) 5.86%
Executive Officer of The Diggs
Group, a New York general
partnership that provides
investment banking services,
and has held that position
since 1990. From 1987 to 1990,
Mr. Diggs was Vice Chairman of
Copeland Corporation, a
refrigerator compressor
manufacturer, having served as
President and Chief Executive
Officer of Copeland Corporation
from 1975 to 1987. Mr. Diggs
has been Chairman of the Board
of DFC since its inception in
1991 and of WAL since 1992.
Such positions will terminate
as of the Effective Date.
</TABLE>
- -------------------------
(1) Based upon an estimated total of 9,733,639 outstanding shares of Scotsman
Common Stock, on a fully diluted basis. As of February 15, 1994, 7,008,254
shares of Scotsman Common Stock were issued and outstanding. Taking into
account the elimination of fractional shares, approximately 1,199,992
shares of Scotsman Common Stock, and 1,999,992 shares of Series A
Convertible Preferred Stock, convertible into 1,525,393 shares of Scotsman
Common Stock, will be issued in the Merger.
(2) Includes 39,472 shares of Scotsman Common Stock and 50,175 shares of
Scotsman Common Stock issuable upon the conversion of 65,787 shares of
Series A Convertible Preferred Stock to be issued to Mr. Collins in the
Merger, with respect to which Mr. Collins will have shared voting and sole
investment power. The shares do not include any shares of Scotsman Common
Stock beneficially owned by Onex as to which Mr. Collins disclaims
beneficial ownership. See "Certain Provisions Common to the Merger
Agreement and the Share Acquisition Agreement -- Ownership and Voting of
the New Scotsman Stock."
(3) Includes 250,985 shares of Scotsman Common Stock and 319,043 shares of
Scotsman Common Stock issuable upon the conversion of 418,308 shares of
Series A Convertible Preferred Stock to be issued in the Merger to EJJM, a
New York general partnership of which Mr. Diggs is the sole managing
general partner, with respect to which Mr. Diggs will have shared voting
and sole investment power, 70 shares of Scotsman Common Stock owned by Mr.
Diggs prior to the Merger, and 30 shares of Scotsman Common Stock owned by
Mr. Diggs' son, Matthew O. Diggs III. Mr. Diggs disclaims beneficial
ownership of the 30 shares owned by his son.
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<PAGE> 46
Scotsman has further agreed that, so long as the Merger Shareholders, the
Acquisition Shareholders and their Permitted Transferees (as defined below)
(collectively, the "New Scotsman Shareholders") own, on a fully diluted basis,
at least 1,688,578 shares of Scotsman Common Stock (reduced by one-half of the
amount equal to the excess, if any, of 651,733 over the sum of the number of
Scotsman Contingent Common Shares finally determined to be issuable under the
terms of the Merger Agreement and the Share Acquisition Agreement, respectively
(the "Reduction Amount")), the New Scotsman Shareholders, as a group, will be
entitled to designate the persons nominated by Scotsman's Board of Directors to
fill the directorships initially held by Mr. Collins and Mr. Diggs. If at any
time the New Scotsman Shareholders own, on a fully diluted basis, fewer than
1,688,578 shares of Scotsman Common Stock (reduced by one-half of the Reduction
Amount) but more than 1,114,462 shares of Scotsman Common Stock (reduced by 33%
of the Reduction Amount), the New Scotsman Shareholders will have the right to
designate only one person to be nominated to fill a directorship. The
designation of such person will be made pursuant to the New Stockholders'
Agreement (as defined below). If, at any time, the New Scotsman Shareholders
own, on a fully diluted basis, fewer than 1,114,462 shares of Scotsman Common
Stock (reduced by 33% of the Reduction Amount) the New Scotsman Shareholders
will have no further right under the Merger Agreement to designate any nominees
for election to Scotsman's Board of Directors. In the event of a
recapitalization, stock dividend, split or other similar change taking place
after the date of the Merger Agreement, the stock ownership numbers set forth in
the preceding sentences will be appropriately adjusted.
Pursuant to a Stockholders' Agreement, dated as of January 11, 1994, among
the Merger Shareholders and the Acquisition Shareholders (as amended from time
to time, the "New Stockholders' Agreement"), the Merger Shareholders and the
Acquisition Shareholders have agreed that, so long as they are entitled to
designate two members of Scotsman's Board of Directors, Onex, so long as it
holds Scotsman Common Stock or Series A Convertible Preferred Stock, shall have
the right to designate (and remove) one such director and EJJM, so long as it
holds Scotsman Common Stock or Series A Convertible Preferred Stock shall have
the right to designate (and remove) the other such director. If the New Scotsman
Shareholders are entitled to designate only one member of Scotsman's Board of
Directors, whichever of Onex or EJJM owns the higher percentage of Scotsman
Common Stock (on a fully diluted basis) at the time of such designation will be
entitled to make such designation. In all other cases, the holders of a majority
of the Scotsman Common Stock (on a fully diluted basis) held by the New Scotsman
Shareholders at the time that they are entitled to designate one or more members
of Scotsman's Board of Directors shall make such designation. Scotsman is not a
party to the New Stockholders Agreement and therefore cannot enforce the
obligations of any party thereunder.
So long as the New Scotsman Shareholders are entitled to designate at least
one nominee to Scotsman's Board of Directors, (i) Scotsman has agreed to cause
the size of the Board of Directors not to exceed eight directors (unless the
holders of shares of any preferred stock of Scotsman, including the Series A
Convertible Preferred Stock, are entitled to elect directors pursuant to the
applicable certificate of designation for such preferred stock, in which case,
the size of the board may be increased by the number of additional directors
required to be added under such certificate of designation), and (ii) subject to
certain limited exceptions with respect to shares of capital stock held or
acquired by affiliates of Pacific Mutual and PM, the Merger Shareholders and the
Acquisition Shareholders have agreed to vote, to cause any affiliates or
associates controlled by them to vote, and to use reasonable best efforts to
cause any other affiliates or associates to vote, all shares of capital stock of
Scotsman owned by them in favor of all of the nominees to the Board of Directors
recommended by Scotsman's Board of Directors.
The right of the New Scotsman Shareholders to designate one or more
nominees to Scotsman's Board of Directors and their obligation pursuant to
clause (ii) of the preceding sentence will terminate on the tenth anniversary of
the date of the Merger Agreement and the Share Acquisition Agreement unless such
obligation is extended by written agreement among Scotsman and the New Scotsman
Shareholders, after the eighth but before the tenth anniversary of such date.
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<PAGE> 47
If the right of the New Scotsman Shareholders to designate one or more
nominees to Scotsman's Board of Directors shall cease (either because the number
of shares of Scotsman Common Stock held by the New Scotsman Shareholders has
declined below the levels specified above or because their obligations under the
Merger Agreement and the Share Acquisition Agreement have not have been extended
in accordance with the preceding paragraph) at a time when any designee of the
New Scotsman Shareholders is currently a member of Scotsman's Board of
Directors, then, upon Scotsman's request, (i) any such designee who is a New
Scotsman Shareholder shall promptly resign as a director, and (ii) the New
Scotsman Shareholders will use their best efforts to cause any designee or
designees who are not New Scotsman Shareholders to resign promptly.
Under the New Stockholders' Agreement, each Merger Shareholder who is a
Merger Shareholder as of the date of the New Stockholders' Agreement further
agrees not to reduce prior to the Merger or, for a period of twelve months
following the Effective Date, such Merger Shareholder's ownership of New
Scotsman Stock to a number of shares having value, as of the Effective Date, of
less than 40% of the consideration received by such Merger Shareholder
(excluding any Scotsman Contingent Common Shares and including any amounts
received by such Merger Shareholder in connection with a Permitted
Distribution). Each Merger Shareholder and Acquisition Shareholder further
agrees not to sell or dispose of any New Scotsman Stock, other than in an
underwritten public offering or sale effected in a public market by a broker,
without obtaining from the transferee and delivering to the other parties to the
New Stockholders' Agreement and to Scotsman, such transferee's written consent
to become a party to the New Stockholders' Agreement.
"Permitted Transferees," with respect to any Merger Shareholder or
Acquisition Shareholder (other than Onex or Onex DHC), include: (i) any other
Merger Shareholder or Acquisition Shareholder, respectively, (ii) any of its
controlled affiliates, (iii) in the event of the dissolution, liquidation, or
winding up of any Merger Shareholder or Acquisition Shareholder that is a
partnership or a corporation, the partners, shareholders or certain successor
partnerships or successor corporations of the Merger Shareholder or the
Acquisition Shareholder, (iv) a transferee by testamentary or intestate
disposition, (v) the spouse, children and/or other relatives of such Merger
Shareholder or Acquisition Shareholder, (vi) certain trust transferees by inter
vivos transfer, or (vii) certain successor nominees or trustees to whom shares
of DFC Common Stock or WAL Ordinary Shares have been transferred prior to the
Effective Time or the Expiration Date, respectively. The aggregate number of
shares transferred from one Merger Shareholder to any other Merger Shareholder
may not exceed 1,500,000, and the aggregate number of shares transferred from
any Acquisition Shareholder to any other Acquisition Shareholder may not exceed
300,000. Subject to certain limited exceptions with respect to Permitted
Transferees of Acquisition Shareholders, any Permitted Transferee who was not a
Shareholder of DFC or WAL, as the case may be, prior to such transfer shall
agree, in writing, to be bound by the obligations of a New Scotsman Shareholder
under the Merger Agreement or the Share Acquisition Agreement, as applicable.
OWNERSHIP AND VOTING OF THE NEW SCOTSMAN STOCK
Immediately following the Merger and the Share Acquisition, the
shareholders of DFC and WAL will hold approximately 28% of the issued and
outstanding shares of Scotsman Common Stock, based on the number of shares of
Scotsman Common Stock issued and outstanding as of February 15, 1994 and
assuming conversion of all of the shares of Series A Convertible Preferred
Stock. The three largest shareholders of DFC, Onex, Pacific Mutual (together
with its affiliate PM), and EJJM will hold approximately 13.2%, 8.1% and 5.9%,
respectively, of the outstanding Scotsman Common Stock, based on the number of
shares of Scotsman Common Stock issued and outstanding as of February 15, 1994
and assuming conversion of all of the shares of the Series A Convertible
Preferred Stock.
If the shareholders of DFC and WAL subsequently become entitled to receive
all 667,000 Scotsman Contingent Common Shares, they will hold, in the aggregate,
and based upon the same assumptions set forth in the preceding paragraph,
approximately 33% of the issued and outstanding Scotsman Common Stock. Under
such circumstances, Onex, Pacific Mutual (together with its affiliate PM), and
EJJM will hold approximately 15.5%, 8.5% and 6.8%, respectively, of the
outstanding Scotsman Common Stock.
37
<PAGE> 48
Under the New Stockholders' Agreement, each of the Merger Shareholders and
the Acquisition Shareholders has granted Onex an irrevocable proxy with respect
to all of the New Scotsman Stock issued or issuable to such shareholder in
connection with the Merger and the Share Acquisition. Such proxy includes the
right to vote for the transaction of any and all business that may come before
an annual, general or special meeting of Scotsman's shareholders, including the
right to vote for the sale of all or any part of the assets of Scotsman and/or
the liquidation and the dissolution of Scotsman. Such proxy will automatically
terminate on January 10, 1999 or if Onex shall hold less than 30% of the number
of shares of Scotsman Common Stock (on a fully diluted basis) initially acquired
by it pursuant to the Merger. Such proxy will also terminate with respect to
specific shares of New Scotsman Stock upon the sale or transfer of such New
Scotsman Stock to any person other than a person that directly or indirectly
controls, is controlled by, or is under common control with, or, in the case of
an individual shareholder, is a member of the immediate family of, any such
transferring shareholder.
Immediately following the Merger and the Share Acquisition, Onex will
therefore have the right, under the New Stockholders' Agreement, to vote 28% of
the issued and outstanding shares of Scotsman Common Stock, based on the number
of shares of Scotsman Common Stock issued and outstanding as of February 15,
1994 and assuming the conversion of all of the outstanding shares of the Series
A Convertible Preferred Stock. If the shareholders of DFC and WAL subsequently
become entitled to receive the maximum number of Scotsman Contingent Common
Shares issuable to such shareholders under the terms of the Merger Agreement and
the Share Acquisition Agreement, Onex will have the right, under the New
Stockholders' Agreement, to vote approximately 33% of the issued and outstanding
shares of Scotsman Common Stock, based on the number of shares of Scotsman
Common Stock issued and outstanding as of February 15, 1994 and assuming the
conversion of all of the outstanding shares of the Series A Convertible
Preferred Stock.
STANDSTILL AGREEMENT
Under the terms of both the Merger Agreement and the Share Acquisition
Agreement, unless specifically requested in writing, in advance, by Scotsman's
Board of Directors, the New Scotsman Shareholders may not, for a period of five
years from the date of the Merger Agreement and the Share Acquisition Agreement,
directly or indirectly (i) acquire any voting securities or securities
convertible into, or any rights, warrants or options to acquire, any voting
securities of Scotsman (other than pursuant to the Merger Agreement and the
Share Acquisition Agreement or upon conversion of the Series A Convertible
Preferred Stock issued in the Merger), (ii) make, or assist or induce any other
person to make, any proposal regarding an acquisition or other transaction that
could result in a change of control of Scotsman, (iii) solicit proxies or
otherwise participate in a proxy contest with respect to Scotsman, (iv) enter
into any discussions, negotiations, arrangements or understandings with any
other person with respect to any of the foregoing actions, (v) request a waiver
to permit any of the foregoing actions, or (vi) take any action with respect to
any of the foregoing matters which requires public disclosure. In the event,
however, that the Merger Agreement and the Share Acquisition Agreement are
terminated in accordance with their terms, the New Scotsman Shareholders,
together with their affiliates, may acquire beneficial ownership of shares of
Scotsman Common Stock representing less than 5% of the outstanding shares.
Under the terms of the Merger Agreement and the Share Acquisition
Agreement, the New Scotsman Shareholders and their successors are also
prohibited from selling, in any transaction or related transactions, more than
500,000 shares of Scotsman Common Stock (on a fully diluted basis and
appropriately adjusted for any recapitalization, stock dividend, stock split or
other change in the capital stock taking place after the date of the Merger
Agreement) to a single person or group (other than a group of underwriters in
connection with an underwritten public offering) unless such person or group
agrees to the provisions of this paragraph and the preceding paragraph. Under
the terms of the Merger Agreement, certain restrictions described in this
section do not apply to certain affiliates of Pacific Mutual and PM.
CERTAIN EFFECTS OF THE AGREEMENTS REGARDING THE ELECTION OF DIRECTORS AND
STANDSTILL AGREEMENTS
The provisions of the Merger Agreement relating to the voting of the New
Scotsman Stock in the election of directors and the standstill provisions are
expected to deter any attempt by the New Scotsman
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<PAGE> 49
Shareholders to effect an acquisition or change of control of Scotsman without
the prior approval of Scotsman's Board of Directors. The provisions may also
deter any such attempt by such other persons who, in the absence of such
provisions, might otherwise have acquired from the New Scotsman Shareholders a
substantial number of shares of the New Scotsman Stock. Such provisions may also
discourage a merger, tender offer or proxy contest by persons other than the New
Scotsman Shareholders.
OTHER RELATED MATTERS
PROPOSED FINANCING
In order to provide the financing for the cash to be paid by Scotsman for
the WAL Ordinary Shares pursuant to the Share Acquisition Agreement, the cash
portion of the consideration to be paid by Scotsman with respect to the DFC
Common Stock in the Merger, refinancing of up to $50 million of outstanding
indebtedness of Whitlenge, DFC and Delfield (depending, in part, on the amount
of Permitted Distributions, if any), replacement letters of credit for
approximately $9 million of Scotsman's outstanding industrial revenue bonds and
working capital for Scotsman and its subsidiaries after the Merger and the Share
Acquisition are consummated, and transaction costs associated with the Merger
and Share Acquisition, Scotsman intends to obtain a new credit facility (the
"New Credit Facility") in the amount of $90 million from a group of lenders for
which The First National Bank of Chicago ("First Chicago") will act as agent. If
Scotsman does not obtain such an amendment to the existing agreement under which
$20 million of its 11.43% Senior Notes due May 1, 1998 (the "Term Notes") are
presently outstanding, as may be necessary to facilitate the Merger and the
Share Acquisition, then the New Credit Facility will be in the amount of $110
million and a portion of the proceeds thereunder will be used to refinance the
Term Notes. Scotsman contemplates that its existing $25 million Revolving Credit
Agreement and $5 million domestic line of credit will be terminated effective
upon the consummation of the Merger and the Share Acquisition. There are no
amounts currently outstanding under such Revolving Credit Agreement or line of
credit.
Scotsman has received a commitment letter (the "Commitment Letter") from
First Chicago to provide a portion of the New Credit Facility and commitments
from other lenders to provide the balance of the New Credit Facility. The terms
of the definitive credit agreement providing for the New Credit Facility (the
"New Credit Agreement") have not yet been finalized. The following is a summary
of the principal terms of the New Credit Facility based upon the Commitment
Letter and is subject to finalization and execution of the New Credit Agreement.
Although it is possible that the definitive terms of the New Credit Agreement
could vary from those described below, Scotsman believes that the definitive
terms of the New Credit Agreement will not be different in any material respect
from those described below. SCOTSMAN'S OBLIGATIONS TO CONSUMMATE THE SHARE
ACQUISITION AND THE MERGER ARE NOT CONDITIONED UPON THE CONSUMMATION OF THE
FINANCING NECESSARY TO PAY THE CASH CONSIDERATION SPECIFIED IN THE SHARE
ACQUISITION AGREEMENT AND THE MERGER AGREEMENT, TO REFINANCE THE OUTSTANDING
DEBT OF WHITLENGE, DFC AND DELFIELD AND TO PROVIDE REPLACEMENT LETTERS OF CREDIT
FOR THE OUTSTANDING INDUSTRIAL REVENUE BONDS OF SCOTSMAN. Consummation of
financing under the New Credit Agreement will be subject to fulfillment of
various conditions, including the satisfactory completion by the lenders of
their due diligence review of Scotsman, DFC, WAL and their respective
subsidiaries, the lenders' satisfaction with all financial, accounting and tax
aspects of the Merger and the Share Acquisition, the execution and delivery of
loan documents mutually acceptable to Scotsman and the lenders, no material
adverse change in the condition or prospects of Scotsman, DFC, WAL or any of
their respective subsidiaries, and consummation of the Merger and the Share
Acquisition. If Scotsman is unable to obtain the requisite financing under the
New Credit Agreement, Scotsman would seek alternative financing in order to
consummate the Share Acquisition and the Merger, but there is no assurance that
such alternative financing would be available. If the conditions precedent to
Scotsman's obligations to consummate the Share Acquisition and the Merger are
satisfied but Scotsman is unable to obtain the requisite financing under the New
Credit Agreement or pursuant to alternative financing arrangements, Scotsman
would be in default of its obligations under the Merger Agreement and Share
Acquisition Agreement and might be subject to claims for damages as a result
thereof.
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The Commitment Letter contemplates a revolving credit facility reducing by
$7 million at the end of each of years one and two, $12 million at the end of
year three, and $5 million at the end of each of years four and five, with the
remaining balance due at the end of year six. If Scotsman receives a $110
million facility, then the reductions at the end of each of years four and five
would be $15 million. In addition, in the event of substantial asset sales by
Scotsman (other than the sale of inventory in the ordinary course of business)
Scotsman will be required to use 100% of the proceeds to reduce the New Credit
Facility (or, if Scotsman receives a $90 million facility, to reduce the New
Credit Facility and pay the Term Notes on a pari passu basis).
Borrowings under the New Credit Agreement will bear interest at a floating
rate based upon, at Scotsman's option, (i) the higher of First Chicago's
corporate base rate or the Federal funds rate plus 1/2% per annum, or (ii) the
rate offered by First Chicago for deposits in the relevant Eurocurrency, plus an
applicable margin. The applicable margin will vary between .75% and 1.125% per
annum, depending upon Scotsman's ratio of earnings before interest, taxes and
amortization to total interest.
It is anticipated that the New Credit Agreement will include various
restrictive covenants that will apply to Scotsman, including restrictions on the
payment of dividends, the incurrence of additional indebtedness, the sale of
assets, consolidations and mergers, and capital expenditures, and will contain
various financial covenants (including the maintenance of a minimum tangible net
worth, a maximum ratio of debt to net worth, and a minimum ratio of cash flow to
interest expense) that will apply to Scotsman.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), the Merger may not be consummated until notice and specified information
has been furnished to the Antitrust Division of the Department of Justice (the
"Department of Justice") and the Federal Trade Commission ("FTC"), and certain
waiting period requirements have been satisfied. Scotsman and DFC filed such
notice and information with the Department of Justice and the FTC on January 24,
1994, and the applicable waiting period has expired.
MANAGEMENT OF DFC AND WAL FOLLOWING THE MERGER AND THE SHARE ACQUISITION
Scotsman's receipt of the resignations of all of the current directors of
DFC and of those directors of WAL that Scotsman shall have requested to resign
is a condition precedent to Scotsman's obligations to consummate the Merger and
the Share Acquisition, respectively. The Merger Agreement provides that,
following the Effective Date, the initial Board of Directors of DFC, as the
surviving corporation, will consist of not less than three directors, all of
whom will be appointed by Scotsman. Scotsman currently anticipates that, upon
consummation of the Merger and the Share Acquisition, Kevin E. McCrone, the
President of Delfield, and Michael de St. Paer, the Managing Director of
Whitlenge, will continue in such positions and will become executive officers of
Scotsman. For certain information about Mr. McCrone and Mr. de St. Paer, see
"Certain Information Concerning DFC -- Executive Compensation; Management" and
"Certain Information Concerning Whitlenge -- Executive Compensation;
Management," respectively.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND THE SHARE ACQUISITION
As a condition to Scotsman's obligation to consummate the Share
Acquisition, Whitlenge and three of the Acquisition Shareholders, Michael de St.
Paer, Graham F. Cook and Christopher R.L. Wheeler, are required to have entered
into an amendment to such Acquisition Shareholder's employment agreement with
Whitlenge, extending the term of such employment agreement until April 1, 1995.
Under their respective employment agreements, Mr. de St. Paer, Mr. Cook and
Mr. Wheeler are each entitled to receive a fixed base salary, subject to annual
review, and to participate in Whitlenge's bonus plan, as fixed from time to time
by Whitlenge's Board of Directors. Mr. de St. Paer's, Mr. Cook's and Mr.
Wheeler's base salaries for Whitlenge's 1994 fiscal year have been fixed at
(pound)74,984, (pound)50,000 and (pound)51,523, respectively. Mr. de St. Paer,
Mr. Cook and Mr. Wheeler are also entitled to participate in certain employee
benefit plans maintained by Whitlenge, including a pension and life insurance
plan, and medical insurance and permanent health and disability plans covering
both the employee and his immediate family. Each of Mr. de St. Paer,
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Mr. Cook and Mr. Wheeler are also entitled to the use of a company car and
related expenses. Each of the employment agreements currently extends to April
1, 1994 and, thereafter, will continue in effect until terminated by either
party upon not less than 6 months' prior written notice to the other party.
Following the Merger and the Share Acquisition, two of the New Scotsman
Shareholders, Timothy C. Collins and Matthew O. Diggs, Jr., will also be
directors of Scotsman, and Scotsman currently anticipates that one of the Merger
Shareholders, Kevin E. McCrone, and one of the Acquisition Shareholders, Mr.
Michael de St. Paer, will become executive officers of Scotsman. See "Certain
Provisions Common to the Merger Agreement and the Share Acquisition Agreement --
Agreements Regarding Election of Directors" and "Management of DFC and WAL
Following the Merger and the Share Acquisition." The Merger Shareholders and the
Acquisition Shareholders have also entered into certain agreements regarding the
appointment of Mr. Collins and Mr. Diggs to Scotsman's Board of Directors, the
right to designate one or two nominees to Scotsman's Board of Directors, and the
voting of shares of Scotsman's capital stock for the nominees recommended by
Scotsman's Board of Directors. See "The Merger, Share Acquisition and Related
Transactions -- Agreements Regarding the Election of Directors."
NON-COMPETITION AGREEMENTS
As a condition to Scotsman's obligation to consummate the Merger and the
Share Acquisition, Onex, Matthew O. Diggs, Jr., all of the Merger Shareholders
(other than EJJM, Pacific, PM, and certain trusts which are parties to the
Merger Agreement) and all of the Acquisition Shareholders (other than EJJM) are
required to enter into a Non-Competition Agreement with Scotsman under which
such shareholder agrees, for a period of three years from the Effective Date,
not to engage in certain activities competitive with Scotsman or its
subsidiaries.
AMENDMENT TO RIGHTS AGREEMENT
In connection with the execution of the Merger Agreement and the Share
Acquisition Agreement, Scotsman and the Rights Agent amended the Rights
Agreement to provide that if the New Scotsman Shareholders are deemed to be a
"group" for the purpose of acquiring, holding, voting or disposing of Scotsman
Common Stock (a "Group"), then such Group would not be an "Acquiring Person"
under the Rights Agreement. The amendment to the Rights Agreement provides that
such a Group will not be an "Acquiring Person" so long as (i) 95% of the shares
of Scotsman Common Stock beneficially owned by such Group are beneficially owned
(other than by reason of being a member of such Group) by New Scotsman
Shareholders, and (ii) each member of such Group beneficially owns no shares of
Scotsman Common Stock (other than by reason of being a member of such Group)
other than (a) shares acquired by such member pursuant to the Merger or the
Share Acquisition, (b) certain shares identified in schedules to the Merger
Agreement and the Share Acquisition Agreement as being owned by such member, (c)
shares acquired upon conversion of the Series A Convertible Preferred Stock
acquired by such member in the Merger, (d) shares issued as dividend or other
distribution with respect to such shares of Scotsman Common Stock or Series A
Convertible Preferred Stock and (e) shares acquired from such member by certain
permitted persons. The provisions of the amendment to the Rights Agreement
described above will expire on the same date (January 12, 1999) that the
standstill provisions of the Merger Agreement and the Share Acquisition
Agreement expire. See "Certain Provisions Common to the Merger Agreement and the
Share Acquisition Agreement -- Standstill Agreement."
The amendment to the Rights Agreement further provides that after January
12, 1999, no Group shall be an "Acquiring Person" solely by reason of the
provisions of the Merger Agreement and the Share Acquisition Agreement with
respect to voting and designation of nominees for director of Scotsman. See
"Certain Provisions Common to the Merger Agreement and the Share Acquisition
Agreement -- Agreements Regarding the Election of Directors."
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AMENDMENTS TO EXECUTIVE SEVERANCE AGREEMENTS
In connection with the execution of the Merger Agreement and the Share
Acquisition Agreement, Scotsman and each of its executive officers which entered
into an Executive Severance Agreement amended such Agreement to provide that a
"Change in Control" thereunder shall not occur as a result of the Share Issuance
or the approval by the shareholders of Scotsman of the Share Issuance.
ACCOUNTING TREATMENT
The Merger and Share Acquisition will be accounted for as a "purchase"
transaction for accounting and financial reporting purposes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A GENERAL DISCUSSION OF THE PRINCIPAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND THE SHARE ACQUISITION TO THE
MERGER SHAREHOLDERS AND THE ACQUISITION SHAREHOLDERS. THIS DISCUSSION IS BASED
ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), EXISTING AND PROPOSED TREASURY REGULATIONS PROMULGATED
THEREUNDER, AND ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF, ALL AS IN
EFFECT OR AS PROPOSED ON THE DATE HEREOF AND ALL OF WHICH ARE SUBJECT TO CHANGE,
POSSIBLY WITH RETROACTIVE EFFECT OR DIFFERENT INTERPRETATIONS. IN ADDITION, THE
DISCUSSION DOES NOT ADDRESS FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OR
CONSEQUENCES THAT MAY BE APPLICABLE TO A PARTICULAR MERGER SHAREHOLDER OR
ACQUISITION SHAREHOLDER BECAUSE OF ITS PARTICULAR TAX STATUS.
The Merger. The Merger Agreement provides that the parties intend the
Merger to constitute a reorganization described in Section 368(a) of the Code
and will use their reasonable best efforts to cooperate in achieving such a
tax-free reorganization. Assuming the Merger constitutes a reorganization
described in section 368(a) of the Code, the following will be the principal
U.S. federal income tax consequences of the Merger. The discussion that follows
assumes that a Merger Shareholder is a citizen or resident of the United States
or a corporation, partnership or other entity created or organized under the
laws of the United States or a political subdivision thereof and that such
Merger Shareholder held its DFC Common Stock as a capital asset immediately
prior to the Effective Date. For purposes of the discussion that follows, the
New Scotsman Stock includes fractional shares of New Scotsman Stock deemed for
federal income tax purposes to have been issued to a Merger Shareholder and
redeemed by Scotsman, as described below.
Based on the foregoing assumption, Merger Shareholder will recognize no
gain or loss as a result of the Merger except to the extent such Merger
Shareholder receives cash in the Merger. Accordingly, a Merger Shareholder will
recognize capital gain, but not loss, to the extent of the lesser of (i) the
excess of (a) the sum of the fair market value of the New Scotsman Stock
received by such Merger Shareholder (other than any New Scotsman Stock
characterized as imputed interest as described below), and the cash received by
such Merger Shareholder other than cash received in lieu of fractional shares of
New Scotsman Stock (the "Cash Consideration") over (b) the basis of the Merger
Shareholder in its DFC Common Stock surrendered therefor and (ii) the amount of
Cash Consideration received by such Merger Shareholder in the Merger. The
aggregate basis of a Merger Shareholder in its New Scotsman Stock (other than
any New Scotsman Stock characterized as imputed interest) will be the same as
that of the DFC Common Stock surrendered by the Merger Shareholder in the
Merger, reduced by the fair market value of the Cash Consideration received by
such Merger Shareholder and increased by the amount of gain, if any, recognized
with respect to such DFC Common Stock in the Merger. The holding period of a
Merger Shareholder for New Scotsman Stock (other than any New Scotsman Stock
characterized as imputed interest) will include the holding period of the DFC
Common Stock exchanged therefor.
A portion of the Scotsman Contingent Common Shares, if any, received by a
Merger Shareholder pursuant to the Merger may be recharacterized as imputed
interest which is ordinary income.
The payment of cash in lieu of any fractional share interest of New
Scotsman Stock will be treated as if the fractional share is distributed
pursuant to the Merger and then redeemed by Scotsman. Accordingly, a Merger
Shareholder will recognize gain or loss in an amount equal to the difference
between the amount of
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cash received in lieu of any fractional share interest and the basis of the
Merger Shareholder in the fractional share interest (as determined in accordance
with the rules described above).
It is possible that the Internal Revenue Service will take the position
that the Merger does not qualify as a reorganization described in section 368(a)
of the Code. If the Internal Revenue Service were to prevail in such a position,
all of the gain or loss realized by a Merger Shareholder as a result of the
Merger would be subject to tax.
The Share Acquisition. The exchange of WAL Ordinary Shares for cash and,
possibly, for Scotsman Contingent Common Shares will be a taxable exchange for
U.S. federal income tax purposes. Accordingly, an Acquisition Shareholder will
recognize gain or loss equal to the difference between (i) the sum of the amount
of cash and the fair market value of Scotsman Contingent Common Shares received
by such Acquisition Shareholder (other than any portion thereof characterized as
imputed interest) and (ii) the Acquisition Shareholder's basis in its WAL
Ordinary Shares. Any gain or loss recognized by an Acquisition Shareholder will
be capital gain or loss assuming the Acquisition Shareholder held its WAL
Ordinary Shares as capital assets immediately prior to the Effective Date. A
portion of the Scotsman Contingent Common Stock, if any, received by an
Acquisition Shareholder may be reclassified as imputed interest which is
ordinary income.
THE FOREGOING IS INTENDED TO BE ONLY A SUMMARY OF THE PRINCIPAL UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND THE SHARE ACQUISITION
TO MERGER SHAREHOLDERS AND ACQUISITION SHAREHOLDERS AND SHOULD NOT BE CONSIDERED
TO BE TAX ADVICE. NEITHER SCOTSMAN, DFC NOR WAL HAS OBTAINED AN OPINION OF
COUNSEL WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND
THE SHARE ACQUISITION AND THE FOREGOING DISCUSSION IS NOT BASED UPON ANY SUCH
OPINION OF COUNSEL. THERE CAN BE NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE
WILL CONCUR IN ALL OR ANY OF THE ABOVE DISCUSSION.
THE MERGER AGREEMENT PROVIDES THAT THE PARTIES TO THE MERGER AGREEMENT WILL
RELY SOLELY ON THEIR OWN ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. EACH MERGER SHAREHOLDER AND
ACQUISITION SHAREHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISER CONCERNING THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER AND THE SHARE ACQUISITION TO SUCH
SHAREHOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE AND LOCAL
LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATION.
REOFFERINGS AND RESALES OF NEW SCOTSMAN STOCK; REGISTRATION RIGHTS AGREEMENT
Each New Scotsman Shareholder who is not an "affiliate" (as such term is
defined under the Securities Act) of DFC or WAL may, subject to the restrictions
imposed under the Merger Agreement and the Share Acquisition Agreement described
above under "Standstill Agreement", resell the New Scotsman Stock issued to them
in the Merger and the Share Acquisition without restriction.
Each New Scotsman Shareholder who is an affiliate of DFC or WAL may not
resell the New Scotsman Stock issued to such shareholder in the Merger or the
Share Acquisition except, subject to such restrictions imposed by the Merger
Agreement and the Share Acquisition Agreement, (i) the Scotsman Fixed Common
Shares, the Series A Convertible Preferred Stock and the shares of Scotsman
Common Stock, issuable upon the conversion of the Series A Convertible Preferred
Stock, may be reoffered or resold pursuant to this Prospectus for a period of 45
days following the effective date of the Merger, (ii) pursuant to any other
effective registration statement under the Securities Act covering such shares,
(iii) in compliance with Rule 145 promulgated under the Securities Act or (iv)
in compliance with another applicable exemption from the registration
requirements of the Securities Act. Generally, Rule 145 permits the New Scotsman
Stock held by a New Scotsman Shareholder who is an affiliate of DFC or WAL to be
sold in accordance with certain provisions of Rule 144 under the Securities Act.
In general, these provisions of Rule 144 permit a person to sell on the open
market in broker's transactions within any three-month period a number of shares
that does
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not exceed the greater of 1% of the then outstanding shares of Scotsman Common
Stock or the average weekly trading volume in Scotsman Common Stock on all
exchanges during the four calendar weeks proceeding such sale. Sales under Rule
144 are also subject to the availability of current public information about
Scotsman and, in the Registration Rights Agreement described below, Scotsman has
agreed to make and keep such public information available. These restrictions on
sales (other than those restrictions imposed under the "standstill" provisions
of the Merger Agreement and the Share Acquisition Agreement) will cease to apply
under most circumstances once a New Scotsman Shareholder who was formerly an
affiliate of DFC or WAL and who does not become an affiliate of Scotsman after
the consummation of the Merger and the Share Acquisition has held the New
Scotsman Stock for at least two years, provided that current public information
about Scotsman remains available.
Shares of New Scotsman Stock held by affiliates of Scotsman will be subject
to additional restrictions on the sales of such shares.
As a condition to the obligations of each party to consummate the Merger
and the Share Acquisition, Scotsman and the New Scotsman Shareholders are
required to enter into a Registration Rights Agreement (the "Registration Rights
Agreement") in connection with the Merger and the Share Acquisition. Under the
Registration Rights Agreement, New Scotsman Shareholders who (together with
their affiliates and associates) hold not less than 250,000 shares of Scotsman
Common Stock (including shares of Scotsman Common Stock issuable upon conversion
of the Series A Convertible Preferred Stock) may, subject to certain
limitations, require Scotsman to effect up to three registrations of such shares
under the Securities Act. Under the Registration Rights Agreement, New Scotsman
Shareholders who hold not less than 100,000 shares of Scotsman Common Stock also
have rights, subject to certain exemptions and limitations, to request that
Scotsman include such shares in other registrations by Scotsman of its
securities under the Securities Act an unlimited number of times. All expenses
incident to such registrations (other than underwriting discounts and selling
commissions applicable to the sale of such shareholders' shares and fees and
expenses of counsel to the selling shareholders) are to be borne by Scotsman.
STOCK EXCHANGE LISTING
Scotsman has applied to list on the NYSE, subject to official notice of
issuance, the Scotsman Fixed Common Shares, Scotsman Contingent Common Shares,
and shares of Scotsman Common Stock issuable upon conversion of the Series A
Convertible Preferred Stock. Approval of the listing of such shares is a
condition to the respective obligations of the parties to consummate the Merger
and Share Acquisition.
DESCRIPTION OF THE SERIES A CONVERTIBLE
PREFERRED STOCK AND THE SERIES B PREFERRED STOCK
The statements under this caption relating to the Series A Convertible
Preferred Stock and the Series B Preferred Stock are summaries of the
Certificate of Designation of the Series A Convertible Preferred Stock and the
Certificate of Designation of Series B Preferred Stock (the "Certificates of
Designation") and of certain provisions of Scotsman's Restated Certificate of
Incorporation ("Scotsman's Certificate of Incorporation"), copies of which are
filed as exhibits to the Registration Statement of which this Proxy Statement -
Prospectus is a part. Such summaries make use of certain terms defined in the
Certificates of Designation.
GENERAL
The authorized capital stock of Scotsman includes 10,000,000 shares of
preferred stock, par value $1.00 per share, of which no shares are currently
outstanding. The Board of Directors is authorized by Scotsman's Certificate of
Incorporation to issue any or all shares of the preferred stock in one or more
series, and to fix the voting powers, full or limited, and the designations,
preferences and relative, participating, optional or other special rights, and
any qualifications, limitations or restrictions thereof, applicable to the
shares to be included in any such series as may be permitted by the DGCL.
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SERIES A CONVERTIBLE PREFERRED STOCK
Amount and Stated Value. The number of authorized shares of Series A
Convertible Preferred Stock will be 2,000,000. The Series A Convertible
Preferred Stock will have a stated value of $11.25 per share.
Dividend Rights. The holders of the Series A Convertible Preferred Stock
will be entitled to receive, when, as and if declared by Scotsman's Board of
Directors out of funds of Scotsman legally available therefor (and subject to
the limitation described in the last sentence of this paragraph), cumulative
cash dividends at the rate of $0.62 per annum per share payable quarterly in
installments on January 15, April 15, July 15 and October 15 in each year,
commencing July 15, 1994. Such dividends shall be cumulative from the date of
original issuance of the shares of the Series A Convertible Preferred Stock.
Each such dividend will be paid to the holders of record of shares of the Series
A Convertible Preferred Stock as they appear on Scotsman's stock register on the
record date, which shall not be more than 30 days nor less than 10 days
preceding the dividend payment date. If a holder converts shares of Series A
Convertible Preferred Stock after the close of business on the record date for a
dividend and before the opening of business on the payment date for such
dividend, the holder will be required to pay to Scotsman at the time of such
conversion the amount of such dividend (unless such shares have been called for
redemption and the date fixed for redemption is after such record date and on or
prior to such payment date, in which case the holder shall not be required to
make such payment). See "Conversion" below.
If dividends are not paid in full, or declared in full and sums set apart
for the payment thereof, upon the Series A Convertible Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the Series A
Convertible Preferred Stock, all dividends declared upon the Series A
Convertible Preferred Stock and any other preferred stock ranking on a parity as
to dividends will be paid or declared pro rata so that in all cases the amount
of dividends paid or declared per share on the Series A Convertible Preferred
Stock and such other preferred stock will bear to each other the same ratio that
unpaid accumulated dividends per share, including dividends accrued or in
arrears, if any, on the Series A Convertible Preferred Stock and such other
preferred stock bear to each other. Unless and until full cumulative dividends
on the Series A Convertible Preferred Stock in respect of all past quarterly
dividends periods have been paid, and the full amount of dividends on the shares
of the Series A Convertible Preferred Stock in respect of the then current
quarterly dividend period shall have been declared in full and sums set aside
for the payment thereof, no dividends (other than dividends of Scotsman Common
Stock or other shares of Scotsman capital stock ranking junior to the Series A
Convertible Preferred Stock as to dividends) may be paid or declared and set
aside for payment or other distribution upon Scotsman Common Stock or on any
other capital stock of Scotsman ranking junior to or, except as provided above,
on a parity with the Series A Convertible Preferred Stock as to dividends nor
may any Scotsman Common Stock or any other capital stock ranking junior to or on
a parity with the Series A Convertible Preferred Stock as to dividends be
redeemed, retired, purchased or otherwise acquired for any consideration (or any
payment made to or available for a sinking fund for the redemption of any shares
of such stock) by Scotsman or any subsidiary of Scotsman (except by conversion
into or exchange for capital stock of Scotsman ranking junior to the Series A
Convertible Preferred Stock as to dividends). Holders of shares of the Series A
Convertible Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or shares of capital stock, in excess of full accrued
and cumulative dividends as described above. No interest or sum of money in lieu
of interest shall be payable in respect of any dividend payment or payments on
shares of Series A Convertible Preferred Stock that may be in arrears.
Dividends payable on the Series A Convertible Preferred Stock for any
period less than a full quarterly dividend period will be computed on the basis
of a 360-day year of twelve 30-day months and the actual number of days elapsed
in the period for which payable.
Scotsman's existing long-term debt agreements restrict the amount of
dividends payable by Scotsman and it is expected that certain provisions of the
New Credit Agreement may also restrict Scotsman's ability to pay dividends. See
"Other Related Matters -- Proposed Financing."
Conversion. Holders of the Series A Convertible Preferred Stock will have
the right, exercisable at any time and from time to time, to convert all or any
such Series A Convertible Preferred Stock into shares of
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Scotsman Common Stock at an initial conversion price of $14.75 per share of
Scotsman Common Stock (equivalent to an initial conversion rate of 0.7627 shares
of Scotsman Common Stock for each share of the Series A Convertible Preferred
Stock so converted), subject to adjustment as described below. In the case of
the Series A Convertible Preferred Stock called for redemption, conversion
rights will expire at the close of business on the business day immediately
preceding the date fixed for redemption. Upon conversion no adjustment or
payment will be made for dividends or interest, but if any holder surrenders a
share of Series A Convertible Preferred Stock for conversion after the close of
business on the record date for the payment of a dividend and prior to the
opening of business on the dividend payment date for such dividend, then,
notwithstanding such conversion, the dividend payable on such dividend payment
date will be paid to the registered holder of such share on such record date. In
such event, such share, when surrendered for conversion, must be accompanied by
the payment of an amount equal to the dividend payable on such dividend payment
date on the share so converted (unless such share has been called for redemption
and the date fixed for redemption is after such record date and on or prior to
such payment date, in which case such payment need not accompany such share).
Any holder of shares of the Series A Convertible Preferred Stock electing
to convert such shares shall deliver the certificate or certificates therefor to
the principal office of any transfer agent for Scotsman Common Stock, with the
form of notice of election to convert as Scotsman shall prescribe fully
completed and duly executed and (if so required by Scotsman or any conversion
agent) accompanied by instruments of transfer in form satisfactory to Scotsman
and to any conversion agent, duly executed by the registered holder or his duly
authorized attorney, and transfer taxes, stamps or funds therefor or evidence of
payment thereof if required as provided below. Scotsman shall, as soon as
practicable after such delivery and compliance with any other conditions for
conversion contained in the Certificate of Designation for the Series A
Convertible Preferred Stock, deliver at such office of such transfer agent to
the person for whose account such shares of Series A Convertible Preferred Stock
were so surrendered or to the nominee or nominees of such person, certificates
evidencing the number of full shares of Scotsman Common Stock to which such
person shall be entitled, together with a cash adjustment in respect of any
fraction of a share of Scotsman Common Stock as described below. The conversion
right with respect to any such shares shall be deemed to have been exercised at
the date upon which the certificates therefor accompanied by such duly executed
notice of election and instruments of transfer and such taxes, stamps, funds, or
evidence of payment shall have been so delivered, and the person or persons
entitled to receive the shares of Scotsman Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Scotsman Common Stock upon said date. If a holder converts a
share or shares of the Series A Convertible Preferred Stock, Scotsman shall pay
any documentary, stamp or similar issue or transfer tax due on the issue of
Scotsman Common Stock upon the conversion. The holder, however, shall pay to
Scotsman the amount of any tax which is due (or shall establish to the
satisfaction of Scotsman payment thereof) if the shares are to be issued in a
name other than the name of such holder.
No fractional shares of Scotsman Common Stock will be issued upon
conversion and, if the conversion results in a fractional interest, an amount
will be paid in cash equal to the value of such fractional interest based on the
market price of Scotsman Common Stock on the last trading day prior to the date
of conversion.
The conversion rate in effect at any time shall be subject to adjustment
from time to time in certain events, including: (i) dividends and other
distributions payable in Scotsman Common Stock, (ii) subdivisions and
combinations of Scotsman Common Stock, (iii) the issuance to all or
substantially all holders of Scotsman Common Stock of rights or warrants
entitling them to subscribe for or purchase shares of Scotsman Common Stock at
less than the current market price (as defined in the Series A Convertible
Preferred Stock Certificate of Designations) on the record date therefor, (iv)
distributions of capital stock (other than Scotsman Common Stock), evidences of
indebtedness, cash or other assets (other than dividends paid exclusively in
cash), rights or warrants to subscribe for securities (other than those referred
to in clause (iii) above) and (v) distributions to all holders of Scotsman
Common Stock of cash (excluding any cash distributed as part of a distribution
referred to in clause (iv) above and excluding cash distributed upon a
reclassification, change, consolidation, merger, sale or conveyance to which the
provisions described in the second succeeding paragraph apply) in an aggregate
amount that, combined together with all other such
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<PAGE> 57
distributions made exclusively in cash within the preceding 12 months in respect
of which no adjustment has been made, exceeds 15% of Scotsman's market
capitalization on the record date for such distribution (being the product of
the current market price of the Scotsman Common Stock and the number of
outstanding shares of Scotsman Common Stock). In no event will any adjustment of
the conversion rate be required to be made until cumulative adjustments amount
to 1% or more of the conversion rate as last adjusted.
Scotsman may make such increases in the conversion rate, in addition to
those required as described above, as it considers to be advisable in order that
any event treated for Federal income tax purposes as a dividend of stock or
stock rights shall not be taxable to the recipients thereof.
If Scotsman reclassifies or changes its outstanding Scotsman Common Stock
(other than changes in par value or as a result of a subdivision or
combination), or is a party to any consolidation or merger in which Scotsman is
not the continuing corporation and which does not result in such a
reclassification or change of outstanding Scotsman Common Stock, or sells or
conveys all or substantially all of its property or business as an entirety,
then the holders of shares of Series A Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares into the kind
and amount of shares of stock and other securities, cash and other property
which such holders would have owned immediately after such transaction if such
holders had converted such shares of Series A Convertible Preferred Stock
immediately before such transaction. In such event, provision shall be made in
the articles or certificate of incorporation of the resulting or surviving
corporation or other corporation issuing or delivering such shares of stock,
other securities, cash and other property, so that the provisions for the
protection of the conversion rights of the Series A Convertible Preferred Stock
shall thereafter be applicable, as nearly as reasonably may be, to any such
other shares of stock and other securities, cash or other property.
Liquidation Rights. In the event of any liquidation, dissolution, or
winding up of the affairs of Scotsman, whether voluntary or otherwise, the
holders of the Series A Convertible Preferred Stock will be entitled to receive,
out of the assets of Scotsman available for distribution to its shareholders, in
cash, the amount of $11.25 for each share of the Series A Convertible Preferred
Stock, plus an amount equal to all dividends accrued and unpaid on each such
share up to the date fixed for distribution, before any distribution is made to
the holders of Scotsman Common Stock or any other capital stock of Scotsman
ranking (as to any such distribution) junior to the Series A Convertible
Preferred Stock. If upon any liquidation, dissolution or winding up of Scotsman,
the assets distributable among the holders of shares of Series A Convertible
Preferred Stock and all other classes and series of preferred stock ranking (as
to any such distribution) on a parity with the Series A Convertible Preferred
Stock are insufficient to permit the payment in full to the holders of all such
shares of all preferential amounts payable to all such holders, then the entire
assets of Scotsman thus distributable will be distributed ratably among the
holders of the Series A Convertible Preferred Stock and of all such other
classes and series of preferred stock ranking (as to any such distribution) on a
parity with the Series A Convertible Preferred Stock in proportion to the
respective amounts that would be payable per share if such assets were
sufficient to permit payment in full.
For purposes of this section, a distribution of assets in any dissolution,
winding up or liquidation will not include (i) any consolidation or merger of
Scotsman with or into any other corporation, or (ii) a sale or other
distribution of all or substantially all of Scotsman's assets to another
corporation; provided that, in each case, effective provision is made in the
certificate of incorporation of the resulting and surviving corporation or
otherwise for the protection of the rights of the holders of the Series A
Convertible Preferred Stock.
Optional Redemption by Scotsman. Subject to the limitations described in
the paragraphs below, the Series A Convertible Preferred Stock may be redeemed
at the option of Scotsman by resolution of its Board of Directors, in whole or
from time to time in part, at any time, at the following redemption prices per
share plus,
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<PAGE> 58
in each case, all dividends accrued and unpaid on the Series A Convertible
Preferred Stock up to the date fixed for redemption (the "Series A Redemption
Price") upon giving notice as provided herein below.
<TABLE>
<CAPTION>
IF REDEEMED DURING THE
TWELVE-MONTH PERIOD
BEGINNING MAY 1 PRICE
- ---------------------- ------
<S> <C> <C>
1994........................................................ $11.87
1995........................................................ 11.81
1996........................................................ 11.76
1997........................................................ 11.70
1998........................................................ 11.64
1999........................................................ 11.59
2000........................................................ 11.53
2001........................................................ 11.48
2002........................................................ 11.42
2003........................................................ 11.36
2004 and thereafter......................................... 11.25
</TABLE>
The Series A Convertible Preferred Stock will not be redeemable prior to
May 1, 1999 unless, on the date of such resolution, the closing price for the
shares of Scotsman Common Stock shall have theretofore equalled or exceeded 140%
of the conversion price then in effect (determined as described above) for any
period of at least ten consecutive trading days. The closing price for shares of
Scotsman Common Stock for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the New York Stock Exchange, or if Scotsman Common Stock is not listed or
admitted to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the closing
sale price of Scotsman Common Stock, or in case no reported sale takes place,
the average of the closing bid and asked prices, on NASDAQ or any comparable
system or if Scotsman Common Stock is not quoted on NASDAQ or any comparable
system, the closing sale price or, in case no reported sale takes place, the
average of the closing bid and ask prices, as furnished by any two members of
the National Association of Securities Dealers, Inc. selected from time to time
by Scotsman for that purpose.
If fewer than all of the outstanding shares of the Series A Convertible
Preferred Stock are to be redeemed, the shares to be redeemed will be determined
pro rata or by lot or in such other manner as prescribed by Scotsman's Board of
Directors.
At least 30 days but not more than 60 days prior to the date fixed for the
redemption of the Series A Convertible Preferred Stock, a written notice will be
mailed to each holder of record of Series A Convertible Preferred Stock to be
redeemed, notifying such holder of Scotsman's election to redeem such shares,
stating the date fixed for redemption thereof (the "Series A Convertible
Preferred Stock Redemption Date"), specifying the Series A Redemption Price,
specifying the then effective conversion price, and calling upon such holder to
surrender to Scotsman on the Series A Convertible Preferred Stock Redemption
Date at the place designated in such notice (which shall be in the Borough of
Manhattan, The City of New York, State of New York, or the City of Chicago,
Illinois) the certificate or certificates representing the number of shares
specified therein. On or after the Series A Convertible Preferred Stock
Redemption Date, each holder of Series A Convertible Preferred Stock to be
redeemed must present and surrender his certificate or certificates for such
shares to Scotsman at the place designated in such notice and against such
surrender the Series A Redemption Price of such shares will be paid to or on the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrender certificate shall be canceled. If a notice
of redemption has been given and any holder of shares of the Series A
Convertible Preferred Stock shall, prior to the close of business on the last
business day preceding the Series A Convertible Preferred Stock Redemption Date,
give written notice to Scotsman of the conversion of any or all of the shares to
be redeemed held by such holder (accompanied by a certificate or certificates
for such shares, a duly executed notice of election to convert and instruments
of transfer and such taxes, stamps, funds or other evidence of payment, as
required
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<PAGE> 59
upon such conversion as described above), then such redemption shall not become
effective as to such shares to be converted, such conversion shall become
effective as described above and any moneys deposited or set aside by Scotsman
for the redemption of such shares of converted Series A Convertible Preferred
Stock shall revert to the general funds of Scotsman. In case less than all the
shares represented by any such certificate be redeemed, a new certificate will
be issued representing the unredeemed shares. From and after the Series A
Convertible Preferred Stock Redemption Date (unless Scotsman defaults in payment
of the Series A Redemption Price), all dividends on the shares of the Series A
Convertible Preferred Stock designated for redemption in such notice will cease
to accrue and all rights of the holders thereof as shareholders of Scotsman,
except the right to receive the Series A Redemption Price thereof (including all
accrued and unpaid dividends up to the Series A Convertible Preferred Stock
Redemption Date), upon the surrender of the certificates representing the same,
will cease and terminate and such shares will not thereafter be transferred
(except with the consent of Scotsman) on Scotsman's books, and such shares shall
not be deemed to be outstanding for any purpose whatsoever. At its election,
Scotsman, prior to the Series A Convertible Preferred Stock Redemption Date, may
deposit the Series A Redemption Price of the shares of the Series A Convertible
Preferred Stock so called for redemption in trust for the holders thereof with a
bank or trust company, in which case such notice to holders of the shares of the
Series A Convertible Preferred Stock to be redeemed will (i) state the date of
such deposit, (ii) specify the office of such bank or trust company as the place
of payment of the Series A Redemption Price and (iii) call upon such holders to
surrender the certificates representing such shares at such place on or after
the date fixed in such redemption notice (which may not be later than the Series
A Convertible Preferred Stock Redemption Date), against payment of the Series A
Redemption Price (including all accrued and unpaid dividends up to the Series A
Convertible Preferred Stock Redemption Date). Any interest accrued on such funds
shall be paid to Scotsman from time to time. Any moneys so deposited which
remain unclaimed by the holders of the Series A Convertible Preferred Stock at
the end of two years after the Series A Convertible Preferred Stock Redemption
Date will be returned by such bank or trust company to Scotsman; thereafter, the
holders of shares of the Series A Convertible Preferred Stock redeemed on such
Series A Convertible Preferred Stock Redemption Date shall look only to Scotsman
for payment of the Series A Redemption Price therefor.
Shares of the Series A Convertible Preferred Stock redeemed, repurchased or
retired pursuant to the above provisions or surrendered to Scotsman upon
conversion shall thereupon be retired and may not be reissued as shares of the
Series A Convertible Preferred Stock but shall thereafter have the status of
authorized but unissued shares of the preferred stock, without designation as to
series until such shares are once more designated as part of a particular series
of the preferred stock.
Notwithstanding the above provisions, in the event that Scotsman shall have
failed to declare and pay or set apart for payment in full the dividends
accumulated on the outstanding shares of the Series A Convertible Preferred
Stock for any eight quarterly dividend payment periods, whether or not
consecutive, whether or not earned or declared or whether or not any assets of
Scotsman are legally available therefor, the Series A Convertible Preferred
Stock shall not thereafter be redeemable.
Voting Rights. Except as otherwise described below in this section or under
"Limitations" below, or as required by law, the holders of shares of the Series
A Convertible Preferred Stock shall be entitled to vote on any matter on which
the holders of Scotsman Common Stock are entitled to vote. Each share of the
Series A Convertible Preferred Stock held of record on the record date for the
determination of stockholders entitled to vote on such matter (or, if no such
record date is established, on the date such vote is taken) shall entitle the
holder thereof to cast a number of votes equal to (i) in the case of any
Designated Transaction (as defined below), the number of shares of Scotsman
Common Stock into which such share of the Series A Convertible Preferred Stock
is then convertible pursuant to the provisions described above or (ii) in the
case of any other matter on which the holders of Scotsman Common Stock are
entitled to vote, one-tenth (1/10) of one vote. A "Designated Transaction" shall
mean any consolidation or merger to which Scotsman is a party, other than a
consolidation or merger in which Scotsman is the surviving or resulting
corporation, or any sale or conveyance of all or substantially all of the
property or business of Scotsman as an entirety, in each case, if the holders of
Scotsman Common Stock are entitled to vote thereon. Except as otherwise
expressly provided herein or as required by law, the holders of shares of the
Series A Convertible Preferred Stock and Scotsman
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<PAGE> 60
Common Stock shall vote together (together with any other class or series of
preferred stock of Scotsman then entitled to vote on any matter on which the
holders of Scotsman Common Stock are entitled to vote) and not as separate
classes. In the event Scotsman shall have failed to declare and pay or set apart
for payment in full the dividends accumulated on the outstanding Series A
Convertible Preferred Stock for any six quarterly dividend payment periods,
whether or not consecutive (a "Preferential Dividend Non-Payment"), the number
of directors of Scotsman will be increased by two and the holders of the
outstanding Series A Convertible Preferred Stock will be entitled to elect such
two additional directors until the full dividends accumulated on all outstanding
Series A Convertible Preferred Stock shall have been declared and paid or set
apart for payment. In any such election the holders of outstanding shares of
Series A Convertible Preferred Stock shall be entitled to cast one vote per
share of Series A Convertible Preferred Stock held of record on the record date
for the determination of stockholders entitled to vote on such election (or, if
no such record date is established, on the date such vote is taken). Upon the
occurrence of a Preferential Dividend Non-Payment, the Board of Directors shall
within a reasonable period call a special meeting of the holders of shares of
the Series A Convertible Preferred Stock for the purpose of electing the
additional directors provided by the foregoing provisions. If and when all
accumulated dividends on the shares of the Series A Convertible Preferred Stock
have been declared and paid or set aside for payment in full, the holders of
shares of the Series A Convertible Preferred Stock shall be divested of the
special voting rights described above, subject to revesting in the event of each
and every subsequent Preferential Dividend Non-Payment. Upon termination of such
special voting rights attributable to all holders of shares of the Series A
Convertible Preferred Stock, the term of office of each director elected by the
holders of shares of the Series A Convertible Preferred Stock (a "Preferred
Stock Director") pursuant to such special voting rights shall forthwith
terminate and the number of directors constituting the entire Board of Directors
shall be reduced by the number of Preferred Stock Directors. Any Preferred Stock
Director may be removed by, and shall not be removed otherwise than by, the vote
of the holders of record of a majority of the outstanding shares of the Series A
Convertible Preferred Stock voting as a separate class, at a meeting called for
such purpose. So long as a Preferential Dividend Non-Payment shall continue, any
vacancy in the office of a Preferred Stock Director may be filled by written
consent of the Preferred Stock Director remaining in office or, if none remains
in office, by vote of the holders of record of a majority of the outstanding
shares of the Series A Convertible Preferred Stock. As long as the Preferential
Dividend Non-Payment shall continue, except as described in this section,
holders of shares of the Series A Convertible Preferred Stock shall not, as such
stockholders, be entitled to vote on the election or removal of directors other
than Preferred Stock Directors, but shall not be divested of any other voting
rights provided to such stockholders by law with respect to any other matter to
be acted upon by the stockholders of the Corporation. Notwithstanding anything
to the contrary in this section, the holders of outstanding shares of Series A
Convertible Preferred Stock shall not be entitled to elect more than two
Preferred Stock Directors pursuant to this section.
Limitations. In addition to any other rights provided by applicable law, so
long as any shares of the Series A Convertible Preferred Stock are outstanding,
Scotsman will not, without the affirmative vote, or the written consent as
provided by law, of the holders of at least two-thirds of the outstanding shares
of the Series A Convertible Preferred Stock, voting separately:
(a) create, authorize or issue any class or series of preferred stock
ranking either as to payment of dividends or in distribution of assets upon
liquidation prior to the Series A Convertible Preferred Stock; or
(b) change the preferences, rights or powers with respect to the
Series A Convertible Preferred Stock so as to affect the Series A
Convertible Preferred Stock adversely.
Except as may otherwise be required by applicable law, such a class vote or
consent is not required (i) in connection with any increase in the total number
of authorized shares of Scotsman Common Stock, or (ii) in connection with the
authorization or increase of any class or series of shares ranking, as to
dividends and in liquidation, junior to or on a parity with the Series A
Convertible Preferred Stock. No such vote or written consent of the holders of
the Series A Convertible Preferred Stock is required if, at or prior to the time
when the issuance of any such stock ranking prior to the Series A Convertible
Preferred Stock is to be made or any such change is to take effect, as the case
may be, provision is made for the redemption of all of the Series A Convertible
Preferred Stock at the time outstanding.
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<PAGE> 61
Preemptive Rights. No holder of the Series A Convertible Preferred Stock
will have preemptive rights to subscribe for or acquire any unissued shares of
Scotsman (whether now or hereafter authorized) or securities of Scotsman
convertible into or carrying a right to subscribe to or acquire shares.
Transfer Agent. The Registrar, Transfer Agent and Conversion Agent for the
Series A Convertible Preferred Stock will be Harris Trust and Savings Bank.
Scotsman will act as Paying Agent for the Series A Convertible Preferred Stock.
Listing. The Series A Convertible Preferred Stock is not, and will not be,
listed or traded on a national securities exchange.
SERIES B PREFERRED STOCK
Amount and Stated Value. The number of authorized shares of Series B
Preferred Stock will be the total number of shares of Series B Preferred Stock,
if any, to be issued in the Merger (see "The Merger Agreement -- Terms of the
Merger"). The Series B Preferred Stock will have a stated value of $11.25 per
share.
Dividend Rights. The holders of the Series B Preferred Stock will be
entitled to receive, when, as and if declared by Scotsman's Board of Directors
out of funds of Scotsman legally available therefor (and subject to the
limitation described in the last sentence of this paragraph), cumulative cash
dividends at the rate per annum per share, equal to the lesser of (x) such per
annum rate as is agreed to upon at or prior to the Effective Time by
representatives of Morgan Stanley & Co. Incorporated and William Blair as a rate
which would cause shares of the Series B Preferred Stock to trade publicly at
the Effective Time (if such shares were then traded publicly) at a price per
share equal to $11.25, and (y) a per annum rate per share equal to an amount
determined by dividing (i) the sum of (A) $200,000 divided by the total number
of shares of the Series B Preferred Stock to be issued at the Effective Time and
(B) $3.515625 by (ii) five. Dividends on the Series B Preferred Stock will be
payable quarterly in installments on January 15, April 15, July 15 and October
15 in each year, commencing July 15, 1994. Such dividends shall be cumulative
from the date of original issuance of the shares of the Series B Preferred
Stock. Each such dividend will be paid to the holders of record of shares of the
Series B Preferred Stock as they appear on Scotsman's stock register on the
record date, which shall not be more than 30 days nor less than 10 days
preceding the dividend payment date.
If dividends are not paid in full, or declared in full and sums set apart
for the payment thereof, upon the Series B Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the Series B Preferred
Stock, all dividends declared upon the Series B Preferred Stock and any other
preferred stock ranking on a parity as to dividends will be paid or declared pro
rata so that in all cases the amount of dividends paid or declared per share on
the Series B Preferred Stock and such other preferred stock will bear to each
other the same ratio that unpaid accumulated dividends per share, including
dividends accrued or in arrears, if any, on the Series B Preferred Stock and
such other preferred stock bear to each other. Unless and until full cumulative
dividends on the Series B Preferred Stock in respect of all past quarterly
dividends periods have been paid, and the full amount of dividends on the shares
of the Series B Preferred Stock in respect of the then current quarterly
dividend period shall have been declared in full and sums set aside for the
payment thereof, no dividends (other than dividends of Scotsman Common Stock or
other shares of Scotsman capital stock ranking junior to the Series B Preferred
Stock as to dividends) may be paid or declared and set aside for payment or
other distribution upon Scotsman Common Stock or on any other capital stock of
Scotsman ranking junior to or, except as provided above, on a parity with the
Series B Preferred Stock as to dividends nor may any Scotsman Common Stock or
any other capital stock ranking junior to or on a parity with the Series B
Preferred Stock as to dividends be redeemed, retired, purchased or otherwise
acquired for any consideration (or any payment made to or available for a
sinking fund for the redemption of any shares of such stock) by Scotsman or any
subsidiary of Scotsman (except by conversion into or exchange for capital stock
of Scotsman ranking junior to the Series B Preferred Stock as to dividends).
Holders of shares of the Series B Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or shares of capital stock, in
excess of full accrued and cumulative dividends as described above. No interest
or sum of money in lieu of interest shall be payable in respect of any dividend
payment or payments on shares of Series B Preferred Stock that may be in
arrears.
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<PAGE> 62
Dividends payable on the Series B Preferred Stock for any period less than
a full quarterly dividend period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual number of days elapsed in the period for
which payable.
Scotsman's existing long-term debt agreements restrict the amount of
dividends payable by Scotsman, and it is expected that certain provisions of the
New Credit Agreement may also restrict Scotsman's ability to pay dividends. See
"Other Related Matters -- Proposed Financing."
Liquidation Rights. In the event of any liquidation, dissolution, or
winding up of the affairs of Scotsman, whether voluntary or otherwise the
holders of the Series B Preferred Stock will be entitled to receive, out of the
assets of Scotsman available for distribution to its shareholders, in cash, the
amount of $11.25 for each share of the Series B Preferred Stock, plus an amount
equal to all dividends accrued and unpaid on each such share up to the date
fixed for distribution, before any distribution is made to the holders of
Scotsman Common Stock or any other capital stock of Scotsman ranking (as to any
such distribution) junior to the Series B Preferred Stock. If upon any
liquidation, dissolution or winding up of Scotsman, the assets distributable
among the holders of shares of Series B Preferred Stock and all other classes
and series of preferred stock ranking (as to any such distribution) on a parity
with the Series B Preferred Stock are insufficient to permit the payment in full
to the holders of all such shares of all preferential amounts payable to all
such holders, then the entire assets of Scotsman thus distributable will be
distributed ratably among the holders of the Series B Preferred Stock and of
such other all classes and series of preferred stock ranking (as to any such
distribution) on a parity with the Series B Preferred Stock in proportion to the
respective amounts that would be payable per share if such assets were
sufficient to permit payment in full.
For purposes of this section, a distribution of assets in any dissolution,
winding up or liquidation will not include (i) any consolidation or merger of
Scotsman with or into any other corporation, (ii) any dissolution, liquidation,
winding up or reorganization of Scotsman immediately following reincorporation
of another corporation, or (iii) a sale or other distribution of all or
substantially all of Scotsman's assets to another corporation; provided that, in
each case, effective provision is made in the certificate of incorporation of
the resulting and surviving corporation or otherwise for the protection of the
rights of the holders of the Series B Preferred Stock.
Optional Redemption by Scotsman. Subject to the limitations described
below, the Series B Preferred Stock may be redeemed at the option of Scotsman by
resolution of its Board of Directors, in whole or from time to time in part, at
any time on and after May 1, 1999, at the redemption price of $11.25 per share
plus, in each case, all dividends accrued and unpaid on the Series B Preferred
Stock up to the date fixed for redemption (the "Series B Redemption Price") upon
giving notice as provided herein below.
If fewer than all of the outstanding shares of the Series B Preferred Stock
are to be redeemed, the shares to be redeemed will be determined pro rata or by
lot or in such other manner as prescribed by Scotsman's Board of Directors.
At least 30 days but not more than 60 days prior to the date fixed for the
redemption of the Series B Preferred Stock, a written notice will be mailed to
each holder of record of Series B Preferred Stock to be redeemed, notifying such
holder of Scotsman's election to redeem such shares, stating the date fixed for
redemption thereof (the "Series B Preferred Stock Redemption Date"), specifying
the Series B Redemption Price, and calling upon such holder to surrender to
Scotsman on the Series B Preferred Stock Redemption Date at the place designated
in such notice (which shall be in the Borough of Manhattan, The City of New
York, State of New York, or the City of Chicago, Illinois) the certificate or
certificates representing the number of shares specified therein. On or after
the Series B Preferred Stock Redemption Date, each holder of Series B Preferred
Stock to be redeemed must present and surrender the certificate or certificates
for such shares to Scotsman at the place designated in such notice and against
such surrender the Series B Redemption Price of such shares will be paid to or
on the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrender certificate shall be
canceled. In case less than all the shares represented by any such certificate
be redeemed, a new certificate will be issued representing the unredeemed
shares. From and after the Series B Preferred Stock Redemption Date (unless
Scotsman defaults in payment of the Series B Redemption Price), all dividends on
the shares of the Series B Preferred Stock
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<PAGE> 63
designated for redemption in such notice will cease to accrue and all rights of
the holders thereof as shareholders of Scotsman, except the right to receive the
Series B Redemption Price thereof (including all accrued and unpaid dividends up
to the Series B Preferred Stock Redemption Date), upon the surrender of the
certificates representing the same, will cease and terminate and such shares
will not thereafter be transferred (except with the consent of Scotsman) on
Scotsman's books, and such shares shall not be deemed to be outstanding for any
purpose whatsoever. At its election, Scotsman, prior to the Series B Preferred
Stock Redemption Date, may deposit the Series B Redemption Price of the shares
of the Series B Preferred Stock so called for redemption in trust for the
holders thereof with a bank or trust company, in which case such notice to
holders of the shares of the Series B Preferred Stock to be redeemed will (i)
state the date of such deposit, (ii) specify the office of such bank or trust
company as the place of payment of the Series B Redemption Price and (iii) call
upon such holders to surrender the certificates representing such shares at such
place on or after the date fixed in such redemption notice (which may not be
later than the Series B Preferred Stock Redemption Date), against payments of
the Series B Redemption Price (including all accrued and unpaid dividends up to
the Series B Preferred Stock Redemption Date). Any interest accrued on such
funds shall be paid to Scotsman from time to time. Any moneys so deposited which
remain unclaimed by the holders of the Series B Preferred Stock at the end of
two years after the Series B Preferred Stock Redemption Date will be returned by
such bank or trust company to Scotsman; thereafter, the holders of shares of the
Series B Preferred Stock redeemed on such Series B Preferred Stock Redemption
Date shall look only to Scotsman for payment of the Redemption Price therefor.
Shares of the Series B Preferred Stock redeemed, repurchased or retired
pursuant to the provisions described above or surrendered to Scotsman upon
conversion shall thereupon be retired and may not be reissued as shares of the
Series B Preferred Stock but shall thereafter have the status of authorized but
unissued shares of the preferred stock, without designation as to series until
such shares are once more designated as part of a particular series of the
preferred stock.
Notwithstanding the above provisions, in the event that Scotsman shall have
failed to declare and pay or set apart for payment in full the dividends
accumulated on the outstanding shares of the Series B Preferred Stock for any
eight quarterly dividend payment periods, whether or not consecutive, whether or
not earned or declared or whether or not any assets of Scotsman are legally
available therefor, the Series B Preferred Stock shall not thereafter be
redeemable.
Optional Redemption by Holders. Each holder of record of shares of the
Series B Preferred Stock shall have the right, at the option of such holder, at
any time on or after May 1, 1999, to require Scotsman, to the extent Scotsman
has legally available funds therefor, to redeem all (but not less than all) of
the shares of the Series B Preferred Shares held by such holder at the Series B
Redemption Price therefor.
Such right to require redemption shall be exercised by such a holder by
giving written notice of such exercise by first class mail, postage prepaid, and
by surrendering therewith the certificate or certificates representing such
shares to Scotsman at its principal office (or such other office or agency of
Scotsman as Scotsman may designate by notice in writing to the holders of the
shares of the Series B Preferred Stock), and thereupon the Series B Redemption
Price of such shares shall be paid to or on the order of the person whose name
appears on such certificate or certificates as the owner thereof.
After receipt of the notice and certificates as specified above, Scotsman
shall redeem such shares of the Series B Preferred Stock on the date (the
"Elected Redemption Date") of the dividend payment date for the shares of the
Series B Preferred Stock next following the date of Scotsman's receipt of such
notice; provided that if Scotsman receives such notice less than 30 days prior
to such next following dividend payment date, then the Elected Redemption Date
for the shares to be redeemed pursuant to such notice shall be the next
succeeding dividend payment date. From and after each Elected Redemption Date
(unless default shall be made by Scotsman in payment of the Series B Redemption
Price), all dividends on the shares of the Series B Preferred Stock designated
for redemption on such Elected Redemption Date shall cease to accrue, and all
rights of the holders thereof as stockholders of Scotsman, except the right to
receive the Series B Redemption Price of such shares (including all accrued and
unpaid dividends up to the Elected Redemption Date), shall
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cease and terminate and such shares shall not thereafter be transferred (except
with the consent of Scotsman) on the books of Scotsman, and such shares shall
not be deemed to be outstanding for any purpose whatsoever.
If the funds of Scotsman legally available for redemption of shares of the
Series B Preferred Stock are insufficient to redeem the total number of shares
of the Series B Preferred Stock to be redeemed on an Elected Redemption Date as
described above, any funds legally available therefor shall be distributed
ratably among the holders of such shares in proportion to the respective amounts
that would be payable if such funds were sufficient to redeem such shares in
full. The shares of the Series B Preferred Stock not redeemed as described above
shall remain outstanding and entitled to all rights provided herein and a new
certificate shall be issued representing the unredeemed shares.
Shares of the Series B Preferred Stock redeemed, repurchased or retired
pursuant to the above provisions shall thereupon be retired and may not be
reissued as shares of the Series B Preferred Stock but shall thereafter have the
status of authorized but unissued shares of the preferred stock, without
designation as to series until such shares are once more designated as part of a
particular series of the preferred stock.
Voting Rights. Except as otherwise described below in this section or under
"Limitations" below, or as required by law, the holders of shares of the Series
B Preferred Stock shall be entitled to vote on any matter on which the holders
of Scotsman Common Stock are entitled to vote. Each share of the Series B
Preferred Stock held of record on the record date for the determination of
stockholders entitled to vote on such matter (or, if no such record date is
established, on the date such vote is taken) shall entitle the holder thereof to
cast a number of votes equal to one-tenth (1/10) of one vote. Except as
otherwise expressly provided herein or as required by law, the holders of shares
of the Series B Preferred Stock and Scotsman Common Stock shall vote together
(together with any other class or series of preferred stock of Scotsman then
entitled to vote on any matter on which the holders of Scotsman Common Stock are
entitled to vote) and not as separate classes.
Limitations. In addition to any other rights provided by applicable law, so
long as any shares of the Series B Preferred Stock are outstanding, Scotsman
will not, without the affirmative vote, or the written consent as provided by
law, of the holders of at least two-thirds of the outstanding shares of the
Series B Preferred Stock, voting separately:
(a) create, authorize or issue any class or series of preferred stock
ranking either as to payment of dividends or in distribution of assets upon
liquidation prior to the Series B Preferred Stock; or
(b) change the preferences, rights or powers with respect to the
Series B Preferred Stock so as to affect the Series B Preferred Stock
adversely.
Except as may otherwise be required by applicable law, such a class vote or
consent is not required (i) in connection with any increase in the total number
of authorized shares of Scotsman Common Stock, or (ii) in connection with the
authorization or increase of any class or series of shares ranking, as to
dividends and in liquidation, junior to or on a parity with the Series B
Preferred Stock. No such vote or written consent of the holders of the Series B
Preferred Stock is required if, at or prior to the time when the issuance of any
such stock ranking prior to the Series B Preferred Stock is to be made or any
such change is to take effect, as the case may be, provision is made for the
redemption of all of the Series B Preferred Stock at the time outstanding.
Preemptive Rights. No holder of the Series B Preferred Stock will have
preemptive rights to subscribe for or acquire any unissued shares of Scotsman
(whether now or hereafter authorized) or securities of Scotsman convertible into
or carrying a right to subscribe to or acquire shares.
Transfer Agent. The Registrar and Transfer Agent for the Series B Preferred
Stock will be Harris Trust and Savings Bank. Scotsman will act as Paying Agent
for the Series B Preferred Stock.
Listing. The Series B Preferred Stock is not, and will not be, listed or
traded on a national securities exchange.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences generally applicable to holders of Series A Convertible Preferred
Stock and Series B Preferred Stock. For purposes of this discussion, the term
"Preferred Stock" refers, collectively, to Series A Convertible Preferred Stock
and Series B Preferred Stock. The discussion assumes that the Preferred Stock
will be held as a capital asset within the meaning of section 1221 of the Code.
Further, the discussion does not address all aspects of taxation that may be
relevant to particular holders in light of their personal circumstances, or to
certain types of holders (including dealers in securities, insurance companies,
foreign persons, financial institutions and tax-exempt entities) subject to
special treatment under the federal income tax laws.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE BASED UPON
CURRENTLY EXISTING PROVISIONS OF THE CODE, JUDICIAL DECISIONS, AND
ADMINISTRATIVE INTERPRETATIONS. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER,
EACH PROSPECTIVE HOLDER OF PREFERRED STOCK IS STRONGLY URGED TO CONSULT HIS OWN
TAX ADVISOR WITH RESPECT TO HIS PARTICULAR TAX SITUATION AND THE PARTICULAR TAX
EFFECTS OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS AND POSSIBLE CHANGES IN
THE TAX LAWS. NEITHER SCOTSMAN, DFC NOR WAL HAS OBTAINED AN OPINION OF COUNSEL
WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THE HOLDERS OF
THE SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B PREFERRED STOCK, AND THE
FOLLOWING DISCUSSION IS NOT BASED UPON ANY SUCH OPINION OF COUNSEL.
Dividends on Preferred Stock. Dividends paid on the Preferred Stock will be
taxable as ordinary income to the extent of Scotsman's current or accumulated
earnings and profits for federal income tax purposes. To the extent that the
amount of distributions paid on the Preferred Stock exceeds Scotsman's current
or accumulated earnings and profits for federal income tax purposes, such
distributions will be treated first as a return of capital and will be applied
against and reduce the adjusted tax basis of the Preferred Stock in the hands of
the shareholder. Any remaining amount will then be taxed as capital gain, and
will be long-term capital gain if the holder's holding period for the Preferred
Stock exceeds one year. For purposes of the remainder of this discussion, the
term "dividend" refers to a distribution taxed as ordinary income as described
above, unless the context indicates otherwise.
Dividends received by corporate shareholders will be eligible for the 70%
dividends-received deduction under section 243 of the Code, subject to the
limitations contained in sections 246 and 246A of the Code. Under section 246(c)
of the Code, the 70% dividends-received deduction will not be available with
respect to Preferred Stock which is held for 45 days or less (90 days in the
case of a dividend attributable to a period or periods aggregating more than 366
days), including the day of disposition, but excluding the day of acquisition or
any day which is more than 45 days (or 90 days) after the date on which the
Preferred Stock becomes ex-dividend. The length of time that a shareholder is
deemed to have held stock for these purposes is reduced for periods during which
the shareholder's risk of loss with respect to the stock is diminished by reason
of the existence of certain options, contracts to sell, short sales or other
similar transactions. Section 246(c) also denies the dividends-received
deduction to the extent that a corporate taxpayer is under an obligation, with
respect to substantially similar or related property, to make payments
corresponding to the dividend received. Under section 246(b) of the Code, the
aggregate dividends-received deductions allowed may not exceed 70% of the
taxable income (with certain adjustments) of the corporate shareholder.
Moreover, under section 246A of the Code, to the extent that a corporate
shareholder incurs indebtedness "directly attributable" to investment in the
Preferred Stock, the dividends-received deduction is proportionately reduced.
Redemption of Preferred Stock. A redemption of shares of Preferred Stock
for cash will be a taxable event.
A redemption of shares of Preferred Stock for cash will be treated as a
dividend to the extent of Scotsman's current or accumulated earnings and
profits, unless the redemption (i) results in a "complete termination" of the
shareholder's stock interest in Scotsman under section 302(b)(3) of the Code,
(ii) is "substantially disproportionate" with respect to the shareholder under
section 302(b)(2) of the Code or (iii) is "not essentially equivalent to a
dividend" with respect to the shareholder under section 302(b)(1) of the Code.
In determining whether any of these tests have been met, the shareholder must
take into account not only stock he actually owns, but also stock he
constructively owns within the meaning of section 318 of the Code. A
distribution to a shareholder will be "not essentially equivalent to a dividend"
if its results in a
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"meaningful reduction" in the shareholder's stock interest in Scotsman. Because
this test is not based upon numerical criteria, there can be no certainty as to
when such a reduction has taken place. Satisfaction of the "complete
termination" and "substantially disproportionate" tests is dependent upon
meeting the objective tests set forth in sections 302(b)(3) and 302(b)(2) of the
Code, respectively.
If a redemption of Preferred Stock is treated as a distribution that is
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash received by the shareholder. The shareholder's adjusted tax basis
in the redeemed stock will be transferred to any remaining stock holdings in
Scotsman.
If a redemption of Preferred Stock for cash is not treated as a
distribution taxable as a dividend, it will result in taxable gain or loss equal
to the difference between the amount of cash received and the shareholder's
adjusted tax basis in the Preferred Stock redeemed. Such gain or loss will be
long-term capital gain or loss if the holding period for the Preferred Stock
exceeds one year.
Conversion of Series A Convertible Preferred Stock into Scotsman Common
Stock. In general, no gain or loss will be recognized for federal income tax
purposes on conversion of Series A Convertible Preferred Stock solely into
shares of Scotsman Common Stock, except with respect to any cash received in
lieu of a fractional share interest. However, a holder of Series A Convertible
Preferred Stock will recognize a dividend on such conversion equal to the amount
of dividends in arrears on the Series A Convertible Preferred Stock, but only to
the extent the fair market value of the Scotsman Common Stock received upon
conversion exceeds the fair market value at issuance of the Series A Convertible
Preferred Stock converted. To the extent the conversion is not treated as
resulting in the payment of a dividend, the tax basis for the shares of Scotsman
Common Stock received upon conversion will be equal to the tax basis of the
Series A Convertible Preferred Stock converted, and the holding period of the
shares of Scotsman Common Stock will include the holding period of the Series A
Convertible Preferred Stock converted.
Adjustment of Series A Convertible Preferred Stock Conversion Price.
Section 305 of the Code treats as a distribution taxable as a dividend to the
extent of the issuing corporation's current or accumulated earnings and profits
certain actual or constructive distributions of stock with respect to stock or
convertible securities. Treasury regulations treat holders of convertible
preferred stock as having received such a constructive distribution where the
conversion price of such preferred stock is adjusted to reflect certain taxable
distributions with respect to the stock into which such preferred stock is
convertible. Thus, under certain circumstances an adjustment in the conversion
price of the Series A Convertible Preferred Stock may be taxable to the holders
thereof as a dividend.
Backup Withholding. Under section 3406 of the Code and applicable Treasury
regulations, a noncorporate holder of Preferred Stock may be subject to backup
withholding at the rate of 31% with respect to "reportable payments," which
include dividends paid on, or the proceeds of a sale, exchange or redemption of,
Preferred Stock. The payor will be required to deduct and withhold the
prescribed amounts if (i) the payee fails to furnish a taxpayer identification
number ("TIN") to the payor in the manner required, (ii) the Internal Revenue
Service notifies the payor that the TIN furnished by the payee is incorrect,
(iii) there has been a "notified payee underreporting" described in section
3406(c) of the Code, or (iv) there has been a failure of the payee to certify
under penalty of perjury that the payee is not subject to withholding under
section 3406(a)(1)(C) of the Code. If any one of the events listed above occurs,
Scotsman will be required to withhold an amount equal to 31% from any dividend
payment made with respect to the Preferred Stock or any payment of proceeds of a
redemption of Preferred Stock to a noncorporate holder. Amounts paid as backup
withholding do not constitute an additional tax and will be credited against the
holder's federal income tax liabilities, so long as the required information is
provided to the Internal Revenue Service. Scotsman will report to the holders of
Preferred Stock the amount of any "reportable payments" for each calendar year
and the amount of tax withheld, if any, with respect to such payments.
COMPARISON OF THE RIGHTS OF HOLDERS OF DFC COMMON STOCK
AND THE RIGHTS OF HOLDERS OF SCOTSMAN COMMON STOCK
Both DFC and Scotsman are incorporated under the laws of the State of
Delaware. The rights of holders of DFC Common Stock and Scotsman Common Stock
are therefore governed by the DGCL and the respective certificates of
incorporation and by-laws of DFC and Scotsman. Upon consummation of the
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Merger, the Merger Shareholders will become Scotsman shareholders and, as such,
their rights will be governed by Scotsman's Certificate of Incorporation and
by-laws, as amended. The following is a summary of certain material differences
between DFC's Restated Certificate of Incorporation ("DFC's Certificate of
Incorporation") and by-laws, as amended, and Scotsman's Certificate of
Incorporation and by-laws.
BOARD OF DIRECTORS
DFC. DFC's Certificate of Incorporation provides that the number of
directors of DFC shall be fixed and may be altered from time to time in the
manner provided for in DFC's by-laws. DFC's by-laws provide that DFC's Board of
Directors shall consist of three members, which number may be modified from time
to time by resolution of the Board, but in no event shall the number of
directors be less than one. The number of directors remains fixed at three.
DFC's by-laws further provide that directors shall be elected at each annual
meeting of shareholders and that each director shall hold office until such
director's successor has been duly elected and qualified, or until his earlier
death, resignation or removal.
Scotsman. Under Scotsman's Certificate of Incorporation and by-laws, the
number of directors of the Board of Directors of Scotsman is to be fixed from
time to time exclusively by the Board of Directors by a resolution adopted by a
majority of the number of directors that Scotsman would have if there were no
vacancies on the Board (the "Whole Board"). The number of directors on
Scotsman's board is currently fixed at seven. Scotsman's Certificate of
Incorporation and by-laws further provide that Scotsman's Board of Directors is
to be divided into three classes, with the term of one such class expiring each
year. Directors elected at each annual meeting of Scotsman's shareholders will
be elected for a term of office which expires at the third annual meeting of
Scotsman's shareholders following such election, with each director to hold
office until his or her successor shall have been duly elected and qualified.
With a staggered board, at least two annual meetings will normally be
required to effect a change in the composition of a majority of the Board.
Although the provisions in Scotsman's Certificate of Incorporation and by-laws
which establish a staggered board promote continuity and long-term participation
on the Board of Directors, they may discourage or render more difficult a change
of control of Scotsman, whether or not a majority of Scotsman's shareholders may
deem such a change of control desirable.
REMOVAL OF DIRECTORS
DFC. DFC's by-laws provide that any director may be removed at any time,
either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of DFC entitled to vote for the
election of such director, cast at a special meeting of shareholders called for
such purpose. Any vacancy on the Board of Directors caused by any such removal
may be filled at such meeting by the shareholders entitled to vote for the
election of the director so removed.
Scotsman. Scotsman's Certificate of Incorporation and by-laws provide that,
subject to the rights of the holders of any class or series of preferred stock,
any director, or the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders of
at least a majority of the voting power of all of the then-outstanding shares of
capital stock of Scotsman entitled to vote generally in the election of
directors (the "Scotsman Voting Stock"), voting together as a single class. The
DGCL does not define "cause." The circumstances constituting "cause" are
therefore judicially determined and generally involve fraud, criminal conduct or
gross abuse of office amounting to a breach of duty to the corporation.
FILLING OF VACANCIES AND NEWLY CREATED DIRECTORSHIPS
DFC. DFC by-laws provide that a majority of the members of the Board of
Directors then in office, although less than a quorum, may fill any vacancies
which occur on the Board of Directors (unless any such vacancy is filled by the
shareholders of DFC at the special meeting resulting in the removal of such
director) and any newly created directorships resulting from an increase in the
authorized number of directors. A director elected to fill a vacancy or newly
created directorship shall hold office until such director's successor has been
duly elected and qualified or until such director's earlier death, resignation
or removal. Any such vacancy or newly created directorship may also be filled at
any time by a vote of the shareholders.
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Scotsman. Scotsman's Certificate of Incorporation and by-laws provide that,
subject to the rights of the holders of any series of preferred stock and unless
the Board of Directors otherwise determines, vacancies on the Board of Directors
(including vacancies resulting from removal from office) and newly created
directorships resulting from any increase in the authorized number of directors
may be filled only by a majority vote of the directors then in office, though
less than a quorum. Any director so chosen shall hold office for a term expiring
at the annual meeting of shareholders at which the term of office of the class
to which such director has been elected expires and until such director's
successor shall have been duly elected and qualified. A decrease in the number
of authorized directors constituting the entire Board of Directors may not
shorten the term of any incumbent director.
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
DFC. Section 228 of the DGCL provides that, unless a corporation's
certificate of incorporation provides otherwise, any action required or
permitted to be taken at an annual or special meeting of shareholders may be
taken with the written consent of the holders of not less than the minimum
number of votes that would be necessary to authorize or take such action at such
annual or special meeting. DFC's Certificate of Incorporation does not provide
otherwise, and DFC's shareholders may therefore take action by written consent.
Scotsman. Scotsman's Certificate of Incorporation and by-laws provide that
any action required or permitted to be taken by Scotsman's shareholders must be
effected at an annual or special meeting of shareholders and may not be effected
by written consent. Such a provision precludes the holders of a majority of the
Scotsman Common Stock from taking action affecting all of Scotsman's
shareholders without giving the remaining shareholders the opportunity to
participate, at a meeting, in the decision-making process. On the other hand,
such a provision, when coupled with certain other provisions described below,
may have the effect of requiring a shareholder to wait until the next annual
meeting of shareholders in order to introduce a proposal which does not have the
support of a majority of the Whole Board. See "Special Meetings of Shareholders"
and "Advance Notice of Shareholder Nominations of Directors and Shareholder
Proposals."
SPECIAL MEETINGS OF SHAREHOLDERS
DFC. DFC's by-laws provide that special meetings of DFC's shareholders may
be called at any time by the President (or, in the event of the President's
absence or disability, by any Vice President) or by the Board of Directors. In
addition, the President (or, in the event of the President's absence or
disability, a Vice President) or the Secretary is required to call a special
meeting immediately upon receipt of a written request for a special meeting by
shareholders holding, in the aggregate, not less than a majority of the
outstanding shares of DFC entitled to vote at any meeting of DFC's shareholders.
If such officers or the Board of Directors fail to call such special meeting
within 20 days after receipt of such request, any shareholder who signed such a
request may call a special meeting.
Scotsman. Scotsman's Certificate of Incorporation and by-laws provide that,
subject to the rights of holders of any series of preferred stock, special
meetings of shareholders may be called only by the Board of Directors pursuant
to a resolution adopted by a majority of the Whole Board. Scotsman's by-laws
further provide that the business conducted at any special meeting of
shareholders shall be confined to the purpose or purposes stated in the Board of
Directors' notice of such a meeting. As a result, only proposals which have the
support of a majority of the Whole Board may be considered for action at a
special meeting of Scotsman's shareholders.
ADVANCE NOTICE FOR SHAREHOLDER NOMINATIONS OF DIRECTORS AND SHAREHOLDER
PROPOSALS
DFC. DFC's Certificate of Incorporation and by-laws do not require a
shareholder to give advance notice to the Board of Directors before nominating a
person to serve as a director or presenting a proposal at a special or annual
meeting of shareholders.
Scotsman. Scotsman's by-laws establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors (the
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"Nomination Procedure") and with regard to certain matters to be brought before
an annual meeting of shareholders of Scotsman (the "Business Procedure").
The Nomination Procedure provides that only persons who are nominated by,
or at the direction of, the Board of Directors or by a shareholder who has given
timely written notice to the Secretary of Scotsman prior to the meeting at which
directors are to be elected will be eligible for election as directors of
Scotsman. The Business Procedure provides that at an annual meeting, and subject
to any other applicable requirements, only such business may be conducted as has
been brought before the meeting by, or at the direction of, the Board of
Directors or by a shareholder who has given timely prior written notice to the
Secretary of Scotsman of such shareholder's intention to bring such business
before the meeting. In order for business to be properly brought before an
annual meeting, such business must also be a proper matter for shareholder
action. To be timely, notice of a nomination or proposed business must be
received by Scotsman not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day before the first anniversary
of the preceding year's annual meeting. Such dates may be adjusted if the date
of an annual meeting is more than 30 days before or 60 days after the
anniversary date of the preceding year's annual meeting.
Under the Nomination Procedure, notice to Scotsman from a shareholder who
proposes to nominate a person at an annual meeting for election as a director
must contain certain information about that person, including age, business and
residence addresses, principal occupation, the class and number of shares of
Scotsman Common Stock beneficially owned and such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee (including such person's written consent to being named
as a nominee and to serving as a director if elected). Under the Business
Procedure, notice relating to the conduct of business other than the nomination
of directors at an annual meeting must contain certain information about the
business to be brought, including a brief description of the business, the
reasons for conducting such business at the annual meeting, and any material
interest of such shareholder in the business so proposed. Any notice given under
either the Nomination Procedure or the Business Procedure must also contain
certain information about the shareholder giving such notice and the beneficial
owner, if any, on whose behalf the nomination or proposal has been made,
including the name and address of the shareholder as they appear on Scotsman's
books, the name and address of such beneficial owner, if any, and the number of
shares of Scotsman Common Stock owned beneficially and of record by such
shareholder and beneficial owner, if any.
Such advance notice procedures serve to ensure that shareholder nominations
and proposals are brought before meetings of Scotsman's shareholders in an
orderly manner and that Scotsman's shareholders receive information sufficient
to enable them to make an informed decision with respect to such nominations and
proposals. Such procedures may also, however, discourage a change of control of
Scotsman by precluding a shareholder from using surprise tactics to nominate
such shareholder's own slate of directors or from proposing a business
transaction for approval at a meeting of Scotsman's shareholders without prior
advance notice to the Board.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL restricts certain forms of "Business Combinations"
with an "Interested Stockholder" for a period of three years from the date that
such a person became an Interested Stockholder unless (i) prior to such date,
the board of directors approved either the Business Combination or the
transaction which resulted in the shareholder's becoming an Interested
Stockholder, (ii) upon consummation of the transaction which resulted in the
shareholder's becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation (excluding shares held
by management directors and under certain types of employee stock plans), or
(iii) on or subsequent to such date, the Business Combination is approved by the
board of directors and authorized at an annual or special meeting of the
shareholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock, other than stock owned by the Interested Stockholder.
An "Interested Stockholder" is defined as any individual, corporation,
partnership, unincorporated association or other entity which (i) owns 15% or
more of the outstanding voting stock of the corporation,
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(ii) is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an Interested Stockholder, and (iii) the
affiliates or associates of such a person. A "Business Combination" is defined
as (i) a merger or consolidation of the corporation with the Interested
Stockholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
disposition of 10% or more of the assets of the corporation to the Interested
Stockholder, (iii) any transaction which results in the issuance or transfer of
the stock of the corporation to the Interested Stockholder, (iv) any transaction
involving the corporation which has the effect of increasing the Interested
Stockholder's proportionate share of the stock of the corporation or (v) any
receipt by the Interested Stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation.
Section 203 applies automatically to Delaware corporations (other than
corporations which do not have a class of voting stock that is listed on a
national securities exchange, authorized for quotation with a registered
national securities association, or held of record by more than 2,000
shareholders) unless the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203 or the
corporation has "opted out" of coverage under Section 203 by amending its
certificate of incorporation or by-laws to that effect in accordance with
Section 203. A Delaware corporation which is not automatically covered by
Section 203 may, however, "opt in" to such coverage by including in its original
certificate of incorporation or any amendment thereto a provision in which the
corporation elects to be governed by Section 203.
DFC. Section 203 of the DGCL does not automatically apply to DFC since it
has fewer than 2,000 shareholders and does not have a class of voting stock that
is listed on a national securities exchange or authorized for quotation with a
registered national securities association. DFC's Certificate of Incorporation
also does not contain a provision electing that DFC be governed by Section 203.
