======================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
October 2, 1994
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-10182
-------
Scotsman Industries,
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3635892
- - - ----------------------- ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
775 Corporate Woods Parkway, Vernon Hills, Illinois 60061
-------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (708) 215-4500
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes __X__ No _____
At November 10, 1994 there were 8,267,938 shares of registrant's
common stock outstanding.
======================================================================
<PAGE>
SCOTSMAN INDUSTRIES, INC.
FORM 10-Q
October 2, 1994
INDEX
PART I--FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS-
HISTORICAL-
Condensed Statement of Income
Condensed Balance Sheet
Condensed Statement of Cash Flows
Notes to Condensed Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II--OTHER INFORMATION:
Item 1. LEGAL PROCEEDINGS
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
- 2 - <PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amount)
For the Three
Months Ended
----------------------
October 2, October 3,
1994 1993
----------- -----------
<S> <C> <C>
Net sales $86,282 $45,247
Cost of sales 61,125 31,339
----------- -----------
Gross profit $25,157 $13,908
Selling and administrative expenses 15,064 8,285
----------- -----------
Income from operations $10,093 $ 5,623
Interest expense, net 1,615 1,069
----------- -----------
Income before income taxes $ 8,478 $ 4,554
Income taxes 3,799 1,971
----------- -----------
Net income $ 4,679 $ 2,583
Preferred stock dividends 310 -
----------- -----------
Net income available to common shareholders $ 4,369 $ 2,583
=========== ===========
Net income per share (i):
Primary $ 0.52 $ 0.37
=========== ===========
Fully Diluted $ 0.44 $ 0.37
</TABLE>
=========== ===========
- 3 - <PAGE>
(i) Primary earnings per common share are computed by dividing net
income available to common shareholders by the weighted average
number of common shares and common stock equivalents outstanding
during each period: 8,379,719 and 7,005,273 for the three months
ended October 2, 1994 and October 3, 1993, respectively. The
computation for the three months ended October 2, 1994 included
the dilutive impact of common stock options outstanding. Prior
year calculations do not include the dilutive impact of stock
options as the impact was immaterial.
The calculation of fully diluted net income per share is based on
net income before preferred stock dividends. The number of
shares assumes the conversion of convertible preferred stock from
the date of issue and also includes the dilutive impact, as if
issuance had occurred on the acquisition date, of contingent
shares that will be distributed to the sellers of The Delfield
Company and Whitlenge Drink Equipment Limited, if those
businesses achieve a combined specified level of earnings during
1994. The total number of shares used in the fully diluted
earnings per share calculation for the three months ended October
2, 1994 was 10,583,355. Excluding the impact of the contingent
shares (which have not as yet been earned) from the calculation
of fully diluted net income per share would have resulted in net
income per share of $0.47 for the three months ended October 2,
1994.
See notes to unaudited condensed financial statements.
- 4 - <PAGE>
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amount)
For the Nine
Months Ended
-----------------------
October 2, October 3,
1994 1993
----------- ----------
<S> <C> <C>
Net sales $200,067 $131,829
Cost of sales 140,841 91,304
----------- -----------
Gross profit $ 59,226 $ 40,525
Selling and administrative expenses 35,240 24,305
----------- -----------
Income from operations $ 23,986 $ 16,220
Interest expense, net 3,921 3,328
----------- -----------
Income before income taxes $ 20,065 $ 12,892
Income taxes 8,970 5,719
----------- -----------
Net income before cumulative effect
of accounting changes $ 11,095 $ 7,173
Cumulative effect of accounting changes (i)
(See Note 4) - 29
----------- -----------
Net income $ 11,095 $ 7,202
Preferred stock dividends 524 -
----------- -----------
Net income available to common shareholders $ 10,571 $ 7,202
=========== ===========
Net income per share before cumulative
effect of accounting changes:
Primary $ 1.35 $ 1.02
=========== ===========
Fully diluted $ 1.22 $ 1.02
=========== ===========
Net income per share (ii):
Primary $ 1.35 $ 1.03
=========== ===========
Fully diluted $ 1.22 $ 1.03
=========== ===========
</TABLE>
- 5 - <PAGE>
(i) Changes in accounting principles related to post-retirement
health care, post-employment expenses and income taxes were
implemented in the first quarter of 1993. The cumulative effect
of these accounting changes was as follows:
Unfavorable cumulative effect of accounting change due to
post-retirement health care benefits (in thousands) of
$(1,660) pre-tax and $(1,029) after-tax.
Unfavorable cumulative effect of accounting change due to
other post-employment benefits (in thousands) of $(508) pre-
tax and $(243) after-tax.
Favorable cumulative effect of accounting change relating to
income taxes (in thousands) of $1,301.
(ii) Primary earnings per common share are computed by dividing net
income available to common shareholders by the weighted average
number of common shares and common stock equivalents outstanding
during each period: 7,842,166 and 6,998,644 for the nine months
ended October 2, 1994 and October 3, 1993, respectively. The
computation for the nine months ended October 2, 1994 includes
the dilutive impact of common stock options outstanding. Prior
year calculations do not include the dilutive impact of stock
options as the impact was immaterial.
The calculation of fully diluted net income per share is based on
net income before preferred stock dividends. The number of
shares assumes the conversion of convertible preferred stock from
the date of issue and also includes the dilutive impact, as if
issuance had occurred on the acquisition date, of contingent
shares that will be distributed to the sellers of The Delfield
Company and Whitlenge Drink Equipment Limited, if those
businesses achieve a combined specified level of earnings during
1994. The total number of shares used in the fully diluted
earnings per share calculation for the nine months ended October
2, 1994 was 9,111,023. Excluding the impact of the contingent
shares (which have not as yet been earned) from the calculation
of fully diluted net income per share would have resulted in net
income per share of $1.27 for the nine months ended October 2,
1994.
See notes to unaudited condensed financial statements.
- 6 - <PAGE>
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(In thousands)
October 2, January 2,
1994 1994
------------ ------------
<S> <C> <C>
A S S E T S (unaudited)
CURRENT ASSETS:
Cash and temporary cash investments $ 9,293 $ 8,462
Trade accounts receivable, net of reserves of $2,490 and $1,548 64,171 28,578
Inventories 44,083 25,693
Deferred income taxes 4,172 3,748
Other current assets 1,593 1,701
------------ ------------
Total current assets $123,312 $ 68,182
PROPERTIES AND EQUIPMENT, net of accumulated depreciation of $31,075 and $23,592 39,761 19,867
COST OF INVESTMENTS IN ACQUIRED BUSINESSES IN EXCESS OF THE FAIR VALUE OF NET
TANGIBLE ASSETS AT ACQUISITION, net 84,785 11,320
OTHER NONCURRENT ASSETS 3,855 3,804
------------ ------------
$251,713 $103,173
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt and capitalized
lease obligations $ 3,700 $ 2,707
Trade accounts payable 28,234 11,743
Accrued income taxes 4,879 2,087
Accrued expenses 30,039 15,327
------------ ------------
Total current liabilities $ 66,852 $ 31,864
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS 87,191 29,469
DEFERRED INCOME TAXES 2,703 435
OTHER NONCURRENT LIABILITIES 9,087 7,411
------------ ------------
Total liabilities $165,833 $ 69,179
============ ============
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value $ 846 $ 721
Preferred stock, $1.00 par value 2,000 -
Additional paid in capital 58,026 20,557
Retained earnings 30,837 20,855
Deferred compensation and unrecognized pension cost (104) (54)
Foreign currency translation adjustments (4,382) (6,741)
Less: Common stock held in treasury (1,343) (1,344)
------------ ------------
Total Shareholders' Equity $ 85,880 $ 33,994
------------ ------------
$251,713 $103,173
============ ============
</TABLE>
See notes to unaudited condensed financial statements.
- 7 - <PAGE>
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC. - CONDENSED STATEMENT OF CASH FLOWS
(Unaudited) (In Thousands)
For the Nine Months Ended
------------------------------
Oct. 2, 1994 Oct. 3, 1993
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 11,095 $ 7,202
Adjustments to reconcile net income to net cash provided by operating
activities - Depreciation and amortization 4,117 2,742
Change in assets and liabilities -
Trade accounts receivable (21,057) (10,023)
Inventories 1,095 113
Trade accounts payable and other liabilities 12,532 6,700
Other, net 384 (160)
------------- -------------
Net cash provided by operating activities $ 8,166 $ 6,574
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment $ (3,157) $ (1,982)
Proceeds from disposal of property, plant and equipment 15 -
Acquisition of Delfield and Whitlenge (65,445) -
Acquisition of Simag - (5,546)
------------- -------------
Net cash used in investing activities $ (68,587) $ (7,528)
------------- -------------
CASH FLOWS FROM FINANCING AND CAPITAL ACTIVITIES:
Principal payments under long-term debt and capitalized lease obligations $ (40,921) $ (90)
Dividends paid to shareholders (822) (525)
Issuance of long-term debt 63,000 -
Issuance of common and preferred stock 39,000 -
Additional costs from prior year purchase of Scotsman Industries,
Inc., Common Stock - (38)
Short-term debt, net 611 4,330
------------- -------------
Net cash provided by financing and capital activities $ 60,868 $ 3,677
------------- -------------
Effect of exchange rate changes on cash and temporary cash investments 384 (196)
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS $ 831 $ 2,527
CASH AND TEMPORARY CASH INVESTMENTS, beginning of period 8,462 5,202
------------- -------------
CASH AND TEMPORARY CASH INVESTMENTS, end of period $ 9,293 $ 7,729
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,384 $ 2,553
============= =============
Income taxes $ 10,983 $ 3,941
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Investment in properties and equipment through issuance of capitalized
lease obligations $ - $ -
============= =============
</TABLE>
See notes to unaudited condensed financial statements.
- 8 - <PAGE>
SCOTSMAN INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts
of Scotsman Industries, Inc. and its consolidated subsidiaries (the
"Company").
As of January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, 109, and 112. See Note 4 of Notes to
Unaudited Condensed Financial Statements. Except for the adoption of
the Accounting Standards implemented in the first quarter of 1993, all
accounting policies used in the preparation of the quarterly condensed
financial statements are consistent with the accounting policies
described in the notes to financial statements for the year ended
January 2, 1994, appearing in the Company's 1993 Annual Report to
Shareholders ("Annual Report"). 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 and the accompanying notes to consolidated financial
statements included in the aforementioned Annual Report.
(2) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
October 2, January 2,
1994 1994
---------- ----------
<S> <C> <C>
Finished goods $16,149 $14,755
Work-in-process 10,151 2,232
Raw materials 17,783 8,706
---------- ----------
Total inventories $44,083 $25,693
========== ==========
</TABLE>
The increase in total inventories from January 2, 1994 to October 2,
1994 was primarily attributable to the acquisition of The Delfield
Company ("Delfield") and Whitlenge Drink Equipment Limited
("Whitlenge") on April 29, 1994. Delfield and Whitlenge combined had
$18.3 million of inventories on April 29, 1994.
- 9 - <PAGE>
(3) CONTINGENCIES:
- - - ------------------
Pursuant to the Lead Contamination Control Act of 1988 (the "Act"),
the United States Environmental Protection Agency (the "EPA") has
published lists of water cooler models which may have water tanks with
interior surface linings containing more than 0.2 percent lead or
which are not "lead free" because a tin/lead solder was used to
connect internal parts of the cooler. These lists included certain
models of water coolers manufactured in the past by Halsey Taylor, a
former division of a Company subsidiary. The Act provides for the
issuance of a remedial action order by the United States Consumer
Product Safety Commission (the "CPSC") against the manufacturer of any
cooler listed by the EPA as containing a tank having an interior
surface lining with more than 0.2 percent lead.
On May 25, 1990, the CPSC accepted a Consent Order Agreement (the
"Consent Agreement") between the CPSC staff and the Company's
subsidiary under which the subsidiary agreed to conduct a
replacement/refund program for any Halsey Taylor tank-style water
coolers manufactured before April 1, 1979, which are water tested by
the cooler owner and shown to contribute more than twenty parts per
billion of lead to the water. The Consent Agreement resolves all
claims that the CPSC might have under the Act for issuance of an order
requiring the repair, replacement, or recall and refund of the
purchase price of water coolers manufactured by the Halsey Taylor
division before the date of the Consent Agreement.
