<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 1, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-10182
SCOTSMAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common stock, $0.10 par value New York Stock Exchange
Common stock purchase rights,
no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
At March 17, 1995 there were 8,940,020 shares of registrant's common stock
outstanding, and the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of such date was approximately $170.0
million. The market value of the registrant's Series A $0.62 Cumulative
Convertible Preferred Stock, par value $1.00 per share, held by nonaffiliates
is based on the market value, as of such date, of the shares of common stock
into which such stock is convertible.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's 1994 Annual Report to Shareholders for the fiscal year ended
January 1, 1995 (the "1994 Annual Report"): Parts I, II, and IV.
Registrant's definitive Proxy Statement for its 1995 Annual Meeting of
Shareholders to be held on May 18, 1995 (the "1995 Proxy Statement"): Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
The registrant, Scotsman Industries, Inc. (hereinafter referred to, together
with its subsidiaries, as "Scotsman" or the "Company"), is a holding company
with subsidiaries engaged in the manufacture and marketing of refrigeration
products primarily for the foodservice industry, including ice machines, food
preparation and storage equipment, and drink dispensing equipment.
Scotsman was organized under the laws of the state of Delaware on January 26,
1989. Effective April 14, 1989, Scotsman was spun-off from Household
International, Inc. ("Household") through the issuance of one share of Scotsman
common stock for every five shares of Household common stock then outstanding
to Household shareholders. As of such date, Scotsman became a publicly traded
company listed on the New York Stock Exchange, and its operations ceased to be
owned by Household.
Scotsman conducts its domestic ice machine business through the Scotsman Ice
Systems division ("Scotsman Ice Systems") of its wholly-owned subsidiary,
Scotsman Group Inc. ("SGI"), and through the Crystal Tips product line of its
wholly-owned subsidiary, Booth, Inc. ("Booth"). Booth acquired substantially
all of the assets of Crystal Tips, Inc. in April of 1992. Scotsman conducts
its European ice machine business through two Italian subsidiaries, Frimont
S.p.A. ("Frimont") and Castel MAC S.p.A. ("Castel MAC"). In January of 1993,
Frimont acquired the assets of Simag, an Italian ice machine manufacturer,
further expanding the Company's European ice machine line.
Scotsman manufactures and markets food preparation and storage equipment,
including food preparation workstations, refrigerators and freezers and other
equipment, through its wholly-owned subsidiary, The Delfield Company
("Delfield"), which was acquired on April 29, 1994. See "--1994 Acquisitions."
Scotsman also manufactures and markets a limited line of refrigerated cabinets,
dough retarders and blast freezers in Europe through Frimont and Castel MAC.
Scotsman had previously manufactured and sold refrigerators and freezers in the
United States through its Glenco-Star Division, which was sold in September
1992.
Scotsman manufactures and markets drink dispensing equipment in the United
States through Booth and in Europe through Whitlenge Drink Equipment Limited
("Whitlenge"). Whitlenge was acquired by Scotsman on April 29, 1994. See
"--1994 Acquisitions."
Scotsman manufactures and markets niche products through Delfield, including
air ventilating equipment, private label "point of purchase" beverage
display/dispensing equipment and iced drink mixing and dispensing machines.
Scotsman also manufactures and markets a limited line of water coolers through
its Italian subsidiaries, Frimont and Castel MAC.
1994 ACQUISITIONS
On April 29, 1994, Scotsman acquired Delfield and Whitlenge for approximately
$69.3 million in a combination of cash, preferred stock and common stock. The
acquisition price of the acquired businesses included (a) $30.4 million in
cash, (b) 1.2 million shares of Scotsman common stock (with
-2-
<PAGE> 3
a market value of $16.5 million on the acquisition date) and (c) 2.0 million
shares of Series A $0.62 Cumulative Convertible Preferred Stock, with an
aggregate liquidation preference of $22.5 million, which are convertible into
1,525,393 shares of common stock. In addition, the acquisition price also
included 667,000 shares of additional common stock which were issued on March
17, 1995, based on Delfield and Whitlenge having achieved a specified level of
earnings before interest, income taxes, depreciation and amortization for the
1994 fiscal year. Such shares had an aggregate market value of $12.1 million
on the date of issuance. The Company also assumed $35 million of Delfield and
Whitlenge debt as a result of the acquisitions. The preliminary amount of
goodwill as a result of these acquisitions, before recognition of the
additional 667,000 shares, was $73.7 million.
Delfield is headquartered in Mt. Pleasant, Michigan, with an additional
manufacturing facility in Covington, Tennessee. Whitlenge is located in the
United Kingdom, near Birmingham, England.