There are no also no other provisions in DFC's Certificate of Incorporation or
by-laws imposing any restrictions on business combinations between DFC and
holders of substantial amounts of DFC Common Stock. As a result, only the vote
of the holders of a majority of the outstanding shares of DFC Common Stock is
required to approve any merger or consolidation of DFC with any other entity,
and no shareholder approval is required for most of the other transactions
included within the definition of a "Business Combination" under Section 203.
Scotsman. Since Scotsman Common Stock is listed on the NYSE, Section 203 of
the DGCL automatically applies to Scotsman. Neither Scotsman's Certificate of
Incorporation nor its by-laws contains any provision electing that Scotsman not
be covered by Section 203. Section 203 therefore applies to transactions between
Scotsman and beneficial owners of 15% or more of Scotsman's voting stock.
Scotsman's Board of Directors has approved the Merger, the Share Acquisition and
the other transactions contemplated by the Merger Agreement and the Share
Acquisition Agreement for purposes of Section 203 of the DGCL.
In addition, Article Eighth of Scotsman's Certificate of Incorporation
requires a "Business Combination" with an "Interested Shareholder" to be
approved by the holders of 80% of the Scotsman Voting Stock, voting together as
a single class, unless certain conditions specified in Article Eighth are met.
For purposes of Article Eighth, an "Interested Stockholder" is defined as
any person (other than Scotsman or a subsidiary) who or which is (a) the
beneficial owner (as defined below) of more than ten percent (10%) of the voting
power of the outstanding Scotsman Voting Stock or (b) an "Affiliate" (as defined
in Article Eighth) of Scotsman and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of ten
percent (10%) or more of the voting power of the then outstanding Scotsman
Voting Stock, or (c) an assignee of or has otherwise succeeded to any shares of
Scotsman Voting Stock which were at any time within the two-year period
immediately prior to the date in question Beneficially Owned (as defined below)
by a person described in (a) or (b) above (other than shares acquired through a
public offering).
For purposes of Article Eighth, a "Business Combination" is defined as any
of the following: (a) a merger or consolidation of Scotsman or any of its
subsidiaries with an Interested Stockholder or any corporation (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate of such Interested Stockholder; (b) the
sale or other disposition (in one transaction or a series of
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transactions) by Scotsman or any of its subsidiaries of assets having an
aggregate Fair Market Value (as defined in Article Eighth) in excess of $10
million if an Interested Stockholder or any Affiliate or Associate of an
Interested Stockholder is a party to the transaction; (c) the issuance or
transfer (in one transaction or a series of transactions) of any securities of
Scotsman or of any of its subsidiaries to an Interested Stockholder or any
Affiliate or Associate of an Interested Stockholder in exchange for cash or
property (including stock or other securities) having an aggregate Fair Market
Value in excess of $10 million; (d) the adoption of any plan or proposal for the
liquidation or dissolution of Scotsman proposed by or on behalf of an Interested
Stockholder or any Affiliate or Associate of an Interested Stockholder; or (e)
any reclassification of securities, recapitalization, merger with a subsidiary
or other transaction which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding stock of any class of Scotsman or any
of its subsidiaries Beneficially Owned by an Interested Stockholder or any
Affiliate or Associate of an Interested Stockholder.
The supermajority voting requirements described above do not apply to any
transaction otherwise meeting the definition of a Business Combination if, (i)
in the case of a Business Combination that does not involve the receipt of any
cash or other consideration by Scotsman's shareholders (solely in their
respective capacity as shareholders), the transaction has been approved by a
majority of the Continuing Directors (as defined below), or (ii) in all other
cases, the transaction has either been approved by a majority of the Continuing
Directors or meets the fair price and procedural requirements described below. A
"Continuing Director" is defined as any member of Scotsman's Board of Directors
who is not affiliated with the Interested Stockholder in question and was a
director of Scotsman prior to the time such Interested Stockholder became an
Interested Stockholder and any director who was thereafter appointed to fill any
vacancy on the board or who is elected and who, in either event, is not
affiliated with an Interested Stockholder, and in connection with his or her
initial assumption of office was recommended by a majority of the Continuing
Directors then on the Board.
A Business Combination complies with the "fair price" provisions of Article
Eighth if, among other things, the aggregate of (a) the cash and (b) the Fair
Market Value, as of the date of consummation of the Business Combination, of any
consideration other than cash to be received per share by holders of Scotsman
Common Stock in the Business Combination equals or exceeds the higher of (i) the
highest per share price paid by the Interested Stockholder or any of its
Affiliates in acquiring any shares of Scotsman Common Stock during the two years
immediately prior to the date of the first public announcement of the proposal
of the Business Combination or in any transaction in which the Interested
Stockholder became an Interested Stockholder (whichever is higher), plus
interest computed in accordance with the provisions of Article Eighth or (ii)
the Fair Market Value per share of Scotsman Common Stock on the date of the
first public announcement of the proposal for a Business Combination or the
first date on which the Interested Stockholder became an Interested Stockholder,
whichever is higher. Comparable "fair price" requirements apply to the price to
be paid for shares of other classes or series of Scotsman's capital stock. The
consideration to be received by holders of a particular class (or series) of
capital stock in the Business Combination must also be either cash or the same
type of consideration used by the Interested Stockholder and its Affiliates in
acquiring the largest portion of their interest in such class (or series) of
capital stock.
A Business Combination complies with the "procedural" requirements of
Article Eighth if, between the time that the Interested Shareholder became an
Interested Shareholder and the date of the proposed Business Combination, (i)
Scotsman has not failed to pay full quarterly dividends on any then-outstanding
Scotsman preferred stock and shall not have reduced the rate of dividends paid
on Scotsman Common Stock, unless such failure or reduction was approved by a
majority of the Continuing Directors, (ii) the Interested Stockholder and its
Affiliates have not acquired any additional shares of Scotsman Voting Stock,
directly from Scotsman or otherwise, in any transaction subsequent to the
transaction pursuant to which the Interested Stockholder became an Interested
Stockholder, (iii) the Interested Stockholder and its Affiliates have not
received, at any time after the Interested Stockholder became an Interested
Stockholder, whether in connection with the Business Combination or otherwise,
the benefit of any loans or other financial assistance or tax advantages
provided by Scotsman (other than proportionately, solely in its capacity as a
shareholder), and (iv) a proxy or information statement disclosing the terms and
conditions of the Business Combination and complying with the requirements of
the proxy rules promulgated under the Exchange Act or any
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replacement legislation has been mailed to all of Scotsman's shareholders at
least 30 days prior to the consummation of the Business Combination, whether or
not such proxy or information statement is required to be mailed pursuant to the
Exchange Act or any such replacement legislation, and the Interested Stockholder
has supplied Scotsman with all information requested by the Continuing Directors
pursuant to Article Eighth.
Scotsman's Board of Directors has approved the Merger, the Share
Acquisition and the other transactions contemplated by the Merger Agreement and
the Share Acquisition Agreement for purposes of Article Eighth of Scotsman's
Certificate of Incorporation.
Article Eighth is intended to reduce the risk of certain types of
"two-tiered" acquisitions in which a person or entity could acquire a
substantial block of Scotsman's capital stock and then proceed to effect a
business combination with Scotsman in which the consideration paid to the
remaining shareholders is lower than the price per share paid to acquire the
initial block or is paid in the form of debt or other less desirable forms of
consideration rather than the form of consideration used to purchase the initial
block. Both Section 203 of the DGCL and Article Eighth may, however, render more
difficult or discourage a takeover of Scotsman, whether or not such action might
be deemed desirable by a majority of Scotsman's shareholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION
DFC. DFC's Certificate of Incorporation does not contain any super-majority
vote provisions with respect to the alteration, amendment or repeal of the
provisions of DFC's Certificate of Incorporation. Under Delaware law, DFC's
Certificate of Incorporation could therefore be amended by a majority of the
outstanding DFC Common Stock.
Scotsman. Scotsman's Certificate of Incorporation provides that, in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of Scotsman required by law, Scotsman's Certificate
of Incorporation or any preferred stock designation, the affirmative vote of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Scotsman Voting Stock, voting together as a single class, shall be
required to alter, amend or repeal the provisions of Scotsman's Certificate of
Incorporation relating to (a) the classification of the Board of Directors, (b)
the authority and power to alter, amend and repeal Scotsman's by-laws, (c) the
prohibition of action by written consent of the shareholders of Scotsman, (d)
persons who may call a special meeting of shareholders of Scotsman, and (e)
certain Business Combinations, as described above.
AMENDMENT OF BY-LAWS
DFC. DFC's Certificate of Incorporation and by-laws provide that DFC's
by-laws may be amended, altered or repealed (a) by a resolution adopted by a
majority of the Board of Directors (without the assent or vote of the
shareholders of DFC) at any special or regular meeting of the Board of Directors
if, in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of such
meeting, or (b) by the shareholders of DFC at any regular or special meeting of
the shareholders if, in the case of such special meeting only, notice of such
amendment, alteration or repeal is contained in the notice or waiver of notice
of such meeting. Under Delaware law, any such amendment, alteration or repeal
must be approved only by a majority vote at a meeting at which a quorum is
present.
Scotsman. Scotsman's Certificate of Incorporation and by-laws provide that
Scotsman's by-laws may be amended, added to, altered or repealed at any meeting
of the Board of Directors or the shareholders of Scotsman, provided that notice
of the proposed change was given in the notice of the meeting or, in the case of
a meeting of the Board of Directors, in a notice given not less than two days
prior to the meeting. In addition to any affirmative vote of any class or series
of the capital stock of Scotsman required by law or any preferred stock
designation, the affirmative vote of the holders of at least 80% of the voting
power of all the then-outstanding shares of the Scotsman Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal any
provision of Scotsman's by-laws.
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COMPARISON OF THE RIGHTS OF HOLDERS OF WAL ORDINARY SHARES
AND THE RIGHTS OF HOLDERS OF SCOTSMAN COMMON STOCK
WAL is incorporated under English law. The rights of the holders of WAL
Ordinary Shares are therefore governed by English law, including the Companies
Acts 1985 and 1989 and by WAL's Memorandum of Association, as amended by special
resolution on March 31, 1992 ("WAL's Memorandum") and Articles of Association
("WAL's Articles"). Upon consummation of the Share Acquisition, the sellers of
the WAL Ordinary Shares will receive the right to receive Scotsman Contingent
Common Shares, subject to the terms and conditions of the Share Acquisition
Agreement. The following is a summary of certain material differences between
the rights of holders of WAL Ordinary Shares and the rights of holders of
Scotsman Common Stock. These differences arise from differences between English
law and the laws of the United States and Delaware, as well as from differences
between the corporate governing instruments of WAL and Scotsman.
VOTING RIGHTS AND QUORUM REQUIREMENTS
WAL. Under English law, the voting rights of shareholders are regulated by
a company's articles of association. WAL's Articles specify that two persons
entitled to vote upon the business to be transacted at a meeting of shareholders
shall constitute a quorum. Any individual shareholder who is present at a
meeting may vote in person, as may any corporation which is present by a duly
authorized representative. WAL's Articles also permit votes by proxy, provided
that the instrument appointing the proxy is delivered or sent by post or by
facsimile transmission to the office or location specified in the notice of
meeting at least 48 hours prior to the time set for the meeting. There is no
record date for meetings under English law.
Under WAL's Articles, each WAL Ordinary Share is entitled to one vote upon
all matters to be voted on by the holders of the WAL Ordinary Shares, and all
classes of WAL Ordinary Shares vote together as a single class. Voting occurs by
show of hands unless a poll is demanded. Under WAL's Articles, a poll may be
demanded by the chairman of the meeting or by any shareholder present in person
or by proxy and having the right to vote at the meeting. If a poll is demanded
on the election of a chairman or on a question of adjournment, it shall be taken
at the meeting. If a poll is demanded on any other question, it may either be
taken at the meeting or at such time, not more than 30 days after the meeting,
and place as is directed by the chairman.
Scotsman. Under the DGCL and Scotsman's by-laws, each holder of record of
Scotsman Common Stock is entitled to one vote per share. The presence, in person
or by proxy, of the holders of record of shares of capital stock entitling the
holders thereof to cast a majority of the votes entitled to be cast by the
holders of shares of capital stock shall constitute a quorum. The chairman of
the meeting or the holders of record of a majority of such shares so present or
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. Under the DGCL, each shareholder entitled to vote at a meeting of
shareholders may authorize another person or persons to act for him by proxy.
Unless the proxy provides for a longer period, no proxy may be voted or acted
upon after three years from its date. Proxies may be transmitted by telegram,
cablegram or other means of electronic transmission, provided that such proxy
either sets forth or is submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the shareholder. Scotsman's by-laws require that all elections of
directors be by written ballot.
MEETINGS OF SHAREHOLDERS
WAL. Under English law, an annual general meeting (an "AGM") of a private
company must be held each year and at least once every fifteen months, unless
dispensed with by an elective resolution of the shareholders. Under WAL's
Articles, the directors or the executive committee may call an AGM. An
extraordinary general meeting (an "EGM") of a company may be convened by the
board of directors or, notwithstanding any provision to the contrary in a
company's articles of association, by a request from shareholders holding not
less than one-tenth of the paid-up capital of the company carrying voting rights
at general meetings. Under WAL's Articles, WAL's Board of Directors or the
executive committee is required to
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convene an EGM on a date no later than 8 weeks after the date on which such a
request is received. An EGM at which an ordinary resolution is proposed requires
14 days' notice. Such ordinary resolution requires a majority vote of those
present (in person or by proxy) and voting. An EGM at which an extraordinary
resolution is proposed requires 14 days notice and such resolution requires a
three-quarters majority of those present (in person or proxy) and voting. An EGM
at which a special resolution is proposed requires 21 days' notice and such
resolution requires a three-quarters majority vote of those present (in person
or proxy) and voting. An EGM at which an elective resolution is proposed
requires 21 days' notice and the unanimous vote of everyone entitled to attend
and vote at the meeting. An AGM requires 21 days' notice regardless of the types
of resolution to be proposed.
Scotsman. Under the DGCL, a Delaware corporation is required to hold an
annual meeting of shareholders for the election of directors and any other
proper business which may be transacted at the meeting. Scotsman's by-laws
provide that the annual meeting of Scotsman's shareholders shall be held on a
date and at such time and place as may be fixed by Scotsman's Board of
Directors. Special meetings of Scotsman's shareholders may be called only by the
Board of Directors pursuant to a resolution adopted by a majority of the Whole
Board. See "Comparison of Rights of Holders of DFC Common Stock and of Holders
of Scotsman Common Stock -- Special Meetings of Shareholders."
ADVANCE NOTICE OF NOMINATIONS OF DIRECTORS AND CERTAIN ACTIONS AT SHAREHOLDER
MEETINGS
WAL. Under English law, certain business may be conducted at an AGM or an
EGM only if the requisite notice of such business has been given prior to such
meeting. Under the Companies Act, shareholders holding not less than 1/20th of
the total voting rights of all shareholders having the right to vote (or not
less than 100 shareholders holding shares on which there has been paid up an
average per shareholder of not less than L100) may require the Company to
circulate notice of any resolution which those shareholders wish to propose at
that meeting. WAL's articles specify that a majority of shareholders can appoint
a director at a general meeting so long as they give the Company advance notice
between 14 to 35 days before the meeting.
Scotsman. Scotsman may be required under certain circumstances to include
in its proxy statement for an annual meeting certain shareholder proposals
received at Scotsman's principal executive office not less than 120 calendar
days in advance of the date on which Scotsman mailed its proxy statement for the
annual meeting held the previous year. In submitting such a proposal, the
proponent must comply with applicable Commission rules.
As discussed above, Scotsman's shareholders have no right to require
Scotsman to call special meetings and no right to require Scotsman to include
shareholder proposals in the notice of special meetings. See "Comparison of the
Rights of Holders of DFC Common Stock and the Rights of Holders of Scotsman
Common Stock -- Special Meetings of Shareholders." In connection with the
nomination of directors or the presentation of business at an annual meeting,
Scotsman's by-laws require a shareholder to comply with the Nomination Procedure
and the Business Procedure described above. See "Comparison of the Rights of
Holders of DFC Common Stock and the Rights of Holders of Scotsman Common Stock
- -- Advance Notice for Shareholder Nominations of Directors and Shareholder
Proposals."
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN CORPORATE ACTIONS AND CERTAIN
PROVISIONS RELATING TO BUSINESS COMBINATIONS
WAL. Under the Companies Act, a company's articles generally may be amended
and other fundamental corporate changes, such as the passing of a resolution for
winding up, non pro rata issuances of shares for cash, reductions of capital
(subject to sanction by the Court) and certain repurchases of shares may be
authorized by a special resolution passed at a general meeting of shareholders.
Under WAL's Articles, in addition to any other authority required by law, all
such actions must be authorized by the executive committee. If, at such time,
the capital of the Company is divided into different classes of shares and the
amendment or other resolution would cause any of the special rights attached to
any class of shares to be varied or abrogated, the amendment must also be
sanctioned in writing by the holders of three-quarters in
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nominal value of the issued shares of the class concerned or by an extraordinary
resolution passed at a separate general meeting of the holders of the shares of
that class.
Mergers or consolidations of English companies are normally conducted
pursuant to takeover offers, schemes of arrangement or, in some circumstances, a
scheme of reconstruction under Section 110 of the Insolvency Act 1986. The
Companies Act provides that where a takeover offer is made for the shares of a
company and, within four months of the date of the offer, the offeror has, by
virtue of acceptances of the offer, acquired or contracted to acquire not less
than nine-tenths in value of the shares to which the offer relates, the offeror
may, within two months of reaching the nine-tenths level, by notice acquire
shares held by any shareholder who has not previously accepted the offer on the
terms of the offer. Such a shareholder may apply to the court within six weeks
of the date on which notice was given objecting to the transfer or its proposed
terms. The court may order that the shareholder shall not be required to
transfer his shares, or may specify such terms for the transfer as it finds
appropriate. In the event that the offeror does not give such a notice to
shareholders who have not accepted the offer, a minority shareholder is entitled
to require the offeror to acquire his shares on the terms of the offer, even if
the offer is otherwise closed for acceptance.
Schemes of arrangement are arrangements or compromises between a company
and any class of its shareholders (or any class or classes of its creditors) and
are used for certain types of reconstructions, amalgamations, capital
reorganizations or takeovers. Schemes of arrangement require the approval at an
EGM of the company of a majority in number, representing 75% in value, of
holders of the relevant class of shares (or creditors) present and voting,
either in person or by proxy, and the sanction of the High Court of Justice in
England and Wales. Once so approved and sanctioned, all shareholders (or, as the
case may be, creditors) of the relevant class are bound by the terms of the
scheme.
A scheme of reconstruction under Section 110 of the Insolvency Act 1986 may
be made when a company is being wound up voluntarily under which, with the
sanction of a special resolution of shareholders in a general meeting, the whole
or part of the company's business or property is transferred to a second company
in consideration for the issue or transfer to them of shares or any other
benefit in the second company. Any dissenting shareholder can require the
liquidator to abstain from carrying the resolution into effect or to purchase
his interest at a price agreed upon or determined by arbitration.
In the United Kingdom, takeovers of companies are regulated by the City
Code. The City Code is administered by the Panel on Takeovers and Mergers, a
body comprising representatives of certain City of London financial and
professional institutions which oversees the conduct of such takeovers. The City
Code includes certain restrictions on action being taken by a target company to
frustrate a takeover offer, including the issue of new shares without the prior
approval of its shareholders.
Scotsman. Under Delaware law, most fundamental corporate changes, including
the amendment of the corporation's certificate of incorporation, a merger or
consolidation or the dissolution of the corporation, must be approved by the
affirmative vote of a majority of the outstanding shares of capital stock
entitled to vote thereon. Section 203 of the DGCL and Article Eighth of
Scotsman's Certificate of Incorporation require a supermajority vote for certain
specified types of Business Combinations, as such term is respectively defined
in Section 203 of the DGCL and Article Eighth. See "Comparison of the Rights of
Holders of DFC Common Stock and the Rights of Holders of Scotsman Common Stock
- -- Business Combinations with Interested Shareholders." Scotsman's Certificate
of Incorporation also requires a supermajority vote to amend certain specified
provisions of Scotsman's Certificate of Incorporation. See "Comparison of the
Rights of Holders of DFC Common Stock and the Rights of Holders of Scotsman
Common Stock -- Amendment of Certificate of Incorporation."
Delaware law provides appraisal rights for certain mergers and
consolidations. Appraisal rights are not available to holders of (i) shares
listed on a national securities exchange or held of record by more than 2,000
shareholders, or (ii) shares of the surviving corporation of the merger, if the
merger did not require the approval of the shareholders of such corporation,
unless, in either case, the holders of such stock are required pursuant to the
merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which are also listed on
a national securities exchange or held of record by more than 2,000
shareholders, or (C) cash in lieu of fractional shares of such stock.
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DIVIDENDS
WAL. English law permits payment of dividends by a company only out of
profits available for such purpose (which are its accumulated, realized profits
(not previously utilized by distribution or capitalization) less accumulated,
realized losses) and not out of share capital or share premium. The payment of
dividends on ordinary shares is subject to the prior right to dividends of any
preference shares. The excess of the consideration for the issue of issued
shares over the aggregate par value of such shares must (except in certain
limited circumstances) be credited to a share premium account and may not be
paid out as dividends but may, however, be used to pay up unissued shares which
may then be distributed to shareholders in proportion to their holdings and for
other limited purposes. Under English law, a dividend must be declared by
reference to relevant accounts showing the availability of distributable
reserves for such dividend.
Scotsman. Delaware law generally allows dividends to be paid out of surplus
of the corporation or out of the net profits of the corporation for the current
fiscal year and/or the prior fiscal year. No dividends may be paid if they would
result in the capital of the corporation being less than the capital represented
by the preferred stock of the corporation.
PREEMPTIVE RIGHTS
WAL. Under English law, when a company issues equity shares (or grants
certain other rights to acquire equity shares) in consideration for payment of
cash, then unless certain provisions of the Companies Act are rendered
inapplicable by a special resolution of the company's shareholders, existing
shareholders are entitled to participate in the offer for such equity securities
pro rata to their existing shareholdings. WAL's Articles provide that the
pre-emption provisions of sub-section (1) of Section 89 and sub-sections (1) to
(6) of Section 90 of the Act shall apply to any allotment of WAL's equity
securities, subject to certain conditions specified in the Articles.
Scotsman. Under Delaware law, no shareholder has a preemptive right to
subscribe to additional issues of a corporation's stock unless, and to the
extent, that such right is expressly granted to such shareholders in the
corporation's certificate of incorporation. Scotsman's Certificate of
Incorporation does not provide for pre-emptive rights.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
WAL. English law does not permit a company to indemnify a director or an
officer of the company against any liability which by virtue of any rule of law
would otherwise attach to him in respect of negligence, default, breach of duty
or breach of trust in relation to the company except liability incurred by such
director or officer in defending any legal proceeding (whether civil or
criminal) in which judgment is given in his favor or in which he is acquitted or
in certain instances where, although he is liable, a court finds such director
or officer acted honestly and reasonably and that, having regard to all the
circumstances, he ought fairly to be excused and relief is granted by the court.
WAL's Articles further provide that such indemnification will be available with
respect to any proceedings against a director, officer or employee, in his or
her capacity as such, which are otherwise disposed of without any finding or
admission of material breach of duty by the director, officer or employee. A
company is permitted to purchase insurance for directors and officers against
such liability.
Scotsman. Under the DGCL, directors and officers as well as other employees
and individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation (a
"Derivative Action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in the case
of Derivative Actions, except that indemnification only extends to expenses
(including attorney's fees) incurred in connection with the defense or
settlement of such an action. The DGCL requires court approval before there can
be any indemnification where the person seeking indemnification has been found
liable to the company.
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BOARD OF DIRECTORS
WAL. WAL's Articles provide that the number of directors shall not be less
than three. No provision is made for the retirement of directors by rotation.
Under WAL's Articles, the holders of a majority of the WAL "B" Ordinary Shares
are entitled to appoint and remove the minimum number of directors that
constitute a majority of the directors, and the holders of the WAL "C" Ordinary
Shares are entitled to appoint and remove the remaining directors.
WAL's Articles further provide that the office of a director shall be
vacated if, among other things, the director becomes bankrupt, is suffering from
a mental disorder, or shall have been absent for more than six months from
meetings of the board of directors and the other directors adopt a resolution
that his office be vacated. Under the Companies Act, a director may be removed
by a majority of the shareholders notwithstanding anything contained in the
Articles, provided that special notice has been given to the Company not less
than 28 days before a general meeting is convened for the passing of such a
resolution. WAL's Articles also provide that either the directors or the
shareholders, by ordinary resolution, may appoint a person to fill a vacancy on
WAL's Board or a newly created directorship.
Scotsman. Scotsman's Certificate of Incorporation and by-laws provide for a
classified board and permit directors to be removed only for cause and only by
the affirmative vote of the holders of at least a majority of the voting power
of all of the then-outstanding shares of Scotsman Voting Stock. See "Comparison
of the Rights of Holders of DFC Common Stock and the Rights of Holders of
Scotsman Common Stock -- Board of Directors; -- Removal of Directors." Vacancies
and newly created directorships may be filled only by a majority vote of the
directors then in office, though less than a quorum, subject to the rights of
the holders of any preferred stock. See "Comparison of the Rights of Holders of
DFC Common Stock and the Rights of Holders of Scotsman Common Stock -- Board of
Directors; -- Filling of Vacancies and Newly Created Directorships."
BORROWING POWER OF THE BOARD OF DIRECTORS
WAL. WAL's Articles provide that the directors may exercise all of WAL's
powers to borrow money and to mortgage or charge all or any part of WAL's
undertaking, property, assets and uncalled capital. The aggregate principal
amount of such borrowings (as more fully defined in the Articles) may not exceed
(pound)5,500,000 without the prior consent of the holders of 75% of the WAL "B"
Ordinary Shares either in writing or by extraordinary resolution adopted in a
separate class meeting.
Scotsman. Scotsman's Certificate of Incorporation does not contain any
limitations on the borrowing powers which may be exercised by its Board.
SHAREHOLDER RIGHTS OF INSPECTION
WAL. Except when such register(s) are closed in accordance with the
provisions of the Companies Act, the register and index of names of shareholders
of an English company, together with certain other registers required to be
maintained by such a company, may be inspected by its shareholders during
business hours without charge (and by other persons upon payment of a charge)
and copies of such registers may be obtained on payment of an appropriate
charge. A shareholder in an English company may, without charge, also inspect
the minutes of meetings of the shareholders during business hours and obtain
copies upon payment of a charge. The published directors' report and audited
annual accounts of an English company are required to be laid before the
shareholders in a general meeting and a shareholder is entitled to a copy of
such report and accounts. Further copies are filed with the Registrar of
Companies in England and Wales from whom copies are publicly available upon
payment of the appropriate fee. The shareholders have no further statutory
rights to inspect the accounting records of a company or the minutes of meetings
of directors.
Scotsman. Under Delaware law, shareholders of record of Scotsman have the
right to inspect the books and records of Scotsman for a purpose reasonably
related to their interests as shareholders. A shareholder of Scotsman may
exercise such shareholder's right of inspection upon written demand under oath
stating the purpose thereof. In addition, Scotsman is required to prepare a
shareholder list with respect to any shareholders' meeting and to make such list
available to any shareholder for any purpose germane to such meeting during a
period 10 days before and continuing through such meeting.
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INFORMATION CONCERNING THE MERGER SHAREHOLDERS AS SELLING SHAREHOLDERS
The following table sets forth certain information with respect to those
Merger Shareholders who intend to offer, from time to time during the 45 day
period following the Effective Date, some, all or none of the Scotsman Fixed
Common Shares, shares of Series A Convertible Preferred Stock and shares of
Scotsman Common Stock issuable upon the conversion of the Series A Convertible
Preferred Stock. Each of the following Merger Shareholders will determine, in
such Merger Shareholder's discretion, the number of shares of Scotsman Common
Stock, if any, and the number of shares of Series A Convertible Preferred Stock,
if any, to be offered by such Merger Shareholder during such 45 day period but
in no event will such number exceed the number of shares of Scotsman Common
Stock or Series A Convertible Preferred Stock specified below.
Under the New Stockholders' Agreement, each Merger Shareholder who is a
party to the New Stockholders' Agreement has (i) represented that it did not, on
the date of the New Stockholders' Agreement, and will not, as of the Effective
Date, have any plan or intention to reduce, for a period of at least two years
after the Effective Date, its ownership of the New Scotsman Stock to a number of
shares having value, as of the Effective Date, of less than 50% of the Merger
Consideration (as defined below) and (ii) agreed not to reduce for a period of
at least twelve months following the Effective Date, such Merger Shareholder's
ownership of New Scotsman Stock to a number of shares having value, as of the
Effective Date, of less than 40% of the Merger Consideration. For purposes of
the New Stockholders' Agreement, Merger Consideration means the consideration
received in the Merger by such Merger Shareholder (excluding any Scotsman
Contingent Common Shares and including any amounts received by such Merger
Shareholder in connection with a Permitted Distribution). Such restrictions may
be amended or waived by written agreement of all of the Merger Shareholders and
Acquisition Shareholders who are parties to the New Stockholders' Agreement.
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF
NO. OF SHARES OF SERIES A NO. OF SHARES OF SCOTSMAN
SCOTSMAN CONVERTIBLE NO OF SHARES OF SERIES A COMMON STOCK
COMMON STOCK PREFERRED STOCK SCOTSMAN CONVERTIBLE OWNED UPON
NAME OF MAJOR OWNED OF RECORD OWNED OF RECORD COMMON STOCK PREFERRED STOCK COMPLETION OF
SHAREHOLDER PRIOR TO THE OFFERING PRIOR TO THE OFFERING BEING OFFERED BEING OFFERED THE OFFERING
- ---------------------- --------------------- --------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Onex DHC LLC.......... 566,020(1) 943,366 566,020 943,366 0
Pacific Mutual Life
Insurance Company... 197,143(2) 328,571(2) 197,143 328,571 0
PM Group Life
Insurance Company... 26,285 43,809 26,285 43,809 0
EJJM(3)............... 250,985 418,308 250,985 418,308 0
Timothy C.
Collins(4).......... 39,472 65,787 39,472 65,787 0
Kevin E. McCrone(5)... 36,307 60,512 36,307 60,512 0
W. Joseph
Manifold(6)......... 15,826 26,377 15,826 26,377 0
Charles R.
McCollom(7)......... 13,964 23,273 13,964 23,273 0
Anita J. Moffatt
Trust(8)............ 3,723 6,206 3,723 6,206 0
Remo Panella(9)....... 5,585 9,309 5,585 9,309 0
Teddy F. Reed(10)..... 5,585 9,309 5,585 9,309 0
Robert L.
Schafer(11)......... 13,964 23,273 13,964 23,273 0
Graham E.
Tillotson(12)....... 17,688 29,480 17,688 29,480 0
John A. Tilmann
Trust(13)........... 3,723 6,206 3,723 6,206 0
Michael P.
McCrone(14)......... 1,861 3,103 1,862 3,103 0
Ronald A.
Anderson(15)........ 1,861 3,103 1,862 3,103 0
</TABLE>
- -------------------------
(1) Does not include shares of Scotsman Common Stock held of record by other
Merger Shareholders or Acquisition Shareholders with respect to which Onex
DHC or its affiliates shares voting power. See "Certain Provisions Common
to the Merger Agreement and the Share Acquisition Agreement -- Ownership
and Voting of the New Scotsman Stock."
(2) Does not include shares of Scotsman Common Stock or Series A Convertible
Preferred Stock held of record by PM with respect to which Pacific Mutual
shares voting and investment power or 132,100 shares of Scotsman Common
Stock held prior to the Merger with respect to which two direct,
wholly-owned subsidiaries of Pacific Mutual have investment discretion: (i)
NFJ Investment Group, Inc. ("NFJ"), which as of January 11, 1994,
beneficially owned 121,500 shares, and (ii) Cadence Capital Management
Corporation ("Cadence"), which as of January 11, 1994, beneficially owned
10,600 shares. Pacific Mutual disclaims beneficial ownership of those
shares of Scotsman Common Stock with respect to which NFJ and Cadence have
investment discretion.
(3) Matthew O. Diggs, Jr. is the sole managing partner of EJJM, a New York
general partnership. Mr. Diggs has been Chairman of the Board of Directors
of DFC and WAL since 1991 and 1992, respectively, and will be a director of
Scotsman on the Effective Date.
(4) Mr. Collins has been a director of DFC and WAL since 1991 and 1992,
respectively, and will be a director of Scotsman on the Effective Date.
(5) Mr. Kevin E. McCrone has been the President of Delfield since 1984 and a
director of DFC since 1991.
(6) Mr. Manifold has been the Secretary, Treasurer, Vice President and Chief
Financial Officer of Delfield since 1991.
(7) Mr. McCollom has been Vice President, Manufacturing, of Delfield since
1986.
(8) Shares held by the trust are beneficially owned by Anita J. Moffatt, who
has been the Director of Purchasing of Delfield since 1985.
(9) Mr. Panella has been the Mt. Pleasant Plant Manager of Delfield since 1974.
(10) Mr. Reed has been the Covington Plant Manager since 1978.
(11) Mr. Schafer has been the Vice President, Engineering, of Delfield since
1988.
(12) Mr. Tillotson has been the Vice President, Sales and Marketing, of Delfield
since 1984.
(13) Shares held by the trust are beneficially owned by John A. Tilmann, who has
been the Credit Manager of Delfield since 1986.
(14) Mr. Michael P. McCrone has been the Director of Internal Sales of Delfield
since 1986.
(15) Mr. Anderson has been the Director of Industrial Relations of Delfield
since 1986.
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<PAGE> 79
The parties currently anticipate that each of the Merger Shareholders who
is currently an officer or employee of Delfield will continue to be employed in
his or her current position with Delfield following the Effective Date. The
parties also anticipate that Kevin E. McCrone will become an executive officer
of Scotsman following the Effective Date. See "Other Related Matters --
Management of DFC and WAL Following the Merger and Share Acquisition." If the
Merger Shareholders were to sell all of the Scotsman Fixed Common Shares, Series
A Convertible Preferred Stock, and shares of Scotsman Common Stock issuable upon
the conversion of the Series A Common Stock during the 45 day period following
the Effective Date, upon consummation of such sales, no Merger Shareholder would
hold of record more than 1% of the outstanding Scotsman Common Stock.
CERTAIN INFORMATION CONCERNING DFC
ORGANIZATION OF DFC
DFC is a holding company which has, as its sole subsidiary, Delfield,
headquartered in Mt. Pleasant, Michigan. Delfield is a manufacturer of
refrigerated foodservice equipment, including customized and standard food
preparation workstations, upright reach-in refrigerators and other foodservice
equipment, all principally for sale in the United States.
DFC and Delfield were organized under the laws of the State of Delaware in
1991 by Onex and Matthew O. Diggs, Jr., DFC's Chairman, for the purpose of
acquiring the business and operations, and certain liabilities, of the Delfield
Division (the "Delfield Division") of Alco Standard Corporation ("Alco"). DFC's
acquisition of the Delfield Division was consummated on May 1, 1991 pursuant to
the terms and conditions of a Purchase and Sale of Assets Agreement among Alco,
a subsidiary of Alco, and Delfield. Unless the context otherwise requires,
"Delfield," as used in this section, refers to the Delfield Division prior to
May 1, 1991 and to The Delfield Company after that date.
In connection with the acquisition of Delfield, DFC issued and sold an
aggregate of 3,800,000 shares of Class B common stock to Onex U.S., 500,000
shares of Class C common stock to MDG, and 180,000 shares of Class A common
stock to Kevin E. McCrone, a director of DFC and the President of Delfield. The
shares purchased by Onex U.S. were subsequently transferred to 713389 Ontario
Inc., an affiliate of Onex, and later to Onex DHC. The shares purchased by MDG
were subsequently transferred to EJJM. DFC also issued and sold 1,323,529 shares
of 8% cumulative convertible preferred stock (the "DFC Convertible Preferred
Stock") to Pacific Mutual and 176,471 shares to PM. In an offering which was
consummated in August 1991, DFC issued and sold an additional 320,000 shares of
Class A common stock to eight additional members of management of Delfield. The
Class A common stock sold to management was sold at the price of $1.00 per
share. In an offering which was consummated in February 1993, DFC issued and
sold an additional 145,000 shares of Class A common stock to seven members of
management of Delfield. The Class A common stock sold to management was sold at
the price of $1.00 per share. In connection with the acquisition of Delfield,
14% Senior Subordinated Notes due 1999 (the "Subordinated Notes") were also
issued by Delfield to Pacific Mutual and PM in the principal amounts of
$6,176,470.59 and $823,529.41, respectively.
THE RECAPITALIZATION
On December 30, 1992, DFC and Delfield consummated a recapitalization (the
"Recapitalization") pursuant to which (i) Delfield incurred $26.3 million of
term loans from Continental under an Amended and Restated Loan and Security
Agreement, dated as of December 30, 1992, among DFC, Delfield, Continental, and
certain other lenders (the "Continental Loan Agreement"), (ii) Delfield applied
a portion of the proceeds of such loans to redeem $7 million in aggregate
principal amount of the Subordinated Notes held by Pacific Mutual and PM at a
redemption price equal to the principal amount thereof, plus accrued and unpaid
interest thereon and a redemption premium of $300,000, (iii) all shares of DFC
Convertible Preferred Stock held by Pacific Mutual and PM were converted into
Class A common stock and, after the payment of the Special Dividend (as defined
below), all shares of Classes B, C and D common stock were converted into and
exchanged for shares of Class A common stock, and (iv) Delfield distributed
$18.5 million of the proceeds of the loan to DFC as a dividend and DFC then paid
a special dividend in the aggregate amount of $18.5 million
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<PAGE> 80
(the "Special Dividend") to the record holders of shares of its common stock as
of 5:00 P.M. on December 29, 1992.
In addition, in connection with the Continental Loan Agreement, DFC issued
the Warrant. Under the terms of the Warrant, Continental has the right to
purchase, at any time prior to December 29, 2000, up to 194,845 shares of DFC's
Class A common stock at an exercise price of $5.15 per share, subject to certain
adjustments. At any time after the earlier of December 29, 1998 or a
change-in-control of DFC and prior to the expiration of the Warrant, the holders
of the Warrant or the shares issued upon the exercise of the Warrant have a
right to require DFC to repurchase the Warrant at a formula set forth in the
Warrant.
Each of the directors of DFC at the time of the Recapitalization was either
a stockholder of DFC or an officer and employee (or a former officer and
employee) of a stockholder of DFC (or of an affiliate of such a shareholder). In
addition to its share of the Special Dividend, Pacific Mutual and PM received
all accrued and unpaid dividends on their shares of DFC Convertible Preferred
Stock in connection with the conversion of the DFC Convertible Preferred Stock
into Class A common stock prior to the record date of the Special Dividend.
Furthermore, in connection with the redemption of the Subordinated Notes,
Delfield paid a redemption premium of $300,000 to Pacific Mutual and PM.
PRODUCTS
Delfield has four interrelated product lines consisting of (i) customized
(refrigerated) food preparation workstations, (ii) standard (refrigerated) food
preparation workstations, (iii) upright reach-in refrigerators, and (iv) niche
products, consisting of kitchen ventilation systems, tray and dish dispensers,
beverage merchandising refrigerators and "slush" machines.
Workstations (Custom and Standard). Delfield produces a broad array of
customized and standard food preparation equipment including salad, pizza and
sandwich tables, under-the-counter refrigerators and freezers and specialized
food processing lines. These products usually have a counter height work
surface, contain refrigerators and are constructed of stainless steel. This
equipment tends to be "menu specific" in that it is designed to permit the
assembly of ingredients for particular types of new menus. Changes in menu thus
frequently require the installation of new workstation equipment.
Customized units for chain restaurants typically represent highly
engineered equipment or process lines developed jointly by the Delfield
engineering staff and the chain's staff. These units, selling for up to $20,000
to $40,000 each, will usually be produced over a period of years to carry out a
nationwide chain "roll out" or new menu program. Customized units for
independent restaurants are usually made up of standardized building blocks or
modules that are modified to accommodate the physical constraints of an existing
kitchen or tailored to a new menu. These units typically sell for $1,000 to
$3,000 per unit.
Upright Reach-in Refrigerators. Upright reach-in refrigerators and freezers
are food storage appliances analogous to home refrigerators. They are built to
withstand the greater demands of commercial and institutional kitchens,
including hotter room temperatures, frequent openings, daily clean-ups and
abusive treatment by large numbers of employees. Products are typically made of
stainless steel with heavy-duty doors and hinges and top-mounted heavy duty
compressors and components and sell for $1,000 to $3,000.
Niche Products. Delfield's "niche" products consist of: Shelleyglas, a
mobile cafeteria system for institutions designed to serve refrigerated and
heated food, milk, and ice cream, Shelleymatic, a line of self-leveling tray and
plate dispensers for cafeterias and institutional kitchens, and Air Tech, a
patented "compensating" exhaust hood which is designed to extract exhaust
without unbalancing a building's HVAC system. These three product lines, in
conjunction with the Spec Line refrigerator, are sold primarily to schools,
hospitals, military installations, prisons, nursing homes and other
institutional foodservice installations.
In 1993, Delfield began initial manufacturing of two refrigerated beverage
products for distribution by others -- "slush" machines and a refrigerated
rotating beverage merchandiser.
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<PAGE> 81
SALES AND DISTRIBUTION
Major Chain Accounts. Direct sales to major retail chain restaurants
accounted for over one-third of Delfield's total sales in 1991, 1992 and 1993.
Major chain restaurant accounts are handled directly by Delfield's headquarters
staff. Development, prototype and pilot installation efforts on major programs
or roll-outs can extend over a year or more, with close collaboration between
Delfield's and the chain customer's respective engineering staffs, before major
production begins.
Dealers. Delfield sells through over 2,000 non-exclusive dealers across the
United States. Dealers are typically local, privately held firms selling a broad
array of kitchen equipment and supplies. Dealers carry multiple lines of
competing equipment manufactured by a variety of foodservice equipment
manufacturers and in many ways constitute Delfield's "customer," particularly
for replacement sales of standard equipment. Dealers' customers are principally
local independent restaurant operators, smaller chains and institutional
customers such as schools, hospitals and prisons.
Delfield has created dealer showroom programs and conducts training
sessions to supplement dealers' knowledge of Delfield's products. Delfield also
recently created the position of product manager. The product manager has direct
authority to negotiate with dealers on the pricing of all Delfield products.
Delfield also sells to buying groups, which are cooperative groups of
dealers that associate to secure additional price discounts. In 1993 Delfield
had sales of $21 million to nine buying groups which collectively represented
approximately 250 dealers, including some of the major dealers.
Consultants. Independent restaurants, small chain restaurants and
institutional kitchen operators extensively use foodservice consultants who
perform a range of architectural, interior decorating, and kitchen design
services, including specifying the kitchen equipment and approving the
appropriate supplier. In 1991 Delfield instituted a consultant sales and
training program and expanded its institutional product lines to address this
segment.
Sales Representation. Delfield reaches the dealer and small chain
restaurant markets through its network of 26 independent sales representative
firms. As of January 20, 1994, these firms had 57 sales offices and 140
salespeople across the nation. Sales representatives sell to the dealers and
assist dealers in custom equipment work-ups and in sales calls to local chains.
The sales representatives carry other complementary kitchen equipment product
lines but carry only Delfield refrigeration equipment.
In 1992, Delfield created two additional regional sales management
positions to work with and help supervise the sales representatives. These
Delfield employees train the representatives in Delfield products, establish and
follow up on sales quotas, make joint sales calls on dealers, consultants and
local chains and in general augment Delfield's management of the nationwide
sales force.
International. Currently, Delfield sells in the United Kingdom through a
distributor and in South America and Asia through an export agent. Export sales
remain a small part of Delfield's total sales.
COMPETITION
Delfield operates in a highly fragmented and competitive industry.
Participants compete on the basis of price, quality and reliability of products
and service. The majority of Delfield's competitors are small, privately-held
companies. However, some of Delfield's competitors are divisions of large
corporations, which may have greater financial resources than DFC.
In custom workstations, Delfield's principal competitors include Randell
Manufacturing, Inc., a subsidiary of Dover Industries, Hospital & Kitchen
Equipment Inc., The Wasserstrom Company Inc. and Stainless Equipment & Systems
Co. Inc. Additional competition comes from local metalworking shops which custom
fabricate kitchen equipment for local restaurants or chains incorporating
standard refrigeration units, purchased from Delfield or its competitors, into
custom workstations.
Delfield believes its engineering and manufacturing capabilities,
distribution and scale make it well-positioned to serve the custom and standard
refrigerated workstation market. Since 1985, Delfield has utilized
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<PAGE> 82
computer-assisted design and computer-assisted manufacturing systems. Delfield
has also developed a large design library which enables it to translate customer
ideas and needs into fully designed proposals and then into finished products in
a timely, cost-efficient manner. Delfield believes that its system gives it a
competitive advantage not only over competitors who do design work by hand, but
also competitors with less customized computer-assisted design capacities. DFC
believes that these capabilities are central to its abilities to serve chain
restaurants and capitalize on chain growth opportunities.
In standard workstations, leading competitors are believed to be the
Beverage Air Division of Specialty Equipment Companies Inc. and True
Manufacturing Company. These companies also make (standard) upright reach-in
refrigerators. Another principal competitor in the upright reach-in refrigerator
market is Traulsen & Company Inc.
SUPPLIERS
The most significant purchased material used by Delfield is stainless
steel. In addition, Delfield purchases refrigeration compressors and condensing
units, copper tubing, hardware items such as hinges and handles, ABS plastic
sheet, electrical and electronic components, refrigerant and insulation foaming
ingredients.
Delfield currently relies exclusively on one supplier for stainless steel
sheet. DFC believes that if its current stainless steel supplier were unable to
meet all of Delfield's demands, there would be ample alternative sources of
supply, though not necessarily at the same price.
SIGNIFICANT CUSTOMERS
Five customers accounted for approximately 29% of Delfield's sales in 1993.
Of such customers, Delfield's leading customer, in terms of sales, accounted for
13% of 1993 sales. The loss of one or more of these customers or a substantial
decrease in the amount of any of their purchases could have a material adverse
effect on Delfield's business.
BACKLOG
As of December 31, 1993, Delfield's backlog totaled approximately
$9,289,000 compared with approximately $7,011,000 on the same date in 1992. All
material amounts of such orders are expected to be filled during the first
quarter of fiscal 1994.
EMPLOYEES
Delfield employs approximately 800 people. Approximately 600 people work in
the Mt. Pleasant, Michigan headquarters and the remaining 200 in the Covington,
Tennessee plant. Approximately 450 Mt. Pleasant employees are represented by the
Local 585A United Paper Workers International Union, and the current collective
bargaining agreement has been extended to May 1996. Covington employees are not
unionized.
SEASONALITY
Delfield's business is seasonal with its highest sales levels and working
capital requirements occurring in its second and third quarters. In addition,
Delfield has experienced significant quarterly fluctuations in sales in the past
because of the irregularity of large orders from major chain restaurant
accounts.
FACILITIES
DFC's chief executive offices and a portion of Delfield's operations are
located in Mt. Pleasant, Michigan, where it occupies a 343,000 square foot
facility. Delfield also has operations in Covington, Tennessee, where it has a
188,000 square foot facility. The Michigan facility is owned subject to a
mortgage securing Delfield's indebtedness under the Continental Loan Agreement.
In addition, a section of the plant and certain equipment is subject to a lien
to secure industrial revenue bonds issued by Isabella County. The Tennessee
plant is leased from Litton Industrial Products, Inc. and was financed by an
issuance of industrial revenue bonds by the town of Covington, Tennessee. This
lease will expire in September 2006, at which time Delfield
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<PAGE> 83
will have the option to purchase the property for a nominal sum. Delfield's
interest in the Covington property is subject to a security interest under the
Continental Loan Agreement. Delfield is not capital intensive and management
feels that increased capacity and process improvements investment needs can be
readily met.
DFC believes that Delfield's facilities and equipment are fully up to date
and in good condition and that, together with scheduled capital improvements,
are adequate for present and anticipated needs.
LEGAL PROCEEDINGS
On or about February 5, 1992, a fire at the Indianapolis Athletic Club (the
"IAC") resulted in the deaths of three persons, injuries to several other
persons and property damages to the IAC and several of its guests. The IAC and
several other claimants have asserted claims for property damage totaling over
$9 million. In addition, there are also claims for personal injury, wrongful
death and loss of services. The cause of the fire has not yet been determined,
but there have been allegations that it was caused by a defective refrigerator
manufactured by Delfield. Delfield has been named as a defendant in nine
actions, brought in the state courts of Indiana, alleging that a refrigerator
manufactured by Delfield caused the fire and asserting negligence, strict
liability and breach of warranty claims against Delfield.
DFC is conducting its own investigation and is unable to express any
opinion at this time as to the cause of the fire. However, Delfield's management
believes the refrigerator in the IAC at the time of the fire was in fact
manufactured by the Delfield Division of Alco prior to its acquisition by DFC
and not by Delfield. The IAC has agreed to dismiss Delfield from its action
based on the facts relating to the date when the refrigerator was manufactured.
Pursuant to the agreement by which DFC acquired the Delfield Division, Alco is
obligated to indemnify Delfield for all losses to Delfield resulting from
product liability claims relating to products manufactured by the Delfield
Division prior to the acquisition, unless any claim therefor or on account
thereof is first asserted after May 1, 1993, in which case Delfield is required
to indemnify Alco against such losses. With respect to two of the nine pending
actions, Alco has agreed that its indemnity applies. With respect to three other
actions, Alco asserts that its indemnity is not applicable and that the actions
are covered by Delfield's indemnity of Alco under the purchase agreement. DFC
expects Alco to take the latter position with respect to the four remaining
actions. Although no assurances can be given that Alco is obligated to indemnify
Delfield for any such claims, that Alco will or can comply with its
indemnification obligations, or that insurance policies will adequately cover
losses incurred in connection with this matter, Delfield believes that all the
actions arising from the IAC fire are covered by Alco's indemnity and that
Delfield's insurance should cover any claims that are not covered by Alco's
indemnity. If Alco is not obligated to indemnify Delfield for certain claims
arising out of the IAC fire or is unwilling or unable to comply with its
indemnification obligations, and if Delfield's insurance policies do not cover
the claims not covered by Alco's indemnity, the imposition of liability upon
Delfield in one or more of the actions arising from the IAC fire could have a
material adverse effect upon Delfield.
On April 8, 1993, Delfield received from a contract specialist at the
General Services Administration (the "GSA") a request for certain information
concerning sales made to the GSA under Delfield's GSA contract, which was in
effect from August 1990 through September 1992. The GSA contract required that
the GSA be given the benefit of price reductions granted by Delfield on
comparable sales of equipment to other customers for the Delfield products
included in the Delfield catalog. As a result of a review of its records,
Delfield has paid a refund of $99,397 to the GSA. No further requests or claims
have been asserted against Delfield as of the date of this Proxy Statement -
Prospectus.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
DFC's products and manufacturing processes are subject to various
environmental, health and safety regulations as well as the standards of
industry self-regulatory groups. Such regulations and standards from time to
time may require significant changes in products or manufacturing methods, as is
the case with the recent ban on CFCs, a compound found in the refrigerants and
insulation materials used in most refrigeration systems including those in
Delfield's refrigeration products. Because of concern about the potential impact
of CFCs on the atmosphere, the international supply has been restricted. Under
the Federal Clean Air Act
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Amendments, production of CFCs is required to be phased out in a series of steps
culminating in the termination of all such production by the year 2000. In 1992,
pursuant to authority granted under the Clean Air Act Amendments, former
President Bush announced an accelerated schedule pursuant to which, with certain
limited exceptions, production of CFCs in the United States is to be eliminated
by December 31, 1995. Subsequently in 1992, approximately 80 countries
(including the United Kingdom) which are parties to the Montreal Protocol on
Substances that Deplete the Ozone Layer agreed to such an accelerated schedule.
In addition to governmental regulations, DFC is also subject to, and
participates in creating, health and safety standards imposed by certain
industry self-regulatory groups such as the National Sanitation Foundation.
While DFC does not expect the ban on CFCs or any currently existing
environmental or health and safety regulation or standard to adversely affect
the business of Delfield, there is no assurance that future environmental or
health and safety regulation or standard will not have such an adverse impact.
EXECUTIVE COMPENSATION; MANAGEMENT
The following table summarizes the compensation paid by DFC or its
subsidiaries to an executive officer of DFC who is expected to serve as an
executive officer of Scotsman with respect to services performed in the capacity
indicated during DFC's fiscal year 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1993 ANNUAL COMPENSATION ALL OTHER
------------------------------------ COMPENSATION
OTHER ANNUAL ------------
SALARY BONUS COMPENSATION OTHER
NAME AND PRINCIPAL POSITION WITH DFC ($) ($) ($) ($)
- ---------------------------------------------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Kevin E. McCrone.............................. 183,862 191,315(1) 5,474(2) 21,638(3)
President of Delfield
</TABLE>
- -------------------------
(1) Includes a one-time, non-recurring bonus paid in 1993 in connection with the
Recapitalization. See "Certain Information Concerning DFC -- The
Recapitalization."
(2) Includes premiums of $174 paid for group term life insurance and a car
allowance of $5,300.
(3) Includes contributions to the Delfield qualified profit sharing plan of
$7,436 and a total payment of $14,202 made in 1993 under an agreement
between Mr. McCrone and DFC pursuant to which DFC has agreed to reimburse
Mr. McCrone for the after-tax amount of the annual interest paid on a loan
taken by Mr. McCrone to purchase 120,000 shares of DFC Common Stock in
1991.
Mr. Kevin E. McCrone joined Delfield in 1975 and has been President of
Delfield since 1984. Mr. McCrone has been a director of DFC since 1991. Such
position will terminate at the Effective Time. Mr. McCrone is 45 years old.
In February, 1993, Mr. McCrone acquired 15,000 shares of DFC Common Stock
at a purchase price of $1.00 per share. See "Certain Information Concerning DFC
- -- Organization of DFC."
CERTAIN TRANSACTIONS WITH MANAGEMENT
During its 1993 fiscal year, DFC made total payments of $300,000 to The
Diggs Group for services provided under a Management Advisory Agreement (the
"DFC Management Advisory Agreement"), dated May 1, 1991, between DFC, Delfield
and The Diggs Group. Matthew O. Diggs, Jr., who is currently the Chairman of the
Board of Directors of DFC and who will become a director of Scotsman upon
consummation of the Merger, is the chief executive officer of The Diggs Group
and the president and sole stockholder of a corporation which is a general
partner of The Diggs Group. Termination of the DFC Management Advisory Agreement
is a condition precedent to the obligations of Scotsman and Merger Sub to
consummate the Merger. See "The Merger Agreement -- Conditions to the Merger."
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MANAGEMENT'S DISCUSSION AND ANALYSIS: DELFIELD
The following discussion should be read in conjunction with the financial
statements of DFC and Delfield and the related notes thereto included elsewhere
in this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
THE DELFIELD COMPANY THE DELFIELD DIVISION
(SUCCESSOR) (PREDECESSOR)
------------------------------------------------- ---------------------
EIGHT MONTHS SEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DEC. 31, 1993 DEC. 31, 1992 DEC. 31, 1991 APRIL 26, 1991
------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 75.3 73.4 73.7 80.3
------ ------ ------ ------
Gross profit margin............... 24.7 26.6 26.3 19.7
Selling, general and
administrative costs............ 13.8 14.4 15.7 14.5
Non-recurring expenses............ 0.4 0.5 0.0 0.0
Management fees................... 0.3 0.5 0.8 2.2
------ ------ ------ ------
Operating income.................. 10.2 11.2 9.8 3.0
Interest expense, net............. 2.6 2.0 3.2 0.0
------ ------ ------ ------
Pretax income..................... 7.6 9.2 6.6 3.0
Provision for income taxes........ 3.0 3.3 2.4 1.1
------ ------ ------ ------
Income before extraordinary
item............................ 4.6 5.9 4.2 1.9
Extraordinary item................ 0.0 1.5 0.0 0.0
------ ------ ------ ------
Net income................... 4.6% 4.4% 4.2% 1.9%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The Year Ended December 31, 1993, Compared to the Year Ended December 31, 1992
Sales. Net sales for the year ended December 31, 1993 increased $13.9
million or 17.4% to $93.7 million from $79.8 million for the year ended December
31, 1992, due primarily to increases in sales of standard products as a result
of new dealer marketing programs late in 1992, initial sales of "slush" beverage
dispensing products, and increased demand from major institutional and chain
restaurant customers.
Gross Profit. Gross profit increased $1.9 million to $23.1 million for the
year ended December 31, 1993 from $21.2 million for the year ended December 31,
1992. Gross profit declined as a percentage of net sales to 24.7% for the year
ended December 31, 1993, from 26.6% for the year ended December 31, 1992 During
the year ended December 31, 1993, Delfield gross profit margins were adversely
impacted by a shift to newer custom production for its major chains.
Additionally, Delfield's gross margin declined due to (i) a higher proportion of
standard product sales in total sales, which generate lower than average gross
profit margins, (ii) a higher proportion of incentive program sales which
qualify for additional discounts, and (iii) overhead investments in new products
and facilities, e.g., the "slush" beverage product, and the start-up of the new
"decor" facility.
SG&A. SG&A expenses for the year ended December 31, 1993 increased $1.5
million to $12.9 million from $11.4 million for the year ended December 31,
1992, due primarily to increased sales commissions caused by higher sales and a
higher proportion of products sold on commission, and higher selling and
marketing expenses related to the development of new growth opportunities.
Non-recurring Expenses. Non-recurring expenses of $0.4 million related to
the Merger were incurred during the year ended December 31, 1993, and
non-recurring management bonuses of $0.4 million related to the restructuring of
Delfield's senior credit facility were incurred during the year ended December
31, 1992.
Management Fees. Management fees declined to $0.3 million for the year
ended December 31, 1993 from $0.4 million for the year ended December 31, 1992,
due to a reduction in management fees charged by The Diggs Group.
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<PAGE> 86
Interest Expense, Net. Interest expense increased to $2.4 million for the
year ended December 31, 1993, from $1.6 million for the year ended December 31,
1992, due to higher average debt levels as a result of the Recapitalization.
The Year Ended December 31, 1992, Compared to the Eight Months Ended December
31, 1991
Net Sales. Net sales during the year ended December 31, 1992 increased by
$28.9 million or 56.8% to $79.8 million as compared to $50.9 million for the
eight months ended December 31, 1991. On a per month basis, net sales increased
$0.3 million or 4.5% over the prior period. The per-month increase was primarily
attributable to increased sales of institutional products, standard products and
custom equipment to major chain customers. Sales of standard products increased
during the second half of 1992 due in large part to new dealer marketing
programs implemented during the third quarter.
Gross Profit. Gross Profit increased to $21.2 million or 26.6% of net sales
for the year ended December 31, 1992 from $13.4 million or 26.3% of net sales
for the eight months ended December 31, 1991. Gross profit margins were
unfavorably impacted by a higher proportion of mature custom products sold to
major chain customers.
SG&A. SG&A expenses increased $3.4 million to $11.4 million for the year
ended December 31, 1992 from $8.0 million for the eight months ended December
31, 1991, but declined to 14.4% of net sales for the year ended December 31,
1992 from 15.7% for the eight months ended December 31, 1991, due to lower (as a
percentage of sales) sales promotion expenses, commissions and royalties.
Non-recurring Expenses. Non-recurring management bonuses of $0.4 million
related to the restructuring of Delfield's senior credit facility were incurred
during the year ended December 31, 1992.
Management Fees. Management fees were $0.4 for both periods but declined to
0.5% of net sales for the year ended December 31, 1992 from 0.8% of net sales
for the eight months ended December 31, 1991, due primarily to a reduction in
the monthly rate of management fees paid to The Diggs Group.
Interest Expense, Net. Interest expense was $1.6 million for both periods
but declined to 2.0% of net sales for the year ended December 31, 1992 from 3.2%
of net sales for the eight months ended December 31, 1991 due to a decline in
outstanding indebtedness as a result of payments made from operating cash flows.
Extraordinary Item. Effective December 29, 1992, Delfield restructured its
senior credit facility and as a result, unamortized costs of $1.4 million
related to the prior credit facility along with $0.4 million of subordinated
debt prepayment premium and other costs were charged to expense and classified
as an extraordinary item, net of applicable taxes, on the income statement for
the year ended December 31, 1992.
The Eight Months Ended December 31, 1991, Compared to the Seven Months Ended
April 26, 1991
Net Sales. Net sales during the eight months ended December 31, 1991
increased by $13.6 million or 36.4% to $50.9 million as compared to $37.3
million for the seven months ended April 26, 1991. On a per month basis, net
sales increased $1.0 million or 19.4% versus the prior period, due primarily to
an increase in major chain account activity and seasonality differences between
the two periods being compared. Historically, the first and fourth quarters of a
calendar year have been the weakest and the second and third have been the
strongest. The seven months ended April 26, 1991 contain both of the weaker
quarters while the eight months ended December 31, 1991, contain most of the two
strongest quarters.
Gross Profit. Gross profit increased to $13.4 million or 26.3% of net sales
for the eight months ended December 31, 1991 from $7.4 million or 19.7% of net
sales for the seven months ended April 26, 1991. The increase in the gross
profit margin was due primarily to the effect of increased sales volume, a
higher proportion of higher margin custom chain account business, selective
price increases, improved labor productivity and the impact of lower average
stainless steel prices.
SG&A. SG&A expenses increased to $8.0 million or 15.7% of net sales for the
eight months ended December 31, 1991 from $5.4 million or 14.5% of net sales
during the seven months ended April 26, 1991. The increase (as a percentage of
sales) was due primarily to the increased costs associated with operating as a
76
<PAGE> 87
stand-alone entity rather than a division of Alco with respect to financial,
tax, insurance, legal and management support services.
Management Fees. The reduction of management fees to $0.4 million
(management fees paid to The Diggs Group) for the eight months ended December
31, 1991 from $0.9 million (corporate fees paid to Alco) for the seven months
ended April 26, 1991 resulted from the change in ownership from Alco to DFC.
Interest Expense, Net. During the seven months prior to the acquisition on
April 26, 1991 Delfield was a division of Alco and was essentially debt free
except for working capital requirements funded by Alco and indebtedness
associated with certain industrial revenue bonds. The $1.6 million interest
expense for the eight months ended December 31, 1991 resulted primarily from the
acquisition indebtedness and the new working capital facility.
Liquidity and Financial Position
Cash provided by operating activities was $0.6 million for the year ended
December 31, 1993, compared to $6.9 million for the year ended December 31,
1992. The $6.3 million decline in cash provided by operating activities was
primarily due to increases in working capital, which increased $5.2 million
during the year ended December 31, 1993. The primary reason for the working
capital increase was a 57.3% increase in accounts receivable from $6.3 million
at December 31, 1992, to $9.9 million at December 31, 1993, representing an
increase in receivables days outstanding from 37 days at December 31, 1992, to
43 days at December 31, 1993. The significant increase in receivables resulted
from high levels of Delfield sales during November and December of 1993 ($3.5
million higher than November and December 1992), a large portion of which had
not been paid by December 31, 1993. Also contributing to the increased working
capital was inventory which increased 18.0% from $11.4 million at December 31,
1992, to $13.4 million at December 31, 1993. Days supply declined 3.2% from 62
days at the end of 1992 to 60 days at December 31, 1993.
Capital expenditures were $2.0 million for the year ended December 31,
1993, compared to $0.6 million for the year ended December 31, 1992. The
increased 1993 expenditures were due to $0.9 million investment in the new
"decor" custom products facility and the purchase of a new automated turret
punch for approximately $0.5 million. Current plans for 1994 capital spending
are approximately $1.5 million for increased production capacity and replacement
of aging equipment.
At December 31, 1993, long-term indebtedness including the current portion
but excluding the revolving credit facility, was $20.9 million, compared with
$23.6 million at December 31, 1992. The decline was due to scheduled payments on
term loans.
Delfield has a $13.0 million revolving credit facility from Continental,
which expires in 1997. Borrowings are limited to not more than Delfield's
combined total of 85 percent of eligible accounts receivable and 50 percent of
eligible inventory. Interest is payable monthly at 1.5 percent over the bank's
reference rate (6.0 percent as of December 31, 1992 and 1993). Borrowings are
secured by substantially all assets of Delfield. At December 31, 1993 and 1992,
borrowings outstanding under the facility totalled $10.5 million and $7.3
million, respectively.
Delfield's management believes that cash generated from operations will be
adequate to meet Delfield's operating needs, planned capital expenditures and
debt service requirements for at least the 1994 and 1995 fiscal years.
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<PAGE> 88
CERTAIN BENEFICIAL OWNERS OF DFC COMMON STOCK
As of February 15, 1994, the following persons are known by DFC to be the
beneficial owners of more than 5% of the outstanding shares of DFC Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------------------------------------------------- ------------------ --------
<S> <C> <C>
Onex DHC LLC(1).................................................... 6,445,000 100.000
421 Leader Street
Marion, Ohio 43302
Pacific Mutual Life Insurance Company.............................. 1,200,000 18.619
700 Newport Center Drive
Newport Beach, California 92660
EJJM............................................................... 1,348,000 20.915
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
Matthew O. Diggs, Jr.(3)........................................... 6,445,000 100.000
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
Timothy C. Collins(4).............................................. 5,245,000 81.381
c/o Onex Investment Corp.
712 Fifth Avenue
New York, New York 10019
Kevin E. McCrone(5)................................................ 5,245,000 81.381
c/o The Delfield Company
980 South Isabella Road
Mt. Pleasant, Michigan 48858
</TABLE>
- -------------------------
(1) Includes 3,405,000 shares of DFC Common Stock held of record by the other
Merger Shareholders with respect to which Onex DHC shares voting and
investment power. Onex DHC disclaims beneficial ownership of such 3,405,000
shares of DFC Common Stock.
(2) Includes 141,177 shares of DFC Common Stock held of record by PM, a
wholly-owned indirect subsidiary of Pacific Mutual, with respect to which
Pacific Mutual shares voting and investment power.
(3) Includes 1,348,000 shares held of record by EJJM, of which Mr. Diggs is the
sole managing general partners with respect to which Mr. Diggs shares
voting and investment power, and 5,097,000 shares of DFC Common Stock held
of record by the other Merger Shareholders with respect to which Mr. Diggs
shares investment power. Mr. Diggs disclaims beneficial ownership of such
5,097,000 shares of DFC Common Stock held of record by Merger Shareholders
other than EJJM.
(4) Includes 5,033,000 shares held of record by the other Merger Shareholders,
excluding Pacific Mutual and PM, with respect to which Mr. Collins shares
investment power. Mr. Collins disclaims beneficial ownership of such
5,033,000 shares of DFC Common Stock.
(5) Includes 5,050,000 shares held of record by the other Merger Shareholders,
excluding Pacific Mutual and PM, with respect to which Mr. McCrone shares
investment power. Mr. McCrone disclaims beneficial ownership of such
5,050,000 shares of DFC Common Stock.
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<PAGE> 89
As of February 15, 1994, the directors and executive officers of DFC named
below and all directors and executive officers of DFC as a group beneficially
own the following number of shares of DFC Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED OF CLASS
------------------ --------
<S> <C> <C>
DIRECTORS
Timothy C. Collins(1).............................................. 5,245,000 81.381
Kevin E. McCrone(2)................................................ 5,245,000 81.381
Matthew O. Diggs, Jr.(3)........................................... 6,445,000 100.000
Ewout Heersink(4).................................................. -- --
Kurt Buseck........................................................ -- --
CERTAIN EXECUTIVE OFFICERS
Kevin E. McCrone, President........................................ 195,000 3.026
W. Joseph Manifold, Secretary and Treasurer........................ 85,000 1.319
All Directors and Executive Officers as a Group(5)................. 6,445,000 100.000
</TABLE>
- -------------------------
(1) Includes 5,033,000 shares held of record by the other Merger Shareholders,
excluding Pacific Mutual and PM, with respect to which Mr. Collins shares
investment power. Mr. Collins disclaims beneficial ownership of such
5,033,000 shares of DFC Common Stock.
(2) Includes 5,050,000 shares held of record by the other Merger Shareholders,
excluding Pacific Mutual and PM, with respect to which Mr. McCrone shares
investment power. Mr. McCrone disclaims beneficial ownership of such
5,050,000 shares of DFC Common Stock.
(3) Includes 1,348,000 shares held of record by EJJM, of which Mr. Diggs is the
sole managing general partner and 5,097,000 shares of DFC Common Stock held
of record by the other Merger Shareholders with respect to which Mr. Diggs
shares investment power. Mr. Diggs disclaims beneficial ownership of such
5,097,000 shares of DFC Common Stock.
(4) Mr. Heersink is Vice President of Onex Corporation, an affiliate of Onex
DHC. Mr. Heersink disclaims beneficial ownership of shares held by Onex
DHC.
(5) Includes 1,348,000 shares held of record by EJJM of which Mr. Diggs is the
sole managing general partner and 5,097,000 shares of DFC Common Stock held
of record by the other Merger Shareholders with respect to which Mr. Diggs
shares investment power. Mr. Diggs disclaims beneficial ownership of such
5,097,000 shares of DFC Common Stock.
CERTAIN INFORMATION CONCERNING WAL
WAL is a holding company which has, as its sole direct subsidiary,
Whitlenge. Whitlenge manufacturers and markets beverage dispensing equipment,
including soft drink dispensing equipment and beer coolers, for use in
restaurants, pubs, and foodservice facilities in the United Kingdom and, to a
lesser extent, other countries in continental Europe and the Middle East.
WAL was formed in 1992 by Onex and Matthew O. Diggs, Jr., WAL's Chairman,
as a private company limited by shares registered in England. Whitlenge is a
private company limited by shares registered in England and was formed in 1976.
In 1992, WAL acquired Whitlenge from Alco.
PRODUCTS
Whitlenge manufactures and sells two related lines of refrigerated
products: soft drink dispensing equipment and draft beer cooling equipment.
Whitlenge's customers principally include soft drink bottlers and beer brewers.
Such bottlers and brewers typically purchase the equipment and install it in
restaurants, pubs and other establishments which serve their products.
Soft Drink Dispensers. Whitlenge manufactures and sells "post-mix" soft
drink dispensers, in which the raw materials of tap water, carbon dioxide and
syrup are fed into the units, water is filtered, refrigerated and carbonated and
finally the syrup and carbonated water are blended to form the beverage in the
dispensing unit or "tower."
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<PAGE> 90
Unlike in the American market, in the United Kingdom, the refrigeration and
carbonation equipment and the syrups are usually remote from the dispensing
tower due to space constraints at the bar or serving point. Such equipment and
the dispensing tower (which can be from fifty to several hundred feet apart) are
connected by an insulated conduit called a python. The syrups and refrigerated
carbonated water are pumped through separate tubes in the python. Carbonated
water must be continuously recirculated within the python to maintain proper
temperature and taste at the point of serving.
Whitlenge produces a variety of coolers of different sizes, carbonators and
dispensing towers. This equipment is relatively complex and expensive, selling
for approximately L600 to L2,500 per unit.
Beer Cooling Equipment. Beer cooling equipment cools the various beers to
the appropriate temperatures, pumps them to the valves in an insulated python
and circulates chilled water in the python to maintain proper temperature and
foaming characteristics. Space and material-handling considerations for the
large number of beers served in pubs dictate that the beer kegs and beer cooling
equipment be installed remotely, usually in the cellar, and that the beer be
pumped to the dispensing tap at the bar. Equipment selling prices range from
about L250 per unit to approximately L1,200 for a cooler serving up to 14 beers
at different temperatures.
Parts. Sales of replacement parts and refurbishing of older equipment
constituted approximately 20% of Whitlenge's total sales in 1993. WAL believes
that as the amount of Whitlenge equipment in the field continues to increase,
the spare parts and refurbishment markets will continue to grow.
SALES AND DISTRIBUTION
Whitlenge sells directly to soft drink bottlers and brewers in the United
Kingdom. Export markets are handled by (i) direct sales to bottlers and brewers,
(ii) distributors in the various national markets, and (iii) local agents, as
each situation warrants. Whitlenge is increasing sales staff and distributors
and agents in continental Europe and in the Middle East. It established a
wholly-owned distributor, WB, in Belgium in 1992 and added distributors in
Norway and Poland in 1993.
COMPETITION
The United Kingdom market is dominated by Whitlenge and the United Kingdom
operations of IMI Cornelius plc ("IMI Cornelius"). The market is also served by
smaller United Kingdom producers and by imports.
In continental Europe Whitlenge believes the leading supplier of beverage
dispensing equipment is IMI Cornelius which has a larger and more geographically
diverse production capacity than Whitlenge and a broader product line, including
CO(') regulators, liquor dispensers and frozen carbonated beverage units. Other
competitors in continental Europe are Hartek GmbH, a German subsidiary of the
Finnish brewer Hartwall AB, and Codifesa SA, a Spanish supplier. In addition,
there are over twenty smaller competitors.
Whitlenge competes on the basis of superior drink quality and customer
support. Whitlenge has concentrated on maintaining short lead times for delivery
of orders and on training of customer installation personnel. In addition,
Whitlenge customizes most of its equipment to satisfy customer specifications.
SUPPLIERS
The most significant materials used by Whitlenge are sheet steel (stainless
and other), compressors, electric motors and other electrical and mechanical
components, valves, pumps, metal tubing (stainless and copper), plastic
components and other generic engineering items.
Management believes Whitlenge has well-established supply sources for all
major components it does not otherwise manufacture, and for raw materials,
including readily available substitute sources of supply. Currently, Whitlenge
has at least two suppliers for each raw material and component it uses.
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<PAGE> 91
SIGNIFICANT CUSTOMERS
Whitlenge's two leading customers, in terms of sales, accounted for
approximately 48% of sales in 1993. One of such customers accounted for
approximately 27% and the other accounted for approximately 21% of Whitlenge's
sales in 1993. The loss of one or more of these customers or a substantial
decrease in the amount of any of their purchases could have a material adverse
effect on Whitlenge's business.
BACKLOG
As of September 30, 1993, Whitlenge's backlogs totaled approximately
L1,281,000 compared with approximately L1,300,000 on the same date in 1992. All
material amounts of such orders are expected to be filled in fiscal 1994.
EMPLOYEES
Whitlenge currently employs approximately 170 people of whom approximately
119 are directly involved in production. The remaining persons are employed in
managerial and sales-related positions. Whitlenge's employees are not unionized.
FACILITIES
WAL's chief executive offices and operations are located primarily in a
68,500 square foot facility in Halesowen, England, which is leased until 2004.
WAL believes that Whitlenge's facilities and equipment are in good
condition and that, together with scheduled capital improvements, are adequate
for present and anticipated needs.
EXECUTIVE COMPENSATION; MANAGEMENT
The following table summarizes the compensation paid by WAL or its
subsidiaries to an executive officer of Whitlenge who is expected to serve as an
executive officer of Scotsman with respect to services performed in the capacity
indicated during WAL's fiscal year 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1993 ANNUAL COMPENSATION ALL OTHER
----------------------------------- COMPENSATION
OTHER ANNUAL ------------
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OTHER
POSITION WITH WHITLENGE (pound) (pound) (pound) (pound)
- ------------------------------------------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Michael de St. Paer............................. 72,800 43,912 7,000(1) $ --
Managing Director of Whitlenge
</TABLE>
- -------------------------
(1) Includes premiums of (pound)450 paid for private health and disability
benefit coverages and a value of (pound)6,550 for the use of a company car
and related fuel.
Mr. de St. Paer joined Whitlenge in 1992 and became Managing Director in
1993. He was the Managing Director of Hartek GmbH, a manufacturer of dispensing
equipment in Germany, from 1990 to 1992. From 1987 to 1990, Mr. de St. Paer was
General Manager, Support and Services, with The Coca-Cola-Schweppes Company, a
soft drink manufacturer, in the United Kingdom. Mr. de St. Paer is 48 years old.
CERTAIN TRANSACTIONS WITH MANAGEMENT
During its 1993 fiscal year, WAL made total payments of (pound)160,000 to
The Diggs Group for services provided under a Management Advisory Agreement (the
"WAL Management Advisory Agreement"), dated April 1, 1992, between WAL,
Whitlenge and The Diggs Group. Matthew O. Diggs, Jr., who is currently the
Chairman of the Board of Directors of WAL and who will become a director of
Scotsman upon consummation of the Merger, is the chief executive officer of The
Diggs Group and the president and sole
81
<PAGE> 92
stockholder of a corporation which is a general partner of The Diggs Group.
Termination of the WAL Management Advisory Agreement is a condition precedent to
the obligations of Scotsman to consummate the Share Acquisition. See "The Share
Acquisition Agreement -- Conditions to the Consummation of the Share
Acquisition."
MANAGEMENT'S DISCUSSION AND ANALYSIS: WHITLENGE
The following discussion should be read in conjunction with the financial
statements of WAL and Whitlenge and related notes thereto included elsewhere in
this Proxy Statement-Prospectus. The financial statements for WAL have been
prepared in accordance with accounting practices prevailing in the U.K. which
differ in certain respects from generally accepted accounting principles in the
U.S. See Note 20 and 17, respectively, to the consolidated financial statements
of WAL for the year ended September 30, 1993 and the six months ended September
30, 1992 and for the six months ended March 31, 1992 and the twelve months ended
September 30, 1991 included elsewhere in this Proxy Statement - Prospectus.
<TABLE>
<CAPTION>
WHITLENGE DRINKS EQUIPMENT
WHITLENGE ACQUISITION LTD. LTD.
(SUCCESSOR) (PREDECESSOR)
-------------------------------------------------------- ------------------------------
SIX MONTHS SIX MONTHS
THREE MONTHS ENDED DEC YEAR ENDED ENDED ENDED YEAR ENDED
31, SEPT. 30, 1993 SEPT. 30, 1992 MARCH 31, 1992 SEPT. 30, 1991
---------------------- -------------- -------------- -------------- --------------
1993 1992
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales................ 69.8 69.1 71.5 69.5 74.1 73.1
----------- ----------- ------ ------ ------ ------
Gross profit margin.......... 30.2 30.9 28.5 30.5 25.9 26.9
Selling, general and
administrative costs....... 15.7 15.0 15.7 15.5 13.4 13.4
Management fees.............. 1.2 1.2 1.2 1.2 0.0 0.0
----------- ----------- ------ ------ ------ ------
Operating Income............. 13.3 14.7 11.6 13.8 12.5 13.5
Interest expense, net........ 1.5 1.6 1.9 3.2 (1.2) (0.9)
----------- ----------- ------ ------ ------ ------
Pretax Income................ 11.8 13.1 9.7 10.6 13.7 14.4
Provision for income taxes... 4.2 4.7 3.7 1.4 5.2 4.9
----------- ----------- ------ ------ ------ ------
Net income................... 7.6% 8.4% 6.0% 9.2% 8.5% 9.5%
----------- ----------- ------ ------ ------ ------
----------- ----------- ------ ------ ------ ------
</TABLE>
The Three Months Ended December 31, 1993 Compared to the Three Months Ended
December 31, 1992.
Sales. Net sales for the three months ended December 31, 1993, increased
(pound)0.1 million to (pound)3.4 million from (pound)3.3 million for the three
months ended December 31, 1992, due primarily to increased beer-cooling
equipment sales within the U.K. and to Ireland, and higher sales of soft drink
equipment to export markets.
Gross Profit. Gross profit was (pound)1.0 million for both the three
months ended December 31, 1993 and December 31, 1992. Gross profit as a
percentage of sales declined slightly to 30.2% for the three months ended
December 31, 1993, from 30.9% for the three months ended December 31, 1992,
due to a higher proportion of lower margin soft drink product sales.
SG&A. SG&A expenses were (pound)0.5 million for both the three months ended
December 31, 1993 and December 31, 1992. SG&A expenses as a percentage of sales
increased to 15.7% for the three months ended December 31, 1993, from 15.0% for
the three months ended December 31, 1992, due primarily to increased investment
in research and development and higher selling expenses related to European and
Scandinavian market development.
The Year Ended September 30, 1993, Compared to the Six Months Ended September
30, 1992
Net Sales. Net sales during the year ended September 30, 1993 increased by
(pound)7.2 million or 105.1% to (pound)14.0 million as compared to (pound)6.8
million for the six months ended September 30, 1992. On a per month basis,
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<PAGE> 93
net sales for the year ended September 30, 1993 were 2.6% higher than for the
six months ended September 30, 1992 primarily due to higher soft drink equipment
sales to export markets and higher beer cooling equipment sales within the U.K.
Gross Profit. Gross profit increased to (pound)4.0 million for the year
ended September 30, 1993 from (pound)2.1 million for the six months ended
September 30, 1992. Gross profit declined to 28.5% of net sales for the year
ended September 30, 1993 from 30.5% for the prior period due primarily to
increased provision for surplus and obsolete inventory and a reserve for a
dispute with respect to syrup tanks sold by Whitlenge.
SG&A. SG&A expenses increased (pound)1.1 million to (pound)2.2 million for
the year ended September 30, 1993 from (pound)1.1 million for the six months
ended September 30, 1992. SG&A expenses as a percentage of sales increased to
15.7% for the year ended September 30, 1993 from 15.5% for the six months
ended September 30, 1992, due primarily to higher management compensation
expenses and higher facility costs (Belgium sales office and additional
warehouse space).
Interest Expense, Net. Interest expense increased (pound)0.1 million to
(pound) 0.3 million for the year ended September 30, 1993 from (pound)0.2
million for the six months ended September 30, 1992. Interest expense as a
percentage of sales declined to 1.9% for the year ended September 30, 1993
from 3.2% for the prior period due to debt reductions using cash generated
from operations and a decline in interest rates.
Provision for Income Taxes. Provision for income taxes increased to (pound)
0.5 million or 38.1% of pretax income for the year ended September 30, 1993 from
(pound)0.1 million or 13.1% for the six months ended September 30, 1992 due to
the allowance of certain acquisition-related expense deductions during the six
months ended September 30, 1992 which were capitalized on the balance sheet for
book purposes.
The Six Months Ended September 30, 1992 Compared to the Six Months Ended March
31, 1992
Net Sales. Net sales during the six months ended September 30, 1992
increased (pound)1.0 million or 17.0% to (pound)6.8 million compared to (pound)
5.8 million for the six months ended March 31, 1992 due primarily to
significantly higher sales of beer cooling equipment and seasonably higher
sales of all products during the third and fourth quarters vis-a-vis the first
and second quarters of the Whitlenge fiscal year.
Gross Profit. Gross profit increased to (pound)2.1 million or 30.5% of
net sales for the six months ended September 30, 1992 from (pound)1.5 million
or 25.9% for the six months ended March 31, 1992, due primarily to a reserve
recorded during the prior period for the repair of leased facilities, and lower
provision for surplus and obsolete inventories, cost reductions achieved on
beer cooling equipment and higher sales volume during the six months ended
September 30, 1992.
SG&A. SG&A expenses increased to (pound)1.1 million or 15.5% of net sales
for the six months ended September 30, 1992 from (pound)0.8 million or 13.4% of
net sales for the six months ended March 31, 1992 primarily due to increased
provision for management bonuses during the six months ended September 30, 1992.
Provision for Income Taxes. Provision for income taxes decreased to (pound)
0.1 million or 13.1% of pretax income for the six months ended September 30,
1992 from (pound)0.3 million or 37.8% for the six months ended March 31, 1992
due to the allowance of certain acquisition-related expense deductions during
the six months ended September 30, 1992 which were capitalized on the balance
sheet for book purposes.
Management Fees. Management fees of (pound)0.1 million were charged by the
Diggs Group during the six months ended September 31, 1992. Alco did not charge
Whitlenge any management fees or corporate charges during the six months ended
March 31, 1992.
The Six Months Ended March 31, 1992 Compared to the Year Ended September 30,
1991
Net Sales. Net sales during the six months ended March 31, 1992 declined
(pound)5.0 million or 46.2% to (pound)5.8 million from (pound)10.8 million for
the year ended September 30, 1991. On a per month basis, net sales increased
(pound)0.1 million or 7.7% versus the prior period due primarily to growth in
beer cooling equipment sales to breweries in the U.K.
83
<PAGE> 94
Gross Profit. Gross profit declined to (pound)1.5 million or 25.9% of
net sales for the six months ended March 31, 1992 from (pound)2.9 million or
26.9% of net sales for the year ended September 30, 1991. The decline in
gross profit margin was due primarily to a reserve recorded during the six
months ended March 31, 1992 for the repairs of leased facilities.
SG&A. SG&A expenses declined to (pound)0.8 million for the six months
ended March 31, 1992, from (pound)1.4 million for the year ended September 30,
1991 but remained at 13.4% of net sales, primarily due to the offsetting of
increased selling expenses stemming from the opening of the Belgium sales
office late in 1991 by an adjustment for the over provision of pension costs
for the six months ended March 31, 1992.
Liquidity and Financial Position
Whitlenge's primary source of funds for its business activities and
repaying its debt has been from operations. Cash (used)/provided from operating
activities was (pound)(0.6) million for the three months ended December 31,
1993, compared to (pound)(0.4) million for the three months ended December 31,
1992, (pound)1.9 million for the year ended September 30, 1993, (pound)1.9
million for the six months ended September 30, 1992, (pound)0.8 million for the
six months ended March 31, 1992 and (pound)0.6 million for the year ended
September 30, 1991. The (pound)0.2 million decrease in cash used from
operations during the three months ended December 31, 1993 from the three
months ended December 31, 1992 resulted primarily from a (pound)0.2 million
decline in working capital requirements (principally a decrease in accounts
payable). The (pound)1.1 million increase in cash provided from operations
during the six months ended September 30, 1992 from the six months ended March
31, 1992 resulted primarily from an (pound)0.8 million decline in working
capital requirements (principally an increase in accounts payable). The
(pound)0.6 million of cash provided during the year ended September 30, 1991
was impacted by a (pound)1.0 million increase in working capital requirements,
primarily an increase in accounts receivable and a decline in accounts payable.
Whitlenge's level of capital expenditures varies from year to year,
affected by the timing of capital spending for new and replacement production
and office equipment. Capital expenditures were (pound)0.02 million for the
three months ended December 31, 1993, compared to (pound)0 million for the same
period in 1992, (pound)0.2 million for the year ended September 30, 1993,
(pound)0.1 million for the six months ended September 30, 1992, (pound)0.1
million for the six months ended March 31, 1992 and (pound)0.1 million for the
year ended September 30, 1991. Current plans for 1994 capital spending are
approximately (pound)0.3 million for new and replacement production and office
equipment.
Long-term indebtedness including current maturities but excluding the
revolving credit facility, was (pound)2.9 million at December 31, 1993,
(pound)3.2 million at September 30, 1993, (pound)3.5 million at September 30,
1992 and nil at March 31, 1992 and September 30, 1991. The (pound)0.3 million
decline from September 30, 1993, to December 31, 1993, resulted from scheduled
repayments. The (pound)3.5 million of long-term debt at September 30, 1992
resulted from the April 1, 1992 acquisition of Whitlenge. The (pound)0.3
million decline from September 30, 1992 to September 30, 1993 also resulted
from scheduled repayments.
Whitlenge has a (pound)1.0 million revolving credit facility with the
Bank of Scotland which expires in 1997 and requires interest payments at LIBOR
plus 2.1 percent and is secured by all Whitlenge assets. At December 31, 1993,
September 30, 1993 and September 30, 1992, borrowings outstanding under the
facility totaled (pound)0.3 million, (pound)0.3 million and (pound)1.0 million,
respectively.
Management believes that cash generated from operations will be adequate to
meet Whitlenge's operating needs, planned capital expenditures and debt service
requirements for at least the 1994 and 1995 fiscal years.
CERTAIN BENEFICIAL OWNERS OF THE WAL ORDINARY SHARES
WAL currently has three classes of ordinary shares. Under WAL's Articles,
each WAL Ordinary Share is entitled to one vote upon all matters to be voted
upon by the holders of WAL Ordinary Shares, and all classes of WAL Ordinary
Shares vote together as a single class.
84
<PAGE> 95
As of February 15, 1994, the following persons are known by WAL to be the
beneficial owners of more than 5% of any class of WAL Ordinary Shares.
<TABLE>
<CAPTION>
NUMBER AND CLASS OF PERCENT OF ALL
NAME AND ADDRESS WAL ORDINARY SHARES PERCENT WAL ORDINARY
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS SHARES OUTSTANDING
- ------------------------------- ------------------------------------- ------------------ ------------------
<S> <C> <C> <C>
Onex DHC LLC(1)................ 150,000 WAL "A" Ordinary Shares 100% of each class 100%
421 Leader Street 775,000 WAL "B" Ordinary Shares
Marion, Ohio 43302 75,000 WAL "C" Ordinary Shares
EJJM........................... 70,501 WAL "C" Ordinary Shares 94% 7.05%
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
Matthew O. Diggs, Jr.(2)....... 150,000 WAL "A" Ordinary Shares 100% of each class 100%
c/o The Diggs Group 775,000 WAL "B" Ordinary Shares
1630 Kettering Tower 75,000 WAL"C" Ordinary Shares
Dayton, Ohio 45423
Timothy C. Collins(3).......... 150,000 WAL "A" Ordinary Shares 100% of each class 100%
c/o Onex Investment Corp. 775,000 WAL "B" Ordinary Shares
712 Fifth Avenue 75,000 WAL"C" Ordinary Shares
New York, New York 10019
Graham F. Cook(4).............. 21,000 WAL "A" Ordinary Shares 14% 2.1%
Christopher R.L. Wheeler(4).... 16,500 WAL "A" Ordinary Shares 11% 1.65%
Michael de St. Paer(4)(5)...... 150,000 WAL "A" Ordinary Shares 100% of each class 100%
775,000 WAL "B" Ordinary Shares
75,000 WAL"C" Ordinary Shares
John Ruston(4)................. 25,000 WAL "A" Ordinary Shares 16.667% 2.5%
John Nicholls(4)............... 30,000 WAL "A" Ordinary Shares 20% 3%
Richard Breed(4)............... 20,000 WAL "A" Ordinary Shares 13.333% 2%
</TABLE>
- -------------------------
(1) Includes 775,000 WAL "B" Ordinary Shares, held of record by Onex U.S., an
affiliate of Onex DHC, with respect to which Onex DHC has sole voting and
investment power, 75,000 WAL "C" Ordinary Shares, held of record by certain
shareholders of WAL, with respect to which Onex DHC shares voting and
investment power, and 150,000 WAL "A" Ordinary Shares, held of record by
certain other shareholders of WAL, with respect to which Onex DHC shares
investment power. Onex DHC disclaims beneficial ownership of all such WAL
"A" Ordinary Shares and WAL "C" Ordinary Shares.
(2) Includes 70,501 WAL "C" Ordinary Shares owned of record by EJJM, of which
Mr. Diggs is the sole managing general partner, and 150,000 WAL "A"
Ordinary Shares, 775,000 WAL "B" Ordinary Shares and 4,499 WAL "C" Ordinary
Shares held of record by other shareholders of WAL with respect to which
Mr. Diggs shares voting and investment power. Mr. Diggs disclaims
beneficial ownership of all such shares except the WAL "C" Ordinary Shares
held of record by EJJM.
(3) Includes 70,501 WAL "C" Ordinary Shares, 150,000 WAL "A" Ordinary Shares,
and 775,000 WAL "B" Ordinary Shares owned of record by the other
shareholders of WAL and with respect to which Mr. Collins shares voting and
investment power. Mr. Collins disclaims beneficial ownership of all such
shares.
(4) The business address of such person is: c/o Whitlenge Drink Equipment
Limited, Chancel Way, Halesowen Industrial Park, Halesowen, West Midlands,
U.K. B62 8SE.
(5) Includes 112,500 WAL "A" Ordinary Shares, 775,000 WAL "B" Ordinary Shares
and 75,000 WAL "C" Ordinary Shares owned of record by the other
shareholders of WAL and with respect to which Mr. de St. Paer shares voting
and investment power. Mr. de St. Paer disclaims beneficial ownership of all
such shares.
85
<PAGE> 96
As of February 15, 1994, the directors and executive officers of WAL named
below and all directors and executive officers of WAL as a group beneficially
own the following number of WAL Ordinary Shares:
<TABLE>
<CAPTION>
NUMBER AND CLASS OF PERCENT OF ALL
DIRECTORS AND WAL ORDINARY SHARES PERCENT WAL ORDINARY
EXECUTIVE OFFICERS BENEFICIALLY OWNED OF CLASS SHARES OUTSTANDING
- ------------------------------- ------------------------------------- ------------------ ------------------
<S> <C> <C> <C>
Matthew O. Diggs, Jr.(1)....... 150,000 WAL "A" Ordinary Shares 100% of each class 100%
c/o The Diggs Group 775,000 WAL "B" Ordinary Shares
1630 Kettering Tower 75,000 WAL "C" Ordinary Shares
Dayton, Ohio 45423
Timothy C. Collins(2).......... 150,000 WAL "A" Ordinary Shares 100% of each class 100%
c/o Onex Investment Corp. 775,000 WAL "B" Ordinary Shares
712 Fifth Avenue 75,000 WAL "C" Ordinary Shares
New York, New York 10019
Graham Cook.................... 21,000 WAL "A" Ordinary Shares 14% 2.1%
c/o Whitlenge Drink
Equipment Limited
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
All Directors and Executive
Officers as a Group(3)....... 150,000 WAL "A" Ordinary Shares 100% of each class 100%
775,000 WAL "B" Ordinary Shares
75,000 WAL "C" Ordinary Shares
</TABLE>
- -------------------------
(1) Includes 70,501 WAL "C" Ordinary Shares held of record by EJJM, of which Mr.
Diggs is the sole managing general partner, and 150,000 WAL "A" Ordinary
Shares, 775,000 WAL "B" Ordinary Shares and 4,499 WAL "C" Ordinary Shares
held of record by other shareholders of WAL with respect to which Mr. Diggs
shares voting and investment power. Mr. Diggs disclaims beneficial
ownership of all such shares except the WAL "C" Ordinary Shares held of
record by EJJM.
(2) Includes 70,501 WAL "C" Ordinary Shares, 15,000 WAL "A" Ordinary Shares and
775,000 WAL "B" Ordinary Shares owned of record by the other shareholders
of WAL and with respect to which Mr. Collins shares voting and investment
power. Mr. Collins disclaims beneficial ownership of all such shares.
(3) Includes 70,501 WAL "C" Ordinary Shares held of record by EJJM, of which Mr.
Diggs is the sole general managing partner, and 150,000 shares of WAL "A"
Ordinary Shares, 775,000 WAL "B" Ordinary Shares, and 4,499 WAL "C"
Ordinary Shares held of record by the other shareholders of WAL with
respect to which Mr. Diggs shares investment power. Mr. Diggs disclaims
beneficial ownership of all such shares except the WAL "C" Ordinary Shares
held of record by EJJM.
LEGAL OPINIONS
The legality of the Scotsman Common Stock, Common Stock Purchase Rights,
Series A Convertible Preferred Stock and Series B Preferred Stock to be issued
pursuant to the Merger and the Share Acquisition has been passed upon for
Scotsman by Schiff Hardin & Waite, 7200 Sears Tower, Chicago, Illinois 60606.
EXPERTS
The consolidated financial statements of Scotsman incorporated into this
Proxy Statement - Prospectus by reference to Scotsman's Annual Report on Form
10-K for the year ended January 3, 1993 have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference in this Proxy Statement - Prospectus
in reliance upon the authority of said firm as experts in giving said reports.