The Company has made provisions to cover expenditures that it expects
to result from the Act. The actual cost to the Company will depend
upon, among other things, the number of cooler owners participating in
the replacement/refund program. Although no assurance can be given,
the Company believes, based upon its present expectations, that
expenditures resulting from the Act will not have a material adverse
effect on the Company's financial condition or its results of
operations. While the Company sold the assets of its Halsey Taylor
business in July, 1991, the purchaser of the Halsey Taylor business
did not assume any liability for this contingency.
On March 26, 1993, Remcor Products Company ("Remcor") filed a lawsuit
against the Company's subsidiary, Scotsman Group, Inc. and Scotsman
Group's subsidiary, Booth, Inc., in the United States District Court
for the Northern District of Illinois. In its Complaint, Remcor
alleged that certain ice/drink dispensers made and sold by Scotsman
Group and Booth infringe a patent owned by Remcor relating to a cold
plate system. The Complaint seeks compensatory damages, treble
damages for willful infringement, prejudgment interest and attorneys'
fees, and also a permanent injunction from further alleged acts of
infringement.
During the course of discovery, Remcor asserted that it has suffered
damages attributable to the Company's alleged infringement of
- 10 - <PAGE>
approximately $8.24 million during the period from 1989 through year-
end 1993, exclusive of treble damages, prejudgment interest and
attorneys' fees. This damages claim consists of claims for lost
profits and a royalty on certain sales.
The Company has denied that any of its products infringe Remcor's
patent and has asserted that the Remcor patent is invalid and
unenforceable. The Company also has strongly disputed Remcor's
contention that it is appropriate to apply a lost profits measure of
damages in this case and contended that, even assuming infringement,
validity and enforceability of the patent, the amount of compensatory
damages for sales occurring through year-end 1993 would be a royalty
of approximately $500,000.
The Company is vigorously defending this lawsuit. Sales of the
allegedly infringing ice/drink dispensers accounted for less than 5
percent of the Company's consolidated net sales in 1993 and in the
first three quarters of 1994. Although no assurances can be given,
after consultation with legal counsel, the Company does not believe
that this lawsuit will have a material adverse effect upon the
financial condition of the Company or its results of operations.
(4) CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES:
- - - -----------------------------------------------------------
Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-
retirement Benefits Other Than Pensions" ("SFAS 106") on the immediate
recognition basis. The new standard requires that the expected cost
of post-retirement benefits be charged to expense during the years
that the employees render service. Previously, the Company recognized
these costs on a pay-as-you-go basis.
The cumulative effect of this accounting change was to decrease income
for the nine months ended October 3, 1993 by $1,660,000 ($1,029,000,
or $0.15 per share, after-tax), representing the amount of unfunded
obligation measured as of January 4, 1993. This accounting change is
not expected to materially impact future operating results and is not
expected to affect the Company's cash flows because the Company plans
to continue paying the cost of post-retirement benefits when incurred.
Other than the cumulative catch-up, the impact of this accounting
change on the first nine months of 1993 was not material.
Effective January 4, 1993, the Company changed its method of
accounting for income taxes as a result of the required adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires a change in accounting
for income taxes to an asset and liability approach. The cumulative
effect of this change in 1993 was a favorable impact of $1,301,000, or
$.19 per share. The cumulative effect resulted primarily from the
- 11 - <PAGE>
recognition of the remainder of Italian tax benefits which resulted
from a prior year reorganization and adjustments for rate differences.
Effective January 4, 1993, the Company also adopted the Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Post-employment Benefits" ("SFAS 112"). The statement requires
accrual accounting for benefits provided to former or inactive
employees after employment but before retirement. The Company
previously accounted for a certain portion of these post-employment
benefits on a pay-as-you-go basis. The impact of the change to SFAS
112, was an unfavorable pre-tax amount of $508,000 ($243,000, net of
tax or $.03 per share). Other than the effect of the cumulative
catch-up, the impact on pre-tax income of this accounting change for
the first nine months of 1993 was not material.
(5) ACQUISITION OF SIMAG:
- - - --------------------------
The Company's Frimont, S.p.A. subsidiary acquired on January 8, 1993,
the assets of Simag, an ice machine manufacturer located in Milan,
Italy. The method of accounting used for the combination was the
purchase method. The results of Simag are included in the income
statements for the Company beginning after January 8, 1993. Simag was
acquired for $5.5 million and no shares of stock were or will be
issued as a result of this acquisition. Goodwill of $4.4 million
resulting from the Simag acquisition will be amortized over 40 years
using the straight-line method. No contingent payments, options, or
commitments were specified in the acquisition agreement of Simag. Pro
forma information has not been presented due to lack of materiality.
(6) ACQUISITION OF DELFIELD AND WHITLENGE:
- - - -------------------------------------------
On April 29, 1994, the Company completed the acquisition of The
Delfield Company ("Delfield") and Whitlenge Drink Equipment Limited
("Whitlenge") for approximately $69.3 million in a combination of
cash, preferred stock and common stock. The cash outlay was offset by
cash on the books of the acquired businesses at closing of $3.9
million. Scotsman shareholders approved the issuance of common and
preferred stock related to the acquisition at a special shareholders
meeting held on April 28, 1994.
The method of accounting which was used for the combination was the
purchase method. Allocation of the purchase price has not been
finalized; however, it is expected to be completed within twelve
months of the acquisition. The preliminary amount of goodwill
allocated to Delfield and Whitlenge was $73.6 million and is being
amortized over 40 years using the straight-line method. The
acquisition price included: i) $30.4 million in cash, ii) 1.2 million
shares of common stock, (with a market value of approximately $16.5
- 12 - <PAGE>
million) and iii) 2.0 million shares of Series A $0.62 cumulative
convertible preferred stock, with an aggregate liquidation preference
of $22.5 million and which are initially convertible into 1,525,400
shares of common stock. Also, the acquisition price will include up
to 667,000 shares of additional common stock if the businesses of
Delfield and Whitlenge meet a specified level of earnings before
interest, income taxes, depreciation and amortization in fiscal year
1994. In addition, Scotsman also assumed Delfield and Whitlenge debt
of approximately $35 million. The results of Delfield and Whitlenge
are included in the income statements for the Company beginning after
April 29, 1994.
Delfield, headquartered in Mt. Pleasant, Michigan, manufactures and
sells refrigerated foodservice equipment, primarily in the United
States. Whitlenge, located near Birmingham, England, manufactures and
sells drink dispensing equipment in Western Europe.
The accompanying unaudited Condensed Pro Forma Income Statement
information is presented to illustrate the effect of certain events on
the historical Income Statement Information of Scotsman Industries,
Inc. (the "Company") as if the acquisitions of The Delfield Company
and Whitlenge Drink Equipment Limited had occurred as of the first day
of each period presented.
The pro forma information includes assumptions and estimates and is
not necessarily indicative of the results of operations of the Company
as they may be in the future or as they might have been had the
transaction occurred as discussed above.
The Condensed Pro Forma Income Statement Information should be read in
conjunction with the historical condensed financial statements and
notes thereto of the Company appearing elsewhere herein.
- 13 - <PAGE>
<TABLE>
<CAPTION>
PRO FORMA
Amounts in Thousands, except per share data
-------------------------------------------
Three Months Ended Nine Months Ended
-------------------- --------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $86,282 $77,965 $237,579 $218,476
Net income before extraordinary item and cumulative effect
of accounting changes 4,617 4,098 11,954 10,291
Net income per share before extraordinary item and
cumulative effect of accounting changes (A) $ 0.44 $ 0.39 $ 1.13 $ 0.99
Average number of common shares outstanding (B) 10,583 10,397 10,544 10,391
<FN>
(A) Pro forma net income per share ("EPS") includes the dilutive effect of up to 667,000 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
year 1994 that would require issuance of any of the 667,000 contingent shares is higher than the combined
results of Delfield and Whitlenge as reported in 1993. If all contingent shares are issued, approximately
$10 million of additional purchase price and approximately $250,000 of additional annual amortization expense
will result. Pro forma net income includes this estimated additional goodwill amortization.
(B) Pro forma weighted average number of common shares outstanding consists of the following: For all periods
presented Scotsman common stock and common stock equivalents before the impact of the issuance of the
additional 1.2 million shares in April of 1994, the additional 1.2 million shares of common stock which were
issued in April 1994, 1,525,400 common stock equivalents for the convertible preferred shares outstanding,
and 667,000 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. The computation for the
three months and nine months ended October 2, 1994 includes the dilutive effect of stock options outstanding.
The computation for the three months and nine months ended October 3, 1993 do not include the dilutive effect
of stock options outstanding as the dilutive effect is immaterial.
</TABLE>
In order to provide the financing for the cash consideration paid in
connection with the acquisition, the refinancing of the majority of
approximately $35 million in existing indebtedness of Delfield and
Whitlenge, replacement letters of credit for approximately $9 million
of the Company's outstanding industrial revenue bonds, working capital
for the Company and its subsidiaries following the acquisition, and
transaction costs associated with the acquisition, the Company entered
into a Credit Agreement, dated as of April 29, 1994 (the "New Credit
Agreement"), with a group of lenders for which The First National Bank
of Chicago ("First Chicago") acted as agent. The New Credit Agreement
establishes a revolving credit facility in the amount of $90 million.
Under the terms of the New Credit Agreement, the revolving credit
facility will reduce by $7 million at the end of years one and two,
- 14 - <PAGE>
$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. Borrowings under the New Credit Agreement will bear
interest at a floating rate based upon, at the Company's option, (i)
the higher of First Chicago's corporate base rate or the Federal funds
rate plus 1/2 percent 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 0.75 percent and
1.125 percent per annum, depending upon the Company's ratio of
earnings before interest, taxes and amortization to total interest.
The New Credit Agreement contains various financial covenants that,
among other things, require the Company to maintain, on a consolidated
basis, specified leverage, interest expense coverage and cash flow
coverage ratios, and a minimum adjusted consolidated tangible net
worth. The minimum adjusted consolidated tangible net worth covenant
has the effect of restricting the amount of the Company's dividends to
its shareholders to an amount equal to $2,000,000 plus 40 percent of
the sum of cumulative net income from May 2, 1994 forward and the net
cash proceeds from the issuance of equity securities after April 29,
1994. Under such a covenant, $26.0 million of retained earnings was
restricted as of October 2, 1994. The Company is precluded from paying
dividends to its shareholders if a default or an event which, but for
the lapse of time or the giving of notice, or both, would constitute a
default, under the New Credit Agreement has occurred and is continuing
or would occur after giving effect to the payment of such dividend.
Concurrently with the execution of the New Credit Agreement, the
Company entered into amended and restated note purchase agreements,
under which $20 million of its 11.43 percent Senior Notes due May 1,
1998 are outstanding, in order to, among other things, conform the
financial covenants in those agreements to the covenants contained in
the New Credit Agreement. The Company also terminated the $25 million
Revolving Credit Agreement which had been in place prior to the
acquisition. No amounts were outstanding under that agreement.
- 15 -
<PAGE>
SCOTSMAN INDUSTRIES, INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- - - ---------------------
Net sales for the third quarter of 1994 were $86.3 million, up $41.0
million or 91 percent from sales of $45.2 million for the third
quarter of 1993. Using constant foreign currency exchange rates, net
sales for the third quarter of 1994 were up $40.9 million or 90
percent.
Net income for the third quarter of 1994 increased $2.1 million or 81
percent compared to the third quarter of 1993. The Company reported
record earnings per share of 44 cents on a fully diluted basis for the
third quarter ended October 2, 1994, up 19 percent from the previous
record of 37 cents per share reported in the third quarter last year.
The sales and net income increases during the third quarter were
primarily attributable to the acquisition of The Delfield Company and
Whitlenge Drink Equipment Limited on April 29, 1994. The Company's
sales included the combined sales of The Delfield Company ("Delfield)
and Whitlenge Drink Equipment Limited ("Whitlenge") of $38.1 million
which represented approximately 93 percent of the $41.0 million
increase in net sales. Sales of Delfield represented 37 percent of
the Company's sales for the three months ended October 2, 1994. Sales
of Whitlenge represented 8 percent of the Company's sales for the
three months ended October 2, 1994. Compared to the prior year's pro
forma third quarter, Delfield's third quarter sales were up 17
percent, reflecting strong sales growth across all product lines,
while Whitlenge's third quarter sales rebounded and were up 14
percent.