PRODUCTS AND DISTRIBUTION
Scotsman manufactures refrigeration products that are marketed primarily to the
foodservice industry (restaurants, cafeterias, convenience stores and bars) and
also to the supermarket and lodging industries and to food processors. The
principal commercial products of Scotsman are ice machines, food preparation
workstations, refrigerators and freezers, refrigerated bakery equipment, drink
dispensing equipment, self-leveling tray and plate dispensers and ventilation
systems. Scotsman also manufactures compact consumer ice machines and
refrigerators for the luxury segment of the consumer appliance market.
ICE MACHINES. The Company manufactures and markets commercial ice-making
machines under the Scotsman and Crystal Tips trademarks worldwide, under the
Icematic and Simag trademarks in Europe and Asia and under various brands
through other dealer networks. The Company's ice machines produce four forms
of ice: cubes (consisting of contour, lenticular, gourmet and square cubes),
flakes, scale and nuggets. Each of these forms of ice is designed and marketed
for specific applications. Scotsman ice machines are either self-contained
units, which make, store and, in some cases, dispense ice, or modular units,
which make but do not store ice. Scotsman also manufactures and sells ice
storage bins to accompany modular units.
A significant percentage of the sales of Scotsman commercial ice machines are
to the full service and fast-food restaurant industry. Other major end-users
include schools, government and military facilities, grocery stores, health
care facilities, hotels and motels, and convenience stores.
Scotsman commercial ice machines are sold both through a system of distributors
and directly by Scotsman to national customers, contractors, and governmental
and military buyers. Presently Scotsman Ice Systems has approximately 85
distributors in the United States, and Frimont and Castel MAC combined have
approximately 50 distributors in Europe and Asia. The Crystal Tips line also
has its own distribution network consisting of approximately 68 distributors in
the United States. The distributors generally do not carry competing brands of
ice machines. Independent service dealers also install and service the
equipment. The servicing functions performed by dealers are particularly
important because ice machines typically require more service, due to variable
water conditions, than other major appliances such as refrigerators. Scotsman
also maintains inventories of replacement parts to support its ice machine
product line.
-3-
<PAGE> 4
In 1991, Scotsman purchased the assets of one of its largest distributors in
Southern California upon the retirement of the former owners. The Company
plans to continue to operate the distributorship indefinitely as part of
Scotsman Ice Systems.
Scotsman sells directly to national customers such as large hotel chains,
fast-food franchisers and convenience stores. Sales to federal and state
governments are also made directly by Scotsman for use in employee dining,
health care and military facilities.
Scotsman is the only United States ice machine company with management and
production facilities in Europe. In foreign markets, Scotsman manufactures and
markets commercial ice machines and related components primarily through Castel
MAC and Frimont under the Icematic trademark and the Scotsman and Simag
trademarks, respectively. Each of these subsidiaries is located in Italy and
manufactures products for sale locally and for export primarily to Eastern and
Western Europe, the Middle East, Africa and the Far East. In the majority of
countries served, Castel MAC and Frimont each sell through separate
distribution channels. The Company also markets the Crystal Tips line
internationally through four export marketing firms based in the United States
and Canada.
In November of 1992, Scotsman entered into distribution and trademark licensing
agreements with Howe Corporation. Under these agreements, Scotsman has the
exclusive right to distribute Howe industrial flakers in all foreign and
domestic markets for a five-year period, subject to renewal. Scotsman also has
the right to use the trademarks HOWE and Rapid Freeze in connection with the
marketing and distribution of these products.
In addition to commercial ice machines, Scotsman also manufactures compact
consumer ice machines and refrigerators for the luxury segment of the consumer
appliance markets. These products are sold primarily through luxury consumer
appliance distributors who sell to dealers.
Scotsman's commercial ice machine business accounted for 57 percent, 83 percent
and 76 percent of the Company's sales in fiscal years 1994, 1993 and 1992,
respectively.
FOOD PREPARATION & STORAGE EQUIPMENT. In the United States, Scotsman
manufactures and markets a wide range of commercial food preparation and
storage equipment through Delfield under the Delfield, Shellyglas and
Shellymatic trademarks. Delfield's principal products include customized and
standard food preparation workstations, commercial up-right and
under-the-counter refrigerators and freezers, mobile cafeteria systems and
self-leveling tray and plate dispensers. Delfield sells its equipment to
various purchasers in the foodservice industry, including dealers, wholesalers,
major chain restaurants, fast-food franchises and government entities.