The financial statements of DFC and Delfield for the years ended December
31, 1993 and 1992 and for the period from April 27, 1991 to December 31, 1991
and the financial statements of the Delfield Division of Alco for the period
from October 1, 1990 to April 26, 1991 and for the year ended September 30, 1990
included in this Proxy Statement - Prospectus have been audited by Arthur
Andersen & Co., independent
86
<PAGE> 97
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements of WAL as of and for the year ended
September 30, 1993 and the six-month period ended September 30, 1992 and the
financial statements of Whitlenge as of and for the six-month period ended March
31, 1992 included in this Proxy Statement - Prospectus have been audited by
Coopers & Lybrand, independent accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The financial statements of Whitlenge as of and for the year ended
September 30, 1991 included in this Proxy Statement - Prospectus have been
audited by Ernst & Young, chartered accountants and independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm as experts in
giving said reports.
OTHER MATTERS
This Proxy Statement - Prospectus is issued by Scotsman and has been
approved by , a Member of the Securities
Association, for purposes of Section 57 of the U.K. Financial Services Act 1986.
87
<PAGE> 98
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 3, 1993 AND AS OF AND FOR THE
NINE MONTHS ENDED OCTOBER 3, 1993
(000'S OMITTED, EXCEPT PER SHARE DATA)
INTRODUCTION:
The following pro forma condensed consolidated financial statements should
be read in conjunction with the historical financial statements and related
notes thereto of Scotsman, DFC and WAL included elsewhere in this registration
statement. The fiscal year of Scotsman ends on the Sunday nearest to December
31, the fiscal year end of DFC is December 31 and the fiscal year end of WAL is
September 30.
The unaudited pro forma condensed consolidated statements of income for the
year ended January 3, 1993 and for the nine months ended October 3, 1993 have
been prepared as if the acquisition of DFC and WAL by Scotsman had occurred at
the beginning of Scotsman's 1992 fiscal year. The unaudited pro forma condensed
consolidated balance sheet has been prepared to reflect the acquisition of DFC
and WAL by Scotsman at October 3, 1993.
88
<PAGE> 99
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 3, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL(1)
-----------------------------------
DFC AND
WAL PRO FORMA
SCOTSMAN COMBINED(8) SUBTOTAL ADJUSTMENTS PRO FORMA
-------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments....... $ 7,729 $ 4,065 $ 11,794 $ (633)(3) $ 11,161
Trade accounts and notes receivable,
net..................................... 38,731 15,837 54,568 0 54,568
Inventories............................... 27,408 16,624 44,032 0 44,032
Deferred income taxes..................... 3,588 119 3,707 0 3,707
Other current assets...................... 1,240 392 1,632 0 1,632
-------- ----------- -------- ----------- ---------
Total current assets.................... 78,696 37,037 115,733 (633) 115,100
Properties and equipment, net............. 19,800 18,696 38,496 0 38,496
Cost of investments in acquired businesses
in excess of net assets at acquisition,
net..................................... 11,163 4,874 16,037 69,328(7) 85,365
Debt issuance costs....................... 0 720 720 (720)(5) 0
Other noncurrent assets................... 4,013 554 4,567 0 4,567
-------- ----------- -------- ----------- ---------
Total assets............................ $113,672 $61,881 $175,553 $67,975 $243,528
-------- ----------- -------- ----------- ---------
-------- ----------- -------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt and current maturities of
long-term debt and capitalized lease
obligations............................. $ 5,696 $ 4,955 $ 10,651 $ 0 $ 10,651
Trade accounts payable.................... 15,576 8,722 24,298 0 24,298
Accrued Income Taxes...................... 1,776 807 2,583 0 2,583
Accrued Expenses.......................... 17,282 8,629 25,911 1,867(4) 27,778
-------- ----------- -------- ----------- ---------
Total current liabilities............... 40,330 23,113 63,443 1,867 65,310
Long-term debt and capitalized lease
obligations............................... 29,503 32,231 61,734 30,300(2) 92,034
Deferred income taxes....................... 1,435 1,443 2,878 0 2,878
Other noncurrent liabilities................ 7,026 1,402 8,428 2,000(7) 10,428
-------- ----------- -------- ----------- ---------
Total liabilities....................... 78,294 58,189 136,483 34,167 170,650
Redeemable Preferred stock.................. -- 3,000 3,000 (3,000)(6) --
Shareholders' equity
Common stock.............................. 721 1,564 2,285 (1,444)(6) 841
Preferred stock........................... -- -- -- 22,500(6) 22,500
Additional paid-in capital................ 20,532 6,381 26,913 8,499(6) 35,412
Retained earnings (deficit)............... 20,821 (6,852) 13,969 6,852(6) 20,821
Deferred compensation..................... (49) -- (49) -- (49 )
Foreign currency translation adjustment... (5,303) (401) (5,704) 401(6) (5,303 )
Less: Common stock held in treasury....... (1,344) -- (1,344) -- (1,344 )
-------- ----------- -------- ----------- ---------
Total shareholders' equity.................. 35,378 692 36,070 36,808(6) 72,878
Total liabilities and shareholders'
equity.................................... $113,672 $61,881 $175,553 $67,975 $243,528
-------- ----------- -------- ----------- ---------
-------- ----------- -------- ----------- ---------
</TABLE>
- -------------------------
(1) Includes the balance sheets of Scotsman, DFC, and WAL as of October 3, 1993,
September 30, 1993 and September 30, 1993, respectively.
(2) Represents new borrowings required to finance the acquisition ($62,975) net
of payment of certain amounts of the acquired entities existing debt
($32,675).
(3) Represents payment of acquired entities accrued interest balances with
existing cash.
(4) Includes payment of acquired entities accrued interest balances with
existing cash. Also includes the allocation of the purchase price to the
estimated fair value of the net assets acquired.
(5) Represents write-off of DFC capitalized debt issuance costs from a previous
recapitalization.
(6) Represents Scotsman common stock issued ($120) net of acquired entities
common stock retired ($1,564); Scotsman convertible preferred stock issued
($22,500); additional paid in capital on Scotsman common stock issued
($14,880) net of retirement of acquired entities additional paid in capital
($6,381); retirement of acquired entities net retained deficit balance
($6,852); retirement of acquired entities redeemable preferred stock
($3,000); and retirement of acquired entities unfavorable foreign currency
translation adjustment ($401).
(7) Represents the allocation of the purchase price to the estimated fair value
of the net assets acquired.
(8) See the Unaudited Proforma Condensed Combining Balance Sheet on page 90.
89
<PAGE> 100
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF OCTOBER 3, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
WAL
-------------------------------------------------------
BRITISH POUNDS STERLING
---------------------------------------
ADJUST US DOLLARS DFC AND
TO ---------- WAL
UK GAAP(1) US GAAP(2) US GAAP US GAAP(3) DFC(1) COMBINED
----------- ----------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and temporary cash
investments....................... (pound)2,260 (pound)-- (pound)2,260 $ 3,390 $ 675 $ 4,065
Trade accounts and notes receivable,
net............................... 1,978 -- 1,978 2,967 12,870 15,837
Inventories......................... 2,805 -- 2,805 4,208 12,416 16,624
Deferred income taxes............... -- 79 79 119 -- 119
Other current assets................ 138 -- 138 207 185 392
------------- ------------ ------------- ---------- ------- --------
Total current assets............ 7,181 79 7,260 10,891 26,146 37,037
Properties and equipment, net....... 600 -- 600 900 17,796 18,696
Cost of investments in acquired
businesses in excess of net assets
at acquisition, net............... -- 3,249 3,249 4,874 -- 4,874
Debt issuance costs................. -- -- -- -- 720 720
Other noncurrent assets............. 1 -- 1 2 552 554
------------- ------------ ------------- ---------- ------- --------
Total assets.................... (pound)7,782 (pound)3,328 (pound)11,110 $ 16,667 $45,214 $61,881
------------- ------------ ------------- ---------- ------- --------
------------- ------------ ------------- ---------- ------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt and current
maturities of long-term debt and
capitalized lease obligations..... (pound)745 (pound)-- (pound)745 $ 1,118 $ 3,837 $ 4,955
Trade accounts payable.............. 2,001 -- 2,001 3,002 5,720 8,722
Accrued Income Taxes................ 539 -- 539 807 -- 807
Accrued Expenses.................... 905 -- 905 1,353 7,276 8,629
------------ ------------ ------------- ---------- ------- --------
Total current liabilities....... 4,190 -- 4,190 6,280 16,833 23,113
Long-term debt and capitalized lease
obligations......................... 2,781 -- 2,781 4,170 28,061 32,231
Deferred income taxes................. -- 10 10 15 1,428 1,443
Other noncurrent liabilities.......... 1 121 121 182 1,220 1,402
------------ ------------ ------------- ---------- ------- --------
Total liabilities............... 6,972 130 7,102 10,647 47,542 58,189
Redeemable preferred stock............ -- 2,000 2,000 3,000 -- 3,000
Shareholders' equity
Common stock........................ 1,000 -- 1,000 1,500 64 1,564
Preferred stock..................... 2,000 (2,000) -- -- -- --
Additional paid-in capital.......... -- -- -- -- 6,381 6,381
Retained earnings (deficit)......... (2,190) 3,198 1,008 1,921 (8,773) (6,852)
Deferred compensation............... -- -- -- -- -- --
Foreign currency translation
adjustment........................ -- -- -- (401) -- (401)
Less: Common stock held in
treasury.......................... -- -- -- -- -- --
------------ ------------ ------------- ---------- ------- --------
Total shareholders' equity
(deficit)........................... 810 1,198 2,008 3,020 (2,328) 692
Total liabilities and shareholders'
equity.............................. (pound)7,782 (pound)3,328 (pound)11,110 $ 16,667 $45,214 $61,881
------------ ------------ ------------- ---------- ------- --------
------------ ------------ ------------- ---------- ------- --------
</TABLE>
- -------------------------
(1) Represents historical balance sheet of WAL and DFC as of September 30, 1993
as presented in the financial statements section on page F-47 and F-16,
respectively.
(2) Represents adjustments from UK GAAP to US GAAP as discussed in footnote 20
to the WAL financial statements for the year ended September 30, 1993 on
pages F-60 to F-62.
(3) The WAL balance sheet in British pounds sterling is converted to US dollars
using exchange rates discussed on page 8.
90
<PAGE> 101
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 3, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL(1)
-----------------------------------
DFC AND
WAL PRO FORMA
SCOTSMAN COMBINED(8) SUBTOTAL ADJUSTMENTS PRO FORMA
-------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................. $131,829 $86,722 $218,551 $ 0 $ 218,551
Cost of sales......................... 91,304 63,786 155,090 0 155,090
-------- ----------- -------- ----------- ---------
Gross profit.......................... 40,525 22,936 63,461 0 63,461
Selling and administrative expenses... 24,305 12,487 36,792 896(5) 37,688
-------- ----------- -------- ----------- ---------
Income from operations................ 16,220 10,449 26,669 (896) 25,773
Interest expense, net................. 3,328 2,165 5,493 1,430(6) 6,923
-------- ----------- -------- ----------- ---------
Income before income taxes............ 12,892 8,284 21,176 (2,326) 18,850
Income taxes.......................... 5,719 3,254 8,973 (410)(7) 8,563
-------- ----------- -------- ----------- ---------
Net income before extraordinary item
and cumulative effect of accounting
changes............................. $ 7,173 $ 5,030 $ 12,203 $(1,916) $ 10,287
-------- ----------- -------- ----------- ---------
-------- ----------- -------- ----------- ---------
Net income per share before
extraordinary item and cumulative
effect of accounting changes........ $ 1.02(2) $ 1.06(4)
Average number of common shares
outstanding......................... 6,999 9,724(3)
</TABLE>
- -------------------------
(1) Includes the results of operations of Scotsman, DFC and WAL for the nine
months ended October 3, 1993, September 30, 1993 and September 30, 1993,
respectively.
(2) Net income per share (EPS) excludes the dilutive effect of stock options
outstanding as such effect is immaterial.
(3) Pro forma weighted average number of common shares outstanding consists of
6,999 Scotsman shares plus 1,200 common shares issued for the acquisition
plus 1,525 common stock equivalents (2,000 shares of preferred stock
convertible into 1,525 shares of common stock).
(4) EPS excludes the effect of up to 667 additional shares of common stock which
are contingently issuable as additional purchase price if the acquired
entities achieve certain combined earnings levels in fiscal year 1994.
These earnings levels are based on earnings before interest, taxes,
depreciation and amortization (EBITDA). The minimum level of EBITDA
required in fiscal 1994 that would require issuance of any of the 667
contingent shares is higher than combined DFC and WAL EBITDA for the nine
months ended September 30, 1993 annualized to a twelve-month basis. If all
667 contingent shares are issued, approximately $8,340 of additional
purchase price and approximately $209 of additional annual amortization
expense will result. If all of these contingent shares, but not the higher
level of EBITDA necessary to require issuance of any of the contingent
shares, were included in the above EPS calculation, EPS would have been
$.97.
(5) Represents amortization expense for the period of the allocation of the
purchase price to the estimated fair value of the net assets acquired using
a 40 year amortization period and elimination of management fees paid by
DFC and WAL.
(6) Represents net additional interest expense for the period. Consists of
additional interest expense on new debt at 7% per annum ($1,591) and
reduction of interest expense as a result of refinancing a portion of the
acquired entities' debt ($161).
(7) Represents the related tax effect of pro forma adjustments.
(8) See the Unaudited Pro Forma Condensed Combining Statement of Income for the
Nine Months Ended October 3, 1993 on page 92.
91
<PAGE> 102
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED OCTOBER 3, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
WAL
---------------------------------------------------
BRITISH POUNDS STERLING
-------------------------------------
ADJUST US DOLLARS DFC AND
TO ---------- WAL
UK GAAP(1) US GAAP(3) US GAAP US GAAP(4) DFC(2) COMBINED
----------- ----------- ------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... (pound)10,637 (pound)-- (pound)10,637 $ 16,062 $70,660 $86,722
Cost of sales............... 7,691 -- 7,691 11,613 52,173 63,786
----------- ----------- ------------- ---------- ------- --------
Gross profit................ 2,946 -- 2,946 4,449 18,487 22,936
Selling and administrative
expenses.................. 1,789 63 1,852 2,797 9,690 12,487
----------- ----------- ------------- ---------- ------- --------
Income from operations...... 1,157 (63) 1,094 1,652 8,797 10,449
Interest expense, net....... 212 -- 212 320 1,845 2,165
----------- ----------- ------------- ---------- ------- --------
Income before income
taxes..................... 945 (63) 882 1,332 6,952 8,284
Income taxes................ 389 (7) 382 577 2,677 3,254
----------- ----------- ------------- ---------- ------- --------
Net income, before
extraordinary item and
cumulative effect of
accounting changes........ (pound)556 (pound)(56) (pound)500 $ 755 $ 4,275 $ 5,030
----------- ----------- ------------- ---------- ------- --------
----------- ----------- ------------- ---------- ------- --------
</TABLE>
- -------------------------
(1) Represents the historical income statement of WAL for the nine months ended
September 30, 1993. The historical income statement of WAL for the fiscal
year ended September 30, 1993 is presented in the financial statements
section on page F-46.
(2) Represents the historical income statement of DFC for the nine months ended
September 30, 1993 as presented in the financial statements section on page
F-17.
(3) Represents adjustments from UK GAAP to US GAAP as discussed in footnote 20
to the WAL financial statements on pages F-60 to F-62.
(4) Converted from British pounds sterling to US dollars using exchange rates
discussed on page 8.
92
<PAGE> 103
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 3, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL(1)
---------------------------------
DFC AND
WAL PRO FORMA
SCOTSMAN COMBINED(8) SUBTOTAL ADJUSTMENTS PRO FORMA
-------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $168,674 $ 102,898 $271,572 $ 0 $ 271,572
Cost of sales.............................. 122,226 75,123 197,349 0 197,349
-------- ----------- -------- ----------- ---------
Gross profit............................... 46,448 27,775 74,223 0 74,223
Selling and administrative expenses........ 31,588 15,866 47,454 1,185(5) 48,639
-------- ----------- -------- ----------- ---------
Income from operations..................... 14,860 11,909 26,769 (1,185) 25,584
Interest expense, net...................... 4,675 1,920 6,595 1,631(6) 8,226
-------- ----------- -------- ----------- ---------
Income before income taxes................. 10,185 9,989 20,174 (2,816) 17,358
Income taxes............................... 3,793 3,505 7,298 (433)(7) 6,865
-------- ----------- -------- ----------- ---------
Net income before extraordinary item and
cumulative effect of accounting
changes.................................. $ 6,392 $ 6,484 $ 12,876 $(2,383) $ 10,493
-------- ----------- -------- ----------- ---------
-------- ----------- -------- ----------- ---------
Net income per share before extraordinary
item and cumulative effect of accounting
changes.................................. $ 0.90(2) $ 1.07(4)
Average number of common shares
outstanding.............................. 7,097 9,822(3)
</TABLE>
- -------------------------
(1) Includes the results of operations of Scotsman, DFC and WAL for the fiscal
year ended January 3, 1993, December 31, 1992 and September 30, 1992,
respectively.
(2) Net income per share (EPS) excludes the dilutive effect of stock options
outstanding as such effect is immaterial.
(3) Pro forma weighted average number of common shares outstanding consists of
7,097 Scotsman shares plus 1,200 common shares issued for the acquisition
plus 1,525 common stock equivalents (2,000 shares of preferred stock
convertible into 1,525 shares of common stock).
(4) EPS excludes the effect of up to 667 additional shares of common stock which
are contingently issuable as additional purchase price if the acquired
entities achieve certain combined earnings levels in fiscal year 1994.
These earnings levels are based on earnings before interest, taxes,
depreciation and amortization (EBITDA). The minimum level of EBITDA
required in fiscal 1994 that would require issuance of any of the 667
contingent shares is approximately 24% higher than combined DFC and WAL
EBITDA for the fiscal years ended December 31, 1992 and September 30, 1992,
respectively. If all 667 contingent shares are issued, approximately $8,340
of additional purchase price and approximately $209 of additional annual
amortization expense will result. If all of these contingent shares, but
not the higher level of EBITDA necessary to require issuance of any of the
contingent shares were included in the above EPS calculation, EPS would
have been $.98.
(5) Represents amortization expense for the period of the allocation of the
purchase price to the estimated fair value of the net assets acquired using
a 40-year amortization period and elimination of management fees paid by
DFC and WAL.
(6) Represents net additional interest expense for the period. Consists of
additional interest expense on new debt at 7% per annum ($2,121) and
reduction of interest expense as a result of refinancing a portion of the
acquired entities' debt ($490).
(7) Represents the related tax effect of pro forma adjustments.
(8) See the Unaudited Pro Forma Condensed Combining Statement of Income for the
Year Ended January 3, 1993 on page 94.
93
<PAGE> 104
SCOTSMAN INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 3, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
WAL
---------------------------------------------------
BRITISH POUNDS STERLING
-------------------------------------
ADJUST US DOLLARS DFC AND
TO ---------- WAL
UK GAAP(1) US GAAP(3) US GAAP US GAAP(4) DFC(2) COMBINED
------------- --------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. (pound)12,632 (pound)-- (pound)12,632 $ 23,098 $79,800 $102,898
Cost of sales.............. 9,045 -- 9,045 16,526 58,597 75,123
------------- --------- ------------- -------- ------- --------
Gross profit............... 3,587 -- 3,587 6,572 21,203 27,775
Selling and administrative
expenses................. 1,914 46 1,960 3,595 12,271 15,866
------------- --------- ------------- -------- ------- --------
Income from operations..... 1,673 (46) 1,627 2,977 8,932 11,909
Interest expense, net...... 152 -- 152 290 1,630 1,920
------------- --------- ------------- -------- ------- --------
Income before income
taxes.................... 1,521 (46) 1,475 2,687 7,302 9,989
Income taxes............... 396 80 476 868 2,637 3,505
------------- --------- ------------- -------- ------- --------
Net income, before
extraordinary item and
cumulative effect of
accounting changes....... (pound)1,125 (pound)(126) (pound)999 $ 819 $ 4,665 $ 6,484
------------- --------- ------------- -------- ------- --------
------------- --------- ------------- -------- ------- --------
</TABLE>
- -------------------------
(1) Represents the sum of the historical income statements of WAL for the two
six-month periods ended March 31, 1992 and September 30, 1992 as presented
in the financial statements section on page F-65 and F-46, respectively.
(2) Represents the historical income statement of DFC for the year ended
December 31, 1992 as presented in the financial statements section on page
F-17.
(3) Represents adjustments from UK GAAP to US GAAP as discussed in footnotes to
the WAL financial statements on pages F-77 to F-79 and F-60 to F-62.
(4) Converted from British pounds sterling to U.S. dollars using exchange rates
discussed on page 8.
94
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements of DFC and Delfield for the years ended
December 31, 1993 and 1992
Report of Independent Public Accountants........................................... F-2
Statements of Financial Position................................................... F-3
Income Statements.................................................................. F-4
Statements of Cash Flows........................................................... F-5
Statement of Shareholders' Equity.................................................. F-6
Notes to Financial Statements...................................................... F-7
Financial Statements of DFC and Delfield as of and for the nine months ended
September 30, 1993 (unaudited), for the year ended December 31, 1992, for the nine
months ended September 30, 1992 (unaudited) and for the period from April 27, 1991
to December 31, 1991
Report of Independent Public Accountants........................................... F-15
Statements of Financial Position................................................... F-16
Income Statements.................................................................. F-17
Statements of Cash Flows........................................................... F-18
Statement of Stockholders' Equity.................................................. F-19
Notes to the Financial Statements.................................................. F-20
Financial Statements of the Delfield Division for the period from October 1, 1990
to April 26, 1991 and the year ended September 30, 1990
Report of Independent Public Accountants........................................... F-29
Statements of Financial Position................................................... F-30
Statements of Income and Division Equity........................................... F-31
Statements of Cash Flows........................................................... F-32
Notes to Financial Statements...................................................... F-33
Condensed Consolidated Financial Statements of WAL and subsidiaries for the three
months ended December 31, 1993 and December 31, 1992 (unaudited)
Condensed Consolidated Income Statements........................................... F-39
Condensed Statements of Accumulated Deficit and Reconciliation of Movements in
Shareholders' Funds............................................................. F-39
Condensed Consolidated Balance Sheets.............................................. F-40
Condensed Consolidated Cash Flow Statements........................................ F-41
Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities.... F-42
Notes to the Condensed Financial Statements........................................ F-43
Consolidated Financial Statements of WAL and subsidiaries for the year ended
September 30, 1993 and the six months ended September 30, 1992
Report of Independent Accountants to the Members of Whitlenge Acquisition
Limited......................................................................... F-45
Consolidated Income Statements..................................................... F-46
Statements of Accumulated Deficit and Reconciliation of Movements in Shareholders'
Funds........................................................................... F-46
Consolidated Balance Sheets........................................................ F-47
Consolidated Cash Flow Statements.................................................. F-48
Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities.... F-49
Notes to the Financial Statements.................................................. F-50
Consolidated Financial Statements of Whitlenge for the six-month period ended
March 31, 1992 and the year ended September 30, 1991
Report of Independent Accountants to the Members of Whitlenge Drink Equipment
Limited......................................................................... F-63
Report of Independent Auditors to the Directors of Whitlenge Drink Equipment
Limited......................................................................... F-64
Income Statements.................................................................. F-65
Statements of Retained Earnings.................................................... F-66
Balance Sheets..................................................................... F-67
Cash Flow Statements............................................................... F-68
Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities.... F-69
Notes to the Financial Statements.................................................. F-70
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of DFC Holding Corporation:
We have audited the accompanying consolidated statements of financial
position of DFC Holding Corporation (a Delaware Corporation) and subsidiary as
of December 31, 1993 and 1992, and the related consolidated statements of
income, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DFC Holding Corporation and
subsidiary as of December 31, 1993 and 1992, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN & CO.
New York, NY
February 1, 1994
F-2
<PAGE> 107
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 1993 AND 1992
($000'S OMITTED)
<TABLE>
<CAPTION>
1993 1992
------- --------
<S> <C> <C>
ASSETS
Cash..................................................................... $ 499 $ 1,267
Accounts receivable, net of allowances................................... 9,920 6,305
Inventories.............................................................. 13,410 11,369
Prepaid expenses and other current assets................................ 846 546
------- --------
Total current assets................................................... 24,675 19,487
Property, plant and equipment............................................ 20,454 18,478
Less, accumulated depreciation........................................... 2,276 1,341
------- --------
Net property, plant and equipment...................................... 18,178 17,137
Debt issuance costs, net of amortization................................. 676 751
Other assets, net of amortization........................................ 526 635
------- --------
Total assets........................................................... $44,055 $ 38,010
------- --------
------- --------
LIABILITIES AND DEFICIT
Trade accounts payable................................................... $ 4,113 $ 4,373
Accrued expenses......................................................... 8,050 7,074
Current portion, long-term debt.......................................... 4,088 2,667
------- --------
Total current liabilities.............................................. 16,251 14,114
Deferred federal income taxes............................................ 1,688 917
Revolving note payable................................................... 10,500 7,300
Long-term debt........................................................... 16,801 20,892
Other long-term liabilities.............................................. 1,094 1,535
------- --------
Total liabilities...................................................... 46,334 44,758
Commitments and Contingencies
Preferred stock.......................................................... 0 0
Common stock............................................................. 64 63
Additional paid-in capital............................................... 6,381 6,237
Retained deficit......................................................... (8,724) (13,048)
------- --------
Total deficit.......................................................... (2,279) (6,748)
------- --------
Total liabilities and deficit.......................................... $44,055 $ 38,010
------- --------
------- --------
</TABLE>
The accompanying notes are an integral part of these Statements of Financial
Position.
F-3
<PAGE> 108
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
($000'S OMITTED)
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Net sales................................................................. $93,650 $79,800
Cost of sales............................................................. 70,554 58,597
------- -------
Gross margin............................................................ 23,096 21,203
Selling, general and administrative costs................................. 13,197 12,271
Unusual charge............................................................ 390 0
------- -------
Operating income........................................................ 9,509 8,932
Interest expense.......................................................... 2,408 1,630
------- -------
Pretax income........................................................... 7,101 7,302
Provision for income taxes................................................ 2,777 2,637
------- -------
Income before extraordinary item........................................ 4,324 4,665
Extraordinary item: Recapitalization costs (net of applicable income taxes
of $602)................................................................ 0 1,170
------- -------
Net income........................................................... $ 4,324 $ 3,495
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these Income Statements.
F-4
<PAGE> 109
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
($000'S OMITTED)
<TABLE>
<CAPTION>
1993 1992
------- --------
<S> <C> <C>
Operating Activities
Net income............................................................. $ 4,324 $ 3,495
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 1,203 1,449
Extraordinary item -- non cash...................................... 0 1,360
Deferred income taxes............................................... 771 165
Increase in inventories................................................ (2,041) (409)
(Increase) decrease in receivables..................................... (3,615) (58)
Increase (decrease) in accounts payable and accrued expenses........... 716 1,131
Other working capital changes.......................................... (300) (265)
Decrease in other liabilities.......................................... (441) 0
------- --------
Net cash provided by operating activities......................... 617 6,868
Investing Activities
Purchase of plant and equipment........................................ (1,976) (588)
Proceeds from sale of equipment........................................ -- 72
Net increase in other assets........................................... (84) (707)
------- --------
Net cash used in investing activities............................. (2,060) (1,223)
Financing Activities
Increase in revolving note payable..................................... 3,200 4,310
Payments of long-term debt............................................. (2,670) (9,872)
Issuance of long-term debt............................................. 0 19,000
Issuance of common stock............................................... 145 0
Dividends paid......................................................... 0 (18,620)
------- --------
Net cash provided by (used in) financing activities............... 675 (5,182)
Net increase (decrease) in cash........................................ (768) 463
Cash at beginning of year.............................................. 1,267 804
------- --------
Cash at end of year.................................................... $ 499 $ 1,267
------- --------
------- --------
Interest paid during the year............................................ $ 2,427 $ 1,838
------- --------
------- --------
Income taxes paid during the year........................................ $ 2,233 $ 2,287
------- --------
------- --------
</TABLE>
The accompanying notes are an integral part of these Statements of Cash Flows.
F-5
<PAGE> 110
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
($000'S OMITTED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- --------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1991.......................... $ 48 $4,752 $ 2,077 $ 6,877
Conversion of preferred shares into common shares..... 15 1,485 1,500
Net income for the year............................... 3,495 3,495
Preferred stock dividends............................. (120) (120)
Common stock dividends................................ (18,500) (18,500)
Balance at December 31, 1992.......................... 63 6,237 (13,048) (6,748)
Issuance of shares of common stock.................... 1 144 145
Net income for the period............................. 4,324 4,324
------ ---------- --------- --------
Balance at December 31, 1993.......................... $ 64 $6,381 $ (8,724) $ (2,279)
------ ---------- --------- --------
------ ---------- --------- --------
</TABLE>
The accompanying notes are an integral part of this Statement of Shareholders'
Equity.
F-6
<PAGE> 111
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
($000'S OMITTED)
1. DESCRIPTION OF BUSINESS
The Delfield Company is engaged in the design, manufacture and sale of
commercial food service equipment. The Delfield Company is wholly owned by DFC
Holding Corporation ("DFC"). To date, DFC's only separate operations were as an
intermediary in funding the April 27, 1991, purchase of The Delfield Company and
payment of cash dividends. Accordingly, there are no intercompany transactions
requiring elimination.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized at the time products are shipped to customers.
Income Taxes
The provision for income taxes includes amounts currently payable and
deferred income taxes arising primarily from differences in purchase accounting
valuations of property and equipment, inventories, and depreciation of property
and equipment.
Effective April 27, 1991, the Company implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS 109 utilizes the liability method and deferred taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given provisions of
the enacted tax laws.
Inventories
Inventories are stated at the lower of cost or market determined on a
first-in, first-out basis. Cost elements included in inventory are material,
labor, and factory overhead, primarily using standard cost which approximates
actual cost.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Estimated useful lives are generally as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements...................................................... 40
Buildings and improvements............................................. 40
Machinery and equipment................................................ 3-15
Furniture and fixtures................................................. 5-12
</TABLE>
Improvements are capitalized by additions to the related asset accounts,
while repair and maintenance costs are charged against earnings.
F-7
<PAGE> 112
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Debt Issuance Costs
Debt issuance costs are costs and fees associated with financing the
recapitalization (Note 16) and are being amortized using the effective interest
method over the terms of the related debt. The amounts shown are net of
accumulated amortization of $182 and $0 as of December 31, 1993 and 1992,
respectively.
Other Assets
Other assets include engineering drawings and systems, interest rate cap
agreements, patents and royalties and are being amortized over lives ranging
from 3-15 years. Accumulated amortization was $204 and $118 as of December 31,
1993 and 1992, respectively.
3. ACCOUNTS RECEIVABLE
Accounts and notes receivable were net of reserves for returns and
allowances and for doubtful accounts of $386 and $475 as of December 31, 1993
and 1992, respectively.
4. INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Raw materials......................................... $ 3,867 $ 3,229
Work in process....................................... 5,802 4,815
Finished goods........................................ 3,741 3,325
------------ ------------
$ 13,410 $ 11,369
------------ ------------
------------ ------------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
The components of property and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Land.................................................. $ 315 $ 315
Buildings and improvements............................ 11,380 10,912
Machinery and equipment............................... 7,213 5,750
Furniture and fixtures................................ 1,546 1,501
------------ ------------
20,454 18,478
Less, accumulated depreciation........................ 2,276 1,341
------------ ------------
$ 18,178 $ 17,137
------------ ------------
------------ ------------
</TABLE>
6. INDEBTEDNESS
The Company has a $13,000 revolving note agreement with Continental Bank,
which expires in 1997, and which limits borrowings to not more than the combined
total of 85 percent of eligible accounts receivable and 50 percent of eligible
inventory and requires monthly interest payments at 1.5 percent over the bank's
reference rate (reference -- 6.0 percent as of December 31, 1993). At December
31, 1993, borrowings outstanding on this revolving note payable totaled $10,500.
The note and the Continental Bank term loans are
F-8
<PAGE> 113
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
secured by substantially all assets of the Company and are subordinated to the
primary obligors under the Industrial Revenue Bonds and capitalized leases.
The components of long-term debt were as follows as of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------- ------------
<S> <C> <C>
Continental Bank, Term Loan A, due 1996, interest payable monthly at
2% over prime, secured by all Company assets. Principal
prepayments required from excess cash flow, as defined. .......... $11,500 $ 14,000
Continental Bank, Term Loan B, due 1997, interest payable monthly at
2.5% over prime, secured by all Company assets. Principal
prepayments required from excess cash flow, as defined. .......... 5,000 5,000
Town of Covington, Industrial Revenue Bonds, due 2006, interest
payable quarterly at 62.5% of prime, secured by a building. ...... 3,150 3,150
Town of Covington, Industrial Revenue Bonds, due 1994, interest
payable quarterly at 79.4% of prime, secured by certain
equipment. ....................................................... 500 600
Isabella County, Michigan, Industrial Revenue Bonds, due 2003,
interest payable quarterly at 72.0% of prime, secured by a
building section. ................................................ 600 635
Machine Tool Finance Corporation, capitalized lease payable, due
1996, monthly lease payments including interest at 11.525%,
secured by the related equipment. ................................ 139 174
------------- ------------
20,889 23,559
Less, current portion............................................... 4,088 2,667
------------- ------------
$16,801 $ 20,892
------------- ------------
------------- ------------
</TABLE>
Maturities of long-term debt for the next five years are as follows:
<TABLE>
<S> <C>
1994................................................................. $4,088
1995................................................................. 4,093
1996................................................................. 4,108
1997................................................................. 5,050
1998................................................................. 50
Thereafter........................................................... 3,500
</TABLE>
The Company's most restrictive debt covenant requires that the
shareholders' deficit not exceed $3,500.
F-9
<PAGE> 114
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES
The components of accrued expenses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Customer incentive rebates............................ $2,256 $1,454
Vacation.............................................. 1,322 1,106
Commissions........................................... 956 716
Warranty.............................................. 1,014 1,014
Other operating expenses.............................. 774 558
Payroll, payroll taxes and related deductions......... 677 1,247
Health benefits....................................... 497 488
Retirement benefits................................... 345 348
Income taxes payable.................................. 185 100
Interest.............................................. 24 43
------------ ------------
$8,050 $7,074
------------ ------------
------------ ------------
</TABLE>
8. BENEFIT PLANS
The Delfield Company sponsors a defined benefit pension plan for its
employees who are members of the United Paperworkers International Union. The
plan provides a monthly benefit per year of service, as defined in the plan, at
normal retirement age. The Company complies with Federal funding requirements.
The components of net pension cost for the years ended December 31, 1993
and 1992, were:
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Service cost.................................................. $ 211 $ 173
Interest cost on projected benefit obligation................. 165 133
Actual return on plan assets.................................. (141) (113)
----- -----
Net Pension Cost......................................... $ 235 $ 193
----- -----
----- -----
</TABLE>
Assumptions used in accounting for this plan were:
<TABLE>
<CAPTION>
<S> <C>
Weighted average discount rate........................................ 7.0%
Expected long-term rate of return on assets........................... 10.0%
</TABLE>
The funded status and amounts recognized in the statement of financial
position are:
Actuarial present value of accumulated benefit obligations:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Vested..................................................... $2,439 $1,861
Non Vested................................................. 384 302
------ ------
2,823 2,163
Plan assets at fair value.................................... 1,683 1,333
------ ------
Projected benefits in excess of plan assets.................. $1,140 $ 830
------ ------
------ ------
</TABLE>
Substantially all of the plan assets at December 31, 1993, are invested in
listed stocks, bonds and government securities.
The Company sponsors a 401(k) savings plan for all employees. Salary
deferrals are limited to 15 percent of compensation as defined in the plan.
Effective January 1, 1992, the Company also added profit sharing and matching
contribution features to the plan for salaried and non union hourly workers. The
plan provides
F-10
<PAGE> 115
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for annual contributions of 2 percent of compensation and 10 percent of 401(k)
salary deferrals to individual employee accounts. Additional Company
contributions of up to an additional 2 percent of compensation are permitted at
the discretion of the Company. Expense recorded for the profit sharing
retirement benefit was $313 and $297 for the years ended December 31, 1993 and
1992, respectively.
In December 1990, the Financial Accounting Standards Board issued a new
standard on accounting for postretirement benefits other than pensions which
companies are required to adopt in 1993. The Company was not affected by this
new standard since it does not provide benefits other than pensions to its
retired employees.
9. PREFERRED STOCK
The preferred stock ($.01 par value, 1,500,000 shares authorized, issued
and outstanding at December 31, 1991) required cumulative 8 percent dividends,
payable semiannually and was convertible 1 for 1 into common shares at the
option of the holders. On December 29, 1992, the 1,500,000 shares of preferred
stock were converted into common stock and 500,000 new shares were authorized.
No preferred shares were issued or outstanding at December 31, 1993 and 1992.
10. COMMON STOCK
During 1992, the outstanding shares of Classes B, C and D common stock were
converted into equivalent shares of Class A common stock. Common stock
outstanding consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------------------------------- -------------------------
SHARES SHARES
PAR SHARES ISSUED AND SHARES ISSUED AND
VALUE AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING
----- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Class A.................................... $.01 7,000,000 6,445,000 7,000,000 6,300,000
</TABLE>
11. WARRANTS
In conjunction with the recapitalization (Note 17) the Company issued to
its lender warrants to purchase 194,845 shares of the Company's common stock.
The initial exercise price is $5.15 per share which is adjusted as defined in
the warrant agreement. The Company is required to repurchase the warrants on
December 29, 1998, or upon the sale of all assets of the Company or a change in
the control of the Company, at a price defined in the warrant agreement, less
the warrant exercise price in effect at that time. The Company is also required
to repurchase any common stock which is obtained through exercise of the
warrants on December 29, 1998, for a price defined in the agreement. Had the
proposed business combination described in Note 18 been consummated on December
31, 1993, the warrants would have had an approximate value of $550.
12. UNUSUAL CHARGE
As described in Note 18, the Company is proceeding with a business
combination transaction with Scotsman Industries. The business combination
agreement provides that the Company reimburse its shareholder group for $390 of
the transaction costs associated with the business combination, which are
reflected as an unusual charge in the 1993 income statement.
F-11
<PAGE> 116
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
A reconciliation of the amounts computed by applying the statutory federal
income tax rate of 34 percent to pretax income and the provision for federal
income taxes as reflected in the accompanying statements of income is as
follows:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Computed tax at statutory rate............................... $2,414 $2,483
State income tax net effect.................................. 329 325
Other........................................................ 34 (171)
------ ------
$2,777 $2,637
------ ------
------ ------
</TABLE>
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Current deferred taxes
Gross assets........................................ $(64) $ (298)
Gross liabilities................................... 384 57
------ ------------
Total current deferred taxes..................... 320 (241)
Noncurrent deferred taxes
Gross assets........................................ 0 0
Gross liabilities................................... 451 406
------ ------------
Total noncurrent deferred taxes.................. 451 406
------ ------------
Total deferred tax provision.......................... $771 $ 165
------ ------------
------ ------------
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Inventory.......................................... $ (58) $ (68)
Property and equipment............................. 2,169 1,869
Other.............................................. (423) (884)
------------ ------------
Net deferred tax liability......................... $1,688 $ 917
------------ ------------
------------ ------------
</TABLE>
The Company did not record any valuation allowances against deferred tax
assets at December 31, 1993 or 1992.
14. COMMITMENTS AND CONTINGENCIES
In February 1992, a fire at a hotel is reported to have resulted in the
deaths of several persons, injuries to other persons, and significant property
damage. Lawsuits alleging that a refrigerator manufactured by the Company was
the cause of the fire have been brought against the Company by several parties,
including the hotel and the estates of three deceased persons.
Management believes that the equipment was manufactured and sold by the
former owner which has indemnified the Company for losses from certain product
liability claims involving that equipment. Management believes that insurance
coverage is adequate to protect it from significant loss as a result of the fire
if, and
F-12
<PAGE> 117
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to the extent that, the indemnification obligation is not applicable to certain
losses or the former owner is unable to fulfill its indemnification obligation.
During 1993, Delfield received a request from the General Services
Administration ("GSA") requesting certain information concerning sales made to
GSA under Delfield's GSA contract, which was in effect from August 1990 and
through September 1992. The GSA contract required that the GSA be given the
benefit of any price reductions granted by Delfield on comparable sales of
equipment to other customers of Delfield's products included in the Delfield
catalog.
Delfield then conducted an extensive review of its records relating to
sales to third parties of equipment covered by the GSA contract during the
contract period, and concluded that a $99 refund was due GSA. In September 1993,
Delfield submitted to the GSA a detailed report supporting its calculations. GSA
responded, indicating agreement with Delfield's calculations, and Delfield paid
the refund amount in October 1993.
The Company is also subject to a variety of legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions, and
the claims described above, will not materially affect the consolidated
financial position of the Company.
The Company leases certain equipment under operating leases. Minimum
payments under these leases are as follows:
<TABLE>
<S> <C>
1994................................................................... $259
1995................................................................... 126
1996................................................................... 59
1997................................................................... 12
1998................................................................... 2
</TABLE>
Rental expense for these leases for the years ended December 31, 1993 and
1992 was $266 and $276 respectively.
15. RELATED PARTY TRANSACTIONS
The Company paid $300 and $400 during the years ended December 31, 1993 and
1992, respectively, in management fees to The Diggs Group, Inc., a New York
general partnership. Matthew O. Diggs, Jr., who claims beneficial ownership of
1,348,000 shares of common stock, is the sole stockholder of a corporation which
is a general partner of The Diggs Group.
16. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1993, the Company had sales to two
significant customers which represented 22 percent of total net sales and 24
percent of trade accounts receivable as of December 31, 1993.
17. RECAPITALIZATION -- EXTRAORDINARY ITEM
Effective December 29, 1992, the Company restructured its senior credit
facility so as to effect the prepayment of its subordinated debt, to induce the
conversion of its outstanding preferred shares to common, to pay a cash dividend
and to fund ongoing working capital requirements. Costs of $835 associated with
the new senior credit facility were capitalized and will be amortized over the
five year life of the facility. Unamortized costs of $1,360 related to the prior
credit facility, along with $412 of subordinated debt prepayment premium and
other costs have been charged to expense in 1992 and are shown as an
extraordinary item on the income statement, net of applicable taxes.
F-13
<PAGE> 118
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSEQUENT EVENT
On January 10, 1994, DFC entered into a business combination agreement with
Scotsman Acquisition Corp., a subsidiary of Scotsman Industries, Inc.
(Scotsman), whereby DFC would be acquired by, and become a wholly owned
subsidiary of Scotsman.
The transaction, which is subject to certain contingencies, including the
approval of Scotsman's shareholders, is expected to be consummated in April
1994.
19. SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET GROSS OPERATING NET
SALES MARGIN INCOME INCOME
------- ------- --------- -------
<S> <C> <C> <C> <C>
Quarter Ended
March 31, 1992........................................ $19,027 $ 5,044 $ 2,211 $ 1,059
June 30, 1992......................................... 20,479 5,912 2,997 1,581
September 30, 1992.................................... 22,501 6,446 3,388 1,872
December 31, 1992..................................... 17,793 3,801 336 (1,017)
------- ------- --------- -------
$79,800 $21,203 $ 8,932 $ 3,495
------- ------- --------- -------
------- ------- --------- -------
March 31, 1993........................................ $19,014 $ 4,660 $ 1,664 $ 657
June 30, 1993......................................... 24,650 6,715 3,460 1,763
September 30, 1993.................................... 26,996 7,112 3,673 1,855
December 31, 1993..................................... 22,990 4,609 712 49
------- ------- --------- -------
$93,650 $23,096 $ 9,509 $ 4,324
------- ------- --------- -------
------- ------- --------- -------
</TABLE>
F-14
<PAGE> 119
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of DFC Holding Corporation:
We have audited the accompanying consolidated statements of financial
position of DFC Holding Corporation (a Delaware Corporation) and subsidiary as
of December 31, 1992 and 1991, and the related consolidated statements of
income, stockholders' equity and cash flows for the year ended December 31,
1992, and the period from April 27, 1991 to December 31, 1991. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DFC Holding Corporation and
subsidiary as of December 31, 1992 and 1991, and the results of its operations
and its cash flows for the year ended December 31, 1992, and the period from
April 27, 1991 to December 31, 1991, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN & CO.
New York, NY
September 29, 1993
F-15
<PAGE> 120
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 1993, AND DECEMBER 31, 1992 AND 1991
($000'S OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................................... $ 675 $ 1,267 $ 804
Accounts receivable, net of allowances.................. 12,870 6,305 6,247
Inventories............................................. 12,416 11,369 10,960
Prepaid expenses and other current assets............... 185 546 281
------------- ------------ ------------
Total current assets.................................. 26,146 19,487 18,292
Property and equipment.................................. 19,830 18,478 18,192
Less, accumulated depreciation.......................... 2,034 1,341 556
------------- ------------ ------------
Net property and equipment............................ 17,796 17,137 17,636
Debt issuance costs, net of amortization................ 720 751 1,739
Other assets, net of amortization....................... 552 635 734
------------- ------------ ------------
Total assets.......................................... $45,214 $ 38,010 $ 38,401
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES AND EQUITY
Trade accounts payable.................................. $ 5,720 $ 4,373 $ 3,956
Accrued expenses........................................ 7,276 7,074 6,360
Current portion, long-term debt......................... 3,837 2,667 673
Revolving note payable.................................. 0 0 2,990
------------- ------------ ------------
Total current liabilities............................. 16,833 14,114 13,979
Deferred federal income taxes........................... 1,428 917 752
Revolving note payable.................................. 10,000 7,300 0
Long-term debt.......................................... 18,061 20,892 13,758
Other long-term liabilities............................. 1,220 1,535 1,535
------------- ------------ ------------
Total liabilities..................................... 47,542 44,758 30,024
Commitments and contingencies...........................
Preferred stock......................................... 0 0 1,500
Common stock............................................ 64 63 48
Additional paid-in capital.............................. 6,381 6,237 4,752
Retained earnings (deficit)............................. (8,773) (13,048) 2,077
------------- ------------ ------------
Total equity (deficit)................................ (2,328) (6,748) 6,877
------------- ------------ ------------
Total liabilities and equity.......................... $45,214 $ 38,010 $ 38,401
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these Statements of Financial
Position.
F-16
<PAGE> 121
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
INCOME STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992,
THE YEAR ENDED DECEMBER 31, 1992,
AND THE PERIOD FROM APRIL 27, 1991 TO DECEMBER 31, 1991
($000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED NINE MONTHS PERIOD ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
SEPTEMBER 30, 1992 SEPTEMBER 30, 1991
1993 ------------ 1992 ------------
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales................................... $70,660 $ 79,800 $61,723 $ 50,890
Cost of sales............................... 52,173 58,597 44,605 37,521
------------- ------------ ------------- ------------
Gross Margin.............................. 18,487 21,203 17,118 13,369
Selling, general and administrative costs... 9,690 12,271 8,522 8,387
------------- ------------ ------------- ------------
Operating income.......................... 8,797 8,932 8,596 4,982
Interest expense............................ 1,845 1,630 1,279 1,606
------------- ------------ ------------- ------------
Pretax income............................. 6,952 7,302 7,317 3,376
Provision for income taxes.................. 2,677 2,637 2,805 1,219
------------- ------------ ------------- ------------
Income before extraordinary item.......... 4,275 4,665 4,512 2,157
Extraordinary item: Recapitalization costs
(net of applicable income taxes of
$602)..................................... 0 1,170 0 0
------------- ------------ ------------- ------------
Net income............................. $ 4,275 $ 3,495 $ 4,512 $ 2,157
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these Income Statements.
F-17
<PAGE> 122
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992,
THE YEAR ENDED DECEMBER 31, 1992,
AND THE PERIOD FROM APRIL 27, 1991 TO DECEMBER 31, 1991
($000'S OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED NINE MONTHS PERIOD ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
SEPTEMBER 30, 1992 SEPTEMBER 30, 1991
1993 ------------ 1992 ------------
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities
Net income................................ $ 4,275 $ 3,495 $ 4,512 $ 2,157
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 891 1,449 1,070 872
Extraordinary item -- non cash......... 0 1,360 0 0
Deferred income taxes.................. 511 165 256 657
(Increase) decrease in accounts
receivable............................. (6,565) (58) (3,524) 687
(Increase) decrease in inventories........ (1,047) (409) (1,209) 4,375
Increase (decrease) in accounts payable
and accrued expenses................... 1,549 1,131 3,435 838
Other working capital changes............. 361 (265) 106 794
------------- ------------ ------------- ------------
Net cash provided by (used in)
operating activities.............. (25) 6,868 4,646 10,380
Investing Activities
Purchase of property and equipment........ (1,352) (588) (411) (684)
Proceeds from sale of equipment........... 0 72 0 0
Net increase in other assets.............. (84) (707) 0 (74)
------------- ------------ ------------- ------------
Net cash used in investing
activities........................ (1,436) (1,223) (411) (758)
Financing Activities
Increase (decrease) in revolving note
payable................................ 2,700 4,310 (1,763) (4,189)
Payments of long-term debt................ (1,661) (9,872) (2,864) (4,874)
Issuance of long-term debt................ 0 19,000 0 0
Issuance of common stock.................. 145 0 0 320
Net decrease in other liabilities......... (315) 0 0 0
Dividends paid............................ 0 (18,620) (90) (80)
------------- ------------ ------------- ------------
Net cash provided by (used in)
financing activities.............. 869 (5,182) (4,717) (8,823)
Net increase (decrease) in cash for the
period................................. (592) 463 (482) 799
Cash at beginning of period............... 1,267 804 804 5
------------- ------------ ------------- ------------
Cash at end of period..................... $ 675 $ 1,267 $ 322 $ 804
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Interest paid during the period............. $ 1,841 $ 1,838 $ 1,039 $ 1,444
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Income taxes paid during the period......... $ 1,208 $ 2,287 $ 1,875 $ 500
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these Statements of Cash Flows.
F-18
<PAGE> 123
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993,
THE YEAR ENDED DECEMBER 31, 1992,
AND THE PERIOD FROM APRIL 27, 1991 TO DECEMBER 31, 1991
($000'S OMITTED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Balance at April 27, 1991............................. $ 45 $4,435 $ 0 $ 4,480
Issuance of shares of common stock.................... 3 317 320
Net income for the period............................. 2,157 2,157
Preferred stock dividends............................. (80) (80)
------ ---------- ---------- --------
Balance at December 31, 1991.......................... 48 4,752 2,077 6,877
Conversion of preferred shares into common shares..... 15 1,485 1,500
Net income for the year............................... 3,495 3,495
Preferred stock dividends............................. (120) (120)
Common stock dividends................................ (18,500) (18,500)
------ ---------- ---------- --------
Balance at December 31, 1992.......................... $ 63 $6,237 $ (13,048) $ (6,748)
------ ---------- ---------- --------
------ ---------- ---------- --------
Issuance of shares of common stock.................... 1 144 145
Net income for the period............................. 4,275 4,275
------ ---------- ---------- --------
Balance at September 30, 1993 (unaudited)............. $ 64 $6,381 $ (8,773) $ (2,328)
------ ---------- ---------- --------
------ ---------- ---------- --------
</TABLE>
The accompanying notes are an integral part of this Statement of Stockholders'
Equity.
F-19
<PAGE> 124
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
AND UNAUDITED SEPTEMBER 30, 1993 AND 1992
($000'S OMITTED)
1. DESCRIPTION OF BUSINESS
The Delfield Company ("Delfield" or the "Company") is engaged in the
design, manufacture and sale of commercial food service equipment and is a
wholly owned subsidiary of DFC Holding Corporation ("DFC"). To date, DFC's only
separate operations were as an intermediary in funding the purchase of The
Delfield Company and payment of cash dividends. Accordingly, there are no
intercompany transactions requiring elimination.
The Delfield Company, formerly DFC Acquisition Corporation, was formed for
the purpose of acquiring the Delfield Division of Alco Standard Corporation as
of April 27, 1991. The acquisition was accounted for under the purchase method
of accounting; accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values as of the acquisition date. The purchase
price approximated $37,100 and consisted of approximately $25,200 in cash and
the assumption of approximately $11,900 of indebtedness related to the Delfield
Division. The purchase price exceeded the historical cost of net assets acquired
by approximately $8,000 and was primarily allocated to (1) revalue property and
equipment and inventories to estimated fair values and (2) capitalize
approximately $2,000 of financing fees associated with the acquisition.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized at the time products are shipped to customers.
Income Taxes
The provision for income taxes includes amounts currently payable and
deferred income taxes arising primarily from financial and income tax reporting
differences relating to inventories, and depreciation of property and equipment.
Effective April 27, 1991, the Company implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS 109 utilizes the liability method and deferred taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given provisions of
the enacted tax laws.
Inventories
Inventories are stated at the lower of cost or market determined on a
first-in, first-out basis. Cost elements included in inventory consist of
material, labor, and factory overhead, primarily using standard cost which
approximate actual costs.
F-20
<PAGE> 125
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Estimated useful lives are generally as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements...................................................... 40
Buildings and improvements............................................. 40
Machinery and equipment................................................ 3-15
Furniture and fixtures................................................. 5-12
</TABLE>
Renewals and betterments are capitalized by additions to the related asset
accounts, while repair and maintenance costs are charged against earnings.
Debt Issuance Costs
Debt issuance costs are costs and fees associated with financing the
acquisition of the Company and its subsequent recapitalization (Note 16) and are
being amortized using the effective interest method over the terms of the
related debt. The amounts shown are net of accumulated amortization of $135, $0
and $253 as of September 30, 1993, and December 31, 1992 and 1991, respectively.
Other Assets
Other assets primarily include engineering drawings and systems, patents
and royalties and are being amortized over lives ranging from 3-15 years.
Accumulated amortization was $181, $118 and $63 as of September 30, 1993, and
December 31, 1992 and 1991, respectively.
3. ACCOUNTS RECEIVABLE
Accounts and notes receivable were net of reserves for returns and
allowances for doubtful accounts of $201, $286 and $163 as of September 30,
1993, and December 31, 1992 and 1991, respectively.
4. INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................. $ 3,774 $ 3,229 $ 3,164
Work in process........................... 5,049 4,815 4,346
Finished goods............................ 3,593 3,325 3,450
------------- ------------ ------------
$12,416 $ 11,369 $ 10,960
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
F-21
<PAGE> 126
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land...................................... $ 315 $ 315 $ 315
Buildings and improvements................ 11,381 10,912 10,890
Machinery and equipment................... 6,594 5,750 5,549
Furniture and fixtures.................... 1,540 1,501 1,438
------------- ------------ ------------
19,830 18,478 18,192
Less, accumulated depreciation............ 2,034 1,341 556
------------- ------------ ------------
$17,796 $ 17,137 $ 17,636
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
6. INDEBTEDNESS
The Company has a $13,000 revolving note agreement with Continental Bank,
which expires in 1997, and which limits borrowings to not more than the combined
total of 85 percent of eligible accounts receivable and 50 percent of eligible
inventory and requires monthly interest payments at 1.5 percent over the bank's
prime rate (prime -- 6.0 percent as of September 30, 1993 and December 31,
1992).
The components of long-term debt were as follows as of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Continental Bank, Term Loan A, due 1996, interest
payable monthly at 2% over prime. Principal
prepayments required from excess cash flow, as
defined............................................... $12,500 $ 14,000 $ 0
Continental Bank, Term Loan B, due 1997, interest
payable monthly at 2.5% over prime. Principal
prepayments required from excess cash flow, as
defined............................................... 5,000 5,000 0
Continental Bank and three participating banks, term
loan, due 1995, interest payable monthly at 1.5% over
prime................................................. 0 0 2,704
Pacific Mutual Life Insurance Company and PM Group Life
Insurance Co., subordinated debt, due 1999, interest
payable semiannually (quarterly beginning in 1993) at
14%................................................... 0 0 7,000
Town of Covington, Industrial Revenue Bonds, due 2006,
interest payable quarterly at 62.5% of prime, secured
by a building......................................... 3,150 3,150 3,150
Town of Covington, Industrial Revenue Bonds, due 1994,
interest payable quarterly at 79.4% of prime, secured
by certain equipment.................................. 500 600 700
Isabella County, Michigan, Industrial Revenue Bonds, due
2003, interest payable quarterly at 72.0% of prime,
secured by a building section......................... 600 635 670
Machine Tool Finance Corporation, capitalized lease
payable, due 1996, monthly lease payments including
interest at 11.525%, secured by the related
equipment............................................. 148 174 207
------------- ------------ ------------
21,898 23,559 14,431
Less, current portion................................... 3,837 2,667 673
------------- ------------ ------------
$18,061 $ 20,892 $ 13,758
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
F-22
<PAGE> 127
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The revolving note agreement and the Continental Bank term loans are
secured by substantially all assets of the Company and are subordinated to the
primary obligors under the Industrial Revenue Bonds and capitalized leases.
Maturities of long-term debt for the next five years are as follows:
<TABLE>
<S> <C>
1993................................................................. $2,667
1994................................................................. 4,088
1995................................................................. 4,093
1996................................................................. 4,111
1997................................................................. 5,050
</TABLE>
The Company's most restrictive debt covenant requires that the
shareholders' deficit not exceed $7,000.
7. ACCRUED EXPENSES
The components of accrued expenses were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Vacation........................................ $ 1,216 $1,106 $1,070
Warranty........................................ 1,018 1,014 1,040
Customer incentive rebates...................... 1,382 1,454 1,382
Commissions..................................... 1,034 716 636
Payroll, payroll taxes and related deductions... 566 1,247 681
Retirement benefits............................. 253 348 98
Interest........................................ 19 43 249
Health benefits................................. 500 488 500
Income taxes payable............................ 633 100 100
Other operating expenses........................ 655 558 604
------------- ------------ ------------
$ 7,276 $7,074 $6,360
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
8. PENSION PLAN
The Delfield Company sponsors a defined benefit pension plan for its
employees who are members of the Allied Industrial Workers Union. The plan
provides a fixed monthly benefit per year of service, as defined in the plan, at
normal retirement age. The Company complies with Federal funding requirements.
The components of net pension cost for the year ended December 31, 1992,
and the period from April 27, 1991 to December 31, 1991 were:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1992 1991
------------ ------------
<S> <C> <C>
Service cost.......................................... $ 173 $113
Interest cost on projected benefit obligation......... 133 51
Actual return on plan assets.......................... (113) (46)
------------ ------
Net Pension Cost................................. $ 193 $118
------------ ------
------------ ------
</TABLE>
F-23
<PAGE> 128
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Assumptions used in accounting for this plan were:
<TABLE>
<S> <C>
Weighted average discount rate........................................ 7.0%
Expected long-term rate of return on assets........................... 10.0%
</TABLE>
The funded status and amounts recognized in the statement of financial
position are:
Actuarial present value of accumulated benefit obligations:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1992 1991
------------ ------------
<S> <C> <C>
Vested................................................ $1,861 $1,434
Non vested............................................ 302 473
------------ ------------
2,163 1,907
Plan assets at fair value............................. 1,333 1,067
------------ ------------
Projected benefits in excess of plan assets........... $ 830 $ 840
------------ ------------
------------ ------------
</TABLE>
Substantially all of the plan assets are invested in listed stocks, bonds
and government securities.
The Company sponsors a 401(k) savings plan for all employees. Salary
deferrals are limited to 15 percent of compensation as defined in the plan.
Effective January 1, 1992, the Company added profit sharing and matching
contribution features to the plan for salaried and non union hourly workers. The
plan provides for annual contributions of 2 percent of compensation and 10
percent of 401(k) salary deferrals to individual employee accounts. Additional
Company contributions of up to an additional 2 percent of compensation are
permitted at the discretion of the Company. Expense recorded for the 401(k) plan
was $270 and $201 for the nine months ended September 30, 1993 and 1992,
respectively, and $297 and $0 for the year ended December 31, 1992 and the
period from April 27, 1991 to December 31, 1991.
In December 1990, the Financial Accounting Standards Board issued a new
standard on accounting for postretirement benefits other than pensions which
companies are required to adopt in 1993. The Company will not be affected by
this new standard since it does not provide benefits other than pensions to its
retired employees.
9. PREFERRED STOCK
The preferred stock ($.01 par value, 1,500,000 shares authorized, issued
and outstanding at December 31, 1991) required cumulative 8 percent dividends,
payable semiannually and was convertible 1 for 1 into common shares at the
option of the holders. On December 29, 1992, the 1,500,000 shares of preferred
stock were converted into common stock and 500,000 new shares were authorized.
No preferred shares were issued or outstanding at September 30, 1993.
F-24
<PAGE> 129
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMON STOCK
During 1992, the outstanding shares of Classes B, C and D common stock were
converted into equivalent shares of Class A common stock. Common stock
outstanding consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------------------------- ------------------------- -------------------------
SHARES SHARES SHARES
PAR SHARES ISSUED AND SHARES ISSUED AND SHARES ISSUED AND
VALUE AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING AUTHORIZED OUTSTANDING
----- ---------- ----------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Class A............. $.01 7,000,000 6,445,000 7,000,000 6,300,000 6,445,000 500,000
Class B............. .01 0 0 0 0 3,800,000 3,800,000
Class C............. .01 0 0 0 0 500,000 500,000
Class D............. .01 0 0 0 0 1,500,000 0
</TABLE>
11. WARRANTS
In conjunction with the recapitalization (Note 16) the Company issued to
its lender warrants to purchase 3 percent of the Company's equity. The initial
exercise price is $5.15 per share which is adjusted as defined in the warrant
agreement. The Company is required to repurchase the warrants on December 29,
1998, or upon the sale of all assets of the Company or a change in the control
of the Company, at a price defined in the warrant agreement, less the warrant
exercise price in effect at that time. The Company is also required to
repurchase any common stock which is obtained through exercise of the warrants
on December 29, 1998, for a price defined in the agreement. At September 30,
1993 and December 31, 1992, the warrant exercise price exceeded the repurchase
price.
12. INCOME TAXES
The Company adopted the provisions of SFAS No. 109 effective April 27,
1991. The adoption of SFAS No. 109 had an immaterial effect on the Company's
financial position.
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED NINE MONTHS PERIOD ENDED
ENDED DECEMBER 31, ENDED DECEMBER 31,
SEPTEMBER 30, 1992 SEPTEMBER 30, 1991
1993 ------------ 1992 ------------
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current deferred taxes
Gross assets.............................. $ (51) $ (298) $ (87) $ (149)
Gross liabilities......................... 249 57 29 0
------ ------------ ------ ------------
Total current deferred taxes........... 198 (241) (58) (149)
Noncurrent deferred taxes
Gross assets.............................. (1) 0 0 (5)
Gross liabilities......................... 314 406 314 811
------ ------------ ------ ------------
Total noncurrent deferred taxes........ 313 406 314 806
------ ------------ ------ ------------
Total deferred taxes........................ $ 511 $ 165 $ 256 $ 657
------ ------------ ------ ------------
------ ------------ ------ ------------
</TABLE>
F-25
<PAGE> 130
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the amounts computed by applying the statutory federal
income tax rate of 34 percent to pretax income and the provision for federal
income taxes as reflected in the accompanying statements of income is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1992 1992 1991
------------- ------------ ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Computed tax at statutory rate.............. $ 2,364 $2,483 $ 2,488 $1,148
Other....................................... 313 154 317 71
------------- ------------ ------------- ------------
$ 2,677 $2,637 $ 2,805 $1,219
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Inventory................................. $ (119) $ (68) $ (18)
Property and equipment.................... 2,073 1,869 1,458
Other..................................... (526) (884) (688)
------------- ------------ ------------
Net deferred tax.......................... $ 1,428 $ 917 $ 752
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The Company did not record any valuation allowances against deferred tax
assets at September 30, 1993.
13. COMMITMENTS AND CONTINGENCIES
In February 1992, a fire at a hotel is reported to have resulted in the
deaths of several persons, injuries to other persons, and significant property
damage. Lawsuits alleging that a refrigerator manufactured by Delfield was the
cause of the fire have been brought against Delfield by several parties
including the hotel and the estates of three deceased individuals.
Management believes that the equipment was manufactured and sold by the
former owner of Delfield, which has idemnified Delfield for losses from certain
product liability claims involving that equipment. Management believes that
Delfield's insurance coverage is adequate to protect it from significant loss as
a result of the fire if, and to the extent that, the indemnification obligation
is not applicable to certain losses or the former owner is unable to fulfill its
indemnification obligation.
During 1993, Delfield received a request from the General Services
Administration ("GSA") requesting certain information concerning sales made to
GSA under Delfield's GSA contract, which was in effect from August 1990 and
through September 1992. The GSA contract required that the GSA be given the
benefit of any price reductions granted by Delfield on comparable sales of
equipment to other customers of Delfield's products included in the Delfield
catalog.
Delfield then conducted an extensive review of its records relating to
sales to third parties of equipment covered by the GSA contract during the
contract period, and concluded that a $99 refund was due GSA. In September 1993,
Delfield submitted to the GSA a detailed report supporting its calculations. GSA
responded, indicating agreement with Delfield's calculations, and Delfield paid
the refund amount in October 1993.
The Company is also subject to a variety of legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these
F-26
<PAGE> 131
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
actions, and the claims described above, will not materially affect the
consolidated financial position of the Company.
The Company leases certain equipment under operating leases. Minimum
payments under these leases are as follows:
<TABLE>
<S> <C>
1994................................................................... $244
1995................................................................... 112
1996................................................................... 41
1997................................................................... 5
</TABLE>
Rental expense for these leases for the nine months ended September 30,
1993 and 1992, was $198 and $203, respectively. Rental expense for these leases
for the year ended December 31, 1992 and the period from April 27, 1991 to
December 31, 1991, was $276 and $93, respectively.
14. RELATED PARTY TRANSACTIONS
The Company paid $400 during each of the year ended December 31, 1992, and
the period from April 27, 1991 to December 31, 1991, and $225 and $325 during
each of the nine months ended September 30, 1993 and 1992, respectively, in
management fees to The Diggs Group, Inc., a holder of 1,348,000 shares of common
stock.
15. SIGNIFICANT CUSTOMERS
For the nine months ended September 30, 1993, the Company had sales to one
significant customer which represented 11 percent of total gross sales and 14
percent of trade accounts receivable as of September 30, 1993.
16. RECAPITALIZATION -- EXTRAORDINARY ITEM
Effective December 29, 1992, the Company restructured its senior credit
facility so as to effect the prepayment of its subordinated debt, to induce the
conversion of its outstanding preferred shares to common, to pay a cash dividend
and to fund ongoing working capital requirements. Costs of $751 associated with
the new senior credit facility have been capitalized and will be amortized over
the five year life of the facility. Unamortized costs of $1,360 related to the
prior credit facility, along with $412 of subordinated debt prepayment premium
and other costs have been charged to expense and are shown as an extraordinary
item on the income statement, net of applicable taxes.
F-27
<PAGE> 132
DFC HOLDING CORPORATION
D/B/A THE DELFIELD COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
17. SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET GROSS OPERATING NET
SALES MARGIN INCOME INCOME
------- ------- --------- -------
<S> <C> <C> <C> <C>
Quarter Ended
Period from April 27, 1991 to June 30, 1991........... $13,646 $ 3,745 $ 1,638 $ 724
September 30, 1991.................................... 21,412 5,647 2,587 1,215
December 31, 1991..................................... 15,832 3,977 757 218
------- ------- --------- -------
$50,890 $13,369 $ 4,982 $ 2,157
------- ------- --------- -------
------- ------- --------- -------
March 31, 1992........................................ $19,027 $ 5,044 $ 2,211 $ 1,059
June 30, 1992......................................... 20,479 5,912 2,997 1,581
September 30, 1992.................................... 22,501 6,446 3,388 1,872
December 31, 1992..................................... 17,793 3,801 336 (1,017)
------- ------- --------- -------
$79,800 $21,203 $ 8,932 $ 3,495
------- ------- --------- -------
------- ------- --------- -------
March 31, 1993........................................ $19,014 $ 4,660 $ 1,664 $ 657
June 30, 1993......................................... 24,650 6,715 3,460 1,763
September 30, 1993.................................... 26,996 7,112 3,673 1,855
------- ------- --------- -------
$70,660 $18,487 $ 8,797 $ 4,275
------- ------- --------- -------
------- ------- --------- -------
</TABLE>
F-28
<PAGE> 133
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of DFC Holding Corporation:
We have audited the accompanying statements of financial position of the
Delfield Division of Alco Standard Corporation as of April 26, 1991 and
September 30, 1990, and the related statements of income and division equity and
cash flows for the period from October 1, 1990 to April 26, 1991, and the year
ended September 30, 1990. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Delfield Division of
Alco Standard Corporation as of April 26, 1991 and September 30, 1990, and the
results of its operations and its cash flows for the period from October 1, 1990
to April 26, 1991, and the year ended September 30, 1990, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
New York, N.Y.
September 29, 1993
F-29
<PAGE> 134
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
STATEMENTS OF FINANCIAL POSITION
($000'S OMITTED)
<TABLE>
<CAPTION>
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
ASSETS
Cash................................................................... $ 194 $ 729
Accounts receivable, net of allowance.................................. 6,560 9,563
Inventories............................................................ 14,868 15,352
Prepaid expenses and other current assets.............................. 946 1,459
--------- -------------
Total current assets................................................. 22,568 27,103
Property and equipment................................................. 15,205 14,724
Less, accumulated depreciation......................................... 4,068 3,455
--------- -------------
Net property and equipment........................................... 11,137 11,269
Intercompany receivable................................................ 4,289 941
Other assets, net of amortization...................................... 140 176
--------- -------------
Total assets......................................................... $ 38,134 $39,489
--------- -------------
--------- -------------
LIABILITIES AND DIVISION EQUITY
Trade accounts payable................................................. $ 3,180 $ 5,065
Accrued expenses....................................................... 5,410 5,497
Current portion, long-term debt........................................ 135 180
--------- -------------
Total current liabilities............................................ 8,725 10,742
Deferred federal income taxes.......................................... 1,001 1,001
Long-term debt......................................................... 4,470 4,520
--------- -------------
Total liabilities.................................................... 14,196 16,263
Commitments and contingencies.......................................... -- --
Division equity........................................................ 23,938 23,226
--------- -------------
Total liabilities and division equity................................ $ 38,134 $39,489
--------- -------------
--------- -------------
</TABLE>
The accompanying notes are an integral part of these Statements of Financial
Position.
F-30
<PAGE> 135
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
STATEMENTS OF INCOME AND DIVISION EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1990 TO APRIL 26, 1991
AND THE YEAR ENDED SEPTEMBER 30, 1990
($000'S OMITTED)
<TABLE>
<CAPTION>
SEVEN
MONTHS TWELVE MONTHS
ENDED ENDED
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
Net sales.............................................................. $ 37,303 $70,865
Cost of sales.......................................................... 29,940 55,038
--------- -------------
Gross margin......................................................... 7,363 15,827
Selling, general and administrative costs.............................. 5,400 9,414
Corporate charge....................................................... 854 1,894
--------- -------------
Operating income..................................................... 1,109 4,519
Interest expense....................................................... 1 358
--------- -------------
Pretax income........................................................ 1,108 4,161
Provision for income taxes............................................. 396 1,512
--------- -------------
Net income........................................................... 712 2,649
Division equity at beginning of period................................. 23,226 20,577
--------- -------------
Division equity at end of period....................................... $ 23,938 $23,226
--------- -------------
--------- -------------
</TABLE>
The accompanying notes are an integral part of these Statements of Income and
Division Equity.
F-31
<PAGE> 136
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 1, 1990 TO APRIL 26, 1991
AND THE YEAR ENDED SEPTEMBER 30, 1990
($000'S OMITTED)
<TABLE>
<CAPTION>
SEVEN MONTHS TWELVE MONTHS
ENDED ENDED
APRIL 26, SEPTEMBER 30,
1991 1990
------------ -------------
<S> <C> <C>
Operating Activities
Net income....................................................... $ 712 $ 2,649
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 617 796
Deferred income taxes......................................... 0 111
Decrease (Increase) in inventories............................... 484 (938)
Increase in intercompany receivable.............................. (3,348) (1,725)
Other working capital changes.................................... 1,544 (55)
------------ -------------
Net cash provided by operating activities..................... 9 838
Investing Activities
Purchase of property and equipment............................... (481) (854)
Net increase in other assets..................................... 32 56
------------ -------------
Net cash used in investing activities......................... (449) (798)
Financing Activities
Payments of long-term debt....................................... (95) (100)
------------ -------------
Net cash used in financing activities......................... (95) (100)
Net decrease in cash for the period.............................. (535) (60)
Cash at beginning of period...................................... 729 789
------------ -------------
Cash at end of period............................................ $ 194 $ 729
------------ -------------
------------ -------------
Interest paid during the period.................................... $ 156 $ 323
------------ -------------
------------ -------------
Income taxes paid during the period................................ $ 486 $ 1,290
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these Statements of Cash Flows.
F-32
<PAGE> 137
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
NOTES TO FINANCIAL STATEMENTS
APRIL 26, 1991 AND SEPTEMBER 30, 1990
($000'S OMITTED)
1. DESCRIPTION OF BUSINESS
The Delfield Division (the Division) is engaged in the design, manufacture
and sale of commercial food service equipment. Prior to April 27, 1991, Delfield
was an unincorporated division of Alco Standard Corporation (Alco). Effective
April 27, 1991, DFC Acquisition Corporation, which subsequently changed its name
to The Delfield Company, purchased the net assets of Delfield from Alco. Alco
provided Delfield with a variety of administrative services including treasury,
tax return preparation, insurance, fringe benefits administration, and general
corporate oversight. Alco charged Delfield $854 for the period from October 1,
1990 to April 26, 1991, and $1,894 for the year ended September 30, 1990, for
such services.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized at the time products are shipped to customers.
Income Taxes
The provision for income taxes includes amounts currently payable and
deferred income taxes arising primarily from differences in depreciation of
property and equipment.
Intercompany Receivable
The intercompany receivable account represents the net effect of
transactions between the Division and Alco.
Inventories
Inventories are stated at the lower of cost or market determined on a
first-in, first-out basis. Cost elements included in inventory consist of
material, labor, and factory overhead, primarily using standard costs, which
approximate actual costs.
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed on a straight-line basis over the
estimated useful lives of the assets. Estimated useful lives are generally as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements...................................................... 40
Buildings and improvements............................................. 40
Machinery and equipment................................................ 3-15
Furniture and fixtures................................................. 5-12
</TABLE>
Renewals and betterments are capitalized by additions to the related asset
accounts, while repair and maintenance costs are charged against earnings.
Division Equity
Division equity is comprised of intercompany capital transactions and
retained earnings.
F-33
<PAGE> 138
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 26, 1991 AND SEPTEMBER 30, 1990
($000'S OMITTED)
3. ACCOUNTS RECEIVABLE
Accounts and notes receivable were net of reserves for returns and
allowances for doubtful accounts of $469 and $434 as of April 26, 1991 and
September 30, 1990, respectively.
4. INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
Raw materials.......................................... $ 5,154 $ 4,728
Work in process........................................ 4,956 5,741
Finished goods......................................... 4,758 4,883
--------- -------------
1$4,868.. $15,352
--------- -------------
--------- -------------
</TABLE>
5. PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
<TABLE>
<CAPTION>
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
Land and improvements.................................. $ 499 $ 481
Buildings and improvements............................. 8,218 7,848
Machinery and equipment................................ 6,215 6,122
Furniture and fixtures................................. 273 273
--------- -------------
15,205 14,724
Less, accumulated depreciation......................... 4,068 3,455
--------- -------------
$11,137 $11,269
--------- -------------
--------- -------------
</TABLE>
F-34
<PAGE> 139
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 26, 1991 AND SEPTEMBER 30, 1990
($000'S OMITTED)
6. LONG-TERM DEBT
The components of long-term debt were as follows as of:
<TABLE>
<CAPTION>
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
Town of Covington, Industrial Revenue Bonds, due 2006,
interest payable quarterly at 62.5% of prime, secured
by a building.......................................... $ 3,150 $ 3,150
Town of Covington, Industrial Revenue Bonds, due 1994,
interest payable quarterly at 79.4% of prime, secured
by certain equipment................................... 750 800
Isabella County, Michigan, Industrial Revenue Bonds, due
2003, interest payable quarterly at 72.0% of prime,
secured by a building section.......................... 705 750
--------- -------------
4,605 4,700
Less, current portion.................................... 135 180
--------- -------------
$ 4,470 $ 4,520
--------- -------------
--------- -------------
</TABLE>
Maturities of long-term debt for the five years subsequent to April 26,
1991, are as follows:
<TABLE>
<S> <C>
1992................................................................... $135
1993................................................................... 135
1994................................................................... 335
1995................................................................... 300
1996................................................................... 50
</TABLE>
7. ACCRUED EXPENSES
The components of accrued expenses were as follows:
<TABLE>
<CAPTION>
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
Vacation................................................. $ 1,041 $ 990
Warranty................................................. 1,024 994
Commissions.............................................. 689 935
Customer incentive rebates............................... 1,009 1,182
Payroll, payroll taxes and related deductions............ 412 312
Retirement benefits...................................... 310 177
Interest................................................. 47 40
Health benefits.......................................... 323 346
Other operating expenses................................. 555 521
--------- -------------
$ 5,410 $ 5,497
--------- -------------
--------- -------------
</TABLE>
8. RETIREMENT BENEFIT PLANS
The Division's employees participated in three retirement benefit plans at
April 26, 1991. Union employees participated in a stand-alone defined benefit
pension plan which provided a benefit of $22 per month times years of service at
normal retirement. As part of the purchase transaction described in Note 1,
F-35
<PAGE> 140
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 26, 1991 AND SEPTEMBER 30, 1990
($000'S OMITTED)
The Delfield Company assumed sponsorship of the plan as of April 27, 1991, and
Alco transferred $1,050 to a new pension trust established by The Delfield
Company to fully fund vested benefits. The amount was actuarially determined and
agreed to by both parties. Pension expense for this plan was $98 and $138 for
the period from October 1, 1990 through April 26, 1991, and the year ended
September 30, 1990, respectively.
Salaried employees participated in an Alco defined benefit pension plan
which provided benefits based primarily on years of service. Effective April 27,
1991, salaried employees' participation in the plan was terminated. Pension
expense was $35 and $49 for the period from October 1, 1990 to April 26, 1991,
and the year ended September 30, 1990, respectively.
All employees were eligible to participate in a 401(k) savings plan which
invested in common shares of Alco. Employee salary deferrals were limited to a
maximum of 6 percent of gross pay. The Division matched two thirds of the
employees' deferral. Expense for this plan was $188 and $294 for the period from
October 1, 1990 to April 26, 1991, and the year ended September 30, 1990,
respectively.
9. INCOME TAXES
The Division computes its income tax provisions as if it were a separate
corporation. Income tax payments due are remitted to Alco.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
SEVEN MONTHS TWELVE MONTHS
ENDED ENDED
APRIL 26, SEPTEMBER 30,
1991 1990
------------ -------------
<S> <C> <C>
Current............................................. $396 $ 1,401
Deferred............................................ 0 111
------ -------------
$396 $ 1,512
------ -------------
------ -------------
</TABLE>
Deferred federal income taxes were as follows:
<TABLE>
<CAPTION>
APRIL 26, SEPTEMBER 30,
1991 1990
--------- -------------
<S> <C> <C>
Depreciation............................................. $ 1,124 $ 1,124
Other, net............................................... (123) (123)
--------- -------------
$ 1,001 $ 1,001
--------- -------------
--------- -------------
</TABLE>
The Division's combined federal and state effective tax rate was 36 percent
for the period from October 1, 1990 to April 26, 1991, and for the year ended
September 30, 1990.
F-36
<PAGE> 141
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 26, 1991 AND SEPTEMBER 30, 1990
($000'S OMITTED)
A reconciliation of the amounts computed by applying the statutory federal
income tax rate of 34 percent to pretax income and the provision for federal
income taxes as reflected in the accompanying statements of income is as
follows:
<TABLE>
<CAPTION>
SEVEN MONTHS TWELVE MONTHS
ENDED ENDED
APRIL 26, SEPTEMBER 30,
1991 1990
------------ -------------
<S> <C> <C>
Computed tax at statutory rate...................... $377 $ 1,415
Other............................................... 19 97
------ -------------
$396 $ 1,512
------ -------------
------ -------------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Division is subject to a variety of legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position of the Division.
The Division leases certain equipment under operating leases. Minimum
payments under these leases are as follows:
<TABLE>
<S> <C>
1991.................................................................... $44
1992.................................................................... 53
1993.................................................................... 25
1994.................................................................... 3
</TABLE>
Rental expense for these leases in 1991 and 1990 was $75 and $85,
respectively.
11. RELATED PARTY TRANSACTIONS
The Division purchased approximately $1,200 and $5,257 of stainless steel
from Great Western Steel, an unincorporated division of Alco Standard
Corporation, at market prices and terms, during the period from October 1, 1990
to April 26, 1991, and the year ended September 30, 1990, respectively. Amounts
owed to Great Western of $12 and $1,435 at April 26, 1991 and September 30,
1990, respectively, are included in trade accounts payable.
F-37
<PAGE> 142
THE DELFIELD DIVISION
OF ALCO STANDARD CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 26, 1991 AND SEPTEMBER 30, 1990
($000'S OMITTED)
12. SUPPLEMENTARY INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
GROSS OPERATING NET
NET SALES MARGIN INCOME INCOME
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Quarter Ended
December 31, 1989..................................... $17,014 $ 4,065 $ 1,430 $ 877
March 31, 1990........................................ 15,397 3,840 982 581
June 30, 1990......................................... 18,128 4,382 1,513 941
September 30, 1990.................................... 20,326 3,540 594 250
--------- ------- --------- -------
$70,865 $15,827 $ 4,519 $ 2,649
--------- ------- --------- -------
--------- ------- --------- -------
December 31, 1990..................................... $16,271 $ 4,220 $ 1,784 $ 1,253
March 31, 1991........................................ 16,511 4,395 1,827 1,303
Period from April 1, 1991 to April 26, 1991........... 4,521 (1,252) (2,502) (1,844)
--------- ------- --------- -------
$37,303 $ 7,363 $ 1,109 $ 712
--------- ------- --------- -------
--------- ------- --------- -------
</TABLE>
F-38
<PAGE> 143
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
31 DECEMBER 1993 AND 31 DECEMBER 1992
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
31 DECEMBER 1993 31 DECEMBER 1992
---------------- ----------------
(pound)'000 (pound)'000
<S> <C> <C>
Total sales.................................................. 3,432 3,312
------ ------
Cost of sales................................................ 2,395 2,288
Selling, general and administrative expenses................. 580 536
------ ------
Total costs and operating expenses........................... 2,975 2,824
------ ------
Income from operations....................................... 457 488
Net interest payable......................................... 53 54
------ ------
Income before income taxes................................... 404 434
Provision for income taxes................................... 145 156
------ ------
Net income................................................... 259 278
------ ------
------ ------
Preference stock dividends................................... 30 30
------ ------
Net income attributable to common shareholders............... 229 248
------ ------
------ ------
</TABLE>
CONDENSED STATEMENTS OF ACCUMULATED DEFICIT AND RECONCILIATION
OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(UNAUDITED)
<TABLE>
<S> <C> <C>
Accumulated deficit brought forward.......................... (2,190) (2,905)
Net income................................................... 259 278
------- -------
(1,931) (2,627)
Less dividends declared:
Preference stock........................................... 30 30
------- -------
Accumulated deficit at period end............................ (1,961) (2,657)
Capital stock brought forward................................ 3,000 3,000
------- -------
Shareholders' equity at period end........................... 1,039 343
------- -------
------- -------
</TABLE>
All items dealt with in arriving at the income from operations relate to
continuing activities.
The Company has no recognized gains and losses other than those included in
income, and therefore no separate statement of total recognized gains and losses
has been presented.
There is no difference between the results for the periods above, and the
historical cost equivalent.
The accompanying notes form an integral part of these financial statements.
F-39
<PAGE> 144
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF 31 DECEMBER 1993 AND 30 SEPTEMBER 1993
<TABLE>
<CAPTION>
31 DEC. 30 SEPT.
1993 1993
------------ ---------
(UNAUDITED) (pound'000)
(pound'000)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ 1,182 2,260
Accounts receivable, net of allowance for doubtful accounts of
(pound)11,000..................................................... 2,540 1,978
Inventories.......................................................... 2,749 2,805
Other current assets................................................. 105 138
------------ ---------
Total current assets.............................................. 6,576 7,181
Property, plant and equipment........................................ 602 600
Other non-current assets............................................. 1 1
------------ ---------
Total assets...................................................... 7,179 7,782
------------ ---------
------------ ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt................................. 398 745
Accounts payable..................................................... 1,467 2,001
Accrued expenses..................................................... 874 905
Current income taxes................................................. 604 539
------------ ---------
Total current liabilities......................................... 3,343 4,190
Long term debt, exclusive of current maturities...................... 2,796 2,781
Other liabilities.................................................... 1 1
Total liabilities................................................. 6,140 6,972
------------ ---------
Commitments and contingent liabilities............................... -- --
Shareholders' equity:
Common stock: par value (pound)1
Class A........................................................... 150 150
Class B........................................................... 775 775
Class C........................................................... 75 75
Preference stock:
Par value (pound)100.............................................. 2,000 2,000
Accumulated deficit.................................................. (1,961) (2,190)
------------ ---------
Total shareholders' equity........................................ 1,039 810
Total liabilities and shareholders' equity........................ 7,179 7,782
------------ ---------
------------ ---------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-40
<PAGE> 145
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
31 DECEMBER 1993 AND 31 DECEMBER 1992
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
31 DECEMBER 1993 31 DECEMBER 1992
---------------- ----------------
(pound)'000 (pound)'000
<S> <C> <C>
Net cash inflow from operating activities.................... (629) (422)
------- -------
Returns on investments and servicing of finance
Interest received.......................................... 20 41
Interest paid.............................................. (15) (78)
------- -------
Net cash outflow from returns on investments and servicing of
finance.................................................... 5 (37)
Taxation
United Kingdom corporation tax paid........................ (80) --
------- -------
Investing activities
Purchases of property, plant and equipment................. (18) --
Net cash outflow from investing activities................... (18) --
Financing
Bank loans (repaid)/taken out.............................. (350) (800)
Payment of principal under capital leases.................. (6) (7)
------- -------
Net (decrease)/increase in cash and cash equivalents......... (1,078) (1,266)
Cash and cash equivalents at beginning of period........... 2,260 2,400
------- -------
Cash and cash equivalents at end of period................. 1,182 1,134
------- -------
------- -------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-41
<PAGE> 146
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
31 DECEMBER 1993 AND 31 DECEMBER 1992
RECONCILIATION OF OPERATING PROFIT TO
NET CASH INFLOW FROM OPERATING ACTIVITIES
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
31 DECEMBER 1993 31 DECEMBER 1992
---------------- ----------------
(pound)'000 (pound)'000
<S> <C> <C>
Continuing operating activities
Income from operations..................................... 457 488
Depreciation of property, plant and equipment.............. 40 18
(Increase) decrease in accounts receivable................. (562) (544)
Decrease (increase) in other current assets................ 33 108
(Increase) decrease in inventories......................... 56 (4)
Decrease in accounts payable............................... (534) (352)
Decrease in accrued expenses............................... (119) (136)
Net cash outflow from operating activities................... (629) (422)
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-42
<PAGE> 147
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
31 DECEMBER 1993 AND 31 DECEMBER 1992
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Whitlenge Acquisition Limited and its subsidiaries (the "Company").
Accounting policies used in the preparation of the quarterly condensed
financial statements are consistent with the accounting policies described in
the notes to the financial statements for the year ended 30 September 1993. In
the opinion of management, the interim financial statements reflect all
adjustments which are necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for the interim periods
presented. The results for such interim periods are not necessarily indicative
of results for the full year. These financial statements should be read in
conjunction with the consolidated financial statements for the year ended 30
September 1993 and the accompanying notes thereto.
2. INVENTORIES
<TABLE>
<CAPTION>
31 DEC. 30 SEPT.
1993 1993
----------- -----------
(UNAUDITED) (pound)'000
(pound)'000
<S> <C> <C>
Raw materials and consumables............................. 2,400 1,920
Work in progress.......................................... 723 606
Finished goods and goods for resale....................... 126 279
----------- --------
2,749 2,805
----------- --------
----------- --------
</TABLE>
The replacement cost of stocks approximates to the value at which they are
stated in the financial statements.
3. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
The financial statements are prepared in accordance with UK GAAP, which
differs in certain significant respects from US GAAP. The approximate
adjustments of significance to net income and shareholders' equity which would
be required under US GAAP are shown in the tables below. Explanations for the
adjustments are given in the notes to the financial statements for the year
ended 30 September 1993.
Adjusted Consolidated Net Income for the Period
The following table sets out a summary of the amounts reported in the
consolidated income statements and the estimated adjustments required to conform
with US GAAP.
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
31 DECEMBER 1993 31 DECEMBER 1992
---------------- ----------------
(UNAUDITED) (pound) '000
(pound)'000
<S> <C> <C>
Net income for the period (as reported under UK GAAP)........ 259 278
Goodwill amortization........................................ (21) (21)
Estimated net income for the period under US GAAP............ 238 257
Preference stock dividends................................... (30) (30)
--- ---
Estimated net income attributable to common shareholders
under US GAAP.............................................. 208 227
--- ---
--- ---
</TABLE>
F-43
<PAGE> 148
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
31 DECEMBER 1993 AND 31 DECEMBER 1992
NOTES TO THE CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Adjusted Shareholders' Equity
The following table sets out a summary of the amounts reported as
consolidated shareholders' equity and the estimated adjustments required to
conform with US GAAP.
<TABLE>
<CAPTION>
31 DEC. 30 SEPT.
1993 1993
----------- --------
(UNAUDITED) (pound)'000
(pound)'000
<S> <C> <C>
Shareholders' equity under UK GAAP....................................... 1,039 810
Recognition of goodwill.................................................. 3,375 3,375
Pension costs............................................................ (120) (120)
Deferred tax............................................................. 69 69
Goodwill amortization.................................................... (147) (126)
Reclassification of preference stock..................................... (2,000) (2,000)
----------- --------
Estimated shareholders' equity under US GAAP............................. 2,216 2,008
----------- --------
----------- --------
</TABLE>
Cash Flow Statement
Under UK GAAP, the cash flow statement format differs from that under US
GAAP. For US GAAP purposes, the following cash flow headings and totals would
have been reported:
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
31 DECEMBER, 1993 31 DECEMBER, 1992
----------------- -----------------
<S> <C> <C>
Net cash used in operating activities........................ (704) (459)
Net cash used in financing activities........................ (356) --
Net cash used in investing activities........................ (18) (907)
Net decrease in cash and cash equivalents.................... (1,078) (1,266)
</TABLE>
F-44
<PAGE> 149
Report of independent accountants to the members of
WHITLENGE ACQUISITION LIMITED
We have audited the financial statements on pages F-46 to F-62, which are
expressed in pounds Sterling. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially the same as auditing
standards generally accepted in the United States. 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 presentation of the financial statements. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the company at
30 September 1993 and 1992, and the consolidated results of its operations, and
its cash flows for the year ended 30 September 1993 and the six months ended 30
September 1992 in conformity with accounting principles generally accepted in
the United Kingdom.
The financial statements have been prepared in accordance with accounting
practices prevailing in the United Kingdom, which differ in certain respects
from those generally accepted in the United States. The approximate effect of
the major differences in the determination of net income and shareholders'
equity is shown in Note 20 to the financial statements.
COOPERS & LYBRAND
Chartered Accountants and Registered Auditors
Birmingham, England
26 January 1994
F-45
<PAGE> 150
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993
AND FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
NOTES ----------------- -----------------
----- (pound)'000 (pound)'000
<S> <C> <C> <C>
Total sales........................................... 2 13,970 6,812
------- ------
Cost of sales......................................... 9,994 4,735
Selling, general and administrative expenses.......... 2,360 1,134
------- ------
Total costs and operating expenses.................... 12,354 5,869
------- ------
Income from operations................................ 1,616 943
Net interest payable.................................. 5 (266) (219)
------- ------
Income before income taxes............................ 1,350 724
Provision for income taxes............................ 6 (514) (95)
------- ------
Net income............................................ 7 836 629
------
------- ------
Preference stock dividends............................ (80)
(120)
------- ------
Net income attributable to common shareholders........ 716 549
------- ------
------- ------
</TABLE>
STATEMENTS OF ACCUMULATED DEFICIT AND RECONCILIATION
OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<S> <C> <C> <C>
Accumulated deficit brought forward................... (2,905) --
Net income............................................ 836 629
------- -------
(2,069) 629
Less dividends declared:
Preference stock.................................... (120) (80)
------- -------
(2,189) 549
Goodwill written off.................................. -- (3,450)
Translation adjustments............................... (1) (4)
------- -------
Accumulated deficit at period end..................... (2,190) (2,905)
Movements in capital stock accounts................... -- 3,000
Capital stock brought forward......................... 3,000 --
------- -------
Shareholders' equity at period end.................... 810 95
------- -------
------- -------
</TABLE>
All items dealt with in arriving at the income from operations relate to
continuing activities.
The Company has no recognized gains and losses other than those included in
income, and therefore no separate statement of total recognized gains and losses
has been presented.
There is no difference between the results for the periods above, and the
historical cost equivalent.
The accompanying notes form an integral part of these financial statements.
F-46
<PAGE> 151
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOTES
---- 1993 1992
------- -------
(pound)'000 (pound)'000
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... 2,260 2,400
Accounts receivable, net of allowance for doubtful accounts of
L11,000 (1992: L129,000)...................................... 1,978 1,716
Inventories.................................................... 9 2,805 2,780
Other current assets........................................... 10 138 275
------- -------
Total current assets......................................... 7,181 7,171
Property, plant and equipment.................................. 8 600 515
Other non-current assets....................................... 1 1
------- -------
Total assets................................................. 7,782 7,687
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt.............................. 12 745 375
Accounts payable.................................................. 2,001 1,804
Accrued expenses.................................................. 11 905 716
Current income taxes.............................................. 539 437
------- -------
Total current liabilities...................................... 4,190 3,332
Long term debt, exclusive of current maturities................... 12 2,781 4,179
Other liabilities................................................. 13 1 81
------- -------
Total liabilities.............................................. 6,972 7,592
------- -------
Commitments and contingent liabilities............................ 14 -- --
Shareholders' equity:
Common stock: par value (pound)1
Class A........................................................ 16 150 150
Class B........................................................ 16 775 775
Class C........................................................ 16 75 75
Preference stock:
Par value (pound)100........................................... 15 2,000 2,000
Accumulated deficit............................................... (2,190) (2,905)
------- -------
Total shareholders' equity................................... 810 95
Total liabilities and shareholders' equity................... 7,782 7,687
------- -------
------- -------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-47
<PAGE> 152
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993
AND FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Net cash inflow from operating activities.................... 1,892 1,881
------- -------
Returns on investments and servicing of finance
Interest received.......................................... 159 67
Interest paid.............................................. (465) (237)
Interest paid on finance leases............................ (6) --
------- -------
Net cash outflow from returns on investments and servicing of
finance.................................................... (312) (170)
Taxation
United Kingdom corporation tax paid........................ (412) (256)
------- -------
Investing activities
Purchases of property, plant and equipment................. (217) (120)
Proceeds from sales of property, plant and equipment....... 32 2
Purchases of other non-current assets...................... -- 1
Purchase of subsidiary (net of cash acquired).............. -- (4,429)
Loans from parent company.................................. -- 1
Loans to employees......................................... (25) --
------- -------
Net cash outflow from investing activities................... (210) (4,545)
Financing
Proceeds from issuance of common stock..................... -- 1,000
Bank loans (repaid)/taken out.............................. (1,050) 4,500
Payment of principal under capital leases.................. (48) (10)
------- -------
Net (decrease)/increase in cash and cash equivalents......... (140) 2,400
Cash and cash equivalents at beginning of period........... 2,400 --
------- -------
Cash and cash equivalents at end of period................. 2,260 2,400
------- -------
------- -------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-48
<PAGE> 153
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
RECONCILIATION OF OPERATING PROFIT TO
NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Continuing operating activities
Income from operations..................................... 1,616 943
Depreciation of property, plant and equipment.............. 178 91
Gain on sale of property, plant and equipment.............. (10) (1)
(Increase) decrease in accounts receivable................. (262) 161
Decrease (increase) in other current assets................ 153 (129)
(Increase) decrease in inventories......................... (25) 91
Increase in accounts payable............................... 197 326
Increase in accrued expenses............................... 44 395
Translation adjustments.................................... 1 4
------ ------
Net cash inflow from operating activities.................... 1,892 1,881
------ ------
------ ------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-49
<PAGE> 154
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
group accounting policies, which have been applied consistently, is set out
below.