Scotsman's worldwide ice machine sales representing approximately 49
percent of the Company's sales for the third quarter of 1994 were up 7
percent in U.S. dollars and 7 percent using constant foreign currency
exchange rates. U.S. ice machine sales for the third quarter of 1994
were up 5 percent over the third quarter of 1993, reflecting an
improving domestic market. Ice machine sales from the Company's
European businesses were up 16 percent in U.S. dollars and in local
currency. European ice machine sales were stronger as a result of
improved markets in Western Europe.
Sales of other product lines of the Company's Italian businesses
(bakery equipment, commercial refrigerators, etc.) representing 2
percent of the Company's sales for the third quarter of 1994 increased
20 percent in dollars and 19 percent in lire reflecting improvement in
Western European markets for those products.
- 16 - <PAGE>
Sales of Booth dispensing equipment representing 4 percent of the
Company's sales for the third quarter of 1994 were down 8 percent
compared to sales in the same quarter of the prior year.
Net sales for the first nine months of 1994 were $200.1 million, up
$68.2 million or 52 percent from sales of $131.8 million for the same
period of 1993. Using constant foreign currency exchange rates, net
sales for the first nine months of 1994 were up $69.8 million or 54
percent compared to the first nine months of 1993.
Net income for the first nine months of 1994 was up $3.9 million or 54
percent compared to the first nine months of 1993 which include the
cumulative effect of changes in accounting principles as discussed
below. The Company reported a record level of earnings per share of
$1.22 on a fully diluted basis for the nine-month period ended October
2, 1994, which represented an 18 percent increase compared with the
$1.03 posted for the like prior-year period.
The sales and net income increases during the nine-month period were
primarily attributable to the acquisition of The Delfield Company and
Whitlenge Drink Equipment Limited on April 29, 1994 as well as
improved results at the Scotsman domestic ice machine business. The
Company's sales were boosted by the combined sales contributions of
Delfield and Whitlenge of $62.6 million which represented approximately
92 percent of the $68.2 million increase in net sales. Sales of
Delfield represented 26 percent of the Company's sales for the nine
months ended October 2, 1994. Sales of Whitlenge represented 5 percent
of the Company's sales for the nine months ended October 2, 1994. On
a pro forma basis, sales at Whitlenge were down 3 percent for the first
nine months of 1994 compared to the prior year, while Delfield's sales
were up 20 percent for the same period.
Scotsman's worldwide ice machine sales comprised approximately 59
percent of the Company's sales for the first nine months of 1994 and
were up 5 percent in U.S. dollars, or 6 percent using constant foreign
currency exchange rates, versus prior year. U.S. ice machine sales
for the nine months of 1994 were up 6 percent over the same period in
1993, reflecting an improving domestic market. Ice machine sales from
the Company's European businesses were up 3 percent in U.S. dollars
but were up 7 percent in local currency. European ice machine sales
were stronger largely as a result of third quarter improvement in
Western European markets.
Sales of other product lines of the Company's Italian businesses
(bakery equipment, commercial refrigerators, etc.) representing 3
percent of the Company's sales for the first nine months of 1994
increased 1 percent in dollars and were up 6 percent in lire when
compared to the first nine months of 1993.
- 17 - <PAGE>
Sales of Booth dispensing equipment representing 7 percent of the
Company's sales for the first nine months of 1994 were down 2 percent
compared to sales in the same period of the prior year.
The Company's gross profit increased by $11.2 million for the three
months ended October 2, 1994 and increased by $18.7 million for the
first nine months of 1994 when compared to the same periods of the
prior year. These increases were primarily attributable to the
contributions of the acquired businesses of $10.3 million and $17.0
million for the three-month and nine-month periods in 1994,
respectively, and also improvement at the Scotsman domestic ice
machine business. The lower gross profit margin as a percentage of
sales compared to the prior year reflects the current mix of
businesses with slightly lower gross profit margins in the newly
acquired businesses and also continuing expenses associated with the
consolidation of Booth/Crystal Tips operations in Dallas.
Selling and administrative expenses increased by $6.8 million for the
quarter and $10.9 million on a year-to-date basis primarily the result
of the inclusion of Delfield and Whitlenge results and also from costs
associated with ongoing litigation. As a percentage of sales,
however, selling and administrative expenses declined from 18 percent
to 17 percent for the quarter when compared to last year's third
quarter, reflecting relatively lower selling and administrative
expenses of the newly acquired businesses.
Interest expense, net was higher for both the quarter and the year-to-
date periods compared to the same periods of the prior year.
Additional interest expense, which was incurred as a result of the
acquisitions of Delfield and Whitlenge, was partially offset by a
reduction in interest expense due to an interest rate swap agreement
which matured in April of 1994.
Income tax expense increased for both the three months and nine months
ended October 2, 1994 when compared to the comparable periods of the
prior year due to the additional pre-tax income attributable to
Delfield and Whitlenge. The effective income tax rates for the three
months and nine months ended October 2, 1994 compared to the same
periods in the prior year are slightly higher, which reflects the
impact of the change in income mix of the various businesses.
Effective January 4, 1993, the Company changed its method of
accounting for income taxes as a result of the required adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires a change in accounting
for income taxes to an asset and liability approach. The cumulative
effect of the change in 1993 was a favorable impact of $1.3 million,
or $.19 per share.
Effective January 4, 1993, the Company also adopted the Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Post-Employment Benefits" ("SFAS 112"). The statement requires
- 18 -
<PAGE>
accrual accounting for benefits provided to former or inactive
employees after employment but before retirement. The Company
previously accounted for a certain portion of these post-employment
benefits on a pay-as-you-go basis. The impact on the first nine
months of 1993 of the change to SFAS 112 was an unfavorable pre-tax
amount of $0.5 million ($0.2 million, after-tax or $.03 per share).
Effective January 4, 1993, the Company also changed its method of
accounting for retiree health care benefits as required by Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions" ("SFAS 106"). The
statement requires that the expected cost of benefits other than
pensions must be charged to expense during the years that employees
render service. The Company formerly recognized retiree health care
costs on a pay-as-you-go basis. The Company recognized in the first
quarter of 1993 immediately as a charge against earnings the entire
portion of future retiree benefit costs of $1.7 million ($1.0 million
after-tax) already earned by both active and retired employees up to
January 4, 1993. The after-tax impact of this accounting change in
the first nine months of 1993 was $0.15 per share.
The cumulative effect of the changes in accounting principles
implemented in 1993 was $29,000.
Financial Condition
- - - -------------------
Including the impact of foreign exchange translation, inventories were
up $18.4 million from January 2, 1994 which reflects primarily the
additional inventory of Delfield and Whitlenge. Including the impact
of foreign exchange translation, trade accounts receivable increased
$35.6 million which reflects the additional receivables of the
acquired businesses of $19.7 million and also the impact of the sales
increase of the other businesses of Scotsman Industries when comparing
the third quarter of 1994 to the fourth quarter of 1993.
Including the impact of foreign exchange translation, accounts payable
increased by $16.5 million from January 2, 1994 to October 2, 1994
which reflects $9.7 million of trade payables of Delfield and
Whitlenge and also reflects increased seasonal activity.
Goodwill increased $73.5 million from December of 1993 which reflects
primarily the preliminary amount of goodwill allocated in the
acquisitions of The Delfield Company and Whitlenge Drink Equipment
Limited.
The non-current portion of long-term debt and capitalized leases
increased by $57.7 million from January 2, 1994. The Company issued
$63.0 million of domestic long-term debt of which a portion was used
to repay $31.3 million of approximately $35 million of debt and leases
assumed on April 29, 1994 in the acquisition of Delfield and
- 19 - <PAGE>
Whitlenge. The Company has also repaid $9.4 million of domestic long-
term debt since the acquisition of Delfield and Whitlenge.
Shareholders' equity increased by $51.9 million from December of 1993
primarily due to net income of $11.1 million for the first nine months
of 1994 and the issuance of $39.0 million in a combination of
cumulative convertible preferred stock and common stock to effect the
acquisition, along with the changes in accumulated translation of $2.4
million during the first nine months of 1994. These changes, which
were accompanied by increases in long-term domestic debt, caused the
debt-to-equity ratio to climb from 0.9 to 1 as of January 2, 1994 to
1.1 to 1 as of October 2, 1994.
On February 17, 1994, June 10, 1994 and August 11, 1994 the Company's
Board of Directors declared a dividend of 2 1/2 cents per share
payable to shareholders of record of the Company's common stock on
March 31, 1994, June 30, 1994, and September 30, 1994 respectively.
- 20 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Patent Litigation Relating to Booth Ice/Drink Dispenser. As
more fully described under Part I, Item 3, in the Company's
Annual Report on Form 10-K for the fiscal year ended January
2, 1994, on March 26, 1993, Remcor filed a lawsuit against
the Company's subsidiary, Scotsman Group, Inc., and Scotsman
Group's subsidiary, Booth, Inc., in the United States
District Court for the Northern District of Illinois.
Discovery in this case has been closed. No trial date has
been set, but the presiding judge has indicated that the
case is ready for trial. See also Note 3 to the Financial
Statements included in Part I of this Quarterly Report on
Form 10-Q.
Litigation Relating to the Glenco Star Lease. As more fully
described under Part I, Item 3, in the Company's Annual
Report on Form 10-K for the fiscal year ended January 2,
1994, on July 1, 1993, Jerome P. and Flora P. Heilweil, as
landlords of the facility which housed the Company's former
Glenco-Star division (the "Landlords"), filed a lawsuit
against Scotsman Group Inc. and Glenco Star Corporation, the
then current tenant, in the United States District Court for
the Eastern District of Pennsylvania. In the complaint, the
Landlords alleged that the defendants had violated the lease
by failing to obtain the Landlords' consent to the
assignment of the lease to Glenco Star Corporation in
September, 1992, by failing to make approximately $600,000
in maintenance and repairs to the facility and by making
alterations to the property without the Landlords' consent.
The complaint seeks recovery of damages in an amount
sufficient to perform the alleged repair and maintenance
obligations, and a declaration that the Landlords may
accelerate rent and regain possession of the property before
the lease expires in August, 1996.
On March 22, 1994, Glenco Star Corporation filed a voluntary
petition under Chapter 11 of the United States Bankruptcy
Code. Glenco Star Corporation rejected its interest in the
lease under the Bankruptcy Code and vacated the leased
premises during August, 1994.
An arbitrator has been appointed to conduct a binding
arbitration to resolve the Landlords' claim that the
tenant's maintenance and repair obligations under the lease
have been breached. The Company expects that the
arbitration hearing will be held during the months of
December, 1994 through February, 1995.
- 21 -
<PAGE>
Litigation Relating to the Letter of Credit Furnished in
Connection with the Glenco Star Lease. As more fully
described under Part II, Item 1, in the Company's Quarterly
Report on Form 10-Q for the Quarterly Period Ended July 3,
1994, on August 4, 1994, Glenco Holdings, Inc. and James
Ferrell, a principal stockholder of Glenco Holdings, Inc.,
filed a lawsuit against the Company and Boatmen's First
National Bank of Kansas City (the "Bank") in the Circuit
Court of Jackson County, Missouri. In their complaint, the
plaintiffs allege that any attempt by the Company to draw
against a certain letter of credit in the amount of $1.5
million would breach a contract entered into between the
Company, Glenco Holdings, Inc. and Glenco Star Corporation
at the time of the Company's sale of Glenco Star Corporation
to Glenco Holdings, Inc. The plaintiffs also filed a
motion for a preliminary injunction on August 4, 1994,
seeking to enjoin the Company from drawing upon, and the
Bank from paying pursuant to, the letter of credit.
The letter of credit was furnished to the Company by Glenco
Holdings, Inc. in connection with the sale of Glenco Star
Corporation to Glenco Holdings, Inc. and the assumption by
Glenco Star Corporation of the Company's obligations under a
lease of the facility which housed the Company's former
Glenco Star division. The Company has not been released
from its obligations to the Landlords under the lease which
expires in August, 1996. Under the terms of the letter of
credit, the Bank is obligated to reimburse the Company for
the amount of any rent payments made by the Company to the
Landlords under the lease after August 1, 1994.
On August 22, 1994, the Company filed a motion to dismiss
the plaintiffs' complaint on a variety of grounds. Both the
plaintiffs' motion for a preliminary injunction and the
Company's motion to dismiss are currently scheduled to be
heard on December 9, 1994. Since August, 1994, the Company
has drawn against the letter of credit in the amount of the
minimum monthly rental payments due and paid by the Company
under the lease.