Delfield sells directly to national accounts, including major retail chain
restaurants. Delfield also sells equipment domestically through over 2,000
non-exclusive dealers and dealer buying groups and through a network of
approximately 26 independent sales representative firms. Such dealers
generally carry competing lines of equipment. The sales representative firms
typically carry complementary foodservice equipment, but carry only Delfield
refrigeration equipment.
Delfield sells in the United Kingdom through a distributor and in South America
and Asia through an export agent. Export sales are less than 10% of Delfield's
total sales.
-4-
<PAGE> 5
In Europe, Castel MAC and Frimont manufacture and market a line of refrigerated
cabinets under the Icematic and Scotsman brand names and a line of dough
retarders and blast freezers under the Tecnomac brand name. Tecnomac dough
retarders and blast freezers are sold primarily to the European commercial
bakery industry through dealers and agents specializing in that industry.
Prior to the September 1992 sale of its Glenco-Star division, Scotsman had
also manufactured and marketed, through that division, a complete line of
commercial refrigerators and freezers in the United States.
Sales of food preparation and storage equipment accounted for approximately 28
percent, 4 percent and 11 percent of Scotsman's sales in fiscal years 1994,
1993 and 1992, respectively.
DRINK DISPENSING EQUIPMENT. In the United States, Scotsman manufactures
soft-drink beverage dispensing equipment through Booth. Booth manufactures and
markets a complete line of non-coin operated soft-drink dispensing products and
accessories. Booth offers both pre-mix and post-mix dispensers which can
either be ice-cooled or electrically-cooled, ice and drink dispensers,
hand-operated valves and other related accessory products used in the fountain
market. Booth sells its dispensing equipment primarily to soft drink bottlers
franchised by The Coca- Cola Company, Pepsico, Inc., Dr. Pepper and 7-Up, often
labeling the equipment with the customer's name or trademark and the names of
the beverages that will be dispensed. Major end-users of Booth dispensing
equipment are in the foodservice industry.
In Europe, Whitlenge manufactures and markets soft drink dispensing equipment,
draft beer cooling equipment and related ancillary equipment. Whitlenge
specializes in remote and under-the-counter beverage cooling installations,
including large installations for foodservice restaurants, and also makes a
range of mechanically refrigerated over-the-counter soft-drink units.
Whitlenge sells directly to soft-drink bottlers and brewers in the United
Kingdom. Sales to export markets are made both by direct sales to bottlers and
brewers and through distributors and local agents in various markets throughout
Western and Central Europe and the Middle East. Whitlenge also has a
wholly-owned distributor, Whitlenge Drink Equipment, N.V., located in Belgium.
Sales of drink dispensing equipment accounted for approximately 12 percent, 10
percent and 10 percent of Scotsman's sales in fiscal years 1994, 1993 and 1992,
respectively.
NICHE PRODUCTS. Scotsman also manufactures and markets a line of niche
products, primarily through Delfield, including air ventilating equipment under
the Air Tech trademark, private label "point of purchase" display and
dispensing equipment, and iced drink mixing and dispensing machines. Scotsman
also manufactures and markets water coolers, as well as coolers for bottled
wine and snacks, through Frimont and Castel MAC, and small industrial
applications through Whitlenge.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information pertaining to the Company's foreign and domestic
operations is incorporated herein by reference from Note 19, "Geographic
Information," in the 1994 Annual Report.
-5-
<PAGE> 6
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Scotsman's products and manufacturing processes are subject to various
environmental, health and safety regulations and standards. Such regulations
and standards, from time to time, may require significant changes in products
or manufacturing methods. Scotsman believes that environmental, health and
safety matters will not have a material effect on its business or financial
condition. However, legal and regulatory requirements in this area are
increasing and there can be no assurance that significant costs and liabilities
will not be incurred as a result of currently unidentified or future problems
or new regulatory developments.
Chlorofluorocarbons ("CFCs"), a compound found in the refrigerants and
insulation materials used in most refrigeration systems, including those in
Scotsman refrigeration products, are an environmental concern, and the
international supply has been restricted due to their potential impact on the
atmosphere. Under the Federal Clean Air Act Amendments of 1990 (the "Clean Air
Act Amendments"), producers of CFCs were required to phase out production of
CFCs in a series of steps culminating in the termination of all such production
by the year 2000. Pursuant to authority granted under the Clean Air Act
Amendments, on February 11, 1992, former President Bush announced an
accelerated schedule pursuant to which, with certain limited exceptions,
production of CFCs in the United States is to be eliminated by December 31,
1995. Approximately 125 countries which are parties to the Montreal Protocol
on Substances that Deplete the Ozone Layer subsequently agreed to such an
accelerated schedule. Scotsman continues to convert models to non-CFC
refrigerants as required to meet the accelerated phase-out schedule. At this
time, Scotsman does not expect this issue to have a material unfavorable effect
on the Company.