Basis of Accounting
The financial statements have been prepared on the historical cost basis of
accounting in accordance with generally accepted UK accounting principles. Note
20 sets out the adjustments which would be made to shareholders' equity and net
income if the financial statements had been prepared in accordance with
generally accepted US accounting principles ("US GAAP"). Additional disclosures
have also been made in these financial statements to reflect the requirements of
US accounting standards and of the US Securities and Exchange Commission where
such disclosures are not required by either the Companies Act 1985 of Great
Britain or UK accounting standards.
Basis of Consolidation
The consolidated financial statements include the results of Whitlenge
Drink Equipment Limited and the results of its Belgian subsidiary, Whitlenge
Drink Equipment NV. Inter company transactions and balances are eliminated on
consolidation. Goodwill arising on consolidation, being the difference between
the fair value of the net assets acquired and the fair value of the
consideration given, is written off immediately on acquisition against
consolidated reserves.
Inventories
Inventories are stated at the lower of first in first out cost and market
value with due allowance made for obsolete and slow moving items. Work in
progress and finished goods include an attributable portion of fixed and
variable production overheads.
Property, Plant and Equipment
These assets are stated at cost and are depreciated principally on the
straight-line method over the estimated useful lives of the individual assets.
Gains or losses on disposal are reflected in income. Property, plant and
equipment held under leases which are essentially instalment purchases are
capitalised, with the related obligations stated at the principal element of
future lease payments.
The movements in property, plant and equipment are shown in note 8 to the
financial statements.
The principal depreciation rates used are:
<TABLE>
<S> <C>
Plant and machinery, fixtures and
fittings............................ 12.5% to 20%
Motor vehicles........................ 25%
Leasehold property.................... Over the lesser of the lease
term and 10 years
</TABLE>
Depreciation charged to costs and expenses was (pound)178,000 for the
year ended 30 September 1992 (6 months ended 30 September 1992: (pound)86,000).
Operating lease rentals are charged to income as incurred.
F-50
<PAGE> 155
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Sales
Sales, which exclude value added tax and trade discounts, represent the
invoiced value of goods and services supplied.
Foreign Currency Translation
The assets and liabilities of Whitlenge Drink Equipment NV are translated
into Sterling at the exchange rate ruling at the end of the period and its
results are translated at the average rate of exchange for the year. Gains and
losses resulting from translation of the financial statements of that operation
are accumulated in retained earnings. All other foreign exchange differences are
taken to the income statement in the period in which they arise.
Warranties
Claims under warranties are accounted for as and when they arise. Such
accounting does not differ significantly from the accruals basis of accounting.
Research and Development
The company carries out on-going research and development to enhance
its products. Expenditure on research and development is expensed as incurred.
These costs were (pound)288,000 for the year ended 30 September 1993 (6 months
to 30 September 1992: (pound)148,000).
Pension Costs
Pension costs are recognised on a systematic basis so that the costs of
providing retirement benefits to employees are evenly matched, so far as is
possible, to the service lives of the employees concerned. Any excess or
deficiency of the actuarial value of assets over the actuarial value of
liabilities of the pension scheme is allocated over the average remaining
service lives of current employees.
Cash and Cash Equivalents
For the purposes of the cash flow statement the company considers all
highly liquid temporary cash investments that have an original maturity within
90 days, are readily convertible to known amounts of cash and present minimal
risk of changes in value because of changes in interest rates, to be cash
equivalents.
Deferred Taxation
Provision is made for deferred taxation, using the liability method, on all
material timing differences to the extent that it is probable that a liability
will crystallise.
2. TOTAL SALES
All sales arise from the principal activity of the company, which is the
manufacture of drink dispensing equipment.
F-51
<PAGE> 156
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of sales by geographical market is given below.
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
United Kingdom................................ 11,954 6,042
Other European countries...................... 1,182 492
Rest of the world............................. 834 278
------- ------
Total sales................................... 13,970 6,812
------- ------
------- ------
</TABLE>
3. DIRECTORS' EMOLUMENTS
Amounts paid to directors are as follows:
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Management remuneration, including pension
contributions and fees...................... 85 39
--- ---
--- ---
Emoluments, excluding pension contributions,
include amounts paid to:
The chairman............................. Nil Nil
The highest-paid director................ 76 36
--- ---
--- ---
</TABLE>
The number of directors who received emoluments in the following ranges
was:
<TABLE>
<CAPTION>
NUMBER NUMBER
<S> <C> <C>
(pound)nil to (pound)5,000............................................... 2 4
(pound)35,001 to (pound)40,000........................................... -- 1
(pound)75,001 to (pound)80,000........................................... 1 --
-- --
</TABLE>
4. EMPLOYEES
(a) Staff Costs (Including Executive Directors)
<TABLE>
<CAPTION>
(pound)'000 (pound)'000
<S> <C> <C>
Wages and salaries.................................... 2,543 1,256
Social security costs................................. 236 121
Other pension costs................................... 133 61
------ ------
2,912 1,438
------ ------
------ ------
</TABLE>
F-52
<PAGE> 157
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(b) Number of Employees
The average number of persons employed by the company, including directors,
during the period was as follows:
<TABLE>
<CAPTION>
NUMBER NUMBER
<S> <C> <C>
Management and administration................................ 42 40
Production................................................... 125 125
------ ------
167 165
------ ------
------ ------
</TABLE>
5. NET INTEREST PAYABLE
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
(pound)'000 (pound)'000
----------------- -----------------
<S> <C> <C>
On bank loans, overdrafts and other loans:
Repayable within 5 years, not by
instalments.............................. 39 55
Repayable within 5 years, by instalments.... 370 237
------ ---
409 292
On hire purchase contracts.................. 6 5
Other interest.............................. 1 --
------ ---
416 297
Bank interest receivable...................... (150) (78)
------ ---
266 219
------ ---
------ ---
</TABLE>
6. PROVISION FOR INCOME TAXES
The analysis of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
(pound)'000 (pound)'000
----------------- -----------------
<S> <C> <C>
Current provision
UK Corporation Tax at 33% (1992: at 33%).... 500 135
Deferred provision
UK Corporation Tax at 33% (1992: at 33%).... -- (4)
Prior period adjustments:
UK Corporation Tax.......................... -- (38)
Deferred taxation........................... -- 2
--- ---
500 95
Overseas Corporation Tax...................... 14 --
--- ---
514 95
--- ---
--- ---
</TABLE>
F-53
<PAGE> 158
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the statutory UK Corporation Tax rate
to the financial statement effective rates:
<TABLE>
<CAPTION>
% %
<S> <C> <C>
UK Corporation Tax rate....................... 33.0 33.0
Disallowable expenses......................... 4.4 3.2
Net timing differences on assets not
recognized.................................. 0.7 (6.2)
Prior year relief............................. -- (4.6)
Relief on capitalised expenses................ -- (12.3)
------ ------
Effective tax rate.......................... 38.1 13.1
------ ------
------ ------
</TABLE>
Deferred taxation
The amount of the deferred tax asset not recognised is as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(pound)'000 (pound)'000
<S> <C> <C>
Tax effect of timing differences because of:
(Shortfall)/excess of depreciation over capital tax
allowances................................................... (9) 13
Other timing differences........................................ 37 6
---- ----
28 19
---- ----
---- ----
</TABLE>
7. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Net income is shown after charging:
Depreciation charge for the period:
Owned fixed assets....................... 153 86
Assets acquired under capital leases..... 25 5
Operating lease charges..................... 175 84
--- --
----- -----
</TABLE>
F-54
<PAGE> 159
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
LEASEHOLD PLANT AND FIXTURES MOTOR
PROPERTY MACHINERY AND FITTINGS VEHICLES TOTAL
--------- --------- ------------ -------- -----
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Cost
At 1 October 1992.............. 70 317 62 147 596
Reclassification............... -- -- 2 (2) --
Additions...................... 96 51 19 119 285
Disposals...................... -- (5) -- (20) (25)
--
--- --- --- -----
At 30 September 1993............. 166 363 83 244 856
--
--- --- --- -----
Depreciation
At 1 October 1992.............. 12 33 9 27 81
Reclassification............... -- -- 1 (1) --
Charge for period.............. 23 75 19 61 178
Eliminated in respect of
disposals................... -- -- -- (3) (3)
--
--- --- --- -----
At 30 September 1993............. 35 108 29 84 256
--
--- --- --- -----
Net book value
At 30 September 1993............. 131 255 54 160 600
--
--
--- --- --- -----
--- --- --- -----
At 30 September 1992............. 58 284 53 120 515
--
--
--- --- --- -----
--- --- --- -----
</TABLE>
Motor vehicles include items with a cost of (pound)148,000 and accumulated
depreciation at 30 September 1993 of (pound)41,000 which were acquired under
capital lease agreements.
9. INVENTORIES
<TABLE>
<CAPTION>
1993 1992
----- -----
(pound)'000 (pound)'000
<S> <C> <C>
Raw materials and consumables.................................. 1,920 1,951
Work in progress............................................... 606 586
Finished goods and goods for resale............................ 279 243
----- -----
2,805 2,780
----- -----
----- -----
</TABLE>
The replacement cost of stocks approximates to the value at which they are
stated in the financial statements.
10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
1993 1992
---- ----
(pound)'000 (pound)'000
<S> <C> <C>
Amounts falling due within one year
Other receivables............................................... 33 14
Prepayments and accrued income.................................. 105 261
---- ----
138 275
---- ----
---- ----
</TABLE>
F-55
<PAGE> 160
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
11. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1993 1992
---- ----
(pound)'000 (pound)'000
<S> <C> <C>
Other taxation and social security................................ 208 106
Accruals.......................................................... 497 610
Preference stock dividend payable................................. 200 --
---- ----
905 716
---- ----
---- ----
</TABLE>
The dividend of L200,000 in respect of preference stock is cumulative and
becomes payable in 1994.
12. LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES
<TABLE>
<CAPTION>
1993 1992
----- -----
(pound)'000 (pound)'000
<S> <C> <C>
Bank term loan, interest at LIBOR+2.125% (1992: LIBOR+2%)...... 3,150 3,500
Bank revolving credit agreement, interest at LIBOR+2.125%
(1992: LIBOR+2%)............................................. 300 1,000
Lease purchase obligations, interest at varying rates, payable
in instalments to 1994....................................... 76 54
----- -----
3,526 4,554
Less: current maturities....................................... 745 375
----- -----
2,781 4,179
----- -----
----- -----
</TABLE>
Maturities of long-term debt and the principal and interest payments on
capital leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR DEBT CAPITAL LEASES TOTAL
- ----------- ----- --------------------- PAYMENTS
PRINCIPAL INTEREST --------
(pound)'000 --------- -------- (pound)'000
(pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
1994........................................... 700 46 5 751
1995........................................... 750 19 2 771
1996........................................... 850 11 -- 861
1997........................................... 1,150 -- -- 1,150
-- --
----- --------
3,450 76 7 3,533
-- --
-- --
----- --------
----- --------
</TABLE>
The term loan and the revolving credit agreement, both of which are with
the Bank of Scotland, are due to expire on 30 June 1997. The revolving credit
agreement had additional facilities of (pound)700,000 not taken up at 30
September 1993, but was fully utilised at 30 September 1992. The term loan is
repayable at six monthly intervals at varying instalment amounts.
A floating charge over the assets of the company and its subsidiaries has
been given in respect of the bank loans.
F-56
<PAGE> 161
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER LIABILITIES
<TABLE>
<CAPTION>
1993 1992
----- -----
(pound)'000 (pound)'000
<S> <C> <C>
Amounts payable to related companies.............................. 1 1
Preference stock dividend payable................................. -- 80
----- -----
1 81
----- -----
----- -----
</TABLE>
The dividend payable at 30 September 1992 in respect of preference stock is
cumulative and becomes payable in 1994.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Operating Leases
The company leases its offices and manufacturing facilities expiring at
various dates through 2000. At 30 September 1993 future rental commitments are
as follows:
<TABLE>
<CAPTION>
1993
-----
(pound)'000
<S> <C>
1993..................................................................
1994.................................................................. 198
1995.................................................................. 198
1996.................................................................. 198
1997.................................................................. 198
1998.................................................................. 198
1999 and beyond....................................................... 1,959
-----
2,949
-----
-----
</TABLE>
Authorized Future Capital Expenditure
The company had authorised future capital expenditure as follows:
<TABLE>
<CAPTION>
1993 1992
----- -----
(pound)'000 (pound)'000
<S> <C> <C>
Contracted..................................................... Nil 28
----- -----
----- -----
</TABLE>
15. REDEEMABLE PREFERENCE STOCK
<TABLE>
<CAPTION>
(pound)'000
-----
<S> <C>
Redeemable preference shares
20,000 shares of (pound)100 each....................................
At 30 September 1993 and 30 September 1992.......................... 2,000
-----
-----
</TABLE>
The redeemable preference stock was issued at par, in part consideration
for the acquisition of Whitlenge Drink Equipment Limited, (see Note 18). The
redeemable preference stock may be redeemed at the insistence of the company at
any time between 1 April 1993 and 15 February 2002, and at the option of the
shareholder on 15 February 2002. The redemption will be at par value. Dividends
accrue on the redeemable
F-57
<PAGE> 162
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
preference shares at the rate of 6% per annum. The redeemable preference stock
ranks above the common stock in the event of the company being wound up.
16. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
CLASS
CLASS A CLASS B C
NUMBER NUMBER NUMBER
------- ------- ------
<S> <C> <C> <C>
Common stock of (pound)1 each
Authorized, allotted, called up and fully paid
At 30 September 1992 and 30 September 1993...................... 150,000 775,000 75,000
------- ------- ------
------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
(pound)'000 (pound)'000 (pound)'000
----------- ----------- -----------
<S> <C> <C> <C>
Capital stock accounts
At 30 September 1993 and 30 September 1992.......................... 150 775 75
--
--
------ ------
------ ------
</TABLE>
All stocks were issued during the six month period ended 30 September 1992
to facilitate the purchase of Whitlenge Drink Equipment Limited. The
consideration received by the company for the shares allotted during the period
was as follows:
<TABLE>
<S> <C>
Class A shares....................................................... (pound)150,000
Class B shares....................................................... (pound)774,920
Class C shares....................................................... (pound)74,980
</TABLE>
17. PENSION PLANS AND OTHER POST RETIREMENT BENEFITS
The company operates a pension scheme providing benefits based on final
pensionable pay. The assets of the scheme are held separately from those of the
company, being invested with an insurance company. Contributions to the scheme
are charged to the income statement so as to spread the cost of pensions over
employees' working lives with the company. The contributions are determined by a
qualified actuary on the basis of triennial valuations using the projected unit
method. The most recent valuation was at 1 December 1991. The assumptions which
have the most significant effect on the results of the valuation are those
relating to the long-term rate of interest which will be credited to the plan
and the long-term rate at which pensionable salaries will increase. It was
assumed that the average effective rate of interest credited to the plan would
be 9% and that pensionable salaries upon which benefits are based would increase
by 8% per annum.
The pension charge for the year was (pound)133,435 (1992 --
(pound)60,000). The most recent actuarial valuation showed that the value of
the scheme's assets was (pound)886,679 and the actuarial value of these assets
represented 110% of the benefits that had accrued to members, after allowing
for expected future increases in earnings. The contributions of the company
were decreased from 33.8% to 17% of earnings and the contributions of the
employees remained at 5% of earnings.
There were no post retirement benefits other than pensions.
F-58
<PAGE> 163
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
18. ACQUISITION
The company acquired the share capital of Whitlenge Drink Equipment Limited
on 1 April 1992. The fair value amounts assigned to the assets and liabilities
of the subsidiary acquired are set out below:
<TABLE>
<CAPTION>
(pound)'000
-----------
<S> <C>
Non-current assets
Property, plant and equipment...................................... 486
Current assets
Accounts receivable................................................ 1,877
Inventories........................................................ 2,870
Other current asset................................................ 130
Cash and cash equivalents.......................................... 2,298
------
Total assets......................................................... 7,661
------
Current liabilities
Current maturities of long term debt............................... (22)
Accounts payable................................................... (1,478)
Accrued expenses................................................... (240)
Current income taxes............................................... (601)
------
(2,341)
Long term debt..................................................... (43)
------
Total liabilities.................................................... (2,384)
------
Net assets acquired................................................ 5,277
Goodwill........................................................... 3,450
------
8,727
------
------
Satisfied by:
Issue of preference stock.......................................... 2,000
Cash............................................................... 6,727
------
8,727
------
------
</TABLE>
The results of Whitlenge Drink Equipment Limited and its wholly owned
Belgian subsidiary, Whitlenge Drink Equipment NV, have been consolidated from
the date of acquisition.
19. SUPPLEMENTARY CASH FLOW INFORMATION
The following significant non-cash transactions took place:
Six Months Ended 30 September 1992
On 1 April 1992, the company issued (pound)2,000,000 of preference stock
in order to part finance the acquisition of Whitlenge Drink Equipment Limited.
Cumulative dividends due on the preference stock have been accrued in these
financial statements amounting to (pound)80,000.
F-59
<PAGE> 164
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Year Ended 30 September 1993
Cumulative dividends due on the preference stock have been accrued in these
financial statements amounting to (pound)200,000 of which (pound)120,000 arose
during the year. The company invested in fixed assets valued at (pound)68,000
which were financed by capital leases.
20. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
The financial statements are prepared in accordance with UK GAAP, which
differs in certain significant respects from US GAAP. The approximate
adjustments of significance to net income and shareholders' equity which would
be required under US GAAP are shown in the tables below and are explained in the
related notes.
Adjusted Consolidated Net Income for the Period
The following table sets out a summary of the amounts reported in the
consolidated income statements and the estimated adjustments required to conform
with US GAAP.
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Net income for the period (as reported under
UK GAAP).................................... 836 629
Deferred tax.................................. 9 (45)
Goodwill amortisation......................... (84) (42)
Corporation Tax on capitalised expenses....... -- (90)
------ ---
Estimated net income for the period under US
GAAP........................................ 761 452
Preference stock dividends.................... (120) (80)
------ ---
Estimated net income attributable to common
shareholders under US GAAP.................. 641 372
------ ---
------ ---
</TABLE>
Adjusted Shareholders' Equity
The following table sets out a summary of the amounts reported as
consolidated shareholders' equity and the estimated adjustments required to
conform with US GAAP.
<TABLE>
<CAPTION>
1993 1992
------ ------
(pound)'000 (pound)'000
<S> <C> <C>
Shareholders' equity under UK GAAP.......................... 810 95
Recognition of goodwill..................................... 3,375 3,375
Pension costs............................................... (120) (120)
Deferred tax................................................ 69 60
Goodwill amortisation....................................... (126) (42)
Reclassification of preference stock........................ (2,000) (2,000)
------ ------
Estimated shareholders' equity under US GAAP................ 2,008 1,368
------ ------
------ ------
</TABLE>
F-60
<PAGE> 165
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Taxation
Under UK GAAP, deferred tax assets are not normally recognised. Under US
GAAP deferred tax assets are recognised in full less an appropriate valuation
allowance for amounts not expected to be recovered. The accounting for the
acquisition of Whitlenge Drink Equipment Limited and the reporting of net income
under US GAAP reflect adjustments to conform with this requirement of SFAS 109.
Goodwill Recognition and Amortisation
Under UK GAAP, goodwill is usually written off directly to reserves. Under
US GAAP, it is capitalised and written off over its estimated useful life.
Goodwill eliminated directly against reserves in the UK accounts has been
reinstated and amortised over a forty year period for US GAAP purposes.
Pension Costs
The accounting for the acquisition of Whitlenge Drink Equipment Limited and
the reporting of net income under US GAAP reflect adjustments to conform the
accounting for pension costs with the requirements of SFAS 87. These adjustments
relate primarily to the impact of changes to the actuarial valuation of the
pension plan to comply with the procedures prescribed in SFAS 87.
Actuarial calculations were carried out by the plan's actuary as at 31
March 1992 for the purpose of fulfilling the terms of a sale agreement (see Note
18). These calculations did not constitute a full formal actuarial valuation of
the plan. The last such valuation was made at 31 December 1991. An estimate of
the funding positions under US GAAP as at 30 September 1992 and 30 September
1993, based on the calculations carried out by the plan's actuary at 31 March
1992, and using a settlement rate and a return on plan assets of 8% per annum at
30 September 1993 and 9% per annum at 30 September 1992, and a long term rate of
compensation increase of 7% per annum at both reporting dates, are as follows:
<TABLE>
<CAPTION>
1993 1992
(pound)'000 (pound)'000
----- -----
<S> <C> <C>
Projected benefit obligation................................... 1,007 1,145
Plan assets at fair value, being the surrender value of an
investment policy operated by the Standard Life Assurance
Company...................................................... 826 1,115
----- -----
Excess of projected benefit obligation over plan assets........ 181 30
----- -----
----- -----
</TABLE>
The vested benefit obligation and the accumulated benefit obligation as at
30 September 1992 and 30 September 1993 are approximately 90% of the projected
benefit obligation.
Based on the information contained in the actuarial valuation as at 31
December 1991, the net periodic pension cost under US GAAP, using the
assumptions set out above, was:
<TABLE>
<CAPTION>
1993 1992
(pound)'000 (pound)'000
---- ----
<S> <C> <C>
Service costs -- benefits earned during the period................ 110 59
Interest cost on the projected benefit obligation................. 90 40
Expected return on plan assets.................................... (90) (35)
---- ----
Net periodic pension cost......................................... 110 64
---- ----
---- ----
</TABLE>
F-61
<PAGE> 166
WHITLENGE ACQUISITION LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 1993 AND
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1992
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Amounts arising from changes in the funding position, not reflected in the
US GAAP adjustments are:
<TABLE>
<CAPTION>
1993 1992
(pound)'000 (pound)'000
---- ----
<S> <C> <C>
(Losses)/gains.................................................... (41 ) --
---- ----
---- ----
</TABLE>
Preference Capital
Under US GAAP, the redeemable preference stock does not qualify as
shareholders' equity, since the redemption option is not solely at the
discretion of the company.
Cash Flow Statement
Under UK GAAP, the cash flow statement format differs from that under US
GAAP. For US GAAP purposes, the following cash flow headings and totals would
have been reported:
<TABLE>
<CAPTION>
12 MONTHS 6 MONTHS
30 SEPTEMBER 1993 30 SEPTEMBER 1992
----------------- -----------------
(pound)'000
<S> <C> <C>
Net cash provided by operating activities..... 1,168 1,455
Net cash used in investing activities......... (210) (4,545)
Net cash provided by (used in) financing
activities.................................. (1,098) 5,490
------- -------
Net (decrease)/increase in cash and
cash equivalents............................ (140) 2,400
------- -------
------- -------
</TABLE>
21. ULTIMATE PARENT COMPANY
The parent undertaking of the Company is Onex Corporation, a company
incorporated in Canada.
F-62
<PAGE> 167
Report of independent accountants to the members of
WHITLENGE DRINK EQUIPMENT LIMITED
We have audited the accompanying balance sheet of Whitlenge Drink Equipment
Limited as of 31 March 1992, and the related statements of income, retained
earnings and cash flows for the six months then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially the same as auditing
standards generally accepted in the United States. 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 presentation of the financial statements. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the company at
31 March 1992 and the consolidated results of its operations and its cash flows
for the six months ended 31 March 1992 in conformity with accounting principles
generally accepted in the United Kingdom.
The financial statements have been prepared in accordance with accounting
practices prevailing in the United Kingdom, which differ in certain respects
from those generally accepted in the United States. The approximate effect of
the major differences in the determination of net income and shareholders'
equity is shown in Note 17 to the financial statements.
COOPERS & LYBRAND
Chartered Accountants and Registered Auditors
Birmingham, England
26 January 1994
F-63
<PAGE> 168
Report of the independent auditors to the directors of
WHITLENGE DRINK EQUIPMENT LIMITED
We have audited the accompanying balance sheet of Whitlenge Drink Equipment
Limited as of 30 September 1991 and the related income statement, statement of
retained earnings and cash flow statement for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States 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 presentation of
the financial statements. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Whitlenge Drink Equipment
Limited at 30 September 1991 and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United Kingdom which differ in certain respects from those
followed in the United States (see Note 17 of Notes to the Financial
Statements).
ERNST & YOUNG
Chartered Accountants
Birmingham, England
24 January 1992, except for
Note 17 -- Summary of differences between UK GAAP and US GAAP,
as to which the date is 26 January 1994
F-64
<PAGE> 169
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
INCOME STATEMENTS
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
NOTE (pound)000'S (pound)000'S
<S> <C> <C> <C>
Total sales.............................................. 2 5,820 10,810
------ -------
Cost of sales............................................ 4,310 7,906
Selling, general and administrative expenses............. 780 1,445
------ -------
Total costs and operating expenses....................... 5,090 9,351
------ -------
Income from operations................................... 730 1,459
Net interest receivable.................................. 5 67 96
------ -------
Income before income taxes............................... 797 1,555
Provision for income taxes............................... 6 (301) (525)
------ -------
Net income............................................... 7 496 1,030
------ -------
------ -------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-65
<PAGE> 170
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Balance brought forward........................................ 297 167
Net income..................................................... 496 1,030
--- ------
Sub-total...................................................... 793 1,197
Less cash dividends declared:
Ordinary shares.............................................. -- 900
--- ------
Balance at period end.......................................... 793 297
--- ------
--- ------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-66
<PAGE> 171
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
------------- -----------------
<S> <C> <C> <C>
NOTE (pound)'000 (pound)'000
ASSETS
Current assets:
Cash and cash equivalents.............................. 2,298 1,609
Accounts receivable, net of allowance for doubtful
accounts
of (pound)122,000 (1991: (pound)92,000)............. 1,872 2,166
Inventories............................................ 9 2,870 2,584
Other current assets................................... 10 180 81
------ ------
Total current assets................................... 7,220 6,440
Property, plant and equipment.......................... 8 486 466
------ ------
Total assets........................................ 7,706 6,906
------ ------
------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long term debt................... 12 22 --
Accounts payable....................................... 1,394 1,280
Accrued expenses....................................... 11 324 334
Current income taxes................................... 565 428
Deferred income taxes.................................. 6 -- 2
------ ------
Total current liabilities........................... 2,305 2,044
Long term debt, exclusive of current maturities........ 12 43 --
------ ------
Total liabilities................................... 2,348 2,044
------ ------
Commitments and contingent liabilities................... 13 -- --
Shareholders' equity
Common stock: par value 1p............................. 14 4,065 4,065
Deferred shares: par value (pound)1.................... 14 500 500
Retained earnings...................................... 793 297
------ ------
Total shareholders' equity.......................... 5,358 4,862
------ ------
Total liabilities and shareholders' equity.......... 7,706 6,906
------ ------
------ ------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-67
<PAGE> 172
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Operating activities:
Net cash inflow from continuing operating activities......... 846 598
------ -------
Returns on investment and servicing of finance:
Interest received............................................ 70 109
Interest paid................................................ (1) (12)
Interest paid on finance leases.............................. (2) --
Dividends paid............................................... -- (900)
------ -------
Net cash inflow (outflow) from returns on investment and
servicing of finance...................................... 67 (803)
------ -------
Taxation:
UK Corporation tax paid...................................... (166) (847)
------ -------
Investing activities:
Proceeds from sales of equipment............................. 3 9
Purchases of property, plant and equipment................... (48) (78)
------ -------
Net cash outflow from investing activities................... (45) (69)
------ -------
Net cash flow before financing activities.................... 702 (1,121)
------ -------
Financing activities:
Repayment of bank loan....................................... -- (4,060)
Proceeds from issuance of common stock....................... -- 4,062
Payment of principal under finance leases.................... (13) --
------ -------
Net cash (outflow) inflow from financing activities.......... (13) 2
------ -------
Net increase in cash and cash equivalents.................... 689 (1,119)
------ -------
Cash and cash equivalents at beginning of period............... 1,609 2,728
------ -------
Cash and cash equivalents at end of period..................... 2,298 1,609
------ -------
------ -------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-68
<PAGE> 173
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
RECONCILIATION OF OPERATING PROFIT TO
NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Continuing operating activities
Operating profit.............................................. 730 1,459
Depreciation of property, plant and equipment................. 92 183
Loss on disposal of equipment................................. 11 6
Decrease (increase) in accounts receivable.................... 294 (574)
(Increase) decrease in prepayments............................ (99) 8
(Increase) decrease in inventories............................ (286) 69
Increase (decrease) in accounts payable....................... 114 (507)
Increase (decrease) in accrued expenses....................... 36 (95)
(Decrease) increase in other taxation and social security..... (46) 49
------ ------
Net cash inflow from operating activities..................... 846 598
------ ------
------ ------
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-69
<PAGE> 174
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
group accounting policies, which have been applied consistently, is set out
below.
Basis of Accounting
The financial statements have been prepared on the historical cost basis of
accounting in accordance with generally accepted UK accounting principles. Note
17 sets out the adjustments which would be made to total assets and net income
if the financial statements had been prepared in accordance with generally
accepted US accounting principles ("US GAAP"). Additional disclosures have also
been made in these financial statements to reflect the requirements of US
accounting standards and of the US Securities and Exchange Commission where such
disclosures are not required by either the Companies Act 1985 of Great Britain
or UK accounting standards.
Basis of Consolidation
The consolidated financial statements include the results of Whitlenge
Drink Equipment Limited and the results of its Belgian subsidiary, Whitlenge
Drink Equipment NV, since its incorporation on 1 December 1991. Intercompany
transactions and balances are eliminated as consolidation.
Inventories
Inventories are stated at the lower of first in first out cost and market
value with due allowance made for obsolete and slow moving items. Work in
progress and finished goods include an attributable portion of fixed and
variable production overheads.
Property, Plant and Equipment
These assets are stated at cost and are depreciated principally on the
straight-line method over the estimated useful lives of the individual assets.
Gains or losses on disposal are reflected in income. Property, plant and
equipment held under leases which are essentially instalment purchases are
capitalised, with the related obligations stated at the principal element of
future lease payments. Depreciation charged to costs and expenses was
(pound)92,000 for the period ended 31 March 1992 (12 months ended 30 September
1991: (pound)183,000). Operating lease rentals are charged to income as
incurred.
The movements in property, plant and equipment are shown in note 8 to the
financial statements.
The principal depreciation rates used are:
<TABLE>
<S> <C>
Plant and machinery, fixtures and
fittings............................ -- 12.5% to 20%
Motor vehicles......................... -- 25%
Leasehold property..................... -- Over the lesser of the lease term and 10
years
</TABLE>
Sales
Sales, which exclude value added tax and trade discounts, represents the
invoiced value of goods and services supplied.
F-70
<PAGE> 175
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
The assets and liabilities of Whitlenge Drink Equipment NV are translated
into Sterling at the exchange rate ruling at the end of the period and its
results are translated at the average rate of exchange for the year. Gains and
losses resulting from translation of the financial statements of that operation
are accumulated in retained earnings. All other foreign exchange differences are
taken to the income statement in the year in which they arise.
Warranties
Claims under warranties are accounted for as and when they arise. Such
accounting does not differ significantly from the accruals basis of accounting.
Research and Development
The company carries out on-going research and development to enhance
its products. Expenditure on research and development is expensed as incurred.
These costs were (pound)119,000 for the period (12 months to 30 September 1991:
(pound)208,000).
Pension Costs
Pension costs are recognised on a systematic basis so that the costs of
providing retirement benefits to employees are evenly matched, so far as is
possible, to the service lives of the employees concerned. Any excess or
deficiency of the actuarial value of assets over the actuarial value of
liabilities of the pension scheme is allocated over the average remaining
service lives of current employees.
Cash and Cash Equivalents
For the purposes of the cash flow statement the company considers all
highly liquid temporary cash investments that have an original maturity within
90 days, are readily convertible to known amounts of cash and present minimal
risk of changes in value because of changes in interest rates, to be cash
equivalents.
Deferred Taxation
Provision is made for deferred taxation, using the liability method, on all
material timing differences to the extent that it is probable that a liability
or asset will crystallise.
2. TOTAL SALES
All sales arise from the principal activity of the company, which is the
factoring and manufacture of drink dispensing equipment.
An analysis of sales by geographical market is given below.
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
United Kingdom.................................. 5,143 9,131
Other European countries........................ 663 1,396
Rest of the world............................... 14 283
------ -------
Total sales................................... 5,820 10,810
------ -------
------ -------
</TABLE>
F-71
<PAGE> 176
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. DIRECTORS' EMOLUMENTS
Amounts paid to directors are as follows:
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Management remuneration, including pension
contributions and fees........................ 208 284
--- ---
--- ---
</TABLE>
Emoluments, excluding pension contributions, include amounts paid to:
<TABLE>
<S> <C> <C>
The chairman.................................... Nil Nil
The highest-paid director....................... 125 130
--- ---
--- ---
</TABLE>
The number of directors who received emoluments in the following ranges
was:
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
(pound)nil to 5,000...................................................... 6 2
(pound)65,001 to (pound)70,000........................................... 1 1
(pound)120,001 to (pound)125,000......................................... 1 --
</TABLE>
4. EMPLOYEES
(a) Staff costs (including executive directors)
<TABLE>
<CAPTION>
(pound)'000 (pound)'000
----- -----
<S> <C> <C>
Wages and salaries............................................. 1,164 2,045
Social security costs.......................................... 104 173
Other pension costs............................................ 60 243
----- -----
1,328 2,461
----- -----
----- -----
</TABLE>
(b) Number of employees
The average number of persons employed by the company, including directors,
during the period was as follows:
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Management and administration................................ 40 35
Production................................................... 125 119
------ ------
165 154
------ ------
------ ------
</TABLE>
F-72
<PAGE> 177
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. NET INTEREST RECEIVABLE
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
On bank loans, overdrafts and other loans:
Repayable within 5 years, not by
installments............................... (1) (9)
On hire purchase contracts.................... (2) --
Other interest................................ -- (3)
--
---
(3) (12)
Bank interest receivable........................ 70 109
--
---
67 97
-- ---
-- ---
</TABLE>
6. PROVISION FOR INCOME TAXES
The analysis of the provision for income taxes, all of which relates to
continuing operations, is as follows:
<TABLE>
<CAPTION>
(pound)'000 (pound)'000
------ ------
<S> <C> <C>
Current provision
UK Corporation Tax at 33% (1991: at 33.5%)................... 303 562
Deferred provision
UK Corporation Tax at 33% (1991: at 33.5%)................... (2) (27)
Prior period adjustments:
UK Corporation tax........................................... -- (8)
Deferred taxation............................................ -- (2)
------ ------
301 525
------ ------
------ ------
</TABLE>
The following is a reconciliation of the statutory UK Corporation Tax rate
to the financial statement effective rates:
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
------------- -----------------
% %
<S> <C> <C>
UK Corporation Tax rate.......................... 33.0 33.5
Disallowable provisions.......................... 3.4 --
Other............................................ 1.4 0.3
----- -----
Effective tax rate............................. 37.8 33.8
----- -----
----- -----
</TABLE>
Deferred Taxation
The movement on the provision for deferred taxation is as follows:
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Balance brought forward......................... 2 31
Transferred to income statement................. (2) (29)
---
--
2
--......
---
---
--
--
</TABLE>
F-73
<PAGE> 178
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The amount of the deferred tax asset not recognised is as follows:
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Tax effect of timing differences because of:
Excess of depreciation over capital
allowances................................. 29 --
Other timing differences...................... 55 --
-- --
84 --
-- --
-- --
</TABLE>
7. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
6 MONTHS TO 12 MONTHS TO
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Net income is shown after charging:
Depreciation charge for the period:
Owned fixed assets......................... 89 183
Assets acquired under capital leases....... 3 --
Operating lease charges....................... 83 166
Research and development expenses............. 119 208
--- ---
--- ---
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
LEASEHOLD PLANT AND FIXTURES MOTOR
PROPERTY MACHINERY AND FITTINGS VEHICLES TOTAL
--------- --------- ------------- -------- -----
<S> <C> <C> <C> <C> <C>
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
Cost
At 1 October 1991................ 174 821 157 334 1,486
Additions........................ 1 37 10 78 126
Disposals........................ -- -- (2) (37) (39)
--- --- --- --- -----
At 31 March 1992................. 175 858 165 375 1,573
--- --- --- --- -----
Depreciation
At 1 October 1991................ 97 584 122 217 1,020
Charge for period................ 11 37 7 37 92
Eliminated in respect of
disposals...................... -- -- (2) (23) (25)
--- --- --- --- -----
At 31 March 1992................. 108 621 127 231 1,087
--- --- --- --- -----
Net book value
At 31 March 1992................. 67 237 38 144 486
--- --- --- --- -----
--- --- --- --- -----
At 30 September 1991............. 77 237 35 117 466
--- --- --- --- -----
--- --- --- --- -----
</TABLE>
Motor vehicles include items with a cost of (pound)78,000 and accumulated
depreciation of (pound)3,000 which were acquired under capital lease agreements.
F-74
<PAGE> 179
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. INVENTORIES
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Raw materials and consumables................... 2,100 1,674
Work in progress................................ 581 865
Finished goods and goods for resale............. 189 45
------ ------
2,870 2,584
------ ------
------ ------
</TABLE>
The replacement cost of stocks approximates to the value at which they are
stated in the financial statements.
10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Amounts falling due within one year.............
Other receivables............................... 5 3
Prepayments and accrued income.................. 175 78
---
--
180
81
---
---
--
--
</TABLE>
11. ACCRUED EXPENSES
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Other taxation and social security.............. 128 175
Accruals........................................ 196 159
--- ---
324 334
--- ---
--- ---
</TABLE>
12. LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Lease purchase obligations, interest at varying
rates, payable in installments to 1994........ 65 --
Less current maturities......................... (22) --
---
--
43
--
---
---
--
--
</TABLE>
Maturities of the principal and interest payments on capital leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
---------------------------------------
PRINCIPAL INTEREST TOTAL PAYMENTS
--------- -------- --------------
<S> <C> <C> <C>
(pound)'000 (pound)'000 (pound)'000
1993............................................ 22 7 29
1994............................................ 26 3 29
1995............................................ 17 1 18
-- -- --
65 11 76
-- -- --
</TABLE>
F-75
<PAGE> 180
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
A floating charge over the assets of the company has been given in respect
of the bank loans and overdrafts.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Operating Leases
The company leases its offices and manufacturing facilities expiring at
various dates through 2000. At 31 March 1992, future rental commitments are as
follows:
<TABLE>
<CAPTION>
31 MARCH 1992
--------------
<S> <C>
(pound)'000
1993............................................. 166
1994............................................. 136
1995............................................. 126
1996............................................. 126
1997............................................. 126
1998 and beyond.................................. 765
------
1,445
------
------
</TABLE>
Authorised Future Capital Expenditure
The company had authorised future capital expenditure as follows:
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Contracted...................................... 50 31
-- --
-- --
</TABLE>
14. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Authorised, allotted, called up and fully paid
406,500,000 common shares of 1p each............ 4,065 4,065
500,000 deferred shares of (pound)1 each........ 500 500
------ ------
4,565 4,565
------ ------
------ ------
</TABLE>
The deferred shares are non-voting and non-participating.
15. PENSION PLANS AND OTHER POST RETIREMENT BENEFITS
The company operates a pension scheme providing benefits based on final
pensionable pay. The assets of the scheme are held separately from those of the
company, being invested with an insurance company. Contributions to the scheme
are charged to the income statement so as to spread the cost of pensions over
employees' working lives with the company. The contributions are determined by a
qualified actuary on the basis of triennial valuations using the project unit
method. The most recent valuation was at 1 December 1991. The assumptions which
have the most significant effect on the results of the valuation are those
relating to the long-term rate of interest which will be credited to the plan
and the long-term rate at which pensionable
F-76
<PAGE> 181
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
salaries will increase. It was assumed that the average effective rate of
interest credited to the plan would be 9% and that the pensionable salaries upon
which benefits are based would increase by 8% per annum.
The pension charge for the six months to 31 March 1992 was (pound)60,000
(1991 -- (pound)243,322). The most recent actuarial valuation showed that the
value of the schemes assets was (pound)886,679 and the actuarial value of these
assets represented 110% of the benefits that had accrued to members, after
allowing for expected future increases in earnings. The contributions of the
company were decreased from 33.8% to 16% of earnings and the contributions of
the employees remained at 5% of earnings.
Prepayments at 31 March 1992 include an amount of (pound)110,950 relating
to the pension scheme which arose due to the fact that the charge in the income
statement is based on the new contribution rate, whereas payments were actually
made at the old rate.
There were no post retirement benefits other than pensions.
16. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash Transactions
The following significant non-cash transactions took place during the
period:
The company invested in fixed assets valued at (pound)78,000 which were
financed by capital leases.
17. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
The financial statements are prepared in accordance with UK GAAP, which
differs in certain significant respects from US GAAP. The approximate
adjustments of significance to net income and shareholders' equity which would
be required under US GAAP are shown in the tables below and are explained in the
related notes.
ADJUSTED CONSOLIDATED NET INCOME FOR THE PERIOD -- The following table sets
out a summary of the amounts reported in the income statements and the estimated
adjustments required to conform with US GAAP.
<TABLE>
<CAPTION>
6 MONTHS ENDED 12 MONTHS ENDED
31 MARCH 1992 30 SEPTEMBER 1991
-------------- -----------------
(pound)'000 (pound)'000
<S> <C> <C>
Net income for the period (as reported under UK
GAAP)......................................... 496...... 1,030
Pension costs................................... (4) 82
Deferred tax.................................... 55 (20)
--- ------
Estimated net income for the period under US
GAAP.......................................... 547 1,092
--- ------
--- ------
</TABLE>
F-77
<PAGE> 182
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
ADJUSTED SHAREHOLDERS' EQUITY -- The following table sets out a summary of
the amounts reported as consolidated and company shareholders' equity and the
estimated adjustments required to conform with US GAAP.
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Shareholders' equity under UK GAAP............... 5,358 4,862
Pension liability................................ (117) (113)
Deferred tax..................................... 105 50
------ ------
Estimated shareholders' equity under US GAAP..... 5,346 4,799
------ ------
------ ------
</TABLE>
DEFERRED TAXATION
Under UK GAAP, deferred tax assets are not normally recognised. Under US
GAAP deferred tax assets are recognised in full less an appropriate valuation
allowance for amounts not expected to be recovered. The reporting of net income
under US GAAP reflects adjustments to conform with this requirement of SFAS 109.
PENSION COSTS
The reporting of net income under US GAAP reflects adjustments to conform
the accounting for pension costs with the requirements of SFAS 87. These
adjustments relate primarily to the impact of changes to the actuarial valuation
of the pension plan to comply with the procedures prescribed in SFAS 87.
Actuarial calculations were carried out by the plan's actuary as at 31
March 1992 for the purpose of fulfilling the terms of a sale agreement (see note
19).
The estimate of the funding position under US GAAP as at 31 March 1992 and
30 September 1991, based on the calculations carried out by the plan's actuary,
and using a settlement rate and a return on plan assets of 9% per annum and a
long term rate of compensation increase of 7% per annum, are as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
(pound)'000 (pound)'000
<S> <C> <C>
Projected benefit obligation..................................... 897 797
Plan assets at fair value, being the surrender value of an
investment policy operated by the Standard Life Assurance
Company........................................................ 777 645
----- -----
Excess of projected benefit obligation over plan assets.......... 120 152
----- -----
----- -----
</TABLE>
The vested benefit obligation and the accumulated benefit obligation as at
31 March 1992 and 30 September 1991 are approximately 90% of the projected
benefit obligation.
F-78
<PAGE> 183
WHITLENGE DRINK EQUIPMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1992 AND 30 SEPTEMBER 1991
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Based on the information contained in the actuarial valuation as at 31
December 1991, the net periodic pension cost under US GAAP for the six months to
31 March 1992 and year to September 1991, using the assumptions set out above,
were:
<TABLE>
<CAPTION>
1992 1991
----- ----
(pound)'000 (pound)'000
<S> <C> <C>
Service costs -- benefits earned during the period................ 59 110
Interest cost on the projected benefit obligation................. 40 65
Actual return on plan assets...................................... (35) (53)
Amortization of net liability at transition....................... -- 39
----- -----
Net periodic pension cost......................................... 64 161
----- -----
----- -----
</TABLE>
CASH FLOW STATEMENT
Under UK GAAP, the cash flow statement format adopted differs from that
under US GAAP. For US GAAP purposes, the following cash flow headings and totals
would have been reported:
<TABLE>
<CAPTION>
31 MARCH 1992 30 SEPTEMBER 1991
------------- -----------------
<S> <C> <C>
(pound)'000 (pound)'000
Net cash provided by (used in) operating
activities..................................... 747 (152)
Net cash used in investing activities............ (45) (69)
Net cash used in financing activities............ (13) (898)
--- -------
Net increase (decrease) in cash and cash
equivalents.................................... 689 (1,119)
--- -------
--- -------
</TABLE>
18. ULTIMATE PARENT COMPANY
The parent undertaking of the company is Alco Standard Corporation,
incorporated in the USA.
19. ACQUISITION OF WHITLENGE DRINK EQUIPMENT LIMITED
Whitlenge Drink Equipment Limited was acquired by Whitlenge Acquisition
Limited on 1 April 1992. The ultimate parent company of Whitlenge Acquisition
Limited is Onex Corporation, a company incorporated in Canada.
F-79
<PAGE> 184
APPENDIX I
AGREEMENT AND PLAN OF MERGER
AMONG
SCOTSMAN INDUSTRIES, INC.,
SCOTSMAN ACQUISITION CORPORATION,
DFC HOLDING CORPORATION,
THE DELFIELD COMPANY,
ONEX CORPORATION,
ONEX DHC LLC,
PACIFIC MUTUAL LIFE INSURANCE COMPANY,
PM GROUP LIFE INSURANCE CO.,
EJJM, MATTHEW O. DIGGS, JR., TIMOTHY C. COLLINS,
W. JOSEPH MANIFOLD, CHARLES R. MCCOLLOM,
ANITA J. MOFFATT TRUST, ANITA J. MOFFATT, REMO PANELLA,
TEDDY F. REED, ROBERT L. SCHAFER,
GRAHAM E. TILLOTSON, JOHN A. TILMANN TRUST, JOHN A. TILMANN,
KEVIN E. McCRONE, MICHAEL P. McCRONE,
RONALD A. ANDERSON
AND
CONTINENTAL BANK N.A.
-------------------------
DATED AS OF JANUARY 11, 1994
<PAGE> 185
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
THE MERGER
<S> <C> <C>
Section 1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.2. Filing Certificate of Merger and
Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3. Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.4. Certificate of Incorporation, By-Laws,
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.5. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
<CAPTION>
ARTICLE II
CONVERSION OF SHARES
<S> <C> <C>
Section 2.1. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2. Issuance of Scotsman Contingent Common
Shares; Definition of EBITDA . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3. Determination of EBITDA and Contingent
Common Shares to be Issued . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.4. Payment of Cash and Delivery of
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.5. Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.6. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.7. Changes in Scotsman Common Stock . . . . . . . . . . . . . . . . . . . . 14
Section 2.8. Non-assignability; Succession; Delivery of
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<CAPTION>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
<S> <C> <C>
Section 3.1. Organization of Holding and TDC . . . . . . . . . . . . . . . . . . . . 15
Section 3.2. Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.4. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.6. Operations Since Balance Sheet Date . . . . . . . . . . . . . . . . . . 19
Section 3.7. No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.9. Condition of Tangible Assets . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.10. Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.11. Availability and Ownership of Assets . . . . . . . . . . . . . . . . . . 25
Section 3.12. Personal Property Leases . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.13. Accounts Receivable; Inventories . . . . . . . . . . . . . . . . . . . . 25
Section 3.14. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<PAGE> 186
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 3.15. Owned Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.16. Leased Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.17. Obligations; Litigation . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.18. Product Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.19. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.20. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.21. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 3.22. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3.23. Employees and Agents and Related
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.24. Employee Relations and Labor Matters . . . . . . . . . . . . . . . . . . 33
Section 3.25. Absence of Certain Business Practices . . . . . . . . . . . . . . . . . 34
Section 3.26. Territorial Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.27. Transactions with Certain Persons . . . . . . . . . . . . . . . . . . . 34
Section 3.28. Safe Harbor or TRAC Leases . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.29. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.30. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.31. No Guaranties; Extensions of Credit . . . . . . . . . . . . . . . . . . 38
Section 3.32. Alco Standard Asset Acquisition Agreement . . . . . . . . . . . . . . . 38
Section 3.33. Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.34. Registration Statement and Proxy
Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.35. Liabilities and Operations of Holding . . . . . . . . . . . . . . . . . 39
Section 3.36. No Finder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.37. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
<CAPTION>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCOTSMAN
<S> <C> <C>
Section 4.1. Organization of Scotsman . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.3. Shares of Scotsman Common Stock . . . . . . . . . . . . . . . . . . . . 41
Section 4.4. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.5. Operations Since January 3, 1993 . . . . . . . . . . . . . . . . . . . . 42
Section 4.6. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.7. SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.8. Intention to Sell, etc. . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.9. Obligations; Litigation . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.10. No Finder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.11. Rights Agreement; Benefits . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.12. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
<CAPTION>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SUB
<S> <C> <C>
Section 5.1. Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.2. Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.3. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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<PAGE> 187
<TABLE>
<CAPTION>
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ARTICLE VI
ACTIONS PRIOR TO THE EFFECTIVE DATE
<S> <C> <C>
Section 6.1. Proxy Statement; Registration Statement . . . . . . . . . . . . . . . . 46
Section 6.2. Action by Stockholders of Holding . . . . . . . . . . . . . . . . . . . 47
Section 6.3. Action by Scotsman and Stockholders of
Scotsman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.4. Investigation of Holding, TDC and Scotsman . . . . . . . . . . . . . . . 47
Section 6.5. Lawsuits, Proceedings, Etc . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.6. Conduct of Business by Holding, TDC and
Scotsman Pending the Merger . . . . . . . . . . . . . . . . . . . . . 48
Section 6.7. Mutual Cooperation; Reasonable Best Efforts . . . . . . . . . . . . . . 52
Section 6.8. No Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.9. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.10. Listing Applications . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.11. Antitrust Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.12. Termination of Management and Stockholders'
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.13. Periodic Financial Statements . . . . . . . . . . . . . . . . . . . . . 54
Section 6.14. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
<CAPTION>
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
<S> <C> <C>
Section 7.1. Board Representation . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.2. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.3. Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.5. Tax-Free Nature; Tax Consequences . . . . . . . . . . . . . . . . . . . 59
<CAPTION>
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SCOTSMAN AND SUB
<S> <C> <C>
Section 8.1. No Misrepresentation or Breach of Covenants
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.2. No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.3. Opinion of Counsel for Holding, TDC and the
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.4. No Injunctions or Restraints . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.5. Necessary Governmental Approvals . . . . . . . . . . . . . . . . . . . . 60
Section 8.6. Necessary Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.7. Noncompetition Agreement . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.8. Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . 61
Section 8.9. Stockholder Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.10. Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.11. Stock Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
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<PAGE> 188
<TABLE>
<CAPTION>
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<S> <C> <C>
Section 8.12. Registration Statement Effective . . . . . . . . . . . . . . . . . . . . 62
Section 8.13. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.14. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.15. Comfort Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.16. Glenco Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.17. Whitlenge Share Acquisition Agreement . . . . . . . . . . . . . . . . . 62
Section 8.18. Average Scotsman Common Stock Closing
Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.19. Resignations of Directors . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.20. Termination of Management and Stockholders'
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
<CAPTION>
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS
OF HOLDING, TDC AND THE STOCKHOLDERS
<S> <C> <C>
Section 9.1. No Misrepresentation or Breach of Covenants
and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.2. No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.3. No Injunctions or Restraints . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.4. Opinions of Counsel for Scotsman and Sub . . . . . . . . . . . . . . . . 64
Section 9.5. Necessary Governmental Approvals . . . . . . . . . . . . . . . . . . . . 64
Section 9.6. Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . 64
Section 9.7. Stockholder Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.8. Stock Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.9. Registration Statement Effective . . . . . . . . . . . . . . . . . . . . 65
Section 9.10. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.11. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.12. Glenco Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.13. Whitlenge Share Acquisition Agreement . . . . . . . . . . . . . . . . . 65
Section 9.14. Average Scotsman Common Stock Closing
Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.15. Necessary Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.16. Comfort Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 9.17. Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 66
<CAPTION>
ARTICLE X
INDEMNIFICATION; SURVIVAL
<S> <C> <C>
Section 10.1. Indemnification by the Stockholders . . . . . . . . . . . . . . . . . . 66
Section 10.2. Indemnification by Scotsman . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.3. Notice of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.4. Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.5. Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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<PAGE> 189
<TABLE>
<CAPTION>
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----
<S> <C> <C>
Section 10.6. Survival of Obligations . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.7. Update of the Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
<CAPTION>
ARTICLE XI
TERMINATION
<S> <C> <C>
Section 11.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
<CAPTION>
ARTICLE XII
OTHER PROVISIONS
<S> <C> <C>
Section 12.1. Confidential Nature of Information . . . . . . . . . . . . . . . . . . . 75
Section 12.2. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 12.4. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 12.5. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 12.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 12.7. Execution in Counterpart . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 12.8. Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 12.9. Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 12.10. Entire Agreement; Amendments and Waivers;
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 12.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 12.12. No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . 86
</TABLE>
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<PAGE> 190
EXHIBITS TO MERGER AGREEMENT
<TABLE>
<S> <C>
Exhibit I Certificate of Designation for Scotsman Convertible Preferred Stock
Exhibit II Certificate of Designation for Scotsman Nonconvertible Preferred Stock
Exhibit III-A Form of Opinion of Debevoise & Plimpton
Exhibit III-B Form of Opinion of Counsel for Certain of the Stockholders
Exhibit IV Form of Noncompetition Agreement
Exhibit V Form of Registration Rights Agreement
Exhibit VI-A Form of Opinion of Sidley & Austin
Exhibit VI-B Form of Opinion of Schiff, Hardin & Waite
</TABLE>
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<PAGE> 191
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 11, 1994
(this "Agreement"), among Scotsman Industries, Inc., a Delaware corporation
("Scotsman"), Scotsman Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Scotsman ("Sub"), DFC Holding Corporation, a
Delaware corporation ("Holding"), (Sub and Holding being hereinafter referred
to as the "Constituent Corporations"), The Delfield Company, a Delaware
corporation ("TDC") and a wholly-owned subsidiary of Holding, Onex Corporation,
an Ontario corporation ("Onex"), Onex DHC LLC, a limited liability corporation
formed under the laws of the State of Wyoming and a wholly-owned, indirect,
subsidiary of Onex ("Onex DHC"), Pacific Mutual Life Insurance Company, a
California corporation ("Pacific"), PM Group Life Insurance Co., an Arizona
corporation ("PM"), EJJM, an Ohio limited partnership ("EJJM"), Matthew O.
Diggs, Jr. ("Diggs"), Timothy C. Collins ("Collins"), W. Joseph Manifold
("Manifold"), Charles R. McCollom ("McCollom"), Anita J. Moffatt Trust u/a
dated July 23, 1993 ("Moffatt Trust"), Anita J. Moffatt ("Moffatt"), Remo
Panella ("Panella"), Teddy F. Reed ("Reed"), Robert L. Schafer ("Schafer"),
Graham E. Tillotson ("Tillotson"), John A. Tilmann Trust dated July 23, 1993
("Tilmann Trust"), John A. Tilmann ("Tilmann"), Ronald A. Anderson
("Anderson"), Kevin E. McCrone (KE McCrone"), Michael P. McCrone ("MP McCrone")
(Onex DHC, Pacific, PM, EJJM, Collins, Manifold, McCollom, Moffatt Trust,
Panella, Reed, Schafer, Tillotson, Tilmann Trust, Anderson, KE McCrone and MP
McCrone are each referred to individually as a "Record Stockholder" and
collectively as the "Record Stockholders" and Onex, Diggs, Moffatt and Tilmann
and the Record Stockholders are each referred to individually as a
"Stockholder" and collectively as the "Stockholders") and Continental Bank N.A.
("Continental"). Unless otherwise indicated, (i) capitalized terms used herein
are used as defined in Section 12.4 hereof, (ii) all references in Article III
to a Schedule and all references to Schedules 10.1 and 12.4 shall be deemed to
refer to the Schedules to a disclosure letter dated the date hereof delivered
by the Stockholders to Scotsman and Sub and relating to this Agreement and
(iii) all references in Articles IV and V to a Schedule and all references to
Schedules 2.3(g) and 6.6(a) shall be deemed to refer to the Schedules to a
disclosure letter dated the date hereof delivered by Scotsman to Holding, TDC,
the Stockholders and Continental and relating to this Agreement.
W I T N E S S E T H :
WHEREAS, Scotsman is a Delaware corporation having an
authorized capital of (i) 50,000,000 shares of common stock, $.10 par value
(the "Scotsman Common Stock"), of which, on the date hereof, 7,008,254 shares
are issued and outstanding, and (ii) 10,000,000 shares of preferred stock,
$1.00 par value, none of which is issued and outstanding;
<PAGE> 192
WHEREAS, Sub is a Delaware corporation having an authorized
capital of 100 shares of common stock, $.01 par value, all of which are issued
and outstanding;
WHEREAS, Holding is a Delaware corporation having an
authorized capital of (i) 7,000,000 shares of Class A common stock, $.01 par
value (the "Holding Common Stock"), of which, on the date hereof, 6,445,000
shares are issued and outstanding, and (ii) 500,000 shares of preferred stock,
$.01 par value, none of which is issued and outstanding;
WHEREAS, TDC, the capital stock of which constitutes the sole
asset of Holding, designs, manufactures and sells commercial refrigerators and
freezers, custom and standard commercial kitchen systems, chef stations and
display cases, commercial ventilation systems and other foodservice equipment
(hereinafter generally referred to as the "Delfield Business");
WHEREAS, the respective Boards of Directors of the Constituent
Corporations have approved the merger (the "Merger") of Sub into Holding
pursuant to the terms and conditions of this Agreement and have directed that
this Agreement be submitted to their stockholders for adoption;
WHEREAS, the parties hereto intend the Merger to constitute a
reorganization described in section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code");
WHEREAS, pursuant to a separate Share Acquisition Agreement,
dated the date hereof (the "Whitlenge Share Acquisition Agreement"), Scotsman
or a wholly owned subsidiary of Scotsman will make an offer to purchase, for
cash and the contingent right to receive in the future certain additional
consideration, all of the issued and outstanding shares of Whitlenge
Acquisition Limited ("WAL"), a private company limited by shares registered in
England and an affiliate of Holding (the "Whitlenge Share Acquisition"); and
WHEREAS, Scotsman, Sub, Holding, TDC and the Stockholders
desire to make certain representations, warranties and agreements in connection
with the Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
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<PAGE> 193
ARTICLE I
THE MERGER
Section 1.1. The Merger. Subject to the conditions contained
herein and in accordance with the provisions of this Agreement and the Delaware
General Corporation Law (the "DGCL"), at the Effective Time (as hereinafter
defined), Sub shall be merged with and into Holding, which, as the corporation
surviving in the Merger (the "Surviving Corporation"), shall continue
unaffected and unimpaired by the Merger to exist under and be governed by the
laws of the State of Delaware. Upon the effectiveness of the Merger, the
separate existence of Sub shall cease except to the extent provided by law in
the case of a corporation after its merger into another corporation.
Section 1.2. Filing Certificate of Merger and Effectiveness.
Upon the satisfaction or waiver of the conditions to the obligations of each of
the parties contained herein, a Certificate of Merger (which shall be in form
and substance reasonably satisfactory to the parties hereto), executed and
acknowledged in accordance with the laws of the State of Delaware, shall be
filed in the office of the Secretary of State of the State of Delaware. The
Merger shall become effective upon such filing as provided by the DGCL. The
date and the time on such date of effectiveness of the Merger are herein
called, respectively, the "Effective Date" and the "Effective Time."
Section 1.3. Effects of the Merger. The Merger shall have
the effects set forth in Sections 259 through 261 of the DGCL.
Section 1.4. Certificate of Incorporation, By-Laws, Directors
and Officers. The Restated Certificate of Incorporation and By-Laws of
Holding, as in effect immediately prior to the Effective Time, shall continue
in full force and effect as the Restated Certificate of Incorporation and
By-Laws of the Surviving Corporation. The initial Board of Directors of the
Surviving Corporation shall consist of not less than three directors to be
designated by Scotsman, who shall serve until their respective successors are
duly elected and qualified. The officers of Holding immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation until
their respective successors are duly elected and qualified.
Section 1.5. Further Assurances. From time to time after the
Effective Time, the officers and directors of the Surviving Corporation shall
be authorized to execute and deliver, in the name and on behalf of Holding or
otherwise, such deeds and other instruments and to take or cause to be taken
such further or other action as shall be necessary or desirable in order to
vest or perfect in or to confirm, of record or otherwise, in the Surviving
Corporation title to, and possession of, all of the property, rights,
privileges, powers, immunities and franchises
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of Holding and otherwise carry out the purposes of this Agreement.
ARTICLE II
CONVERSION OF SHARES
Section 2.1. Conversion of Securities. As of the Effective
Time, by virtue of the Merger and without any action on the part of any
stockholder of Holding or Sub or the holder of the Warrant (as defined in
Section 3.3):
(a) Each share of common stock of Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of Class A common stock,
$.01 par value, of the Surviving Corporation.
(b) All shares of Holding Common Stock that immediately prior
to the Effective Time are held in the treasury of Holding or by any
subsidiary of Holding shall be cancelled and no capital stock of
Scotsman or other consideration shall be delivered in exchange
therefor.
(c) Each share of Holding Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into a pro
rata portion (based upon the aggregate number of shares of Holding
Common Stock issued and outstanding immediately prior to the Effective
Time) of (i) 1,200,000 shares of Scotsman Common Stock together with
associated common stock purchase rights (the "Common Stock Purchase
Rights") issued pursuant to the Rights Agreement, dated as of April
14, 1989, as amended (the "Rights Agreement"), between Scotsman and
Harris Trust & Savings Bank (such shares of Scotsman Common Stock and
Common Stock Purchase Rights are collectively referred to herein as
"Scotsman Fixed Common Shares"), (ii) 2,000,000 shares of Series A
$0.62 Cumulative Convertible Preferred Stock of Scotsman, $1.00 par
value (the "Scotsman Convertible Preferred Stock"), having
substantially the terms set forth in the form of Certificate of
Designation set forth in Exhibit I hereto (such shares of Scotsman
Convertible Preferred Stock are collectively referred to herein as
"Scotsman Convertible Preferred Shares"), and (iii) the right to
receive in cash the sum of (A) U.S. $13,947,490.00, (B) U.S.
$113,566.65 for each consecutive three month period between September
30, 1993 and the Effective Date (each, a "Three Month Period") and (C)
the product obtained by multiplying U.S. $1,261.85 by the number of
calendar days in the period from the day following the end of the
latest Three Month Period to the Effective Date (inclusive), in each
case subject to reduction pursuant toSection 6.6(c) (such
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amounts in cash are collectively referred to herein as the "Cash
Consideration").
(d) Each holder of Holding Common Stock immediately prior to
the Effective Time shall have the nontransferable contingent right to
receive its pro rata portion (based upon the percentage held by it at
such time of the then issued and outstanding Holding Common Stock) of
97.06552% of the Scotsman Contingent Common Shares (as hereinafter
defined).
(e) The Warrant shall be purchased by Scotsman or Sub for (i)
cash in an amount equal to the sum of (x) U.S. $630,510.00, (y) U.S.
$3,433.35 for each Three Month Period and (z) the product obtained by
multiplying U.S. $38.15 by the number of calendar days in the period
from the day following the end of the latest Three Month Period to the
Effective Date (inclusive) and (ii) the nontransferable contingent
right to receive (A) 2.93448% of the Scotsman Contingent Common Shares
or, if Continental and Scotsman so agree in writing on or prior to the
day on which such Scotsman Contingent Common Shares are to be issued,
(B) cash in an amount equal to the product obtained by multiplying the
Closing Price (as defined in Section 2.6(b)) of the Scotsman Common
Stock as of the business day immediately preceding the date on which
such Scotsman Contingent Common Shares are to be issued, by such
number of Scotsman Contingent Common Shares. The amounts described in
clauses (i) and (if applicable) (ii) (B) of the immediately preceding
sentence shall be paid by wire transfer of immediately available funds
to the account or accounts designated in a notice by Continental to
Scotsman. Upon such purchase, the Warrant shall be deemed cancelled
and its holder shall not be entitled to any rights thereunder except
as provided in the immediately preceding sentence.
Notwithstanding the foregoing, if the sum (the "Initial Cash Component") of the
Cash Consideration and the aggregate amount of cash to be paid in lieu of the
issuance of fractional shares pursuant to Section 2.6 exceeds the Maximum Cash
Component (as hereinafter defined), then in lieu of a pro rata portion of the
Cash Consideration, each share of Holding Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted, in part, into a pro
rata portion (based upon the aggregate number of shares of Holding Common Stock
issued and outstanding immediately prior to the Effective Time) of (i) the
right to receive an amount of cash equal to the Maximum Cash Component and (ii)
a number of shares (the "Substitution Number") of Series B Cumulative Preferred
Stock of Scotsman, $1.00 par value (the "Scotsman Nonconvertible Preferred
Stock"), having a liquidation preference equal to the excess of the Initial
Cash Component over the Maximum Cash Component. The Scotsman Nonconvertible
Preferred Stock shall have substantially the terms set forth in the form of
Certificate of Designation set forth in Exhibit II hereto (shares of Scotsman
Nonconvertible Preferred
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Stock into which Holding Common Stock in part are so converted are referred to
herein as the "Scotsman Nonconvertible Preferred Shares"). The per annum
dividend rate per share for the Scotsman Nonconvertible Preferred Stock shall
be equal to the lesser of (x) such per annum rate as is agreed upon at or prior
to the Effective Time by representatives of Morgan Stanley & Co. Incorporated
and William Blair & Company as a rate which would cause shares of Scotsman
Nonconvertible Preferred Stock to trade publicly at the Effective Time (if such
shares were then traded publicly) at a price per share equal to 100% of the
liquidation preference per share for such shares and (y) a per annum rate
(rounded to the nearer cent or, if there is not a nearer cent, to the next
higher cent) per share equal to an amount determined by dividing (i) the sum of
(A) U.S. $200,000 divided by the total number of shares of Scotsman
Nonconvertible Preferred Stock to be issued at the Effective Time and (B) U.S.
$3.515625 by (ii) five.
As used herein, the "Maximum Cash Component" shall mean the
product (rounded to the nearer dollar, or if there is no nearer dollar, to the
next higher dollar) obtained by multiplying (i) .19 by (ii) the sum of (a) the
product obtained by multiplying 1,200,000 by the Adjusted Value (as hereinafter
defined) of Scotsman Common Stock on the Effective Date, (b) U.S. $22,500,000
and (c) the Initial Cash Component. As used herein, the "Adjusted Value" shall
mean the lesser of (i) the arithmetic mean of the high and low trading prices
on the New York Stock Exchange, Inc. (the "NYSE") of Scotsman Common Stock on
the Effective Date (as reported in the NYSE Composite Transactions) and (ii)
the Closing Price (as defined in Section 2.6(b)) of Scotsman Common Stock on
the Effective Date; provided, however, that if the lesser of such amounts is
more than 10% higher than the arithmetic mean of the high and low trading
prices on the NYSE of the Scotsman Common Stock (as reported in the NYSE
Composite Transactions) for the preceding 10 trading business days, the
Adjusted Value shall be such arithmetic mean. In determining the Substitution
Number of Scotsman Nonconvertible Preferred Shares, due account shall be taken
of cash issued in lieu of fractional Scotsman Nonconvertible Preferred Shares
pursuant to Section 2.6 hereof.
Section 2.2. Issuance of Scotsman Contingent Common Shares;
Definition of EBITDA. (a) As provided in Sections 2.1(d), (e) and 2.3,
Scotsman Contingent Common Shares may be issued in respect of the shares of
Holding Common Stock issued and outstanding immediately prior to the Effective
Time and the Warrant. As used herein, "Scotsman Contingent Common Shares"
means the shares of Scotsman Common Stock (together with the associated Common
Stock Purchase Rights) which may be issued pursuant to Sections 2.1(d), (e),
2.3 and 2.7.
(b) The term "EBITDA" shall mean the combined earnings before
interest, income taxes, depreciation and amortization of TDC and Whitlenge
Drink Equipment Limited ("Whitlenge Drink"), a
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wholly-owned subsidiary of WAL, for (x) with respect to TDC, the period
beginning January 1, 1994 and ending December 31, 1994 and (y) with respect to
Whitlenge Drink, the period beginning October 1, 1993 and ending September 30,
1994 (together, the "Measurement Period"). The following principles shall be
applied in determining EBITDA: (i) except as otherwise provided in this Section
2.2, EBITDA shall be determined in accordance with generally accepted
accounting principles applied on a basis consistent with the Statement of
Income, Balance Sheet, Unaudited Statement of Income and Unaudited Balance
Sheet (as such terms are defined in Section 3.5) and through all periods; (ii)
EBITDA shall be determined without regard to any adjustments to the accounting
books and records for financial reporting purposes which may be recorded by
Scotsman as a result of the transactions contemplated by this Agreement and the
Whitlenge Share Acquisition Agreement and without regard to any expenses
reflected in the books and records of TDC or Whitlenge Drink in respect of the
Merger or the Whitlenge Share Acquisition; (iii) EBITDA shall be determined
without regard to expenses charged to TDC or Whitlenge Drink for general
administrative, management or overhead expenses provided by or on behalf of
Scotsman or any of its affiliates (other than expenses charged and invoiced to
TDC or Whitlenge Drink for the provision of specific goods or services which
would otherwise have been provided by third parties) or any charges for the
cost of capital and without regard to any amounts charged under the Onex
Management Agreement and the Diggs Management Agreement (as such terms are
hereinafter defined); (iv) in determining EBITDA, all transactions between TDC,
Whitlenge Drink or their subsidiaries, on the one hand, and Scotsman or its
affiliates (other than TDC, Whitlenge Drink and their subsidiaries), on the
other hand, shall be accounted for on arms-length financial terms; (v) to the
extent that the generally accepted accounting principles required to be used in
the preparation of accounts change from those existing on the date hereof and
the required principles permit alternative accounting treatments of a matter,
Scotsman will apply such alternative treatment as will maximize EBITDA; (vi)
the amount of TDC's "purchase" reserve (other than the portion thereof relating
to pension liability) reflected in the December 31, 1994 financial statements
of TDC shall not be less than the amount thereof at December 31, 1993;
provided, however, that (x) a reduction of up to U.S. $100,000 shall be
permitted to the extent that warranty reserve requirements are otherwise
exceeded and (y) in the discretion of Scotsman, further reductions will be
permitted; (vii) no portion of such "purchase" reserve shall be deemed to
constitute or be applied against any other reserve or accrual for any other
matter except (A) as set forth in the immediately preceding clause (vi), (B)
that some or all of the portion of the "purchase" reserve not relating to
pension liability may be used to constitute a portion of the reserve for
warranty claims and (C) as Scotsman may otherwise determine in its discretion
(it being understood that Scotsman shall not be bound by past practice of TDC
in making any such determination); (viii) the portion of the "purchase" reserve
relating to pension liability at December 31, 1994 may be reduced
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below the amount of such portion at December 31, 1993 (which is U.S. $747,000)
only to the extent that the required pension funding exceeds expensed amounts;
and (ix) reserves and accruals other than the "purchase" reserve, as reflected
in the December 31, 1994 financial statements of TDC and the September 30, 1994
financial statements of Whitlenge Drink, shall be determined consistent with
the Statement of Operating Principles referred to in Section 2.3(g) and in
accordance with generally accepted accounting principles consistently applied
(clauses (i) through (ix) above being referred to herein as the "Agreed
Accounting Principles"). Within 45 days after the end of each month following
the Effective Date through the end of the Measurement Period, Scotsman will
furnish, or caused to be furnished, to the Stockholder Representative (as
hereinafter defined) financial information relating to TDC and Whitlenge Drink
for such month in a form and in such detail as is consistent with the financial
report heretofore furnished to the directors of TDC on a monthly basis.
Section 2.3. Determination of EBITDA and Contingent Common
Shares to be Issued. (a) As soon as practicable (but in any event within 90
days) after the end of the fiscal year of Scotsman ending January 1, 1995,
based upon an audit of the financial statements with respect to TDC and
Whitlenge Drink for the Measurement Period, applying procedures consistent with
past practice, the amount of EBITDA shall be determined by Scotsman in good
faith and Scotsman shall deliver to the Stockholder Representative a notice
(the "Notice") specifying the amount so determined together with the principal
calculations made in such determination. At the request and expense of the
Stockholders, the accounting personnel of Arthur Andersen & Co. who have
heretofore audited the financial statements of Holding prior to the Effective
Time shall be permitted to observe the performance of the auditing procedures
performed by, and have access to the working papers of, the accounting
personnel of Arthur Andersen & Co. used by Scotsman to perform such audit.
"Stockholder Representative" means Onex, or if it is unable or
unwilling to act, then Diggs, or if he is unable or unwilling to act, then the
person appointed by a written instrument or instruments delivered to Scotsman
and signed by the persons who would be entitled to receive more than 50% of the
Scotsman Contingent Common Shares which may be issuable pursuant to this
Section 2.3 and the Scotsman Earnout Shares which may be issuable pursuant to
Section 1.2 of the Whitlenge Share Acquisition Agreement.
(b) Promptly following receipt of the Notice, the Stockholder
Representative may review the same and within 45 days after the date of such
receipt, may deliver to Scotsman a certificate setting forth its or his
objections to the calculation of EBITDA, together with detail of the reasons
therefor and calculations which, in its or his view, are necessary to eliminate
such objections. Scotsman shall allow the Stockholder Representative
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and its or his representatives to examine the books and records, including work
papers, relating to TDC and Whitlenge Drink, and to examine any other
materials, and have access to Arthur Andersen & Co. and any personnel of
Scotsman, the Surviving Corporation and TDC, reasonably requested by the
Stockholder Representative, in connection with such review. In the event the
Stockholder Representative does not so object within such 45-day period, the
amount of EBITDA set forth in the Notice shall be final and binding as the
amount of EBITDA for purposes of this Agreement, but shall not limit the
representations, warranties, covenants and agreements of the parties set forth
elsewhere in this Agreement.
(c) In the event the Stockholder Representative so objects
within such 45-day period, Scotsman and the Stockholder Representative
shall use their reasonable best efforts to resolve by written agreement any
differences as to the amount of EBITDA and the principal calculations to be
made in determining the same and, in the event Scotsman and the Stockholder
Representative so resolve any such differences (the "Agreed Adjustments"), the
amount of EBITDA set forth in the Notice as adjusted by the Agreed Adjustments
shall be final and binding as the amount of EBITDA for purposes of this
Agreement, but shall not limit the representations, warranties, covenants and
agreements of the parties set forth elsewhere in this Agreement.
(d) In the event any objections raised by the Stockholder
Representative are not resolved by Agreed Adjustments within the 30-day period
next following such 45-day period, then Scotsman and the Stockholder
Representative shall submit the objections that are then unresolved to the
Detroit, Michigan office of KPMG Peat Marwick (or to such other national
accounting firm acceptable to both the Stockholder Representative and Scotsman)
and such firm (the "Accounting Firm") shall be directed by Scotsman and the
Stockholder Representative solely to resolve the unresolved objections (based
solely on whether any disputed matter had been determined in a manner
consistent with the Agreed Accounting Principles and Sections 2.3(f) and (g)
and the Accounting Firm shall not conduct any customary audit procedures in
connection with the determination of EBITDA) as promptly as reasonably
practicable and to deliver written notice to each of Scotsman and the
Stockholder Representative setting forth in reasonable detail its resolution of
the disputed matters. The amount of EBITDA, after giving effect to any Agreed
Adjustments and to the resolution of disputed matters by the Accounting Firm,
shall be final and binding as the amount of EBITDA for purposes of this
Agreement, but shall not limit the representations, warranties, covenants and
agreements of the parties set forth elsewhere in this Agreement.
(e) The fees and expenses of the Accounting Firm hereunder
shall be paid 50% by Scotsman and 50% by the Stockholders; provided, however,
if EBITDA shall be finally determined pursuant to Section 2.3(d) to be
less than U.S. $17,000,000, the
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Stockholders shall pay all fees and expenses of the Accounting Firm; and
provided, further, that if EBITDA as finally determined pursuant to Section
2.3(d) results in a number of Scotsman Contingent Common Shares to be issued
which is more than 104,052 shares greater than the number asserted by Scotsman,
Scotsman shall pay all fees and expenses of the Accounting Firm.
(f) Promptly (but not later than 30 days) after the
determination of EBITDA pursuant to this Section 2.3 that is final and binding
as set forth herein, Scotsman shall, subject to Sections 2.6 and 2.7, issue and
deliver, in accordance with Sections 2.1(d) and (e), the number of Scotsman
Contingent Common Shares, if any, determined as follows:
(i) If EBITDA is less than U.S. $17,000,000, Scotsman will
neither deliver nor owe to the Stockholders (or any other person)
under Sections 2.1(d) and (e) any additional shares of Scotsman Common
Stock (or associated Common Stock Purchase Rights);
(ii) If EBITDA is equal to or greater than U.S. $17,000,000
and less than U.S. $17,500,000, Scotsman shall deliver to the persons
referred to in Sections 2.1(d) and (e) their respective portions of a
number of shares of Scotsman Common Stock (together with associated
Common Stock Purchase Rights) equal to the amount obtained by
multiplying (A) 520,260 by (B) the quotient obtained by dividing (1)
the excess of EBITDA over U.S. $17,000,000 by (2) U.S. $500,000; or
(iii) If EBITDA is equal to or greater than U.S. $17,500,000,
Scotsman shall deliver to the persons referred to in Sections 2.1(d)
and (e) their respective portions of 520,260 shares of Scotsman Common
Stock (together with associated Common Stock Purchase Rights).
Scotsman will reserve and keep available 520,260 shares of Scotsman Common
Stock (or such other number of shares resulting from adjustments pursuant to
Section 2.7), from the Effective Date through the date on which the Scotsman
Contingent Common Shares, if any, are issued or are finally determined not to
be issuable, solely for issuance and delivery of the Scotsman Contingent Common
Shares.
(g) After the Effective Date and during the Measurement
Period, Scotsman will cause the activities of TDC and Whitlenge Drink to be
conducted in a businesslike manner consistent with the Statement of Operating
Principles attached hereto as Schedule 2.3(g) (except for deviations therefrom
as may be approved by the Stockholder Representative) and in good faith with
due regard to the rights of the persons referred to in Sections 2.1(d) and (e)
with respect to the Scotsman Contingent Common Shares. Prior to the end of the
Measurement Period,
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without the consent of the Stockholder Representative, Scotsman will not permit
either TDC or Whitlenge Drink to acquire or dispose of any material assets
(other than inventory in the ordinary course of business and the making of
capital expenditures) or businesses. In the event that Scotsman desires to
take any action that, under this Section 2.3(g), requires the consent of the
Stockholder Representative, and Scotsman takes such action without obtaining
such consent, (i) at the election of the Stockholder Representative, EBITDA
shall be calculated as though such action were not taken (or, in the case of
the matters covered by the Statement of Operating Principles, as if such
action had been undertaken only to the extent permitted thereby) and (ii) in
any event the taking of such action shall not be deemed to be a breach of this
Agreement.
(h) The rights of the persons referred to in Sections 2.1(d)
and (e) to any payments of Scotsman Contingent Common Shares shall not be
subject to set-off or counterclaim to satisfy the Stockholders' indemnification
obligations under Section 10.1 or with respect to any other liability or
obligation (whether under this Agreement or otherwise) and shall not depend in
any way or otherwise be contingent upon the performance of any agreement or
continued employment or the provision of personal services.
Section 2.4. Payment of Cash and Delivery of Certificates.
At or after the Effective Time, each holder of a certificate or certificates
representing issued and outstanding shares of record of Holding Common Stock,
and the holder of the certificate representing the Warrant, in each case
immediately prior to the Effective Time, may surrender such certificate or
certificates to Scotsman, and, subject to the last two sentences of this
Section 2.4, Scotsman shall immediately deliver or cause to be delivered, in
exchange therefor, cash (including all amounts payable in lieu of fractional
shares or interests pursuant to Section 2.6), by wire transfer in immediately
available funds to the account or accounts designated by such holder in a
notice to Scotsman, and/or one or more certificates representing the aggregate
number of whole Scotsman Fixed Common Shares, Scotsman Convertible Preferred
Shares and Scotsman Nonconvertible Preferred Shares, as the case may be, into
which the Holding Common Stock represented by the certificate or certificates
so surrendered shall in part have been converted or for which the Warrant in
part was purchased, as the case may be, pursuant to Section 2.1. Until so
surrendered, each outstanding certificate representing issued and outstanding
shares of record of Holding Common Stock or the Warrant immediately prior to
the Effective Time shall not be transferable on the books of the Surviving
Corporation or Scotsman, but shall be deemed for all corporate purposes,
subject to Section 2.5, to evidence the right to receive such cash and/or
ownership of the number of whole Scotsman Fixed Common Shares, Scotsman
Convertible Preferred Shares and Scotsman Nonconvertible Preferred Shares and
the right to receive the Scotsman Contingent Common Shares, as the case may
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be, into which the shares of Holding Common Stock which immediately prior to
the Effective Time were represented thereby shall have been converted or for
which the Warrant was purchased, as the case may be, pursuant to Section 2.1.
At the close of business on the business day next preceding the Effective Date,
the stock transfer books of Holding shall be closed and no transfer of Holding
Common Stock or the Warrant shall thereafter be made or consummated. The
amount of cash payable on the Effective Date to the holders of Holding Common
Stock shall be limited to U.S. $8 million. Any additional cash due to a holder
of Holding Common Stock and all amounts of Scotsman Nonconvertible Preferred
Stock issuable to a holder of Holding Common Stock pursuant to the Merger shall
be paid or issued, as the case may be, on the second business day after the
Effective Date, after the Maximum Cash Component pursuant to Section 2.1 hereof
has been determined.
Section 2.5. Dividends and Distributions. Any dividend or
other distribution paid in respect of Scotsman Common Stock, Scotsman
Convertible Preferred Stock or Scotsman Nonconvertible Preferred Stock to
holders of record on or after the Effective Date and otherwise payable to the
holder of an outstanding certificate which, immediately prior to the Effective
Time, represented issued and outstanding shares of Holding Common Stock or the
Warrant shall, until the surrender of such certificate and the issuance of a
certificate or certificates for Scotsman Fixed Common Shares, Scotsman
Convertible Preferred Shares or Scotsman Nonconvertible Preferred Shares, as
the case may be, in respect thereof, be retained by Scotsman, and no such
dividend or other distribution payable in respect of Scotsman Common Stock,
Scotsman Convertible Preferred Stock or Scotsman Nonconvertible Preferred Stock
shall be paid to the holder of such certificate representing Holding Common
Stock or the Warrant until such certificate shall have been so surrendered to
Scotsman. Upon surrender of each such certificate and issuance in exchange
therefor of Scotsman Fixed Common Shares, Scotsman Convertible Preferred Shares
or Scotsman Nonconvertible Preferred Shares, as the case may be, there shall be
paid by Scotsman to or at the direction of the holder of the certificate for
such Scotsman Fixed Common Shares, Scotsman Convertible Preferred Shares or
Scotsman Nonconvertible Preferred Shares, as the case may be, the amount of all
dividends and distributions which became payable to holders of record on or
after the Effective Date in respect of the number of whole Scotsman Fixed
Common Shares, Scotsman Convertible Preferred Shares and Scotsman
Nonconvertible Preferred Shares represented by the certificate or certificates
so issued. In the event any dividend or other distribution is paid in respect
of Scotsman Common Stock to holders of record on or after the date of final
determination of EBITDA pursuant to Section 2.3 and prior to the date of
issuance of the Scotsman Contingent Common Shares, if any, pursuant to Section
2.3(f), Scotsman shall pay or cause to be paid on the date of such issuance of
Scotsman Contingent Common Shares to or at the direction of the person to whom
the certificate for such
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Scotsman Contingent Common Shares is mailed pursuant to Section 2.8(b) the
amount of such dividends or distributions in respect of the number of whole
Scotsman Contingent Common Shares represented by the certificate so issued. In
no event shall the holder of any certificate which, immediately prior to the
Effective Time, represented issued and outstanding shares of Holding Common
Stock or the Warrant be entitled to receive interest on any of the funds to be
received in the Merger.
Section 2.6. Fractional Shares. (a) No certificates for
fractions of shares of Scotsman Common Stock, Scotsman Convertible Preferred
Stock or Scotsman Nonconvertible Preferred Stock and no scrip or other
certificates evidencing fractional interests in such shares shall be issued
pursuant to Section 2.1, 2.2 or 2.3. If the conversion of a person's aggregate
holdings of Holding Common Stock or the number of Scotsman Contingent Common
Shares issuable to a person at any time results in a fractional share of
Scotsman Common Stock or interest therein, such person shall, in lieu thereof,
be paid cash in an amount equal to the value of such fractional share or
interest based on the Closing Price of Scotsman Common Stock on the last
business day prior to the Effective Date for cash to be paid in connection with
the issuance of Scotsman Fixed Common Shares and the last business day prior to
the issuance of the Scotsman Contingent Common Shares for cash to be paid in
connection with the issuance of Scotsman Contingent Common Shares. If the
conversion of a person's aggregate holdings of Holding Common Stock results in
a fractional share of Scotsman Convertible Preferred Stock or Scotsman
Nonconvertible Preferred Stock or interest therein, such person shall, in lieu
thereof, be paid cash in an amount equal to the value of such fractional share
or interest based on the liquidation preference of such preferred stock. Any
person otherwise entitled to a fractional share or interest shall not be
entitled by reason thereof to any voting, dividend or other rights as a
stockholder of Scotsman.
(b) The "Closing Price" of Scotsman Common Stock on any
business day shall for all purposes of this Agreement be: (i) the last sale
price, or the closing bid price if no sale occurred, of Scotsman Common Stock
on the principal securities exchange on which Scotsman Common Stock is listed,
if so listed, or (ii) if not listed, the mean between the closing high bid and
low asked quotations of Scotsman Common Stock on the National Association of
Securities Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then in common use,
if so quoted. If the closing price of Scotsman Common Stock is not available
through the systems set forth above, the Closing Price of Scotsman Common Stock
on any day or the average of such Closing Prices for any period shall be the
fair market value of Scotsman Common Stock as determined by a member firm of
the New York Stock Exchange, Inc. selected by Scotsman and reasonably
acceptable to the Stockholder Representative.
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Section 2.7. Changes in Scotsman Common Stock. In the event
that, between the date hereof and the Effective Time, there has occurred any
reclassification, stock split, stock dividend or similar change in respect of
the Scotsman Common Stock, then appropriate adjustment shall be made in the
number of shares of Scotsman Common Stock and/or kind of securities issued as
Scotsman Fixed Common Shares or to be issued as Scotsman Contingent Common
Shares in order to provide holders of Holding Common Stock or the Warrant with
the same number of shares of Scotsman Common Stock and/or such securities that
they would have received after such reclassification, stock split, stock
dividend or similar change if the Effective Time or the issuance of the
Scotsman Contingent Common Shares had occurred immediately prior to such
reclassification, stock split, stock dividend or similar change (and all
references herein to the "Scotsman Fixed Common Shares" and "Scotsman
Contingent Common Shares" shall refer to such adjusted number and/or kind of
securities). In the event that Scotsman Contingent Common Shares become
issuable pursuant to Sections 2.1(d), (e), 2.2 and 2.3 and, between the
Effective Time and such issuance, (i) there has occurred any conversion,
change, exchange or reclassification of the Scotsman Common Stock into another
security or form of property pursuant to any merger, consolidation, acquisition
of business and assets, reorganization or recapitalization or there has
occurred any reclassification under other circumstances or any stock split,
stock dividend or similar change in respect of the Scotsman Common Stock, or
(ii) Scotsman shall have distributed cash to all holders of Scotsman Common
Stock in such an amount and manner that the conversion rate applicable to the
Scotsman Convertible Preferred Stock is adjusted in respect thereof pursuant to
Section 6(f)(iv) of the Certificate of Designation applicable thereto, then
appropriate adjustment shall be made in the number of shares of Scotsman Common
Stock and/or kind of securities issued as Scotsman Contingent Common Shares in
order to provide holders of Holding Common Stock or the Warrant, as the case
may be, with, in the case of clause (i), the same number of shares of Scotsman
Common Stock and/or such securities that they would have received after such
conversion, change, exchange, reclassification, stock split, stock dividend or
similar change if the issuance of the Scotsman Contingent Common Shares had
occurred immediately prior to such conversion, change, exchange,
reclassification, stock split, stock dividend or similar change or, in the case
of clause (ii), a number of shares of Scotsman Common Stock reflecting the
adjustment factor specified in such Section 6(f)(iv) (and all references herein
to the "Scotsman Contingent Common Shares" shall refer to such adjusted number
and/or kind of securities). If, between the date hereof and the Effective
Time, any event shall take place which would require an adjustment to the
conversion rate of the Scotsman Convertible Preferred Stock pursuant to the
Certificate of Designation applicable thereto if such provisions were then in
effect, then at the time of each such event the conversion rate of the Scotsman
Convertible Preferred Stock shall be appropriately adjusted as if the
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provisions of such Certificate of Designation were then in effect.
Section 2.8. Non-assignability; Succession; Delivery of
Certificates. (a) The right to receive Scotsman Contingent Common Shares, if
any, shall not be assignable or transferable except by operation of law.
(b) A certificate for any Scotsman Contingent Common Shares
which becomes issuable shall be mailed, in accordance with the customary
practice of Scotsman or its transfer agent, to the Record Stockholder, the
holder of the Warrant, their respective successors by operation of law, or
the Permitted Transferee (as defined in Section 7.1), to whom the Scotsman
Contingent Common Shares represented thereby are being issued, to such person's
last known address as provided in the stockholder records of Scotsman or such
other address, or in the name of such successor or Permitted Transferee, as
shall be furnished in writing to Scotsman by the Record Stockholder, the holder
of the Warrant, their respective duly appointed personal representatives or
successors or such Permitted Transferee. Scotsman may require proper evidence
of succession or transfer and, in any event, shall be fully protected in
issuing, registering and mailing certificates for Scotsman Contingent Common
Shares to and registered in the name of such person to such address.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
As an inducement to Scotsman and Sub to enter into this
Agreement and to consummate the transactions contemplated hereby, the
Stockholders jointly and severally (except as otherwise provided below and
subject to Article X) represent and warrant to Scotsman and Sub and agree as
follows:
Section 3.1. Organization of Holding and TDC. Holding and TDC
are each corporations duly incorporated, validly existing and in good standing
under the laws of the State of Delaware. Holding and TDC are each duly
qualified to transact business as foreign corporations and are each in good
standing in each of the jurisdictions in which the ownership or leasing of the
properties used in its business or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not have a Material Adverse Effect on
Holding and TDC, taken as a whole. Holding and TDC have full corporate power
and authority to own or lease and operate their respective properties and to
carry on their respective businesses as now conducted. Holding and TDC have
delivered to Scotsman complete and correct copies of the certificates of
incorporation and by-laws of Holding and TDC, each as amended and in effect on
the date hereof.
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Section 3.2. Subsidiaries and Investments. (a) Holding's
sole asset is 100 shares of common stock of TDC, which constitutes all of the
issued and outstanding capital stock of TDC. Except for such common stock of
TDC and any securities or equity interest it may own indirectly through TDC,
Holding does not, directly or indirectly, (i) own, of record or beneficially,
any outstanding securities or other interest in any corporation, partnership,
joint venture or other entity or (ii) control any corporation, partnership,
joint venture or other entity.
(b) Except as set forth in Schedule 3.2, TDC does not,
directly or indirectly, (i) own, of record or beneficially, any outstanding
securities or other interest in any corporation, partnership, joint venture or
other entity (other than investments in publicly traded securities, cash
equivalents and short-term investment grade debt) or (ii) control any
corporation, partnership, joint venture or other entity.
Section 3.3. Capitalization. (a) The authorized capital of
Holding consists of (i) 7,000,000 shares of Class A common stock, $.01 par
value, of which 6,445,000 shares are issued and outstanding (before giving
effect to any redemption pursuant to Section 6.6(c)) and, except for 194,845
shares issuable upon exercise of the Warrant (as hereinafter defined), none of
which is reserved for any purpose and (ii) 500,000 shares of preferred stock,
$.01 par value, none of which is issued and outstanding or reserved for any
purpose. All of the outstanding shares of Holding Common Stock are duly
authorized, validly issued, fully paid and nonassessable. The record owners of
the Holding Common Stock as of the date hereof are listed in Schedule 3.3(a)
hereto and a list of the record owners of the Holding Common Stock as of the
Effective Date will be provided to Scotsman on the Effective Date. Continental
is the record owner of a warrant (the "Warrant") entitling it to purchase
194,845 shares of Holding Common Stock. Complete and correct copies of the
material agreements relating to the Warrant have been furnished to Scotsman.
Except for the Warrant or as permitted hereunder, there are no options,
warrants or other rights to acquire, or agreements or commitments to issue,
sell, purchase or redeem, shares of capital stock or other equity interest of
Holding, whether on conversion of other securities or otherwise. None of the
issued and outstanding shares of Holding Common Stock has been issued in
violation of, or is subject to, any preemptive or subscription rights. Except
as set forth in Schedule 3.3(a), there are no stockholder agreements, voting
trust agreements or any other similar contracts, agreements, arrangements,
commitments, plans or understandings restricting or otherwise relating to
voting, dividend, ownership or transfer rights with respect to any shares of
capital stock of Holding.
(b) Each Stockholder other than Onex severally represents
and warrants as to itself and Onex severally represents and warrants as to Onex
DHC that (i) it is the beneficial owner of the shares of Holding Common Stock
listed in
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Schedule 3.3(a) opposite its name or it has transferred such shares to a
Permitted Transferee or Permitted Transferees and (ii) all such shares are
owned free from all liens, claims, encumbrances or other restrictions of any
kind, other than liens, claims, encumbrances or other restrictions listed on
Schedule 3.3(b). Each Stockholder severally represents and warrants as to
itself that, except as a result of the consummation of the Merger or as set
forth in Schedule 3.3(b), neither it nor any of its affiliates or associates
owns, beneficially or of record, any shares of Scotsman Common Stock.
Continental severally represents and warrants as to itself that it is the
beneficial owner of the Warrant.
(c) The authorized capital of TDC consists of 1,000
shares of common stock, $.01 par value, of which 100 shares are issued and
outstanding and none of which is reserved for any purpose. All such
outstanding shares are duly authorized, validly issued, fully paid and
nonassessable. Holding is the record and beneficial owner of all of the issued
and outstanding shares of common stock of TDC. All such shares of common stock
of TDC are so owned free from all liens, claims, encumbrances or other
restrictions of any kind, other than liens, claims, encumbrances or other
restrictions listed on Schedule 3.3(c). There are no options, warrants or
other rights to acquire, or agreements or commitments to issue, sell, purchase
or redeem, shares of capital stock of TDC, whether on conversion of other
securities or otherwise. None of the issued and outstanding shares of common
stock of TDC has been issued in violation of, or is subject to, any preemptive
or subscription rights. There are no voting trust agreements or any other
similar contracts, agreements, arrangements, commitments, plans or
understandings restricting or otherwise relating to voting, dividend, ownership
or transfer rights with respect to any shares of common stock of TDC.