- 22 -
<PAGE>
PART II. OTHER INFORMATION - cont'd
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 ISDA Master Agreement, dated as of May
19, 1994, including the Schedule
thereto, dated as of May 19, 1994, and
an Amended Confirmation, dated June 6,
1994, between Bank of America Illinois
(formerly known as Continental Bank) and
Scotsman Group Inc.
Exhibit 27 Article 5 Financial Data Schedule for
the Period Ended October 2, 1994.
(b) The Registrant filed no reports on Form 8-K during
the quarterly period ended October 2, 1994.
- 23 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SCOTSMAN INDUSTRIES, INC.
Date November 14, 1994 By: /s/ Donald D. Holmes
--------------------------
Donald D. Holmes
Vice President - Finance
and Secretary
- 24 - <PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Number Description Page Number
<S> <C> <C>
10.1 ISDA Master Agreement, dated as of May 26
19, 1994, including the Schedule thereto,
dated as of May 19, 1994, and an Amended
Confirmation, dated June 6, 1994, between
Bank of America Illinois (formerly known
as Continental Bank) and Scotsman Group Inc.
27 Article 5 Financial Data Schedule for the 65
Period Ended October 2, 1994.
</TABLE>
- 25 - <PAGE>
EXHIBIT 10.1
(Multicurrency--Cross Border)
ISDA
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
MASTER AGREEMENT
dated as of May 19, 1994.
------------
BANK OF AMERICA ILLINOIS (formerly known as Continental Bank) and
SCOTSMAN GROUP INC. have entered and/or anticipate entering into one
or more transactions (each a "Transaction") that are or will be
governed by this Master Agreement, which includes the schedule (the
"Schedule"), and the documents and other confirming evidence (each a
"Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) Definitions. The terms defined in Section 14 and in the Schedule
will have the meanings therein specified for the purpose of this
Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of this Master
Agreement, the Schedule will prevail. In the event of any
inconsistency between the provisions of any Confirmation and this
Master Agreement (including the Schedule), such Confirmation will
prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance
on the fact that this Master Agreement and all Confirmations form a
single agreement between the parties (collectively referred to as this
"Agreement"), and the parties would not otherwise enter into any
Transactions.
2. OBLIGATIONS
(a) General Conditions.
(i) Each party will make each payment or delivery specified in
each Confirmation to be made by it, subject to the other
provisions of this Agreement.
(ii) Payments under this Agreement will be made on the due date
for value on that date in the place of the account specified in
the relevant Confirmation or otherwise pursuant to this
Agreement, in freely transferable funds and in the manner
customary for payments in the required currency. Where
settlement is by delivery (that is, other than by payment), such
delivery will be made for receipt on the due date in the manner <PAGE>
customary for the relevant obligation unless otherwise specified
in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is
subject to (1) the condition precedent that no Event of Default
or Potential Event of Default with respect to the other party has
occurred and is continuing, (2) the condition precedent that no
Early Termination Date in respect of the relevant Transaction has
occurred or been effectively designated and (3) each other
applicable condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for
receiving a payment or delivery by giving notice to the other party at
least five Local Business Days prior to the scheduled date for the
payment or delivery to which such change applies unless such other
party gives timely notice of a reasonable objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's
obligation to make payment of any such amount will be automatically
satisfied and discharged and, if the aggregate amount that would
otherwise have been payable by one party exceeds the aggregate amount
that would otherwise have been payable by the other party, replaced by
an obligation upon the party by whom the larger aggregate amount would
have been payable to pay to the other party the excess of the larger
aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a
net amount will be determined in respect of all amounts payable on the
same date in the same currency in respect of such Transactions,
regardless of whether such amounts are payable in respect of the same
Transaction. The election may be made in the Schedule or a
Confirmation by specifying that subparagraph (ii) above will not apply
to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above
will not, or will cease to, apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of Offices
through which the parties make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made
without any deduction or withholding for or on account of any Tax
unless such deduction or withholding is required by any
applicable law, as modified by the practice of any relevant
governmental revenue authority, then in effect. If a party is so
required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such
requirement; <PAGE>
(2) pay to the relevant authorities the full amount
required to be deducted or withheld (including the full
amount required to be deducted or withheld from any
additional amount paid by X to Y under this Section 2(d))
promptly upon the earlier of determining that such deduction
or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a
certified copy), or other documentation reasonably
acceptable to Y, evidencing such payment to such
authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in
addition to the payment to which Y is otherwise entitled
under this Agreement, such additional amount as is necessary
to ensure that the net amount actually received by Y (free
and clear of Indemnifiable Taxes, whether assessed against X
or Y) will equal the full amount Y would have received had
no such deduction or withholding been required. However, X
will not be required to pay any additional amount to Y to
the extent that it would not be required to be paid but
for:--
(A) the failure by Y to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d); or
(B) the failure of a representation made by Y pursuant
to Section 3(f) to be accurate and true unless such
failure would not have occurred but for (1) any action
taken by a taxing authority, or brought in a court of
competent jurisdiction, on or after the date on which a
Transaction is entered into (regardless of whether such
action is taken or brought with respect to a party to
this Agreement) or (II) a Change in Tax Law.
(ii) Liability. If:--
(1) X is required by any applicable law, as modified
by the practice of any relevant governmental revenue
authority, to make any deduction or withholding in
respect of which X would not be required to pay an
additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed
directly against X,
then, except to the extent Y has satisfied or then satisfies
the liability resulting from such Tax, Y will promptly pay
to X the amount of such liability (including any related
liability for interest, but including any related liability
for penalties only if Y has failed to comply with or perform
-28-
<PAGE>
any agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or
effective designation of an Early Termination Date in respect of the
relevant Transaction, a party that defaults in the performance of any
payment obligation will, to the extent permitted by law and subject to
Section 6(c), be required to pay interest (before as well as after
judgment) on the overdue amount to the other party on demand in the
same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the
date of actual payment, at the Default Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of
days elapsed. If, prior to the occurrence or effective designation of
an Early Termination Date in respect of the relevant Transaction, a
party defaults in the performance of any obligation required to be
settled by delivery, it will compensate the other party on demand if
and to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will
be deemed to be repeated by each party on each date on which a
Transaction is entered into and, in the case of the representations in
Section 3(f), at all times until the termination of this Agreement)
that:--
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under
the laws of the jurisdiction of its organisation or incorporation
and, if relevant under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and
any other documentation relating to this Agreement to which it is
a party, to deliver this Agreement and any other documentation
relating to this Agreement that it is required by this Agreement
to deliver and to perform its obligations under this Agreement
and any obligations it has under any Credit Support Document to
which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to
it, any provision of its constitutional documents, any order or
judgment of any court or other agency of government applicable to
it or any of its assets or any contractual restriction binding on
or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are
required to have been obtained by it with respect to this
Agreement or any Credit Support Document to which it is a party
have been obtained and are in full force and effect and all
conditions of any such consents have been complied with; and
-29-
<PAGE>
(v) Obligations Binding. Its obligations under this Agreement
and any Credit Support Document to which it is a party constitute
its legal, valid and binding obligations, enforceable in
accordance with their respective terms (subject to applicable
bankruptcy, reorganisation, insolvency, moratorium or similar
laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential
Event of Default or, to its knowledge, Termination Event with respect
to it has occurred and is continuing and no such event or circumstance
would occur as a result of its entering into or performing its
obligations under this Agreement or any Credit Support Document to
which it is a party.
(c) Absence of Litigation. There is not pending or, to its
knowledge, threatened against it or any of its Affiliates any action,
suit or proceeding at law or in equity or before any court, tribunal,
governmental body, agency or official or any arbitrator that is likely
to affect the legality, validity or enforceability against it of this
Agreement or any Credit Support Document to which it is a party or its
ability to perform its obligations under this Agreement or such Credit
Support Document.
(d) Accuracy of Specified Information. All applicable information
that is furnished in writing by or on behalf of it to the other party
and is identified for the purpose of this Section 3(d) in the Schedule
is, as of the date of the information, true, accurate and complete in
every material respect.
(e) Payer Tax Representation. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is
accurate and true.
(f) Payee Tax Representations. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is
accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or
may have any obligation under this Agreement or under any Credit
Support Document to which it is a party:--
(a) Furnish Specified Information. It will deliver to the other
party or, in certain cases under subparagraph (iii) below, to such
government or taxing authority as the other party reasonably
directs:--
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
-30-
<PAGE>
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or
document that may be required or reasonably requested in writing
in order to allow such other party or its Credit Support Provider
to make a payment under this Agreement or any applicable Credit
Support Document without any deduction or withholding for or on
account of any Tax or with such deduction or withholding at a
reduced rate (so long as the completion, execution or submission
of such form or document would not materially prejudice the legal
or commercial position of the party in receipt of such demand),
with any such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be
executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such
Confirmation or, if none is specified, as soon as reasonably
practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to
maintain in full force and effect all consents of any governmental or
other authority that are required to be obtained by it with respect to
this Agreement or any Credit Support Document to which it is a party
and will use all reasonable efforts to obtain any that may become
necessary in the future.
(c) Comply with Laws. It will comply in all material respects with
all applicable laws and orders to which it may be subject if failure
so to comply would materially impair its ability to perform its
obligations under this Agreement or any Credit Support Document to
which it is a party.