COMPETITION
The primary markets for Scotsman's products are highly competitive. The most
significant competitive factors are price, product reliability and performance
and service, with the relative importance of such factors varying among
products. Delfield also relies on its computer-assisted design and
manufacturing system and its design library in competing in the market for
custom and standard food preparation workstations.
Scotsman has a number of competitors in each product line that it offers.
Scotsman believes that IMI Cornelius, plc, is the leading supplier of beverage
dispensing equipment in continental Europe, one of the markets in which
Whitlenge competes. Scotsman does not believe that any other single competitor
or group of competitors dominates any market for any other product line in which
Scotsman competes. Most of Scotsman's competitors are small, privately owned
companies, although a few are divisions of larger companies. Scotsman does not
believe that its size, relative to the size of its competitors, gives it a
significant competitive advantage or disadvantage in the markets in which it
competes.
RESEARCH AND DEVELOPMENT
Scotsman conducts an extensive research and development program in its product
fields. These programs seek to develop product improvements and cost
reductions, as well as new products. Scotsman's total research and development
expenditures for fiscal years 1994, 1993 and 1992 were approximately $5.1
million, $3.9 million and $3.5 million, respectively.
-6-
<PAGE> 7
RAW MATERIALS
The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls. Other raw materials include stainless steel, galvanized steel,
aluminum, copper and plastics. These materials are readily available from
several sources, and Scotsman has not experienced difficulties with respect to
their availability.
GENERAL
CUSTOMERS. Scotsman is not dependent upon any single customer, or upon any
single group of customers, and no single customer or related group of customers
accounted for 10% or more of Scotsman's consolidated revenues in 1994.
Delfield, Booth and Whitlenge are, however, each dependent upon a limited
number of major customers. Although the loss of one or more of such customers
could have a material adverse effect on the sales of Delfield, Booth or
Whitlenge, Scotsman does not believe that such a loss would have a material
adverse effect on Scotsman as a whole. No material portion of Scotsman's
business is subject to renegotiation of profits or termination of contracts at
the election of the government.
BACKLOG OF ORDERS. The backlog of unshipped orders at the end of fiscal years
1994 and 1993 was $23.6 million and $5.5 million, respectively. The increase
in the backlog of unshipped orders in 1994 was due primarily to the inclusion
of approximately $11.0 million in unshipped orders of Delfield and Whitlenge
and to unusually strong fourth quarter demand for the products of Scotsman's
Italian operations. Scotsman expects that all of the orders in the backlog at
the end of fiscal year 1994 will be shipped during 1995.
SEASONALITY. The volume of sales for most of the products sold by Scotsman is
somewhat higher in the second and third quarters, corresponding with the major
selling season for refrigeration products. In addition, Delfield has
experienced significant quarterly fluctuations in the sales of foodservice
equipment because of the irregularity of large orders from major chain
restaurants.
PATENTS AND TRADEMARKS. Scotsman holds or is licensed under many United States
and foreign patents covering various design features used in its products, and
also holds a number of other patents and patent applications, licenses,
trademarks and trade names including the trademarks and trade names mentioned
herein. Scotsman does not believe that any of the foregoing is material to its
business, with the exception of the Scotsman and Delfield trademarks. Scotsman
believes it possesses adequate protection with respect to the Scotsman and
Delfield trademarks.
EMPLOYEES. Scotsman employs approximately 2,182 people, approximately 903 of
whom are covered by collective bargaining agreements with various labor unions.
Relationships with employees of Scotsman have been satisfactory.
ITEM 2. PROPERTIES
Scotsman's headquarters are located in a 36,000 square foot facility in Vernon
Hills, Illinois which is leased through 1998. Since 1993, Scotsman has had an
option to purchase this property. Scotsman has facilities located in Fairfax,
South Carolina, consisting of a 247,000 square foot plant built in 1980 and an
80,000 square foot separate warehouse. The Fairfax facilities are owned by
-7-
<PAGE> 8
Scotsman and produce ice making machines and commercial refrigeration
equipment. Scotsman leases for storage, on a monthly basis, a 3,000 square
foot section of a building located in Fairfax. Scotsman also leases a 13,000
square foot distribution facility near Los Angeles under a lease which expires
in August 1996.
In June 1993, Booth began leasing 170,000 square feet of a facility located in
Dallas, Texas, under a ten-year lease which expires in June 2003. During 1994,
the Company completed the relocation of the manufacturing operations of both
Booth and Crystal Tips to this facility. Scotsman owns a 65,000-foot facility
near Dallas, Texas, which housed Booth's operations prior to the relocation and
has leased this facility to a tenant under a lease which expires in 2005.