Section 3.4. Authority. (a) Holding and TDC have full
corporate power and authority to enter into this Agreement and, subject to
adoption of this Agreement by the stockholders of Holding, to consummate the
transactions contemplated hereby.
The execution, delivery and performance of this Agreement by
Holding and TDC and the consummation by Holding and TDC of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Holding and TDC subject to such adoption of this Agreement by
the stockholders of Holding. This Agreement is, and each other agreement or
instrument of Holding or TDC contemplated hereby when executed and delivered
will be, the legal, valid and binding agreement of Holding or TDC, as the case
may be, enforceable against Holding or TDC, as the case may be, in accordance
with its respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and
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by general equitable principles (whether enforcement is sought by proceedings
in equity or at law).
Neither the execution or delivery of this Agreement by
Holding, TDC or any Stockholder, nor consummation of the transactions
contemplated hereby or compliance with or fulfillment of the terms and
provisions hereof by Holding, TDC or any Stockholder, will (a) conflict with,
result in a breach of the terms, conditions or provisions of, or constitute a
default, an event of default or an event creating rights of acceleration,
termination or cancellation or a loss of rights, or result in the creation or
imposition of any encumbrance upon any of the material assets of Holding or
TDC, under the certificate of incorporation or the by-laws of Holding or TDC,
any instrument, agreement, mortgage, indenture, deed of trust, permit,
concession, grant, franchise, license, judgment, order, award, decree or other
restriction to which Holding or TDC is a party or any of their respective
material properties is subject or by which either of them is bound or any
material statute, other law or regulatory provision affecting any of them,
except for such conflicts, breaches, defaults, events, creations and
impositions that are set forth on Schedule 3.4(a) or (b) require the approval,
consent or authorization of, or the making of any declaration, filing or
registration with, any third party or any foreign, federal, state or local
court, governmental authority or regulatory body, by or on behalf of Holding or
TDC, except for the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware, adoption of this
Agreement by the stockholders of Holding and as set forth in Schedule 3.4(a).
(b) Each Stockholder that is a corporate entity severally
represents and warrants as to itself that it has full corporate power and
authority, and each other Stockholder severally represents and warrants as to
itself that it has full power and authority, to enter into this Agreement.
Each Stockholder severally represents and warrants as to itself that neither
the execution or delivery of this Agreement by Holding, TDC or such
Stockholder, nor consummation of the transactions contemplated hereby or
compliance with or fulfillment of the terms and provisions hereof by Holding,
TDC or such Stockholder, will conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default, an event of default or an
event creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any encumbrance upon
any of the material assets of Holding or TDC, under any instrument, agreement,
mortgage, indenture, deed of trust, permit, concession, grant, franchise,
license, judgment, order, award, decree or other restriction to which such
Stockholder is a party or by which such Stockholder is bound. Each of the
Stockholders severally represents and warrants as to itself that this Agreement
is, and each other agreement or instrument of such Stockholder contemplated
hereby when executed and delivered
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will be, the legal, valid and binding agreement of such Stockholder enforceable
against such Stockholder in accordance with its respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
Section 3.5. Financial Statements. Holding and TDC have
previously provided Scotsman with: (i) the consolidated audited balance
sheet (the "Balance Sheet") of Holding as of December 31, 1992 (the "Balance
Sheet Date") and the related audited consolidated statements of income (the
"Statement of Income"), stockholders' equity and cash flows for the year then
ended, together with appropriate notes to such financial statements, certified
by Arthur Andersen & Co., independent public accountants, and (ii) the
consolidated unaudited balance sheet of Holding as of September 30, 1993 (the
"Unaudited Balance Sheet") and the related unaudited consolidated statement of
income (the "Unaudited Statement of Income") for the nine months then ended.
Except as disclosed in the notes thereto, such consolidated balance sheets and
statements of income, stockholders' equity and cash flows referred to in
clauses (i) and (ii) of the preceding sentence have been prepared in conformity
with generally accepted accounting principles consistently applied and fairly
present in all material respects the consolidated financial position of Holding
at the dates of such balance sheets and the consolidated results of its
operations and consolidated cash flows for the respective periods indicated,
except that the Unaudited Balance Sheet and the Unaudited Statement of Income
are subject to normal year-end audit adjustments. The Unaudited Statement of
Income does not contain any material items of special or nonrecurring income
except as expressly specified therein. The Statement of Income does not
contain any material items of special or nonrecurring income except as
expressly specified therein. Except as set forth on Schedule 3.5 or in the
Unaudited Statement of Income or the Unaudited Balance Sheet, the Unaudited
Balance Sheet and the Unaudited Statement of Income include all adjustments,
which consist only of normal recurring accruals, other than normal year-end
audit adjustments, necessary for such fair representation. All costs and
expenses incurred in generating the revenues reflected in the Statement of
Income or otherwise in connection with the Delfield Business during the period
covered thereby which are required by generally accepted accounting principles
to be reflected in the Statement of Income are so reflected.
Section 3.6. Operations Since Balance Sheet Date. (a) Except
as set forth in Schedule 3.6(a) or as disclosed in the Unaudited Balance Sheet
or the Unaudited Statement of Income, since the Balance Sheet Date, there has
been: (i) no material adverse change in the assets, liabilities, operations,
profits or business or condition, financial or otherwise, of Holding and TDC;
and (ii) no damage, destruction, loss or claim with respect
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to, whether or not covered by insurance, or condemnation or other taking of,
assets having a Material Adverse Effect on Holding and TDC taken as a whole.
(b) Except as set forth in Schedule 3.6(b), as contemplated
hereby or with the prior written consent of Scotsman after the date hereof,
since the Balance Sheet Date, TDC has conducted the Delfield Business only in
the ordinary course and in conformity with past practice. Without limiting the
generality of the foregoing, except as set forth in Schedule 3.6(b), as
contemplated hereby or with the prior written consent of Scotsman after the
date hereof, since the Balance Sheet Date, neither Holding nor TDC has: (i)
issued, delivered or agreed (actually or contingently) to issue or deliver any
of its capital stock, or granted any option, warrant or right to purchase any
of its capital stock or other equity interest, or security convertible into its
capital stock or other equity interest, or any of its bonds, notes or other
securities, or borrowed or agreed to borrow any funds, other than in the
ordinary course of business consistent with past practice; (ii) paid any
obligation or liability (absolute or contingent) other than current liabilities
reflected on the balance sheets referred to in Section 3.5 and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice; (iii) declared or made, or agreed to
declare or make, any payment of dividends or distributions to stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock or other equity interest, except in each case as permitted hereunder;
(iv) mortgaged, pledged or encumbered any assets other than in the ordinary
course of business consistent with past practice; (v) except for assets sold,
leased or transferred in the ordinary course of business consistent with past
practice, sold, leased or transferred or agreed to sell, lease or transfer any
material assets or rights; (vi) cancelled or agreed to cancel any material
debts or claims, waived or agreed to waive any rights of material value, or
allowed to lapse or failed to keep in force any material franchise, permit or
other material right; (vii) except in the ordinary course of business
consistent with past practice, made or permitted any material amendment or
termination of any material contract, agreement or license; (viii) undertaken
or committed to capital expenditures exceeding U.S. $100,000 for any single
project or related series of projects; (ix) made any increase in the
compensation paid or to become payable to any of Holding's or TDC's officers or
employees except for increases in the normal course of business consistent with
past practice and increases required to be made pursuant to the terms of any
employment or other agreement or employee benefit plan, policy, arrangement or
agreement entered into prior to the Balance Sheet Date; (x) amended its
certificate of incorporation or by-laws; (xi) undergone any material adverse
change in its relationship, taken as a whole, with suppliers, customers,
distributors and lessors; (xii) made charitable donations in excess of U.S.
$50,000 in the aggregate; (xiii) incurred any liability or obligation (whether
absolute, accrued, contingent or otherwise and
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whether direct or as guarantor or otherwise with respect to obligations of
others) material to the business or assets of Holding and TDC, taken as a
whole, except in the ordinary course of business consistent with past practice;
(xiv) instituted, settled or agreed to settle any litigation, action, or
proceeding before any court or governmental body relating to the business or
assets of Holding or TDC and involving an amount in excess of U.S. $50,000 or
otherwise materially affecting Holding or TDC; (xv) entered into, or amended in
any material respect, any employment, collective bargaining, deferred
compensation, retention, change of control, termination or other material
agreement or arrangement for the benefit of employees (whether or not legally
binding) or entered into, adopted or amended in any material respect any Plan
(as hereinafter defined); (xvi) suffered any strike or other employment related
problem which would have a Material Adverse Effect on Holding and TDC taken as
a whole; (xvii) suffered the loss of any key employees or had any material
change in its relations with its employees and agents; (xviii) received any
notice of termination of any material contract, lease or other material
agreement; (xix) transferred or expressly granted any rights under, or entered
into any settlement regarding the breach or infringement of, any material
United States or foreign license, patent, copyright, trademark, trade name,
invention or other material intellectual property or modified in any material
respect any existing rights with respect thereto; (xx) changed its accounting
reference period; or (xxi) entered into any transaction of the type described
in Section 3.30; (xxii) amended the terms of the Executive Salary and Bonus
Structure Recommendations for The Delfield Company, as updated to November 1993
(the "Bonus Plan"), a complete and correct copy of which has been furnished to
Scotsman; or (xxiii) entered into or become committed to enter into any other
material transaction except in the ordinary course of business consistent with
past practice.
Section 3.7. No Undisclosed Liabilities. Neither Holding nor
TDC is subject to any liability which is required in accordance with generally
accepted accounting principles to be shown on the Balance Sheet but which is
not so shown, and, to the knowledge of Holding, TDC or any Stockholder, neither
Holding nor TDC is subject to any material liability, absolute or contingent,
which is not shown on the Balance Sheet or which is in excess of amounts shown
or reserved for in the Balance Sheet or referred to in the notes thereto, other
than, in each case, (i) as disclosed in Schedule 3.7, (ii) as disclosed in the
Unaudited Balance Sheet and (iii) liabilities of a similar nature as those set
forth in the Balance Sheet and notes thereto and incurred after the Balance
Sheet Date in the ordinary course of its business consistent with past
practice.
Section 3.8. Taxes. (a) Except as set forth on Schedule 3.8,
(i) each of Holding, TDC and each Company Group (as hereinafter defined) has
filed on or before the date hereof (or will timely file) all material Tax
Returns (as hereinafter
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defined) required to be filed on or before the Effective Date; (ii) all such
Tax Returns are complete and accurate in all material respects and disclose all
material Taxes (as hereinafter defined) required to be paid by Holding, TDC and
each Company Group for the periods covered thereby except for Taxes for which
adequate reserves have been established by Holding and TDC in accordance with
generally accepted accounting principles and all Taxes shown to be due on such
Tax Returns have been timely paid; (iii) none of Holding, TDC or any member of
any Company Group has waived or been requested to waive any statute of
limitations in respect of Taxes; (iv) the Tax Returns referred to in clause (i)
have been examined by the Internal Revenue Service or the appropriate state,
local or foreign taxing authority or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired; (v)
there is no action, suit, investigation, audit, claim or assessment pending or
proposed or threatened with respect to Taxes of Holding, TDC or any Company
Group and, to the knowledge of each Stockholder, Holding and TDC, no basis
exists therefor for which adequate reserves in accordance with generally
accepted accounting principles have not been established; (vi) all deficiencies
asserted or assessments made as a result of any examination of the Tax Returns
referred to in clause (i) have been paid in full; (vii) all Tax Sharing
Arrangements (as hereinafter defined) will terminate prior to the Effective
Date and Holding and TDC will not have any liability thereunder on or after the
Effective Date; (viii) there are no liens for Taxes upon the assets of Holding
or TDC except liens relating to current Taxes not yet due; (ix) all Taxes which
Holding, TDC or any Company Group are required by law to withhold or to collect
for payment have been duly withheld and collected, and have been paid or
accrued; (x) the accruals for deferred Taxes reflected in the Balance Sheet are
adequate to cover any deferred tax liability of Holding or TDC determined in
accordance with generally accepted accounting principles through the date
thereof; (xi) there are no Tax rulings, requests for rulings, request for a
change in method of accounting or closing agreements relating to Holding, TDC
or any Company Group which could affect Holding or TDC's liability for Taxes
for any period after the Effective Date; (xii) none of Holding, TDC or any
Company Group has filed a consent under Section 341(f) of the Code or any
comparable provision of state statutes; (xiii) none of the Stockholders,
Holding or TDC has any knowledge of any facts that, if known to any taxing
authority, would likely result in the issuance of a notice of proposed
deficiency or similar notice of intention to assess material Taxes against
Holding, TDC or any Company Group; (xiv) since January 1, 1993, none of
Holding, TDC or any Company Group has taken any action not in accordance with
past practice that would have the effect of deferring any Tax liability for
Holding or TDC from any taxable period ending on or before the Effective Date
to any taxable period ending after the Effective Date; (xv) none of the income
recognized, for federal, state, local or foreign income Tax purposes, by
Holding or TDC during the period beginning on the date hereof and ending on the
Effective Date will be derived other than in the ordinary course
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of business; (xvi) no income or gain of Holding or TDC has been deferred
pursuant to Treasury Regulation Section Section 1.1502-13 or -14, or Temporary
Treasury Regulation Section Section 1.1502-13T or -14T; (xvii) no power of
attorney has been granted with respect to any matter relating to Taxes of
Holding or TDC which is currently in force; (xviii) none of the property of
Holding or TDC is required to be treated as owned by another person pursuant to
Section 168(f)(8) of the Code (as in effect prior to its amendment by the Tax
Equity and Fiscal Responsibility Act of 1982) or is "tax exempt use property"
within the meaning of Section 168(h) of the Code; (xix) neither Holding nor TDC
have participated in or cooperated in an international boycott, within the
meaning of Section 999 of the Code, nor has any such corporation had operations
which are or may hereafter become reportable under Section 999 of the Code;
(xx) neither Holding nor TDC have disposed of property in a transaction being
accounted for under the installment method pursuant to Section 453 or 453A of
the Code; (xxi) neither Holding nor TDC have any corporate acquisition
indebtedness, as described in Section 279(b) of the Code; and (xxii) neither
Holding nor TDC assumed any Tax liabilities in connection with the transactions
carried out pursuant to the agreements referred to in Section 3.32 hereof and
prior to such transactions neither Holding nor TDC had any material Tax
liabilities.
(b) No disposition by Holding or any of the Stockholders
pursuant to this Agreement is subject to withholding under Section 1445 of the
Code and no stock transfer taxes, real estate transfer taxes, or other similar
taxes will be imposed in respect of the Merger.
(c) As a result of the Merger, none of Holding, TDC or
the Surviving Corporation will be obligated (limited, in the case of the
Surviving Corporation, to obligations to which the Surviving Corporation
becomes subject as a result of any agreement or arrangement entered into by
Holding or TDC prior to the Merger) to make a payment to an individual that
would be an "excess parachute payment" to a "disqualified individual" as those
terms are defined in Section 280G of the Code, without regard to whether such
payment is reasonable compensation for personal services performed or to be
performed in the future.
(d) For purposes of this Section 3.8, the following
definitions shall apply:
(i) "Company Group" shall mean any "affiliated group" (as
defined in Section 1504(a) of the Code without regard to the
limitations contained in Section 1504(b) of the Code) that, at any
time on or before the Effective Date, includes or has included
Holding, TDC or any predecessor of or successor to Holding or TDC (or
another such predecessor or successor), or any other group of
corporations which, at any time on or before the Effective Date, files
or has filed Tax Returns on a combined, consolidated or unitary basis
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with Holding or TDC or any predecessor of or successor to Holding or
TDC (or another such predecessor or successor).
(ii) "material" shall mean, with respect to Taxes or Tax
Returns, that the failure on a timely basis to pay all such Taxes, to
file all such Tax Returns or pay the Taxes due in respect of such Tax
Returns, as the case may be, would result in an aggregate Tax
liability of not less than U.S. $50,000.
(iii) "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") shall mean (i) any federal, state, local or foreign income,
gross receipts, windfall profits, severance, property, production,
sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer,
excise, stamp, or environmental tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or
additional amount imposed by any governmental authority, and (ii)
liability of Holding or TDC for the payment of amounts with respect to
payments of a type described in clause (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group, or
as a result of any obligation of Holding or TDC under any Tax Sharing
Arrangement or Tax indemnity arrangement.
(iv) "Tax Return" shall mean any return, report or similar
statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information
return, claim for refund, amended return and declaration of estimated
Tax.
(v) "Tax Sharing Arrangement" shall mean any written or
unwritten agreement or arrangement for the allocation or payment of
Tax liabilities or payment for Tax benefits with respect to a
consolidated, combined or unitary Tax Return which Tax Return includes
Holding and TDC or any Subsidiary.
Section 3.9. Condition of Tangible Assets. Each tangible
asset owned or leased by TDC and having a book or fair market value in excess
of U.S. $50,000 is in good operating condition (subject to reasonable wear and
tear and immaterial impairments of value and damage) and generally suitable for
the uses for which intended.
Section 3.10. Title to Property. TDC has good and, with
respect to real property, marketable title to all of the material assets
reflected on the Balance Sheet as being owned by it and all of the material
assets thereafter acquired by it
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(except to the extent that such assets have thereafter been disposed of in the
ordinary course of business consistent with past practice), subject to no
liens, mortgages, pledges, security interests, encumbrances, claims or charges
of any kind (collectively, "Liens") except (i) as noted in Schedule 3.10, (ii)
for Liens for taxes not yet delinquent or the validity of which is being
contested in good faith, (iii) any Liens arising by operation of law securing
obligations not yet overdue and (iv) Liens that do not materially interfere
with the present use or value of the applicable asset.
Section 3.11. Availability and Ownership of Assets. The
assets shown on the Balance Sheet, taken as a whole, include all the material
properties and assets owned or used or held by Holding or TDC during the past
twelve months and required, in accordance with generally accepted accounting
principles, to be reflected on the Balance Sheet (except properties and assets
sold, cash disposed of, accounts receivable collected, prepaid expenses
realized, contracts fully performed, and properties or assets which had become
worn out, obsolete or surplus, in each case in the ordinary course of
business). There are no material assets or properties used in the Delfield
Business owned by any person other than TDC which are leased or licensed to TDC
pursuant to a lease or license that will terminate as a result of the
consummation of the Merger and the other transactions contemplated hereby.
Section 3.12. Personal Property Leases. Set forth in Schedule
3.12 is a brief description of each lease or other agreement or right, whether
written or oral (including in each case the annual rental, the expiration date
thereof and a brief description of the property covered), under which TDC is
lessee of, or holds or operates, any machinery, equipment, vehicle or other
tangible personal property owned by a third person having scheduled rental
payments in excess of U.S. $50,000 per year.
Section 3.13. Accounts Receivable; Inventories. To the
knowledge of Holding, TDC and the Stockholders, all outstanding accounts
receivable of TDC have arisen from bona fide transactions of TDC, except to the
extent that a reserve in respect thereof shall have been established on the
Balance Sheet, the Unaudited Balance Sheet or the audited consolidated balance
sheet of Holding referred to in Section 6.13. To the knowledge of Holding, TDC
and the Stockholders, (i) the accounts receivable reflected in the Balance
Sheet, taken as a whole, are good and collectible in all material respects in
the ordinary course of business at the aggregate recorded amounts thereof, net
of any applicable allowances for doubtful accounts or customer rebates
reflected therein; and (ii) the accounts receivable to be reflected in the
books and records of TDC as of the Effective Date, taken as a whole, will be
good and collectible in all material respects in the ordinary course of
business at the aggregate recorded amounts thereof, net of any applicable
allowances for doubtful accounts or customer rebates reflected
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thereon, which allowances will be determined on a basis consistent with the
basis used in determining the allowances for doubtful accounts or customer
rebates reflected in the Balance Sheet. To the knowledge of Holding, TDC and
the Stockholders, the inventories of TDC (including raw materials, supplies,
work-in-process, finished goods and other materials), taken as a whole, are in
merchantable condition in all material respects and are reflected in all
material respects in the books and records of Holding and TDC at the lower of
average cost or market value, except in each case for obsolete inventory
accounted for in accordance with the applicable policy set forth in the
attachment to Schedule 2.3(g).
Section 3.14. Intellectual Property. (a) Schedule 3.14
contains a list of:
(i) all material United States and foreign patents and patent
applications, all material United States, state and foreign
trademarks, service marks, trade names and copyrights for which
registrations have been issued or applied for, and all other material
United States, state and foreign trademarks, service marks, trade
names and copyrights, owned by Holding or TDC or in which Holding or
TDC holds any material right, license or interest, showing in each
case the product, device, process, service, business or publication
covered thereby, the registered or other owner, expiration date and,
in the case of any such right, license or interest, a brief
description thereof;
(ii) all material agreements, commitments, contracts,
understandings, licenses and assignments relating or pertaining to any
asset, property or right described in the preceding clause to which
Holding or TDC is a party, showing in each case the parties thereto
and, in the case of oral agreements, commitments, contracts,
understandings, licenses and assignments, the material terms thereof;
(iii) all material licenses or agreements pertaining to
mailing lists, know-how, trade secrets, inventions or uses of ideas to
which Holding or TDC is a party, showing in each case the parties
thereto and, in the case of oral licenses or agreements, a brief
description of the material terms thereof; and
(iv) all registered assumed or fictitious names under which
TDC is conducting the Delfield Business as of the date hereof.
(b) All patents listed in Schedule 3.14 as being owned by
Holding or TDC are valid and in full force, all patents listed in Schedule 3.14
as being used by Holding or TDC are, to the knowledge of Holding and TDC, valid
and in full force and all
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patent applications of Holding or TDC listed therein are in good standing, all
without material challenge of any kind except as otherwise disclosed in
Schedule 3.14, and, except as otherwise disclosed in Schedule 3.14, Holding or
TDC owns the entire right, title and interest in and to such patents and patent
applications so listed as being owned by Holding or TDC without limitation,
burden or encumbrance of any kind, except for such limitations, burdens and
encumbrances that would not have a Material Adverse Effect on Holding and TDC
taken as a whole. All of the registrations for trade names, trademarks,
service marks and copyrights listed in Schedule 3.14 as being owned by Holding
or TDC are valid and in full force, all of the registrations for trade names,
trademarks, service marks and copyrights listed in Schedule 3.14 as being used
by Holding or TDC are, to the knowledge of Holding and TDC, valid and in full
force and all applications by Holding or TDC for such registrations are pending
and in good standing, all without material challenge of any kind except as
otherwise disclosed in Schedule 3.14, and, except as otherwise disclosed in
Schedule 3.14, Holding or TDC owns the entire right, title and interest in and
to all such trade names, trademarks, service marks and copyrights so listed as
being owned by Holding or TDC as well as the registrations and applications for
registration therefor without qualification, limitation, burden or encumbrance
of any kind, except for such qualifications, limitations, burdens and
encumbrances that would not have a Material Adverse Effect on Holding and TDC
taken as a whole. Correct and complete copies of all the patents and patent
applications, registered trademarks, trade names, service marks and copyrights,
registrations or applications therefor and licenses listed in Schedule 3.14
have heretofore been delivered by Holding or TDC to Scotsman.
(c) Except as disclosed in Schedule 3.14, Holding or TDC owns
or has the perpetual right to use all material patents, trademarks, service
marks, copyrights, trade names, inventions, improvements, processes, formulae,
trade secrets, mailing lists, know-how and proprietary information used in
conducting the Delfield Business. No infringement of any patent, patent right,
trademark, service mark, trade name, or copyright or registration thereof has
occurred or results in any way from the operations or business of Holding or
TDC, except for such infringements that would not have a Material Adverse
Effect on Holding and TDC taken as whole. No claim or (to the knowledge of
Holding, TDC or any Stockholders) threat of any such infringement has been made
in respect of any of the foregoing, no claim of invalidity of any patent
described in Schedule 3.14 as being owned by Holding or TDC has been made, and
no proceedings are pending or, to the knowledge of Holding, TDC or any
Stockholder, threatened against Holding or TDC which challenge the validity or
ownership of any material patent, trademark, trade name, service mark or
copyright or the ownership of any other right or property described in Schedule
3.14, and none of Holding, TDC or the Stockholders knows of the infringing use
of any of the same by any other person, except for such claims, proceedings and
infringing uses that
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would not have a Material Adverse Effect on Holding and TDC taken as whole.
None of Holding, TDC or the Stockholders has had notice of, or knowledge of,
any claim against Holding or TDC that a material portion of the operations,
activities, products, equipment, machinery or processes of the Delfield
Business materially infringes the patents, trademarks, service marks, trade
names, copyrights or other similar property rights of any other person.
Section 3.15. Owned Real Property. Schedule 3.15 contains a
brief description of each parcel of real property owned by TDC (the "Owned Real
Property") and of each option held by TDC to acquire any real property.
Complete and correct copies of any title opinions, surveys and appraisals in
Holding's or TDC's possession or any policies of title insurance currently in
force and in the possession of Holding or TDC with respect to each such parcel
have heretofore been delivered by Holding or TDC to Scotsman.
Section 3.16. Leased Real Property. Schedule 3.16 sets forth
a list and brief description of each lease or similar agreement (showing the
parties thereto, annual rental, expiration date and the location of the real
property covered by such lease or other agreement) under which (i) TDC is
lessee of, or holds or operates any real property owned by any third person,
(ii) to the knowledge of Holding, TDC and the Stockholders, TDC has been lessee
of, or has held or operated, any real property owned by any third person and is
as of the date hereof, or will be as of the Expiration Date, subject to any
actual or contingent liability (other than any liability in respect of a matter
referred to in Section 3.29) in respect thereof (the real property described in
clauses (i) and (ii) above being collectively referred to herein as the "Leased
Real Property") or (iii) TDC is lessor of any of the Owned Real Property.
Except as set forth in Schedule 3.16, TDC has the right to quiet enjoyment of
all the Leased Real Property described in clause (i) of the immediately
preceding sentence for the full term of each such lease or similar agreement
(and any renewal option related thereto) relating thereto, and the leasehold or
other interest of Holding or TDC in such real property is not subject or
subordinate to any encumbrance, except for any failure to have such right or
the existence of any such encumbrance that would not have a Material Adverse
Effect on Holding and TDC taken as whole. Complete and correct copies of any
title opinions, surveys and appraisals in Holding's or TDC's possession or any
policies of title insurance currently in force and in the possession of Holding
or TDC with respect to each such parcel of leased property have heretofore been
delivered by Holding or TDC to Scotsman.
Section 3.17. Obligations; Litigation. Except as set forth in
Schedule 3.17, Holding and TDC have performed all obligations required to be
performed by them to date, and are not in default, under any agreement, lease
or other document to which
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either is a party, or under any law or order of any court or governmental
agency, except for such failures to perform or defaults that would not have a
Material Adverse Effect on Holding and TDC taken as whole. Except as set forth
in Schedule 3.17, there are no claims, actions, suits or proceedings to which
Holding or TDC is a party or any of their respective properties is subject or
by which either of them is bound, pending or, to the knowledge of Holding, TDC
or any Stockholder, threatened before or by any court or governmental agency,
which is reasonably expected to have a Material Adverse Effect on Holding and
TDC taken as a whole or prevent or hinder the consummation of the transactions
contemplated hereby.
Section 3.18. Product Warranties. Schedule 3.18 contains a
list and description of each express warranty given or offered by TDC prior to
the date hereof covering any class or group of products sold or distributed by
TDC and other express warranties covering any material product sold or
distributed by TDC, in each case which warranty is in effect on the date hereof
or will be in effect on the Effective Date. The reserve for liabilities with
respect to warranty claims contained in the Balance Sheet fairly reflects in
all material respects the amount required in accordance with generally accepted
accounting principles to be shown thereon as of the Balance Sheet Date and the
reserve for such liabilities to be contained in the books and records of TDC on
the Effective Date will fairly reflect in all material respects the amount
required in accordance with generally accepted accounting principles to be
shown thereon as of the Effective Date.
Section 3.19. Compliance with Laws. Holding and TDC are in
compliance with the provisions of all applicable laws and regulations of the
federal, state, local and foreign governments, including but not limited to all
Applicable Laws (as defined in Section 3.29(a)), except to the extent that the
failure to comply therewith would not have a Material Adverse Effect on Holding
and TDC taken as whole. To the knowledge of Holding, TDC and each Stockholder,
there are no proposed orders, judgments, decrees, governmental takings,
condemnations or other proceedings, in each case binding upon the business,
operations or properties of Holding or TDC and which would have a Material
Adverse Effect on Holding and TDC taken as a whole.
Section 3.20. Permits. Each of Holding and TDC possesses all
material governmental franchises, permits, licenses, certificates, variances,
approvals and other material authorizations necessary to own or lease and
operate its material properties and to conduct its business as now conducted
(hereinafter collectively called the "Permits"), including but not limited to
environmental Permits. All Permits are set forth in Schedule 3.20, except for
such Permits which would be readily obtainable by any qualified applicant
without undue burden in the event of any lapse, termination, cancellation or
forfeiture.
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Except as disclosed in Schedule 3.20, all Permits are in full
force and effect and no consent, approval or act of, or the making of any
filing with, any governmental body, regulatory commission or other party will
be required to be obtained or made by Holding or TDC in respect of any Permit
as a result of the consummation of the Merger and the other transactions
contemplated hereby. Neither Holding nor TDC is in default in any material
respect under the terms of any such Permit and has not received notice of any
material default thereunder.
Section 3.21. Insurance. Holding and TDC maintain policies
(or are covered by policies maintained by Onex and its affiliates on behalf of
Holding and TDC or their properties, assets, operations or business) of fire
and casualty, liability (general, product and other liability), workers'
compensation (except for TDC's Mt. Pleasant facility, which is self-insured
with respect to workers' compensation) and other forms of insurance and bonds
with those insurers listed on Schedule 3.21 in such amounts and against such
risks and losses as are usually insured against in the same general areas by
companies engaged in the same or a similar business. Schedule 3.21 contains a
list and brief description (including type of coverage, limits, deductibles,
carriers and effective and termination dates) of all policies of insurance
maintained by Holding or TDC (or maintained on behalf of Holding or TDC or
their properties, assets, operations or business) since April 27, 1991, up to
and including the Effective Date. Each of Holding and TDC is a named insured
or is otherwise covered under each such policy, and each such policy is in full
force and effect and (without limiting the obligations under Section 7.4) will
not in any way be affected by or terminate or lapse by reason of the
transactions contemplated by this Agreement.
Holding and TDC have made available to Scotsman complete and
correct copies of all policies listed on Schedule 3.21, together with all
riders and amendments thereto, and, to the knowledge of Holding, TDC and the
Stockholders, no insurer under such policies has a basis to void such policies
on grounds of non-disclosure on the part of the policyholder or the insured
thereunder.
Schedule 3.21 hereto includes a list of (i) each product
liability claim submitted under any such policy (whether or not relating to the
Delfield Business) since April 27, 1991 and (ii) with respect to each other
claim since April 27, 1991 under any such policy, a list of the aggregate
amounts of such claims by class of such claims. Except for such claims, the
full policy limits (subject to deductibles provided therein) are available and
unimpaired under each such policy. Each of Holding, TDC and their respective
affiliates has complied with each such policy in all material respects and has
not failed to give any notice or present any claim thereunder in a due and
timely manner.
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The liability and excess liability insurance policies listed
on Schedule 3.21 provide product liability coverage for Holding and TDC on an
occurrence basis, cover all claims for injuries which have occurred or may
occur on or prior to the Effective Date and will cover payment of any adverse
judgment rendered against the Surviving Corporation or TDC in any claim arising
out of a product liability occurrence occurring on or prior to the Effective
Date.
Except as set forth on Schedule 3.21, to the knowledge of
Holding, TDC and the Stockholders, no person has alleged that any product
manufactured or sold by the Delfield Business has caused a fire.
Section 3.22. Employee Benefit Plans. (a) Schedule 3.22 sets
forth a list of, and, except as set forth in Schedule 3.22, Holding or TDC has
delivered to Scotsman copies, of any pension, profit sharing, retirement,
disability, health, welfare or other material "employee benefit plan", as that
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), bonus, stock option or other equity based,
incentive, severance, termination, retention or other material employee benefit
or compensation plan, policy, arrangement or agreement, whether written or
unwritten, (i) under which any employee or former employee of Holding or TDC or
the beneficiary or dependent of any such employee or former employee
(collectively, the "Participants") is eligible to participate or derive a
benefit and (ii) that is established or maintained by Holding or TDC or any
trade or business, whether or not incorporated, which would be treated as a
single employer together with Holding or TDC under Section 414 of the Code, as
of any date of determination (each, an "ERISA Affiliate") or to which Holding
or TDC or any ERISA Affiliate is obligated to contribute (collectively, the
"Plans"). Neither Holding nor, TDC, nor to the knowledge any Stockholder, any
such Plan nor any trust created thereunder has engaged in a transaction
prohibited by Section 406 of ERISA or Section 4975 of the Code that would
result in any material liability to Holding or TDC. Except as disclosed in
Schedule 3.22, determination letters have been received from the Internal
Revenue Service with respect to each Plan which is intended to qualify under
Section 401(a) of the Code to the effect that such Plan and the attendant trust
are qualified and tax-exempt within the meaning of Sections 401 and 501 of the
Code, respectively, and nothing has occurred since the date of such letters
that would result in disqualification of such Plans or the loss of such
tax-exempt status and a material liability to Holding or TDC as a result
thereof. Each of the Plans has been operated and administered in accordance
with ERISA, the Code and all other applicable laws, except where any such
noncompliance would not result in a material liability to Holding, TDC or
Scotsman. There are no material pending or, to the knowledge of Holding, TDC
or any Stockholder, threatened, claims by or on behalf of any Plan, by or on
behalf of any Participant or otherwise involving any Plan (other than routine
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claims for benefits). Each Plan which is subject to the minimum funding
standards of the Code or ERISA satisfies such standards, and no such Plan has
incurred an "accumulated funding deficiency," whether or not waived, within the
meaning of the Code or ERISA. All contributions required to have been made by
Holding or TDC and each ERISA Affiliate to each Plan under the terms of any
such Plan or pursuant to applicable law or any applicable collective bargaining
agreement have been made within the time prescribed by any such Plan, law or
agreement, as the case may be.
(b) Except as set forth in Schedule 3.22, neither Holding,
TDC nor any ERISA Affiliate would be liable for any material amount pursuant to
Title IV of ERISA if any employee pension benefit plan (within the meaning of
section 3(2) of ERISA) subject to such Title (a "Title IV Plan") were to
terminate. Except as disclosed on Schedule 3.22 hereto, as of the last day of
the 1992 fiscal year of each Plan which is a Title IV Plan, the "projected
benefit obligations" (within the meaning of the Financial Accounting Standards
Board Statement No. 87) under each such Plan did not exceed the fair market
value of the assets of each such Plan, determined on the basis of actuarial
assumptions each of which is reasonable, and the estimated excess of the
projected benefit obligation under each such Plan over the assets of each such
Plan as of December 31, 1993 did not exceed U.S. $1,200,000. Neither Holding,
TDC nor any ERISA Affiliate has engaged in a transaction which could cause
Holding, TDC or such ERISA Affiliate to be subject to liability under section
4069 or 4212 of ERISA. Neither Holding, TDC nor any ERISA Affiliate has
incurred any material liability under or pursuant to Title I or IV of ERISA or
the penalty, excise tax or joint and several liability provisions of the Code
or ERISA relating to employee benefit plans for failure to comply with such
provisions with respect to the Plans and no event or condition has occurred or
exists which could result in any material liability following the Effective
Date to Scotsman under or pursuant to Title I or IV of ERISA or such penalty,
excise tax or liability provisions of the Code or ERISA for failure to comply
with such provisions with respect to the Plans.
(c) No Plan is a "multiemployer plan" or a "multiple employer
plan" within the meaning of ERISA or the Code.
(d) No Plan is subject to the law of any jurisdiction outside
of the United States of America.
(e) No Participant is or may become entitled to
post-employment benefits of any kind by reason of employment with Holding or
TDC, including, without limitation, death or medical benefits (whether or not
insured), other than (A) coverage mandated by section 4980B of the Code, (B)
pension benefits payable under any Plan intended to qualify under Section
401(a) of the Code or (C) deferred compensation accrued as a liability in the
books and records of Holding and TDC. The consummation of the
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transactions contemplated by this Agreement will not result in an increase in
the amount of compensation or benefits or accelerate the vesting or timing of
payment of any compensation or benefits payable to or in respect of any
participant.
Section 3.23. Employees and Agents and Related Agreements.
(a) Except as set forth in Schedules 3.23(a) or 3.30, neither Holding nor TDC
is a party to or bound by any oral or written employment agreement, consulting
agreement (other than employment or consulting agreements under which Holding's
or TDC's obligations are terminable by Holding or TDC without premium or
penalty (other than statutory severance or termination benefits) on notice of
30 days or less), deferred compensation agreement, confidentiality agreement
(except for the Employee Invention and Secrecy Agreement entered into by all
employees prior to April 1991) or covenant not to compete with any officer,
director, stockholder, employee, agent or attorney-in-fact of Holding or TDC.
(b) Schedule 3.23(b) contains: (i) a list of all employees
or commission sales groups of Holding or TDC as of December 1, 1993 whose
compensation was in excess of U.S. $50,000 per annum on such date; (ii) the
then current annual compensation of, and a description of the material fringe
benefits (other than those generally available to eligible employees of Holding
or TDC) provided by Holding or TDC to any such employees or commission sales
groups; (iii) a list of all present or former employees or commission sales
groups of Holding or TDC paid in excess of U.S. $50,000 in calendar year 1992
who have terminated or given notice of their intention to terminate their
relationship with Holding or TDC since December 31, 1992; and (iv) a list of
any increase, effective after December 1, 1993, in the rate of compensation of
any employee or commission sales group whose compensation was in excess of U.S.
$50,000 per annum as of December 1, 1993 or would be in excess of U.S. $50,000
after taking into account any increase effective after December 1, 1993, if
such increase exceeds 6% of the previous annual salary of such employee or
commission sales group.
Section 3.24. Employee Relations and Labor Matters. (a)
Holding and TDC have complied in all material respects with all applicable
laws, rules and regulations which relate to wages, hours, discrimination in
employment and collective bargaining and are not liable for any material
arrears of wages or any material taxes or penalties for failure to comply with
any of the foregoing. Holding and TDC believe that their relations with their
employees are good.
(b) Except as set forth in Schedule 3.24(b) hereto, neither
Holding nor TDC is a party to any collective bargaining agreement and Holding
and TDC have complied in all material respects with all such collective
bargaining agreements. Neither Holding nor TDC is a party to or, to the
knowledge of Holding, TDC or any Stockholders, is threatened with, any dispute
or
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controversy with a union or with respect to unionization or collective
bargaining involving its employees. To the knowledge of Holding or TDC or any
Stockholder, neither Holding nor TDC is materially affected by any dispute or
controversy with a union or with respect to unionization or collective
bargaining involving any of its suppliers or customers. Schedule 3.24(b)
hereto sets forth a list of any union organizing or election activities
involving any non-union employees of Holding or TDC known to Holding or TDC
which have occurred since December 31, 1990 or, to the knowledge of Holding,
TDC or any Stockholder, are threatened as of the date hereof.
Section 3.25. Absence of Certain Business Practices. None of
Holding, TDC, any officer, employee or agent of Holding or TDC, or any other
person acting on its behalf, has, directly or indirectly, since April 27, 1991,
given or agreed to give any gift or similar benefit (other than with respect to
bona fide payments for which adequate consideration has been given) to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the business of Holding or TDC (or assist Holding or
TDC in connection with any actual or proposed transaction) (a) which might
subject Holding or TDC to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (b) which, if not continued in the
future, would have an adverse affect on Holding's or TDC's assets, business,
operations or prospects or which would subject Holding or TDC to suit or
penalty in any private or governmental litigation or proceeding, (c) for any of
the purposes described in section 162(c) of the Code, or (d) for establishment
or maintenance of any concealed fund or concealed bank account.
Section 3.26. Territorial Restrictions. Except as set forth
on Schedule 3.26, neither Holding nor TDC is restricted in any material respect
by any written agreement or understanding with third parties from carrying on
its business anywhere in the world.
Section 3.27. Transactions with Certain Persons. Except as
set forth in Schedule 3.27 hereto, since April 27, 1991, neither Holding nor
TDC has, directly or indirectly, purchased, leased from others or otherwise
acquired any material property or obtained any material services from, or sold,
leased to others or otherwise disposed of any material property or furnished
any material services to (except with respect to remuneration for services
rendered as a director, officer or employee of Holding or TDC), in the ordinary
course of business or otherwise, (a) any Stockholder, (b) any affiliate of
Holding or TDC, (c) any person who is an officer or director of Holding or TDC
or (d) any associate of any person referred to in clause (a), (b) or (c) above.
Except as set forth in Schedule 3.27 hereto, neither Holding nor TDC owes any
amount in excess of U.S. $10,000 to, or has any contract with or commitment to,
any Stockholder, director, officer or employee of Holding or TDC (other than
for compensation for current services not yet due and payable,
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reimbursement of expenses arising in the ordinary course of business and the
Onex Management Agreement and the Diggs Management Agreement (as each such term
is defined in Section 6.6(a)), and none of such persons owes any amount in
excess of U.S. $10,000 to Holding or TDC.
Section 3.28. Safe Harbor or TRAC Leases. Holding and TDC
have identified and delivered to Scotsman complete and correct copies of (i)
all leases ("168(f)(8) Leases"), if any, under section 168(f)(8) of the Code,
as in effect prior to the date of enactment of the Tax Equity and Fiscal
Responsibility Act of 1982 and (ii) all leases ("TRAC Leases"), if any, under
section 7701(h) of the Code, or any predecessor provision, in each case to
which any of the assets of Holding or TDC is subject.
Section 3.29. Environmental Matters. (a) Holding and TDC
have each:
(i) complied with and are in compliance with, in all
material respects, all applicable environmental, health and safety
statutes, laws, rules, regulations, ordinances and codes ("Applicable
Laws"), except as disclosed in Schedule 3.29(a);
(ii) not been and are not the subject of any investigation,
judicial or administrative proceeding, or settlement concerning (A) a
Release (as hereinafter defined) or threatened Release of any
hazardous or toxic waste, substance or constituent or other substance,
including petroleum or its constituents ("Hazardous Substance") as
defined or regulated under any Applicable Laws or (B) the violation of
any Applicable Laws;
(iii) not been and are not under a duty to file any notice
under any Applicable Laws reporting the treatment, storage, disposal,
handling or managing of any Hazardous Substance, the violation of any
Applicable Laws or the Release or threatened Release of any Hazardous
Substance, except as disclosed in Schedule 3.29(a);
(iv) no material contingent liability in connection with any
Release or threatened Release of any Hazardous Substance nor have any
present Property or past Property listed or proposed for listing on
the National Priorities List ("NPL") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 41 U.S.C.
Section 9601 et seq., any amendments thereto, any successor statutes,
and any regulations or guidance promulgated thereunder ("CERCLA") or
on the Comprehensive Environmental Response Compensation Liability
Information System List ("CERCLIS") or any similar state list of
sites requiring Remedial Action;
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(v) never generated, treated, stored, recycled, transported
or disposed of any Hazardous Substance, except as disclosed in Schedule
3.29(a);
(vi) never installed, had installed, utilized or been aware
of any underground storage tanks or surface impoundments on any of
their Owned Real Property or Leased Real Property, except as disclosed
in Schedule 3.29(a); and
(vii) no knowledge of any outstanding lien filed on their
assets in favor of any governmental agency in connection with any
Applicable Laws.
(b) The presence or condition of all material containing
more than one percent (1%) asbestos by weight ("Asbestos Containing Material")
which is on or part of any Property (excluding any raw materials used in the
manufacture of products or products themselves) does not violate any current
Applicable Laws.
(c) For purposes of this Section 3.29, the following
definitions shall apply:
(i) "material" means any fines, penalties, costs or expenses
arising under the Applicable Laws that would result in an aggregate
liability to Holding or TDC of not less than U.S. $100,000 per year;
(ii) "Property" means any real or personal property, plant,
building, facility, structure, underground storage tank, equipment or
unit, or other asset owned, leased or operated by Holding or TDC
(including any surface water thereon or adjacent thereto, and soil or
groundwater thereunder) whether now or previously or any time; and
(iii) "Release" means release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment or into or out of
any Property including the movement of Hazardous Substances through or
in the air, soil, surface water, groundwater or Property.
Section 3.30. Contracts. (a) Except as set forth in Schedule
3.30, neither Holding nor TDC is a party to or is bound by any oral or written
contract, agreement, commitment or instrument:
(i) for the purchase, sale or lease (except if the scheduled
lease payments are less than U.S. $50,000 per year) of real property;
(ii) for the purchase of raw materials (A) which involved the
payment of more than U.S. $250,000 in 1992, (B) which Holding or TDC
reasonably anticipates
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will involve the payment of more than U.S. $250,000 in 1993 or (C)
which extends beyond January 1, 1994 and which is anticipated to
require over the term of the contract (other than the period prior to
January 1, 1994) aggregate payments of more than U.S. $500,000;
(iii) for the sale of goods or services (A) which involved
the payment of more than U.S. $250,000 in 1992, (B) which Holding or
TDC reasonably anticipates will involve the payment of more than U.S.
$250,000 in 1993 or (C) which extends beyond January 1, 1994 and which
is anticipated to require over the term of the contract (other than
the period prior to January 1, 1994) aggregate payments of more than
U.S. $500,000;
(iv) which provides for, or relates to, any consignment,
distributor, dealer, manufacturers representative, sales agency,
advertising representative or advertising or public relations
arrangement (A) which involved the payment of more than U.S. $100,000
in 1992, (B) which Holding or TDC reasonably anticipates will involve
the payment of more than U.S. $100,000 in 1993 or (C) which extends
beyond January 1, 1994 and which is anticipated to require over the
term of the contract (other than the period prior to January 1, 1994)
aggregate payments of more than U.S. $250,000;
(v) which provides for, or relates to, the guarantee by
Holding or TDC of any obligation exceeding U.S. $10,000 of any
customers, suppliers, officers, directors, employees or affiliates of
Holding or TDC;
(vi) which provides for, or relates to, the incurrence by
Holding or TDC of debt for borrowed money in excess of U.S. $100,000;
(vii) which provides for, or relates to, any non-competition
or confidentiality arrangement with any person, including any current
or former officer or employee of Holding or TDC;
(viii) for capital expenditures in excess of U.S. $100,000
for any single project or related series of projects;
(ix) with any broker or finder;
(x) any partnership, joint venture or other similar
arrangements or agreements involving a sharing of profits or losses;
(xi) with any employee, director, officer, Stockholder or
affiliates of Holding or TDC (including royalty agree-
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ments), providing for payment or receipts by Holding or TDC in excess
of U.S. $25,000;
(xii) which (other than contracts, agreements, commitments
and instruments of the nature described in clauses (i) through (xi)
above) involve payments or receipts by Holding or TDC of more than
U.S. $100,000; and
(xiii) for any purpose (whether or not made in the ordinary
course of the Delfield Business or otherwise not required to be listed
or described in Schedule 3.30) which is material to the business of
Holding and TDC taken as a whole.
(b) Except as set forth in Schedule 3.30, Holding and TDC
have fulfilled and performed their obligations in all material respects under
each of the leases, contracts and other agreements listed in Schedule 3.30
(collectively, the "Holding-TDC Agreements") and are not, or, to the knowledge
of Holding and TDC, are not alleged to be, in breach or default in any material
respect under, nor, to the knowledge of Holding, TDC or any Stockholder, is
there or, to the knowledge of Holding and TDC, is there alleged to be any basis
for termination of, any of the Holding-TDC Agreements and no event has occurred
and no condition or state of facts exists which, with the passage of time or
the giving of notice or both, would constitute such a default or breach by
Holding or TDC. Copies of each of the Holding-TDC Agreements have heretofore
been delivered to Scotsman by Holding or TDC.
Section 3.31. No Guaranties; Extensions of Credit. Except as
set forth in Schedule 3.31, no material obligations or liabilities of Holding
or TDC are guaranteed by or subject to a similar contingent obligation of any
other person, nor has Holding or TDC guaranteed or become subject to a similar
contingent obligation in respect of the obligations or liabilities of, or
extended credit to any other person.
Section 3.32. Alco Standard Asset Acquisition Agreement. None
of Holding, TDC or any Stockholder has taken any action that would cause the
Purchase and Sale of Assets Agreement, dated as of March 20, 1991 (the "Alco
Agreement"), among Alco Standard Corporation, an Ohio corporation ("Alco
Standard"), The Delfield Company, a Delaware corporation, and TDC (formerly
known as DFC Acquisition Corporation), or any other material agreements
executed in connection with the Alco Agreement, not to be, and Alco Standard
has not asserted to Holding or TDC that the Alco Agreement or such other
material agreement does not constitute, a legal, valid and binding agreement.
Except as set forth on Schedule 3.32, neither Holding nor TDC is, or, to the
knowledge of Holding, TDC or any Stockholder, alleged to be, in breach or
default in any material respect under the Alco Agreement or such other material
agreement.
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Section 3.33. Customers and Suppliers. Set forth in Schedule
3.33 hereto is a list of names and addresses of the ten largest customers and
the ten largest suppliers (measured by dollar volume of purchases or sales in
each case) of TDC and the percentage of the Delfield Business which each such
customer or supplier represents or represented during each of the years ended
December 31, 1992 and 1993 and the period from January 1, 1993 through
September 30, 1993. Copies of the forms of purchase order for inventory and
other supplies and sales contracts for finished goods used by TDC have been
provided to Scotsman by Holding or TDC. There exists no actual or, to the
knowledge of any Stockholder, Holding or TDC, threatened termination,
cancellation or material adverse change in, the business relationship of TDC
with any customer or group of customers listed in Schedule 3.33, or whose
purchases individually or in the aggregate are material to the operations of
the Delfield Business, or with any supplier or group of suppliers listed in
Schedule 3.33, or whose sales individually or in the aggregate are material to
the operations of the Delfield Business.
Section 3.34. Registration Statement and Proxy
Statement/Prospectus. None of the written information supplied or to be
supplied by Holding, TDC, or any of the Stockholders or any affiliate of the
foregoing (including, without limitation, WAL) specifically for inclusion in
the Registration Statement or the Proxy Statement/Prospectus (as such terms are
defined in Section 6.1) will be the basis for any successful claim against
Scotsman, Holding, TDC or any of their officers or directors asserting that (i)
in the case of the Registration Statement, at the time it becomes effective and
at the Effective Time, such information contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
(ii) in the case of the Proxy Statement/Prospectus, at the time of the mailing
of the Proxy Statement/Prospectus to Scotsman's stockholders and at the time of
the meeting of its stockholders referred to in Section 6.3, such information
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
Section 3.35. Liabilities and Operations of Holding. Except
as contemplated hereby or in connection with obligations relating to its equity
securities, the Warrant and the Guaranty, dated as of December 29, 1992, made
by Holding in favor of Continental (a complete and correct copy of which has
been delivered by Holding to Scotsman), Holding is not subject to any material
liability, absolute or contingent, other than those indirect liabilities that
relate to its ownership of the common stock of TDC. Holding conducts no
business other than the holding of the common stock of TDC.
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Section 3.36. No Finder. Neither Holding, TDC nor any party
acting on the behalf of either of them has paid or become obligated to pay any
fee or commission to any broker, finder or intermediary for or on account of
the transactions contemplated by this Agreement, other than to Lazard Freres &
Co. ("Lazard") and Morgan Stanley & Co. Incorporated ("Morgan"), whose fees and
expenses, to the extent payable, shall be paid by the Stockholders except as
provided in Section 12.2. Complete and correct copies of the engagement and
indemnification agreements entered into by Holding or TDC with Lazard and
Morgan have been furnished to Scotsman.
Section 3.37. Disclosure. The representations and warranties
contained herein, the information contained in the Schedules referred to in
Article III and the other information or documents referred to in this Article
III as having been furnished or to be furnished to Scotsman or any of its
representatives by Holding, TDC, the Stockholders or their representatives
pursuant to the terms of this Agreement, are, taken as a whole, true and
accurate in all material respects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCOTSMAN
As an inducement to Holding, TDC and the Stockholders to enter
into this Agreement and to consummate the transactions contemplated herein,
Scotsman hereby warrants and represents to Holding, TDC and the Stockholders
and agrees as follows:
Section 4.1. Organization of Scotsman. Scotsman is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Scotsman is duly qualified to transact business
as a foreign corporation and is in good standing in each of the jurisdictions
in which the ownership or leasing of the properties used in its business or the
conduct of its business requires such qualification, other than in such
jurisdictions where the failure to be so qualified and in good standing would
not have a Material Adverse Effect on Scotsman and its subsidiaries, taken as a
whole, and no other jurisdiction has demanded, requested or otherwise indicated
that Scotsman is required so to qualify. Scotsman has full corporate power and
authority to own or lease and operate its properties and to carry on its
business as now conducted.
Section 4.2. Authority. Scotsman has full corporate power and
authority to enter into this Agreement and, subject to approval of the issuance
of the shares contemplated by this Agreement by the stockholders of Scotsman,
to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by
Scotsman and the consummation by Scotsman of the transac-
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tions contemplated hereby have been duly authorized by all necessary corporate
action on the part of Scotsman subject to such approval by the stockholders of
Scotsman as required by the rules of the NYSE and the adoption of this
Agreement by Scotsman as the sole stockholder of Sub. This Agreement is, and
each other agreement or instrument of Scotsman contemplated hereby when
executed and delivered will be, the legal, valid and binding agreement of
Scotsman enforceable against Scotsman in accordance with its respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
Except as set forth in Schedule 4.2, neither the execution and
delivery of this Agreement by Scotsman nor consummation of the transactions
contemplated hereby or compliance with or fulfillment of the terms and
provisions hereof by Scotsman will (a) conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default, an event of
default or an event creating rights of acceleration, termination or
cancellation or a loss of rights, or result in the creation or imposition of
any encumbrance upon any of the material assets of Scotsman or any of its
subsidiaries, under the certificate of incorporation or the by-laws of Scotsman
or any subsidiary of Scotsman, any instrument, agreement, mortgage, indenture,
deed of trust, permit, concession, grant, franchise, license, judgment, order,
award, decree or other restriction to which Scotsman or any of its subsidiaries
is a party or any of their respective material properties is subject or by
which any of them is bound or any material statute, other law or regulatory
provision affecting any of them, except for such impositions created under any
instruments or agreements entered into in connection with the financing of the
transactions contemplated hereby, or (b) require the approval, consent or
authorization of, or the making of any declaration, filing or registration
with, any third party or any foreign, federal, state or local court,
governmental authority or regulatory body, by or on behalf of, Scotsman or Sub,
except for the filing of appropriate documents with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and for the applicable requirements of the HSR Act, the filing
of a Certificate of Merger with the Secretary of State of the State of
Delaware, and approval by the stockholders of Scotsman as required by the rules
of the NYSE.
Section 4.3. Shares of Scotsman Common Stock. The shares of
Scotsman Common Stock, Scotsman Convertible Preferred Stock and Scotsman
Nonconvertible Preferred Stock to be delivered to the stockholders of Holding
pursuant to this Agreement will, when issued and delivered in accordance with
the terms hereof, be validly issued, fully paid and nonassessable.
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Section 4.4. Capitalization. The authorized capital of
Scotsman consists of (i) 50,000,000 shares of common stock, $.10 par value, of
which 7,008,254 shares are issued and outstanding, 202,295 shares are held as
treasury stock and 976,326 shares are reserved for issuance under Scotsman's
long-term executive incentive compensation plan and 7,036,875 shares are
reserved in connection with the Common Stock Purchase Rights, (ii) 10,000,000
shares of preferred stock, $1.00 par value, none of which is issued and
outstanding or reserved for any purpose. All of the outstanding shares of
Scotsman Common Stock are duly authorized, validly issued, fully paid and
nonassessable. Except for options granted pursuant to Scotsman's long-term
executive incentive compensation plan and the Common Stock Purchase Rights,
there are no options, warrants or other rights to acquire from Scotsman or
agreements or commitments by Scotsman to issue or sell shares of its capital
stock, whether on conversion of other securities or otherwise. None of the
issued and outstanding shares of Scotsman Common Stock has been issued in
violation of, or is subject to, any preemptive or subscription rights. There
are no stockholder agreements, voting trust agreements or any other similar
contracts, agreements, arrangements, commitments, plans or understandings to
which Scotsman is a party restricting or otherwise relating to voting,
dividend, ownership or transfer rights with respect to any shares of capital
stock of Scotsman, other than the Rights Agreement and the Common Stock
Purchase Rights.
Section 4.5. Operations Since January 3, 1993. Except as set
forth in the Scotsman SEC Documents (as hereinafter defined), since January 3,
1993, there has been: (i) no material adverse change in the assets,
liabilities, operations, profits or business or in the condition, financial or
otherwise, of Scotsman and its subsidiaries; and (ii) no damage, destruction,
loss or claim with respect to, whether or not covered by insurance, or
condemnation or other taking of, assets having a Material Adverse Effect on
Scotsman and its subsidiaries taken as a whole.
Section 4.6. Compliance with Laws. Scotsman is in compliance
with the provisions of all applicable laws and regulations of the federal,
state, local and foreign governments, except to the extent that the failure to
comply therewith would not have a Material Adverse Effect on Scotsman and its
subsidiaries taken as a whole. Except as set forth in the Scotsman SEC
Documents, to the knowledge of Scotsman, there are no proposed orders,
judgments, decrees, governmental takings, condemnations or other proceedings,
in each case binding upon the business, operations or properties of Scotsman or
any subsidiary thereof, which would have a Material Adverse Effect on Scotsman
and its subsidiaries taken as a whole.
Section 4.7. SEC Documents. Scotsman has previously delivered
to Holding and TDC complete and correct copies of all reports, statements and
registration statements (including annual reports on Form 10-K, current reports
on Form 8-K, quarterly
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reports on Form 10-Q and proxy statements) filed by it with the SEC since
January 1, 1991. Scotsman has filed all required documents with the SEC since
January 1, 1991 (the "Scotsman SEC Documents"). As of their respective dates,
the Scotsman SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the Scotsman SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Scotsman
included in the Scotsman SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) consistently
applied (except as may be indicated therein or in the notes thereto) and fairly
present in all material respects the consolidated financial position of
Scotsman and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and statements of cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Section 4.8. Intention to Sell, etc. (a) Scotsman has no
present plan or intention to sell or otherwise dispose of any of the Common
Stock of the Surviving Corporation to be acquired by it in the Merger, to
liquidate the Surviving Corporation, to merge the Surviving Corporation or TDC
with another corporation or to cause TDC or the Surviving Corporation to
dispose of any of its assets other than in the ordinary course of business.
(b) Scotsman currently intends that, after the consummation
of the Merger, each of the Surviving Corporation and TDC will continue
substantially all of its current business.
(c) Scotsman has no current plan or intention to redeem or
otherwise reacquire any of the Scotsman Common Stock, Scotsman Convertible
Preferred Stock or Scotsman Nonconvertible Preferred Stock to be issued to the
Stockholders in connection with the Merger.
(d) Scotsman has no current intention to make its funds
available to Holding or TDC for the repayment of any indebtedness for borrowed
money of Holding or TDC, as the case may be, outstanding as of the Effective
Time and incurred in order to finance any redemption or repurchase described in
Section 6.6(c), or to refinance or cause the refinancing of any such
indebtedness in a manner that shifts the primary obligation to repay such
indebtedness from the Surviving Corporation or TDC, as the case may be, to
Scotsman.
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Section 4.9. Obligations; Litigation. Except as set forth in
the Scotsman SEC Documents, Scotsman and its subsidiaries have performed all
obligations required to be performed by them to date, and are not in default,
under any agreement, lease or other document to which any of them is a party,
or under any law or order of any court or governmental agency, except for such
failures to perform or defaults that would not have a Material Adverse Effect
on Scotsman and its subsidiaries taken as whole. Except as set forth in the
Scotsman SEC Documents, there are no claims, actions, suits or proceedings to
which Scotsman or any of its subsidiaries is a party or any of their respective
properties is subject or by which any of them is bound pending or, to the
knowledge of Scotsman, threatened before or by any court or governmental
agency, which is reasonably expected to have a Material Adverse Effect on
Scotsman and its subsidiaries taken as a whole or prevent or hinder the
consummation of the transactions contemplated hereby.
Section 4.10. No Finder. Neither Scotsman nor any party
acting on its behalf has paid or become obligated to pay any fee or any
commission to any broker, finder or intermediary for or on account of the
transactions contemplated herein, other than to William Blair & Company, whose
fees and expenses, to the extent payable, shall be paid by Scotsman.
Section 4.11. Rights Agreement; Benefits. Scotsman has
amended the Rights Agreement in order to provide that the New Scotsman
Stockholders (as hereinafter defined), as a group, shall not constitute an
"Acquiring Person" under the Rights Agreement by reason of the acquisition by
such New Scotsman Stockholders of shares of capital stock of Scotsman pursuant
to this Agreement and the Whitlenge Share Acquisition Agreement. The
consummation of the transactions contemplated by this Agreement will not result
in an increase in the amount of compensation or benefits or accelerate the
vesting or timing of payment of any compensation or benefits payable to or in
respect of any employee of Scotsman or its subsidiaries.
Section 4.12. Disclosure. The representations and warranties
contained herein, the information contained in the Schedule referred to in this
Article IV and the other information or documents referred to in this Article
IV as having been furnished or to be furnished to Holding or any of its
representatives pursuant to the terms of this Agreement, taken as a whole, are
true and accurate in all material respects.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SUB
As an inducement to Holding, TDC and the Stockholders to enter into this
Agreement and to consummate the transactions contemplated herein, Scotsman and
Sub hereby jointly and severally warrant and represent to Holding, TDC and the
Stockholders and agree as follows:
Section 5.1. Organization and Standing. Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Sub was organized solely for the purpose of engaging in the
transactions contemplated by this Agreement and has not engaged in any business
since it was incorporated which is not in connection with this Agreement.
Section 5.2. Capital Structure. The authorized capital stock of Sub
consists of 100 shares of common stock, $.01 par value, all of which are
validly issued and outstanding, fully paid and nonassessable and are owned by
Scotsman free and clear of all liens, claims and encumbrances.
Section 5.3. Authority. Sub has the requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, the performance by Sub
of its obligations hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by its Board of Directors, and,
except for the adoption of this Agreement by Scotsman as stockholder of Sub
(which adoption shall be effected promptly following the date hereof) and the
corporate filings required by state law, no other corporate proceedings on the
part of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Sub and this Agreement is, and each other agreement or instrument
of Sub contemplated hereby when executed and delivered will be, the legal,
valid and binding agreement of Sub enforceable against Sub in accordance with
its respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
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ARTICLE VI
ACTIONS PRIOR TO THE EFFECTIVE DATE
Scotsman, Sub, Holding and TDC (and the Stockholders with respect to
Sections 6.7, 6.8 and 6.9) covenant and agree to take the following respective
actions between the date hereof and the Effective Date:
Section 6.1. Proxy Statement; Registration Statement. Scotsman shall
prepare and file with the SEC as soon as practicable a registration statement
on Form S-4 (the "Registration Statement") containing a proxy
statement/prospectus covering the Scotsman Common Stock and the Scotsman
Convertible Preferred Stock to be issued pursuant to Article II (the form of
such proxy statement/prospectus, together with any amendments thereof or
supplements thereto, mailed to Scotsman's stockholders in connection with the
meeting referred to in Section 6.3 is herein referred to as the "Proxy
Statement/Prospectus") and shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable. The
Registration Statement and the Proxy Statement/Prospectus will comply as to
form in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder. The Registration Statement, when declared effective by the SEC,
and the Proxy Statement/Prospectus, at the time of its mailing or delivery to
the stockholders of Scotsman and at the time of the meeting referred to above,
will not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the foregoing shall not apply
to the extent that any such untrue statement of a material fact or omission to
state a material fact was made by Scotsman in reliance upon and in conformity
with written information concerning Holding, TDC or their affiliates furnished
to Scotsman by Holding and TDC or their affiliates expressly for inclusion in
the Registration Statement. Scotsman shall also take any action required to be
taken under state blue sky or securities laws in connection with the issuance
of such Scotsman Common Stock and Scotsman Convertible Preferred Stock pursuant
to the Merger. The Registration Statement shall permit resales of Scotsman
Fixed Common Shares, Scotsman Convertible Preferred Shares and the shares of
Scotsman Common Stock issuable upon the conversion of the Scotsman Convertible
Preferred Shares, and shall be kept open for such purpose until the 45th day
following the Effective Date. Holding, TDC and the Stockholders shall, and
shall cause their affiliates to, furnish Scotsman all information concerning
themselves required for use in the Registration Statement, including, without
limitation, financial statements of Holding and TDC which are required to be
included in the Registration Statement or which are necessary to prepare pro
forma financial statements and information to be included in the Registration
Statement. If, at any time prior to the Effective Time, any event with respect
to
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Holding, TDC or any of their affiliates should occur which is required to be
described in an amendment of, or a supplement to, the Proxy
Statement/Prospectus or the Registration Statement, such event shall be so
described, and such amendment shall be promptly filed with the SEC and, as
required by law, disseminated to any stockholders of Scotsman and Holding.
Scotsman will advise Holding and TDC, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or
any supplement or amendment thereto has been filed, of the issuance of any stop
order, of the suspension of the qualification for offering or sale in any
jurisdiction of the Scotsman Common Stock and Scotsman Convertible Preferred
Stock issuable in connection with the Merger or any request by the SEC for
amendment or supplement of the Registration Statement or for additional
information.
Section 6.2. Action by Stockholders of Holding. Holding shall, as soon as
practicable after the Registration Statement shall become effective, duly call,
give notice of, convene and hold a meeting of its stockholders for the purpose
of approving the Merger and adopting this Agreement. Holding will, through its
Board of Directors, recommend to its stockholders the adoption of this
Agreement. In lieu of such meeting, the stockholders of Holding may take the
actions described in the preceding sentence by unanimous written consent in
accordance with the DGCL.
Section 6.3. Action by Scotsman and Stockholders of Scotsman. Scotsman
shall, as soon as practicable after the Proxy Statement/Prospectus referred to
in Section 6.1 shall be cleared by the SEC, duly call, give notice of, convene
and hold a meeting of its stockholders for the purpose of approving the
issuance, in accordance with the terms and conditions of this Agreement, of the
Scotsman Fixed Common Shares, the Scotsman Contingent Common Shares and the
Scotsman Convertible Preferred Shares and the issuance, in accordance with the
terms and conditions of the Whitlenge Share Acquisition Agreement, of the
Scotsman Earnout Shares (as defined therein). Scotsman will, through its Board
of Directors, recommend to its stockholders approval of such issuance.
Scotsman, as the sole stockholder of Sub, shall take such actions as may be
necessary or desirable to approve the Merger and adopt this Agreement.
Section 6.4. Investigation of Holding, TDC and Scotsman. Holding, TDC and
Scotsman shall afford to the officers, employees and authorized representatives
of Scotsman, Holding or TDC, as the case may be (including, without limitation,
independent public accountants, attorneys, environmental consultants and
financial advisors thereof), reasonable access during normal business hours to
the offices, properties, employees and business and financial records
(including, without limitation, computer files, retrieval programs and similar
documentation) of Holding, TDC or Scotsman, as the case may be, to the extent
Scotsman, Holding or TDC, as
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the case may be, shall deem necessary or desirable, and shall furnish
to Scotsman, Holding or TDC, as the case may be, or such party's authorized
representatives such additional information concerning the operations,
properties and businesses of Holding, TDC or Scotsman, as the case may be, as
may be reasonably requested in writing, to enable Scotsman, Holding or TDC or
such party's authorized representatives to verify the accuracy of the
representations and warranties contained in this Agreement, to verify the
accuracy of the financial statements referred to in Section 3.5 and to
determine whether the conditions set forth in Articles VIII and IX have been
satisfied. Scotsman, Holding and TDC agree that such investigations shall be
conducted in such manner as not to interfere unreasonably with the operation of
the business of Holding, TDC or Scotsman, as the case may be. Without limiting
the foregoing, TDC shall permit Scotsman, or its representatives, to conduct an
environmental audit of any of the Owned Real Property or the Leased Real
Property, with respect to any environmental health and safety issues deemed
material by Scotsman. No investigation made by Scotsman, Holding or TDC or
such party's authorized representatives hereunder shall affect the
representations and warranties of the parties hereunder.
Section 6.5. Lawsuits, Proceedings, Etc. Holding, TDC or Scotsman shall
notify Scotsman or Holding and TDC, as the case may be, promptly of any
lawsuit, proceeding, claim or investigation that may be threatened, brought,
asserted or commenced against any party hereto (a) involving in any way the
transactions contemplated by this Agreement or (b) that would have been listed
in Schedule 3.17 or specified as an exception to Section 4.9 if such lawsuit,
proceeding, claim or investigation had arisen prior to the date hereof.
Section 6.6. Conduct of Business by Holding, TDC and Scotsman Pending the
Merger. (a) During the period from the date of this Agreement through the
Effective Time, except as expressly contemplated by this Agreement, Holding,
TDC and Scotsman shall carry on their businesses in, and not enter into any
material transaction other than in accordance with, the ordinary course
consistent with past practice and, to the extent consistent therewith, use
their reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
preserve their relationships with customers, suppliers and others having
business dealings with them (except, in each case, with respect to Holding and
TDC, with the prior written consent of Scotsman and except, in each case with
respect to Scotsman, with the prior written consent of Holding). Without
limiting the generality of the foregoing, and except as expressly contemplated
by this Agreement, neither Holding nor TDC shall, without the prior written
consent of Scotsman (not to be unreasonably withheld):
(i) (x) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make
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any payments to the Stockholders in their capacity as such (other than
(a) any such payments otherwise permitted to be made under this Agreement,
(b) the payment, when due, and not earlier, of management fees in accordance
with the terms, as in effect on the date hereof, of the Management Advisory
Agreement, dated May 1, 1991, between TDC and Onex U.S. Investments Inc. (the
"Onex Management Agreement"), and the Management Advisory Agreement, dated
May 1, 1991, between TDC and The Matthew Diggs Group, Inc. (the "Diggs
Management Agreement"), and (c) dividends and other distributions by TDC to
Holding to enable Holding to pay its liabilities), (y) split, combine or
reclassify any of its capital stock or issue, sell or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (z) purchase, redeem or otherwise acquire any
shares of capital stock of Holding or TDC or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock or other securities (including, without
limitation, any rights, warrants or options to acquire any securities);
(iii) amend its certificate of incorporation or by-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof;
(v) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets, except sales of inventory in the
ordinary course of business and the sale, lease or other disposition of other
assets having a book or fair market value in the aggregate not exceeding U.S.
$50,000;
(vi) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, or make any loans, advances or capital contributions
to, or investments in, any other person, except the incurrence and/or
guarantee of indebtedness to fund working capital and except in connection
with Section 6.6(c);
(vii) make or incur any new capital expenditure or expenditures which,
individually, is in excess of U.S. $50,000 or, in the aggregate, are in
excess of U.S. $250,000;
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(viii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business;
(ix) alter through merger, liquidation, reorganization, restructuring or in
any other fashion its corporate structure;
(x) enter into or adopt, or amend any existing, bonus, incentive, deferred
compensation, insurance, medical, hospital, disability or severance plan,
agreement or arrangement or enter into or amend any Plan or employment,
consulting or management agreement (including, without limitation, the Onex
Management Agreement and the Diggs Management Agreement), other than any such
amendment to a Plan that is made to maintain the qualified status of such
Plan or its continued compliance with applicable law;
(xi) make any change in accounting practices or policies applied in the
preparation of the financial statements referred to in Section 3.5 except as
required by generally accepted accounting principles;
(xii) modify any of the agreements, understandings, obligations,
commitments, indebtedness or other obligations set forth in Schedule 6.6(a)
or enter into any agreement, understanding, obligation or commitment, or
incur any indebtedness or obligation, of the type that would have been
required to be listed on Schedule 3.30 if in existence on the date hereof; or
(xiii) pay or commit to pay any bonus to any officer or employee of Holding
or TDC other than in accordance with and when required by the terms of the
Bonus Plan as in effect on the date hereof;
(xiv) enter into any other transaction affecting the business of Holding or
TDC, other than in the ordinary course of business consistent with past
practice or as expressly contemplated by this Agreement.
(b) Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement or the Whitlenge Share
Acquisition Agreement, Scotsman shall not, without the prior written consent of
Holding (not to be unreasonably withheld):
(A) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock or other securities (including, without
limitation, any rights, warrants or options to acquire any securities), other
than (i) options granted pursuant to Scotsman's long-term
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executive incentive compensation plan as in existence on the date hereof, (ii)
the issuance of shares (and associated Common Stock Purchase Rights) pursuant
to such options, other employee benefit plans as in existence on the date
hereof or other rights, warrants or options outstanding as the date hereof
and (iii) the issuance of other shares of Scotsman Common Stock (and
associated Common Stock Purchase Rights) in an amount not to exceed 1% of the
issued and outstanding shares of Scotsman Common Stock on the date hereof;
(B) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, in any such case having a
fair market value of U.S. $2,000,000 or more; or
(C) alter through merger, liquidation, reorganization or restructuring its
corporate structure, except that Scotsman may make changes in its corporate
structure required to be made or desirable in connection with the
consummation of the transactions contemplated by this Agreement and the
Whitlenge Share Acquisition Agreement or the financing related thereto.
(c) Notwithstanding any other provision of this Agreement, prior to the
Effective Time, Holding may make distributions and payments in respect of the
redemption or repurchase of Holding Common Stock in amounts not to exceed, in
the aggregate, U.S. $7,000,000 and TDC may make a distribution to Holding
sufficient to permit Holding to make the above distribution, redemption or
repurchase, and each of Holding and TDC may take any action necessary or
appropriate to effect such distribution or payment (including incurring
indebtedness for borrowed money), and any Stockholder or Stockholders or
Permitted Transferee (as hereinafter defined) thereof may sell their Holding
Common Stock to Holding; provided, however, that the Cash Consideration payable
to such persons in the case of a redemption or repurchase, and to all holders
of Holding Common Stock in the case of a distribution to all such holders, in
connection with the Merger pursuant to Section 2.1(c) shall be reduced by an
amount equal to such amounts paid to such persons in redemption or repurchase
by Holding pursuant to this Section 6.6(c) and all such amounts distributed by
Holding, respectively; and provided, further, that no amount shall be
distributable or payable pursuant to this Section 6.6(c) unless Holding shall
have determined, in its reasonable discretion, that such amount is available to
it for such distribution or payment without regard to the Merger or any other
transactions contemplated by this Agreement; and provided, further, that in the
case of any such distribution, redemption or repurchase that is not made on a
pro rata basis with respect to all holders of Holding Common Stock,
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Schedule 10.1 shall be appropriately revised to reflect a reallocation
of the amounts set forth therein.
(d) Holding, TDC or Scotsman shall promptly advise Scotsman or Holding and
TDC, as the case may be, orally and in writing of any change or event having a
Material Adverse Effect on Holding and TDC taken as a whole, or on Scotsman and
its subsidiaries taken as a whole, as the case may be.
Section 6.7. Mutual Cooperation; Reasonable Best Efforts. The parties
hereto shall cooperate with each other, and shall use their respective
reasonable best efforts to cause the fulfillment of the conditions to the
parties' obligations hereunder and to obtain as promptly as possible all
consents, authorizations, orders or approvals from each and every third party,
whether private or governmental, required in connection with the transactions
contemplated by this Agreement; provided, however, that the foregoing shall not
require Scotsman or TDC to make any divestiture or consent to any divestiture
by TDC in order to obtain any waiver, consent or approval.
Section 6.8. No Public Announcement. None of the parties hereto shall,
without the approval of Scotsman, Holding and TDC (which may not be
unreasonably withheld), make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to
the extent that such party shall be so obligated by law, in which case Scotsman
or Holding and TDC, as the case may be, shall be advised and Scotsman, Holding
and TDC shall use their reasonable best efforts to cause a mutually agreeable
release or announcement to be issued.
Section 6.9. No Solicitation. Holding, TDC and their affiliates shall not,
nor shall they authorize or permit any officer, director or employee of or any
investment banker, attorney or other adviser or representative of TDC, Holding
or any of their affiliates to, (i) solicit, initiate, or encourage the
submission of, any Acquisition Proposal (as hereinafter defined), (ii) enter
into any agreement with respect to any Acquisition Proposal or (iii) except to
the extent required by law as advised by counsel in writing, participate in any
discussions or negotiations regarding, or furnish to any person any information
for the purpose of facilitating the making of, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. Without limiting
the foregoing, it is understood that any violation, of which Holding, TDC or
any of their affiliates had knowledge at the time of such violation, of the
restrictions set forth in the preceding sentence by any officer or director of
Holding or TDC or any of their affiliates or any investment banker, attorney or
other adviser or representative of Holding, TDC or any of their affiliates,
whether or not such person is purporting to act on behalf of Holding, TDC or
any of their affiliates or otherwise, shall be deemed to be a breach of
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this Section 6.9 by Holding, TDC and their affiliates. Holding and TDC
promptly shall advise Scotsman of any Acquisition Proposal and any inquiries
with respect to any Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any proposal for a merger or other business
combination involving Holding or TDC or any proposal or offer to acquire in any
manner, directly or indirectly, an equity interest in Holding or TDC, any
voting securities of Holding or TDC or a substantial portion of the assets of
TDC.
Section 6.10. Listing Applications. Scotsman will promptly file an
application to list on the New York Stock Exchange, Inc. ("NYSE"), subject to
official notice of issuance, the Scotsman Fixed Common Shares to be issued
pursuant to Section 2.1, the Scotsman Contingent Common Shares which may be
issued pursuant to Sections 2.1 and 2.3 and the Scotsman Common Stock issuable
upon the conversion of the Scotsman Convertible Preferred Shares and will use
its best efforts to effect such listing on the NYSE on or prior to the
Effective Date and to maintain its listing on the NYSE of Scotsman Common Stock
thereafter.
Section 6.11. Antitrust Law Compliance. Scotsman shall file and Holding
shall cause the "ultimate parent entity" (within the meaning of the HSR Act and
rules and regulations thereunder) of Holding to file with the Federal Trade
Commission and the United States Department of Justice the notification and
other information required to be filed with respect to the transactions
contemplated herein under the HSR Act and the rules and regulations promulgated
thereunder. Scotsman warrants that all such filings by it shall be, and
Holding and TDC warrant that all such filings by such ultimate parent entity
shall be, accurate as of the date filed and in accordance with the requirements
of the HSR Act and all such rules and regulations. Scotsman and Holding agree
to make available, or cause to be made available, to the other parties such
information as may reasonably be requested relative to the businesses, assets
and property of Scotsman, Holding, TDC and the ultimate parent entity of
Holding, as the case may be, as may be required to file any additional
information requested by such agencies under the HSR Act and such rules and
regulations.
Section 6.12. Termination of Management and Stockholders' Agreements.
Holding and TDC shall cause the Onex Management Agreement and the Diggs
Management Agreement to be terminated effective at or prior to the Effective
Date pursuant to an instrument which is in form and substance reasonably
satisfactory to Scotsman. The Stockholders shall cause the Stockholders'
Agreement, dated as of May 1, 1991 and amended December 29, 1992, among 713389
Ontario Inc. (as the transferee of Onex U.S. Investments, Inc.), EJJM (as the
transferee of The Matthew Diggs Group, Inc.), Pacific, PM, Manifold, McCollom,
Moffatt, Panella, Reed, Schafer, Tillotson, Tilmann, KE McCrone, MP McCrone,
Anderson and Holding (the "Stockholders' Agreement") to be terminated effective
at or prior to the Effective Date.
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Section 6.13. Periodic Financial Statements. Holding shall furnish, or
cause to be furnished, to Scotsman by February 15, 1994, and Scotsman shall
furnish, or cause to be furnished, to Holding by March 31, 1994 (or earlier if
available), the audited consolidated balance sheet and statements of income of
Holding or Scotsman, as the case may be, for the period ended December 31, 1993
or January 2, 1994, as the case may be, which financial statements shall be
prepared in accordance with the books and records of Holding or Scotsman, as
the case may be, fairly present in all material respects the consolidated
financial position of Holding or Scotsman, as the case may be, as of the date
or for the period indicated and shall be prepared in conformity with generally
accepted accounting principles consistently applied. Holding or Scotsman, as
the case may be, shall provide, or shall cause to be promptly provided, to
Scotsman or Holding, as applicable, such other financial information relating
to Holding and TDC or Scotsman (including, without limitation, information on
payables and receivables) as Scotsman or Holding, as applicable, may reasonably
request.
Section 6.14. Financing. Scotsman shall use its reasonable best efforts to
obtain the financing commitments, amendments or other financing arrangements
referred to in Section 8.14, to enter into definitive agreements consistent
with the terms of such financing commitments, amendments or arrangements and to
do all such acts and things reasonably necessary to consummate the transactions
contemplated by such definitive agreements. Scotsman shall promptly notify
Holding and TDC of the receipt of such financing commitments, amendments or
arrangements and shall advise Holding and TDC from time to time of its progress
in negotiating such definitive agreements.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
Section 7.1. Board Representation. Effective on or prior to the Effective
Date, Scotsman shall increase the size of its Board of Directors by one, so
that such Board of Directors shall consist of a total of eight directors, with
such additional directorship to be in the class of directors whose term expires
at the 1996 annual meeting of stockholders (the "1996 Class"), and (ii) appoint
Collins to the currently existing vacancy in the class of directors whose term
expires at the 1995 annual meeting of stockholders (the "1995 Class") and Diggs
to the new directorship in the 1996 Class, in each case to hold office until
his successor shall have been duly elected and qualified. So long as the
Stockholders, their Permitted Transferees (the Stockholders and their Permitted
Transferees are collectively referred to herein as the "Merger Stockholders")
and the Acquisition Shareholders (the Merger Stockholders and the Acquisition
Shareholders are collectively referred to as the "New Scotsman Stockholders")
own (on a fully diluted basis) at least 1,688,578
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shares of Scotsman Common Stock (reduced by one-half of the amount (the
"Reduction Amount") equal to the excess, if any, of 651,733 over the sum of (i)
the number of Scotsman Contingent Common Shares, if any, finally determined to
be issuable pursuant to Sections 2.1(d), 2.2 and 2.3 and (ii) the number of
Scotsman Earnout Shares (as defined in the Whitlenge Share Acquisition
Agreement), if any, finally determined to be issuable pursuant to Sections 1.1
and 1.2 of the Whitlenge Share Acquisition Agreement and appropriately adjusted
for any recapitalization, stock dividend, split or other similar change in the
capital stock taking place after the date hereof), the New Scotsman
Stockholders will be entitled to designate the individuals who are nominated by
Scotsman's Board of Directors to fill the directorships initially held by
Collins and Diggs. If at any time the ownership of the New Scotsman
Stockholders (on a fully diluted basis) is between 1,114,462 (reduced by an
amount equal to 33% of the Reduction Amount and appropriately adjusted for any
recapitalization, stock dividend, split or other similar change in the capital
stock taking place after the date hereof) and 1,688,578 shares of the Scotsman
Common Stock (reduced by an amount equal to one-half of the Reduction Amount
and appropriately adjusted for any recapitalization, stock dividend, split or
other similar change in the capital stock taking place after the date hereof),
the New Scotsman Stockholders will be entitled to designate the individual
chosen pursuant to subsection 3(b) of the Stockholders' Agreement, dated as of
January 11, 1994, as amended from time to time, among certain of the
stockholders of Holding, the shareholders of WAL and certain other parties
thereto, and shall have no right under this Section 7.1 to designate any other
individuals for election to the Board. If at any time the New Scotsman
Stockholders own (on a fully diluted basis) less than 1,114,462 shares of the
Scotsman Common Stock (reduced by 33% of the Reduction Amount and appropriately
adjusted for any recapitalization, stock dividend, split or other similar
change in the capital stock taking place after the date hereof), the New
Scotsman Stockholders will no longer have any right under this Section 7.1 to
designate any nominees for election to the Board.
If the right of the New Scotsman Stockholders to designate an individual or
individuals for nomination shall cease (by reason of the foregoing or the
immediately following paragraph of this Section 7.1) at any time during which a
directorship or directorships is or are held by a designee or designees of the
New Scotsman Stockholders and any such designee or designees holding the
directorship or directorships as to which the New Scotsman Stockholders have no
such right is a New Scotsman Stockholder or are New Scotsman Stockholders, then
any such designee who is a New Scotsman Stockholder shall, at Scotsman's
request, promptly resign as director. If such designee or designees are not
New Scotsman Stockholders, the New Scotsman Stockholders shall, at Scotsman's
request, use their reasonable best efforts to cause such designee or designees
to promptly resign. So long as the New Scotsman Stockholders are entitled
under this Section
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7.1 to designate at least one nominee, Scotsman shall cause
the size of the Board not to exceed eight directors (unless the holders of
shares of any preferred stock, including, without limitation, the Scotsman
Convertible Preferred Stock, are entitled to elect directors pursuant to the
applicable Certificate of Designation, in which case the Board may consist of
up to such amount of directors as is equal to eight plus such additional
directors).
The rights of the New Scotsman Stockholders under this Section 7.1 shall
terminate at such time as the obligations of the Merger Stockholders pursuant
to Section 7.2 and of the Acquisition Shareholders pursuant to Section 5.1 of
the Whitlenge Share Acquisition Agreement (or in either case pursuant to any
agreement extending the obligations under Section 7.2 or such Section 5.1, as
the case may be) terminate.
As used herein, "Permitted Transferees" shall mean with respect to any
Stockholder (other than Onex or Onex DHC), (i) any other Stockholder, (ii) any
of its controlled affiliates, (iii) in the event of the dissolution,
liquidation or winding up of any Stockholder that is a corporation or a
partnership, the partners of a partnership that is such Stockholder, the
stockholders of a corporation that is such Stockholder or a successor
partnership all of the partners of which or a successor corporation all of the
stockholders of which are the persons who were the partners of such partnership
or the stockholders of such corporation immediately prior to the dissolution,
liquidation or winding up of such Stockholder, (iv) a transferee by
testamentary or intestate disposition, (v) the spouse, children and/or other
relatives of such Stockholder, (vi) a trust transferee by inter vivos transfer,
the beneficiaries of which are the transferring Stockholder, spouse, children
and/or other relatives of such Stockholder, or (vii) a successor nominee or
trustee for the beneficial owner of the shares of Holding Common Stock for
which such Stockholder acts as nominee or trustee, as the case may be, in each
case to whom a Stockholder may transfer shares of Holding Common Stock prior to
the Effective Time; provided, however, that (x) the aggregate number of shares
covered by transfers to persons described in clause (i) shall not exceed
1,500,000 and (y) any such Permitted Transferee who was not, prior to such
transfer, a stockholder of Holding shall furnish to Scotsman a written
instrument, reasonably satisfactory to Scotsman, whereby such Permitted
Transferee agrees to be bound by any obligations of Merger Stockholders
contained in this Agreement as though such Permitted Transferee were a party
hereto (it being understood that any such transfer shall in no way relieve any
Stockholder of any obligations under this Agreement unless such transfer shall
be made to another Stockholder, in which case Schedule 10.1 shall be
appropriately revised to reflect a reallocation of the percentages set forth
therein). As used in this Section 7.1, "on a fully diluted basis" shall
include any shares of Scotsman Common Stock into which shares of Scotsman
Convertible Preferred Stock owned by the New Scotsman Stockholders are
convertible and,
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until the final determination of the number of Scotsman Common
Contingent Shares, if any, issuable pursuant to Sections 2.1(d), 2.2 and 2.3
and the number of Scotsman Earnout Shares, if any, issuable pursuant to
Sections 1.1 and 1.2 of the Whitlenge Share Acquisition Agreement, the maximum
number of Scotsman Contingent Common Shares and Scotsman Earnout Shares that
may be issuable.
Section 7.2. Voting. So long as the New Scotsman Stockholders are entitled
under Section 7.1 to designate at least one nominee to Scotsman's Board of
Directors, the Merger Stockholders, together with any affiliates or associates
controlled by them, shall, and the Merger Stockholders shall use reasonable
best efforts to cause any other of their affiliates or associates to, vote all
shares of capital stock of Scotsman owned by them (other than the shares of
Scotsman Common Stock (the "PM Affiliate Shares") listed on Schedule 3.3(b) as
being beneficially owned by the affiliates of Pacific and PM listed on such
Schedule (the "PM Affiliates") or other shares acquired after the date hereof
by the PM Affiliates without violation of Section 7.3, as to which this Section
7.2 shall not apply) in favor of all of the director nominees to the Board of
Directors recommended by the Board of Directors of Scotsman (which shall
include any designate or designates referred to in Section 7.1). The
obligations of the Merger Stockholders under this Section 7.2 shall in any
event terminate on the tenth anniversary of the date hereof unless, by
agreement among Scotsman and the New Scotsman Stockholders who then own any
shares of Scotsman Common Stock or Scotsman Convertible Preferred Stock, such
obligations are extended after the eighth anniversary and prior to such tenth
anniversary.
Section 7.3. Standstill. Unless specifically requested in writing in
advance by Scotsman's Board of Directors, during the period from the date
hereof through and including the fifth anniversary hereof, the New Scotsman
Stockholders, together with their affiliates and associates, may not, directly
or indirectly, (i) acquire any voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any voting securities, of
Scotsman (other than pursuant to this Agreement or the Whitlenge Share
Acquisition Agreement, or upon the conversion, in accordance with their terms,
of the Scotsman Convertible Preferred Shares acquired pursuant to this
Agreement), (ii) make, induce or assist any other person to make, any proposal
regarding an acquisition of Scotsman by any person or group or any other
transaction that could result in a change in control of Scotsman, (iii) solicit
proxies or otherwise participate in any proxy contest with respect to Scotsman,
(iv) enter into any discussions, negotiations, arrangements or understandings
with any other person with respect to any matter described in clause (i), (ii)
or (iii), (v) request a waiver to permit any of the foregoing or (vi) take any
action with respect to any of the foregoing matters that requires public
disclosure. Notwithstanding clause (i) of the immediately preceding sentence,
in the event this Agreement is terminated pursuant to Section
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11.1, and only in such event, the New Scotsman Stockholders, together with
their affiliates, may acquire beneficial ownership of shares of Scotsman Common
Stock representing less than 5% of the outstanding shares. Neither the New
Scotsman Stockholders nor any of their successors may sell in any transaction,
or series of related transactions, more than 500,000 shares of Scotsman Common
Stock (on a fully diluted basis and appropriately adjusted for any
recapitalization, stock dividend, split or other change in the capital stock
taking place after the date hereof) to a single person or group (other than a
group of underwriters in connection with an underwritten public offering)
unless such person or group agrees to the provisions of this Section 7.3.
Nothing in this Section 7.3 shall in any way limit the obligations of the New
Scotsman Stockholders and their affiliates and associates under Section 7.2, it
being understood that, so long as the New Scotsman Stockholders are entitled
under Section 7.1 to designate one nominee to Scotsman's Board of Directors,
during any proxy contest conducted with respect to Scotsman by any third party,
the New Scotsman Stockholders, together with their affiliates and associates,
shall be required to vote (other than the voting of the PM Affiliate Shares or
other shares acquired after the date hereof by the PM Affiliates without
violation of this Section 7.3, as to which this sentence shall not apply) in
favor of the director nominees to the Board of Directors recommended by the
Board of Directors of Scotsman. Notwithstanding the provisions of this Section
7.3, (a) the PM Affiliates may sell or otherwise dispose of the PM Affiliate
Shares to any person in any manner, without regard to such provisions (provided
that this clause (a) shall not permit any New Scotsman Stockholder, or its
affiliates or associates, to acquire such PM Affiliate Shares) and (b) the PM
Affiliates shall no longer be bound by this Section 7.3 after the later of (i)
the date of final determination of EBITDA pursuant to Section 2.3 (or, if the
Scotsman Contingent Common Shares are issuable pursuant to Sections 2.1(d) and
2.3, the date of such issuance) and (ii) the date on which (x) Pacific, PM and
their affiliates (other than the PM Affiliates) no longer beneficially own any
shares of Scotsman Common Stock or Scotsman Convertible Preferred Stock
acquired pursuant to this Agreement or any shares of Scotsman Common Stock
acquired upon conversion of such Scotsman Convertible Preferred Stock and (y)
Pacific, PM and their affiliates (including the PM Affiliates) are no longer
part of a "group" (within the meaning of Rule 13d-5 under the Exchange Act)
with respect to securities of Scotsman which includes any New Scotsman
Stockholder or any affiliate of any New Scotsman Stockholder, it being
understood that if the PM Affiliates are no longer bound by this Section 7.3 as
described above, Pacific, PM and their affiliates (other than the PM
Affiliates) will continue to be bound by this Section 7.3.
Section 7.4. Insurance. Onex and the affiliates of Onex controlled by it
will take such action as is necessary to cause the insurance policies listed on
Schedule 3.21 to provide the coverage listed therein with respect to Holding
and TDC for
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periods ending on or prior to the Effective Date, and to continue
such coverage, on and after the Effective Date, for the benefit of the
Surviving Corporation and TDC and (to the extent permitted under such policies)
their respective successors and assigns with respect to periods ending on or
prior to the Effective Date, notwithstanding the transactions contemplated
hereby, except to the extent any insurer cancels any such policy or withdraws
from coverage (other than at the request of Holding, TDC or any affiliate
thereof or due to the failure to pay any premium on any such policy). Without
limiting the foregoing, neither Onex nor the affiliates of Onex controlled by
it shall take any action to remove Holding or TDC as a named insured under any
of such policies or cause Holding or TDC to be denied the benefit of any
insurance coverage currently available to them.
Section 7.5. Tax-Free Nature; Tax Consequences. The parties to this
Agreement intend the Merger to constitute a reorganization described in section
368(a) of the Code and shall use their reasonable best efforts to cooperate in
achieving such a tax-free reorganization. Notwithstanding the preceding
sentence, the parties to this Agreement will rely solely on their own advisors
in determining the tax consequences of the transactions contemplated by this
Agreement and each party is not relying, and will not rely, on any
representations or assurances of any other party regarding such consequences
other than the representations and covenants set forth in writing in this
Agreement or any other agreement or certificate delivered in connection
herewith. In the event that the transactions contemplated by this Agreement do
not qualify as such a tax-free reorganization, the validity of such
transactions shall nevertheless be binding and final upon the parties to this
Agreement. Scotsman will not take any tax reporting positions or make any tax
elections inconsistent with the characterization of the Merger as a
reorganization described in section 368(a)(2)(E) of the Code except as may be
required upon examination by any Tax authority.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SCOTSMAN AND SUB
The obligations of Scotsman and Sub under this Agreement to cause the Merger
to be consummated shall, at the option of Scotsman, be subject to the
satisfaction, on or prior to the Effective Date, of the following conditions:
Section 8.1. No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no material breach by Holding, TDC or any Stockholder in
the performance of their respective covenants and agreements herein to be
performed at or prior to the Effective Time; subject to Section 10.7, none of
the representations and warranties of any Stockholder that is qualified as to
materiality shall be untrue or incorrect in any respect and on the Effective
Date such representations and
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warranties shall be true and correct as though made on the Effective
Date except for changes therein specifically permitted by this Agreement or
resulting from any transaction expressly consented to in writing by Scotsman,
permitted by Section 6.6(a) or entered into in connection with the consummation
of the Merger and the other transactions contemplated hereby; subject to
Section 10.7, none of the representations or warranties that is not so
qualified shall be untrue or incorrect in any material respect and on the
Effective Date such representations and warranties shall be true and correct in
all material respects as though made on the Effective Date except for changes
therein specifically permitted by this Agreement or resulting from any
transaction expressly consented to in writing by Scotsman, permitted by Section
6.6(a) or entered into in connection with the consummation of the Merger and
the other transactions contemplated hereby; and there shall have been delivered
to Scotsman and Sub a certificate or certificates to the foregoing effect,
dated the Effective Date, signed on behalf of Holding and TDC by their
respective Presidents and Chief Financial Officers and signed by each of the
Stockholders.