(d) Tax Agreement. It will give notice of any failure of a
representation made by it under Section 3(f) to be accurate and true
promptly upon learning of such failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any
Stamp Tax levied or imposed upon it or in respect of its execution or
performance of this Agreement by a jurisdiction in which it is
incorporated, organised, managed and controlled, or considered to have
its seat, or in which a branch or office through which it is acting
for the purpose of this Agreement is located ("Stamp Tax
Jurisdiction") and will indemnify the other party against any Stamp
Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp
Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with
respect to the other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) Events of Default. The occurrence at any time with respect to a
party or, if applicable, any Credit Support Provider of such party or
any Specified Entity of such party of any of the following events
-31-
<PAGE>
constitutes an event of default (an "Event of Default") with respect
to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make,
when due, any payment under this agreement or delivery under
Section 2(a)(i) or 2(e) required to be made by it if such failure
is not remedied on or before the third Local Business Day after
notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with
or perform any agreement or obligation (other than an obligation
to make any payment under this Agreement or delivery under
Section 2(a)(i) or 2(e) or to give notice of a Termination Event
or any agreement or obligation under Section 4(a)(i), 4(a)(iii)
or 4(d)) to be complied with or performed by the party in
accordance with this Agreement if such failure is not remedied on
or before the thirtieth day after notice of such failure is given
to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of
such party to comply with or perform any agreement or
obligation to be complied with or performed by it in
accordance with any Credit Support Document if such failure
is continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of
this Agreement (in either case other than in accordance with
its terms) prior to the satisfaction of all obligations of
such party under each Transaction to which such Credit
Support Document relates without the written consent of the
other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a
representation under Section 3(e) or (f)) made or repeated or
deemed to have been made or repeated by the party or any Credit
Support Provider of such party in this Agreement or any Credit
Support Document proves to have been incorrect or misleading in
any material respect when made or repeated or deemed to have been
made or repeated;
(v) Default under Specified Transaction. The party, any
Credit Support Provider of such party or any applicable Specified
Entity of such party (l) defaults under a Specified Transaction
and, after giving effect to any applicable notice requirement or
grace period, there occurs a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified
Transaction, (2) defaults, after giving effect to any applicable
-32-
<PAGE>
notice requirement or grace period, in making any payment or
delivery due on the last payment, delivery or exchange date of,
or any payment on early termination of, a Specified Transaction
(or such default continues for at least three Local Business Days
if there is no applicable notice requirement or grace period) or
(3) disaffirms, disclaims, repudiates or rejects, in whole or in
part, a Specified Transaction (or such action is taken by any
person or entity appointed or empowered to operate it or act on
its behalf);
(vi) Cross Default. If "Cross Default" is specified in the
Schedule as applying to the party, the occurrence or existence of
(1) a default, event of default or other similar condition or
event (however described) in respect of such party, any Credit
Support Provider of such party or any applicable Specified Entity
of such party under one or more agreements or instruments
relating to Specified Indebtedness of any of them (individually
or collectively) in an aggregate amount of not less than the
applicable Threshold Amount (as specified in the Schedule) which
has resulted in such Specified Indebtedness becoming, or becoming
capable at such time of being declared, due and payable under
such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date
thereof in an aggregate amount of not less than the applicable
Threshold Amount under such agreements or instruments (after
giving effect to any applicable notice requirement or grace
period);
(vii) Bankruptcy. The party, any Credit Support Provider of
such party or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable
to pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for
the benefit of its creditors; (4) institutes or has
instituted against it a proceeding seeking a judgment of
insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting
creditors' rights, or a petition is presented for its
winding-up or liquidation, and, in the case of any such
proceeding or petition instituted or presented against it,
such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief
or the making of an order for its winding-up or liquidation
or (B) is not dismissed, discharged, stayed or restrained in
each case within 30 days of the institution or presentation
thereof; (5) has a resolution passed for its winding-up,
official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or
-33-
<PAGE>
other similar official for it or for all or substantially
all its assets; (7) has a secured party take possession of
all or substantially all its assets or has a distress,
execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially
all its assets and such secured party maintains possession,
or any such process is not dismissed, discharged, stayed or
restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which,
under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses
(l) to (7) (inclusive); or (9) takes any action in
furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit
Support Provider of such party consolidates or amalgamates with,
or merges with or into, or transfers all or substantially all its
assets to, another entity and, at the time of such consolidation,
amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to
assume all the obligations of such party or such Credit
Support Provider under this Agreement or any Credit Support
Document to which it or its predecessor was a party by
operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to
extend (without the consent of the other party) to the
performance by such resulting, surviving or transferee
entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a
party or, if applicable, any Credit Support Provider of such party or
any Specified Entity of such party of any event specified below
constitutes an Illegality if the event is specified in (i) below, a
Tax Event if the event is specified in (ii) below or a Tax Event Upon
Merger if the event is specified in (iii) below, and, if specified to
be applicable, a Credit Event Upon Merger if the event is specified
pursuant to (iv) below or an Additional Termination Event if the event
is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered
into, or due to the promulgation of, or any change in, the
interpretation by any court, tribunal or regulatory authority
with competent jurisdiction of any applicable law after such
date, it becomes unlawful (other than as a result of a breach by
the party of Section 4(b)) for such party (which will be the
Affected Party):--
(1) to perform any absolute or contingent obligation to
make a payment or delivery or to receive a payment or
delivery in respect of such Transaction or to comply with
-34-
<PAGE>
any other material provision of this Agreement relating to
such Transaction; or
(2) to perform, or for any Credit Support Provider of such
party to perform, any contingent or other obligation which
the party (or such Credit Support Provider) has under any
Credit Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, on or
after the date on which a Transaction is entered into (regardless
of whether such action is taken or brought with respect to a
party to this Agreement) or (y) a Change in Tax Law, the party
(which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding
Scheduled Payment Date (1) be required to pay to the other party
an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section
2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an
amount is required to be deducted or withheld for or on account
of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid
in respect of such Tax under Section 2(d)(i)(4) (other than by
reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party")
on the next succeeding Scheduled Payment Date will either (1) be
required to pay an additional amount in respect of an
Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount has been deducted or withheld for or
on account of any Indemnifiable Tax in respect of which the other
party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a
result of a party consolidating or amalgamating with, or merging
with or into, or transferring all or substantially all its assets
to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section
5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger"
is specified in the Schedule as applying to the party, such party
("X"), any Credit Support Provider of X or any applicable
Specified Entity of X consolidates or amalgamates with, or merges
with or into, or transfers all or substantially all its assets
to, another entity and such action does not constitute an event
described in Section 5(a)(viii) but the creditworthiness of the
resulting, surviving or transferee entity is materially weaker
than that of X, such Credit Support Provider or such Specified
Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as
appropriate, will be the Affected Party); or
(v) Additional Termination Event. If any "Additional
Termination Event" is specified in the Schedule or any
-35-
<PAGE>
Confirmation as applying, the occurrence of such event (and, in
such event, the Affected Party or Affected Parties shall be as
specified for such Additional Termination Event in the Schedule
or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance
which would otherwise constitute or give rise to an Event of Default
also constitutes an Illegality, it will be treated as an Illegality
and will not constitute an Event of Default.
6. EARLY TERMINATION
(a) Right to Terminate Following Event of Default. If at any time an
Event of Default with respect to a party (the "Defaulting Party") has
occurred and is then continuing, the other party (the "Non-defaulting
Party") may, by not more than 20 days notice to the Defaulting Party
specifying the relevant Event of Default, designate a day not earlier
than the day such notice is effective as an Early Termination Date in
respect of all outstanding Transactions. If, however, "Automatic
Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding
Transactions will occur immediately upon the occurrence with respect
to such party of an Event of Default specified in Section
5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8),
and as of the time immediately preceding the institution of the
relevant proceeding or the presentation of the relevant petition upon
the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto,
(8).
(b) Right to Terminate Following Termination Event
(i) Notice. If a Termination Event occurs, an Affected Party
will, promptly upon becoming aware of it, notify the other party,
specifying the nature of that Termination Event and each Affected
Transaction and will also give such other information about that
Termination Event as the other party may reasonably require.
(ii) Transfer to Avoid Termination Event. If either an
Illegality under Section 5(b)(i)(1) or a Tax Event occurs and
there is only one Affected Party, or if a Tax Event Upon Merger
occurs and the Burdened Party is the Affected Party, the Affected
Party will, as a condition to its right to designate an Early
Termination Date under Section 6(b)(iv), use all reasonable
efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20
days after it gives notice under Section 6(b)(i) all its rights
and obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such
Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will
give notice to the other party to that effect within such 20 day
period, whereupon the other party may effect such a transfer
within 30 days after the notice is given under Section 6(b)(i).
-36-
<PAGE>
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the
other party, which consent will not be withheld if such other
party's policies in effect at such time would permit it to enter
into transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section
5(b)(i)(1) or a Tax Event occurs and there are two Affected
Parties, each party will use all reasonable efforts to reach
agreement within 30 days after notice thereof is given under
Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected
with respect to all Affected Transactions within 30 days
after an Affected Party gives notice under Section 6(b)(i);
or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event
Upon Merger or an Additional Termination Event occurs, or a
Tax Event Upon Merger occurs and the Burdened Party is not
the Affected Party,
either party in the case of an Illegality, the Burdened Party in
the case of a Tax Event Upon Merger, any Affected Party in the
case of a Tax Event or an Additional Termination Event if there
is more than one Affected Party, or the party which is not the
Affected Party in the case of a Credit Event Upon Merger or an
Additional Termination Event if there is only one Affected Party
may, by not more than 20 days notice to the other party and
provided that the relevant Termination Event is then continuing,
designate a day not earlier than the day such notice is effective
as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given
under Section 6(a) or (b), the Early Termination Date will occur
on the date so designated, whether or not the relevant Event of
Default or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other
provisions of this Agreement. The amount, if any, payable in
respect of an Early Termination Date shall be determined pursuant
to Section 6(e).
-37-
<PAGE>
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable
following the occurrence of an Early Termination Date, each party
will make the calculations on its part, if any, contemplated by
Section 6(e) and will provide to the other party a statement (l)
showing, in reasonable detail, such calculations (including all
relevant quotations and specifying any amount payable under
Section 6(e)) and (2) giving details of the relevant account to
which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in
determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in
respect of any Early Termination Date under Section 6(e) will be
payable on the day that notice of the amount payable is effective
(in the case of an Early Termination Date which is designated or
occurs as a result of an Event of Default) and on the day which
is two Local Business Days after the day on which notice of the
amount payable is effective (in the case of an Early Termination
Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted
under applicable law) interest thereon (before as well as after
judgment) in the Termination Currency, from (and including) the
relevant Early Termination Date to (but excluding) the date such
amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual
number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date
occurs, the following provisions shall apply based on the parties'
election in the Schedule of a payment measure, either "Market
Quotation" or "Loss", and a payment method, either the "First Method"
or the "Second Method". If the parties fail to designate a payment
measure or payment method in the Schedule, it will be deemed that
"Market Quotation" or the "Second Method", as the case may be, shall
apply. The amount, if any, payable in respect of an Early Termination
Date and determined pursuant to this Section will be subject to any
Set-off.
(i) Events of Default. If the Early Termination Date results
from an Event of Default:--
(1) First Method and Market Quotation. If the First Method
and Market Quotation apply, the Defaulting Party will pay to
the Non-defaulting Party the excess, if a positive number,
of (A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated
Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party over (B)
the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party.
-38-
<PAGE>
(2) First Method and Loss. If the First Method and Loss
apply, the Defaulting Party will pay to the Non-defaulting
Party, if a positive number, the Non-defaulting Party's Loss
in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second
Method and Market Quotation apply, an amount will be payable
equal to (A) the sum of the Settlement Amount (determined by
the Non-defaulting Party) in respect of the Terminated
Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party less (B)
the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party. If that amount is a positive
number, the Defaulting Party will pay it to the Non-
defaulting Party; if it is a negative number, the Non-
defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
Party's Loss in respect of this Agreement. If that amount
is a positive number, the Defaulting Party will pay it to
the Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that
amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results
from a Termination Event:--
(1) One Affected Party. If there is one Affected Party,
the amount payable will be determined in accordance with
Section 6(e)(i)(3), if Market Quotation applies, or Section
6(e)(i)(4), if Loss applies, except that, in either case,
references to the Defaulting Party and to the Non-defaulting
Party will be deemed to be references to the Affected Party
and the party which is not the Affected Party, respectively,
and, if Loss applies and fewer than all the Transactions are
being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected
Parties:--
(A) if Market Quotation applies, each party will
determine a Settlement Amount in respect of the
Terminated Transactions, and an amount will be payable
equal to (I) the sum of (a) one-half of the difference
between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement
Amount of the party with the lower Settlement Amount
("Y") and (b) the Termination Currency Equivalent of
the Unpaid Amounts owing to X less (II) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y;
and
-39-
<PAGE>
(B) if Loss applies, each party will determine its
Loss in respect of this Agreement (or, if fewer than
all the Transactions are being terminated, in respect
of all Terminated Transactions) and an amount will be
payable equal to one-half of the difference between the
Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to
X; if it is a negative number, X will pay the absolute value
of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an
Early Termination Date occurs because "Automatic Early
Termination" applies in respect of a party, the amount determined
under this Section 6(e) will be subject to such adjustments as
are appropriate and permitted by law to reflect any payments or
deliveries made by one party to the other under this Agreement
(and retained by such other party) during the period from the
relevant Early Termination Date to the date for payment
determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation
applies an amount recoverable under this Section 6(e) is a
reasonable pre-estimate of loss and not a penalty. Such amount
is payable for the loss of bargain and the loss of protection
against future risks and except as otherwise provided in this
Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest
or obligation in or under this Agreement may be transferred (whether
by way of security or otherwise) by either party without the prior
written consent of the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or
transfer of all or substantially all its assets to, another entity
(but without prejudice to any other right or remedy under this
Agreement); and
(b) a party may make such a transfer of all or any part of its
interest in any amount payable to it from a Defaulting Party under
Section 6(e).
Any purported transfer that is not in compliance with this Section
will be void.
8. CONTRACTUAL CURRENCY
(a) Payment in the Contractual Currency. Each payment under this
Agreement will be made in the relevant currency specified in this
Agreement for that payment (the "Contractual Currency"). To the
-40-
<PAGE>
extent permitted by applicable law, any obligation to make payments
under this Agreement in the Contractual Currency will not be
discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the
actual receipt by the party to which payment is owed, acting in a
reasonable manner and in good faith in converting the currency so
tendered into the Contractual Currency, of the full amount in the
Contractual Currency of all amounts payable in respect of this
Agreement. If for any reason the amount in the Contractual Currency
so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the
payment will, to the extent permitted by applicable law, immediately
pay such additional amount in the Contractual Currency as may be
necessary to compensate for the shortfall. If for any reason the
amount in the Contractual Currency so received exceeds the amount in
the Contractual Currency payable in respect of this Agreement, the
party receiving the payment will refund promptly the amount of such
excess.