Delfield's main headquarters are located in Mt. Pleasant, Michigan, where it
occupies a 347,000 square foot facility consisting of plant and office
facilities. A section of the facility is subject to a lien securing industrial
revenue bonds issued by Isabella County. Delfield also leases a 188,000 square
foot plant and office facility in Covington, Tennessee under a lease which will
expire in September 2006. Upon expiration of the lease, Delfield will have the
option to purchase the property for a nominal sum. The Tennessee facility was
financed by the issuance of industrial revenue bonds by the town of Covington,
Tennessee and is subject to a lien securing the bonds. Delfield also leases
warehouses on a month-to-month basis in approximately ten states, including
Michigan and Tennessee, for the storage of finished goods inventory.
The Company operates two plants in Italy which contain 242,000 and 198,000
square feet, respectively. The larger of these facilities is owned, and the
smaller consists of a number of buildings leased under separate leases which
expire between December 31, 1995 and December 31, 2001.
Whitlenge's main headquarters and its operations are located in a 76,000 square
foot building in Halesowen, England. The building is leased under separate
leases which expire from March 24, 2004 through December 24, 2006.
Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants to be adequate for the
current needs of its business. Except as described above, none of the
principal properties owned by Scotsman are subject to encumbrances material to
the operations of Scotsman.
ITEM 3. LEGAL PROCEEDINGS
PATENT LITIGATION RELATING TO BOOTH ICE/DRINK DISPENSER. On March 26, 1993,
Remcor Products Company ("Remcor") filed a lawsuit against the Company's
subsidiaries, SGI and Booth, 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 SGI 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 approximately $8.24
million during the period from 1989 through
-8-
<PAGE> 9
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 and the 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 court has set a trial date of June 5, 1995. Discovery in the case has been
completed, except for any discovery directed to the updating of Remcor's
damages claim to account for sales occurring during 1994 and 1995.
The Company is vigorously defending this lawsuit. Sales of ice/drink
dispensers accounted for less than 5 percent of the Company's consolidated net
sales in 1993 and 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 on the financial condition of the Company
or its results of operations.
LITIGATION RELATING TO GLENCO-STAR LEASE.
In September 1992, SGI transferred the assets of its Glenco-Star division to a
wholly-owned subsidiary of SGI, Glenco Star Corporation ("Glenco Star"), and
sold the stock of Glenco Star to Glenco Holdings, Inc. ("Glenco Holdings").
While Glenco Star assumed SGI's obligations under the lease of a 275,000 square
foot facility which then housed the Glenco Star operations in Philadelphia, SGI
was not released from its obligations to the landlord under the lease, the term
of which expires in August 1996.
LITIGATION RELATING TO MAINTENANCE AND REPAIR OBLIGATIONS. On July 1, 1993,
Jerome P. and Flora P. Heilweil, as landlord of the facility, filed a lawsuit
against SGI and Glenco Star in the United States District Court for the Eastern
District of Pennsylvania. In the Complaint, the landlord alleged that the
defendants violated the lease by failing to obtain the landlord's consent to
the assignment of the lease to Glenco Star 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 landlord's consent. The
Complaint sought the recovery of damages in an amount sufficient to perform the
alleged repair and maintenance obligations, and a declaration that the landlord
may accelerate the rent and regain possession of the property before the lease
expires in August 1996. SGI denied that it breached the lease and asserted
various defenses and counterclaims against the plaintiffs.
The parties have agreed to submit the repair and maintenance issues in dispute
in this case to binding arbitration before the American Arbitration Association
("AAA"), and an arbitration hearing is scheduled to begin on April 12, 1995.
In January 1995, the plaintiffs produced a new group of contractor estimates
and advised SGI that they intended to attempt to introduce these new estimates
at the arbitration hearing in support of their repair and maintenance claims.
Many of the new estimates involve repair and maintenance
-9-
<PAGE> 10
work which is duplicative of work described in other estimates. Based upon a
review of the new estimates, the Company believes that, after eliminating
duplication among the estimates, the plaintiffs' repair and maintenance claim
in the arbitration proceeding now totals approximately $950,000. However,
because of the duplication among the estimates and the plaintiffs' refusal to
quantify the total amount that they intend to claim at the hearing, the total
amount of the damages which the plaintiffs now claim cannot be determined with
any certainty or precision, based on the information currently available to the
Company.
The Company intends to vigorously defend its position in this proceeding.
Although no assurances can be given, the Company does not believe the suit will
have a material adverse effect on the Company's financial condition or its
results of operations.