Section 8.2. No Material Adverse Effect. Between the date hereof and the
Effective Date, there shall have been no Material Adverse Effect on Holding and
TDC, taken as a whole; and there shall have been delivered to Scotsman and Sub
a certificate or certificates to such effect, dated the Effective Date, signed
on behalf of Holding and TDC by their respective Presidents and Chief Financial
Officers and signed by each Stockholder.
Section 8.3. Opinion of Counsel for Holding, TDC and the Stockholders.
Scotsman and Sub shall have received (a) from Debevoise & Plimpton, counsel for
Holding and TDC, an opinion, dated the Effective Date, in form and substance
reasonably satisfactory to Scotsman, substantially to the effect set forth in
Exhibit III-A, and (b) from counsel for Onex, Onex DHC, EJJM, Diggs and
Collins, opinions, dated the Effective Date, in form and substance reasonably
satisfactory to Scotsman, substantially to the effect set forth in Exhibit
III-B.
Section 8.4. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that each of
the parties shall have used its reasonable best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
Section 8.5. Necessary Governmental Approvals. The parties shall have
received all governmental and regulatory approvals and actions reasonably
necessary to consummate the transactions contemplated hereby, which are either
required to be obtained prior to the Effective Date by applicable law or
regula-
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tion (including, without limitation, the expiration or early termination
of the applicable waiting period under the HSR Act, if any) or are necessary to
prevent a Material Adverse Effect on Holding and TDC taken as a whole.
Section 8.6. Necessary Consents. Holding and TDC shall have received
consents, in form and substance reasonably satisfactory to Scotsman, to the
transactions contemplated hereby from the other parties to all material
contracts, leases, agreements and permits to which Holding or TDC is a party or
by which they are affected and which require such consent prior to the Merger
and are necessary to prevent a Material Adverse Effect with respect to Holding
and TDC taken as a whole.
Section 8.7. Noncompetition Agreements. Each of Onex, Onex DHC, Diggs,
Collins, Manifold, McCollom, Moffatt, Panella, Reed, Schafer, Tillotson,
Tilmann, KE McCrone, MP McCrone and Anderson shall have entered into a
Noncompetition Agreement with Scotsman substantially in the form of Exhibit IV.
Section 8.8. Registration Rights Agreement. The Stockholders shall have
each entered into the Registration Rights Agreement substantially in the form
of Exhibit V.
Section 8.9. Stockholder Action. This Agreement shall have been unanimously
adopted by all holders of Holding Common Stock. The issuance of shares of
Scotsman Common Stock and Scotsman Convertible Preferred Stock pursuant to this
Agreement and the Whitlenge Share Acquisition Agreement shall have been
approved by a majority of votes cast by holders of Scotsman Common Stock,
provided that the total vote cast shall have represented over 50% of the issued
and outstanding shares of Scotsman Common Stock at the time of the vote.
Section 8.10. Dissenting Stockholders. No stockholder of Holding shall have
delivered a written demand for appraisal of its Holding Common Stock pursuant
to Section 262 of the DGCL; and there shall have been delivered to Scotsman and
Sub a certificate or certificates to such effect, dated the Effective Date,
signed on behalf of Holding and TDC by their respective Presidents and Chief
Financial Officers.
Section 8.11. Stock Exchange Listings. The NYSE shall have approved for
listing, upon official notice of issuance, the shares of Scotsman Fixed Common
Shares to be issued pursuant to Section 2.1, the Scotsman Contingent Common
Shares which may be issued pursuant to Sections 2.1 and 2.3 and the shares of
Scotsman Common Stock issuable upon conversion of the Scotsman Convertible
Preferred Shares.
Section 8.12. Registration Statement Effective. The Registration Statement
shall have been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall have been entered by the SEC.
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Section 8.13. Securities Laws. Scotsman shall have received all necessary
permits and otherwise complied with any state securities laws applicable to the
issuance of the Scotsman Common Stock, the Scotsman Convertible Preferred Stock
and the Scotsman Nonconvertible Preferred Stock pursuant to this Agreement.
Section 8.14. Financing. Scotsman shall have obtained, on or before
February 15, 1994, written financing commitments, amendments to its existing
financing arrangements or other financing arrangements in an amount sufficient
to (i) pay the cash consideration specified in this Agreement and the Whitlenge
Share Acquisition Agreement, (ii) refinance, to the extent required, the
outstanding debt of Scotsman and (iii) refinance the outstanding debt of
Holding, TDC and Whitlenge, in each case on terms satisfactory to Scotsman.
Section 8.15. Comfort Letters. Scotsman and Sub shall have received comfort
letters from Arthur Andersen & Co., Coopers & Lybrand and Ernst & Young, dated
the date of mailing the Proxy Statement/Prospectus and the Effective Date and
addressed to Scotsman, in each case in form and substance reasonably
satisfactory to Scotsman, covering such matters reasonably requested by it.
Section 8.16. Glenco Holdings. Scotsman shall have obtained a written
waiver by Glenco Holdings of the Scotsman Noncompetition Agreement, dated
September 23, 1992 (the "Scotsman Noncompetition Agreement").
Section 8.17. Whitlenge Share Acquisition Agreement. The Whitlenge Share
Acquisition Agreement shall be in full force and effect and all of the issued
WAL Ordinary Shares (as such term is defined in the Whitlenge Share Acquisition
Agreement) shall have been tendered, accompanied by a stock transfer form
executed in blank, and accepted for payment by Scotsman or the Tender
Subsidiary (as so defined) and the condition contained in Section 6.21 of the
Whitlenge Share Acquisition Agreement shall have been satisfied or waived.
Section 8.18. Average Scotsman Common Stock Closing Price. The average
Closing Price of the Scotsman Common Stock for the ten trading days prior to
the date of the meeting of the stockholders of Scotsman referred to in Section
6.3 shall not be more than U.S. $14.50.
Section 8.19. Resignations of Directors. Scotsman shall have received the
resignation of each of the directors of Holding and TDC, effective as of the
Effective Date.
Section 8.20. Termination of Management and Stockholders' Agreement. The
Onex Management Agreement, the Diggs Management Agreement and the Stockholders'
Agreement shall have been terminated, effective upon the Effective Date,
without payment by
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Holding, WAL or any of their subsidiaries of any amount in respect of
such termination other than accrued fees and expenses incurred before the
Effective Time.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS
OF HOLDING, TDC AND THE STOCKHOLDERS
The obligations of Holding, TDC and the Stockholders under this Agreement to
cause the Merger to be consummated shall, at the option of Holding, TDC and the
Stockholders, be subject to the satisfaction, on or prior to the Effective
Date, of the following conditions (other than the condition set forth in
Section 9.14), and the obligations of Holding, TDC and the Stockholders under
this Agreement to cause the Merger to be consummated shall, at the option of
Holding, be subject to the satisfaction, on or prior to the Effective Date, of
the condition set forth in Section 9.14:
Section 9.1. No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no material breach by Scotsman or Sub in the performance
of any of their respective covenants and agreements herein to be performed at
or prior to the Effective Time; none of the representations and warranties of
Scotsman or Sub that is qualified as to materiality shall be untrue or
incorrect in any respect and on the Effective Date such representations and
warranties shall be true and correct as though made on the Effective Date
except for changes therein specifically permitted by this Agreement or
resulting from any transactions expressly consented to in writing by Holding,
permitted by Sections 6.6(a) and (b) or entered into in connection with the
consummation of the Merger and the other transactions contemplated hereby; none
of the representations or warranties that are not so qualified shall be untrue
or incorrect in any material respect and on the Effective Date such
representations and warranties shall be true and correct in all material
respects as though made on the Effective Date except for changes therein
specifically permitted by this Agreement or resulting from any transactions
expressly consented to in writing by Holding, permitted by Sections 6.6(a) and
(b) or entered into in connection with the consummation of the Merger and the
other transactions contemplated hereby; and there shall have been delivered to
Holding, TDC and the Stockholders a certificate or certificates to the
foregoing effect, dated the Effective Date, signed on behalf of Scotsman and
Sub by their Presidents and Chief Financial Officers.
Section 9.2. No Material Adverse Effect. Between the date hereof and the
Effective Date, there shall have been no Material Adverse Effect on Scotsman
and its subsidiaries taken as a whole; and there shall have been delivered to
Holding, TDC and the Stockholders a certificate or certificates to such effect,
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dated the Effective Date, signed on behalf of Scotsman by its President and
Chief Financial Officer.
Section 9.3. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that each of
the parties shall have used its reasonable best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
Section 9.4. Opinions of Counsel for Scotsman and Sub. Holding, TDC and the
Stockholders shall have received (a) from Sidley & Austin, special counsel for
Scotsman and Sub, an opinion, dated the Effective Date, in form and substance
satisfactory to Holding, TDC and the Stockholders, substantially to the effect
set forth in Exhibit VI-A, and (b) from Schiff, Hardin & Waite, counsel for
Scotsman and Sub, an opinion, dated the Effective Date, in form and substance
satisfactory to Holding, TDC and the Stockholders, substantially to the effect
set forth in Exhibit VI-B.
Section 9.5. Necessary Governmental Approvals. The parties shall have
received all governmental and regulatory approvals and actions reasonably
necessary to consummate the transactions contemplated hereby, which are either
required to be obtained prior to the Effective Date by applicable law or
regulation (including, without limitation, the expiration or early termination
of the applicable waiting period under the HSR Act, if any) or are necessary to
prevent a Material Adverse Effect on Scotsman and its subsidiaries taken as a
whole.
Section 9.6. Registration Rights Agreement. Scotsman shall have executed
and delivered the Registration Rights Agreement substantially in the form of
Exhibit V.
Section 9.7. Stockholder Action. This Agreement shall have been unanimously
adopted by all holders of Holding Common Stock. The issuance of shares of
Scotsman Common Stock and Scotsman Convertible Preferred Stock pursuant to this
Agreement and the Whitlenge Share Acquisition Agreement shall have been
approved by a majority of votes cast by holders of Scotsman Common Stock,
provided that the total vote cast shall have represented over 50% of the issued
and outstanding shares of Scotsman Common Stock at the time of the vote.
Section 9.8. Stock Exchange Listings. The NYSE shall have approved for
listing, upon official notice of issuance, the Scotsman Fixed Common Shares to
be issued pursuant to Section 2.1, the Scotsman Contingent Common Shares which
may be issued pursuant to Sections 2.1 and 2.3 and the shares of Scotsman
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Common Stock issuable upon the conversion of the Scotsman Convertible Preferred
Shares.
Section 9.9. Registration Statement Effective. The Registration Statement
shall have been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall have been entered by the SEC.
Section 9.10. Securities Laws. Scotsman shall have received all necessary
permits and otherwise complied with any state securities laws applicable to the
issuance of the shares of the Scotsman Common Stock, the Scotsman Convertible
Preferred Stock and the Scotsman Nonconvertible Preferred Stock pursuant to
this Agreement.
Section 9.11. Financing. Scotsman shall have obtained, on or before
February 15, 1994, written financing commitments, amendments to its existing
financing arrangements or other financing arrangements in an amount sufficient
to (i) pay the cash consideration specified in this Agreement and the Whitlenge
Share Acquisition Agreement, (ii) refinance, to the extent required, the
outstanding debt of Scotsman and (iii) refinance the outstanding debt of
Holding, TDC and Whitlenge, in each case on terms reasonably satisfactory to
Holding and TDC.
Section 9.12. Glenco Holdings. Scotsman shall have obtained, on or before
January 31, 1994, a written waiver by Glenco Holdings of the Scotsman
Noncompetition Agreement.
Section 9.13. Whitlenge Share Acquisition Agreement. The Whitlenge Share
Acquisition Agreement shall be in full force and effect and all of the issued
WAL Ordinary Shares shall have been tendered, accompanied by a stock transfer
form executed in blank, and accepted for payment by Scotsman or the Tender
Subsidiary and the condition contained in Section 6.21 of the Whitlenge Share
Acquisition Agreement shall have been satisfied or waived.
Section 9.14. Average Scotsman Common Stock Closing Price. The average
Closing Price of the Scotsman Common Stock for the ten trading days prior to
the date of the meeting of the stockholders of Scotsman referred to in Section
6.3 shall not be less than U.S. $10.50.
Section 9.15. Necessary Consents. Holding and TDC shall have received
consents, in form and substance reasonably satisfactory to Holding and TDC, to
the transactions contemplated hereby from the other parties to all material
contracts, leases, agreements and permits to which Holding or TDC is a party or
by which they are affected and which require such consent prior to the Merger
and are necessary to prevent a Material Adverse Effect with respect to Holding
and TDC taken as whole.
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Section 9.16. Comfort Letters. Holding shall have received comfort letters
from Arthur Andersen & Co., Coopers & Lybrand and Ernst & Young, dated the date
of mailing the Proxy Statement/Prospectus and the Effective Date and addressed
to Holding, in each case in form and substance reasonably satisfactory to
Holding, covering such matters reasonably requested by it.
Section 9.17. Dissenting Stockholders. No stockholder of Holding shall have
delivered a written demand for appraisal of its Holding Common Stock pursuant
to Section 262 of the DGCL.
ARTICLE X
INDEMNIFICATION; SURVIVAL
Section 10.1. Indemnification by the Stockholders. From and after the
Effective Time, each of the Stockholders shall indemnify and hold harmless
Scotsman, TDC, the Surviving Corporation and their subsidiaries, affiliates and
successors from and against any and all (a) liabilities, losses, costs or
damages ("Loss") and (b) reasonable attorneys', consultants' and accountants'
fees and expenses, court costs and all other reasonable out-of-pocket expenses
("Expense") incurred by Scotsman, TDC, the Surviving Corporation and their
subsidiaries, affiliates and successors in connection with or arising from (x)
any breach or failure to perform by any Stockholder or Shareholder (as defined
in the Whitlenge Share Acquisition Agreement) of any of their respective
agreements, covenants or obligations in this Agreement or the Whitlenge Share
Acquisition Agreement or any agreement entered into in connection with the
transactions contemplated hereby or thereby, in each case to be performed or
complied with after the Effective Time or the Expiration Date (as defined in
the Whitlenge Share Acquisition Agreement), as the case may be, (y) any breach
of any warranty or the inaccuracy of any representation of Holding, TDC, WAL,
Whitlenge Drink or any Stockholder or Shareholder contained in this Agreement
or the Whitlenge Share Acquisition Agreement, as updated in accordance with
Section 10.7 hereof and Section 8.7 of the Whitlenge Share Acquisition
Agreement, or in any certificate delivered by or on behalf of Holding, TDC,
WAL, Whitlenge Drink or any Stockholder or Shareholder pursuant hereto or
thereto and (z)(A) the actions listed in item 1 of Schedule 3.17 or (B) any
other claim, suit, action, proceeding or other matter in connection with or
arising out of the fire that occurred on or about February 5, 1992 at the
Indianapolis Athletic Club (including, without limitation, any claim, suit,
action or proceeding brought by or on behalf of Holding or TDC to seek or
enforce indemnification from Alco Standard or any of its affiliates or
insurance coverage under any insurance policy maintained by or for the benefit
of Alco Standard, Holding, TDC, Onex or any of their affiliates); provided,
however, that the Stockholders shall be required to indemnify and hold harmless
under this Section 10.1 only to the
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extent that the aggregate amount of (without duplication) (i) Loss and
Expense referred to above in this Section 10.1 and (ii) Loss and Expense
referred to in Section 8.1 of the Whitlenge Share Acquisition Agreement exceeds
U.S. $250,000; and provided, further, (X) each Stockholder's obligation to
indemnify and hold harmless pursuant to this Section 10.1 shall be limited to
the payment by such Stockholder of cash (1) with respect to any individual Loss
or Expense (other than any Loss or Expense arising from a breach of a warranty,
or inaccuracy of a representation, of such Stockholder contained in Section
3.3(b) or 3.4(b), as to which this clause (1) shall be inapplicable), in an
amount that does not exceed the product obtained by multiplying such
Stockholder's Applicable Percentage (as set forth on Schedule 10.1) by the
amount of such Loss or Expense, and (2) in the aggregate in an amount equal to
the product obtained by multiplying such Stockholder's Applicable Percentage
(as set forth on Schedule 10.1) by U.S. $30,000,000 (without limiting the
foregoing, it being understood that, for purposes of clause (2) above, with
respect to the Indianapolis Athletic Club fire matters or otherwise, the
payment of any amount by, or with funds furnished by, an insurer or Alco
Standard, shall not be deemed to be the payment by any Stockholder and (Y) no
Stockholder shall indemnify and hold harmless any indemnified party with
respect to any Loss or Expense arising from any breach of a warranty, or
inaccuracy of a representation, of any other Stockholder or Continental
contained in Section 3.3(b) or 3.4(b) or of any Shareholder contained in
Section 2.3(b) or 2.4(b) of the Whitlenge Share Acquisition Agreement.
Notwithstanding any other provision of this Agreement, the Stockholders shall
have no obligation to indemnify and hold harmless Scotsman, TDC, the Surviving
Corporation, their subsidiaries, affiliates and successors, or any other person
from and against any Loss or Expense resulting from an election (whether deemed
or actual) under section 338 of the Code made with respect to the Merger.
Section 10.2. Indemnification by Scotsman and the Surviving Corporation.
From and after the Effective Time, Scotsman and the Surviving Corporation shall
jointly and severally indemnify and hold harmless the Stockholders and their
subsidiaries, affiliates and successors from and against any and all Loss and
Expense incurred by the Stockholders and their subsidiaries, affiliates and
successors in connection with or arising from (a) any breach or failure to
perform by Scotsman or the Surviving Corporation of any of their respective
agreements, covenants or obligations in this Agreement or the Whitlenge Share
Acquisition Agreement or any agreement entered into in connection with the
transactions contemplated hereby or thereby, in each case to be performed or
complied with after the Effective Time or the Expiration Time, as the case may
be, and (b) any breach of any warranty or the inaccuracy of any representation
of Scotsman or Sub contained in this Agreement or the Whitlenge Share
Acquisition Agreement or in any certificate delivered by or on behalf of
Scotsman or Sub pursuant hereto or thereto; provided, however, that Scotsman
and the Surviving Corporation shall be
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required to indemnify and hold harmless under this Section 10.2 only to
the extent that the aggregate amount of (without duplication) (i) Loss and
Expense referred to above in this Section 10.2 and (ii) Loss and Expense
referred to in Section 8.2 of the Whitlenge Share Acquisition Agreement exceeds
U.S. $250,000; and provided, further, Scotsman's and the Surviving
Corporation's obligation to indemnify and hold harmless pursuant to this
Section 10.2 shall be limited to the aggregate payment by Scotsman and/or the
Surviving Corporation of cash in an amount equal to the excess of (i) U.S.
$30,000,000 over (ii) any amount theretofore paid in indemnification by
Scotsman and/or any of its subsidiaries under Section 8.2 of the Whitlenge
Share Acquisition Agreement. Any payment pursuant to this Section 10.2 shall
be payable in cash; provided, however, that to the extent any payment of cash
pursuant to this Section 10.2 would cause the aggregate amount of cash paid
pursuant to this Section 10.2 to exceed 19% of the sum of (i) the aggregate
amount of cash paid pursuant to this Section 10.2, (ii) the Adjusted Value (as
defined below) of Scotsman Contingent Common Shares theretofore paid to the
former holders of Holding Common Stock pursuant to Section 2.3 and (iii) the
aggregate liquidation preference of the shares of Scotsman Nonconvertible
Preferred Stock issued pursuant to this Section 10.2, such excess shall be paid
in the form of shares of Scotsman Nonconvertible Preferred Stock, valued for
such purpose at 100% of their liquidation preference. For purposes of the
foregoing, the Adjusted Value of a Scotsman Contingent Common Share shall be
determined in the manner provided in the last paragraph of Section 2.1 except
that the business day immediately prior to the date such Scotsman Contingent
Common Share was issued shall be substituted for the Effective Date.
Section 10.3. Notice of Claims. If Scotsman (with respect to Section 10.1)
or the Stockholder Representative (with respect to Section 10.2) believes that
any of the persons entitled to indemnification under this Article X has
suffered or incurred any Loss or incurred any Expense, whether or not the
applicable dollar limitation specified by Section 10.1 or 10.2 has been
exceeded, Scotsman or the Stockholder Representative, as the case may be, shall
so notify the other promptly in writing describing such Loss or Expense, the
amount thereof, if known, and the method of computation of such Loss or
Expense, all with reasonable particularity and containing a reference to the
provisions of this Agreement or any certificate delivered pursuant hereto in
respect of which such Loss or Expense shall have occurred; provided, however,
that the omission by such indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its indemnification obligation
under this Article X except to the extent that such omission results in a
failure of actual notice to the indemnifying party and such indemnifying party
is materially damaged as a result of such failure to give notice. If any
action at law or suit in equity is instituted by or against a third party with
respect to which any of the persons entitled to indemnification under this
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Article X intends to claim any liability or expense as Loss or Expense under
this Article X, any such person shall promptly notify the indemnifying party of
such action or suit as specified in this Section 10.3 and Section 10.4. Any
party entitled to indemnification hereunder shall use reasonable efforts to
minimize any Loss or Expense for which indemnification is sought hereunder.
If Scotsman furnishes a notice referred to in the first sentence of the
immediately preceding paragraph and the Stockholder Representative, within 10
business days of receipt thereof, furnishes Scotsman with a notice (an "Alco
Notice") stating that the Loss and Expense referred to in Scotsman's notice, or
some portion thereof, are subject to indemnification by Alco Standard pursuant
to any of the agreements referred to in Section 3.32 or in Section 2.32 of the
Whitlenge Share Acquisition Agreement (such notice to include specific
reference to the provisions of the agreements containing the indemnification
obligations), then (i) Scotsman shall use its best efforts to enforce such
indemnification obligations and the Stockholders and the Stockholder
Representative shall cooperate fully with Scotsman in seeking to enforce such
indemnification obligations and (ii) the indemnifying parties shall not be
required to indemnify with respect to the portion of such Loss and Expense
subject to indemnification until, and to the extent that, a court of competent
jurisdiction determines, or the Stockholder Representative acknowledges, that
Alco Standard is not required to so indemnify (it being understood that for
purposes of the second proviso to the first sentence of Section 10.6, Scotsman
shall be deemed to have asserted its claim for indemnification by the
indemnifying parties at the time of its notice and that the Loss and Expense
referred to in such notice shall be deemed to include, although not referred to
therein, any Loss and Expense thereafter incurred by any of the indemnified
parties in seeking to enforce, whether or not successful, any purported
indemnification obligation of Alco Standard identified by the Stockholder
Representative). In the event that the Stockholder Representative fails to
give an Alco Notice within the 10 business day period specified above, but
furnishes an Alco Notice at a later date, then (x) Scotsman, the Stockholder
Representative and the Stockholders shall take the actions specified in clause
(i) above, (y) should Scotsman or another person entitled to indemnification
under Section 10.1 thereafter successfully enforce any such purported
indemnification obligation of Alco Standard, any Loss and Expense that is
recovered in such enforcement action and was theretofore covered by an
indemnification payment by the indemnifying parties hereunder shall be paid
over to the Stockholder Representative on behalf of the Stockholders and (z)
the obligation of the indemnifying parties with respect to any Loss and Expense
identified in such subsequent Alco Notice as covered by such purported
indemnification obligation and for which, at the time of such subsequent Alco
Notice, indemnification has not been made by the indemnifying parties
hereunder, shall be as specified in clause (ii) above.
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Without limiting the indemnifying parties' obligation under clause (ii)
above to make an indemnification payment following a judicial determination of
the type referred to in such clause (ii), Scotsman, if requested in writing by
the Stockholder Representative on a timely basis, shall, at the expense of the
Stockholders (which shall be promptly paid as incurred), use its best efforts
to pursue a judicial appeal of such determination. If any such appeal results
in the recovery by Scotsman or another person entitled to indemnification under
Section 10.1 of any Loss or Expense which theretofore was covered by an
indemnification payment by the indemnifying parties hereunder, such recovery
shall be paid over to the Stockholder Representative on behalf of the
Stockholders. The Stockholders and the Shareholders shall be subrogated to any
and all rights of Scotsman or the other persons entitled to indemnification
pursuant to Section 10.1 under any indemnification obligations of Alco Standard
pursuant to any of the agreements referred to in Section 3.32 or in Section
2.32 of the Whitlenge Share Acquisition Agreement in respect of any Loss or
Expense with respect to which the Stockholder Representative has not furnished
an Alco Notice and for which the Stockholders or the Shareholders have
theretofore indemnified Scotsman or such other persons.
With respect to any claim that Scotsman or the other persons entitled to
indemnification under Section 10.1 may pursue against Alco Standard with
respect to the enforcement of a purported indemnification obligation pursuant
to any of the agreements referred to in Section 3.32 or in Section 2.32 of the
Whitlenge Share Acquisition Agreement, neither Scotsman nor such other persons
shall consent to entry of any judgment or enter into any settlement in respect
thereof unless (1) the Stockholder Representative consents to such judgment or
settlement or (2) Scotsman (on behalf of itself and such other indemnified
persons) releases the Stockholders and the Shareholders from any and all
liability with respect to the Loss and Expense that was the subject of such
claim and such judgment or settlement does not adversely affect any Stockholder
or Shareholder or any of their subsidiaries, affiliates or successors or any
other claim for indemnification by Alco Standard pursuant to any of the
agreements referred to in Section 3.32 or in Section 2.32 of the Whitlenge
Share Acquisition Agreement. With respect to any judicial or other proceeding
or appeal pursued by Scotsman or the other persons entitled to indemnification
under Section 10.1 and seeking the enforcement of a purported indemnification
obligation of Alco Standard pursuant to any of such agreements, the
Stockholders (i) if they have theretofore fully indemnified (subject to any
applicable deductible) Scotsman and the other persons entitled to
indemnification under Section 10.1, shall be entitled, at their own expense and
through counsel of their choice, to control the pursuit of the indemnification
claim against Alco Standard in such judicial or other proceeding or appeal (it
being understood that the Stockholders shall not consent to entry of any
judgment or enter into any settlement with respect thereto that adversely
affects Scotsman or any of
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the other persons entitled to indemnification under Section 10.1,
unless Scotsman or such persons, as the case may be, shall have consented
thereto), and (ii) if they have not so fully indemnified (subject to any
applicable deductible) Scotsman or the other persons entitled to
indemnification under Section 10.1, shall be entitled, at their own expense, to
participate with counsel of their choice but without any right of control
thereof.
Section 10.4. Third Party Claims. (a) In the event of any claim for
indemnification hereunder (other then pursuant to clause (z)(A) of Section
10.1) resulting from or in connection with any claim or legal proceeding by a
third party, the indemnified persons shall give such notice thereof to the
indemnifying party not later than twenty business days prior to the time any
response to the asserted claim is required, if possible, and in any event
within fifteen days following the date such indemnified person has actual
knowledge thereof; provided, however, that the omission by such indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its indemnification obligation under this Article X except to the
extent that such omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is materially damaged as a
result of such failure to give notice. In the event of any such claim for
indemnification resulting from or in connection with a claim or legal
proceeding by a third party, the indemnifying party may, at its sole cost and
expense, assume the defense thereof; provided, however, that counsel for the
indemnifying party, who shall conduct the defense of such claim or legal
proceeding, shall be reasonably satisfactory to the indemnified party; and
provided, further, that if the defendants in any such actions include both the
indemnified persons and the indemnifying party and the indemnified persons
shall have reasonably concluded that there may be legal defenses or rights
available to them which have not been waived and are in actual or potential
conflict with those available to the indemnifying party, the indemnified
persons shall have the right to select one law firm reasonably acceptable to
the indemnifying party to act as separate counsel, on behalf of such
indemnified persons, at the expense of the indemnifying party. Subject to the
second proviso of the immediately preceding sentence, if an indemnifying party
assumes the defense of any such claim or legal proceeding, such indemnifying
party shall not consent to entry of any judgment, or enter into any settlement,
that (a) is not subject to full indemnification hereunder (except for the
deductible referred to in clause (ii) of the first proviso to the first
sentence of Section 10.1 or the deductible referred to in clause (ii) of the
first proviso to the first sentence of Section 10.2, in either case to the
extent applicable), (b) provides for injunctive or other non-monetary relief
affecting the indemnified persons or (c) does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such indemnified
persons of a release from all liability with respect to such claim or legal
proceeding, without the prior written consent of the indemnified persons (which
consent, in the case of clauses (b) and (c), shall
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not be unreasonably withheld); and provided, further, that subject to
the second proviso of the immediately preceding sentence, the indemnified
persons may, at their own expense, participate in any such proceeding with the
counsel of their choice without any right of control thereof. So long as the
indemnifying party is in good faith defending such claim or proceeding, the
indemnified persons shall not compromise or settle such claim or proceeding
without the prior written consent of the indemnifying party, which consent
shall not be unreasonably withheld. If the indemnifying party does not assume
the defense of any such claim or litigation in accordance with the terms
hereof, the indemnified persons may defend against such claim or litigation in
such manner as they may deem appropriate, including, without limitation,
settling such claim or litigation (after giving prior written notice of the
same to the indemnifying party and obtaining the prior written consent of the
indemnifying party, which consent shall not be unreasonably withheld) on such
terms as the indemnified persons may deem appropriate, and the indemnifying
party will promptly indemnify the indemnified persons in accordance with the
provisions of this Section 10.4.
(b) With respect to the matters referred to in clause (z) of Section 10.1,
until the indemnification obligations of the Stockholders terminate by reason
of clause (2) of the second proviso to the first sentence of Section 10.1, the
Stockholders and the Shareholders shall, at their sole cost and expense, assume
the defense or prosecution of such matters, as the case may be; provided,
however, that Scotsman may, at its own expense, participate in any such defense
or prosecution with counsel of its choice without any rights of control
thereof; and provided, further, that the Stockholders shall not consent to
entry of any judgment, or enter into any settlement, that (a) is not subject to
full indemnification hereunder (except for the deductible referred to in clause
(ii) of the first proviso to the first sentence of Section 10.1), (b) provides
for injunctive or other non-monetary relief affecting the indemnified persons
or (c) does not include as an unconditional term thereof the giving by each
claimant or plaintiff to such indemnified persons of a release from all
liability with respect to such claim or legal proceeding, without the prior
written consent of the indemnified persons (which consent, in the case of
clauses (b) and (c), shall not be unreasonably withheld).
Section 10.5. Exclusive Remedy. In the event the Merger is consummated, any
claim against any party hereto for any breach of this Agreement or in
connection with any of the transactions contemplated hereby (other than a claim
for breach of Section 7.1, 7.2 or 7.3, the representation and warranty
contained in the last sentence of Section 3.3(b), the Noncompetition Agreements
entered into pursuant to Section 8.7 or the Registration Rights Agreement
entered into pursuant to Sections 8.8 and 9.6), shall, to the extent permitted
by law, be made solely pursuant to this Article X. Prior to the consummation
of the Merger or the termination of this Agreement
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pursuant to Article XI, no claim may be made against any party hereto
for any inaccuracy of any representation or breach of any warranty contained in
this Agreement, the Whitlenge Share Acquisition Agreement or any certificate,
instrument or other agreement delivered pursuant hereto or thereto.
Section 10.6. Survival of Obligations. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement; provided,
however, that the representations and warranties in Sections 3.7, 3.10, 3.11,
3.15, 3.17, 3.18, 3.21, 3.26, 3.32, 3.35 and 4.9 shall terminate on the fourth
anniversary of the Effective Date, the representations and warranties contained
in Sections 3.8 and 4.8 shall terminate at the time the relevant statute of
limitations expires, and the representations and warranties contained in
Sections 3.1, 3.3, 3.4, 4.1, 4.2 and 4.4 shall survive without termination, and
all other representations and warranties contained herein shall terminate on
the third anniversary of the Effective Date; and provided, further, if any
claim under this Article X for Loss or Expense in respect of any
representations and warranties is asserted in writing prior to the expiration
of the applicable period set forth above, the obligations of the indemnifying
party with respect to such claim shall not be affected by the expiration of
such period.
Section 10.7. Update of the Representations and Warranties. Not later than
ten days prior to the Effective Date, Holding, TDC and any Stockholder may
deliver a written notice to Scotsman setting forth any and all facts,
conditions, occurrences, changes and other matters, in each case, occurring
after the date hereof, that has caused or may cause the representations and
warranties of the Stockholders contained herein (including the Schedules
hereto) not to be true and correct in all respects. In the event that any of
such facts, conditions, occurrences, changes and other matters shall have
caused or will cause, on or prior to the Effective Date, any such
representation or warranty not to be true and correct in all respects (in the
case of any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any representation
and warranty without any materiality qualification) on the Effective Date with
the same effect as though made on the Effective Date, Scotsman may elect to
terminate this Agreement pursuant to Section 11.1(d) based on such facts,
conditions, occurrences, changes or other matters. If Scotsman shall
nevertheless proceed to consummate the Merger, such facts, conditions,
occurrences, changes and other matters so disclosed as to each such
representation or warranty of the Stockholders contained herein (including the
Schedules) shall be deemed to constitute an exception to such representation or
warranty reflecting the facts, conditions, occurrences, changes and other
matters so disclosed with the same effect as if such exception had been made in
such representation
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or warranty as of the date hereof in this Agreement to the
extent, but only to the extent, of such disclosure.
ARTICLE XI
TERMINATION
Section 11.1. Termination. Anything contained in this Agreement to the
contrary notwithstanding, (i) this Agreement shall terminate upon any
termination of the Whitlenge Share Acquisition Agreement and (ii) this
Agreement may be terminated at any time prior to the Effective Date:
(a) by the mutual consent of Scotsman and Holding;
(b) by Scotsman upon any material breach by Holding, TDC or any Stockholder
of any of the covenants contained in Article VI or VII or Section 12.1;
(c) by Holding upon any material breach by Scotsman or Sub of any of the
covenants contained in Article VI or VII or Section 12.1;
(d) by Scotsman if any of the conditions specified in Article VIII has not
been met or waived by Scotsman at such time as such condition can no longer
be satisfied;
(e) by Holding if any of the conditions specified in Article IX has not
been met or waived by Holding, TDC and the Stockholders, as applicable, at
such time as such condition can no longer be satisfied; or
(f) by Scotsman or Holding if the Merger shall not have been consummated on
or before May 1, 1994.
In the event that this Agreement shall be terminated pursuant to this Section
11.1, all further obligations of the parties under this Agreement (other than
Sections 7.3, 12.1, 12.2 and 12.10) shall terminate without further liability
of any party to the others; provided, however, that nothing herein shall
relieve any party from liability for its willful breach of this Agreement; and
provided, further, that in the case of any such termination, (i) no Stockholder
shall bear any liability for any breach of this Agreement (other than a breach
of Section 7.3) and (ii) Holding and TDC shall, jointly and severally, be
liable for any Stockholder's willful breach of this Agreement as though Holding
and TDC had made all representations and warranties of such Stockholder.
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ARTICLE XII
OTHER PROVISIONS
Section 12.1. Confidential Nature of Information. Each party agrees that
it will treat in strict confidence all documents, materials and other
information which it obtains regarding the other parties during the course of
the negotiations leading to the consummation of the transactions provided for
herein and the preparation of this Agreement; and if for any reason whatsoever
the transactions contemplated by this Agreement shall not be consummated, each
party shall return to the other party all copies of non-public documents and
materials which have been furnished or acquired in connection therewith and
shall not use or disseminate such documents, materials or other information for
any purpose whatsoever.
Section 12.2. Fees and Expenses. (a) Except as otherwise provided in this
Section 12.2, each of the parties hereto shall bear its own costs and expenses
(including, without limitation, fees and disbursements of its counsel,
accountants and other financial, legal, accounting or other advisors, any
expenses incurred by Holding and Whitlenge Drink in connection with any efforts
to effect an initial public offering and any fees, disbursements and expenses
incurred by or on behalf of Scotsman in connection with the Registration
Statement and the Proxy Statement/Prospectus, it being understood that the
costs and expenses of the audits and preparation of the historical financial
statements of Holding, TDC and WAL included in the Proxy Statement/Prospectus
and the costs and expenses of adjusting, for purposes of pro forma financial
statements, the historical financial statements of Whitlenge Drink so that they
are presented in United States dollars and in accordance with generally
accepted accounting principles in the United States shall be deemed to be costs
and expenses of the Stockholders and the Shareholders) incurred by it or its
affiliates in connection with the preparation, negotiation, execution, delivery
and performance of this Agreement, each of the other documents and instruments
executed in connection with or contemplated by this Agreement and the arranging
or providing for the financing contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby (collectively "Acquisition
Expenses"); provided, however, that, except for up to U.S. $390,000 of
Acquisition Expenses of the Stockholders, Holding and TDC relating to the
transactions contemplated by this Agreement, which U.S. $390,000 of Acquisition
Expenses are attributable to and shall be borne by Holding and TDC, the
Acquisition Expenses of the Stockholders, Holding and TDC shall be borne
entirely by the Stockholders and on the Effective Date the Stockholders shall
reimburse Holding and TDC for any Acquisition Expenses paid by Holding or TDC
prior to the Effective Time in connection with the foregoing. The
Stockholders, Holding and TDC shall furnish Scotsman with documentation on the
Effective Date demonstrating any reimbursement required by the preceding
sentence.
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(b) Holding and TDC shall pay to Scotsman or Sub, upon demand in same day
funds, all of Scotsman's and Sub's Acquisition Expenses, in the event that (i)
this Agreement is terminated pursuant to clause (d) of Section 11.1 as a result
of the failure of the condition set forth in the first sentence of Section 8.9
or pursuant to clause (e) of Section 11.1 as a result of the failure of the
condition set forth in Section 9.17 or (ii) the Whitlenge Share Acquisition
Agreement is terminated pursuant to clause (d) of Section 9.1 thereof as a
result of the failure of the condition set forth in the first sentence of
Section 6.10 thereof (each of the terminations described in clauses (i) and
(ii) being referred to as a "Qualifying Termination"); provided, however, that
Holding and TDC shall not be obligated to make payments pursuant to this
Section 12.2(b) in an aggregate amount exceeding the sum of (x) U.S. $780,000
and (y) the excess of U.S. $220,000 over the aggregate amount of payments made
pursuant to Section 10.2(b) of the Whitlenge Share Acquisition Agreement.
(c) In addition to payments pursuant to Section 12.2(b) and payments made
pursuant to Sections 10.2(b) and 10.2(c) of the Whitlenge Share Acquisition
Agreement, Holding and TDC shall pay to Scotsman or Sub, upon demand in same
day funds, a fee of U.S. $2,340,000, if (i) there is a Qualifying Termination
and (ii) within one year following the Qualifying Termination (x) any of TDC,
Whitlenge Drink, Holding or WAL or any combination thereof, directly or through
another entity, effects an initial public offering of its shares or (y) any
person or persons acquire, directly or indirectly, in one transaction or a
series of related transactions, a substantial portion of the assets of TDC and
Whitlenge Drink or more than 50% of the shares of common stock of Holding, TDC,
Whitlenge Drink or WAL, in any such case described in clause (x) or (y), for a
per share consideration (or the equivalent thereof) representing a valuation of
Holding, TDC, Whitlenge Drink or WAL greater than that represented by this
Agreement or the Whitlenge Share Acquisition Agreement, as the case may be.
Section 12.3. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or by overnight mail, or four days after being mailed (by registered
mail, return receipt requested) to a party at the following address (or to such
other address as such party may have specified by notice given to the other
parties pursuant to this provision):
If to Scotsman to:
Scotsman Industries, Inc.
775 Corporate Woods Parkway
Vernon Hills, Illinois 60061
Attention: President
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with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Frederick C. Lowinger
If to Sub to:
Scotsman Acquisition Corporation
c/o Scotsman Industries, Inc.
775 Corporate Woods Parkway
Vernon Hills, Illinois 60061
Attention: President
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Frederick C. Lowinger
If to Holding to:
DFC Holding Corporation
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
Attention: Kevin E. McCrone
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to TDC to:
The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
Attention: Kevin E. McCrone
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
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If to Onex to:
Onex Corporation
161 Bay Street, 25th Floor
Toronto, Ontario
Attention: President
with copies to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
and
Onex Investment Corp.
712 Fifth Avenue
40th Floor
New York, New York 10019
Attention: Timothy C. Collins
If to Onex DHC to:
Onex DHC LLC
c/o Onex Investment Corp.
421 Leader Street
Marion, Ohio 43302
with copies to:
Onex Corporation
161 Bay Street, 25th Floor
Toronto, Ontario
Attention: President
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
and
Onex Investment Corp.
712 Fifth Avenue
40th Floor
New York, New York 10019
Attention: Timothy C. Collins
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If to Pacific to:
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
Attention: Schuyler Lance
with a copy to:
Brobeck, Phleger & Harrison
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Attention: Kenneth R. Bender
If to PM to:
Pacific Mutual Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
Attention: Schuyler Lance
with a copy to:
Brobeck, Phleger & Harrison
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Attention: Kenneth R. Bender
If to EJJM to:
EJJM
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Diggs to:
Matthew O. Diggs, Jr.
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
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with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Collins to:
Timothy C. Collins
c/o Onex Investment Corp.
712 Fifth Avenue
40th Floor
New York, New York 10019
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Manifold to:
W. Joseph Manifold
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to McCollom to:
Charles L. McCollom
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Moffatt Trust to:
Anita J. Moffatt Trust
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
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If to Moffatt to:
Anita J. Moffatt
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Panella to:
Remo Panella
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
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If to Reed to:
Teddy F. Reed
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Schafer to:
Robert L. Schafer
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Tillotson to:
Graham E. Tillotson
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Tilmann Trust to:
John A. Tilmann Trust
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
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with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
If to Tilmann to:
John A. Tilmann
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to KE McCrone to:
Kevin E. McCrone
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to MP McCrone to:
Michael P. McCrone
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
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If to Anderson to:
Ronald A. Anderson
c/o The Delfield Company
980 South Pleasant Road
Mt. Pleasant, Michigan 48858
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Continental to:
Continental Bank N.A.
231 South LaSalle Street, 12th Floor
Chicago, Illinois
Attention: David Pattie
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: David Schuette
Section 12.4. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) an "associate" of any person means (i) a corporation or
organization of which such person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10 percent or more of a class of
equity securities, (ii) any trust or other estate in which such person has
substantial beneficial interest or as to which such person serves as trustee
or in the similar capacity and (iii) any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person or who
is a director or officer of the person or any of its parents or subsidiaries.
(c) the "knowledge of Holding or TDC" means the knowledge of the
persons listed in Schedule 12.4, which Schedule includes all directors of
Holding and TDC, the chief executive officers of each of Holding and TDC and
all employees
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of Holding and TDC who report directly to such chief executive officer
(except for KE McCrone's personal secretary).
(d) "Material Adverse Effect" means any change or effect (or any
development that, insofar as can reasonably be foreseen, would result in any
change or effect) that is materially adverse to the business, properties,
assets, condition (financial or otherwise) or results of operations of the
applicable person or persons; and
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization or other entity.
Section 12.5. Partial Invalidity. In case any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein unless the deletion of
such provision or provisions would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
Section 12.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors or assigns.
Section 12.7. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
counterpart, and shall become a binding agreement when Scotsman, Sub, Holding,
TDC, the Stockholders and Continental shall have each executed one counterpart.
Section 12.8. Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
Section 12.9. Schedules and Exhibits. The Schedules and Exhibits referred
to in this Agreement shall be construed with and as an integral part of this
Agreement to the same extent as if the same had been set forth verbatim herein.
Section 12.10. Entire Agreement; Amendments and Waivers; Assignment. This
Agreement, including the Schedules and Exhibits, contains the entire
understanding of the parties hereto with regard to the subject matter contained
herein except that the confidentiality agreement, dated October 29, 1993 (the
"October Confidentiality Agreement"), between Onex and Scotsman and the
confidentiality agreement, dated June 25, 1993 (the "June Confidentiality
Agreement"), between Onex Investment Corp. and Scotsman shall remain in full
force in effect pursuant to the
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terms thereto after the execution of this Agreement; provided, however,
that the October Confidentiality Agreement shall terminate on the fifth
anniversary of the date hereof and the June Confidentiality Agreement shall
terminate on the earlier of the Effective Time or the fifth anniversary of the
date hereof. The parties hereto, by mutual agreement in writing, may amend,
modify and supplement this Agreement. The failure of any party hereto to
enforce at any time any provision of this Agreement shall not be construed to
be a waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to constitute a waiver of any other or subsequent breach. Except as
expressly provided herein, the rights and obligations of the parties under this
Agreement may not be assigned or transferred by any party hereto without the
prior written consent of the other parties hereto.
Section 12.11. Governing Law. Except to the extent that Delaware law is
mandatorily applicable to the Merger and the rights and obligations of the
stockholders of Holding and Scotsman, this Agreement, and the application or
interpretation thereof, shall be governed by its terms and by the internal laws
of the State of New York, without regard to principles of conflicts of laws as
applied in the State of New York or any other jurisdiction which, if applied,
would result in the application of any laws other than the internal laws of the
State of New York. Each of the parties hereto irrevocably submits and consents
to the exclusive jurisdiction of the Supreme Court of the State of New York in
the County of New York, or the United States District Court for the Southern
District of New York, in connection with any action or proceeding arising out
of or relating to this Agreement, and irrevocably waives any immunity from
jurisdiction thereof and any claim of improper venue, forum non conveniens or
any similar basis to which it might otherwise be entitled in any such action or
proceeding. Each of the Merger Stockholders hereby appoints as its or his
authorized agent the Stockholder Representative (such agent hereinafter
referred to as the "Authorized Agent") upon which process may be served in any
action to enforce any claim arising out of or relating to this Agreement which
may be instituted in any court described above; such appointment shall be
irrevocable until the appointment, similarly irrevocable, of a successor
Authorized Agent reasonably acceptable to Scotsman and such successor's
acceptance of such appointment. Service of such process upon the Authorized
Agent shall be deemed in every respect effective service of process upon each
of the Merger Stockholders.
Section 12.12. No Third-Party Beneficiaries. Except for Sections 2.3, 7.1,
7.2 and 7.3 (with respect to Acquisition Shareholders) and Article X, nothing
in this Agreement, expressed or implied, is intended or shall be construed to
confer upon any person other than the parties hereto and successors and assigns
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permitted by Section 12.6 any right, remedy or claim under or by reason of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto or by their duly authorized officers, all as of the date
first above written.
SCOTSMAN INDUSTRIES, INC.
By __________________________
Name:
Title:
SCOTSMAN ACQUISITION CORPORATION
By __________________________
Name:
Title:
DFC HOLDING CORPORATION
By __________________________
Name:
Title:
THE DELFIELD COMPANY
By __________________________
Name:
Title:
ONEX CORPORATION
By __________________________
Name:
Title:
ONEX DHC LLC
By __________________________
Name:
Title:
-87-
<PAGE> 278
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By __________________________
Name:
Title:
PM GROUP LIFE INSURANCE CO.
By ___________________________
Name:
Title:
EJJM
By __________________________
Name:
Title:
MATTHEW O. DIGGS, JR.
______________________________
TIMOTHY C. COLLINS
______________________________
W. JOSEPH MANIFOLD
______________________________
CHARLES R. McCOLLOM
______________________________
ANITA J. MOFFATT TRUST
By __________________________
Name:
Title:
<PAGE> 279
ANITA J. MOFFATT
______________________________
REMO PANELLA
______________________________
TEDDY F. REED
______________________________
ROBERT L. SCHAFER
______________________________
GRAHAM E. TILLOTSON
______________________________
JOHN A. TILMANN TRUST
By __________________________
Name:
Title:
JOHN A. TILMANN
______________________________
KEVIN E. McCRONE
______________________________
MICHAEL P. McCRONE
______________________________
<PAGE> 280
RONALD A. ANDERSON
______________________________
CONTINENTAL BANK N.A.
By __________________________
Name:
Title:
<PAGE> 281
APPENDIX II
SHARE ACQUISITION AGREEMENT
AMONG
SCOTSMAN INDUSTRIES, INC.,
WHITLENGE ACQUISITION LIMITED,
WHITLENGE DRINK EQUIPMENT LIMITED,
ONEX CORPORATION,
ONEX U.S. INVESTMENTS, INC.,
EJJM,
MATTHEW O. DIGGS, JR.
TIMOTHY C. COLLINS,
GRAHAM F. COOK,
CHRISTOPHER R.L. WHEELER,
MICHAEL DE ST. PAER
AND
JOHN RUSHTON
-------------------------
DATED AS OF JANUARY 11, 1994
<PAGE> 282
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER; ISSUANCE OF SCOTSMAN
CONTINGENT COMMON SHARES
Section 1.1. The Offer . . . . . . . . . . . . . . . . . . 2
Section 1.2. Issuance of Scotsman Earnout Shares . . . . . 4
Section 1.3. Dividends and Distributions . . . . . . . . . 5
Section 1.4. Fractional Shares . . . . . . . . . . . . . . 5
Section 1.5. Changes in Scotsman Common Stock . . . . . . 5
Section 1.6. Non-assignability; Succession; Delivery
of Certificates . . . . . . . . . . . . 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Section 2.1. Corporate Status . . . . . . . . . . . . . . 7
Section 2.2. Subsidiaries and Investments . . . . . . . . 7
Section 2.3. Capital . . . . . . . . . . . . . . . . . . . 8
Section 2.4. Authority . . . . . . . . . . . . . . . . . . 10
Section 2.5. Financial Statements . . . . . . . . . . . . 11
Section 2.6. Operations Since Balance Sheet Date . . . . . 12
Section 2.7. No Undisclosed Liabilities . . . . . . . . . 13
Section 2.8. Taxes . . . . . . . . . . . . . . . . . . . . 14
Section 2.9. Condition of Plant, Machinery and
Equipment . . . . . . . . . . . . . . . . 16
Section 2.10. Title to Property . . . . . . . . . . . . . . 16
Section 2.11. Availability and Ownership of Assets . . . . 16
Section 2.12. Personal Property Leases . . . . . . . . . . 17
Section 2.13. Accounts Receivable; Inventories . . . . . . 17
Section 2.14. Intellectual Property . . . . . . . . . . . . 17
Section 2.15. Owned Real Property . . . . . . . . . . . . . 19
Section 2.16. Leased Real Property . . . . . . . . . . . . 20
Section 2.17. Obligations; Litigation . . . . . . . . . . . 20
Section 2.18. Product Warranties . . . . . . . . . . . . . 20
Section 2.19. Compliance with Laws . . . . . . . . . . . . 21
Section 2.20. Permits . . . . . . . . . . . . . . . . . . . 21
Section 2.21. Insurance . . . . . . . . . . . . . . . . . . 21
Section 2.22. The Plans . . . . . . . . . . . . . . . . . . 22
Section 2.23. Employees and Agents and Related
Agreements . . . . . . . . . . . . . . . . 26
Section 2.24. Employee Relations and Labor Matters . . . . 26
Section 2.25. Absence of Certain Business Practices . . . . 27
Section 2.26. Territorial Restrictions . . . . . . . . . . 27
Section 2.27. Transactions with Certain Persons . . . . . . 28
Section 2.28. Insolvency . . . . . . . . . . . . . . . . . 28
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Page
Section 2.29. Environmental Matters . . . . . . . . .. . . 28
Section 2.30. Contracts . . . . . . . . . . . . . . .. . . 30
Section 2.31. No Guarantees; Extensions of Credit . .. . . 32
Section 2.32. Whitlenge Purchase Agreement . . . . .. . . 32
Section 2.33. Customers and Suppliers . . . . . . . .. . . 32
Section 2.34. Competition . . . . . . . . . . . . . .. . . 32
Section 2.35. Registration Statement and Proxy
Statement/Prospectus . . . . . . . . . . . 33
Section 2.36. Liabilities and Operations of WAL . . .. . . 33
Section 2.37. Redemption of Preferred Stock . . . . .. . . 34
Section 2.38. No Finder . . . . . . . . . . . . . . .. . . 34
Section 2.39. Disclosure . . . . . . . . . . . . . .. . . 34
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SCOTSMAN
Section 3.1. Organization of Scotsman . . . . . . . . . 34
Section 3.2. Authority . . . . . . . . . . . . . . . . . 34
Section 3.3. Shares of Scotsman Common Stock . . . . . . 35
Section 3.4. Capitalization . . . . . . . . . . . . . . 36
Section 3.5. Operations Since January 3, 1993 . . . . . 36
Section 3.6. Compliance with Laws . . . . . . . . . . . 36
Section 3.7. SEC Documents . . . . . . . . . . . . . . . 37
Section 3.8. Obligations; Litigation . . . . . . . . . . 37
Section 3.9. No Finder . . . . . . . . . . . . . . . . . 37
Section 3.10. Rights Agreement; Benefits . . . . . . . . 38
Section 3.11. Disclosure . . . . . . . . . . . . . . . . 38
ARTICLE IV
ACTIONS PRIOR TO THE EXPIRATION DATE
Section 4.1. Proxy Statement; Registration Statement . . 38
Section 4.2. Action by Scotsman and Stockholders of
Scotsman . . . . . . . . . . . . . . . 39
Section 4.3. Investigation of WAL, Whitlenge, WB
and Scotsman. . . . . . . . . . . . . . 39
Section 4.4. Lawsuits, Proceedings, Etc. . . . . . . . . 40
Section 4.5. Conduct of Business by WAL, Whitlenge, WB
and Scotsman Prior to
the Expiration Date . . . . . . . . . . 40
Section 4.6. Mutual Cooperation; Reasonable Best
Efforts . . . . . . . . . . . . . . . . 43
Section 4.7. No Public Announcement . . . . . . . . . . . 44
Section 4.8. No Solicitation . . . . . . . . . . . . . . . 44
Section 4.9. Listing Applications . . . . . . . . . . . . 44
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Page
Section 4.10. Termination of Management and
Shareholders' Agreements . . . . . . . . . 45
Section 4.11. Periodic Financial Statements . . . . . . . . . . 45
Section 4.12. Financing . . . . . . . . . . . . . . . . . . . . 45
Section 4.13. Amendment of Agreement for Tender
Subsidiary . . . . . . . . . . . . . . . . . . 45
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
Section 5.1. Voting . . . . . . . . . . . . . . . . . . . . . 46
Section 5.2. Standstill . . . . . . . . . . . . . . . . . . . 47
Section 5.3. Insurance . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATION
TO ACCEPT AND PAY FOR SHARES
Section 6.1. No Misrepresentation or Breach of
Covenants and Warranties . . . . . . . . . . . 48
Section 6.2. No Material Adverse Effect . . . . . . . . . . . 48
Section 6.3. Opinion of Counsel for WAL, Whitlenge
and the Shareholders . . . . . . . . . . . . . 48
Section 6.4. No Injunctions or Restraints . . . . . . . . . . 49
Section 6.5. Necessary Governmental Approvals . . . . . . . . 49
Section 6.6. Necessary Consents . . . . . . . . . . . . . . . 49
Section 6.7. Extension of Service Contracts . . . . . . . . . 49
Section 6.8. Noncompetition Agreements . . . . . . . . . . . . 49
Section 6.9. Registration Rights Agreement . . . . . . . . . . 49
Section 6.10. Shareholder Action . . . . . . . . . . . . . . . 49
Section 6.11. Stock Exchange Listings . . . . . . . . . . . . . 50
Section 6.12. Registration Statement Effective . . . . . . . . 50
Section 6.13. Securities Laws . . . . . . . . . . . . . . . . . 50
Section 6.14. Financing . . . . . . . . . . . . . . . . . . . . 50
Section 6.15. Comfort Letters . . . . . . . . . . . . . . . . . 50
Section 6.16. Glenco Holdings . . . . . . . . . . . . . . . . . 50
Section 6.17. Merger Agreement . . . . . . . . . . . . . . . . 50
Section 6.18. Average Scotsman Common Stock Closing
Price . . . . . . . . . . . . . . . . . . . . 50
Section 6.19. Resignations of Directors . . . . . . . . . . . . 51
Section 6.20. Termination of Management and
Shareholders' Agreement . . . . . . . . . . . 51
Section 6.21. WAL Preferred Shares . . . . . . . . . . . . . . 51
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Page
ARTICLE VII
CONDITIONS PRECEDENT TO RIGHT TO ACCEPT
AND PAY FOR SHARES
Section 7.1. No Misrepresentation or Breach of
Covenants and Warranties . . . . . . . . . . . 52
Section 7.2. No Material Adverse Effect . . . . . . . . . . . 52
Section 7.3. No Injunctions or Restraints . . . . . . . . . . 52
Section 7.4. Opinions of Counsel for Scotsman . . . . . . . . 52
Section 7.5. Necessary Governmental Approvals . . . . . . . . 53
Section 7.6. Registration Rights Agreement . . . . . . . . . . 53
Section 7.7. Shareholder Action . . . . . . . . . . . . . . . 53
Section 7.8. Stock Exchange Listing . . . . . . . . . . . . . 53
Section 7.9. Registration Statement Effective . . . . . . . . 53
Section 7.10. Securities Laws . . . . . . . . . . . . . . . . . 53
Section 7.11. Financing . . . . . . . . . . . . . . . . . . . . 53
Section 7.12. Glenco Holdings . . . . . . . . . . . . . . . . . 54
Section 7.13. Merger Agreement . . . . . . . . . . . . . . . . 54
Section 7.14. Average Scotsman Common Stock Closing
Price . . . . . . . . . . . . . . . . . . . . 54
Section 7.15. Necessary Consents . . . . . . . . . . . . . . . 54
Section 7.16. Comfort Letters . . . . . . . . . . . . . . . . . 54
ARTICLE VIII
INDEMNIFICATION; SURVIVAL
Section 8.1. Indemnification by the Shareholders . . . . . . . 54
Section 8.2. Indemnification by Scotsman . . . . . . . . . . . 55
Section 8.3. Notice of Claims . . . . . . . . . . . . . . . . 56
Section 8.4. Third Party Claims . . . . . . . . . . . . . . . 59
Section 8.5. Exclusive Remedy . . . . . . . . . . . . . . . . 60
Section 8.6. Survival of Obligations . . . . . . . . . . . . . 60
Section 8.7. Update of the Representations and
Warranties . . . . . . . . . . . . . . . . . . 61
ARTICLE IX
TERMINATION
Section 9.1. Termination . . . . . . . . . . . . . . . . . . . 61
ARTICLE X
OTHER PROVISIONS
Section 10.1. Confidential Nature of Information . . . . . . . 62
Section 10.2. Fees and Expenses . . . . . . . . . . . . . . . . 62
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Page
Section 10.3. Notices . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.4. Definitions . . . . . . . . . . . . . . . . . . . . . 68
Section 10.5. Partial Invalidity . . . . . . . . . . . . . . . . . 69
Section 10.6. Successors and Assigns . . . . . . . . . . . . . . . 69
Section 10.7. Execution in Counterparts . . . . . . . . . . . . . . 69
Section 10.8. Titles and Headings . . . . . . . . . . . . . . . . . 69
Section 10.9. Schedules and Exhibits . . . . . . . . . . . . . . . 69
Section 10.10. Entire Agreement; Amendments and Waivers;
Assignment . . . . . . . . . . . . . . . . . . . . 69
Section 10.11. Governing Law . . . . . . . . . . . . . . . . . . . . 70
Section 10.12. No Third-Party Beneficiaries . . . . . . . . . . . . 71
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EXHIBITS TO SHARE ACQUISITION AGREEMENT
Exhibit I-A Form of Opinion of Wragge and Co.
Exhibit I-B Form of Opinion of Debevoise & Plimpton
Exhibit I-C Form of Opinions of Counsel for Certain Shareholders
Exhibit II Form of Noncompetition Agreement
Exhibit III-A Form of Opinion of Sidley & Austin
Exhibit III-B Form of Opinion of Schiff, Hardin & Waite
Exhibit III-C Form of Opinion of Ashurst Morris Crisp
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SHARE ACQUISITION AGREEMENT
SHARE ACQUISITION AGREEMENT, dated as of January 11, 1994
(this "Agreement"), among Scotsman Industries, Inc., a Delaware corporation
("Scotsman"), Whitlenge Acquisition Limited, a private company limited by
shares registered in England ("WAL"), Whitlenge Drink Equipment Limited, a
private company limited by shares registered in England and a wholly-owned
subsidiary of WAL ("Whitlenge"), Onex Corporation, an Ontario corporation
("Onex"), Onex U.S. Investments, Inc., an Ontario corporation and a
wholly-owned, indirect, subsidiary of Onex ("Onex Investments"), EJJM, an Ohio
limited partnership ("EJJM"), Matthew O. Diggs, Jr. ("Diggs"), Timothy C.
Collins ("Collins"), Graham F. Cook ("Cook"), Christopher R.L. Wheeler
("Wheeler"), Michael de St. Paer ("de St. Paer") and John Rushton ("Rushton")
(Onex Investments, EJJM, Collins, Cook, Wheeler, de St. Paer and Rushton are
each referred to individually as a "Record Shareholder" and collectively as the
"Record Shareholders" and Onex, Diggs and the Record Shareholders are each
referred to individually as a "Shareholder" and collectively as the
"Shareholders"). Unless otherwise indicated, (i) capitalized terms used herein
are used as defined in Section 10.4 hereof, (ii) all references in Article II
to a Schedule and all references to Schedules 8.1 and 10.4 shall be deemed to
refer to the Schedules to a disclosure letter dated the date hereof delivered
by the Shareholders to Scotsman and relating to this Agreement, and (iii) all
references in Article III to a Schedule and all references to Schedule 4.5
shall be deemed to refer to the Schedules to a disclosure letter dated the date
hereof delivered by Scotsman to WAL, Whitlenge and the Shareholders and
relating to this Agreement.
W I T N E S S E T H :
WHEREAS, Whitlenge, the capital stock of which constitutes the
primary asset of WAL, designs, manufactures and sells beverage dispensing
equipment and other food service equipment (hereinafter generally referred to as
the "Whitlenge Business");
WHEREAS, the Record Shareholders, together with John S.
Nicholls ("Nicholls") and Richard J. Breed ("Breed"), are the owners of all the
issued ordinary shares of capital stock of WAL and will receive substantial
benefit from the transactions contemplated hereby;
WHEREAS, the Board of Directors of Scotsman has approved the
acquisition of all of the issued shares of capital stock of WAL by Scotsman or
a wholly-owned subsidiary of Scotsman pursuant to a tender offer by Scotsman or
such subsidiary on the terms set forth herein;
<PAGE> 289
WHEREAS, pursuant to a separate Agreement and Plan of Merger,
dated the date hereof (the "Merger Agreement"), Scotsman Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Scotsman
("Sub"), will merge (the "Merger") into DFC Holding Corporation, a Delaware
corporation and an affiliate of WAL ("Holding"); and
WHEREAS, Scotsman, WAL, Whitlenge and the Shareholders desire
to make certain representations, warranties and agreements in connection with
such tender offer and also to prescribe various conditions thereto;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
THE OFFER; ISSUANCE OF SCOTSMAN
CONTINGENT COMMON SHARES
Section 1.1. The Offer. Subject to the provisions of this
Agreement, as promptly as practicable following the effectiveness of the
Registration Statement (as defined in Section 4.1), Scotsman shall, or shall
cause one of its wholly-owned subsidiaries (the "Tender Subsidiary") to, make
a tender offer (the "Offer") to purchase all the issued WAL Ordinary Shares (as
defined in Section 2.3(a)) at a cash price (in U.S. dollars) per share equal to
the respective Pro Rata Share (as hereinafter defined) of the respective Cash
Amount (as hereinafter defined), upon the terms and subject to the conditions
of this Agreement. In addition, as provided in Section 1.2, each seller may be
entitled to receive in the future shares of Scotsman Earnout Shares (as
hereinafter defined) in respect of the WAL Ordinary Shares so purchased. At
the request of the Stockholder Representative on or prior to the fifth business
day prior to the commencement of the Offer, Scotsman or the Tender Subsidiary,
as the case may be, will also make a tender offer to purchase all the issued
WAL Preferred Shares (as defined in Section 2.3(a)) at the respective Cash
Amount (as hereinafter defined), upon the terms and subject to the conditions
of this Agreement. If so requested, the tender offer for the WAL Preferred
Shares shall constitute part of the "Offer." The Offer shall expire at 9:00
a.m. (New York time) on the Effective Date (as defined in the Merger Agreement)
or such other time and/or date as may be agreed upon between Scotsman and WAL
(such time and date of expiration being referred to herein as the "Expiration
Time" and "Expiration Date", respectively). The obligation of Scotsman or the
Tender Subsidiary, as the case may be, to accept for payment, and pay for, any
WAL Ordinary Shares (and, if so requested, any WAL Preferred Shares) tendered
pursuant to the Offer shall be subject only to the satisfaction or waiver of
the conditions set forth in Article VI. The right
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of Scotsman or the Tender Subsidiary, as the case may be, to accept for
payment the tendered WAL Ordinary Shares (and, if so requested, any WAL
Preferred Shares) shall be subject only to the satisfaction or waiver of the
conditions set forth in Article VII. Subject only to such conditions, at the
Expiration Time, Scotsman shall, or shall cause the Tender Subsidiary to, pay
the cash consideration specified above for all WAL Ordinary Shares (and, if so
requested, any WAL Preferred Shares) validly tendered and not withdrawn
pursuant to the Offer that Scotsman or the Tender Subsidiary, as the case may
be, becomes obligated to purchase pursuant to the Offer. As used herein, the
"Cash Amount" shall mean, with respect to each WAL Preferred Share, U.S. $149
per share plus accrued dividends to the Expiration Date; with respect to the
WAL "A" Ordinary Shares of (British pound) 1 each, the sum of (i) U.S.
$1,866,300, (ii) U.S. $4,950 for each consecutive three month period between
September 30, 1993 and the Expiration Date (each, a "Three Month Period") and
(iii) the product obtained by multiplying U.S. $55.00 by the number of calendar
days in the period from the day following the end of the latest Three Month
Period to the Expiration Date (inclusive) (such calendar days being referred to
herein as the "Stub Days"); with respect to the WAL "B" Ordinary Shares of
(British pound) 1 each, the sum of (i) U.S. $7,983,585, (ii) U.S. $20,460 for
each Three Month Period and (iii) the product obtained by multiplying U.S.
$227.34 by the number of Stub Days; and, with respect to the WAL "C" Ordinary
Shares of (British pound) 1 each, the sum of (i) U.S. $2,592,115, (ii) U.S.
$7,590 for each Three Month Period and (iii) the product obtained by
multiplying U.S. $84.33 by the number of Stub Days; provided, however, that if
the Stockholder Representative shall not have requested Scotsman or the Tender
Subsidiary, as the case may be, to make a tender offer to purchase all the
issued WAL Preferred Shares in accordance with this Section 1.1 or if the WAL
Preferred Shares shall have been purchased as described in clause (ii) of
Section 6.21, the Cash Amounts with respect to the WAL "A" Ordinary Shares, the
WAL "B" Ordinary Shares and the WAL "C" Ordinary Shares shall be adjusted by
(i) increasing such Cash Amounts by U.S. $447,000, $1,847,600 and $685,400,
respectively, and (ii) reducing such Cash Amounts by an aggregate amount (the
"Reduction Amount") equal to the U.S. dollar equivalent (calculated based upon
the applicable exchange rate set forth in The Wall Street Journal for the
business day immediately prior to the Expiration Date) of (British pound)
2,000,000 or, in the event of any purchase as described in clause (ii) of
Section 6.21, equal to the price paid by Scotsman or the Tender Subsidiary, as
the case may be, for the WAL Preferred Shares (less any accrued dividends paid
in respect thereof as part of such price). 15%, 62% and 23% of the Reduction
Amount shall be applied to reduce the Cash Amounts with respect to the WAL "A"
Ordinary Shares, the WAL "B" Ordinary Shares and the WAL "C" Ordinary Shares,
respectively, and such reduction shall be allocated among the sellers of the
WAL Ordinary Shares in accordance with their respective Pro Rata Share. For
purposes of the foregoing and Section 1.2, any amount paid with respect to a
class of WAL Ordinary Shares shall be allocated among the sellers
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of such class of shares pro rata in accordance with the respective amounts of
shares of such class held by such sellers immediately prior to the Expiration
Time (their "Pro Rata Share"). The respective Cash Amounts shall be paid at
the Expiration Time by wire transfer of immediately available funds in U.S.
dollars to the account or accounts designated in a notice to Scotsman or the
Tender Subsidiary, as the case may be, by each seller of WAL Ordinary Shares
and/or WAL Preferred Shares tendered under this Section 1.1.
Section 1.2. Issuance of Scotsman Earnout Shares. (a) As
provided in Section 1.1 and this Section 1.2, Scotsman Earnout Shares may be
issued in respect of the WAL Ordinary Shares purchased by Scotsman or the
Tender Subsidiary, as the case may be, pursuant to the Offer.
(b) Promptly (but not later than 30 days) after the
determination of EBITDA (as defined in the Merger Agreement) pursuant to
Section 2.3 of the Merger Agreement that is final and binding as set forth
therein, subject to Sections 1.4 and 1.5, Scotsman shall, or shall cause the
Tender Subsidiary to, issue and deliver, in respect of the WAL Ordinary Shares
purchased pursuant to the Offer, the number of shares of common stock, $.10 par
value, of Scotsman ("Scotsman Common Stock"), together with associated common
stock purchase rights (the "Common Stock Purchase Rights") issued pursuant to
the Rights Agreement, dated as of April 14, 1989, as amended (the "Rights
Agreement"), between Scotsman and Harris Trust & Savings Bank, if any,
determined as follows (such shares being referred to herein as the "Scotsman
Earnout Shares"):
(i) If EBITDA is less than U.S. $17,000,000, neither
Scotsman nor the Tender Subsidiary will deliver or will owe to the
sellers of such WAL Ordinary Shares (or any other person) under
Section 1.1 any shares of Scotsman Common Stock (or associated Common
Stock Purchase Rights);
(ii) If EBITDA is equal to or greater than U.S. $17,000,000
and less than U.S. $17,500,000, Scotsman shall, or shall cause the
Tender Subsidiary to, deliver to the sellers of WAL Ordinary Shares
pursuant to Section 1.1 their respective portions, as described below,
of a number of shares of Scotsman Common Stock (together with
associated Common Stock Purchase Rights) equal to the amount obtained
by multiplying (A) 146,740 by (B) the quotient obtained by dividing
(1) the excess of EBITDA over U.S. $17,000,000 by (2) U.S. $500,000;
or
(iii) If EBITDA is equal to or greater than U.S. $17,500,000,
Scotsman shall, or shall cause the Tender Subsidiary to, deliver to
the sellers of WAL Ordinary Shares pursuant to Section 1.1 their
respective portions, as described below, of 146,740 shares of Scotsman
Common Stock (together with associated Common Stock Purchase Rights).
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The sellers of WAL "A" Ordinary Shares, WAL "B" Ordinary Shares and WAL "C"
Ordinary Shares shall be entitled to receive an aggregate of 15%, 62% and 23%,
respectively, of the Scotsman Earnout Shares, in each case to be allocated
among the sellers of each such class of shares in accordance with their
respective Pro Rata Shares. Scotsman will reserve and keep available 146,740
shares of Scotsman Common Stock (or such other number of shares resulting from
adjustments pursuant to Section 1.5), from the Expiration Date through the date
on which the Scotsman Earnout Shares, if any, are issued or are finally
determined not to be issuable, solely for issuance and delivery of the Scotsman
Earnout Shares.
(c) The rights of the sellers of WAL Ordinary Shares referred
to in Section 1.1 to any payments of Scotsman Earnout Shares shall not be
subject to set-off or counterclaim to satisfy the Shareholders' indemnification
obligations under Section 8.1 or with respect to any other liability or
obligation (whether under this Agreement or otherwise) and shall not depend in
any way or otherwise be contingent upon the performance of any agreement or
continued employment or the provision of personal services.
Section 1.3. Dividends and Distributions. In the event any
dividend or other distribution is paid in respect of Scotsman Common Stock to
holders of record on or after the date of final determination of EBITDA
pursuant to Section 2.3 of the Merger Agreement and prior to the date of
issuance of the Scotsman Earnout Shares, if any, pursuant to Section 1.2(b),
Scotsman shall pay or cause to be paid on the date of such issuance to or at
the direction of the person to whom the certificate for such Scotsman Earnout
Shares is mailed pursuant to Section 1.6(b) the amount of such dividends or
distributions in respect of the number of whole Scotsman Earnout Shares
represented by the certificate so issued.
Section 1.4. Fractional Shares. No certificates for
fractions of shares of Scotsman Common Stock and no scrip or other certificates
evidencing fractional interests in such shares shall be issued pursuant to
Section 1.1 or Section 1.2. If the number of Scotsman Earnout Shares issuable
to a person at any time results in a fractional share of Scotsman Common Stock
or interest therein, such person shall, in lieu thereof, be paid cash (in U.S.
dollars) in an amount equal to the value of such fractional share or interest
based on the Closing Price (as defined in the Merger Agreement) of Scotsman
Common Stock on the last business day prior to the issuance of the Scotsman
Earnout Shares. Any person otherwise entitled to a fractional share or
interest shall not be entitled by reason thereof to any voting, dividend or
other rights as a stockholder of Scotsman.
Section 1.5. Changes in Scotsman Common Stock. In the event
that Scotsman Earnout Shares become issuable pursuant to Sections 1.1 and 1.2
and, between the date hereof and such
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issuance, (i) there has occurred any conversion, change, exchange or
reclassification of the Scotsman Common Stock into another security or form of
property pursuant to any merger, consolidation, acquisition of business and
assets, reorganization or recapitalization or there has occurred any
reclassification under other circumstances or any stock split, stock dividend
or similar change in respect of the Scotsman Common Stock, or (ii) Scotsman
shall have distributed cash to all holders of Scotsman Common Stock in such an
amount and manner that the conversion rate applicable to the Scotsman
Convertible Preferred Stock (as defined in the Merger Agreement) is adjusted in
respect thereof pursuant to Section 6(f)(iv) of the Certificate of Designation
applicable thereto, then appropriate adjustment shall be made in the number of
shares of Scotsman Common Stock and/or kind of securities issued as Scotsman
Earnout Shares in order to provide holders of WAL Ordinary Shares with, in the
case of clause (i), the same number of shares of Scotsman Common Stock and/or
such securities that they would have received after such conversion, change,
exchange, reclassification, stock split, stock dividend or similar change if
the issuance of the Scotsman Earnout Shares had occurred immediately prior to
such conversion, change, exchange, reclassification, stock split, stock
dividend or similar change or, in the case of clause (ii), a number of shares
of Scotsman Common Stock reflecting the adjustment factor specified in such
Section 6(f)(iv) (and all references herein to the "Scotsman Earnout Shares"
shall refer to such adjusted number and/or kind of securities).
Section 1.6. Non-assignability; Succession; Delivery of
Certificates. (a) The right to receive Scotsman Earnout Shares, if any, shall
not be assignable or transferable except by operation of law.
(b) A certificate for any Scotsman Earnout Shares which
becomes issuable shall be mailed, in accordance with the customary practice of
Scotsman or its transfer agent, to the Record Shareholder, their respective
successors by operation of law, or the Permitted Transferee (as defined in
Section 5.1), to whom the Scotsman Earnout Shares represented thereby are being
issued, to such person's address specified or determined in accordance with
Section 10.3, or in the name of such successor or Permitted Transferee, as
shall be furnished in writing to Scotsman by the Record Shareholder, their
respective duly appointed personal representatives or successors or such
Permitted Transferee. Scotsman may require proper evidence of succession or
transfer and, in any event, shall be fully protected in issuing, registering
and mailing certificates for Scotsman Earnout Shares to and registered in the
name of such person to such address.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
As an inducement to Scotsman to enter into this Agreement and
to consummate the transactions contemplated hereby, the Shareholders jointly
and severally (except as otherwise provided below and subject to Article VIII)
represent and warrant to Scotsman and agree as follows:
Section 2.1. Corporate Status. Each of WAL and Whitlenge is a
private company limited by shares duly organized, validly existing and duly
registered under the laws of England (Numbers 2669979 and 1271570,
respectively), with full power and authority under its memorandum and articles
of association, as amended and in effect on the date hereof, to carry on its
business as now conducted by it and to own or lease and to operate the assets
used therein as and in the places where its business is now conducted and such
assets are now owned, leased or operated. Whitlenge Drink Equipment, N.V.
("WB") is a corporation duly incorporated and validly existing under the laws
of Belgium, with full power and authority under its constitutive documents, as
amended and in effect on the date hereof, to carry on its businesses as now
conducted and to own or lease and to operate the assets used therein as and in
the places where the business of WB is now conducted and such assets are now
owned, leased or operated. WAL, Whitlenge and WB have delivered to Scotsman
complete and correct copies of the memorandum and articles of association of
each of WAL and Whitlenge and the constitutive documents of WB, each as amended
and in effect on the date hereof.
Section 2.2. Subsidiaries and Investments. (a) Except as set
forth in Schedule 2.2, WAL's sole asset is 406,500,000 Whitlenge Ordinary
Shares (as hereinafter defined) and 500,000 Whitlenge Deferred Shares (as
hereinafter defined), which constitute all of the issued and outstanding shares
of Whitlenge. Except for such shares of Whitlenge and any securities or equity
interest it may own indirectly through Whitlenge, WAL does not, directly or
indirectly, (i) own, of record or beneficially, any outstanding securities or
other interest in any corporation, partnership, joint venture or other entity
or (ii) control any corporation, partnership, joint venture or other entity.
(b) Except for shares of WB, Whitlenge does not, directly
or indirectly, (i) own, of record or beneficially, any outstanding securities
or other interest in any corporation, partnership, joint venture or other
entity (other than investments in publicly traded securities, cash equivalents
and short-term investment grade debt) or (ii) control any corporation,
partnership, joint venture or other entity.
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(c) WB does not, directly or indirectly, (i) own, of
record or beneficially, any outstanding securities or other interest in any
corporation, partnership, joint venture or other entity (other than investments
in publicly traded securities, cash equivalents and short-term investment grade
debt) or (ii) control any corporation, partnership, joint venture or other
entity.
Section 2.3. Capital. (a) The authorized share capital of
WAL consists of (i) 150,000 "A" Ordinary Shares of (British pound) 1 each, all
of which are issued, (ii) 775,000 "B" Ordinary Shares of (British pound) 1 each,
all of which are issued, (iii) 75,000 "C" Ordinary Shares of (British pound) 1
each, all of which are issued, and (iv) 20,000 6% Redeemable Cumulative
Preferred Shares of (British pound) 100 each, all of which are issued. All
such issued shares are duly authorized, validly issued and fully paid. The
record owners of such issued shares as of the date hereof are listed in
Schedule 2.3(a) hereto and a list of the record owners of such issued shares as
of the Expiration Date will be provided to Scotsman on the Expiration Date.
Such issued "A" Ordinary Shares, "B" Ordinary Shares and "C" Ordinary Shares
are collectively referred to herein as the "WAL Ordinary Shares" and such
issued 6% Redeemable Cumulative Preferred Shares are referred to herein as the
"WAL Preferred Shares." Except as permitted hereunder or disclosed on Schedule
2.3(a), there are no options, warrants or other rights to acquire, or
agreements or commitments to issue, sell, purchase or redeem, shares of WAL or
other equity interests in WAL, whether on conversion of other securities or
otherwise. Except as set forth in Schedule 2.3(a), no loan capital in WAL has
been created, allotted, issued, acquired, repaid or redeemed or agreed to be
created, allotted, issued, acquired, repaid or redeemed by WAL. None of the
issued shares of WAL has been issued in violation of, or is subject to, any
preemptive or subscription rights. Except as set forth in Schedule 2.3(a),
there are no shareholder agreements, voting trust agreements or any other
similar contracts, agreements, arrangements, commitments, plans or
understandings restricting or otherwise relating to voting, dividend, ownership
or transfer rights with respect to any shares of WAL.
(b) Each Shareholder severally represents and warrants as
to itself that (i) it (or, in the case of Onex Investments, Onex DHC LLC) is
the beneficial owner of the WAL Ordinary Shares listed in Schedule 2.3(b)
opposite its name or that it has transferred such shares to a Permitted
Transferee or Permitted Transferees and (ii) all such shares are owned free
from all liens, claims, encumbrances or other restrictions of any kind, other
than liens, claims, encumbrances or other restrictions listed on Schedule
2.3(b). Each Shareholder severally represents and warrants as to itself that,
except as a result of the consummation of this Agreement and the transactions
contemplated hereby or as set forth in Schedule 2.3(b), neither it nor any of
its affiliates or associates owns, beneficially or of record, any shares of
Scotsman Common Stock.
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(c) The authorized share capital of Whitlenge consists of
406,500,000 ordinary shares of 1p each (the "Whitlenge Ordinary
Shares") and 500,000 deferred shares of (British pound) 1 each (the "Whitlenge
Deferred Shares"), all of which 406,500,000 Whitlenge Ordinary Shares and
500,000 Whitlenge Deferred Shares are issued. All such shares are duly
authorized, validly issued and fully paid. WAL is the record and beneficial
owner of all of the issued Whitlenge Ordinary Shares and Whitlenge Deferred
Shares, other than one Whitlenge Ordinary Share held by Collins as a nominee
for WAL, and there exist no other equity interests in Whitlenge. All such
Whitlenge Ordinary Shares and Whitlenge Deferred Shares are so owned free from
all liens, claims, encumbrances or other restrictions of any kind, other than
liens, claims, encumbrances or other restrictions listed on Schedule 2.3(c).
There are no options, warrants or other rights to acquire, or agreements or
commitments to issue, sell, purchase or redeem, shares of Whitlenge or other
equity interests in Whitlenge, whether on conversion of other securities or
otherwise. No loan capital in WAL has been created, allotted, issued,
acquired, repaid or redeemed or agreed to be created, allotted, issued,
acquired or redeemed by Whitlenge. None of the issued shares of Whitlenge has
been issued in violation of, or is subject to, any preemptive or subscription
rights. There are no shareholder agreements, voting trust agreements or any
other similar contracts, agreements, arrangements, commitments, plans or
understandings restricting or otherwise relating to voting, dividend, ownership
or transfer rights with respect to any shares of Whitlenge.
(d) The authorized share capital, no nominal value, of WB
consists of 1,250 shares (the "WB Shares"), all of which are issued and
outstanding. All such outstanding shares are duly authorized, validly issued,
fully paid and nonassessable. Whitlenge is the record and beneficial owner of
all of the issued and outstanding WB Shares, other than one WB Share held by
Nicholls as a nominee for Whitlenge, and there exist no other equity interests
in WB. All such outstanding WB Shares are so owned free from all liens,
claims, encumbrances or other restrictions of any kind, other than liens,
claims, encumbrances or other restrictions listed on Schedule 2.3(d). There
are no options, warrants, or other rights to acquire, or agreements or
commitments to issue, sell, purchase or redeem, shares of WB or other equity
interests in WB, whether on conversion of other securities or otherwise. No
loan capital in WB has been created, allotted, issued, acquired, repaid or
redeemed or agreed to be created, allotted, issued, acquired or redeemed by WB.
None of the issued and outstanding shares of WB has been issued in violation
of, or is subject to, any preemptive or subscription rights. There are no
shareholder agreements, voting trust agreements or any other similar contracts,
agreements, arrangements, commitments, plans or understandings restricting or
otherwise relating to voting, dividend, ownership or transfer rights with
respect to any shares of WB.
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Section 2.4. Authority. (a) WAL and Whitlenge have full
corporate power and authority to execute and deliver this Agreement and to
perform their obligations hereunder.
The execution, delivery and performance of this Agreement by
WAL and Whitlenge and the performance by WAL and Whitlenge of their obligations
hereunder have been duly authorized by all necessary action on the part of WAL
and Whitlenge. This Agreement is, and each other agreement or instrument of
WAL or Whitlenge contemplated hereby when executed and delivered will be, the
legal, valid and binding agreement of WAL or Whitlenge, as the case may be,
enforceable against WAL or Whitlenge, as the case may be, in accordance with
its respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
Neither the execution or delivery of this Agreement by
Whitlenge, WAL or any Shareholder, nor consummation of the transactions
contemplated hereby or compliance with or fulfillment of the terms and
provisions hereof by WAL, Whitlenge or any Shareholder, will (a) conflict with,
result in a breach of the terms, conditions or provisions of, or constitute a
default, an event of default or an event creating rights of acceleration,
termination or cancellation or a loss of rights, or result in the creation or
imposition of any encumbrance upon any of the material assets of WAL, Whitlenge
or WB, under the memorandum or articles of association of WAL or Whitlenge or
the constitutive documents of WB, any instrument, agreement, mortgage,
indenture, deed of trust, permit, concession, grant, franchise, license,
judgment, order, award, decree or other restriction to which WAL, Whitlenge or
WB is a party or any of their respective material properties is subject or by
which any of them is bound or any material statute, other law or regulatory
provision affecting any of them, except for such conflicts, breaches, defaults,
events, creations and impositions that are set forth in Schedule 2.4(a) or (b)
require the approval, consent or authorization of, or the making of any
declaration, filing or registration with, any third party or any governmental
authority or regulatory body, by or on behalf of WAL, Whitlenge or WB, except
as set forth in Schedule 2.4(a); provided, however, that no representation and
warranty is made as to any consent or filing required to be obtained or made in
respect of the United Kingdom Office of Fair Trading, Monopolies and Mergers
Commission and/or the Commission of the European Community in connection with
the transactions contemplated by this Agreement.
(b) Each Shareholder that is a corporate entity severally
represents and warrants as to itself that it has full corporate power and
authority, and each other Shareholder severally represents and warrants as to
itself that it has full power and authority, to enter into this Agreement.
Each
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Shareholder severally represents and warrants as to itself that neither the
execution or delivery of this Agreement by WAL, Whitlenge or such Shareholder,
nor consummation of the transactions contemplated hereby or compliance with or
fulfillment of the terms and provisions hereof by WAL, Whitlenge or such
Shareholder, will conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any encumbrance upon
any of the material assets of WAL, Whitlenge or WB, under any instrument,
agreement, mortgage, indenture, deed of trust, permit, concession, grant,
franchise, license, judgment, order, award, decree or other restriction to
which such Shareholder is a party or by which such Shareholder is bound. Each
of the Shareholders severally represents and warrants as to itself that this
Agreement is, and each other agreement or instrument of such Shareholder
contemplated hereby when executed and delivered will be, the legal, valid and
binding agreement of such Shareholder enforceable against such Shareholder in
accordance with its respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforceability of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
Section 2.5. Financial Statements. WAL and Whitlenge have
previously provided Scotsman with the consolidated audited balance sheet (the
"Balance Sheet") of WAL as of September 30, 1993 (the "Balance Sheet Date") and
the related audited consolidated profit and loss account (the "Income
Statement") and consolidated cash flow statement for the financial year then
ended, together with appropriate notes to such financial statements, certified
by Coopers & Lybrand, chartered accountants and registered auditors. Except as
disclosed in the notes thereto, the Balance Sheet and Income Statement have
been prepared in accordance with the requirements of all relevant statutes and
with generally accepted accounting principles and practices in the United
Kingdom consistently applied and fairly present in all material respects the
consolidated financial position of WAL at the date of such balance sheet and
the consolidated results of its operations and changes in its financial
position for the periods indicated. Except as set forth in Schedule 2.5, the
Income Statement does not contain any material items of special or nonrecurring
income except as expressly specified therein. The Balance Sheet and the Income
Statement include all adjustments, which consist only of normal recurring
accruals, necessary for such fair representation. All costs and expenses
incurred in generating the revenues reflected in the Income Statement or
otherwise in connection with the Whitlenge Business during the period covered
thereby which are required by generally accepted accounting principles in the
United Kingdom to be reflected in the Income Statement are so reflected.
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After the date of incorporation of WAL, each of WAL and
Whitlenge has notified the Registrar of Companies that the 30th of September is
its accounting reference date pursuant to the Companies Act of 1985 and it has
not subsequently notified the Registrar of Companies of any other date.
Section 2.6. Operations Since Balance Sheet Date. (a) Except
as set forth in Schedule 2.6(a), since the Balance Sheet Date, there has been:
(i) no material adverse change in the assets, liabilities, operations, profits
or business or condition, financial or otherwise, of WAL, Whitlenge and WB; and
(ii) no damage, destruction, loss or claim with respect to, whether or not
covered by insurance, or condemnation or other taking of, assets having a
Material Adverse Effect on WAL, Whitlenge and WB taken as a whole.
(b) Except as set forth in Schedule 2.6(b), as contemplated
hereby or with the prior written consent of Scotsman after the date hereof,
since the Balance Sheet Date, Whitlenge and WB have conducted the Whitlenge
Business only in the ordinary course and in conformity with past practice.
Without limiting the generality of the foregoing, except as set forth in
Schedule 2.6(b), as contemplated hereby or with the prior written consent of
Scotsman after the date hereof, since the Balance Sheet Date, none of WAL,
Whitlenge and WB has: (i) issued, delivered or agreed (actually or
contingently) to issue or deliver any of its shares, or granted any option,
warrant or right to purchase any of its shares or other equity interest, or
security convertible into its shares or other equity interest, or any of its
bonds, notes or other securities, or borrowed or agreed to borrow any funds,
other than in the ordinary course of business consistent with past practice;
(ii) paid any obligation or liability (absolute or contingent) other than
current liabilities reflected on the Balance Sheet and current liabilities
incurred since the Balance Sheet Date in the ordinary course of business
consistent with past practice; (iii) declared or made, or agreed to declare or
make, any payment of dividends or distributions to shareholders or purchased or
redeemed, or agreed to purchase or redeem, any of its shares or other equity
interest, except in each case as permitted hereunder; (iv) mortgaged, pledged
or encumbered any assets other than in the ordinary course of business
consistent with past practice; (v) except for assets sold, leased or
transferred in the ordinary course of business consistent with past practice,
sold, leased or transferred or agreed to sell, lease or transfer any material
assets or rights; (vi) cancelled or agreed to cancel any material debts or
claims, waived or agreed to waive any rights of material value, or allowed to
lapse or failed to keep in force any material franchise, permit or other
material right; (vii) except in the ordinary course of business consistent with
past practice, made or permitted any material amendment or termination of any
material contract, agreement or license; (viii) undertaken or committed to
capital expenditures exceeding (British pound) 65,000 for any single project
or related series of projects; (ix) made any
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increase in the compensation paid or to become payable to any of WAL's,
Whitlenge's or WB's officers or employees except for increases in the normal
course of business consistent with past practice and increases required to be
made pursuant to the terms of any employment or other agreement or employee
benefit plan, policy, arrangement or agreement entered into prior to the
Balance Sheet Date; (x) passed any resolution in a general meeting (other than
any resolution constituting ordinary business conducted at an annual general
meeting); (xi) undergone any material adverse change in its relationship, taken
as a whole, with suppliers, customers, distributors and lessors; (xii) made
charitable donations in excess of (British pounds) 30,000 in the aggregate;
(xiii) incurred any liability or obligation (whether absolute, accrued,
contingent or otherwise and whether direct or as guarantor or otherwise with
respect to obligations of others) material to the business or assets of WAL,
Whitlenge and WB, taken as a whole, except in the ordinary course of business
consistent with past practice; (xiv) instituted, settled or agreed to settle
any litigation, action, or proceeding before any court or governmental body
relating to the business or assets of WAL, Whitlenge or WB and involving an
amount in excess of (British pounds) 30,000 or otherwise materially affecting
WAL, Whitlenge or WB; (xv) entered into, or amended in any material respect,
any employment, collective bargaining, deferred compensation, retention, change
of control, termination or other material agreement or arrangement for the
benefit of employees (whether or not legally binding) or entered into, adopted
or amended in any material respect any Plan (as hereinafter defined); (xvi)
suffered any strike or other employment related problem which would have a
Material Adverse Effect on WAL, Whitlenge and WB taken as a whole; (xvii)
suffered the loss of any key employees or had any material change in its
relations with its employees and agents; (xviii) received any notice of
termination of any material contract, lease or other material agreement; (xix)
transferred or expressly granted any rights under, or entered into any
settlement regarding the breach or infringement of, any material United Kingdom
or foreign license, patent, copyright, trademark, trade name, invention or
other material intellectual property or modified in any material respect any
existing rights with respect thereto; (xx) entered into any transaction of the
type described in Section 2.30; (xxi) amended the terms of the Rules of the
Whitlenge Drink Equipment Limited Annual Bonus Plan or the Whitlenge Drink
Equipment Limited Annual Bonus Plan, as updated (together, the "Bonus Plans")
(complete and correct copies of which have been furnished to Scotsman); or
(xxii) entered into or become committed to enter into any other material
transaction except in the ordinary course of business consistent with past
practice.
Section 2.7. No Undisclosed Liabilities. Neither WAL,
Whitlenge nor WB is subject to any liability which is required in accordance
with generally accepted accounting principles in the United Kingdom (in the
case of WAL and Whitlenge) and in Belgium (in the case of WB) to be shown on
the Balance Sheet but which is
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not so shown, and to the knowledge of WAL, Whitlenge, WB or any Shareholder,
none of WAL, Whitlenge or WB is subject to any material liability, absolute or
contingent, which is not shown on the Balance Sheet or which is in excess of
amounts shown or reserved for in the Balance Sheet or referred to in the notes
thereto, other than, in each case, as disclosed in Schedule 2.7 or liabilities
of a similar nature as those set forth in the Balance Sheet and notes thereto
and incurred after the Balance Sheet Date in the ordinary course of its
business consistent with past practice.
Section 2.8. Taxes. (a) All Tax (as hereinafter defined)
returns, reports and declarations which are required to be filed prior to the
date hereof related to WAL, Whitlenge or WB have been duly filed. All Taxes
which are shown thereon to be due and all other Taxes, assessments and other
governmental charges imposed by law upon WAL, Whitlenge or WB which have become
due and payable as shown therein have been paid, other than those not yet
delinquent. The Balance Sheet provides for, and the books and records which
show the position at the Expiration Date will provide for, as appropriate, make
proper disclosure or note of all liabilities, whether actual, deferred,
contingent or disputed, of WAL, Whitlenge and WB, for Taxation at and for the
periods described therein. All Taxation for which WAL, Whitlenge or WB is
liable as a result of any act, omission or event has, if and insofar as such
Taxation or other sums ought to be paid, been so paid. Neither WAL nor
Whitlenge nor WB is in dispute with the Inland Revenue, Customs and Excise or
any other fiscal authority and neither WAL, Whitlenge, WB nor the Shareholders
are aware of any circumstances which may give rise to such a dispute. Neither
WAL, Whitlenge nor WB at any time made any repayment to which Section 210
and/or 211 of the Income and Corporation Taxes Act 1988 (bonus issue following
or preceding repayment of share capital) applies or issued any share capital as
paid up otherwise than by the receipt of new consideration within the meaning
of Part VI Income and Corporation Taxes Act 1988 (company distributions, tax
credits etc. where appropriate). Since the Balance Sheet Date, neither WAL,
Whitlenge nor WB has (i) declared, paid or made any dividend, bonus or other
distribution, or (ii) made or received any surrender relating to group relief
or the benefit of advance corporation tax. Since the Balance Sheet Date, no
payment has been made by WAL, Whitlenge or WB which will not be deductible for
corporation tax purposes either in computing the profits of WAL, Whitlenge or
WB or in computing the corporation tax chargeable on WAL, Whitlenge or WB. In
the Income Statement and Balance Sheet and the books and records which show the
position at the Expiration Date, the value attributed to each asset of WAL,
Whitlenge and WB as at the date thereof is such, or will be such, that on any
disposal thereof for a consideration equal to such value (and disregarding any
statutory right to claim any allowance of relief) (i) no liability to
corporation tax in respect of any chargeable gain will arise; and (ii) no
balancing charge will be made on WAL, Whitlenge or WB. Full particulars of
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each claim under S.152 or 153 Taxation of Chargeable Gains Act 1992 ("TCGA")
(replacement of business assets) made prior to the date hereof to which S. 154
TCGA (new assets which were depreciating assets) applies and which affects any
asset which was owned by WAL, Whitlenge or WB on or after March 31, 1992
(except where the held over gain is treated as having accrued prior to
September 30, 1993) are set forth in Schedule 2.8. Full details of all assets
currently owned by WAL or Whitlenge in relation to which charges to Tax might
at any time in the next six years arise under S.179 TCGA (company ceasing to be
member of a group) are set forth in Schedule 2.8.