(b) Judgments. To the extent permitted by applicable law, if any
judgment or order expressed in a currency other than the Contractual
Currency is rendered (i) for the payment of any amount owing in
respect of this Agreement, (ii) for the payment of any amount relating
to any early termination in respect of this Agreement or (iii) in
respect of a judgment or order of another court for the payment of any
amount described in (i) or (ii) above, the party seeking recovery,
after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to
receive immediately from the other party the amount of any shortfall
of the Contractual Currency received by such party as a consequence of
sums paid in such other currency and will refund promptly to the other
party any excess of the Contractual Currency received by such party as
a consequence of sums paid in such other currency if such shortfall or
such excess arises or results from any variation between the rate of
exchange at which the Contractual Currency is converted into the
currency of the judgment or order for the purposes of such judgment or
order and the rate of exchange at which such party is able, acting in
a reasonable manner and in good faith in converting the currency
received into the Contractual Currency, to purchase the Contractual
Currency with the amount of the currency of the judgment or order
actually received by such party. The term "rate of exchange"
includes, without limitation, any premiums and costs of payable in
connection with the purchase of or conversion into the Contractual
Currency.
(c) Separate Indemnities. To the extent permitted by applicable law,
these indemnities constitute separate and independent obligations from
the other obligations in this Agreement, will be enforceable as
separate and independent causes of action, will apply notwithstanding
any indulgence granted by the party to which any payment is owed and
will not be affected by judgment being obtained or claim or proof
being made for any other sums payable in respect of this Agreement.
-41-
<PAGE>
(d) Evidence of Loss. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a
loss had an actual exchange or purchase been made.
9. MISCELLANEOUS
(a) Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties with respect to its subject
matter and supersedes all oral communication and prior writings with
respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of
this Agreement will be effective unless in writing (including a
writing evidenced by a facsimile transmission) and executed by each of
the parties or confirmed by an exchange of telexes or electronic
messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii)
and 6(c)(ii), the obligations of the parties under this Agreement will
survive the termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the
rights, powers, remedies and privileges provided in this Agreement are
cumulative and not exclusive of any rights, powers, remedies and
privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and
waiver in respect of it) may be executed and delivered in
counterparts (including by facsimile transmission), each of which
will be deemed an original.
(ii) The parties intend that they are legally bound by the
terms of each Transaction from the moment they agree to those
terms (whether orally or otherwise). A Confirmation shall be
entered into as soon as practicable and may be executed and
delivered in counterparts (including by facsimile transmission)
or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in
each case will be sufficient for all purposes to evidence a
binding supplement to this Agreement. The parties will specify
therein or through another effective means that any such
counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right,
power or privilege in respect of this Agreement will not be presumed
to operate as a waiver, and a single or partial exercise of any right,
power or privilege will not be presumed to preclude any subsequent or
further exercise, of that right, power or privilege or the exercise of
any other right, power or privilege.
-42-
<PAGE>
(g) Headings. The headings used in this Agreement are for
convenience of reference only and are not to affect the construction
of or to be taken into consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each
party that enters into a Transaction through an Office other than its
head or home office represents to the other party that,
notwithstanding the place of booking office or jurisdiction of
incorporation or organisation of such party, the obligations of such
party are the same as if it had entered into the Transaction through
its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered
into.
(b) Neither party may change the Office through which it makes and
receives payments or deliveries for the purpose of a Transaction
without the prior written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule,
such Multibranch Party may make and receive payments or deliveries
under any Transaction through any Office listed in the Schedule, and
the Office through which it makes and receives payments or deliveries
with respect to a Transaction will be specified in the relevant
Confirmation.
11. EXPENSES.
A Defaulting Party will, on demand, indemnify and hold harmless the
other party for and against all reasonable out-of-pocket expenses,
including legal fees and Stamp Tax, incurred by such other party by
reason of the enforcement and protection of its rights under this
Agreement or any Credit Support Document to which the Defaulting Party
is a party or by reason of the early termination of any Transaction,
including, but not limited to, costs of collection.
12. NOTICES
(a) Effectiveness. Any notice or other communication in respect of
this Agreement may be given in any manner set forth below (except that
a notice or other communication under Section 5 or 6 may not be given
by facsimile transmission or electronic messaging system) to the
address or number or in accordance with the electronic messaging
system details provided (see the Schedule) and will be deemed
effective as indicated:--
(i) if in writing and delivered in person or by courier, on
the date it is delivered
(ii) if sent by telex, on the date the recipient's answerback
is received;
(iii) if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the
-43-
<PAGE>
recipient in legible form (it being agreed that the burden of
proving receipt will be on the sender and will not be met by a
transmission report generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if
overseas) or the equivalent (return receipt requested), on the
date that mail is delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that
receipt, as applicable, is not a Local Business Day or that
communication is delivered (or attempted) or received, as applicable,
after the close of business on a Local Business Day, in which case
that communication shall be deemed given and effective on the first
following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other
change the address, telex or facsimile number or electronic messaging
system details at which notices or other communications are to be
given to it.
13. GOVERNING LAW AND JURISDICTION
(a) Governing Law. This Agreement will be governed by and construed
in accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings
relating to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York
and the United States District Court located in the Borough of
Manhattan in New York City, if this Agreement is expressed to be
governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the
laying of venue of any Proceedings brought in any such court,
waives any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object, with
respect to such Proceedings, that such court does not have any
jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing
Proceedings in any other jurisdiction (outside, if this Agreement is
expressed to be governed by English law, the Contracting States, as
defined in Section 1(3) of the Civil Jurisdiction and Judgments Act
1982 or any modification, extension or re-enactment thereof for the
time being in force) nor will the bringing of Proceedings in any one
or more jurisdictions preclude the bringing of Proceedings in any
other jurisdiction.
-44-
<PAGE>
(c) Service of Process. Each party irrevocably appoints the Process
Agent (if any) specified opposite its name in the Schedule to receive,
for it and on its behalf, service of process in any Proceedings. If
for any reason any party's Process Agent is unable to act as such,
such party will promptly notify the other party and within 30 days
appoint a substitute process agent acceptable to the other party. The
parties irrevocably consent to service of process given in the manner
provided for notices in Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner
permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the
fullest extent permitted by applicable law, with respect to itself and
its revenues and assets (irrespective of their use or intended use),
all immunity on the grounds of sovereignty or other similar grounds
from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of
injunction, order for specific performance or for recovery of
property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it
or its revenues or assets might otherwise be entitled in any
Proceedings in the courts of any jurisdiction and irrevocably agrees,
to the extent permitted by applicable law, that it will not claim any
such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in
Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination
Event consisting of an Illegality, Tax Event or Tax Event Upon Merger,
all Transactions affected by the occurrence of such Termination Event
and (b) with respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person,
any entity controlled, directly or indirectly, by the person, any
entity that controls, directly or indirectly, the person or any entity
directly or indirectly under common control with the person. For this
purpose, "control" of any entity or person means ownership of a
majority of the voting power of the entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Defaulting Party, the
Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e)
of either party from and after the date (determined in accordance with
Section 6(d)(ii)) on which that amount is payable, the Default Rate;
-45-
<PAGE>
(c) in respect of all other obligations payable or deliverable (or
which would have been but for Section 2(a)(iii)) by a Non-defaulting
Party, the Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or
after the date on which the relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation,
exemption, notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is
specified as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof
or evidence of any actual cost) to the relevant payee (as certified by
it) if it were to fund or of funding the relevant amount plus 1% per
annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with
Section 6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be
imposed in respect of a payment under this Agreement but for a present
or former connection between the jurisdiction of the government or
taxation authority imposing such Tax and the recipient of such payment
or a person related to such recipient (including, without limitation,
a connection arising from such recipient or related person being or
having been a citizen or resident of such jurisdiction, or being or
having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment
or fixed place of business in such jurisdiction, but excluding a
connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment
under, or enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in
the case of tax matters, by the practice of any relevant governmental
-46-
<PAGE>
revenue authority) and "lawful" and "unlawful" will be construed
accordingly.
"Local Business Day" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
exchange and foreign currency deposits) (a) in relation to any
obligation under Section 2(a)(i), in the place(s) specified in the
relevant Confirmation or, if not so specified, as otherwise agreed by
the parties in writing or determined pursuant to provisions contained,
or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located
and, if different, in the principal financial centre, if any, of the
currency of such payment, (c) in relation to any notice or other
communication, including notice contemplated under Section 5(a)(i), in
the city specified in the address for notice provided by the recipient
and, in the case of a notice contemplated by Section 2(b), in the
place where the relevant new account is to be located and (d) in
relation to Section 5(a)(v)(2), in the relevant locations for
performance with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination
Currency Equivalent of an amount that party reasonably determines in
good faith to be its total losses and costs (or gain, in which case
expressed as a negative number) in connection with this Agreement or
that Terminated Transaction or group of Terminated Transactions, as
the case may be, including any loss of bargain, cost of funding or, at
the election of such party but without duplication, loss or cost
incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or
gains) in respect of any payment or delivery required to have been
made (assuming satisfaction of each applicable condition precedent) on
or before the relevant Early Termination Date and not made, except, so
as to avoid duplication, if Section 6(e)(i)(1) or (3) or
6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees
and out-of-pocket expenses referred to under Section 11. A party will
determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter
as is reasonably practicable. A party may (but need not) determine
its Loss by reference to quotations of relevant rates or prices from
one or more leading dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated
Transactions and a party making the determination, an amount
determined on the basis of quotations from Reference Market-makers.
Each quotation will be for an amount, if any, that would be paid to
such party (expressed as a negative number) or by such party
(expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support
Document with respect to the obligations of such party) and the
quoting Reference Market-maker to enter into a transaction (the
"Replacement Transaction") that would have the effect of preserving
for such party the economic equivalent of any payment or delivery
(whether the underlying obligation was absolute or contingent and
-47-
<PAGE>
assuming the satisfaction of each applicable condition precedent) by
the parties under Section 2(a)(i) in respect of such Terminated
Transaction or group of Terminated Transactions that would, but for
the occurrence of the relevant Early Termination Date, have been
required after that date. For this purpose, Unpaid Amounts in respect
of the Terminated Transaction or group of Terminated Transactions are
to be excluded but, without limitation, any payment or delivery that
would, but for the relevant Early Termination Date, have been required
(assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement
Transaction would be subject to such documentation as such party and
the Reference Market-maker may, in good faith, agree. The party
making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably
practicable as of the same day and time (without regard to different
time zones) on or as soon as reasonably practicable after the relevant
Early Termination Date. The day and time as of which those quotations
are to be obtained will be selected in good faith by the party obliged
to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic
mean of the quotations, without regard to the quotations having the
highest and lowest values. If exactly three such quotations are
provided, the Market Quotation will be the quotation remaining after
disregarding the highest and lowest quotations. For this purpose, if
more than one quotation has the same highest value or lowest value,
then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation
in respect of such Terminated Transaction or group of Terminated
Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without
proof or evidence of any actual cost) to the Non-defaulting Party (as
certified by it) if it were to fund the relevant amount.
"Non-defaulting Parry" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such
party's head or home office.
"Potential Event of Default" means any event which, with the giving of
notice or the lapse of time or both, would constitute an Event of
Default.
"Reference Market-makers" means four leading dealers in the relevant
market selected by the party determining a Market Quotation in good
faith (a) from among dealers of the highest credit standing which
satisfy all the criteria that such party applies generally at the time
in deciding whether to offer or to make an extension of credit and (b)
to the extent practicable, from among such dealers having an office in
the same city.
"Relevant Jurisdiction" means, with respect to a party, the
jurisdictions (a) in which the party is incorporated, organised,
managed and controlled or considered to have its seat, (b) where an
-48-
<PAGE>
Office through which the party is acting for purposes of this
Agreement is located, (c) in which the party executes this Agreement
and (d) in relation to any payment, from or through which such payment
is made.