LITIGATION RELATING TO THE LETTER OF CREDIT. In connection with the Company's
sale of its subsidiary, Glenco Star, to Glenco Holdings in September 1992,
Glenco Holdings furnished the Company with a letter of credit (the "Letter of
Credit") in the amount of $1.5 million under which the issuer, Boatmen's First
National Bank of Kansas City (the "Bank"), is obligated to reimburse the
Company for the amount of any rent payments made by the Company to the landlord
under the lease after August 1, 1994. During the period covered by the Letter
of Credit, the lease provides for minimum monthly rent payments in an aggregate
amount of approximately $1.5 million and additional rent payments for real
estate taxes, property insurance premiums, maintenance, utilities and other
expenses associated with the property.
On February 1, 1994, Glenco Star defaulted on its obligation to make its
monthly rent payment to the landlord under the lease and subsequently filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. Since that
date, Glenco Star has failed to make any further monthly rent payments under
the lease, has rejected its interest in the lease under the Bankruptcy Code and
has vacated the premises. Upon notice of each default in the payment of rent,
the Company has made a monthly rent payment to the landlord. The Company also
has paid certain real estate taxes and property insurance premiums, as
additional rent due under the lease, after Glenco Star defaulted in its
obligations to make such payments.
On August 4, 1994, Glenco Holdings and James Ferrell, a principal stockholder
of Glenco Holdings and the person who obtained the Letter of Credit from the
Bank, filed a lawsuit against the Company and 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 the Letter of Credit would breach a
contract entered into between the Company, Glenco Holdings and Glenco Star at
the time of the Company's sale of Glenco Star to Glenco Holdings. The
Complaint seeks a declaratory judgment that the Company has no right to draw on
the Letter of Credit and a permanent injunction prohibiting the Company from
attempting to draw upon, and the Bank from disbursing funds under, the Letter
of Credit.
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. On August 22, 1994, the Company filed a
motion to dismiss the plaintiffs' Complaint on a variety of grounds. Both
motions are currently scheduled to be heard on April 21, 1995.
-10-
<PAGE> 11
Since August 1994, the Company has drawn each month against the letter of
credit in the amount of the minimum monthly rental payments due and paid by the
Company under the lease. The Company intends to vigorously defend its right to
draw upon the Letter of Credit in this lawsuit.
LITIGATION RELATING TO INDIANAPOLIS ATHLETIC CLUB FIRE. Delfield, which was
acquired by the Company on April 29, 1994, is currently a defendant in five
actions brought in Marion County, Indiana, arising out of a fire
at the Indianapolis Athletic Club (the "IAC") on February 5, 1992. The IAC and
several other claimants allegedly incurred property damage in the fire totaling
between $10 to $12 million, most of which was allegedly incurred by the IAC.
In addition, the actions include a claim for wrongful death and claims for
personal injury and loss of services for which damages have not yet been
quantified. Although the cause of the fire has not yet been determined, the
claimants have alleged, in their actions, that a refrigerator manufactured by
Delfield caused the fire and have asserted negligence, strict liability and
breach of warranty claims against Delfield.
Two other actions (which had been brought on behalf of firemen who died or were
injured in the fire) have been dismissed. Although such dismissals were
appealed, the appeals were abandoned in January 1995. In addition to the five
pending actions, the IAC and another plaintiff also brought suits against
Delfield from which Delfield has been dismissed as a defendant, without
prejudice to such plaintiffs' rights to reinstate their claims against
Delfield.
Delfield has denied that the refrigerator caused the fire. In addition,
Delfield believes that the refrigerator in the IAC at the time of the fire was
manufactured, not by Delfield, but by the Delfield Division of Alco Standard
Corporation ("Alco") prior to the acquisition of the Delfield Division by DFC
Holding Corporation ("DFC"), which was in turn acquired by Scotsman. Pursuant
to the agreement by which DFC acquired the Delfield Division, Alco is obligated
to indemnify Delfield for all losses to Delfield resulting from product
liability claims relating to products manufactured by the Delfield Division
prior to its acquisition by DFC. Alco has agreed that its indemnity applies to
some of the actions arising out of the fire (including the action brought by
the IAC) but not all of the actions.
Delfield believes that all of the actions arising from the IAC fire are covered
by Alco's indemnity and that Delfield's insurance should cover any claims that
are not covered by Alco's indemnity. Moreover, under the terms of the
agreements pursuant to which the Company acquired Delfield and Whitlenge, the
former shareholders of DFC and Whitlenge Acquisition Limited ("WAL"), an
affiliate of DFC, are also required to indemnify the Company for up to $30
million in losses and expenses arising out of, among other things, suits,
claims or proceedings arising out of the IAC fire.