(b) All documents which are required to be stamped and which
are in the possession of WAL or Whitlenge, or by virtue of which WAL or
Whitlenge has any right, have been duly stamped. Since September 30, 1993,
neither WAL nor Whitlenge has incurred any liability to stamp duty reserve tax.
(c) None of WAL, Whitlenge or WB has ever had any income
effectively connected with the conduct of a trade or business within the United
States (within the meaning of section 882 of the United States Internal Revenue
Code of 1986, as amended (the "Code") or, to the knowledge of the Shareholders,
any income from sources within the United States (within the meaning of section
881 of the Code).
(d) Each of WAL, Whitlenge or WB has not in the six years
preceding the date of this Agreement been a party to any transaction in respect
of which WAL, Whitlenge or WB, its officers, directors or advisers considered
that there was a risk that they could be liable to Taxation under provisions of
Part XVII of Income and Corporation Taxes Act 1988 (Anti-Avoidance) or as a
result of the principles enunciated by the House of Lords in the United Kingdom
in Furniss v. Dawson 55 TC 324 and concluded that such risk was too remote to
make provision therefore in the relevant accounts of WAL, Whitlenge or WB.
(e) WAL and Whitlenge are members of a "group of companies"
for the purpose of Section 29 Value Added Tax Act 1983. Schedule 2.8 sets out
full details of all assets currently owned by each of WAL and Whitlenge
(collectively the "Group Companies" and each a "Group Company") in relation to
which charges to Tax might at any time in the six years from the date of this
Agreement arise under S.179 TCGA. Schedule 2.8 sets out full details of the
group income election between WAL or Whitlenge under Section 247 Income and
Corporation Taxes Act 1988 which remain in force. Except as set forth in
Schedule 2.8, WAL and Whitlenge are a group for purposes of S.170 TCGA and
Section 402 Taxes Act 1988, and, together with WB, are associated for purposes
of Section 42 Finance Act 1930. Schedule 2.8 sets out full details of all
claims by each Group Company for group relief under Chapter IV of Part X Taxes
Act 1988 and for the surrender of advance corporation tax under Section 240
Income and Corporation Taxes Act 1988 for the six years ended September 30,
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1992. No event has occurred in consequence of which WAL, Whitlenge or WB may
be liable for tax for which some other company or person was primarily liable.
(f) Neither WAL, Whitlenge nor WB has, since September 30,
1993, incurred any liability for Taxation other than Taxation arising in the
ordinary course of its business.
(g) The utilization of any relief shall not be treated as
reducing or extinguishing a tax liability in respect of which, were it not for
the utilization of such relief, a breach would have occurred of the
representations and warranties hereby given.
(h) For purposes of this Section 2.8, the following
definitions shall apply:
(i) "Tax" and "Taxation" mean any form of taxation, levy,
duty, charge, contribution or impost of whatever nature (including any
fine, penalty, surcharge or interest in relation thereto) imposed by a
Taxation Authority and whether or not a primary or secondary
liability; and
(ii) "Taxation Authority" means the Inland Revenue, H.M.
Customs and Excise (both in the United Kingdom) and any other local,
municipal, governmental, state, federal or other fiscal authority,
body or official anywhere in the world.
Section 2.9. Condition of Plant, Machinery and Equipment.
Each item of plant, machinery and equipment owned or leased by Whitlenge and WB
and having a book or fair market value in excess of (British pounds) 30,000 is
in good operating condition (subject to reasonable wear and tear and immaterial
impairments of value and damage) and generally suitable for the uses for which
intended.
Section 2.10. Title to Property. Except as set forth in
Schedule 2.10, each of Whitlenge and WB has good and, with respect to real
property, marketable title to all of the material assets reflected on the
Balance Sheet as being owned by it and all of the material assets thereafter
acquired by it (except to the extent that such assets have thereafter been
disposed of in the ordinary course of business consistent with past practice),
subject to no liens, mortgages, pledges, security interests, encumbrances,
claims or charges of any kind (collectively, "Liens") except (i) any Liens
arising by law securing obligations not yet overdue and (ii) Liens that do not
materially interfere with the present use or value of the applicable asset.
Section 2.11. Availability and Ownership of Assets. The
assets shown on the Balance Sheet, taken as a whole, include all the material
properties and assets owned or used or held by WAL, Whitlenge or WB during the
past twelve months and required, in accordance with generally accepted
accounting principles, to be reflected on the Balance Sheet (except properties
and assets
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sold, cash disposed of, accounts receivable collected, prepaid expenses
realized, contracts fully performed, and properties or assets which had become
worn out, obsolete or surplus in each case in the ordinary course of business).
There are no material assets or properties used in the Whitlenge Business owned
by any person other than Whitlenge or WB which are leased or licensed to
Whitlenge or WB pursuant to a lease or license that will terminate as a result
of the consummation of the Offer and the other transactions contemplated
hereby.
Section 2.12. Personal Property Leases. Set forth in Schedule
2.12 is a brief description of each lease or other agreement or right, whether
written or oral (including in each case the annual rental, the expiration date
thereof and a brief description of the property covered), under which Whitlenge
or WB is lessee of, or holds or operates, any machinery, equipment, vehicle or
other tangible personal property owned by a third person having scheduled
rental payments in excess of (British pounds) 10,000 per year.
Section 2.13. Accounts Receivable; Inventories. To the
knowledge of WAL, Whitlenge, WB and the Shareholders, all outstanding accounts
receivable of Whitlenge and WB have arisen from bona fide transactions, except
to the extent that a reserve in respect thereof shall have been established on
the Balance Sheet. Except as set forth in Schedule 2.13, to the knowledge of
WAL, Whitlenge, WB and the Shareholders, all (i) the accounts receivable
reflected in the Balance Sheet, taken as a whole, are good and collectible in
all material respects in the ordinary course of business at the aggregate
recorded amounts thereof, net of any applicable allowances for doubtful
accounts reflected therein; and (ii) the accounts receivable to be reflected in
the books and records of Whitlenge and WB as of the Expiration Date, taken as a
whole, will be good and collectible in all material respects in the ordinary
course of business at the aggregate recorded amounts thereof, net of any
applicable allowances for doubtful accounts reflected thereon, which allowances
will be determined on a basis consistent with the basis used in determining the
allowances for doubtful accounts reflected in the Balance Sheet. To the
knowledge of WAL, Whitlenge, WB and the Shareholders, the inventories of
Whitlenge and WB (including raw materials, supplies, work-in-process, finished
goods and other materials), taken as a whole, are in merchantable condition in
all material respects and are reflected in all material respects in the books
and records of WAL, Whitlenge and WB in accordance with generally accepted
accounting principles and at the lower of average cost or market value, except
in each case for obsolete inventory accounted for in accordance with the
applicable policy set forth in the attachment to Schedule 2.3(g) to the Merger
Agreement.
Section 2.14. Intellectual Property. (a) Schedule 2.14
contains a list of:
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(i) all material United Kingdom and foreign patents and
patent applications and all material United Kingdom and foreign
trademarks, trade names and service marks for which registrations have
been issued or applied for, and all other material United Kingdom and
foreign trademarks, trade names and service marks owned by WAL,
Whitlenge or WB or in which WAL, Whitlenge or WB holds any right,
license or interest, showing in each case the product, device,
process, service, business or publication covered thereby, the
registered or other owner, application date and, in the case of such
right, license or interest, a brief description thereof;
(ii) all material agreements, commitments, contracts,
understandings, licenses and assignments relating or pertaining to any
asset, property or right described in the preceding clause to which
WAL, Whitlenge or WB is a party, showing in each case the parties
thereto and, in the case of oral agreements, commitments, contracts,
understandings, licenses and assignments, the material terms thereof;
(iii) all material licenses or agreements pertaining to
know-how, trade secrets, inventions, disclosures or uses of ideas to
which WAL, Whitlenge or WB is a party, showing in each case the
parties thereto and, in the case of oral licenses or agreements, a
brief description of the material terms thereof; and
(iv) all registered assumed or fictitious names under which
Whitlenge or WB is conducting the Whitlenge Business as of the date
hereof.
(b) All patents listed in Schedule 2.14 as being owned by
WAL, Whitlenge or WB are valid and in full force, all patents listed in
Schedule 2.14 as being used by WAL, Whitlenge or WB are, to the knowledge of
WAL, Whitlenge, WB and the Shareholders, valid and in full force and all patent
applications of WAL, Whitlenge or WB listed therein are in good standing, all
without material challenge of any kind except as otherwise disclosed in
Schedule 2.14, and, except as otherwise disclosed in Schedule 2.14, WAL,
Whitlenge or WB owns the entire right, title and interest in and to such
patents and patent applications so listed as being owned by WAL, Whitlenge or
WB without qualification, limitation, burden or encumbrance of any kind, except
for such qualifications, limitations, burdens and encumbrances that would not
have a Material Adverse Effect on WAL, Whitlenge and WB taken as a whole. All
of the registrations for trade names, trademarks and service marks listed in
Schedule 2.14 as being owned by WAL, Whitlenge or WB are valid and in full
force, all of the registrations for trade names, trademarks and service marks
listed in Schedule 2.14 as being used by WAL, Whitlenge or WB are, to the
knowledge of WAL, Whitlenge and WB, valid and in full
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force and all applications by WAL, Whitlenge or WB for such registrations are
pending and in good standing, all without material challenge of any kind except
as otherwise disclosed in Schedule 2.14, and, except as otherwise disclosed in
Schedule 2.14, WAL, Whitlenge or WB owns the entire right, title and interest
in and to all such trade names, trademarks and service marks so listed as being
owned by WAL, Whitlenge or WB as well as the registrations and applications for
registration therefor without qualification, limitation, burden or encumbrance
of any kind, except for such qualifications, limitations, burdens and
encumbrances that would not have a Material Adverse Effect on WAL, Whitlenge
and WB taken as a whole. Correct and complete copies of all the patents and
published patent applications, registered trademarks, published trade names and
service marks and registrations or applications therefor and licenses listed in
Schedule 2.14 have heretofore been delivered by WAL, Whitlenge or WB to
Scotsman.
(c) Except as disclosed in Schedule 2.14, WAL, Whitlenge or
WB owns or has the right to use during the protected life thereof (including
any extension) all material patents, trademarks, service marks, published trade
names and other material intellectual property used in conducting the Whitlenge
Business. No infringement of any patent, patent right, trademark, service
mark, trade name, or copyright or registration thereof has occurred or results
in any way from the operations or business of WAL, Whitlenge or WB, except for
such infringements that would not have a Material Adverse Effect on WAL,
Whitlenge and WB taken as a whole. No claim or (to the knowledge of WAL,
Whitlenge, WB or any Shareholder) threat of any such infringement has been made
in respect of any of the foregoing, no claim of invalidity of any patent
described in Schedule 2.14 has been made, and no proceedings are pending or, to
the knowledge of WAL, Whitlenge and WB or any Shareholder, threatened against
WAL, Whitlenge or WB which challenge the validity or ownership of any material
patent, published trademark, trade name or service mark or the ownership of any
other right or property described in Schedule 2.14, or any copyright of WAL,
Whitlenge or WB, and, except as set forth in Schedule 2.14, none of WAL,
Whitlenge, WB or the Shareholders knows of the infringing use of any of the
same by any other person, except for such claims, proceedings and infringing
uses that would not have a Material Adverse Effect on WAL, Whitlenge and WB
taken as whole. None of WAL, Whitlenge, WB or the Shareholders has had notice
of, or knowledge of, any claim against WAL, Whitlenge or WB that a material
portion of the operations, activities, products, equipment, machinery or
processes of the Whitlenge Business materially infringes the patents,
trademarks, service marks, published trade names or other intellectual property
rights of any other person.
Section 2.15. Owned Real Property. None of WAL, Whitlenge or
WB owns any real property and is not bound by any contract or agreement for the
purchase or sale of any real property.
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Section 2.16. Leased Real Property. Schedule 2.16 sets forth
a list and brief description of each lease or similar agreement together with
associated documentation (showing, without prejudice to the generality of the
foregoing, the parties thereto, annual rental, expiration date, and the
location of the real property covered by such lease or other agreement) under
which (i) Whitlenge or WB is lessee of, or holds or operates any real property
owned by a third person or (ii) to the knowledge of WAL, Whitlenge, WB and the
Shareholders, Whitlenge or WB has been lessee of, or has held or operated, any
real property owned by any third person and is as of the date hereof, or will
be as of the Expiration Date, subject to any actual or contingent liability
(other than any liability in respect of a matter referred to in Section 2.29)
in respect thereof (the real property described in clauses (i) and (ii) above
being collectively referred to herein as the "Leased Real Property"). Except
as set forth in Schedule 2.16, Whitlenge or WB has the right to quiet enjoyment
of all the Leased Real Property described in clause (i) of the immediately
preceding sentence for the full term of each such lease or similar agreement
(and any renewal option related thereto) relating thereto, and the leasehold or
other interest of WAL, Whitlenge or WB in such Leased Real Property is not
subject or subordinate to any encumbrance that has or will have a Material
Adverse Effect on WAL, Whitlenge and WB taken as a whole. Complete and correct
copies of any title opinions, surveys and appraisals in WAL's, Whitlenge's or
WB's possession or any policies of title insurance currently in force and in
the possession of WAL, Whitlenge or WB with respect to the Leased Real Property
heretofore been delivered by WAL, Whitlenge or WB to Scotsman.
Section 2.17. Obligations; Litigation. Except as set forth in
Schedule 2.17, WAL, Whitlenge and WB have performed all obligations required to
be performed by them to date, and are not in default, under any agreement,
lease or other document to which any of them is a party, or under any law or
order of any court or governmental agency, except for such failures to perform
or defaults that would not have a Material Adverse Effect on WAL, Whitlenge and
WB taken as whole. Except as set forth in Schedule 2.17, there are no claims,
actions, suits or proceedings to which WAL, Whitlenge or WB is a party or any
of their respective properties is subject or by which any of them is bound,
pending or, to the knowledge of WAL, Whitlenge, WB or any Shareholder,
threatened before or by any court or governmental agency, which is reasonably
expected to have a Material Adverse Effect on WAL, Whitlenge and WB taken as a
whole or prevent or hinder the consummation of the transactions contemplated
hereby.
Section 2.18. Product Warranties. Schedule 2.18 contains a
list and description of each express warranty given or offered by Whitlenge or
WB prior to the date hereof covering any class or group of products sold or
distributed by Whitlenge or WB and other express warranties covering any
material product sold or distributed by Whitlenge or WB, in each case which
warranty is
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in effect on the date hereof or will be in effect on the Expiration Date. No
reserve for liabilities with respect to warranty claims is contained in the
Balance Sheet and generally accepted accounting principles in the United
Kingdom do not require that a reserve for such liabilities be contained in the
Balance Sheet of Whitlenge or WB.
Section 2.19. Compliance with Laws. WAL, Whitlenge and WB are
in compliance with the provisions of all applicable government laws and
regulations (domestic and foreign), including but not limited to all Applicable
Laws (as defined in Section 2.29(a)), except to the extent that the failure to
comply therewith would not have a Material Adverse Effect on WAL, Whitlenge and
WB taken as a whole. To the knowledge of WAL, Whitlenge, WB and each
Shareholder, there are no proposed orders, judgments, decrees, governmental
takings, condemnations or other proceedings, in each case binding upon the
business, operations or properties of WAL, Whitlenge or WB and which would have
a Material Adverse Effect on WAL, Whitlenge and WB taken as a whole.
Section 2.20. Permits. Each of WAL, Whitlenge and WB
possesses all material governmental franchises, permits, licenses,
certificates, variances, approvals and other material authorizations necessary
to own or lease and operate its material properties and to conduct its business
as now conducted (hereinafter collectively called the "Permits"), including but
not limited to environmental Permits. All Permits are set forth in Schedule
2.20, except for such Permits which would be readily obtainable by any
qualified applicant without undue burden in the event of any lapse,
termination, cancellation or forfeiture.
Except as disclosed in Schedule 2.20, all Permits are in full
force and effect and no consent, approval or act of, or the making of any
filing with, any governmental body, regulatory commission or other party will
be required to be obtained or made by WAL, Whitlenge or WB in respect of any
Permit as a result of the consummation of the transactions contemplated by this
Agreement. None of WAL, Whitlenge or WB is in default in any material respect
under the terms of any such Permit and has not received notice of any material
default thereunder.
Section 2.21. Insurance. WAL, Whitlenge and WB maintain
policies (or are covered by policies maintained by Onex and its affiliates on
behalf of WAL, Whitlenge and WB or their properties, assets, operations or
business) of fire and casualty, liability (general, product and other
liability), workers' compensation and other forms of insurance and bonds with
those insurers listed on Schedule 2.21 in such amounts and against such risks
and losses as are usually insured against in the same general areas by
companies engaged in the same or similar business. Schedule 2.21 contains a
list and brief description (including type of coverage, limits, deductibles,
carriers and effective and termination dates) of all policies of insurance
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maintained by WAL, Whitlenge or WB (or maintained on behalf of WAL, Whitlenge
or WB or their properties, assets, operations or business) since April 1, 1992,
up to and including the Expiration Date. Each of WAL, Whitlenge and WB is a
named insured or is otherwise covered under each such policy, and each such
policy is in full force and effect and (without limiting the obligations under
Section 5.3) will not in any way be affected by or terminate or lapse by reason
of the transactions contemplated by this Agreement.
WAL, Whitlenge and WB have made available to Scotsman complete
and correct copies of all policies listed on Schedule 2.21, together with all
riders and amendments thereto, and, to the knowledge of WAL, Whitlenge, WB and
the Shareholders, no insurer under such policies has a basis to void such
policies on grounds of non-disclosure on the part of the policyholder or the
insured thereunder.
Schedule 2.21 hereto includes a list of (i) each product
liability claim submitted under any such policy (whether or not relating to the
Whitlenge Business) since April 1, 1992 and (ii) with respect to each other
claim since April 1, 1992 under such policy, a list of the aggregate amounts of
such claims by class of such claims. Except for such claims, the full policy
limits (subject to deductibles provided therein) are available and unimpaired
under each such policy. Each of WAL, Whitlenge, and their respective
affiliates has complied with each such policy in all material respects and has
not failed to give any notice or present any claim thereunder in a due and
timely manner.
The liability and excess liability insurance policies listed
on Schedule 2.21 provide product liability coverage for WAL, Whitlenge and WB
on an occurrence basis, cover all claims for injuries which have occurred or
may occur on or prior to the Expiration Date and will cover payment of any
adverse judgment rendered against WAL, Whitlenge or WB in any claim arising out
of a product liability occurrence occurring on or prior to the Expiration Date.
Except as set forth on Schedule 2.21, to the knowledge of WAL,
Whitlenge, WB and the Shareholders, no person has alleged that any product
manufactured in or sold by the Whitlenge Business has caused a fire.
Section 2.22. The Plans. (a) Schedule 2.22 sets forth a list
of each Plan (as hereinafter defined) and WAL, Whitlenge or WB has delivered to
Scotsman complete and correct copies of all Plans or a written description of
any Plan which is not in writing. Except for the Whitlenge Drink Equipment
Limited Retirement Benefit Scheme (the "Scheme") and except as set forth in
Schedule 2.22, there is not in operation and no proposal has been announced to
establish, any agreement, arrangement, custom or practice (whether legally
enforceable or not and whether or
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not approved) for the payment of or contribution towards any pensions,
allowances, lump sums or other like benefits on retirement, death, termination
of employment (whether voluntary or not) or during periods of sickness or
disablement, for the benefit of any employee. Except as set forth in Schedule
2.22, each of WAL, Whitlenge and WB has performed all obligations required to
be performed by it under the Plans and each Plan has been maintained, operated
and administered in all material respects in accordance with applicable law.
There are no material pending or, to the knowledge of WAL, Whitlenge, WB and
each Shareholder, threatened claims by or on behalf of any employee involving
any such Plan (other than routine claims for benefits). No employee is or may
become entitled to post-employment benefits of any kind by reason of employment
in WAL, Whitlenge, WB or in connection with the operation of the business of
WAL, Whitlenge or WB, including, without limitation, death or medical benefits
(whether or not insured), other than deferred compensation but only to the
extent such deferred compensation remains the sole liability and obligation of
the Shareholders from and after the Expiration Date or the liability with
respect to such deferred compensation is adequately reflected on the books and
records of WAL, Whitlenge and WB. Except as set forth in Schedule 2.22, the
consummation of the transactions contemplated by this Agreement will not result
in an increase in the amount of compensation or benefits or accelerate the
vesting or timing of payment of any compensation or benefits payable to or in
respect of any employee. The books and records of WAL, Whitlenge and WB will
properly and adequately reflect any and all liabilities and obligations of WAL,
Whitlenge and WB relating to any period ending on or prior to January 31, 1993
to or in respect of the employees or the Plans for (i) unpaid compensation,
salaries, wages, accrued vacation and sick pay and other payroll items
(including, without limitation, bonus, incentive and deferred compensation) and
(ii) unpaid contributions, costs, pension premiums and expenses to or in
respect of any Plan. For purposes of this Section 2.22, "Approved" means
approved by the Board of Inland Revenue for the purposes of Chapter I of Part
XIV of the Taxes Act 1988 and references to "Approval" shall be construed
accordingly.
(b) WAL, Whitlenge, WB and the Shareholders have provided
Scotsman with (i) copies of all agreements, deeds and rules governing or
relating to the Scheme; (ii) copies of the explanatory literature issued to
employees who are or may become members of the Scheme; (iii) copies of any
announcement issued to any employees who are members of the Scheme in respect
of benefit improvements or other amendments not yet incorporated into the
documentation of the Scheme; (iv) a copy of the report of the most recent
actuarial valuation or funding review of the Scheme which has been received (in
final form) before the date of this Agreement, together with copies of any
written supplementary actuarial advice relating to the funding of the Scheme;
(v) copies of all policies effected with and agreements with any insurance
company for the purposes of the Scheme; (vi) if the
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trustees or managers of the Scheme are required by the Occupational Pension
Schemes (Disclosure of Information) Regulations 1986 to obtain audited
accounts, a copy of the latest available audited accounts of the Scheme; (vii)
particulars of the assets of the Scheme by reference to the categories listed
in Schedule 3 to the Occupational Pension Schemes (Disclosure of Information)
Regulations 1986 including particulars of any self investment (as defined in
those Regulations) and of any investment in which more than five percent of the
total value of the net assets of the Scheme is invested; and (viii) a list of
the Scheme's active members, pensioners and deferred pensioners with all
particulars of them relevant to their membership of the Scheme and necessary to
establish their entitlement to benefits.
(c) Except as disclosed in Schedule 2.22, no discretion or
power has been exercised under the Scheme in respect of any individual to
augment benefits; to admit to membership any individual who would not otherwise
have been eligible for admission to membership; to provide a benefit which
would not otherwise be provided; to pay a contribution which would not
otherwise have been paid; or in the three years ending on the date of this
Agreement, to pay a transfer value or make a transfer of assets to another
scheme the amount or value of which was greater than the cash equivalent to
which such individual acquired a right under Part II of Schedule 1A to the
Social Security Pensions Act 1975. All benefits (other than refunds of
contributions) payable under the Scheme on the death of a member of the Scheme
or during periods of sickness or disability of the member are at the date of
this Agreement fully insured under a policy effected with an insurance company
of good repute and each member has been covered for such insurance by such
insurance company at its normal rates and on its normal terms for persons in
good health and all insurance premiums payable have been paid. No payment or
repayment of any of the assets of the Scheme has been made to WAL, Whitlenge,
WB or to any other employer participating in the Scheme since the date of the
most recent actuarial valuation or funding review disclosed to Scotsman. There
are no liens over any of the assets of the Scheme. The Scheme is wholly
invested in insurance policies or contracts issued by Standard Life Assurance
Company, and no loans have been made out of the assets of the Scheme which are,
at the date of this Agreement, outstanding to WAL, Whitlenge, WB any
Shareholder or any of their affiliates. There has been no breach of the trusts
of the Scheme and there are no actions, suits or claims (other than routine
claims for benefits) outstanding, pending or threatened against the trustees or
administrator of the Scheme or against WAL, Whitlenge, WB, any Shareholder or
any of their affiliates. All information supplied for the purpose of the most
recent actuarial valuation or funding review of the Scheme was true, complete
and accurate in all material respects.
(d) There is not at the date of this Agreement any
contribution to the Scheme which has fallen due but is unpaid. Since the date
of the most recent actuarial valuation or funding
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review disclosed to Scotsman, contributions made to the Scheme have been at a
rate or rates not lower than that or those recommended in the report of the
said actuarial valuation or funding review.
(e) The Scheme is Approved and none of the WAL, Whitlenge, WB
or the Shareholders has knowledge of any circumstances which might give the
Board of Inland Revenue in the United Kingdom reason to withdraw Approval of
the Scheme. The Scheme is a contracted-out scheme for the purposes of the
Social Security Pensions Act 1975 and has been administered in accordance with
the contracting-out requirements of Part III of that Act. WAL, Whitlenge or WB
holds or is named in a current contracting-out certificate issued in relation
to the Scheme. Except as set forth in Schedule 2.22, the Scheme has been
designed to comply with and has been administered in accordance with all
applicable laws including, without limitation, all relevant statutes and
subordinate legislation of the Parliament of the United Kingdom and all
relevant provisions of the law of the European Communities, and subject to all
applicable laws in accordance with the trusts, powers and provisions of the
Scheme.
(f) None of WAL, Whitlenge or WB has in existence nor is
proposing to introduce any share incentive plan, share option plan or profit
sharing, bonus or other incentive plan for all or any of its Employees.
(g) For purposes of the Section 2.22, the following
definitions shall apply:
(i) "Employee" means each individual who is, was or has
formerly been employed by or served as director to WAL, Whitlenge, WB
or any of their respective predecessors, and the beneficiaries and
dependents of each such individual; and
(ii) "Plan" means each pension, retirement, profit sharing,
stock bonus, deferred or incentive compensation, medical,
hospitalization, dental, vision or other health, life insurance,
disability, accident insurance, severance, termination plan, policy,
agreement or arrangement, each bonus, incentive, employment, change of
control, retention, stock option, restricted stock or other
equity-based compensation or benefit plan, policy, agreement or
arrangement and each material payroll practice, in any case whether
written or unwritten, that provides or may provide benefits or
compensation in respect of any Employee or under which any Employee is
or may become eligible to participate and that is or has been entered
into, maintained or established by Onex, WAL, Whitlenge, WB or any of
their affiliates or to which Onex, WAL, Whitlenge, WB or any of their
affiliates or to which Onex, WAL, Whitlenge,
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WB or any of their affiliates contributes or is or has been obligated
to contribute.
Section 2.23. Employees and Agents and Related Agreements.
(a) Except as set forth in Schedules 2.23(a) or 2.30, none of WAL, Whitlenge
or WB is a party to or bound by any oral or written contract of service,
consulting agreement (other than contracts of service or consulting agreements
under which WAL's, Whitlenge's, or WB's obligations are terminable by WAL,
Whitlenge or WB without premium or penalty on notice of three months or less
other than a statutory redundancy payment or statutory compensation for unfair
dismissal), deferred compensation agreement, confidentiality agreement or
covenant not to compete with any officer, director, shareholder, employee or
agent of WAL, Whitlenge or WB.
(b) Schedule 2.23(b) contains: (i) a list of all employees
or sales executives payable on commission of WAL, Whitlenge or WB as of
December 1, 1993 whose salary or commission was in excess of (British pounds)
25,000 per annum on such date; (ii) the then current annual salary or
commission of, and a description of the material fringe benefits (other than
those generally available to eligible employees of WAL, Whitlenge or WB)
provided by WAL, Whitlenge or WB to any such employees or sales executives
payable on commission; (iii) a list of all present or former employees or sales
executives payable on commission of WAL, Whitlenge or WB paid in excess of
L25,000 in the financial year ended September 30, 1993 who have terminated or
given notice of their intention to terminate their relationship with WAL,
Whitlenge or WB since September 30, 1993; and (iv) a list of any increase,
effective after December 1, 1993, in the rate of salary or commission of any
employee or sales executives payable on commission if such increase exceeds 6%
of the previous annual salary or commission or other compensation of such
employee or sales executive payable on commission.
Section 2.24. Employee Relations and Labor Matters. (a)
Except as set forth in Schedule 2.24, WAL, Whitlenge and WB have complied in
all material respects with all applicable laws, rules and regulations which
relate to wages, hours, discrimination in employment and collective bargaining
and are not liable for any material arrears of wages or any material taxes or
penalties for failure to comply with any of the foregoing. WAL, Whitlenge and
WB believe that their relations with their employees are good.
(b) Within the period of one year ending on the date of this
Agreement, none of WAL, Whitlenge or WB (i) has given notice of any
redundancies to the relevant Secretary of State in the United Kingdom or
started consultations with any independent trade union under the provisions of
Part IV of the Employment Protection Act 1975, (ii) failed to comply with any
of its obligations under Part IV of such Act, (iii) been a party to any
relevant transfer as defined in the Transfer of Undertakings
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(Protection of Employment) Regulations 1981 or (iv) failed to comply with any
duty to inform and consult any independent trade union under such Regulations.
(c) None of WAL, Whitlenge or WB has any agreement or other
arrangement (binding or otherwise) with any trade union or other body
representing its employees or any of them and none of WAL, Whitlenge or WB
recognizes any trade union or other body representing its employees or any of
them for negotiating purposes. Except as set forth in Schedule 2.24, there has
not been since January 2, 1987, with respect to WAL, Whitlenge or WB, any (a)
unfair labor or trade practice complaint against WAL, Whitlenge or WB before
any applicable governmental agency; (b) labor strike, dispute, or work stoppage
actually pending or threatened against WAL, Whitlenge or WB; or (c) arbitration
proceeding arising out of or under collective bargaining agreements pending
against WAL, Whitlenge or WB.
(d) Except to the extent (if any) to which provision or
allowance has been made in the Balance Sheet or as set forth on Schedule 2.24,
no liability has been incurred by WAL, Whitlenge or WB for breach of any
contract of service, for redundancy payments, protective awards, provision of
benefits or for compensation for wrongful or unfair dismissal.
Section 2.25. Absence of Certain Business Practices. Except
as set forth on Schedule 2.25, none of WAL, Whitlenge, WB, any officer,
employee or agent of WAL, Whitlenge or WB, or any other person acting on its
behalf, has, directly or indirectly, since April 1, 1992, given or agreed to
give any gift or similar benefit (other than with respect to bona fide payments
for which adequate consideration has been given and gifts of a nominal value
the giving of which is customary in the industry) to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of WAL, Whitlenge or WB (or assist WAL, Whitlenge or WB in
connection with any actual or proposed transaction) (a) which might subject
WAL, Whitlenge or WB to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (b) which, if not continued in the
future, would have an adverse affect on WAL's, Whitlenge's or WB assets,
business, operations or prospects or would subject WAL, Whitlenge or WB to suit
or penalty in any private or governmental litigation or proceeding, (c) for any
of the purposes described in section 162(c) of the Code, or (d) for
establishment or maintenance of any concealed fund or concealed bank account.
Section 2.26. Territorial Restrictions. None of WAL,
Whitlenge or WB is restricted in any material respect by any written agreement
or understanding with third parties from carrying on its business anywhere in
the world.
Section 2.27. Transactions with Certain Persons. Except as
set forth in Schedule 2.27 hereto, since April 1, 1992,
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none of WAL, Whitlenge or WB has, directly or indirectly, purchased,
leased from others or otherwise acquired any material property or obtained any
material services from, or sold, leased to others or otherwise disposed of any
material property or furnished any material services to (except with respect to
remuneration for services rendered as a director, officer or employee of WAL,
Whitlenge or WB), in the ordinary course of business or otherwise, (a) any
Shareholder, (b) any affiliate of WAL, Whitlenge or WB, (c) any person who is
an officer or director of WAL, Whitlenge or WB, or (d) any associate of any
person referred to in clause (a), (b) or (c) above. Except as set forth in
Schedule 2.27 hereto, none of WAL, Whitlenge or WB owes any amount in excess of
(British pounds) 5,000 to, or has any contract with or commitment to, any
Shareholder, director, officer or employee of WAL, Whitlenge or WB (other than
for compensation for current services not yet due and payable, reimbursement of
expenses arising in the ordinary course of business and the Onex Management
Agreement and the Diggs Management Agreement (as each such term is defined in
Section 4.5(a)), and none of such persons owes any amount in excess of (British
pounds) 5,000 to WAL, Whitlenge or WB.
Section 2.28. Insolvency. No order has been made or petition
presented or resolution passed for the winding up of WAL, Whitlenge or WB or
for the appointment of a provisional liquidator to WAL, Whitlenge or WB or for
an administration order in respect of WAL, Whitlenge or WB. No receiver or
receiver and manager has been appointed by any person of the whole or any part
of the business or assets of WAL, Whitlenge or WB. No voluntary arrangement
has been proposed under Section 1 of the Insolvency Act 1986 in respect of WAL,
Whitlenge or WB and no compromise or arrangement has been proposed, agreed to
or sanctioned under Section 425 of the Companies Act 1985 in respect of WAL,
Whitlenge or WB. None of WAL, Whitlenge or WB is insolvent or unable to pay
its debts within the meaning of Section 123 of the Insolvency Act 1986. None
of WAL, Whitlenge nor WB has stopped paying its debts as they fall due. No
distress, execution or other process has been levied on any of the assets of
WAL, Whitlenge or WB. There is no unfulfilled or unsatisfied judgment or court
order outstanding against WAL, Whitlenge or WB.
Section 2.29. Environmental Matters. (a) WAL, Whitlenge and
WB have each:
(i) complied with and are in compliance with, in all material
respects, all applicable environmental, health and safety statutes,
laws, rules, regulations, ordinances, common law and codes
("Applicable Laws"), except as disclosed in Schedule 2.29;
(ii) not been and are not the subject of any investigation,
judicial or administrative proceeding or settlement concerning (A) a
Release (as hereinafter defined) or threatened Release of any
hazardous or toxic waste, substance or constituent or other substance,
including
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petroleum or its constituents ("Hazardous Substance"), or the storage,
injection, deposit, disposal or dumping on or into the Property of any
nonhazardous waste ("Waste"), as defined or regulated under any
Applicable Laws or (B) the violation of any Applicable Laws;
(iii) not been and are not under a duty to file any notice
under any Applicable Laws reporting the treatment, storage, disposal,
handling or managing of any Hazardous Substance or Waste, the
violation of any Applicable Laws or the Release or threatened Release
of any Hazardous Substance or Waste, except as disclosed in Schedule
2.29;
(iv) no material contingent liability in connection with any
Release or threatened Release of any Hazardous Substance or Waste and
have each no reason to believe that the Property contains or
constitutes something which may have a deleterious effect on
Environmental Matters;
(v) never generated, treated, stored, recycled, transported
or disposed of any Hazardous Substance or stored or disposed of on the
Property any Waste, except as disclosed inSchedule 2.29;
(vi) never installed, had installed, utilized or been aware
of any underground storage tanks or surface impoundments on any of
their Leased Real Property, except as disclosed in Schedule 2.29; and
(vii) no knowledge of any outstanding lien filed on their
assets in favor of any governmental agency, including but not limited
to any city council, in connection with any Applicable Laws.
(b) The presence or condition of all material containing more
than one percent (1%) asbestos by weight ("Asbestos Containing Material") which
is on or part of any Property (excluding any raw materials used in the
manufacture of products or products themselves) does not violate any current
Applicable Laws.
(c) For purposes of this Section 2.29, the following
definitions shall apply:
(i) "Environmental Matters" means anything which affects or
relates to the environment or human health or is otherwise connected
with the subject matter of this Section 2.29;
(ii) "material" means any fines, penalties, costs or expenses
arising under the Applicable Laws that would result in an aggregate
liability to WAL, Whitlenge or WB of not less than (British pounds)
65,000 per year;
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(iii) "Property" means any real or personal property, plant,
building, facility, structure, underground storage tank, equipment or
unit, or other asset owned, leased or operated by WAL, Whitlenge nor
WB (including any surface water thereon or adjacent thereto, and soil
or groundwater thereunder) whether now or previously or any time; and
(iv) "Release" means release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment or into or out of
any Property, including the movement of Hazardous Substances or Waste
through or in the air, soil, surface water, groundwater or Property.
Section 2.30. Contracts. (a) Except as set forth in Schedule
2.30, none of WAL, Whitlenge or WB is a party to or is bound by any oral or
written contract, agreement, commitment or instrument:
(i) for the purchase, sale or lease (except if the scheduled
lease payments are less than (British pounds) 35,000 per year) of real
property;
(ii) for the purchase of raw materials which extends beyond
January 1, 1994 and which is anticipated to require over the term of
the contract (other than the period prior to the date hereof)
aggregate expenditure of more than (British pounds) 100,000;
(iii) for the sale of goods or services which extends beyond
January 1, 1994 and which is anticipated to require over the term of
the contract (other than the period prior to the date hereof)
aggregate expenditure of more than (British pounds) 100,000;
(iv) which provides for, or relates to, any consignment,
distributor, dealer, manufacturers representative, sales agency,
advertising representative or advertising or public relations
arrangement which extends beyond January 1, 1994 and which is
anticipated to require over the term of the contract (other than the
period prior to the date hereof) aggregate payments of more than
(British pounds) 50,000;
(v) which provides for, or relates to, the guarantee by WAL,
Whitlenge or WB of any obligation exceeding (British pounds) 4,000 of
any customer, supplier, officer, director, employee or affiliate of
WAL, Whitlenge or WB;
(vi) which provides for, or relates to, the incurrence by
WAL, Whitlenge or WB of debt for borrowed money in excess of (British
pounds) 25,000;
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(vii) which provides for, or relates to, any non-competition
or confidentiality arrangement with any person, including any current
or former officer or employee of WAL, Whitlenge or WB;
(viii) for capital expenditures in excess of (British pounds)
25,000 for any single project or related series of projects;
(ix) with any broker or finder;
(x) any partnership, joint venture or other similar
arrangements or agreements involving a sharing of profits or losses;
(xi) any contracts or commitments, including royalty
agreements, with any employee, director, officer, Shareholder or
affiliates of WAL, Whitlenge or WB, providing for payment or receipts
by WAL, Whitlenge or WB in excess of (British pounds) 10,000;
(xii) which (other than contracts, agreements, commitments
and instruments of the nature described in clauses (i) through (xi)
above) involve payments or receipts by WAL, Whitlenge or WB of more
than (British pounds) 25,000; and
(xiii) for any purpose (other than specifically referred to
in this Section 2.30(a)) (whether or not made in the ordinary course
of the Whitlenge Business or otherwise not required to be listed or
described in Schedule 2.30) which is material to the business of WAL,
Whitlenge and WB taken as a whole.
(b) Except as set forth in Schedule 2.30, WAL, Whitlenge and
WB have fulfilled their obligations in all material respects under each of the
leases, contracts and other agreements listed in Schedule 2.30 (collectively,
the "Whitlenge Agreements") and are not, or, to the knowledge of WAL, Whitlenge
or WB not alleged to be, in breach or default in any material respect under,
nor, to the knowledge of WAL, Whitlenge, WB or any Shareholder, is there or, to
the knowledge of WAL, Whitlenge or WB is there alleged to be any basis for
termination of, any of the Whitlenge Agreements and no event has occurred and
no condition or state of facts exists which, with the passage of time or the
giving of notice or both, would constitute such a default or breach by WAL,
Whitlenge or WB. Copies of each of the Whitlenge Agreements have heretofore
been delivered to Scotsman by WAL, Whitlenge or WB.
Section 2.31. No Guarantees; Extensions of Credit. Except as
set forth in Schedule 2.31, no material obligations or liabilities of WAL,
Whitlenge or WB are guaranteed by or subject to a similar contingent obligation
of any other person, nor has
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WAL, Whitlenge or WB guaranteed or become subject to a similar contingent
obligation in respect of the obligations or liabilities of, or extended credit
to, any other person.
Section 2.32. Whitlenge Purchase Agreement. Except as set
forth in Schedule 2.32, none of WAL, Whitlenge, WB or any Shareholder has taken
any action that would cause the Share Purchase Agreement, dated as of March 31,
1992 (the "Alco Agreement"), among Alco Standard U.K. Ltd, a private company
limited by shares registered in England, Alco Standard Corporation, an Ohio
corporation ("Alco Standard"), and WAL, or any other material agreements
executed in connection with the Alco Agreement, not to be, and Alco Standard
has not asserted to WAL, Whitlenge or WB that the Alco Agreement or such other
material agreement does not constitute, a legal, valid and binding agreement.
None of WAL, Whitlenge or WB is, or, to the knowledge of WAL, Whitlenge, WB or
any Shareholder, alleged to be, in breach or default in any material respect
under the Alco Agreement or such other material agreement.
Section 2.33. Customers and Suppliers. Set forth in Schedule
2.33 hereto is a list of names and addresses of the ten largest customers and
the ten largest suppliers (measured by cash value volume of purchases or sales
in each case) of Whitlenge and WB and the percentage of the Whitlenge Business
which each such customer or supplier represents or represented during each of
the years ended September 30, 1992 and 1993. Copies of the forms of purchase
order for inventory and other supplies and sales contracts for finished goods
used by Whitlenge and WB have been provided to Scotsman by WAL, Whitlenge or
WB. Except as set forth in Schedule 2.33, there exists no actual or, to the
knowledge of WAL, Whitlenge, WB or any Shareholder, threatened termination,
cancellation or material adverse change in, the business relationship of
Whitlenge or WB with any customer or group of customers listed in Schedule
2.33, or whose purchases individually or in the aggregate are material to the
operations of the Whitlenge Business, or with any supplier or group of
suppliers listed in Schedule 2.33, or whose sales individually or in the
aggregate are material to the operations of the Whitlenge Business.
Section 2.34. Competition. Except as set forth in Schedule
2.34, to the knowledge of WAL, Whitlenge, WB and the Shareholders, none of WAL,
Whitlenge or WB is or has been party to any agreement or arrangement or is
conducting or has conducted itself (whether by omission or otherwise) in a
manner which (i) is, or is required to be, registered under the Restrictive
Trade Practices Act 1976 and 1977; (ii) contravenes the provisions of the
Resale Prices Act 1976; (iii) contravenes Article 85(1) or Article 86 of the
Treaty of Rome or which has been notified to the Commission of the European
Communities for an exemption or in respect of which application has been made
to the Commission for a negative clearance; (iv) has or would reasonably be
expected to have the effect of restricting, distorting or preventing
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tion in connection with the production, supply or acquisition of goods
in the United Kingdom or any part of it or the supply or procuring of services
in the United Kingdom or any part of it; or (v) is registrable, unenforceable
or void or renders WAL, Whitlenge or WB liable to civil, criminal or
administrative proceedings by virtue of any antitrust or similar legislation in
any jurisdiction in which WAL, Whitlenge or WB has assets or carries on
business or where its activities would have an effect. To the knowledge of
WAL, Whitlenge, WB and the Shareholders, none of WAL, Whitlenge or WB has given
any undertaking or written assurance (whether legally binding or not) to any
governmental authority or any authority of the European Communities under the
Fair Trading Act 1973, the Competition Act 1980, the Restrictive Trade
Practices Acts 1976 and 1977, the Resale Prices Act 1976, the Treaty of Rome or
any other statute or legal instrument and none of WAL, Whitlenge or WB is
affected, directly or indirectly, by any order or regulations made by the
Secretary of State under the Fair Trading Act 1973 or the Competition Act 1980.
Section 2.35. Registration Statement and Proxy
Statement/Prospectus. None of the written information supplied or to be
supplied by WAL, Whitlenge, WB or any of the Shareholders or any affiliate of
the foregoing (including, without limitation, Holding) specifically for
inclusion in the Registration Statement or the Proxy Statement/Prospectus (as
such terms are defined in Section 4.1) will be the basis for any successful
claim against Scotsman, the Tender Subsidiary, WAL, Whitlenge, WB or any of
their officers or directors asserting that (i) in the case of the Registration
Statement, at the time it becomes effective, at the time of commencement of the
Offer and at the Expiration Time, such information contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, or (ii) in the case of the Proxy Statement/Prospectus, at the time
of the mailing of the Proxy Statement/Prospectus to Scotsman's stockholders and
at the time of the meeting of its stockholders referred to in Section 4.2, such
information contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 2.36. Liabilities and Operations of WAL. Except as
contemplated hereby or in connection with the obligations relating to its
equity securities (and any loan guarantees of Whitlenge or WB guarantees by
WAL), WAL is not subject to any material liability, absolute or contingent,
other than those indirect liabilities that relate to its ownership of the
shares of Whitlenge. WAL conducts no business other than the holding of the
shares of Whitlenge.
Section 2.37. Redemption of Preferred Stock. The Articles of
Association of WAL provide that WAL may redeem the
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WAL Preferred Shares by payment of the (British pounds) 100 per share redemption
price therefor, plus accrued dividends to the date of redemption.
Section 2.38. No Finder. None of WAL, Whitlenge, WB nor any
party acting on the behalf of any of the foregoing has paid or become obligated
to pay any fee or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement, other than to
Lazard Freres & Co. ("Lazard") and Morgan Stanley & Co. Incorporated
("Morgan"), whose fees and expenses, to the extent payable, shall be paid by
the Shareholders except as provided in Section 10.2. Complete and correct
copies of the engagement and indemnification agreements entered into by the
Shareholders with Lazard and Morgan have been furnished to Scotsman.
Section 2.39. Disclosure. The representations and warranties
contained herein, the information contained in the Schedules referred to in
Article II and the other information or documents referred to in this Article
II as having been furnished or to be furnished to Scotsman or any of its
representatives by WAL, Whitlenge, WB, the Shareholders or their
representatives pursuant to the terms of this Agreement, are, taken as a whole,
true and accurate in all material respects.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SCOTSMAN
As an inducement to WAL, Whitlenge and the Shareholders to
enter into this Agreement and to consummate the transactions contemplated
herein, Scotsman hereby warrants and represents to WAL, Whitlenge and the
Shareholders and agrees as follows:
Section 3.1. Organization of Scotsman. Scotsman is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Scotsman is duly qualified to transact business
as a foreign corporation and is in good standing in each of the jurisdictions
in which the ownership or leasing of the properties used in its business or the
conduct of its business requires such qualification, other than in such
jurisdictions where the failure to be so qualified and in good standing would
not have a Material Adverse Effect on Scotsman and its subsidiaries, taken as a
whole. Scotsman has full corporate power and authority to own or lease and
operate its properties and to carry on its business as now conducted.
Section 3.2. Authority. Scotsman has full corporate power and
authority to enter into this Agreement and, subject to approval of the issuance
of the Scotsman Earnout Shares contemplated by this Agreement by the
stockholders of Scotsman, to consummate the transactions contemplated hereby.
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The execution, delivery and performance of this Agreement by
Scotsman and the consummation by Scotsman of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Scotsman subject to such approval by the stockholders of Scotsman as
required by the rules of the NYSE. This Agreement is, and each other agreement
or instrument of Scotsman contemplated hereby when executed and delivered will
be, the legal, valid and binding agreement of Scotsman enforceable against
Scotsman in accordance with its respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
Except as set forth in Schedule 3.2, neither the execution and
delivery of this Agreement by Scotsman nor consummation of the transactions
contemplated hereby or compliance with or fulfillment of the terms and
provisions hereof by Scotsman will (a) conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default, an event of
default or an event creating rights of acceleration, termination or
cancellation or a loss of rights, or result in the creation or imposition of
any encumbrance upon any of the material assets of Scotsman or any of its
subsidiaries, under the certificate of incorporation or the by-laws of Scotsman
or any subsidiary of Scotsman, any instrument, agreement, mortgage, indenture,
deed of trust, permit, concession, grant, franchise, license, judgment, order,
award, decree or other material restriction to which Scotsman or any of its
subsidiaries is a party or any of their respective material properties is
subject or by which any of them is bound or any material statute, other law or
regulatory provision affecting any of them, except for such impositions created
under any instruments or agreements entered into in connection with the
financing of the transactions contemplated hereby or by the Merger Agreement,
or (b) require the approval, consent or authorization of, or the making of any
declaration, filing or registration with, any third party or any foreign,
federal, state or local court, governmental authority or regulatory body in
respect of, by or on behalf of, Scotsman, except for the filing of appropriate
documents with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and for the approval by
the stockholders of Scotsman as required by the rules of the NYSE.
Section 3.3. Shares of Scotsman Common Stock. The shares of
Scotsman Common Stock to be delivered to the Shareholders pursuant to this
Agreement will, when issued and delivered in accordance with the terms hereof,
be validly issued, fully paid and nonassessable.
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Section 3.4. Capitalization. The authorized capital of
Scotsman consists of (i) 50,000,000 shares of common stock, $.10 par value, of
which 7,008,254 shares are issued and outstanding, 202,295 shares are held as
treasury stock and 976,326 shares are reserved for issuance under Scotsman's
long-term executive incentive compensation plan and 7,036,875 shares are
reserved in connection with the Common Stock Purchase Rights, and (ii)
10,000,000 shares of preferred stock, $1.00 par value, none of which is issued
and outstanding or reserved for any purpose. All of the outstanding shares of
Scotsman Common Stock are duly authorized, validly issued, fully paid and
nonassessable. Except for options granted pursuant to Scotsman's long-term
executive incentive compensation plan and the Common Stock Purchase Rights,
there are no options, warrants or other rights to acquire from Scotsman or
agreements or commitments by Scotsman to issue or sell shares of its capital
stock, whether on conversion of other securities or otherwise. None of the
issued and outstanding shares of Scotsman Common Stock has been issued in
violation of, or is subject to, any preemptive or subscription rights. There
are no stockholder agreements, voting trust agreements or any other similar
contracts, agreements, arrangements, commitments, plans or understandings to
which Scotsman is a party restricting or otherwise relating to voting,
dividend, ownership or transfer rights with respect to any shares of capital
stock of Scotsman, other than the Rights Agreement and the Common Stock
Purchase Rights.
Section 3.5. Operations Since January 3, 1993. Except as set
forth in the Scotsman SEC Documents (as hereinafter defined), since January 3,
1993, there has been: (i) no material adverse change in the assets,
liabilities, operations, profits or business or in the condition, financial or
otherwise, of Scotsman and its subsidiaries; and (ii) no damage, destruction,
loss or claim with respect to, whether or not covered by insurance, or
condemnation or other taking of, assets having a Material Adverse Effect on
Scotsman and its subsidiaries taken as a whole.
Section 3.6. Compliance with Laws. Scotsman is in compliance
with the provisions of all applicable laws and regulations of the federal,
state, local and foreign governments, except to the extent that the failure to
comply therewith would not have a Material Adverse Effect on Scotsman and its
subsidiaries taken as a whole. Except as set forth in the Scotsman SEC
Documents, to the knowledge of Scotsman, there are no proposed orders,
judgments, decrees, governmental takings, condemnations or other proceedings,
in each case binding upon the business, operations or properties of Scotsman or
any subsidiary thereof, which would have a Material Adverse Effect on Scotsman
and its subsidiaries taken as a whole.
Section 3.7. SEC Documents. Scotsman has previously delivered
to WAL and Whitlenge complete and correct copies of all reports, statements and
registration statements (including annual reports on Form 10-K, current reports
on Form 8-K, quarterly
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reports on Form 10-Q and proxy statements) filed by it with the SEC since
January 1, 1991. Scotsman has filed all required documents with the SEC since
January 1, 1991 (the "Scotsman SEC Documents"). As of their respective dates,
the Scotsman SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the Scotsman SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Scotsman
included in the Scotsman SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) consistently
applied (except as may be indicated therein or in the notes thereto) and fairly
present in all material respects the consolidated financial position of
Scotsman and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and statements of cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Section 3.8. Obligations; Litigation. Except as set forth in
the Scotsman SEC Documents, Scotsman and its subsidiaries have performed all
obligations required to be performed by them to date, and are not in default,
under any agreement, lease or other document to which any of them is a party,
or under any law or order of any court or governmental agency, except for such
failures to perform or defaults that would not have a Material Adverse Effect
on Scotsman and its subsidiaries taken as whole. Except as set forth in the
Scotsman SEC Documents, there are no claims, actions, suits or proceedings to
which Scotsman or any of its subsidiaries is a party or any of their respective
properties is subject or by which any of them is bound pending or, to the
knowledge of Scotsman, threatened before or by any court or governmental
agency, which is reasonably expected to have a Material Adverse Effect on
Scotsman and its subsidiaries taken as a whole or prevent or hinder the
consummation of the transactions contemplated hereby.
Section 3.9. No Finder. Neither Scotsman nor any party acting
on its behalf has paid or become obligated to pay any fee or any commission to
any broker, finder or intermediary for or on account of the transactions
contemplated herein, other than to William Blair & Company, whose fees and
expenses, to the extent payable, shall be paid by Scotsman.
Section 3.10. Rights Agreement; Benefits. Scotsman has
amended the Rights Agreement in order to provide that the New Scotsman
Stockholders (as defined in the Merger Agreement), as a
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group, shall not constitute an "Acquiring Person" under the Rights Agreement by
reason of the acquisition by such New Scotsman Stockholders of shares of
capital stock of Scotsman pursuant to this Agreement and the Merger Agreement.
The consummation of the transactions contemplated by this Agreement will not
result in an increase in the amount of compensation or benefits or accelerate
the vesting or timing of payment of any compensation or benefits payable to or
in respect of any employee of Scotsman or its subsidiaries.
Section 3.11. Disclosure. The representations and warranties
contained herein, the information contained in the Schedule referred to in this
Article III and the other information or documents referred to in this Article
III as having been furnished or to be furnished to WAL or any of its
representatives pursuant to the terms of this Agreement are, taken as a whole,
true and accurate in all material respects.
ARTICLE IV
ACTIONS PRIOR TO THE EXPIRATION DATE
Scotsman, WAL and Whitlenge (and the Shareholders with respect
to Sections 4.6, 4.7, 4.8 and 4.10) covenant and agree to take the following
respective actions between the date hereof and the Expiration Date:
Section 4.1. Proxy Statement; Registration Statement.
Scotsman shall prepare and file with the SEC as soon as practicable a
registration statement on Form S-4 (the "Registration Statement") containing a
proxy statement/prospectus covering the Scotsman Earnout Shares to be issued
pursuant to Article I (the form of such proxy statement/prospectus, together
with any amendments thereof or supplements thereto, mailed to Scotsman's
stockholders in connection with the meeting referred to in Section 4.2 is
herein referred to as the "Proxy Statement/Prospectus") and shall use its best
efforts to have the Registration Statement declared effective by the SEC as
soon as practicable. The Registration Statement and the Proxy
Statement/Prospectus will comply as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder. The Registration Statement, when
declared effective by the SEC, and the Proxy Statement/Prospectus, at the time
of its mailing or delivery to the stockholders of Scotsman and at the time of
the meeting referred to above, will not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Scotsman in
reliance upon and in conformity with written information concerning WAL,
Whitlenge, WB or their
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affiliates furnished to Scotsman by WAL, Whitlenge and WB or their affiliates
expressly for inclusion in the Registration Statement. Scotsman shall also
take any action required to be taken under U.S. state blue sky or U.S.
securities laws in connection with the issuance of the Scotsman Earnout Shares.
WAL, Whitlenge and the Shareholders shall, and shall cause their affiliates to,
furnish Scotsman all information concerning themselves required for use in the
Registration Statement, including, without limitation, financial statements of
WAL, Whitlenge and WB which are required to be included in the Registration
Statement or which are necessary to prepare pro forma financial statements and
information to be included in the Registration Statement. If, at any time
prior to the Expiration Time, any event with respect to WAL, Whitlenge or any
of their affiliates should occur which is required to be described in an
amendment of, or a supplement to, the Proxy Statement/Prospectus or the
Registration Statement, such event shall be so described, and such amendment
shall be promptly filed with the SEC and, as required by law, disseminated to
any stockholders of Scotsman and WAL. Scotsman will advise WAL and Whitlenge,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment thereto has been
filed, of the issuance of any stop order, of the suspension of the
qualification for offering or sale in any jurisdiction of the Scotsman Common
Stock issuable in connection with this Agreement or any request by the SEC for
amendment or supplement of the Registration Statement or for additional
information.
Section 4.2. Action by Scotsman and Stockholders of Scotsman.
Scotsman shall, as soon as practicable after the Proxy Statement/Prospectus
referred to in Section 4.1 shall be cleared by the SEC, duly call, give notice
of, convene and hold a meeting of its stockholders for the purpose of approving
the issuance, in accordance with the terms and conditions of this Agreement and
the Merger Agreement, of shares of Scotsman Common Stock (including the
Scotsman Earnout Shares and the Scotsman Contingent Common Shares (as defined
in the Merger Agreement)) and the issuance, in accordance with the terms and
conditions of the Merger Agreement, of Scotsman Convertible Preferred Shares
(as defined in the Merger Agreement). Scotsman will, through its Board of
Directors, recommend to its stockholders approval of such issuance.
Section 4.3. Investigation of WAL, Whitlenge, WB and Scotsman.
WAL, Whitlenge and Scotsman shall afford to the officers, employees and
authorized representatives of Scotsman, WAL, Whitlenge, WB or the Shareholders,
as the case may be (including, without limitation, independent public
accountants, attorneys, environmental consultants and financial advisors
thereof), reasonable access during normal business hours to the offices,
properties, employees and business and financial records (including, without
limitation, computer files, retrieval programs and similar documentation) of
WAL, Whitlenge and WB or
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Scotsman, as the case may be, to the extent Scotsman, WAL, Whitlenge or the
Shareholders, as the case may be, shall deem necessary or desirable, and shall
furnish to Scotsman, WAL, Whitlenge or the Shareholders, as the case may be, or
such party's authorized representatives such additional information concerning
the operations, properties and businesses of WAL, Whitlenge, WB or Scotsman, as
the case may be, as may be reasonably requested in writing, to enable Scotsman,
WAL, Whitlenge or the Shareholders or such party's authorized representatives
to verify the accuracy of the representations and warranties contained in this
Agreement, to verify the accuracy of the financial statements referred to in
Section 2.5 and to determine whether the conditions set forth in Articles VI
and VII have been satisfied. Scotsman, WAL, Whitlenge and the Shareholders
agree that such investigations shall be conducted in such manner as not to
interfere unreasonably with the operation of the business of WAL, Whitlenge, WB
or Scotsman, as the case may be. Without limiting the foregoing, Whitlenge and
WB shall permit Scotsman, or its representatives, to conduct an environmental
audit of any of the Leased Real Property, with respect to any environmental
health and safety issues deemed material by Scotsman. No investigation made by
Scotsman, WAL, Whitlenge or any Shareholder or such party's authorized
representatives hereunder shall affect the representations and warranties of
the parties hereunder.
Section 4.4. Lawsuits, Proceedings, Etc. WAL, Whitlenge or
Scotsman shall notify Scotsman or WAL and Whitlenge, as the case may be,
promptly of any lawsuit, proceeding, claim or investigation that may be
threatened, brought, asserted or commenced against any party hereto (a)
involving in any way the transactions contemplated by this Agreement or (b)
that would have been listed in Schedule 2.17 or specified as an exception to
Section 3.8 if such lawsuit, proceeding, claim or investigation had arisen
prior to the date hereof.
Section 4.5. Conduct of Business by WAL, Whitlenge, WB and
Scotsman Prior to the Expiration Date. (a) During the period from the date of
this Agreement through the Expiration Time, except as expressly contemplated by
this Agreement, WAL, Whitlenge and Scotsman shall (and WAL and Whitlenge shall
cause WB to) carry on their businesses in, and not enter into any material
transaction other than in accordance with, the ordinary course consistent with
past practice and, to the extent consistent therewith, use their reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and preserve their relationships with
customers, suppliers and others having business dealings with them (except, in
each case, with respect to WAL and Whitlenge (and any action WAL and Whitlenge
shall cause WB to take), with the prior written consent of Scotsman and except,
in each case with respect to Scotsman, with the prior written consent of WAL).
Without limiting the generality of the foregoing, and except as expressly
contemplated by this Agreement, neither
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WAL nor Whitlenge shall (and WAL and Whitlenge shall cause WB not to), without
the prior written consent of Scotsman (not to be unreasonably withheld):
(i) (x) declare, set aside or pay any dividends on, or make
any other actual, constructive or deemed distributions in respect of,
any of its capital stock, or otherwise make any payments to the
Shareholders in their capacity as such (other than (a) any such
payments otherwise permitted to be made under this Agreement, (b) the
payment, when due, and not earlier, of management fees in accordance
with the terms, as in effect on the date hereof, of the Management
Advisory Agreement, dated April 1, 1992, among WAL, Whitlenge and Onex
Investments (the "Onex Management Agreement"), and the Management
Advisory Agreement, dated April 1, 1992, among WAL, Whitlenge and The
Matthew Diggs Group, Inc. (the "Diggs Management Agreement"), (c)
dividends and other distributions by Whitlenge to WAL to enable WAL to
pay its liabilities and (d) the payment of scheduled dividends on the
WAL Preferred Shares), (y) split, combine or reclassify any of its
capital stock or issue, sell or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, or (z) purchase, redeem or otherwise acquire any
shares of capital stock of WAL, Whitlenge or WB or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock or other securities
(including, without limitation, any rights, warrants or options to
acquire any securities);
(iii) amend its memorandum and articles of association or
other constitutive documents;
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof;
(v) sell, lease or otherwise dispose of, or agree to sell,
lease or otherwise dispose of, any of its assets, except sales of
inventory in the ordinary course of business and the sale, lease or
other disposition of other assets having a book or fair market value
in the aggregate not exceeding (British pounds) 20,000;
(vi) incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, or make any loans, advances
or capital contributions to, or
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investments in, any other person, except for the incurrence and/or
guarantee of indebtedness to fund working capital;
(vii) make or incur any new capital expenditure or
expenditures which, individually, is in excess of (British pounds)
20,000 or, in the aggregate, are in excess of (British pounds) 50,000;
(viii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business;
(ix) alter through merger, liquidation, reorganization,
restructuring or in any other fashion its corporate structure;
(x) enter into or adopt, or amend any existing bonus,
incentive, deferred compensation, insurance, medical, hospital,
disability or severance plan, agreement or arrangement or enter into
or amend any Plan or employment, consulting or management agreement
(including, without limitation, the Onex Management Agreement and the
Diggs Management Agreement), other than any such amendment to a Plan
that is made to maintain the qualified status of such Plan or its
continued compliance with applicable law;
(xi) make any change in accounting practices or policies
applied in the preparation of the financial statements referred to in
Section 2.5 except as required by generally accepted accounting
principles in the United Kingdom or Belgium, as the case may be;
(xii) modify any of the agreements, understandings,
obligations, commitments, indebtedness or other obligations set forth
in Schedule 4.5 or enter into any agreement, understanding, obligation
or commitment, or incur any indebtedness or obligation, of the type
that would have been required to be listed on Schedule 2.30 if in
existence on the date hereof; or
(xiii) pay or commit to pay any bonus to any officer or
employee of WAL, Whitlenge or WB other than in accordance with and
when required by the terms of the Bonus Plans, as in effect on the
date hereof;
(xiv) enter into any other transaction affecting the business
of WAL, Whitlenge or WB, other than in the ordinary course of business
consistent with past practices or as expressly contemplated by this
Agreement.
(b) Without limiting the generality of the foregoing, and
except as otherwise expressly contemplated by this Agreement
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or the Merger Agreement, Scotsman shall not, without the prior written consent
of WAL (not to be unreasonably withheld):
(A) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock or other securities
(including, without limitation, any rights, warrants or options to
acquire any securities), other than (i) options granted pursuant to
Scotsman's long-term executive incentive compensation plan as in
existence on the date hereof, (ii) the issuance of shares (and
associated Common Stock Purchase Rights) pursuant to such options,
other employee benefit plans as in existence on the date hereof or
other rights, warrants or options outstanding as the date hereof and
(iii) the issuance of other shares of Scotsman Common Stock (and
associated Common Stock Purchase Rights) in an amount not to exceed 1%
of the issued and outstanding shares of Scotsman Common Stock on the
date hereof;
(B) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of or equity in, or by any other manner, any business or any
corporation, partnership, association or other business organization
or division thereof, in any such case having a fair market value of
U.S. $2,000,000 or more; or
(C) alter through merger, liquidation, reorganization or
restructuring its corporate structure, except that Scotsman may make
changes in its corporate structure required to be made or desirable in
connection with the consummation of the transactions contemplated by
this Agreement and the Merger Agreement or the financing related
thereto.
(c) Advice of Changes. WAL, the Stockholder Representative
(as defined in the Merger Agreement) or Scotsman shall promptly advise Scotsman
or WAL and Whitlenge, as the case may be, orally and in writing of any change
or event having a Material Adverse Effect on WAL, Whitlenge and WB taken as a
whole, or on Scotsman and its subsidiaries taken as a whole, as the case may
be.
Section 4.6. Mutual Cooperation; Reasonable Best Efforts. The
parties hereto shall cooperate with each other, and shall use their respective
reasonable best efforts to cause the fulfillment of the conditions to the
parties' obligations hereunder and to obtain as promptly as possible all
consents, authorizations, orders or approvals from each and every third party,
whether private or governmental, required in connection with the transactions
contemplated by this Agreement; provided, however, that the foregoing shall not
require Scotsman or Whitlenge to make any divestiture or consent to any
divestiture
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by WAL, Whitlenge or WB in order to obtain any waiver, consent or approval.
Section 4.7. No Public Announcement. None of the parties
hereto shall, without the approval of Scotsman, WAL and Whitlenge (which may
not be unreasonably withheld), make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that such party shall be so obligated by law, in which
case Scotsman or WAL and Whitlenge, as the case may be, shall be advised and
Scotsman, WAL and Whitlenge shall use their reasonable best efforts to cause a
mutually agreeable release or announcement to be issued.
Section 4.8. No Solicitation. WAL, Whitlenge and their
affiliates shall not, nor shall they authorize or permit any officer, director
or employee of or any investment banker, attorney or other adviser or
representative of WAL, Whitlenge, WB or any of their affiliates to, (i)
solicit, initiate, or encourage the submission of, any Acquisition Proposal (as
hereinafter defined), (ii) enter into any agreement with respect to any
Acquisition Proposal or (iii) except to the extent required by law as advised
by counsel in writing, participate in any discussions or negotiations
regarding, or furnish to any person any information for the purpose of
facilitating the making of, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal. Without limiting the foregoing,
it is understood that any violation, of which WAL, Whitlenge or any of their
affiliates had knowledge at the time of such violation, of the restrictions set
forth in the preceding sentence by any officer or director of WAL, Whitlenge,
WB or any of their affiliates or any investment banker, attorney or other
adviser or representative of WAL, Whitlenge, WB or any of their affiliates,
whether or not such person is purporting to act on behalf of WAL, Whitlenge, WB
or any of their affiliates or otherwise, shall be deemed to be a breach of this
Section 4.8 by WAL, Whitlenge and their affiliates. WAL and Whitlenge promptly
shall advise Scotsman of any Acquisition Proposal and any inquiries with
respect to any Acquisition Proposal. For purposes of this Agreement,
"Acquisition Proposal" means any proposal for a merger or other business
combination involving WAL, Whitlenge or WB or any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in WAL, Whitlenge or
WB, any voting securities of WAL, Whitlenge or WB or a substantial portion of
the assets of Whitlenge or WB.
Section 4.9. Listing Applications. Scotsman will promptly
file an application to list on the New York Stock Exchange, Inc. ("NYSE"),
subject to official notice of issuance, the Scotsman Earnout Shares which may
be issued pursuant to Article I and will use its best efforts to effect such
listing on the NYSE on or prior to the Expiration Date and to maintain its
listing on the NYSE of Scotsman Common Stock thereafter.
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Section 4.10. Termination of Management and Shareholders' Agreements. The
Shareholders will procure the termination of the Onex Management Agreement and
the Diggs Management Agreement, effective at or prior to the Expiration Date
pursuant to an instrument which is in form and substance reasonably
satisfactory to Scotsman. The Shareholders shall cause the Shareholders
Agreement, dated April 1, 1992, among Whitlenge, Onex Investments, Nicholls and
others (the "Shareholders' Agreement") to be terminated effective at the
Expiration Date.
Section 4.11. Periodic Financial Statements. Scotsman shall furnish, or
cause to be furnished, to WAL by March 31, 1994 (or earlier if available), the
audited consolidated balance sheet and statements of income of Scotsman for the
period ended January 2, 1994, which financial statements shall be prepared in
accordance with the books and records of Scotsman, fairly present in all
material respects the consolidated financial position of Scotsman as of the
date or for the period indicated and shall be prepared in conformity with
generally accepted accounting principles consistently applied. WAL, or
Scotsman, as the case may be, shall provide, or shall cause to be promptly
provided, to Scotsman or WAL, as applicable, such other financial information
relating to WAL, Whitlenge, WB or Scotsman (including, without limitation,
information on payables and receivables) as Scotsman or WAL, as applicable, may
reasonably request.
Section 4.12. Financing. Scotsman shall use its reasonable best efforts to
obtain the financing commitments, amendments or other financing arrangements
referred to in Section 6.14, to enter into definitive agreements consistent
with the terms of such financing commitments, amendments or arrangements and to
do all such acts and things reasonably necessary to consummate the transactions
contemplated by such definitive agreements. Scotsman shall promptly notify WAL
and Whitlenge of the receipt of such financing commitments, amendments or
arrangements and shall advise WAL and Whitlenge from time to time of its
progress in negotiating such definitive agreements.
Section 4.13. Amendment of Agreement for Tender Subsidiary. If Scotsman
shall cause the Tender Subsidiary to make the Offer, the Shareholders may
request that Scotsman and the Tender Subsidiary enter into an amendment to this
Agreement in form and substance reasonably satisfactory to the Shareholders,
and Scotsman shall, and shall cause the Tender Subsidiary to, enter into such
amendment, pursuant to which the Tender Subsidiary will make appropriate
representations, warranties, covenants and indemnities.
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ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
Section 5.1. Voting. (a) So long as the Shareholders and the Permitted
Transferees (as hereinafter defined) (the Shareholders and the Permitted
Transferees are collectively referred to as the "Acquisition Shareholders") and
the Merger Stockholders (as defined in the Merger Agreement and, together with
the Acquisition Shareholders, the "New Scotsman Stockholders") are entitled
under Section 7.1 of the Merger Agreement to designate at least one nominee to
Scotsman's Board of Directors, the Acquisition Shareholders, together with any
affiliates or associates controlled by them, shall, and the Acquisition
Shareholders shall use reasonable best efforts to cause any other of their
affiliates or associates to, vote all shares of capital stock of Scotsman owned
by them in favor of all of the director nominees to the Board of Directors
recommended by the Board of Directors of Scotsman (which shall include any
designate or designates referred to in Section 7.1 of the Merger Agreement).
Scotsman shall afford to the Acquisition Shareholders the rights set forth in
Section 7.1 of the Merger Agreement as though the Acquisition Shareholders were
parties to the Merger Agreement. The obligations of the Acquisition
Shareholders referred to in such Section 7.1 shall be binding on the
Acquisition Shareholders as though they were parties to the Merger Agreement.
The obligations of the Acquisition Shareholders under this Section 5.1 shall in
any event terminate on the tenth anniversary of the date hereof unless, by
agreement among Scotsman and the New Scotsman Stockholders who then own any
shares of Scotsman Common Stock or Scotsman Convertible Preferred Stock, such
obligations are extended after the eighth anniversary and prior to such tenth
anniversary.
(b) As used herein, "Permitted Transferees" shall mean with respect to any
Shareholder (other than Onex or Onex Investments), (i) any other Shareholder,
(ii) any of its controlled affiliates, (iii) in the event of the dissolution,
liquidation or winding up of any Shareholder that is a corporation or a
partnership, the partners of a partnership that is such Shareholder, the
shareholders of a corporation that is such Shareholder or a successor
partnership all of the partners of which or a successor corporation all of the
shareholders of which are the persons who were the partners of such partnership
or the shareholders of such corporation immediately prior to the dissolution,
liquidation or winding up of such Shareholder, (iv) a transferee by
testamentary or intestate disposition, (v) the spouse, children and/or other
relatives of such Shareholder, (vi) a trust transferee by inter vivos transfer,
the beneficiaries of which are the transferring Shareholder, spouse, children
and/or other relatives of such Shareholder, or (vii) a successor nominee or
trustee for the beneficial owner of the shares of WAL Ordinary Shares for which
such Acquisition Shareholder acts as nominee or trustee, as the case may be, in
each case to whom a Shareholder may transfer
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shares of WAL Ordinary Shares prior to the Expiration Time; provided,
however, that (x) the aggregate number of shares covered by transfers to
persons described in clause (i) shall not exceed 300,000 and (y) any such
Permitted Transferee who was not, prior to such transfer, a shareholder of WAL
who is a party hereto shall furnish to Scotsman a written instrument,
reasonably satisfactory to Scotsman, whereby such Permitted Transferee agrees
to be bound by any obligations of Acquisition Shareholders contained in this
Agreement (other than, with respect to Permitted Transferees which are (A) the
spouse or children of a Shareholder or (B) a trust transferee, the
beneficiaries of which are the spouse or children of a Shareholder; provided,
however, the transfer to such persons listed in clauses (A) and (B) shall not
in the aggregate exceed 75,000 WAL "A" Ordinary Shares) as though such
Permitted Transferee were a party hereto (it being understood that any such
transfer shall in no way relieve any Shareholder of any obligations under this
Agreement unless such transfer shall be made to another Shareholder, in which
case Schedule 8.1 shall be appropriately revised to reflect a reallocation of
the percentages set forth therein).
Section 5.2. Standstill. The obligations of the Acquisition Shareholders
referred to in Section 7.3 of the Merger Agreement shall be binding on the
Acquisition Shareholders as though they were parties to the Merger Agreement.
Section 5.3. Insurance. Onex and the affiliates of Onex controlled by it
will take such action as is necessary to cause the insurance policies listed on
Schedule 2.21 to provide the coverage listed therein with respect to WAL,
Whitlenge and WB for periods ending on or prior to the Expiration Date, and to
continue such coverage, on and after the Expiration Date, for the benefit of
WAL, Whitlenge and WB and (to the extent permitted under such policies) their
respective successors and assigns with respect to periods ending on or prior to
the Expiration Date, notwithstanding the transactions contemplated hereby,
except to the extent any insurer cancels any such policy or withdraws from
coverage (other than at the request of WAL, Whitlenge, WB or any affiliate
thereof or due to the failure to pay any premium on any such policy). Without
limiting the foregoing, neither Onex nor the affiliates of Onex controlled by
it shall take any action to remove WAL, Whitlenge or WB as a named insured
under any of such policies or cause WAL, Whitlenge or WB to be denied the
benefit of any insurance coverage currently available to them.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATION
TO ACCEPT AND PAY FOR SHARES
Notwithstanding any other term of the Offer or this Agreement, Scotsman (or,
in the event that Tender Subsidiary makes the Offer, Tender Subsidiary) shall
not be required to
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accept for payment, or pay for, any WAL Ordinary Shares or WAL Preferred Shares
tendered pursuant to the Offer unless and until the following conditions shall
have been satisfied:
Section 6.1. No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no material breach by WAL, Whitlenge, WB or any
Shareholder in the performance of their respective covenants and agreements
herein to be performed at or prior to the Expiration Date; subject to Section
8.7, none of the representations and warranties of any Shareholder that is
qualified as to materiality shall be untrue or incorrect in any respect and on
the Expiration Date such representations and warranties shall be true and
correct as though made on the Expiration Date except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Scotsman, permitted by Section 4.5(a) or
entered into in connection with the consummation of the Offer or the Merger and
the other transactions contemplated hereby; subject to Section 8.7, none of the
representations or warranties that are not so qualified shall be untrue or
incorrect in any material respect and on the Expiration Date such
representations and warranties shall be true and correct in all material
respects as though made on the Expiration Date except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Scotsman, permitted by Section 4.5(a) or
entered into in connection with the consummation of the Offer or the Merger and
the other transactions contemplated hereby; and there shall have been delivered
to Scotsman a certificate or certificates to the foregoing effect, dated the
Expiration Date, signed on behalf of WAL and Whitlenge by their respective
Chairmen or Managing Directors and Finance Directors and signed by each
Shareholder.
Section 6.2. No Material Adverse Effect. Between the date hereof and the
Expiration Date, there shall have been no Material Adverse Effect on WAL,
Whitlenge and WB, taken as a whole; and there shall have been delivered to
Scotsman a certificate or certificates to such effect, dated the Expiration
Date, signed on behalf of WAL and Whitlenge by their respective Chairmen or
Managing Directors and Finance Directors and signed by each Shareholder.
Section 6.3. Opinion of Counsel for WAL, Whitlenge and the Shareholders.
Scotsman shall have received (a) from Wragge and Co., counsel for WAL and
Whitlenge, an opinion, dated the Expiration Date, in form and substance
reasonably satisfactory to Scotsman, substantially to the effect set forth in
Exhibit I-A, (b) from Debevoise & Plimpton, United States counsel for WAL and
Whitlenge, an opinion, dated the Expiration Date, in form and substance
reasonably satisfactory to Scotsman, substantially to the effect set forth in
Exhibit I-B, and (c) from counsel for Onex, Onex Investments, EJJM, Diggs and
Collins, opinions, dated the Expiration Date, in form and substance reasonably
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satisfactory to Scotsman, substantially to the effect set forth in Exhibit I-C.
Section 6.4. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Offer or the transactions contemplated hereby shall be in
effect; provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as possible any injunction or other order that
may be entered.
Section 6.5. Necessary Governmental Approvals. The parties shall have
received all governmental and regulatory approvals and actions reasonably
necessary to consummate the transactions contemplated hereby, which are either
required to be obtained prior to the Expiration Date by applicable law or
regulation or are necessary to prevent a Material Adverse Effect on WAL,
Whitlenge and WB taken as a whole.
Section 6.6. Necessary Consents. WAL and Whitlenge shall have received
consents, in form and substance reasonably satisfactory to Scotsman, to the
transactions contemplated hereby from the other parties to all contracts,
leases, agreements and permits to which WAL, Whitlenge or WB is a party or by
which they are affected and which require such consent prior to the purchase of
WAL Ordinary Shares pursuant to the Offer and are necessary to prevent a
Material Adverse Effect with respect to WAL, Whitlenge and WB taken as a whole.
Section 6.7. Extension of Service Contracts. Whitlenge and each of de St.
Paer, Wheeler, Cook, John Turner, Gary D. Wyatt and Peter Barber shall have
entered into an amendment to the Service Contract between such individual and
Whitlenge whereby the term of such Service Contract is extended until April 1,
1995, and each such Service Contract, as so amended, shall be in full force and
effect.
Section 6.8. Noncompetition Agreements. Each of Onex, Onex Investments,
Diggs, Collins, Cook, Wheeler, de St. Paer and Rushton shall have entered into
a Noncompetition Agreement with Scotsman substantially in the form of Exhibit
II.
Section 6.9. Registration Rights Agreement. The Shareholders shall have
each entered into the Registration Rights Agreement substantially in the form
of Exhibit V to the Merger Agreement.
Section 6.10. Shareholder Action. The Offer shall have been unanimously
accepted by all holders of WAL Ordinary Shares and all WAL Ordinary Shares
shall have been tendered, accompanied by a share transfer form endorsed in
blank, and not withdrawn. The issuance of shares of Scotsman Common Stock and
Scotsman
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Convertible Preferred Stock pursuant to this Agreement and the Merger Agreement
shall have been approved by a majority of votes cast by holders of Scotsman
Common Stock, provided that the total vote cast shall have represented over 50%
of the issued and outstanding shares of Scotsman Common Stock at the time of
the vote.
Section 6.11. Stock Exchange Listings. The NYSE shall have approved for
listing, upon official notice of issuance, the Scotsman Earnout Shares which
may be issued pursuant to Article I.
Section 6.12. Registration Statement Effective. The Registration Statement
shall have been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall have been entered by the SEC.
Section 6.13. Securities Laws. Scotsman shall have received all necessary
permits and otherwise complied with any securities laws applicable to the
issuance of the Scotsman Earnout Shares pursuant to this Agreement.
Section 6.14. Financing. Scotsman shall have obtained, on or before
February 15, 1994, written financing commitments, amendments to its existing
financing arrangements or other financing arrangements in an amount sufficient
to (i) pay the cash consideration specified in this Agreement and the Merger
Agreement, (ii) refinance, to the extent required, the outstanding debt of
Scotsman and (iii) refinance the outstanding debt of Holding, TDC and
Whitlenge, in each case on terms satisfactory to Scotsman.
Section 6.15. Comfort Letters. Scotsman shall have received comfort letters
from each of Arthur Andersen & Co., Coopers & Lybrand and Ernst & Young, dated
the date of mailing the Proxy Statement/Prospectus and the Expiration Date and
addressed to Scotsman, in each case in form and substance reasonably
satisfactory to Scotsman, covering such matters reasonably requested by it.
Section 6.16. Glenco Holdings. Scotsman shall have obtained a written
waiver by Glenco Holdings of the Scotsman Noncompetition Agreement, dated
September 23, 1992 (the "Scotsman Noncompetition Agreement").
Section 6.17. Merger Agreement. The Merger Agreement shall be in full force
and effect and the Merger shall have been consummated simultaneously with the
consummation of the Offer.
Section 6.18. Average Scotsman Common Stock Closing Price. The average
Closing Price (as defined in the Merger Agreement) of the Scotsman Common Stock
for the ten trading days prior to the date of the meeting of the stockholders
of Scotsman referred to in Section 4.2 shall not be more than U.S. $14.50.
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Section 6.19. Resignations of Directors. Scotsman shall have received the
resignations of each director of WAL, Whitlenge or WB, effective upon the
Expiration Date, that it shall have requested to resign.
Section 6.20. Termination of Management and Shareholders' Agreement. The
Onex Management Agreement, the Diggs Management Agreement and the Shareholders'
Agreement shall have been terminated, effective upon the Expiration Date,
without payment by Holding, WAL or any of their subsidiaries of any amount in
respect of such termination other than accrued fees and expenses incurred
before the Expiration Time.
Section 6.21. WAL Preferred Shares. Either (i) all of the issued WAL
Preferred Shares shall have been duly tendered pursuant to Section 1.1,
accompanied by a stock transfer form executed in blank, and not withdrawn, (ii)
all of the issued WAL Preferred Shares shall otherwise have been purchased by
Scotsman or the Tender Subsidiary for an aggregate price not exceeding
L2,000,000 plus accrued dividends, or (iii) Scotsman shall be satisfied in its
reasonable judgment that, after giving effect to a contribution of L2,000,000
plus accrued dividends to WAL's ordinary share capital or a subscription for
additional WAL Ordinary Shares for a purchase price equal to such amount, WAL
would be able to redeem all of the issued WAL Preferred Shares, on such date on
or after the Expiration Date as may be determined by Scotsman (and which
permits 30 days' prior notice) (A) without adverse tax consequences to, or the
violation of the charter, by-laws or other constituent documents of, Scotsman,
the Tender Subsidiary, WAL or Whitlenge, or violation of any law, rule,
regulation, order, contract, agreement or understanding to which Scotsman, the
Tender Subsidiary, WAL or Whitlenge is a party or by which any of them is
bound, and (B) at no cost to Scotsman, the Tender Subsidiary, WAL or Whitlenge
other than the "redemption moneys" specified in WAL's Articles of Association,
which shall consist solely of L2,000,000 plus accrued dividends.
ARTICLE VII
CONDITIONS PRECEDENT TO RIGHT TO ACCEPT
AND PAY FOR SHARES
The right of Scotsman or the Tender Subsidiary to accept for payment the WAL
Ordinary Shares and WAL Preferred Shares pursuant to the Offer shall, at the
option of the Shareholders, be subject to the satisfaction, on or prior to the
Expiration Date, of the following conditions (other than the condition set
forth in Section 7.14), and the right of Scotsman or the Tender Subsidiary to
accept for payment the WAL Ordinary Shares and WAL Preferred Shares pursuant to
the Offer shall, at the option of Onex, be subject to the satisfaction, on or
prior
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to the Expiration Date, of the condition set forth in Section 7.14:
Section 7.1. No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no material breach by Scotsman in the performance of any
of its covenants and agreements herein to be performed at or prior to the
Expiration Date; none of the representations and warranties of Scotsman that is
qualified as to materiality shall be untrue or incorrect in any respect and on
the Expiration Date such representations and warranties shall be true and
correct as though made on the Expiration Date except for changes therein
specifically permitted by this Agreement or resulting from any transactions
expressly consented to in writing by WAL, permitted by Sections 4.5(a) and (b)
or entered into in connection with the consummation of the Offer or the Merger
and the other transactions contemplated hereby; none of the representations or
warranties that are not so qualified shall be untrue or incorrect in any
material respect and on the Expiration Date such representations and warranties
shall be true and correct in all material respects as though made on the
Expiration Date except for changes therein specifically permitted by this
Agreement or resulting from any transactions expressly consented to in writing
by WAL, permitted by Sections 4.5(a) and (b) or entered into in connection with
the consummation of the Offer or the Merger and the other transactions
contemplated hereby; and there shall have been delivered to WAL, Whitlenge and
the Shareholders a certificate or certificates to the foregoing effect, dated
the Expiration Date, signed on behalf of Scotsman by its President and Chief
Financial Officer.
Section 7.2. No Material Adverse Effect. Between the date hereof and the
Expiration Date, there shall have been no Material Adverse Effect on Scotsman
and its subsidiaries taken as a whole; and there shall have been delivered to
WAL, Whitlenge and the Shareholders a certificate or certificates to such
effect, dated the Expiration Date, signed on behalf of Scotsman by its
President and Chief Financial Officer.
Section 7.3. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Offer or the transactions contemplated hereby shall be in
effect; provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as possible any injunction or other order that
may be entered.
Section 7.4. Opinions of Counsel for Scotsman. Holding, TDC and the
Shareholders shall have received (a) from Sidley & Austin, special counsel for
Scotsman, an opinion, dated the Expiration Date, in form and substance
satisfactory to WAL, Whitlenge and the Shareholders, substantially to the
effect set
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forth in Exhibit III-A, (b) from Schiff, Hardin & Waite, counsel for Scotsman,
an opinion, dated the Expiration Date, in form and substance satisfactory to
WAL, Whitlenge and the Shareholders, substantially to the effect set forth in
Exhibit III-B, and (c) from Ashurst Morris Crisp, special counsel for Scotsman,
an opinion, dated the Expiration Date in form and substance satisfactory to
WAL, Whitlenge and the Shareholders, substantially to the effect set forth in
Exhibit III-C.
Section 7.5. Necessary Governmental Approvals. The parties shall have
received all governmental and regulatory approvals and actions reasonably
necessary to consummate the transactions contemplated hereby, which are either
required to be obtained prior to the Expiration Date by applicable law or
regulation or are necessary to prevent a Material Adverse Effect on Scotsman
and its subsidiaries taken as a whole.
Section 7.6. Registration Rights Agreement. Scotsman shall have executed
and delivered the Registration Rights Agreement substantially in the form of
Exhibit V to the Merger Agreement.
Section 7.7. Shareholder Action. The Offer shall have been unanimously
accepted by all holders of WAL Ordinary Shares and all WAL Ordinary Shares
shall have been tendered, accompanied by a share transfer form endorsed in
blank, and not withdrawn. The issuance of shares of Scotsman Common Stock and
Scotsman Convertible Preferred Stock pursuant to this Agreement and the Merger
Agreement shall have been approved by a majority of votes cast by holders of
Scotsman Common Stock, provided that the total vote cast shall have represented
over 50% of the issued and outstanding shares of Scotsman Common Stock at the
time of the vote.
Section 7.8. Stock Exchange Listing. The NYSE shall have approved for
listing, upon official notice of issuance, the Scotsman Earnout Shares which
may be issued pursuant to Article I.
Section 7.9. Registration Statement Effective. The Registration Statement
shall have been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall have been entered by the SEC.
Section 7.10. Securities Laws. Scotsman shall have received all necessary
permits and otherwise complied with any securities laws applicable to the
issuance of the Scotsman Earnout Shares pursuant to this Agreement.
Section 7.11. Financing. Scotsman shall have obtained, on or before
February 15, 1994, written financing commitments, amendments to its existing
financing arrangements or other financing arrangements in an amount sufficient
to (i) pay the cash consideration specified in this Agreement and the Merger
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Agreement, (ii) refinance, to the extent required, the outstanding debt of
Scotsman and (iii) refinance the outstanding debt of Holding, TDC and
Whitlenge, in each case on terms reasonably satisfactory to WAL and Whitlenge.
Section 7.12. Glenco Holdings. Scotsman shall have obtained, on or before
January 31, 1994, a written waiver by Glenco Holdings of the Scotsman
Noncompetition Agreement.
Section 7.13. Merger Agreement. The Merger Agreement shall be in full force
and effect and the Merger shall have been consummated simultaneously with the
consummation of the Offer.
Section 7.14. Average Scotsman Common Stock Closing Price. The average
Closing Price of the Scotsman Common Stock for the ten trading days prior to
the date of the meeting of the stockholders of Scotsman referred to in Section
4.2 shall not be less than U.S. $10.50.
Section 7.15. Necessary Consents. WAL and Whitlenge shall have received
consents, in form and substance reasonably satisfactory to WAL and Whitlenge,
to the transactions contemplated hereby from the other parties to all material
contracts, leases, agreements and permits to which WAL, Whitlenge or WB is a
party or by which they are affected and which require such consent prior to the
consummation of the transactions contemplated by this Agreement and are
necessary to prevent a Material Adverse Effect with respect to WAL, Whitlenge
and WB taken as a whole.
Section 7.16. Comfort Letters. WAL shall have received comfort letters from
Arthur Andersen & Co., Coopers & Lybrand and Ernst & Young, dated the date of
mailing the Proxy Statement/Prospectus and the Expiration Date and addressed to
WAL, in each case in form and substance reasonably satisfactory to WAL,
covering such matters reasonably requested by it.
ARTICLE VIII
INDEMNIFICATION; SURVIVAL
Section 8.1. Indemnification by the Shareholders. From and after the
Expiration Time, each of the Shareholders shall indemnify and hold harmless
Scotsman, WAL, Whitlenge, WB and their subsidiaries, affiliates and successors
from and against any and all (a) liabilities, losses, costs or damages ("Loss")
and (b) reasonable attorneys', consultants' and accountants' fees and expenses,
court costs and all other reasonable out-of-pocket expenses ("Expense")
incurred by Scotsman, WAL, Whitlenge, WB and their subsidiaries, affiliates and
successors in connection with or arising from (x) any breach or failure to
perform by any Shareholder or Stockholder (as defined in the Merger Agreement)
of any of their respective agreements, covenants or obligations
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in this Agreement or the Merger Agreement or any agreement entered into in
connection with the transactions contemplated hereby or thereby, in each case
to be performed or complied with after the Expiration Time or Effective Time
(as defined in the Merger Agreement), as the case may be, (y) any breach of any
warranty or the inaccuracy of any representation of Holding, TDC, WAL,
Whitlenge or any Shareholder or Stockholder contained in this Agreement or the
Merger Agreement, as updated in accordance with Section 8.7 hereof and Section
10.7 of the Merger Agreement, or in any certificate delivered by or on behalf
of Holding, TDC, WAL, Whitlenge or any Stockholder or Shareholder pursuant
hereto or thereto or (z) the matters referred to in clause (z) of Section 10.1
of the Merger Agreement; provided, however, that the Shareholders shall be
required to indemnify and hold harmless under this Section 8.1 only to the
extent that the aggregate amount of (without duplication) (i) Loss and Expense
referred to above in this Section 8.1 and (ii) Loss and Expense referred to in
Section 10.1 of the Merger Agreement exceeds U.S. $250,000; and provided,
further, (X) each Shareholder's obligation to indemnify and hold harmless
pursuant to this Section 8.1 shall be limited to the payment by such
Shareholder of cash (1) with respect to any individual Loss or Expense (other
than any Loss or Expense arising from a breach of a warranty, or inaccuracy of
a representation, of such Shareholder contained in Section 2.3(b) or 2.4(b), as
to which this clause (1) shall be inapplicable), in an amount that does not
exceed the product obtained by multiplying such Shareholder's Applicable
Percentage (as set forth on Schedule 8.1) by the amount of such Loss or
Expense, and (2) in the aggregate in an amount equal to the product obtained by
multiplying such Shareholder's Applicable Percentage (as set forth on Schedule
8.1) by U.S. $30,000,000 (without limiting the foregoing, it being understood
that, for purposes of clause (2) above, with respect to the matters described
in clause (z) of Section 10.1 of the Merger Agreement or otherwise, the payment
of any amount by, or with funds furnished by, an insurer or Alco Standard shall
not be deemed to be the payment by any Shareholder) and (Y) no Shareholder
shall indemnify and hold harmless any indemnified party with respect to any
Loss or Expense arising from any breach of a warranty, or inaccuracy of a
representation, of any other Shareholder contained in Section 2.3(b) or 2.4(b)
or of any Stockholder or Continental Bank N.A. contained in Section 3.3(b) or
3.4(b) of the Merger Agreement. Each payment made by any Shareholder to any
indemnified party pursuant to this Section 8.1 shall constitute a repayment of
and a reduction in the consideration paid to the Shareholders under Section
1.1.
Section 8.2. Indemnification by Scotsman. From and after the Expiration
Time, Scotsman shall indemnify and hold harmless the Shareholders and their
subsidiaries, affiliates and successors from and against any and all Loss and
Expense incurred by the Shareholders and their subsidiaries, affiliates and
successors in connection with or arising from (a) any breach or failure to
perform by Scotsman or the Surviving Corporation (as
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defined in the Merger Agreement) of any of their respective agreements,
covenants or obligations in this Agreement or the Merger Agreement or any
agreement entered into in connection with the transactions contemplated hereby
or thereby, in each case to be performed or complied with after the Expiration
Time or the Effective Time, as the case may be, and (b) any breach of any
warranty or the inaccuracy of any representation of Scotsman or Sub (as defined
in the Merger Agreement) contained in this Agreement or the Merger Agreement or
in any certificate delivered by or on behalf of Scotsman or Sub pursuant hereto
or thereto; provided, however, that Scotsman shall be required to indemnify and
hold harmless under this Section 8.2 only to the extent that the aggregate
amount of (without duplication) (i) Loss and Expense referred to above in this
Section 8.2 and (ii) Loss and Expense referred to in Section 10.2 of the Merger
Agreement exceeds U.S. $250,000; and provided, further, Scotsman's obligation
to indemnify and hold harmless pursuant to this Section 8.2 shall be limited to
the aggregate payment by Scotsman of cash in an amount equal to the excess of
(i) U.S. $30,000,000 over (ii) any amount theretofore paid in indemnification
by Scotsman and/or any of its subsidiaries under Section 10.2 of the Merger
Agreement.