"Scheduled Payment Date" means a date on which a payment or delivery
is to be made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of
retention or withholding or similar right or requirement to which the
payer of an amount under Section 6 is entitled or subject (whether
arising under this Agreement, another contract, applicable law or
otherwise) that is exercised by, or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early
Termination Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations
(whether positive or negative) for each Terminated Transaction or
group of Terminated Transactions for which a Market Quotation is
determined; and
(b) such party's Loss (whether positive or negative and without
reference to any Unpaid Amounts) for each Terminated Transaction or
group of Terminated Transactions for which a Market Quotation cannot
be determined or would not (in the reasonable belief of the party
making the determination) produce a commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any
obligation (whether present or future, contingent or otherwise, as
principal or surety or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any
transaction (including an agreement with respect thereto) now existing
or hereafter entered into between one party to this Agreement (or any
Credit Support Provider of such party or any applicable Specified
Entity of such party) and the other party to this Agreement (or any
Credit Support Provider of such other party or any applicable
Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap,
commodity option, equity or equity index swap, equity or equity index
option, bond option, interest rate option, foreign exchange
transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including any option
with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a
Specified Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar
tax.
-49-
<PAGE>
"Tax" means any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest, penalties and
additions thereto) that is imposed by any government or other taxing
authority in respect of any payment under this Agreement other than a
stamp, registration, documentation or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination
Date (a) if resulting from a Termination Event, all Affected
Transactions and (b) if resulting from an Event of Default, all
Transactions (in either case) in effect immediately before the
effectiveness of the notice designating that Early Termination Date
(or, if "Automatic Early Termination" applies, immediately before that
Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount
denominated in the Termination Currency, such Termination Currency
amount and, in respect of any amount denominated in a currency other
than the Termination Currency (the "Other Currency"), the amount in
the Termination Currency determined by the party making the relevant
determination as being required to purchase such amount of such Other
Currency as at the relevant Early Termination Date, or, if the
relevant Market Quotation or Loss (as the case may be), is determined
as of a later date, that later date, with the Termination Currency at
the rate equal to the spot exchange rate of the foreign exchange agent
(selected as provided below) for the purchase of such Other Currency
with the Termination Currency at or about 11:00 a.m. (in the city in
which such foreign exchange agent is located) on such date as would be
customary for the determination of such a rate for the purchase of
such Other Currency for value on the relevant Early Termination Date
or that later date. The foreign exchange agent will, if only one
party is obliged to make a determination under Section 6(e), be
selected in good faith by that party and otherwise will be agreed by
the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event
Upon Merger or, if specified to be applicable, a Credit Event Upon
Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean
of the cost (without proof or evidence of any actual cost) to each
party (as certified by such party) if it were to fund or of funding
such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have
become payable but for Section 2(a)(iii)) to such party under Section
2(a)(i) on or prior to such Early Termination Date and which remain
unpaid as at such Early Termination Date and (b) in respect of each
-50-
<PAGE>
Terminated Transaction, for each obligation under Section 2(a)(i)
which was (or would have been but for Section 2(a)(iii)) required to
be settled by delivery to such party on or prior to such Early
Termination Date and which has not been so settled as at such Early
Termination Date, an amount equal to the fair market value of that
which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to
the extent permitted under applicable law) interest, in the currency
of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or
performed to (but excluding) such Early Termination Date, at the
Applicable Rate. Such amounts of interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. The
fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it
shall be the average of the Termination Currency Equivalents of the
fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the
respective date specified below with effect from the date specified on
the first page of this document.
BANK OF AMERICA ILLINOIS
(Formerly known as Continental Bank) SCOTSMAN GROUP INC.
- - - ----------------------------------- ------------------------------
(Name of Party) (Name of Party)
By: /s/ Delbert W. Jones By: /s/ Donald D. Holmes
- - - ----------------------------------- ------------------------------
Name: Delbert W. Jones Name: Donald D. Holmes
Title: Vice President Title: Vice President-
Finance & Secretary
Date:______________________________ Date:_________________________
-51-
<PAGE>
SCHEDULE
to the
MASTER AGREEMENT
dated as of May 19, 1994
between
BANK OF AMERICA ILLINOIS
(formerly known as Continental Bank, "Party A") and
SCOTSMAN GROUP INC. ("Party B").
PART 1
TERMINATION PROVISIONS
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose
of:
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv) Not Applicable.
and in relation to Party B for the purpose of:
Section 5(a)(v): Not Applicable.
Section 5(a)(vi): Not Applicable.
Section 5(a)(vii): Not Applicable.
Section 5(b)(iv): Not Applicable.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in
Section 14.
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to
both Party A and Party B; provided, however, that it shall not
constitute an Event of Default under this Section 5(a)(vi) if (A)
such event, condition or failure arises in the ordinary course of
business by mistake, oversight or transfer difficulties in the
payment of money, (B) such event, condition or failure is
remedied on or before the third Business Day after the occurrence
or existence of such event, condition or failure, and (C) no
Specified Indebtedness in an aggregate amount equal to or in
excess of the Threshold Amount is accelerated as a result of such
event, condition or failure.
If such provisions apply:
"SPECIFIED INDEBTEDNESS" means, (i) with respect to Party A
and to Party B, any obligation (whether present or future,
contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money (other than
indebtedness in respect of deposits received and letters of
credit issued) and, (ii) with respect to Party B, Specified
Indebtedness shall also include, without limitation, and
without regard to the Threshold Amount, the obligations of
Party B under the Loan Agreement (as defined herein).
-52-
<PAGE>
"SHAREHOLDERS EQUITY" means with respect to Party A, at any
time, the sum (as shown in the most recent annual audited
financial statements of such entity) of (i) its capital
stock (including preferred stock) outstanding, taken at par
value, (ii) its capital surplus and (iii) its retained
earnings, minus (iv) treasury stock, each to be determined
in accordance with generally accepted accounting principles.
"THRESHOLD AMOUNT" means (i) with respect to Party A, the
greater of $10,000,000 or 2% of Shareholder's Equity, and
(ii) with respect to Party B, $5,000,000.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv)
will apply to Party A and Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will
not apply to Party A or Party B.
(f) "PAYMENTS ON EARLY TERMINATION" For the purpose of Section 6(e)
of this Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) "ADDITIONAL TERMINATION EVENT" will not apply.
-53-
<PAGE>
PART 2
TAX REPRESENTATIONS
(a) PAYER TAX REPRESENTATION. For the purpose of Section 3(e) of
this Agreement, Party A and Party B will make the following
representation:
It is not required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, of any
Relevant Jurisdiction to make any deduction or withholding for or
on account of any Tax from any payment (other than interest under
Sections 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by
it to the other party under this Agreement. In making this
representation, it may rely on:
(i) the accuracy of any representations made by the other party
pursuant to Section 3(f) of this Agreement,
(ii) the satisfaction of the agreement contained in
Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the
other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement; and
(iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, provided
that it shall not be a breach of this representation
where reliance is placed on clause (ii) and the other
party does not deliver a form or document under Section
4(a)(iii) by reason of material prejudice to its legal
or commercial position.
(b) PAYEE TAX REPRESENTATIONS.
(i) Party A Payee Tax Representation. For the purpose of
Section 3(f) of this Agreement, Party A represents that it
is an Illinois banking corporation organized under the laws
of the State of Illinois.
(ii) Parts B Payee Tax Representations. For the purpose of
Section 3(f) of this Agreement, Party B represents that it
is a corporation created or organized in the United States
of America or under the laws of the United States of America
or of any State.
-54- <PAGE>
PART 3
AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Section 4(a)(i), (ii) and (iii) of this Agreement,
each party agrees to deliver the following documents as applicable:
(a) Tax forms, documents or certificates to be delivered are:
Each party shall, as soon as practicable after demand, deliver to
the other party any form or document reasonably requested by the
other party which is required to enable such other party to make
payments hereunder without withholding for or on account of Taxes
or with such withholding at a reduced rate.
(b) Other documents to be delivered are:
Each party shall deliver to the other party concurrently with the
execution of this Agreement a certificate as to the incumbency
and specimen signatures of the officers of such party or any
Credit Support Provider (if any) executing this Agreement and
each Confirmation hereto on its behalf and any Credit Support
Document (if any).
Party B further agrees to provide to Party A concurrently with
the execution and delivery of this Agreement, in form and
substance satisfactory to Party A, certified copies of the
resolutions of the board of directors of Party B authorizing the
execution and delivery of this Agreement and each Confirmation by
Party B.
(c) With respect to any Transaction (after the initial Transaction
evidenced by the Amended Confirmation between the parties dated
June 6, 1994), each party shall furnish to the other party such
other documents as the first referenced party shall reasonably
request.
(d) The documents delivered pursuant to clauses (b) and (c) shall be
covered by the representation contained in Section 3(d) of the
Agreement.
-55-
<PAGE>
PART 4
MISCELLANEOUS
(a) ADDRESS FOR NOTICES. For purposes of Section 12(a) of this
Agreement:
Address for notices or communications to Party A:
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Interest Rate Swaps
Telex No.: 25233 Answerback: CONTL BK CGO
Facsimile No.: (312) 987-3846
Address for notices or communications to Party B:
Scotsman Group Inc.
775 Corporate Woods Parkway
Vernon Hills, Illinois 60061
Attention: Judy Peltekian
Facsimile No.: (708) 913-9844
(b) PROCESS AGENT. For the purpose of Section 13(c) of this
Agreement:
Party A appoints no agent as its Process Agent.
Party B appoints no agent as its Process Agent.
(c) OFFICES. The provisions of Section 10(a) will apply to this
Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10 of this
Agreement: Neither party is a Multibranch Party.
(e) CALCULATION AGENT. For the purpose of each Transaction entered
into pursuant to this Agreement, the Calculation Agent shall be
Party A, unless otherwise specified in the Confirmation with
respect to such Transaction.
(f) CREDIT SUPPORT DOCUMENT. The obligations of Party B under this
Agreement and any Transaction entered into pursuant to this
Agreement are secured pursuant to the documents identified below.
Each document shall be deemed to be a "Credit Support Document"
for purposes of this Agreement.
(i) That certain Guaranty, dated as of April 29, 1994 by
Scotsman Industries, Inc.
(ii) That certain Guaranty, dated as of April 29, 1994, by
DFC Holding Corporation.
(iii) That certain Guaranty, dated as of April 29, 1994, by
The Delfield Company.
-56-
<PAGE>
(iv) That certain Note Pledge Agreement, dated as of
April 29, 1994, between Party B and The First National
Bank of Chicago, as administrative agent.
(v) Each other Guaranty (as defined in the Credit
Agreement) that may at any time be issued by a Domestic
Subsidiary (as defined in the Credit Agreement)
pursuant to Section 6.28 of the Credit Agreement.
(g) CREDIT SUPPORT PROVIDER. In relation to Party B, "Credit Support
Provider" means Scotsman Industries, Inc., DFC Holding
Corporation, The Delfield Company, and each Domestic Subsidiary
that may at any time execute a Guaranty pursuant to Section 6.28
of the Credit Agreement.
(h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
Section 13(b) shall not apply. With respect to any suit, action
or proceedings relating to this Agreement ("Proceedings"), each
party irrevocably:
(i) submits to the jurisdiction of the courts of the State of
Illinois sitting in Cook County and the United States
District Court for the Northern District of Illinois; and
(ii) waives any objection which it may have at any time to the
laying of venue of any Proceedings brought in any such
court, waives any claim that such Proceedings have been
brought in an inconvenient forum and further waives the
right to object, with respect to such Proceedings, that such
court does not have jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing
Proceedings in any other jurisdiction nor will the bringing of
Proceedings in any one or more jurisdictions preclude the
bringing of Proceedings in any other jurisdiction.
(i) NETTING OF PAYMENTS. All amounts payable on the same date, in
the same currency and in respect of the same Transaction shall be
netted in accordance with Section 2(c) of this Agreement. The
election contained in the last paragraph of Section 2(c) of this
Agreement shall not apply for the purposes of this Agreement.
(j) AFFILIATE. "Affiliate" will have the meaning specified in
Section 14 of this Agreement.
-57-
<PAGE>
PART 5
OTHER PROVISIONS
(a) ISDA DEFINITIONS. Reference is hereby made to the 1991 ISDA
Definitions (the "1991 Definitions"), as published by the
International Swap Dealers Association, Inc., which are hereby
incorporated by reference herein, as completed or supplemented in
this Schedule or in any Confirmation, as the case may be. Any
terms used and not otherwise defined herein which are contained
in the 1991 Definitions shall have the meaning set forth therein.
In the event of any inconsistency between the provisions of this
Agreement and the 1991 Definitions, this Agreement will prevail.