The Company is unable to determine at this time the amount of Delfield's
potential liability, if any, with respect to the IAC fire. Although no
assurances can be given, based upon the Company's review of Alco's indemnity,
Delfield's insurance policies, the indemnification obligations of the former
shareholders of DFC and WAL, and the financial ability of certain former
shareholders of DFC and WAL to comply with those indemnification obligations,
the Company does not believe that the imposition of liability upon Delfield in
one or more actions arising out of the IAC fire would be likely to have a
material adverse effect upon the financial condition of the Company or its
results of operations.
-11-
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last fiscal
quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of all executive
officers of Scotsman, the period that each has held his position with the
Company, and a brief account of each such officer's business experience during
the past five years. Executive officers are appointed annually at a meeting of
the Board of Directors of the Company held as soon as practicable after each
annual meeting of the Company's shareholders. Officers of the Company are
appointed to serve until the next annual election of officers and until their
respective successors are chosen.
<TABLE>
NAME AND AGE OFFICE AND EXPERIENCE
------------ ---------------------
<S> <C>
Richard C. Osborne, 51 Mr. Osborne is Chairman of the Board and has held that
position since May 1991. He is also President, Chief
Executive Officer and a director of the Company and has held
those positions since April 1989.
Emanuele Lanzani, 60 Mr. Lanzani is an Executive Vice President of the Company and
has held that position since April 1989. He is also the
Managing Director, Frimont and Castel MAC. Mr. Lanzani has
been Managing Director of Castel MAC since its acquisition by
a wholly-owned subsidiary of Household in October 1985 and
has been Managing Director of Frimont since 1968.
Paolo Faenza, 55 Mr. Faenza is General Manager, Castel MAC, and has held that
position since 1986.
Richard M. Holden, 44 Mr. Holden is Vice President-Human Resources of the Company
and has held that position since January 1990.
Donald D. Holmes, 57 Mr. Holmes is Vice President-Finance and Secretary of the
Company and has held those positions since April 1989.
</TABLE>
-12-
<PAGE> 13
<TABLE>
<CAPTION>
NAME AND AGE OFFICE AND EXPERIENCE
------------ ---------------------
<S> <C>
Christopher D. Hughes, 48 Mr. Hughes is a Vice President of the Company and has held
that position since June 1994. Mr. Hughes is also President
of Booth and has held that position since May 1994. From
1993 to May 1994, he was Vice President/General Manager of
the Central and Western Transit Operations of Morrison
Knudsen Corporation, a division of Morrison Knudsen Corporation
engaged in the business of assembling new and overhauling
used passenger rail cars. From 1991 to 1993, Mr. Hughes was
Vice President of Operations of Scotsman Ice Systems and
Scotsman's Glenco-Star division. From 1989 to 1991, he was
President of Scotsman's Halsey Taylor/Consumer Products
Division.
Kevin E. McCrone, 46 Mr. McCrone is a Vice President of the Company and has held
that position since April 1994. Mr. McCrone is also
President and Chief Executive Officer of Delfield and has
held those positions since 1984.
Gerardo Palmieri, 55 Mr. Palmieri is Director-Sales and Marketing, Frimont, and
has held that position since 1980.
Randall C. Rossi, 43 Mr. Rossi is a Vice President of the Company and has held
that position since January 1995. Mr. Rossi is also
President of Scotsman Ice Systems and has held that position
since January 1995. From January 1994 to January 1995, he
was an Executive Vice President of Scotsman Ice Systems.
From 1989 to January 1994, he was Vice President-Sales and
Marketing of Scotsman Ice Systems.
Michael de St. Paer, 49 Mr. de St. Paer is a Vice President of the Company and has
held that position since April 1994. Mr. de St. Paer is also
Managing Director of Whitlenge and has held that position
since April 1993. From June 1992 to April 1993 he was
Assistant Managing Director of Whitlenge. From 1991 until
June 1992, he was the Managing Director and a Group Technical
Director of Hartek GmbH, a manufacturer of drink dispensing
equipment in Dirmany, and from 1990 to 1991, he was a Group
Technical Director of Hartek GmbH.
</TABLE>
-13-
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The information contained in the table entitled "Common Stock" in the 1994
Annual Report and in Note 8 of the "Notes to Consolidated Financial Statements"
in the 1994 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data contained in the table entitled "Five Year Summary"
in the 1994 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the 1994 Annual Report are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of Arthur Andersen LLP, independent public accountants, and the
consolidated financial statements, together with the notes thereto (as set
forth in the List of Financial Statements in Part IV, Item 14 (a) (1), below)
in the 1994 Annual Report are incorporated herein by reference. The selected
financial data contained in the table entitled "Selected Quarterly Financial
Data" in the 1994 Annual Report are also incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants on
accounting and financial disclosures during 1994.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained in "Information Regarding Nominees and Directors" in
the 1995 Proxy Statement is incorporated herein by reference. See also
"Executive Officers of the Registrant," Part I, above.