Section 8.3. Notice of Claims. If Scotsman (with respect to Section 8.1) or
the Stockholder Representative (as defined in the Merger Agreement) (with
respect to Section 8.2) believes that any of the persons entitled to
indemnification under this Article VIII has suffered or incurred any Loss or
incurred any Expense, whether or not the applicable dollar limitation specified
by Section 8.1 or 8.2 has been exceeded, Scotsman or the Stockholder
Representative, as the case may be, shall so notify the other promptly in
writing describing such Loss or Expense, the amount thereof, if known, and the
method of computation of such Loss or Expense, all with reasonable
particularity and containing a reference to the provisions of this Agreement or
any certificate delivered pursuant hereto in respect of which such Loss or
Expense shall have occurred; provided, however, that the omission by such
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its indemnification obligation under this Article VIII
except to the extent that such omission results in a failure of actual notice
to the indemnifying party and such indemnifying party is materially damaged as
a result of such failure to give notice. If any action at law or suit in
equity is instituted by or against a third party with respect to which any of
the persons entitled to indemnification under this Article VIII intends to
claim any liability or expense as Loss or Expense under this Article VIII, any
such person shall promptly notify the indemnifying party of such action or suit
as specified in this Section 8.3 and Section 8.4. Any party entitled to
indemnification hereunder shall use reasonable efforts to minimize any Loss or
Expense for which indemnification is sought hereunder.
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If Scotsman furnishes a notice referred to in the first sentence of the
immediately preceding paragraph and the Stockholder Representative, within 10
business days of receipt thereof, furnishes Scotsman with a notice (an "Alco
Notice") stating that the Loss and Expense referred to in Scotsman's notice, or
some portion thereof, are subject to indemnification by Alco Standard pursuant
to any of the agreements referred to in Section 2.32 or in Section 3.32 of the
Merger Agreement (such notice to include specific reference to the provisions
of the agreements containing the indemnification obligations), then (i)
Scotsman shall use its best efforts to enforce such indemnification obligations
and the Shareholders and the Stockholder Representative shall cooperate fully
with Scotsman in seeking to enforce such indemnification obligations and (ii)
the indemnifying parties shall not be required to indemnify with respect to the
portion of such Loss and Expense subject to indemnification until, and to the
extent that, a court of competent jurisdiction determines, or the Stockholder
Representative acknowledges, that Alco Standard is not required to so indemnify
(it being understood that for purposes of the second proviso to the first
sentence of Section 8.6, Scotsman shall be deemed to have asserted its claim
for indemnification by the indemnifying parties at the time of its notice and
that the Loss and Expense referred to in such notice shall be deemed to
include, although not referred to therein, any Loss and Expense thereafter
incurred by any of the indemnified parties in seeking to enforce, whether or
not successful, any purported indemnification obligation of Alco Standard
identified by the Stockholder Representative). In the event that the
Stockholder Representative fails to give an Alco Notice within the 10 business
day period specified above, but furnishes an Alco Notice at a later date, then
(x) Scotsman, the Stockholder Representative and the Shareholders shall take
the actions specified in clause (i) above, (y) should Scotsman or another
person entitled to indemnification under Section 8.1 thereafter successfully
enforce any such purported indemnification obligation of Alco Standard, any
Loss and Expense that is recovered in such enforcement action and was
theretofore covered by an indemnification payment by the indemnifying parties
hereunder shall be paid over to the Stockholder Representative on behalf of the
Shareholders and (z) the obligation of the indemnifying parties with respect to
any Expense and Loss identified in such subsequent Alco Notice as covered by
such purported indemnification obligation and for which, at the time of such
subsequent Alco Notice, indemnification has not been made by the indemnifying
parties hereunder, shall be as specified in clause (ii) above. Without
limiting the indemnifying parties' obligation under clause (ii) above to make
an indemnification payment following a judicial determination of the type
referred to in such clause (ii), Scotsman, if requested in writing by the
Stockholder Representative on a timely basis, shall, at the expense of the
Shareholders (which shall be promptly paid as incurred), use its best efforts
to pursue a judicial appeal of such determination. If any such appeal results
in the recovery by Scotsman or another person entitled to indemnification under
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Section 8.1 of any Loss or Expense which theretofore was covered by an
indemnification payment by the indemnifying parties hereunder, such recovery
shall be paid over to the Stockholder Representative on behalf of the
Shareholders. The Shareholders and the Stockholders shall be subrogated to any
and all rights of Scotsman or any other persons entitled to indemnification
pursuant to Section 8.1 under any indemnification obligations of Alco Standard
pursuant to any of the agreements referred to in Section 2.32 or in Section
3.32 of the Merger Agreement in respect of any Loss or Expense with respect to
which the Stockholder Representative has not furnished an Alco Notice and for
which the Shareholders or the Stockholders have theretofore indemnified
Scotsman or such other persons.
With respect to any claim that Scotsman or the other persons entitled to
indemnification under Section 8.1 may pursue against Alco Standard with respect
to the enforcement of a purported indemnification obligation pursuant to any of
the agreements referred to in Section 2.32 or in Section 3.32 of the Merger
Agreement, neither Scotsman nor such other persons shall consent to entry of
any judgment or enter into any settlement in respect thereof unless (1) the
Stockholder Representative consents to such judgment or settlement or (2)
Scotsman (on behalf of itself and such other indemnified persons) releases the
Shareholders and the Stockholders from any and all liability with respect to
the Loss and Expense that was the subject of such claim and such judgment or
settlement does not adversely affect any Shareholder or Stockholder or any of
their subsidiaries, affiliates or successors or any other claim for
indemnification by Alco Standard pursuant to any of the agreements referred to
in Section 2.32 or in Section 3.32 of the Merger Agreement. With respect to
any judicial or other proceeding or appeal pursued by Scotsman or the other
persons entitled to indemnification under Section 8.1 and seeking the
enforcement of a purported indemnification obligation of Alco Standard pursuant
to any of such agreements, the Shareholders (i) if they have theretofore fully
indemnified (subject to any applicable deductible) Scotsman and the other
persons entitled to indemnification under Section 8.1, shall be entitled, at
their own expense and through counsel of their choice, to control the pursuit
of the indemnification claim against Alco Standard in such judicial or other
proceeding or appeal (it being understood that the Shareholders shall not
consent to entry of any judgment or enter into any settlement with respect
thereto that adversely affects Scotsman or any of the other persons entitled to
indemnification under Section 8.1 unless Scotsman or such person, as the case
may be, shall have consented thereto) and (ii) if they have not so fully
indemnified (subject to any applicable deductible) Scotsman or the other
persons entitled to indemnification under Section 8.1, shall be entitled, at
their own expense, to participate with counsel of their choice but without any
right of control thereof.
Section 8.4. Third Party Claims. In the event of any claim for
indemnification hereunder (other than pursuant to
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clause (z)(A) of Section 10.1 of the Merger Agreement) resulting from or in
connection with any claim or legal proceeding by a third party, the indemnified
persons shall give such notice thereof to the indemnifying party not later than
twenty business days prior to the time any response to the asserted claim is
required, if possible, and in any event within fifteen days following the date
such indemnified person has actual knowledge thereof; provided, however, that
the omission by such indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its indemnification obligation under this
Article VIII except to the extent that such omission results in a failure of
actual notice to the indemnifying party and such indemnifying party is
materially damaged as a result of such failure to give notice. In the event of
any such claim for indemnification resulting from or in connection with a claim
or legal proceeding by a third party, the indemnifying party may, at its sole
cost and expense, assume the defense thereof; provided, however, that counsel
for the indemnifying party, who shall conduct the defense of such claim or
legal proceeding, shall be reasonably satisfactory to the indemnified party;
and provided, further, that if the defendants in any such actions include both
the indemnified persons and the indemnifying party and the indemnified persons
shall have reasonably concluded that there may be legal defenses or rights
available to them which have not been waived and are in actual or potential
conflict with those available to the indemnifying party, the indemnified
persons shall have the right to select one law firm reasonably acceptable to
the indemnifying party to act as separate counsel, on behalf of such
indemnified persons, at the expense of the indemnifying party. Subject to the
second proviso of the immediately preceding sentence, if an indemnifying party
assumes the defense of any such claim or legal proceeding, such indemnifying
party shall not consent to entry of any judgment, or enter into any settlement,
that (a) is not subject to full indemnification hereunder (except for the
deductible referred to in clause (ii) of the first proviso to the first
sentence of Section 8.1 or the deductible referred to in clause (ii) of the
first proviso to the first sentence of Section 8.2, in either case to the
extent applicable), (b) provides for injunctive or other non-monetary relief
affecting the indemnified persons or (c) does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such indemnified
persons of a release from all liability with respect to such claim or legal
proceeding, without the prior written consent of the indemnified persons (which
consent, in the case of clauses (b) and (c), shall not be unreasonably
withheld); and provided, further, that subject to the second proviso of the
immediately preceding sentence, the indemnified persons may, at their own
expense, participate in any such proceeding with the counsel of their choice
without any right of control thereof. So long as the indemnifying party is in
good faith defending such claim or proceeding, the indemnified persons shall
not compromise or settle such claim or proceeding without the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld. If the
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indemnifying party does not assume the defense of any such claim or litigation
in accordance with the terms hereof, the indemnified persons may defend against
such claim or litigation in such manner as they may deem appropriate,
including, without limitation, settling such claim or litigation (after giving
prior written notice of the same to the indemnifying party and obtaining the
prior written consent of the indemnifying party, which consent shall not be
unreasonably withheld) on such terms as the indemnified persons may deem
appropriate, and the indemnifying party will promptly indemnify the indemnified
persons in accordance with the provisions of this Section 8.4. The rights and
obligations of the Shareholders referred to in Section 10.4(b) of the Merger
Agreement shall be afforded to and binding upon the Shareholders as though they
were parties to the Merger Agreement.
Section 8.5. Exclusive Remedy. In the event the Offer is consummated, any
claim against any party hereto for any breach of this Agreement or in
connection with any of the transactions contemplated hereby (other than a claim
for breach of Section 5.1 or 5.2, the representation and warranty contained in
the last sentence of Section 3.3(b) of the Merger Agreement or the
Noncompetition Agreements entered into pursuant to Section 6.8 or the
Registration Rights Agreement entered into pursuant to Sections 6.9 and 7.6),
shall, to the extent permitted by law, be made solely pursuant to this Article
VIII. Prior to the consummation of the Offer or the termination of this
Agreement pursuant to Article IX, no claim may be made against any party hereto
for any inaccuracy of any representation or breach of any warranty contained in
this Agreement, the Merger Agreement or any certificate, instrument or other
agreement delivered pursuant hereto or thereto.
Section 8.6. Survival of Obligations. All representations, warranties,
covenants and obligations contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement; provided,
however, that the representations and warranties in Sections 2.7, 2.10, 2.11,
2.15, 2.17, 2.18, 2.21, 2.26, 2.32, 2.36 and 3.8 shall terminate on the fourth
anniversary of the Expiration Date, the representations and warranties
contained in Section 2.8 shall terminate at the time the relevant statute of
limitations expires, and the representations and warranties contained in
Sections 2.1, 2.3, 2.4, 3.1, 3.2 and 3.4 shall survive without termination and
all other representations and warranties contained herein shall terminate on
the third anniversary of the Expiration Date; and provided, further, if any
claim under this Article VIII for Loss or Expense in respect of any
representations and warranties is asserted in writing prior to the expiration
of the applicable period set forth above, the obligations of the indemnifying
party with respect to such claim shall not be affected by the expiration of
such period.
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Section 8.7. Update of the Representations and Warranties. Not later than
ten days prior to the Expiration Date, WAL, Whitlenge and any Shareholder may
deliver a written notice to Scotsman setting forth any and all facts,
conditions, occurrences, changes and other matters, in each case, occurring
after the date hereof, that has caused or may cause the representations and
warranties of the Shareholders contained herein (including the Schedules
hereto) not to be true and correct in all respects. In the event that any of
such facts, conditions, occurrences, changes and other matters shall have
caused or will cause, on or prior to the Expiration Date, any such
representation or warranty not to be true and correct in all respects (in the
case of any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any representation
and warranty without any materiality qualification) on the Expiration Date with
the same effect as though made on the Expiration Date, Scotsman may elect to
terminate this Agreement pursuant to Section 9.1(d) based on such facts,
conditions, occurrences, changes or other matters. If Scotsman shall
nevertheless proceed to consummate the transactions contemplated by this
Agreement, such facts, conditions, occurrences, changes and other matters so
disclosed as to each such representation or warranty of the Shareholders
contained herein (including the Schedules) shall be deemed to constitute an
exception to such representation or warranty reflecting the facts, conditions,
occurrences, changes and other matters so disclosed with the same effect as if
such exception had been made in such representation or warranty as of the date
hereof in this Agreement to the extent but only to the extent, of such
disclosure.
ARTICLE IX
TERMINATION
Section 9.1. Termination. Anything contained in this Agreement to the
contrary notwithstanding, (i) this Agreement shall terminate upon any
termination of the Merger Agreement and (ii) this Agreement may be terminated
at any time prior to the Expiration Date:
(a) by the mutual consent of Scotsman and WAL;
(b) by Scotsman upon any material breach by WAL, Whitlenge or any
Shareholder of any of the covenants contained in Article IV or V or Section
10.1;
(c) by WAL upon any material breach by Scotsman of any of the covenants
contained in Article IV or V or Section 10.1;
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(d) by Scotsman if any of the conditions specified in Article VI has not
been met or waived by Scotsman at such time as such condition can no longer
be satisfied;
(e) by WAL if any of the conditions specified in Article VII has not been
met or waived by WAL, Whitlenge and the Shareholders, as applicable, at such
time as such condition can no longer be satisfied; or
(f) by Scotsman or WAL if the consummation of the Offer shall not have been
consummated on or before May 1, 1994.
In the event that this Agreement shall be terminated pursuant to this Section
9.1, all further obligations of the parties under this Agreement (other than
Sections 5.2, 10.1, 10.2 and 10.10) shall terminate without further liability
of any party to the others; provided, however, that nothing herein shall
relieve any party from liability for its willful breach of this Agreement.
ARTICLE X
OTHER PROVISIONS
Section 10.1. Confidential Nature of Information. Each party agrees that
it will treat in strict confidence all documents, materials and other
information which it obtains regarding the other parties during the course of
the negotiations leading to the consummation of the transactions provided for
herein and the preparation of this Agreement; and if for any reason whatsoever
the transactions contemplated by this Agreement shall not be consummated, each
party shall return to the other party all copies of non-public documents and
materials which have been furnished or acquired in connection therewith and
shall not use or disseminate such documents, materials or other information for
any purpose whatsoever.
Section 10.2. Fees and Expenses. (a) Except as otherwise provided in this
Section 10.2, each of the parties hereto shall bear its own costs and expenses
(including, without limitation, fees and disbursements of its counsel,
accountants and other financial, legal, accounting or other advisors and any
expenses incurred by Holding and Whitlenge in connection with any efforts to
effect an initial public offering and any fees, disbursements and expenses
incurred by or on behalf of Scotsman in connection with the Registration
Statement and the Proxy Statement/Prospectus, it being understood that the
costs and expenses of the audits and preparation of the historical financial
statements of Holding, TDC and WAL included in the Proxy Statement/Prospectus
and the costs and expenses of adjusting, for purposes of pro forma financial
statements, the historical financial statements of Whitlenge so that they are
presented in United States dollars and in accordance with
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generally accepted accounting principles in the United States shall be deemed
to be costs and expenses of the Shareholders and the Stockholders) incurred by
it or its affiliates in connection with the preparation, negotiation,
execution, delivery and performance of this Agreement, each of the other
documents and instruments executed in connection with or contemplated by this
Agreement and the arranging or providing for the financing contemplated hereby,
and the consummation of the transactions contemplated hereby and thereby
(collectively "Acquisition Expenses"); provided, however, that, in the event
the transactions contemplated hereby are consummated, up to U.S. $110,000 of
Acquisition Expenses of WAL and Whitlenge relating to the transactions
contemplated by this Agreement shall be borne by Scotsman, and the other
Acquisition Expenses of the Shareholders, WAL and Whitlenge shall be borne
entirely by the Shareholders and on the Expiration Date the Shareholders shall
reimburse WAL and Whitlenge for any Acquisition Expenses paid by WAL and
Whitlenge prior to the Expiration Date and required by the foregoing to be paid
by the Shareholders. The Shareholders, WAL and Whitlenge shall furnish
Scotsman with documentation on the Expiration Date demonstrating any
reimbursement required by the preceding sentence.
(b) The Shareholders shall pay to Scotsman, upon demand in same day funds,
all of Scotsman's Acquisition Expenses, in the event that (i) this Agreement is
terminated pursuant to clause (d) of Section 9.1 as a result of the failure of
the condition set forth in the first sentence of Section 6.10, or (ii) the
Merger Agreement is terminated pursuant to clause (d) of Section 11.1 thereof
as a result of the failure of the condition set forth in the first sentence of
Section 8.9 thereof or pursuant to clause (e) of Section 11.1 thereof as a
result of the failure of the condition set forth in Section 9.17 thereof (each
of the terminations described in clauses (i) and (ii) being referred to as a
"Qualifying Termination"); provided, however, that the Shareholders shall not
be obligated to make payments pursuant to this Section 10.2(b) in an aggregate
amount exceeding the sum of (x) U.S. $220,000 and (y) the excess of U.S.
$780,000 over the aggregate amount of payments made pursuant to Section 12.2(b)
of the Merger Agreement.
(c) In addition to payments pursuant to Section 10.2(b) and payments
pursuant to Sections 12.2(b) and 12.2(c) of the Merger Agreement, the
Shareholders shall pay to Scotsman, upon demand in same day funds, a fee of
U.S. $660,000 if (i) there is a Qualifying Termination and (ii) within one year
following the Qualifying Termination (x) any of TDC, Whitlenge, Holding or WAL
or any combination thereof, directly or through another entity, effects an
initial public offering of its shares or (y) any person or persons acquire,
directly or indirectly, in one transaction or a series of related transactions,
a substantial portion of the assets of TDC and Whitlenge or more than 50% of
the shares of common stock of Holding, TDC, Whitlenge or WAL, in any such case
described in clause (x) or (y), for a
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per share consideration (or the equivalent thereof) representing a valuation of
Holding, TDC, Whitlenge or WAL greater than that represented by this Agreement
or the Merger Agreement, as the case may be.
Section 10.3. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or by overnight mail, or four days after being mailed (by registered
mail, return receipt requested) to a party at the following address (or to such
other address as such party may have specified by notice given to the other
parties pursuant to this provision):
If to Scotsman to:
Scotsman Industries, Inc.
775 Corporate Woods Parkway
Vernon Hills, Illinois 60061
Attention: President
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Frederick C. Lowinger
If to WAL to:
Whitlenge Acquisition Limited
c/o Whitlenge Drink Equipment Ltd.
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
Attention: Michael de St. Paer
with copies to:
Wragge & Co.
55 Colmore Row
Birmingham B3 2AS
United Kingdom
(REF: CWH/ATS)
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
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If to Whitlenge to:
Whitlenge Drink Equipment Ltd.
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
Attention: Michael de St. Paer
with copies to:
Wragge & Co.
55 Colmore Row
Birmingham B3 2AS
United Kingdom
(REF: CWH/ATS)
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Onex to:
Onex Corporation
161 Bay Street, 25th Floor
Toronto, Ontario
Attention: President
with copies to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
and
Onex Investment Corp.
712 Fifth Avenue
40th Floor
New York, New York 10019
Attention: Timothy C. Collins
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If to Onex Investments to:
Onex Investment Corp.
c/o Onex DHC LLC
421 Leader Street
Marion, Ohio 43302
with copies to:
Onex Corporation
161 Bay Street, 25th Floor
Toronto, Ontario
Attention: President
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
and
Onex Investment Corp.
712 Fifth Avenue
40th Floor
New York, New York 10019
Attention: Timothy C. Collins
If to EJJM to:
EJJM
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Diggs to:
Matthew O. Diggs, Jr.
c/o The Diggs Group
1630 Kettering Tower
Dayton, Ohio 45423
with a\ copy to:
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Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Collins to:
Timothy C. Collins
c/o Onex Investment Corp.
712 Fifth Avenue
40th Floor
New York, New York 10019
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Robert F. Quaintance, Jr.
If to Cook to:
Graham F. Cook
c/o Whitlenge Drink Equipment Ltd.
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
with a copy to:
Wragge & Co.
55 Colmore Row
Birmingham B3 2AS
United Kingdom
(REF: CWH/ATS)
If to Wheeler to:
Christopher R.L. Wheeler
c/o Whitlenge Drink Equipment Ltd.
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
with a copy to:
Wragge & Co.
55 Colmore Row
Birmingham B3 2AS
United Kingdom
(REF: CWH/ATS)
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<PAGE> 355
If to de St. Paer to:
Michael de St. Paer
c/o Whitlenge Drink Equipment Ltd.
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
with a copy to:
Wragge & Co.
55 Colmore Row
Birmingham B3 2AS
United Kingdom
(REF: CWH/ATS)
If to Rushton to:
John Rushton
c/o Whitlenge Drink Equipment Ltd.
Chancel Way
Halesowen Industrial Park
Halesowen, West Midlands
U.K. B62 8SE
with a copy to:
Wragge & Co.
55 Colmore Row
Birmingham B3 2AS
United Kingdom
(REF: CWH/ATS)
Section 10.4. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) an "associate" of any person means (i) a corporation or organization of
which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of a class of equity securities, (ii)
any trust or other estate in which such person has substantial beneficial
interest or as to which such person serves as trustee or in the similar
capacity and (iii) any relative or spouse of such person, or any relative of
such spouse, who has the same home as such person or who is a director or
officer of the person or any of its parents or subsidiaries.
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(c) the "knowledge of WAL, Whitlenge or WB" means the knowledge of the
persons listed in Schedule 10.4, which Schedule includes all directors of
WAL, Whitlenge and WB, the chief executive officers of each of WAL, Whitlenge
and WB and all employees of WAL, Whitlenge and WB who report directly to such
chief executive officer (other than, in each such case, Nicholls and Breed
and de St. Paer's personal secretary).
(d) "Material Adverse Effect" means any change or effect (or any
development that, insofar as can reasonably be foreseen, would result in any
change or effect) that is materially adverse to the business, properties,
assets, condition (financial or otherwise) or results of the applicable
person or persons; and
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization or other entity.
Section 10.5. Partial Invalidity. In case any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein unless the deletion of
such provision or provisions would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
Section 10.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors or assigns.
Section 10.7. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
counterpart, and shall become a binding agreement when Scotsman, WAL, Whitlenge
and the Shareholders shall have each executed one counterpart.
Section 10.8. Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
Section 10.9. Schedules and Exhibits. The Schedules and Exhibits referred
to in this Agreement shall be construed with and as an integral part of this
Agreement to the same extent as if the same had been set forth verbatim herein.
Section 10.10. Entire Agreement; Amendments and Waivers; Assignment. This
Agreement, including the Schedules and Exhibits, contains the entire
understanding of the parties hereto
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<PAGE> 357
with regard to the subject matter contained herein except that the
confidentiality agreement, dated October 29, 1993 (the "October Confidentiality
Agreement"), between Onex and Scotsman and the confidentiality agreement, dated
June 25, 1993 (the "June Confidentiality Agreement"), between Onex Investment
Corp. and Scotsman shall remain in full force in effect pursuant to the terms
thereto after the execution of this Agreement; provided, however, that the
October Confidentiality Agreement shall terminate on the fifth anniversary of
the date hereof and the June Confidentiality Agreement shall terminate on the
earlier of the Expiration Time or on the fifth anniversary of the date hereof.
The parties hereto, by mutual agreement in writing, may amend, modify and
supplement this Agreement. The failure of any party hereto to enforce at any
time any provision of this Agreement shall not be construed to be a waiver of
such provision, nor in any way to affect the validity of this Agreement or any
part hereof or the right of such party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach. Except as expressly
provided herein, the rights and obligations of the parties under this Agreement
may not be assigned or transferred by any party hereto without the prior
written consent of the other parties hereto.
Section 10.11. Governing Law. Except to the extent that Delaware law is
mandatorily applicable to the rights and obligations of the stockholders of
Scotsman or to the extent that the laws of England are mandatorily applicable
to WAL, Whitlenge or their shareholders, this Agreement, and the application or
interpretation thereof, shall be governed exclusively by its terms and by the
internal laws of the State of New York, without regard to principles of
conflicts of laws as applied in the State of New York or any other jurisdiction
which, if applied, would result in the application of any laws other than the
internal laws of the State of New York. Each of the parties hereto irrevocably
submits and consents to the exclusive jurisdiction of the Supreme Court of the
State of New York in the County of New York, or the United States District
Court for the Southern District of New York in connection with any action or
proceeding arising out of or relating to this Agreement, and irrevocably waives
any immunity from jurisdiction thereof and any claim of improper venue, forum
non conveniens or any similar basis to which it might otherwise be entitled in
any such action or proceeding. Each of the Acquisition Shareholders hereby
appoints as its or his authorized agent the Stockholder Representative (such
agent hereinafter referred to as the "Authorized Agent") upon which process may
be served in any action to enforce any claim arising out of or relating to this
Agreement which may be instituted in any court described above; such
appointment shall be irrevocable until the appointment, similarly irrevocable,
of a successor Authorized Agent reasonably acceptable to Scotsman and such
successor's acceptance of such appointment. Service of such process upon the
Authorized Agent shall be deemed in every
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<PAGE> 358
respect effective service of process upon each of the Acquisition Shareholders.
Section 10.12. No Third-Party Beneficiaries. Except for Article VIII,
nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any person other than the parties hereto and
successors and assigns permitted by Section 10.6 any right, remedy or claim
under or by reason of this Agreement.
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<PAGE> 359
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto or by their duly authorized officers, all as of the date
first above written.
SCOTSMAN INDUSTRIES, INC.
By __________________________
Name:
Title:
WHITLENGE ACQUISITION LIMITED
By __________________________
Name:
Title:
WHITLENGE DRINK EQUIPMENT LIMITED
By __________________________
Name:
Title:
ONEX CORPORATION
By __________________________
Name:
Title:
ONEX U.S. INVESTMENTS, INC.
By __________________________
Name:
Title:
<PAGE> 360
EJJM
By __________________________
Name:
Title:
MATTHEW O. DIGGS, JR.
______________________________
TIMOTHY C. COLLINS
______________________________
GRAHAM F. COOK
______________________________
CHRISTOPHER R.L. WHEELER
______________________________
MICHAEL DE ST. PAER
_____________________________
JOHN RUSHTON
_____________________________
<PAGE> 361
APPENDIX III
[LETTERHEAD OF WILLIAM BLAIR & COMPANY]
January 4, 1994
CONFIDENTIAL
Board of Directors
Scotsman Industries, Inc.
Vernon Hills, IL 60061
Gentlemen:
You have asked our opinion as to the fairness, from a financial point of
view, to the shareholders of Scotsman Industries, Inc. ("Scotsman") of the terms
of the proposed acquisition by Scotsman of 100% of the capital stock of each of
DFC Holding Corporation and Whitlenge Acquisition Limited (together referred to
herein as the "Companies"). The terms of these proposed acquisitions (the
"Transaction") will be set forth in an Agreement and Plan of Merger and a Share
Acquisition Agreement (together, the "Agreements") and contemplate that Scotsman
will issue aggregate consideration of (i) approximately $30,300,000 in a
combination of cash and shares of Scotsman non-convertible preferred stock; (ii)
1,200,000 shares of Scotsman common stock; and (iii) shares of Scotsman
convertible preferred stock having a liquidation value of $22,500,000 (the
"Consideration".) Up to an additional 667,000 shares of Scotsman common stock
may be issued if the Companies achieve specified earnings for their fiscal years
ending in 1994 (the "Contingent Shares").
We have acted as financial advisor to Scotsman in connection with the
Transaction. In our review of the Transaction and the preparation of our opinion
herein, we have examined: (a) the financial terms and conditions of the
Agreements; (b) certain audited financial statements of the Companies and the
audited financial statements included in the annual reports on Form 10-K of
Scotsman for each of the fiscal years in the three-year period ended January 3,
1993; (c) unaudited pro forma consolidated financial statements of the Companies
for the two years ended December 31, 1992 and for nine months ended September
30, 1992 and 1993 prepared by the Companies; (d) unaudited quarterly financial
statements included in the 1993 quarterly reports on Form 10-Q of Scotsman; (e)
certain internal financial analyses and forecasts for the Companies prepared by
the managements of the Companies; and (f) certain internal financial information
and forecasts of Scotsman. We have also held discussions with members of the
senior managements of the Companies and Scotsman to discuss the foregoing and
have considered other matters which we have deemed relevant to our inquiry.
Although we have no reason to believe that any of the financial or other
information on which we have relied is not accurate or complete, we have assumed
the accuracy and completeness of all such information and have not attempted to
verify independently any of such information, nor have we made or obtained an
independent appraisal of the assets of the Companies or Scotsman. With respect
to financial forecasts, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of the Companies and Scotsman, as the case may be, as to their
respective future financial performance. We are not expressing any opinion as to
the price at which Scotsman's common stock will trade subsequent to the
Transaction. Our opinion herein is based upon circumstances existing and
disclosed to us and which can be evaluated as of the date hereof, and further
assumes that no material adverse change will subsequently occur to either the
Companies or Scotsman.
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<PAGE> 362
In conducting our investigation and analysis and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including (a) historical revenues, operating income, net income, dividend
capacity and capitalization, as to the Companies, Scotsman and certain other
publicly held companies in businesses we believe to be comparable to the
Companies and Scotsman; (b) the current financial position and results of
operations of the Companies and Scotsman; (c) the historical market prices and
trading volume of the Common Stock of Scotsman; (d) financial information
concerning selected actual and proposed business combinations which we believe
to be relevant; (e) the pro forma financial statements of the combined company,
including the respective contributions in terms of revenues, operating income
and net income of the Companies and Scotsman; and (f) the general condition of
the securities markets.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of this opinion, Scotsman will pay us a fee and indemnify us against
certain liabilities.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Consideration, including the Contingent
Shares, is fair, from a financial point of view, to the shareholders of
Scotsman.
Very truly yours,
WILLIAM BLAIR & COMPANY
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<PAGE> 363
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the General Corporation Law of the State of Delaware (the "Delaware
Law"), directors and officers as well as other employees and individuals may be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action")
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorney's fees) incurred in connection with the defense or settlement of such
an action, and the Delaware Law requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the company.
Article Ninth of the Restated Certificate of Incorporation of the
registrant ("Article Ninth") provides that each person who was or is made a
party to, or is involved in, any action, suit or proceeding by reason of the
fact that he or she is or was a director, officer or employee of the registrant
(or was serving at the request of the registrant as a director, officer,
employee or agent for another entity) will be indemnified and held harmless by
the registrant, to the full extent authorized by the Delaware Law, as currently
in effect (or, to the extent indemnification is broadened, as it may be amended)
against all expense, liability or loss (including attorneys' fees, judgments,
fines, Employee Retirement Income Security Act excise taxes or penalties and
amounts to be paid in settlement) reasonably incurred by such person in
connection therewith. Article Ninth provides that the rights conferred thereby
are contract rights and will include the right to be paid by the registrant for
the expenses incurred in defending the proceedings specified above, in advance
of their final disposition, except that, if the Delaware Law so requires, such
payment will only be made upon delivery to the registrant by the indemnified
party of an undertaking to repay all amounts so advanced if it is ultimately
determined that the person receiving such payments is not entitled to be
indemnified under such provision or otherwise. Article Ninth provides that the
registrant may, by action of its board of directors, provide indemnification to
its agents with the same scope and effect as the foregoing indemnification of
directors, officers and employees.
Article Ninth provides that persons indemnified thereunder may bring suit
against the registrant to recover unpaid amounts claimed thereunder, and that if
such suit is successful, the expense of bringing such a suit will be reimbursed
by the registrant. Article Ninth further provides that while it is a defense to
such a suit that the person claiming indemnification has not met the applicable
standards of conduct making indemnification permissible under the Delaware Law,
the burden or proving the defense will be on the registrant and neither the
failure of the registrant's board of directors to have made a determination that
indemnification is proper, nor an actual determination that the claimant has not
met the applicable standard of conduct will be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Article Ninth provides that the rights to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred therein will not be exclusive of any other right which any
person may have or acquire under any statute, provision of the registrant's
Restated Certificate of Incorporation or By-Laws, or otherwise. Finally, Article
Ninth provides that the registrant may maintain insurance, at its expense, to
protect itself and any of its directors, officers, employees or agents against
any expense, liability or loss, whether or not the registrant would have the
power to indemnify such person against such expense, liability or loss under the
Delaware Law.
The registrant has insurance which insures directors and officers of the
registrant for acts committed as such directors and officers or claims made
against them by reason of their status as directors or officers, except for and
to the extent the registrant has indemnified the directors or officers.
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<PAGE> 364
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The Exhibits filed herewith are set forth on the Exhibit Index filed as
part of this Registration Statement at page II-5.
(b) No Financial Statement Schedules are required to be filed herewith.
(c) The opinion of William Blair & Company is furnished as part of the
Proxy Statement - Prospectus.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
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<PAGE> 365
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 366
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Pre-Effective Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Vernon Hills, State of Illinois, on the 7th day of March, 1994.
SCOTSMAN INDUSTRIES, INC.
(Registrant)
By: /s/ DONALD D. HOLMES
Donald D. Holmes
Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ---------------
<S> <C> <C>
*RICHARD C. OSBORNE Chairman of the Board, President,
- ------------------------------------- Chief Executive Officer and Director
Richard C. Osborne (Principal Executive Officer)
/s/ DONALD D. HOLMES Vice President -- Finance March 7, 1994
- ------------------------------------- (Principal Financial and Accounting
Donald D. Holmes Officer)
*DONALD C. CLARK Director
- -------------------------------------
Donald C. Clark
*FRANK W. CONSIDINE Director
- -------------------------------------
Frank W. Considine
*GEORGE D. KENNEDY Director
- -------------------------------------
George D. Kennedy
*JAMES J. O'CONNOR Director
- -------------------------------------
James J. O'Connor
*ROBERT G. RETTIG Director
- -------------------------------------
Robert G. Rettig
*By: /s/ DONALD D. HOLMES March 7, 1994
Donald D. Holmes
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 367
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER INDEX NUMBERED
- ------ ------------------------------------------------------------------------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of January 11, 1994, among Scotsman
Industries, Inc., Scotsman Acquisition Corporation, DFC Holding
Corporation, The Delfield Company, Onex Corporation, Onex DHC LLC,
Pacific Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM,
Matthew O. Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R.
McCollom, Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella, Teddy
F. Reed, Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust,
John A. Tilmann, Kevin E. McCrone, Michael P. McCrone, Ronald A. Anderson
and Continental Bank N.A. (incorporated by reference to Appendix I to the
Proxy Statement - Prospectus contained in this Registration
Statement)...............................................................
2.2 Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman
Industries, Inc., Whitlenge Acquisition Limited, Whitlenge Drink
Equipment Limited, Onex Corporation, Onex U.S. Investments Inc., EJJM,
Matthew O. Diggs, Jr., Timothy C. Collins, Graham F. Cook, Christopher
R.L. Wheeler, Michael De St. Paer and John Rushton (incorporated by
reference to Appendix II to the Proxy Statement - Prospectus contained in
this Registration Statement).............................................
4.1 Restated Certificate of Incorporation of Scotsman Industries, Inc.
(incorporated by reference to Scotsman Industries, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1989, File No.
0-10182).................................................................
4.2 Certificate of Designation of Series A $0.62 Cumulative Convertible
Preferred Stock of Scotsman Industries, Inc..............................
4.3 Form of Certificate of Designation of Series B $ Cumulative Preferred
Stock of Scotsman Industries, Inc........................................
4.4 By-Laws of Scotsman Industries, Inc., as amended (incorporated by
reference to Scotsman Industries, Inc.'s Current Report on Form 8-K dated
June 21, 1991, File No. 0-10182).........................................
4.5 Rights Agreement dated as of April 14, 1989 between Scotsman Industries,
Inc. and Harris Trust and Savings Bank (incorporated by reference to
Scotsman Industries, Inc.'s Current Report on Form 8-K dated April 25,
1989, File No. 0-10182)..................................................
4.6 Amendment No. 1, dated as of January 11, 1994 to Rights Agreement, dated
as of April 14, 1989, between Scotsman Industries, Inc. and Harris Trust
and Savings Bank (incorporated by reference to Scotsman Industries, Inc.
Amendment No. 4 to General Form for Registration of Securities on Form
10/A, as filed with the Commission on January 27, 1994)..................
5 Opinion of Schiff Hardin & Waite, counsel to Scotsman Industries, Inc....
12 Statement re: Computation of Ratios*.....................................
23.1 Consent of Arthur Andersen & Co. -- Chicago..............................
23.2 Consent of Arthur Andersen -- New York...................................
23.3 Consent of Coopers & Lybrand.............................................
23.4 Consent of Ernst & Young*................................................
23.5 Consent of William Blair & Company*......................................
23.6 Consent of Schiff Hardin & Waite (contained in their Opinion filed as
Exhibit 5)...............................................................
24 Powers of Attorney*......................................................
99 Form of Proxy............................................................
</TABLE>
- -------------------------
* Previously filed.
II-5
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION
OF
SERIES A $0.62 CUMULATIVE CONVERTIBLE
PREFERRED STOCK
OF
SCOTSMAN INDUSTRIES, INC.
(PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Scotsman Industries, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation (the "Board of Directors") by the
provisions of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 10,000,000
shares of Preferred Stock, par value $1.00 per share, of the Corporation
authorized in Article Fourth of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock consisting of 2,000,000 shares, which
series shall have the following powers, designations, preferences and relative,
participating, optional or other rights, and the following qualifications,
limitations and restrictions (in addition to the powers, designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations and restrictions, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount. The shares of such series shall be
designated as "Series A $0.62 Cumulative Convertible Preferred Stock" (the
"Series A Preferred Stock") and the authorized number of shares constituting
such series shall be 2,000,000. Shares of the Series A Preferred Stock shall
have a stated value of $11.25 per share.
Section 2. Dividends.
(a) The holders of shares of the Series A Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, cumulative cash dividends
on the shares of
<PAGE> 2
the Series A Preferred Stock at the rate of $0.62 per annum per
share, and no more, payable in equal quarterly installments on January 15,
April 15, July 15 and October 15 in each year, commencing [July 15, 1994];
provided that accumulated and unpaid dividends for any prior quarterly period
may be paid at any time; and provided further that if any such date is a
Saturday, Sunday or legal holiday then such dividend shall be payable on the
first immediately succeeding calendar day which is not a Saturday, Sunday or
legal holiday. For purposes hereof, the term legal holiday shall mean any day
on which banking institutions are authorized to close in New York, New York.
Such dividends shall be cumulative from the date of original issue of each
share of the Series A Preferred Stock, whether or not there shall be funds
legally available for the payment of dividends on any quarterly payment date.
Each such dividend shall be paid to the holders of record of the shares of the
Series A Preferred Stock as they appear on the share register of the
Corporation on such record date, not more than 30 days nor less than 10 days
preceding the dividend payment date thereof, as shall be fixed by the Board of
Directors or a duly authorized committee thereof. If a holder converts a share
or shares of the Series A Preferred Stock after the close of business on the
record date for a dividend and before the opening of business on the payment
date for such dividend, then, pursuant to Section 6 hereof, the holder will be
required to pay to the Corporation at the time of such conversion the amount of
such dividend (unless such share or shares have been called for redemption and
the date fixed for redemption is after such record date and on or prior to such
payment dates, in which case the holder shall not be required to make such
payment).
(b) If dividends are not paid in full, or declared in full and sums set
apart for the payment thereof, upon the shares of the Series A Preferred Stock
and shares of any other preferred stock ranking on a parity as to dividends with
the Series A Preferred Stock, all dividends declared upon shares of the Series A
Preferred Stock and of any other preferred stock ranking on a parity as to
dividends shall be paid or declared pro rata so that in all cases the amount of
dividends paid or declared per share on the Series A Preferred Stock and such
other shares of preferred stock shall bear to each other the same ratio that
unpaid accumulated dividends per share, including dividends accrued or in
arrears, if any, on the shares of the Series A Preferred Stock and such other
shares of preferred stock bear to each other. Unless and until full cumulative
dividends on the shares of the Series A Preferred Stock in respect of all past
quarterly dividend periods have been paid, and the full amount of dividends on
the shares of the Series A Preferred Stock in respect of the then current
quarterly dividend period shall have been declared in full and sums set aside
for the payment thereof, no dividends (other than dividends in shares of the
Common Stock (as hereinafter defined) or in shares of any other capital stock
-2-
<PAGE> 3
of the Corporation ranking junior to the Series A Preferred Stock as to
dividends) shall be paid or declared and set aside for payment or other
distribution made upon the Corporation's Common Stock, par value $.10 per share
(the "Common Stock"), or any other capital stock of the Corporation ranking
junior to or on a parity with the Series A Preferred Stock as to dividends, nor
shall any shares of the Common Stock or shares of any other capital stock of
the Corporation ranking junior to or on a parity with the Series A Preferred
Stock as to dividends be redeemed, retired, purchased or otherwise acquired for
any consideration (or any payment made to or available for a sinking fund for
the redemption of any such shares) by the Corporation or any subsidiary of the
Corporation (except by conversion into or exchange for shares of capital stock
of the Corporation ranking junior to the Series A Preferred Stock as to
dividends). Holders of shares of the Series A Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or shares of
capital stock, in excess of full accrued and cumulative dividends as herein
provided. No interest or sum of money in lieu of interest shall be payable in
respect of any dividend payment or payments on the shares of the Series A
Preferred Stock that may be in arrears.
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used herein with reference to shares of preferred stock shall
be deemed to mean an amount which shall be equal to dividends thereon at the
annual dividend rates per share for the respective series from the date or dates
on which such dividends commence to accrue to the end of the then current
quarterly dividend period for such preferred stock (or, in the case of
redemption, to the date of redemption), whether or not earned or declared and
whether or not assets for the Corporation are legally available therefor, less
the amount of all such dividends paid, or declared in full and sums set aside
for the payment thereof, upon such shares of preferred stock.
(c) Dividends payable on the shares of the Series A Preferred Stock for
any period less than a full quarterly dividend period shall be computed on the
basis of a 360-day year of twelve 30-day months and the actual number of days
elapsed in the period for which payable.
Section 3. Optional Redemption.
(a) Subject to Section 3(e), the shares of the Series A Preferred Stock
will be redeemable at the option of the Corporation by resolution of its Board
of Directors, in whole or from time to time in part, subject to the limitations
set forth below, at the following redemption prices per share plus, in each
case, all dividends accrued and unpaid on the shares of the Series A Preferred
Stock up to the date fixed for redemption, (each such price, plus such dividends
accrued and unpaid, being
-3-
<PAGE> 4
called the "Redemption Price") upon giving notice as provided hereinbelow:
<TABLE>
<CAPTION>
If redeemed during
the twelve-month
period beginning
[May 1,] Price
------------------ -----
<S> <C>
1994 $ 11.87
1995 11.81
1996 11.76
1997 11.70
1998 11.64
1999 11.59
2000 11.53
2001 11.48
2002 11.42
2003 11.36
2004 and thereafter 11.25
</TABLE>
The Series A Preferred Stock will not be redeemable prior to [May 1,] 1999
unless, on the date of such resolution, the closing price for the shares of the
Common Stock shall have theretofore equalled or exceeded 140% of the conversion
price then in effect (determined as provided in Section 6) for any period of at
least ten consecutive trading days. The closing price for shares of the Common
Stock for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New York Stock
Exchange, or if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, the closing sale price of the Common
Stock, or in case no reported sale takes place, the average of the closing bid
and asked prices, on NASDAQ or any comparable system or if the Common Stock is
not quoted on NASDAQ or any comparable system, the closing sale price or, in
case no reported sale takes place, the average of the closing bid and ask
prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose.
(b) If less than all of the outstanding shares of the Series A
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
determined pro rata or by lot or in such other manner and subject to such
regulations as the Board of Directors in its sole discretion shall prescribe.
-4-
<PAGE> 5
(c) At least 30 days but not more than 60 days prior to the date fixed
for the redemption of shares of the Series A Preferred Stock, a written notice
shall be mailed to each holder of record of shares of the Series A Preferred
Stock to be redeemed in a postage prepaid envelope addressed to such holder at
such holder's post office address as shown on the records of the Corporation,
notifying such holder of the election of the Corporation to redeem such shares,
stating the date fixed for redemption thereof (the "Redemption Date"),
specifying the Redemption Price, specifying the then effective conversion price
pursuant to Section 6, and calling upon such holder to surrender to the
Corporation on the Redemption Date at the place designated in such notice (which
shall be in the Borough of Manhattan, The City of New York, State of New York,
or the City of Chicago, Illinois) his certificate or certificates representing
the number of shares specified in such notice of redemption. On or after the
Redemption Date each holder of shares of the Series A Preferred Stock to be
redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation at the place designated in such notice and against
such surrender the Redemption Price of such shares shall be paid to or on the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be cancelled. If a
notice of redemption has been given pursuant to this Section 4 and any holder of
shares of the Series A Preferred Stock shall, prior to the close of business on
the last business day preceding the Redemption Date, give written notice to the
Corporation pursuant to Section 6 below of the conversion of any or all of the
shares to be redeemed held by such holder (accompanied by a certificate or
certificates for such shares, a duly executed notice of election to convert and
instruments of transfer and such taxes, stamps, funds or other evidence of
payment, as required by Section 6 below), then such redemption shall not become
effective as to such shares to be converted, such conversion shall become
effective as provided in Section 6 below and any moneys deposited or set aside
by the Corporation for the redemption of such shares of converted Series A
Preferred Stock shall revert to the general funds of the Corporation. In case
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. From and after
the Redemption Date (unless default shall be made by the Corporation in payment
in full of the Redemption Price), all dividends on the shares of the Series A
Preferred Stock designated for redemption in such notice shall cease to accrue,
and all rights of the holders thereof as stockholders of the Corporation, except
the right to receive the Redemption Price of such shares (including all accrued
and unpaid dividends up to the Redemption Date) upon the surrender of
certificates representing the same, shall cease and terminate and such shares
shall not thereafter be transferred (except with the consent of the Corporation)
on the books of the Corporation, and such shares
-5-
<PAGE> 6
shall not be deemed to be outstanding for any purpose whatsoever. At its
election, the Corporation prior to the Redemption Date may deposit the
Redemption Price (including all accrued and unpaid dividends up to the
Redemption Date) of shares of the Series A Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust company
(having a capital surplus and undivided profits aggregating not less than
$50,000,000) in the Borough of Manhattan, City and State of New York, the City
of Chicago, State of Illinois, or in any other city in which the Corporation at
the time shall maintain a transfer agency with respect to such shares, with
irrevocable instructions and authority to redeem such shares upon surrender of
certificates therefor, in which case the aforesaid notice to holders of shares
of the Series A Preferred Stock to be redeemed shall state the date of such
deposit, shall specify the office of such bank or trust company as the place of
payment of the Redemption Price, and shall call upon such holders to surrender
the certificates representing such shares at such place on or after the date
fixed in such redemption notice (which shall not be later than the Redemption
Date) against payment of the Redemption Price (including all accrued and unpaid
dividends up to the Redemption Date). Any interest accrued on such funds shall
be paid to the Corporation from time to time. Any moneys so deposited which
shall remain unclaimed by the holders of such shares of the Series A Preferred
Stock at the end of two years after the Redemption Date shall be returned by
such bank or trust company to the Corporation; thereafter, the holders of
shares of the Series A Preferred Stock redeemed on such Redemption Date shall
look only to the Corporation for payment of the Redemption Price therefor.
(d) Shares of the Series A Preferred Stock redeemed, repurchased or
retired pursuant to the provisions of this Section 3 or surrendered to the
Corporation upon conversion shall thereupon be retired and may not be reissued
as shares of the Series A Preferred Stock but shall thereafter have the status
of authorized but unissued shares of the Preferred Stock, without designation as
to series until such shares are once more designated as part of a particular
series of the Preferred Stock.
(e) Notwithstanding the provisions of Section 3(a), in the event that
the Corporation shall have failed to declare and pay or set apart for payment in
full the dividends accumulated on the outstanding shares of the Series A
Preferred Stock for any eight quarterly dividend payment periods, whether or not
consecutive, whether or not earned or declared or whether or not any assets of
the Corporation are legally available therefor, the Series A Preferred Stock
shall not thereafter be redeemable.
-6-
<PAGE> 7
Section 4. Voting Rights.
(a) Except as otherwise provided herein or as required by law, the
holders of shares of the Series A Preferred Stock shall be entitled to vote on
any matter on which the holders of Common Stock are entitled to vote. Each share
of the Series A Preferred Stock held of record on the record date for the
determination of stockholders entitled to vote on such matter (or, if no such
record date is established, on the date such vote is taken) shall entitle the
holder thereof to cast a number of votes equal to (i) in the case of any
Designated Transaction (as defined below), the number of shares of Common Stock
into which such share of the Series A Preferred Stock is then convertible
pursuant to the provisions hereof or (ii) in the case of any other matter on
which the holders of Common Stock are entitled to vote, one-tenth (1/10) of one
vote. For purposes of this Section 4(a), a "Designated Transaction" shall mean
any consolidation or merger to which the Corporation is a party, other than a
consolidation or merger in which the Corporation is the surviving or resulting
corporation, or any sale or conveyance of all or substantially all of the
property or business of the Corporation as an entirety, in each case, if the
holders of Common Stock are entitled to vote thereon. Except as otherwise
expressly provided herein or as required by law, the holders of shares of the
Series A Preferred Stock and Common Stock shall vote together (together with any
other class or series of preferred stock of the Corporation then entitled to
vote on any matter on which the holders of Common Stock are entitled to vote)
and not as separate classes.
(b) In the event that the Corporation shall have failed to declare
and pay or set apart for payment in full the dividends accumulated on the
outstanding shares of the Series A Preferred Stock for any six quarterly
dividend payment periods, whether or not consecutive, whether or not earned or
declared or whether or not any assets of the Corporation are legally available
therefor (a "Preferential Dividend Non-Payment"), the number of directors of the
Corporation shall be increased by two and the holders of outstanding shares of
the Series A Preferred Stock, shall be entitled to elect such additional
directors until the full dividends accumulated on all outstanding shares of the
Series A Preferred Stock have been declared and paid or set apart for payment.
In any such election the holders of outstanding shares of Series A Preferred
Stock shall be entitled to cast one vote per share of Series A Preferred Stock
held of record on the record date for the determination of stockholders entitled
to vote on such election (or, if no such record date is established, on the date
such vote is taken). Upon the occurrence of a Preferential Dividend
Non-Payment, the Board of Directors shall within a reasonable period call a
special meeting of the holders of shares of the Series A Preferred Stock for the
purpose of
-7-
<PAGE> 8
electing the additional directors provided by the foregoing provisions. If and
when all accumulated dividends on the shares of the Series A Preferred Stock
have been declared and paid or set aside for payment in full, the holders of
shares of the Series A Preferred Stock shall be divested of the special voting
rights provided by this Section 4(b), subject to revesting in the event of each
and every subsequent Preferential Dividend Non-Payment. Upon termination of
such special voting rights attributable to all holders of shares of the Series
A Preferred Stock, the term of office of each director elected by the holders
of shares of the Series A Preferred Stock (a "Preferred Stock Director")
pursuant to such special voting rights shall forthwith terminate and the number
of directors constituting the entire Board of Directors shall be reduced by the
number of Preferred Stock Directors. Any Preferred Stock Director may be
removed by, and shall not be removed otherwise than by, the vote of the holders
of record of a majority of the outstanding shares of the Series A Preferred
Stock voting as a separate class, at a meeting called for such purpose. So
long as a Preferential Dividend Non-Payment shall continue, any vacancy in the
office of a Preferred Stock Director may be filled by written consent of the
Preferred Stock Director remaining in office or, if none remains in office, by
vote of the holders of record of a majority of the outstanding shares of the
Series A Preferred Stock. As long as the Preferential Dividend Non-Payment
shall continue, except as provided in Section 4(a), holders of shares of the
Series A Preferred Stock shall not, as such stockholders, be entitled to vote
on the election or removal of directors other than Preferred Stock Directors,
but shall not be divested of any other voting rights provided to such
stockholders by law with respect to any other matter to be acted upon by the
stockholders of the Corporation. Notwithstanding anything to the contrary in
this Section 4(b), the holders of outstanding shares of Series A Preferred
Stock shall not be entitled to elect more than two Preferred Stock Directors
pursuant to this Section 4(b).
Section 5. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or otherwise, the holders of
shares of the Series A Preferred Stock shall be entitled to receive, out of the
assets of the Corporation available for distribution to its shareholders, in
cash, the amount of $11.25 for each share of the Series A Preferred Stock, plus
an amount equal to all dividends accrued and unpaid on each such share up to the
date fixed for distribution, before any distribution shall be made to the
holders of shares of the Common Stock or any other capital stock of the
Corporation ranking (as to any such distribution) junior to the Series A
Preferred Stock. If upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of shares of the Series
A
-8-
<PAGE> 9
Preferred Stock and all other classes and series of preferred stock ranking (as
to any such distribution) on a parity with the Series A Preferred Stock are
insufficient to permit the payment in full to the holders of all such shares of
all preferential amounts payable to all such holders, then the entire assets of
the Corporation thus distributable shall be distributed ratably among the
holders of the shares of the Series A Preferred Stock and such other classes
and series of preferred stock ranking (as to any such distribution) on a parity
with the Series A Preferred Stock in proportion to the respective amounts that
would be payable per share if such assets were sufficient to permit payment in
full.
(b) For purposes of this Section 5, a distribution of assets in any
dissolution, winding up or liquidation shall not include (i) any consolidation
or merger of the Corporation with or into any other corporation, or (ii) a sale
or other disposition of all or substantially all of the Corporation's assets to
another corporation; provided, however, that, in each case, effective provision
is made in the certificate or incorporation of the resulting and surviving
corporation or otherwise for the protection of the rights of the holders of
shares of the Series A Preferred Stock.
(c) After the payment of the full preferential amounts provided for
herein to the holders of shares of the Series A Preferred Stock, such holders
shall be entitled to no other or further participation in the distribution of
the assets of the Corporation.
Section 6. Conversion.
(a) Holders of shares of the Series A Preferred Stock shall have the
right, exercisable at any time and from time to time to convert all or any such
shares of the Series A Preferred Stock into shares of the Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) at an
initial conversion price of $14.75 per share of the Common Stock (equivalent to
an initial conversion rate of 0.7627 shares of the Common Stock for each share
of the Series A Preferred Stock so converted), subject to adjustment as
described below. Notwithstanding the foregoing, in the case of shares of the
Series A Preferred Stock called for redemption, conversion rights will expire at
the close of business on the last business day preceding the Redemption Date.
Upon conversion, no adjustment or payment will be made for dividends or
interest, but if any holder surrenders a share of the Series A Preferred Stock
for conversion after the close of business on the record date for the payment of
a dividend and prior to the opening of business on the dividend payment date for
such dividend, then, notwithstanding such conversion, the dividend payable on
such dividend payment date will be paid to the registered holder of such share
on such
-9-
<PAGE> 10
record date. In such event, such share, when surrendered for conversion, must
be accompanied by payment of an amount equal to the dividend payable on such
dividend payment date on the share so converted (unless such share has been
called for redemption and the date fixed for redemption is after such record
date and on or prior to such payment date, in which case such payment need not
accompany such share). For purposes of this Section 6, the "conversion price"
applicable to a share of the Series A Preferred Stock shall be determined by
dividing the then existing conversion ratio into $11.25.
(b) Any holder of a share or shares of the Series A Preferred Stock
electing to convert such share or shares thereof shall deliver the certificate
or certificates therefor to the principal office of any transfer agent for the
Common Stock, with the form of notice of election to convert as the Corporation
shall prescribe fully completed and duly executed and (if so required by the
Corporation or any conversion agent) accompanied by instruments of transfer in
form satisfactory to the Corporation and to any conversion agent, duly executed
by the registered holder or his duly authorized attorney, and transfer taxes,
stamps or funds therefor or evidence of payment thereof if required pursuant to
Section 6(a) or 6(d) hereof. The Corporation shall, as soon as practicable
after such delivery and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series A Preferred Stock were so surrendered or to the nominee or
nominees of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, together with
a cash adjustment in respect of any fraction of a share of Common Stock as
hereinafter provided. The conversion right with respect to any such shares
shall be deemed to have been exercised at the date upon which the certificates
therefor accompanied by such duly executed notice of election and instruments of
transfer and such taxes, stamps, funds, or evidence of payment shall have been
so delivered, and the person or persons entitled to receive the shares of the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of the Common Stock upon said date.
(c) No fractional shares of the Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series A
Preferred Stock. If more than one share of the Series A Preferred Stock shall
be surrendered for conversion at one time by the same holder, the number of full
shares of the Common Stock which shall be issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of the Series A
Preferred Stock so surrendered. Instead of any fractional shares of the Common
Stock which would otherwise be issuable upon conversion of any shares of the
Series A Preferred Stock, the Corporation shall pay
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<PAGE> 11
a cash adjustment in respect of such fraction in an amount equal to the same
fraction of the closing price for the Common Stock on the last business day
preceding the date of conversion. The closing price for shares of the Common
Stock for such day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such date, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange, or if the Common Stock is not listed or admitted to
trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the closing sale price
of the Common Stock or in case no reported sale takes place, the average of the
closing bid and asked prices, on NASDAQ or any comparable system. If the
Common Stock is not quoted on NASDAQ or any comparable system, the Board of
Directors shall in good faith determine the current market price on the basis
of such quotation as it considers appropriate.
(d) If a holder converts a share or shares of the Series A Preferred
Stock, the Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of Common Stock upon the conversion. The holder,
however, shall pay to the Corporation the amount of any tax which is due (or
shall establish to the satisfaction of the Corporation payment thereof) if the
shares are to be issued in a name other than the name of such holder and shall
pay to the Corporation any amount required by the last sentence of Section 6(a)
hereof.
(e) The Corporation shall reserve and shall at all times have reserved
out of its authorized but unissued shares of the Common Stock, solely for the
purpose of effecting the conversion of the Series A Preferred Stock, enough
shares of the Common Stock to permit the conversion of the then outstanding
shares of the Series A Preferred Stock. All shares of the Common Stock which
may be issued upon conversion of shares of the Series A Preferred Stock shall be
validly issued, fully paid and nonassessable. The Corporation shall from time
to time, in accordance with the laws of the State of Delaware, increase the
authorized number of shares of the Common Stock if any time the number of shares
of the Common Stock authorized but not outstanding shall not be sufficient to
permit conversion of all then-outstanding shares of the Series A Preferred
Stock. In order that the Corporation may issue shares of the Common Stock upon
conversion of shares of the Series A Preferred Stock, the Corporation will as
expeditiously as possible endeavor to comply with all applicable Federal and
State securities laws (including registration with or approval of any
governmental authority) and will list on and keep listed such shares of the
Common Stock to be issued upon conversion on each securities exchange on which
the Common Stock is listed.
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<PAGE> 12
(f) The conversion rate in effect at any time shall be subject to
adjustment from time to time as follows:
(i) In case the Corporation shall (1) pay a
dividend in shares of the Common Stock to holders of the
Common Stock, (2) make a distribution in shares of the Common
Stock to holders of the Common Stock, (3) exchange outstanding
Rights (as defined on Section 6(f)(iii)) for shares of Common
Stock, (4) subdivide the outstanding shares of the Common
Stock into a greater number of shares of the Common Stock or
(5) combine the outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, the conversion
rate immediately prior to such action shall be adjusted so
that the holder of any shares of the Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to
receive the number of shares of the Common Stock which he
would have owned immediately following such action had such
shares of the Series A Preferred Stock been converted
immediately prior thereto. Adjustments made pursuant to this
Section 6(f)(i) be made successively whenever any event listed
above shall occur and shall become effective retroactively to
immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(ii) In case the Corporation shall issue rights or
warrants to all or substantially all holders of the Common
Stock entitling them (for a period commencing no earlier than
the record date for the determination of holders of the Common
Stock entitled to receive such rights or warrants and expiring
not more than 45 days after such record date) to subscribe for
or purchase shares of the Common Stock (or securities
convertible into shares of the Common Stock) at a price per
share less than the current market price (as determined
pursuant to Section 6(f)(v)) of the Common Stock on such
record date, the number of shares of the Common Stock into
which each share of the Series A Preferred Stock shall be
convertible shall be adjusted so that the same shall be equal
to the number determined by multiplying the number of shares
of the Common Stock into which such share of the Series A
Preferred Stock was convertible immediately prior to such
record date by a fraction of which the numerator shall be the
number of shares of the Common Stock outstanding on such
record date plus the number of additional shares of the Common
Stock offered (or into which the convertible securities so
offered are convertible), and of which the denominator shall
be the number of shares
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<PAGE> 13
of the Common Stock outstanding on such record date,
plus the number of shares of the Common Stock which the
aggregate offering price of the offered shares of the Common
Stock (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market
price. Such adjustments shall be made successively whenever
such rights or warrants are issued and shall become effective
retroactively to immediately after such record date.
(iii) In case the Corporation shall distribute to
all holders of the Common Stock shares of any class of capital
stock other than the Common Stock, evidences of indebtedness,
cash or other assets (other than dividends paid exclusively in
cash), or shall distribute to substantially all holders of the
Common Stock rights or warrants to subscribe for securities
(other than those referred to in Section 6(f)(ii)), then in
each such case the number of shares of the Common Stock into
which each share of the Series A Preferred Stock shall be
convertible shall be adjusted so that the same shall equal the
number determined by multiplying the number of shares of the
Common Stock into which such share of the Series A Preferred
Stock was convertible immediately prior to the date of such
distribution by a fraction of which the numerator shall be the
current market price (determined as provided in Section
6(f)(v)) of the Common Stock on the record date mentioned
below, and of which the denominator shall be such current
market price of the Common Stock, less the then fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive evidence of such fair market
value) of the portion of the assets so distributed or of such
subscription rights or warrants applicable to one share of the
Common Stock. Such adjustment shall be made successively
wherever any such distribution is made and shall become
effective retroactively to immediately after the record date
for the determination of the holders of the Common Stock
entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the Corporation shall distribute
rights or warrants (other than those referred to in Section
6(f)(ii)) ("Rights") pro rata to holders of the Common Stock
which are not separable from the Common Stock except upon the
occurrence of a contingency (including, without limitation,
the Rights referred to in Section 6(l) hereof), the
Corporation may, in lieu of making any adjustment pursuant to
this Section 6(f)(iii), make proper provision so that each
holder of a share of Series A Preferred Stock who converts
such share after the record date for such
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<PAGE> 14
distribution and prior to the expiration or redemption
of the Rights shall be entitled to receive upon such
conversion, in addition to the shares of the Common Stock
issuable upon such conversion (the "Conversion Shares"), a
number of Rights to be determined as follows: (i) if such
conversion occurs on or prior to the date for the distribution
to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of
Rights to which a holder of a number of shares of the Common
Stock equal to the number of Conversion Shares is entitled at
the time of such conversion in accordance with the terms and
provisions of and applicable to the Rights; and (ii) if such
conversion occurs after the Distribution Date, the same number
of Rights to which a holder of the number of the Common Stock
into which a share of the Series A Preferred Stock so converted
was convertible immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance
with the terms and provisions of and applicable to the Rights.
(iv) Subject to the last sentence of this Section
6(f)(iv), in case the Company shall, by dividend or otherwise,
at any time distribute to all holders of its Common Stock cash
(excluding (1) any cash that is distributed as part of a
distribution referred to in Section 6(f)(iii) and (2) any cash
that is distributed upon a reclassification, change,
consolidation, merger, sale or conveyance to which Section
6(k) applies) in an aggregate amount that, combined together
with the aggregate amount of all other distributions to all
holders of its Common Stock made exclusively in cash
(excluding distributions to the extent provided in the
preceding parenthetical) within the 12 months preceding the
date of payment of such distribution and in respect of which
no adjustment pursuant to this Section 6(f)(iv) has been made,
exceeds 15% of the product obtained by multiplying the current
market price per share (determined as provided in Section
6(f)(v)) of the Common Stock on the date for the determination
of holders of shares of Common Stock entitled to receive such
distribution by the number of shares of Common Stock
outstanding on such date, then, and in each such case,
immediately after the close of business on such date for
determination, the conversion rate shall be increased so that
the same shall equal the rate determined by dividing the
conversion rate in effect immediately prior to the close of
business on the date fixed for determination of the
stockholders entitled to receive such distribution by a
fraction (i) the numerator of which shall be equal to the
current market
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<PAGE> 15
price per share (determined as provided in Section
6(f)(v)) of the Common Stock on the date fixed for such
determination less an amount equal to the quotient obtained by
dividing (x) the excess of such combined amount over such 15%
of such product by (y) the number of shares of Common Stock
outstanding on such date for determination and (ii) the
denominator of which shall be equal to the current market price
per share (determined as provided in Section 6(f)(v)) of the
Common Stock on such date for determination.
(v) The current market price per share of the
Common Stock on any date shall be deemed to be the average of
the daily closing prices for twenty consecutive trading days
commencing thirty trading days before the day in question.
The closing price for each day shall be the last reported
sales price regular way or, in case no such reported sale
takes place on such date, the average of the reported closing
bid and asked prices regular way, in either case on the New
York Stock Exchange, or if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal
national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the closing sale
price of the Common Stock, or in case no reported sale takes
place, the average of the closing bid and asked prices, on
NASDAQ or any comparable system, or if the Common Stock is not
quoted on NASDAQ or any comparable system, the closing sale
price or, in case no reported sale takes place, the average of
the closing bid and asked prices, as furnished by any two
members of the National Association of Securities Dealers,
Inc. selected from time to time by the Corporation for that
purpose.
(vi) In any case in which this Section 6 shall
require that an adjustment be made immediately following a
record date, the Corporation may elect to defer (but only
until five business days following the mailing of the notice
described in Section 6(j)) issuing to the holder of any share
of the Series A Preferred Stock converted after such record
date the shares of the Common Stock and other capital stock of
the Corporation issuable upon such conversion over and above
the shares of the Common Stock and other capital stock of the
Corporation issuable upon such conversion only on the basis of
the conversion rate prior to adjustment; and, in lieu of the
shares the issuance of which is so deferred, the Corporation
shall issue or cause its transfer agents to issue due bills or
other
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<PAGE> 16
appropriate evidence of the right to receive such
shares.
(g) No adjustment in the conversion rate shall be required until
cumulative adjustments result in a concomitant change of 1% or more of the
conversion rate as existed prior to the last adjustment of the conversion rate;
provided, however, that any adjustments which by reason of this Section 6(g)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 6 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be. Except to the extent provided in Section 6(f)(iv), no adjustment to the
conversion rate shall be made for cash dividends.
(h) In the event that, as a result of an adjustment made pursuant
to Section 6(f), the holder of any share of the Series A Preferred Stock
thereafter surrendered for conversion shall become entitled to receive any
shares of capital stock of the Corporation other than shares of the Common
Stock, thereafter the number of such other shares so receivable upon conversion
of any shares of the Series A Preferred Stock shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained in this Section 6.
(i) The Corporation may make such increases in the conversion rate,
in addition to those required by Sections 6(f)(i), (ii), (iii) and (iv), as it
considers to be advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to the
recipients thereof.
(j) Whenever the conversion rate is adjusted as herein provided:
(1) the Corporation shall compute the adjusted conversion
rate and shall prepare a certificate signed by the Treasurer of the
Corporation setting forth the adjusted conversion rate and showing in
reasonable detail the acts upon which such adjustment is based, and
such certificate shall forthwith be filed with the transfer agent for
the Series A Preferred Stock; and
(2) a notice stating that the conversion rate has been
adjusted and setting forth the adjusted conversion rate shall
forthwith be prepared, and as soon as practicable after it is
prepared, such notice shall be mailed by the Corporation to all record
holders of shares of the Series A Preferred Stock at their last
addresses as they shall appear upon the stock transfer books of the
Corporation.
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<PAGE> 17
(k) If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of the Common Stock issuable
upon conversion of shares of the Series A Preferred Stock (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (ii) any consolidation
or merger to which the Corporation is a party other than a merger in which the
Corporation is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of the Common
Stock or (iii) any sale or conveyance of all or substantially all of the
property or business of the Corporation as an entirety (including, in the case
of any of the foregoing events, any statutory exchange of securities with
another corporation), the holder of each share of Series A Preferred Stock then
outstanding shall have the right thereafter to convert such share into the kind
and amount of shares of stock and other securities, cash and other property
receivable upon such consolidation, merger, sale, transfer, reclassification,
change or statutory exchange by a holder of the number of shares of the Common
Stock into which such share of the Series A Preferred Stock was convertible
immediately prior to such consolidation, merger, sale, transfer,
reclassification, change or statutory exchange. In any such event, effective
provision shall be made (and it shall be a condition precedent to any such
consolidation, merger, sale, transfer, reclassification, change or statutory
exchange that effective provision be made), in the articles or certificate of
incorporation of the resulting or surviving corporation or other corporation
issuing or delivering such shares of stock, other securities, cash or other
property or otherwise, so that the provisions set forth herein for the
protection of the conversion rights of the Series A Preferred Stock shall
thereafter be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities, cash or other property deliverable upon
conversion of the Series A Preferred Stock remaining outstanding or other
convertible stock or securities received by the holders of the Series A
Preferred Stock in place thereof; and any such resulting or surviving
corporation or other corporation issuing or delivering such shares of stock,
other securities, cash or other property shall expressly assume the obligation
to deliver, upon the exercise of the conversion privilege, such shares of stock,
other securities, cash or other property as the holders of shares of the Series
A Preferred Stock remaining outstanding, or other convertible stock or
securities received by the holders of shares of the Series A Preferred Stock in
place thereof, shall be entitled to receive, pursuant to the provisions hereof,
and to make provision for the protection of the conversion right as above
provided. In case shares of stock, other securities, cash or other property are
deliverable upon conversion as aforesaid, then all references to shares of
Common
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<PAGE> 18
Stock in this Section 6 shall be deemed to apply, so far as provided and as
nearly as is reasonable, to any such shares, other securities, cash or other
property. The provisions of this Section 6(k) shall similarly apply to
successive consolidations, mergers, sales, transfers, reclassifications,
changes or statutory exchanges. The foregoing, however, shall not in any way
affect the right a holder of a share of the Series A Preferred Stock may
otherwise have, pursuant to clause (ii) of the last sentence of Section
6(f)(iii), to receive Rights upon conversion of a share of the Series A
Preferred Stock.
(l) So long as Rights of the kind authorized and declared on April 14,
1989 as a dividend by the Corporation to holders of record of shares of the
Common Stock on April 14, 1989 pursuant to the Rights Agreement between the
Corporation and Harris Trust & Savings Bank, as Rights Agent, as the same may
have been and may hereafter be amended, are attached to the outstanding shares
of the Common Stock, each share of Common Stock issued upon conversion of the
shares of the Series A Preferred Stock prior to the earliest of any Distribution
Date (as defined in such Rights Agreement), any Redemption Date (as so defined),
or the Expiration Date (as so defined) shall be issued with such Rights in an
amount equal to the amount of such Rights then attached to each such outstanding
share of such Common Stock.
(m) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) authorize and declare any
dividend (or any other distribution) on the Common Stock, other than
(A) a dividend payable in shares of the Common Stock or (B) a dividend
payable in cash, other than any special or nonrecurring or other
extraordinary dividend or (2) declare or authorize a redemption or
repurchase of in excess of 10% of the then outstanding shares of the
Common Stock; or
(ii) the Corporation shall authorize the granting to all
holders of the Common Stock of rights or warrants to subscribe for or
purchase any share of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of the Common Stock (other than
a subdivision or combination of the outstanding Common Stock, or a
change in par value, or form par value to no par value, or from no par
value to par value), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the Corporation shall be required, or of the sale or transfer of all
or substantially all of the assets of the Corporation as an entirety
or of
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<PAGE> 19
any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock, and shall cause to be mailed to the holders of record
of the Series A Preferred Stock, at their last addresses as they shall appear
upon the stock transfer books of the Corporation, at least fifteen days prior
to the applicable record date hereinafter specified, a notice stating, as the
case may be, (x) the date on which a record (if any) is to be taken for the
purpose of such dividend, distribution, redemption, repurchase or granting of
rights or warrants or, if a record is not be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distribution, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of the Common
Stock of record shall be entitled to exchange their shares of the Common Stock
for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
Section 7. Limitations. In addition to any other rights provided by
applicable law, so long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds of the
outstanding shares of the Series A Preferred Stock, voting separately,
(a) create, authorize or issue any class or series of
preferred stock ranking either as to payment of dividends or
distribution of assets upon liquidation prior to the Series A
Preferred Stock; or
(b) change the preferences, rights or powers with
respect to the Series A Preferred Stock so as to affect the
Series A Preferred Stock adversely;
but (except as otherwise required by applicable law) nothing herein contained
shall require such a vote or consent (i) in connection with any increase in the
total number of authorized shares of the Common Stock, or (ii) in connection
with the
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<PAGE> 20
authorization or increase of any class or series of shares ranking, as to
dividends and in liquidation, junior to or on a parity with the Series A
Preferred Stock; provided, however, that no such vote or written consent of the
holders of the shares of the Series A Preferred Stock shall be required if, at
or prior to the time when the issuance of any such shares ranking prior to the
Series A Preferred Stock is to be made or any such change is to take effect, as
the case may be, provision is made for the redemption of all the then
outstanding shares of the Series A Preferred Stock.
Section 8. No Preemptive Rights. No holder of shares of the Series A
Preferred Stock will possess any preemptive rights to subscribe for or acquire
any unissued shares of capital stock of the Corporation (whether now or
hereafter authorized) or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares of capital stock of the
Corporation.
Section 9. Dividend Received Deduction. For federal income tax
purposes, the Corporation shall report distributions on the Series A Preferred
Stock as dividends, to the extent of the Corporation's current and accumulated
earnings and profits (as determined for federal income tax purposes). In
addition, the Corporation covenants not to take any action voluntarily which
could reasonably be expected to cause dividends on the Series A Preferred Stock
to fail to be eligible for the dividend received deduction pursuant to Section
244 of the Internal Revenue Code of 1986, as amended from time to time.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by ____________________, its ____________________, and
attested by ____________________, its ____________________ this _____ day of
__________, 1994.
SCOTSMAN INDUSTRIES, INC.
By:_________________________
Attested:
By:_________________________
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<PAGE> 1
EXHIBIT 4.3
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES B [$____] CUMULATIVE
PREFERRED STOCK
OF
SCOTSMAN INDUSTRIES, INC.
(PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
Scotsman Industries, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board of Directors")
by the provisions of the Restated Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), there hereby is created, out
of the 10,000,000 shares of Preferred Stock, par value $1.00 per share, of the
Corporation authorized in Article Fourth of the Certificate of Incorporation
(the "Preferred Stock"), a series of the Preferred Stock consisting of _______
shares, which series shall have the following powers, designations, preferences
and relative, participating, optional or other rights, and the following
qualifications, limitations and restrictions (in addition to the powers,
designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions, set forth in the
Certificate of Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount. The shares of such series shall
be designated as "Series B [$____] Cumulative Preferred Stock" (the "Series B
Preferred Stock") and the authorized number of shares constituting such series
shall be ___________. Shares of the Series B Preferred Stock shall have a
stated value of $11.25 per share.
Section 2. Dividends.
(a) The holders of shares of the Series B Preferred
Stock will be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Corporation legally
<PAGE> 2
available therefor, cumulative cash dividends on the shares of the Series B
Preferred Stock at the rate of [$____] per annum per share, and no more,
payable in equal quarterly installments on January 15, April 15, July 15 and
October 15 in each year, commencing [July 15, 1994]; provided that accumulated
and unpaid dividends for any prior quarterly period may be paid at any time;
and provided further that if any such date is a Saturday, Sunday or legal
holiday then such dividend shall be payable on the first immediately succeeding
calendar day which is not a Saturday, Sunday or legal holiday. For purposes
hereof, the term legal holiday shall mean any day on which banking institutions
are authorized to close in New York, New York. Such dividends shall be
cumulative from the date of original issue of each share of the Series B
Preferred Stock, whether or not there shall be funds legally available for the
payment of dividends on any quarterly payment date. Each such dividend shall
be paid to the holders of record of the shares of the Series B Preferred Stock
as they appear on the share register of the Corporation on such record date,
not more than 30 days nor less than 10 days preceding the dividend payment date
thereof, as shall be fixed by the Board of Directors or a duly authorized
committee thereof.
(b) If dividends are not paid in full, or declared in full and sums
set apart for the payment thereof, upon the shares of the Series B Preferred
Stock and shares of any other preferred stock ranking on a parity as to
dividends with the Series B Preferred Stock, all dividends declared upon shares
of the Series B Preferred Stock and of any other preferred stock ranking on a
parity as to dividends shall be paid or declared pro rata so that in all cases
the amount of dividends paid or declared per share on the Series B Preferred
Stock and such other shares of preferred stock shall bear to each other the
same ratio that unpaid accumulated dividends per share, including dividends
accrued or in arrears, if any, on the shares of the Series B Preferred Stock
and such other shares of preferred stock bear to each other. Unless and until
full cumulative dividends on the shares of the Series B Preferred Stock in
respect of all past quarterly dividend periods have been paid, and the full
amount of dividends on the shares of the Series B Preferred Stock in respect of
the then current quarterly dividend period shall have been declared in full and
sums set aside for the payment thereof, no dividends (other than dividends in
shares of the Common Stock (as hereinafter defined) or in shares of any other
capital stock of the Corporation ranking junior to the Series B Preferred Stock
as to dividends) shall be paid or declared and set aside for payment or other
distribution made upon the Corporation's Common Stock, par value $.10 per share
(the "Common Stock"), or any other capital stock of the Corporation ranking
junior to or on a parity with the Series B Preferred Stock as to dividends, nor
shall any shares of the Common Stock or shares of any other capital stock of
the Corporation ranking junior to or on a parity with the Series B Preferred
Stock as to dividends be redeemed,
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<PAGE> 3
retired, purchased or otherwise acquired for any consideration (or any payment
made to or available for a sinking fund for the redemption of any such shares)
by the Corporation or any subsidiary of the Corporation (except by conversion
into or exchange for shares of capital stock of the Corporation ranking junior
to the Series B Preferred Stock as to dividends). Holders of shares of the
Series B Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or shares of capital stock, in excess of full accrued
and cumulative dividends as herein provided. No interest or sum of money in
lieu of interest shall be payable in respect of any dividend payment or
payments on the shares of the Series B Preferred Stock that may be in arrears.
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used herein with reference to shares of preferred stock
shall be deemed to mean an amount which shall be equal to dividends thereon at
the annual dividend rates per share for the respective series from the date or
dates on which such dividends commence to accrue to the end of the then current
quarterly dividend period for such preferred stock (or, in the case of
redemption, to the date of redemption), whether or not earned or declared and
whether or not assets for the Corporation are legally available therefor, less
the amount of all such dividends paid, or declared in full and sums set aside
for the payment thereof, upon such shares of preferred stock.
(c) Dividends payable on the shares of the Series B Preferred Stock
for any period less than a full quarterly dividend period shall be computed on
the basis of a 360-day year of twelve 30-day months and the actual number of
days elapsed in the period for which payable.
Section 3. Optional Redemption by Corporation.
(a) Subject to Section 3(e), the shares of the Series B Preferred
Stock will be redeemable at the option of the Corporation by resolution of its
Board of Directors, in whole or from time to time in part, on and after [May
1], 1999, at a redemption price of $11.25 per share plus all dividends accrued
and unpaid on the shares of the Series B Preferred Stock up to the date fixed
for redemption (the "Redemption Price"), upon giving notice as provided
hereinbelow.
(b) If less than all of the outstanding shares of the Series B
Preferred Stock are to be redeemed, the number of shares to be redeemed shall
be determined by the Board of Directors and the shares to be redeemed shall be
determined pro rata or by lot or in such other manner and subject to such
regulations as the Board of Directors in its sole discretion shall prescribe.
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<PAGE> 4
(c) At least 30 days but not more than 60 days prior to the date
fixed for the redemption of shares of the Series B Preferred Stock, a written
notice shall be mailed to each holder of record of shares of the Series B
Preferred Stock to be redeemed in a postage prepaid envelope addressed to such
holder at such holder's post office address as shown on the records of the
Corporation, notifying such holder of the election of the Corporation to redeem
such shares, stating the date fixed for redemption thereof (the "Redemption
Date"), specifying the Redemption Price, and calling upon such holder to
surrender to the Corporation on the Redemption Date at the place designated in
such notice (which shall be in the Borough of Manhattan, The city of New York,
State of New York, or the City of Chicago, Illinois) his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Redemption Date each holder of shares of the
Series B Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at the place
designated in such notice and against such surrender the Redemption Price of
such shares shall be paid to or on the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the Redemption Date (unless
default shall be made by the Corporation in payment in full of the Redemption
Price), all dividends on the shares of the Series B Preferred Stock designated
for redemption in such notice shall cease to accrue, and all rights of the
holders thereof as stockholders of the Corporation, except the right to receive
the Redemption Price of such shares (including all accrued and unpaid dividends
up to the Redemption Date) upon the surrender of certificates representing the
same, shall cease and terminate and such shares shall not thereafter be
transferred (except with the consent of the Corporation) on the books of the
Corporation, and such shares shall not be deemed to be outstanding for any
purpose whatsoever. At its election, the Corporation prior to the Redemption
Date may deposit the Redemption Price (including all accrued and unpaid
dividends up to the Redemption Date) of shares of the Series B Preferred Stock
so called for redemption in trust for the holders thereof with a bank or trust
company (having a capital surplus and undivided profits aggregating not less
than $50,000,000) in the Borough of Manhattan, City and State of New York, the
City of Chicago, State of Illinois, or in any other city in which the
Corporation at the time shall maintain a transfer agency with respect to such
shares, with irrevocable instructions and authority to redeem such shares upon
surrender of certificates therefor, in which case the aforesaid notice to
holders of shares of the Series B Preferred Stock to be redeemed shall state
the date of such deposit, shall specify the office of such bank or trust
company as the place of payment of the Redemption Price,
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<PAGE> 5
and shall call upon such holders to surrender the certificates representing
such shares at such place on or after the date fixed in such redemption notice
(which shall not be later than the Redemption Date) against payment of the
Redemption Price (including all accrued and unpaid dividends up to the
Redemption Date). Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any moneys so deposited which shall remain
unclaimed by the holders of such shares of the Series B Preferred Stock at the
end of two years after the Redemption Date shall be returned by such bank or
trust company to the Corporation; thereafter, the holders of shares of the
Series B Preferred Stock redeemed on such Redemption Date shall look only to
the Corporation for payment of the Redemption Price therefor.
(d) Shares of the Series B Preferred Stock redeemed, repurchased or
retired pursuant to the provisions of this Section 3 shall thereupon be retired
and may not be reissued as shares of the Series B Preferred Stock but shall
thereafter have the status of authorized but unissued shares of the Preferred
Stock, without designation as to series until such shares are once more
designated as part of a particular series of the Preferred Stock.
(e) Notwithstanding the provisions of Section 3(a), in the event
that the Corporation shall have failed to declare and pay or set apart for
payment in full the dividends accumulated on the outstanding shares of the
Series B Preferred Stock for any eight quarterly dividend payment periods,
whether or not consecutive, whether or not earned or declared or whether or not
any assets of the Corporation are legally available therefor, the Series B
Preferred Stock shall not thereafter be redeemable.
Section 4. Optional Redemption by Holders.
(a) Each holder of record of shares of the Series B Preferred Stock
shall have the right, at the option of such holder, at any time on or after
[May 1], 1999, to require the Corporation, to the extent the Corporation has
legally available funds therefor, to redeem all (but not less than all) of the
shares of the Series B Preferred Shares held by such holder at the Redemption
Price therefor.
(b) The right to require redemption pursuant to Section 4(a) shall be
exercised by such a holder by giving written notice of such exercise by first
class mail, postage prepaid, and by surrendering therewith the certificate or
certificates representing such shares to the Corporation at its principal
office (or such other office or agency of the Corporation as the Corporation
may designate by notice in writing to the holders of the shares of the Series B
Preferred Stock), and thereupon the Redemption Price of such shares shall be
paid to or on the order
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<PAGE> 6
of the person whose name appears on such certificate or certificates as the
owner thereof.
(c) After receipt of the notice and certificates as specified above,
the Corporation shall redeem such shares of the Series B Preferred Stock on the
date (the "Elected Redemption Date") of the dividend payment date for the
shares of the Series B Preferred Stock next following the date of the
Corporation's receipt of such notice; provided that if the Corporation receives
such notice less than 30 days prior to such next following dividend payment
date, then the Elected Redemption Date for the shares to be redeemed pursuant
to such notice shall be the next succeeding dividend payment date. From and
after each Elected Redemption Date (unless default shall be made by the
Corporation in payment of the Redemption Price), all dividends on the shares of
the Series B Preferred Stock designated for redemption on such Elected
Redemption Date shall cease to accrue, and all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the Redemption
Price of such shares (including all accrued and unpaid dividends up to the
Elected Redemption Date), shall cease and terminate and such shares shall not
thereafter be transferred (except with the consent of the Corporation) on the
books of the Corporation, and such shares shall not be deemed to be outstanding
for any purpose whatsoever.
(d) If the funds of the Corporation legally available for redemption
of shares of the Series B Preferred Stock are insufficient to redeem the total
number of shares of the Series B Preferred Stock to be redeemed on an Elected
Redemption Date pursuant to this Section 4, any funds legally available
therefor shall be distributed ratably among the holders of such shares in
proportion to the respective amounts that would be payable if such funds were
sufficient to redeem such shares in full. The shares of the Series B Preferred
Stock not redeemed pursuant to this Section 4(d) shall remain outstanding and
entitled to all rights provided herein and a new certificate shall be issued
representing the unredeemed shares.
(e) Shares of the Series B Preferred Stock redeemed, repurchased or
retired pursuant to the provisions of this Section 4 shall thereupon be retired
and may not be reissued as shares of the Series B Preferred Stock but shall
thereafter have the status of authorized but unissued shares of the Preferred
Stock, without designation as to series until such shares are once more
designated as part of a particular series of the Preferred Stock.
Section 5. Voting Rights. Except as otherwise provided herein or as
required by law, the holders of shares of the Series B Preferred Stock shall be
entitled to vote on any matter on which the holders of Common Stock are
entitled to vote. Each share of the Series B Preferred Stock held of record on
the record date for the determination of stockholders entitled to
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<PAGE> 7
vote on such matter (or, if no such record date is established, on the date
such vote is taken) shall entitle the holder thereof to cast a number of votes
equal to one-tenth (1/10) of one vote. Except as otherwise expressly provided
herein or as required by law, the holders of shares of the Series B Preferred
Stock and Common Stock shall vote together (together with any other class or
series of preferred stock of the Corporation then entitled to vote on any
matter on which the holders of Common Stock are entitled to vote) and not as
separate classes.
Section 6. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or otherwise, the
holders of shares of the Series B Preferred Stock shall be entitled to receive,
out of the assets of the Corporation available for distribution to its
shareholders, in cash, the amount of $11.25 for each share of the Series B
Preferred Stock, plus an amount equal to all dividends accrued and unpaid on
each such share up to the date fixed for distribution, before any distribution
shall be made to the holders of shares of the Common Stock or any other capital
stock of the Corporation ranking (as to any such distribution) junior to the
Series B Preferred Stock. If upon any liquidation, dissolution or winding up
of the Corporation, the assets distributable among the holders of shares of the
Series B Preferred Stock and all other classes and series of preferred stock
ranking (as to any such distribution) on a parity with the Series B Preferred
Stock are insufficient to permit the payment in full to the holders of all such
shares of all preferential amounts payable to all such holders, then the entire
assets of the Corporation thus distributable shall be distributed ratably among
the holders of the shares of the Series B Preferred Stock and such other
classes and series of preferred stock ranking (as to any such distribution) on
a parity with the Series B Preferred Stock in proportion to the respective
amounts that would be payable per share if such assets were sufficient to
permit payment in full.
(b) For purposes of this Section 6, a distribution of assets
in any dissolution, winding up or liquidation shall not include (i) any
consolidation or merger of the Corporation with or into any other corporation,
(ii) any dissolution, liquidation, winding up or reorganization of the
Corporation immediately followed by reincorporation of another corporation or
(iii) a sale or other disposition of all or substantially all of the
Corporation's assets to another corporation; provided, however, that, in each
case, effective provision is made in the certificate or incorporation of the
resulting and surviving corporation or otherwise for the protection of the
rights of the holders of shares of the Series B Preferred Stock.
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<PAGE> 8
(c) After the payment of the full preferential amounts
provided for herein to the holders of shares of the Series B Preferred Stock
such holders shall be entitled to no other or further participation in the
distribution of the assets of the Corporation.
Section 7. Limitations. In addition to any other rights provided
by applicable law, so long as any shares of the Series B Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds of
the outstanding shares of the Series B Preferred Stock, voting separately,
(a) create, authorize or issue any class or series of
preferred stock ranking either as to payment of dividends or
distribution of assets upon liquidation prior to the Series B
Preferred Stock; or
(b) change the preferences, rights or powers with
respect to the Series B Preferred Stock so as to affect the Series B
Preferred Stock adversely;
but (except as otherwise required by applicable law) nothing herein contained
shall require such a vote or consent (i) in connection with any increase in the
total number of authorized shares of the Common Stock, or (ii) in connection
with the authorization or increase of any class or series of shares ranking, as
to dividends and in liquidation, junior to or on a parity with the Series B
Preferred Stock; provided, however, that no such vote or written consent of the
holders of the shares of the Series B Preferred Stock shall be required if, at
or prior to the time when the issuance of any such shares ranking prior to the
Series B Preferred Stock is to be made or any such change is to take effect, as
the case may be, provision is made for the redemption of all the then
outstanding shares of the Series B Preferred Stock.
Section 8. No Preemptive Rights. No holder of shares of the Series
B Preferred Stock will possess any preemptive rights to subscribe for or
acquire any unissued shares of capital stock of the Corporation (whether now or
hereafter authorized) or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares of capital stock of the
Corporation.
Section 9. Dividend Received Deduction. For federal income tax
purposes, the Corporation shall report distributions on the Series B Preferred
Stock as dividends, to the extent of the Corporation's current and accumulated
earnings and profits (as determined for federal income tax purposes). In
addition, the Corporation covenants not to take any action voluntarily
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<PAGE> 9
which could reasonably be expected to cause dividends on the Series B Preferred
Stock to fail to be eligible for the dividend received deduction pursuant to
Section 244 of the Internal Revenue Code of 1986, as amended from time to time.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designation to be signed by ____________________,
its _________________, and attested by ____________________,
its _________________ this _____ day of __________, 1994.
SCOTSMAN INDUSTRIES, INC.
By:_________________________
Attested:
By:_________________________
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<PAGE> 1
EXHIBIT 5
Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Mark C. Zaander
(312) 258-5520
March 7, 1994
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
RE: SCOTSMAN INDUSTRIES, INC.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We are acting as counsel for Scotsman Industries, Inc., a Delaware
corporation (the "Company"), in connection with the Company's filing of a
Registration Statement on Form S-4 (No. 33-52033) (the "Registration
Statement") with the Securities and Exchange Commission covering the
registration of (i) 3,392,400 shares of common stock, par value $.10 per share,
of the Company (the "Common Shares"), together with the associated Common Stock
Purchase Rights, (ii) 2,000,000 shares of Series A $0.62 Cumulative
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Series A Convertible Preferred Shares") and (iii) 1,000,000 shares of
Series B Cumulative Preferred Stock, par value $1.00 per share, of the Company
(the "Series B Preferred Shares"), to be issued pursuant to an Agreement and
Plan of Merger, dated January 11, 1994, among the Company, Scotsman Acquisition
Corporation, a wholly-owned subsidiary of the Company, DFC Holding Corporation
("DFC"), The Delfield Company, a wholly-owned subsidiary of DFC, Onex
Corporation, the holders of the common stock of DFC named therein, and
Continental Bank, N.A. (the "Merger Agreement") and a Share Acquisition
Agreement, dated as of January 11, 1994, among the Company, Whitlenge
Acquisition Limited ("WAL"), Whitlenge Drink Equipment Limited, Onex
Corporation and certain holders of the ordinary shares of WAL named therein. In
that connection, we have examined such corporate records, certificates and
other documents and have made such other factual and legal investigations as we
have deemed necessary or appropriate for the purposes of this opinion.
<PAGE> 2
Securities and Exchange Commission
March 7, 1994
Page 2
Based upon the foregoing, it is our opinion that:
(1) The Company is a corporation duly incorporated and
validly existing under the laws of the State of
Delaware.
(2) The Common Shares, together with the assciated Common
Stock Purchase Rights, the Series A Convertible
Preferred Shares and the Series B Preferred Shares
have been validly authorized and, when issued as
contemplated by the Registration Statement, will be
legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and to the reference to us under the caption
"Legal Opinions" in the Registration Statement.
Very truly yours,
SCHIFF HARDIN & WAITE
By: /s/ Mark C. Zaander
Mark C. Zaander
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports, dated February 3,
1993, included in or incorporated by reference to the Annual Report on Form 10-K
of Scotsman Industries, Inc. for the year ended January 3, 1993 and to all
references to our Firm included in or made a part of this Registration Statement
on Form S-4 of Scotsman Industries, Inc.
Arthur Andersen & Co.
Chicago, Illinois
March 7, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of (1) our
report, dated February 1, 1994, on our audit of the financial statements of DFC
Holding Corporation and its subsidiary for the years ended December 31, 1993 and
1992, (2) our report, dated September 29, 1993, on our audit of the financial
statements of DFC Holding Corporation and its subsidiary for the year ended
December 31, 1992 and for the period from April 27, 1991 to December 31, 1991
and (3) our report, dated September 29, 1993, on our audit of the financial
statements of the Delfield Division of Alco Standard Corporation for the period
from October 1, 1990 to April 26, 1991 and for the year ended September 30, 1990
and to all references to our Firm included in or made a part of this
Registration Statement on Form S-4 of Scotsman Industries, Inc.
Arthur Andersen & Co.
New York, N.Y.
March 7, 1994
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
Scotsman Industries, Inc. of our report, dated 26 January 1994, on our audits of
the financial statements of Whitlenge Drink Equipment Limited for the six-month
period ended 31 March 1992, and of Whitlenge Acquisition Limited for the year
ended 30 September 1993 and the six-month period ended 30 September 1992. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand
Birmingham, England
7 March 1994
<PAGE> 1
EXHIBIT 99
REVOCABLE PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF SCOTSMAN INDUSTRIES, INC.
The undersigned hereby appoint(s) Richard C. Osborne and Donald D. Holmes, or
either of them, as proxies for the undersigned, with full power of substitution,
to act and to vote all the shares of common stock of Scotsman Industries, Inc.
(the "Company") that the undersigned would be entitled to vote if personally
present at the special meeting of shareholders to be held on ____________, April
____ 1994, or at any adjournment thereof. Said proxies are directed to vote as
instructed on the matters set forth below and otherwise at their discretion.
Receipt of a copy of the notice of said meeting and proxy statement is hereby
acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTIONS ARE GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 ON THE REVERSE SIDE OF THIS CARD.
(PLEASE SIGN AND DATE THE REVERSE SIDE AND MAIL IN THE ENCLOSED RETURN
ENVELOPE.)
SCOTSMAN INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
FOR AGAINST ABSTAIN
1. Proposal to approve the Share Issuance / / / / / /
______________________________________
Signature
______________________________________
Signature (if held jointly)
Dated __________________________, 1994
IMPORTANT: Please sign exactly as
your name or names appear on the
left. If stock is held jointly, all
joint owners must sign. Executors,
administrators, trustees, guardians,
custodians, corporate officers and
others signing in a representative
capacity should give their full
titles.