(b) SCOPE OF AGREEMENT. Notwithstanding anything contained in the
Agreement to the contrary, if the parties enter into any
Specified Transaction, such Specified Transaction shall be
subject to, governed by and construed in accordance with the
terms of this Agreement unless the Confirmation relating thereto
shall specifically state to the contrary. Each such Specified
Transaction shall be a Transaction for the purposes of this
Agreement, provided, however, that notwithstanding any other
provisions of this Agreement, the parties agree that foreign
exchange transactions will not be covered by this Agreement
unless otherwise agreed in writing.
(c) TRANSFER EXCEPTION. Exception to the Transfer provisions of
Section 7 is that consent to transfer shall not be unreasonably
withheld.
(d) SET-OFF. Nothing in this Agreement shall be treated as
restricting or negating any right of set-off which might
otherwise be available to either Party A or Party B.
(e) ADDITIONAL REPRESENTATIONS. With respect to each Swap
Transaction based upon the price of a commodity, if any, each
party represents to the other party on the date such Swap
Transaction is entered into that (i) it is entering into such
Swap Transaction in conjunction with its line of business
(including, with respect to Party A, financial intermediation) or
the financing of its line of business and (ii) it is an "eligible
swap participant" as defined in 17 C.F.R. ^U 35.1(b)(2).
(f) CONSENT TO RECORDING. Each party consents to the recording of
the telephone conversations of relevant personnel of the parties
and their Affiliates in connection with this Agreement or any
potential Transaction and agrees that such recording may take
place.
(g) WAIVER OF JURY TRIAL. Each party expressly waives any right to a
trial by jury in any action or proceeding to enforce or defend
rights (a) under this Agreement or under any amendment,
instrument, document or agreement delivered or which may in the
future be delivered in connection herewith or (b) arising from
any banking relationship existing in connection with this
-58-
<PAGE>
Agreement and agrees that any such section or proceeding shall be
tried before a court and not before a jury.
(h) FACSIMILE CONFIRMATIONS. Party A and Party B each agree to
deliver to the other party a duly executed original of each
Confirmation as promptly as possible following the date of each
Swap Transaction. Prior to the delivery of such original, or
failing such delivery, the parties shall be entitled to rely on
any Confirmation bearing the purported signatures of both parties
which is sent via telex or facsimile as if it were an executed
original and the same shall be binding on both parties and
admissible as evidence of the subject matter thereof as fully as
if it were an original document.
(i) INCORPORATION BY REFERENCE OF COVENANTS. Until all of Party B's
obligations (whether absolute or contingent) under this Agreement
have been satisfied in full, Party B will at all times perform,
comply with and observe all covenants and agreements of the Loan
Agreement applicable to it, which covenants and agreements,
together with related definitions and ancillary provisions, are
hereby incorporated by reference (mutatis mutandis) and, for the
avoidance of doubt, shall be construed to apply hereunder for the
benefit of Party A as though (i) all references therein to the
party or parties making loans, extensions of credit or financial
accommodations thereunder or commitments therefor ("Financings")
were to Party A and (ii) to the extent that such covenants and
agreements are conditioned on or relate to the existence of such
Financings or Party B having any obligations arising out of or in
connection therewith, all references to such Financings or
obligations were Party B's obligations under this Agreement.
"Credit Agreement" means that certain Credit Agreement dated as
of April 29, 1994, among Party B, and the other parties named
therein, as borrowers, the lenders named therein (including Party
A) and The First National Bank of Chicago, as agent, as the same
may be amended from time to time in accordance with its terms,
but without regard to any termination or cancellation thereof,
whether by reason of payment of all indebtedness incurred
thereunder or otherwise, or unless such agreement is terminated
and replaced by a Successor Credit Agreement.
"Loan Agreement" means the Credit Agreement, provided, however,
that if the Credit Agreement is terminated and replaced by a
Successor Credit Agreement, the term "Loan Agreement" shall mean
such Successor Credit Agreement.
"Successor Credit Agreement" means any successor credit agreement
to which Party B is a party and under which an extension of
credit is made to Party B by Party A and any other lenders, if
any, which replaces the Credit Agreement, or any successor to any
such successor agreement, as the same may be amended from time to
time in accordance with its terms, but without regard to any
termination or cancellation thereof, whether by reason of payment
of all indebtedness incurred thereunder or otherwise, unless such
agreement is terminated and replaced by a successor agreement
-59-
<PAGE>
(j) FDI ACT REPRESENTATION. As an insured depository institution
under the U.S. Federal Deposit Insurance Act, as amended (the
"FDI Act"), Party A represents to Party B as follows:
(i) The necessary action to authorize referred to in the
representation in Section 3(a)(ii) includes all
authorizations required under the FDI Act and under any
agreement, writ, decree or order entered into with its
supervisory authorities.
(ii) At all times during the term of this Agreement, it will
continuously include and maintain as part of its
official written books and records this Agreement, this
Schedule and all other exhibits, supplements, and
attachments hereto and documents incorporated by
reference herein, all Confirmations, and evidence of
all necessary authorizations.
(iii) This Agreement, each Confirmation, and any other
documentation relating to this Agreement to which it is
a party or that it is required to deliver will be
executed and delivered by a duly appointed or elected
and authorized officer of it of the level of vice
president or higher.
IN WITNESS WHEREOF, the parties have executed this Schedule by
their duly authorized officers as of the date hereof.
BANK OF AMERICA ILLINOIS
(Formerly known as Continental Bank) SCOTSMAN GROUP INC.
- - - ----------------------------------- ------------------------------
(Name of Party) (Name of Party)
By: /s/ Delbert W. Jones By: /s/ Donald D. Holmes
- - - ----------------------------------- ------------------------------
Name: Delbert W. Jones Name: Donald D. Holmes
Title: Vice President Title: Vice President-
Finance & Secretary
-60-
<PAGE>
AMENDED CONFIRMATION
--------------------
June 6, 1994
Scotsman Group Inc.
775 Corporate Woods Parkway
Vernon Hills, IL 60061
Attn: Judy Peltekian
FAX: (708) 913-9844
From: CMIT Documentation
Continental Bank N.A.
Re: Swap Transaction dated May 19, 1994 between CONTINENTAL BANK N.A.
("Continental") and SCOTSMAN GROUP INC. ("Scotsman"). Our
transaction number 5246.
The purpose of this letter agreement is to confirm the terms and
conditions of the Swap Transaction entered into between us on the
Trade Date specified below (the "Swap Transaction"). This letter
constitutes a "Confirmation" as referred to in the Interest Rate and
Currency Exchange Agreement specified below and supersedes all
previous documents and Confirmations with respect to the above
referenced Swap Transaction, including that certain Confirmation dated
as of May 20, 1994.
1. The definitions and provisions contained in the 1991 ISDA
Definitions (as published by the International Swap Dealers
Association, Inc.) are incorporated into this Confirmation. In the
event of any inconsistency between those definitions and provisions
and this Confirmation, this Confirmation will govern.
If you and we are parties to a master agreement that sets forth the
general terms and conditions applicable to Swap Transactions between
us (a "Master Agreement"), this Confirmation supplements, forms a part
of, and is subject to, such Master Agreement. If you and we are not
parties to a Master Agreement, this Confirmation will supplement, form
a part of and be subject to, a Master Agreement upon its execution by
you and us. All provisions contained or incorporated by reference in
such Master Agreement shall govern this Confirmation, except as
modified below. In addition, if a Master Agreement has not been
executed, this Confirmation will itself evidence a complete binding
agreement between you and us as to the terms and conditions of the
Swap Transaction which this Confirmation relates; provided, that until
such time as we have executed a Master Agreement, the terms of the
1987 ISDA Interest Rate and Currency Exchange Agreement (the "Swap
Agreement") (other than any provision that, by its terms, must be
specified or identified by the parties in a Schedule to the Swap
Agreement) are hereby incorporated by reference in this Confirmation
as if such terms were set forth in this Confirmation in full and all
such terms will govern this Confirmation, except as expressly modified
by the terms of this Confirmation. Notwithstanding the foregoing, the
-61-
<PAGE>
provisions of Section 5(1)(vi) of the Swap Agreement will apply to
both of us. For purposes of Section 5(a)(vi) of the Swap Agreement,
Threshold Amount means (i) with respect to Continental, $10,000,000
and (ii) with respect to Scotsman, $5,000,000.
2. The terms of this particular Swap Transaction to which this
Confirmation relates are as follows:
Notational Amount: USD 10,000,000
Trade Date: May 19, 1994
Effective Date: May 23, 1997, subject to adjustment
in accordance with the Modified
Following Business Day Convention
Fixed Rate Payer: Scotsman
Fixed Rate: 6.3300%
Fixed Rate Day Count
Fraction: Actual/360
Fixed Rate Payer
Payment Dates: Quarterly, the 23rd day of each
February, May, August, and November
commencing on August 23, 1994, to
and including the Termination Date,
subject to adjustment in accordance
with the Modified Following
Business Day Convention
Floating Rate Payer: Continental
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: Three Months
Floating Rate Spread: None
Floating Rate Day Count
Fraction: Actual/360
Floating Rate Payer
Payment Date: Quarterly, the 23rd day of each
February, May, August, and November
commencing on August 23, 1994, to
and including the Termination Date,
subject to adjustment in accordance
with the Modified Following
Business Day Convention
Floating Rate for initial
Calculation Period: 4.6250%
-62-
<PAGE>
Reset Dates: The first day of each Calculation
Period
Method of Averaging: Not Applicable
Compounding: Not Applicable
Business Days: New York and London
Account Details:
Payment Instructions for
Scotsman: Please advise
Payment Instructions for
Continental: Fed wire to Continental Bank N.A.
Chicago
Attn: Interest Rate Swaps
Documents to be Delivered: Each party shall deliver to the
other, at the time of its execution
of this Confirmation, evidence of
the specimen signature and
incumbency of each person who is
executing this Confirmation on the
party's behalf, unless such
evidence has previously been
supplied in connection with the
Agreement and remains true and in
effect.
Contact for Documentation: Ramona Berce
CMIT Documentation
Fax: (312) 828-6247
Telephone: (312) 828-3970
Contact for Rate Settings
and Payments: Capital Markets Operations
Fax: (312) 987-8501
Telephone: (312) 828-3315
Each party represents and warrants to the other party that (i) this
Swap Transaction has been duly authorized and this Confirmation has
been duly executed and delivered by it and (ii) the person executing
this Confirmation is a duly authorized signatory with respect thereto.
Continental and Scotsman each agree to deliver to the other party as
promptly as possible after the date hereof a duly executed original of
this Confirmation. Prior to the delivery of such original, or failing
such delivery, the parties shall be entitled to rely on this facsimile
Confirmation bearing the purported signatures of both parties as if it
were an executed original and this facsimile Confirmation shall be
binding on both parties and admissible as evidence of the subject
matter hereof as fully as if it were an original document.
-63-
<PAGE>
Please confirm that the foregoing correctly sets forth the terms of
our agreement by executing the copy of this Confirmation enclosed for
that purpose and returning it to us.
We appreciate the opportunity to work with you on this transaction.
Sincerely,
CONTINENTAL BANK N.A.
By: /s/ Ramona A. Berce
- - - --------------------------------
Name: Ramona A. Berce
Title: Authorized Signer
Accepted and confirmed as of the
date first written:
SCOTSMAN GROUP INC.
By: /s/ D. D. Holmes
- - - --------------------------------
Name: D.D. Holmes
Title: V.P.
-64-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Scotsman
Industries, Inc. Condensed Balance Sheet (Unaudited) as at October 2, 1994 and
Scotsman Industries, Inc. Condensed Statement of Income (Unaudited) for the
Nine Months Ended October 2, 1994 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> OCT-02-1994
<CASH> 9,293
<SECURITIES> 0
<RECEIVABLES> 64,171
<ALLOWANCES> 2,490
<INVENTORY> 44,083
<CURRENT-ASSETS> 123,312
<PP&E> 39,761
<DEPRECIATION> 31,075
<TOTAL-ASSETS> 251,713
<CURRENT-LIABILITIES> 66,852
<BONDS> 87,191
<COMMON> 846
0
2,000
<OTHER-SE> 83,034
<TOTAL-LIABILITY-AND-EQUITY> 251,713
<SALES> 200,067
<TOTAL-REVENUES> 200,067
<CGS> 140,841
<TOTAL-COSTS> 140,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,921
<INCOME-PRETAX> 20,065
<INCOME-TAX> 8,970
<INCOME-CONTINUING> 11,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,095
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.22
</TABLE>