-14-
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Executive Compensation,"
"Options and Stock Appreciation Rights," "Pension Plan," "Executive
Compensation and Severance Agreements, Including Change of Control Provisions,"
"Directors' Fees and Compensation" and "Proposal 2, Approval of Non-Employee
Directors Stock Option Plan" in the 1995 Proxy Statement is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the sections entitled "Security Ownership of
Management" and "Security Ownership of Certain Beneficial Owners" in the 1995
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the sections entitled "Executive Compensation,"
"Executive Compensation and Severance Agreements, Including Change of Control
Provisions" and "Other Agreements" in the 1995 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) LIST OF FINANCIAL STATEMENTS
The following financial statements, together with the report thereon of Arthur
Andersen LLP dated February 7, 1995, appearing in the Company's 1994 Annual
Report, are incorporated herein by reference.
Scotsman Industries, Inc. and Subsidiaries:
Report of Independent Public Accountants
Consolidated Statement of Income for each of the three years ended January 1,
1995, January 2, 1994, and January 3, 1993.
Consolidated Balance Sheet as of January 1, 1995, and January 2, 1994.
Consolidated Statement of Cash Flows for each of the three years ended
January 1, 1995, January 2, 1994, and January 3, 1993.
Consolidated Statement of Shareholders' Equity for each of the three years
ended January 1, 1995, January 2, 1994, and January 3, 1993.
-15-
<PAGE> 16
Notes to Consolidated Financial Statements.
Five Year Summary.
Selected Quarterly Financial Data (Unaudited).
(A)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Schedules.
II - Valuation and Qualifying Accounts
(A)(3) LIST OF EXHIBITS
The following exhibits are filed as part of this report. Each management
contract or compensatory plan or arrangement required to be filed as an exhibit
to this report has been marked with an asterisk.
<TABLE>
<S> <C> <C>
Exhibit 3.1 - Restated Certificate of Incorporation of the Company (incorporated herein by reference to the
Company's 10-K for the fiscal year ended December 31, 1989, File No. 0-10182).
Exhibit 3.2 - By-Laws of the Company, as amended (incorporated herein by reference to the Company's 8-K, dated
June 21, 1991, File No. 0-10182).
Exhibit 4 - Rights Agreement dated as of April 14, 1989 between Scotsman Industries, Inc. and Harris Trust &
Savings Bank (incorporated herein by reference to the Company's 8-K, dated April 25, 1989, File
No. 0-10182), as amended by Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated
herein by reference to Scotsman Industries, Inc. Amendment No. 4 to General Form for Registration
of Securities on Form 10/A, as filed with the Commission on January 27, 1994, File No. 0-10182).
Exhibit 10.1 - Reorganization and Distribution Agreement dated as of March 15, 1989 by and among Household
International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc.
(incorporated herein by reference to the Company's 8-K, dated April 25, 1989, File No. 0-10182).
Exhibit 10.2 - Tax Sharing Agreement dated as of March 15, 1989 among Household International, Inc., Eljer
Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference
to the Company's 8-K, dated April 25, 1989, File No. 0-10182).
</TABLE>
-16-
<PAGE> 17
<TABLE>
<S> <C> <C>
Exhibit 10.3 - Benefits and Labor Agreement dated as of March 15, 1989 among Household International, Inc., Eljer
Industries, Inc., Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by reference
to the Company's 10-K for the fiscal year ended December 31, 1989, File No. 0-10182).
Exhibit 10.4 - Reimbursement Agreement dated as of April 14, 1989 by and between Household International, Inc.
and Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-K for the fiscal
year ended December 31, 1989, File No. 0-10182).
Exhibit 10.5 - Supplemental Reimbursement Agreement dated as of August 4, 1989 among Household International,
Inc., Scotsman Industries, Inc. and Scotsman Group, Inc. (incorporated herein by reference to
the Company's 10-K for the fiscal year ended December 31, 1989, File No. 0-10182), as amended by
Amendment No. 1 thereto, dated as of September 20, 1993 (incorporated by reference to the
Company's 10-Q for the quarter ended October 3, 1993).
Exhibit 10.6 - Credit Agreement among Scotsman Group Inc. and the other parties named therein, as Borrowers,
the Lenders named therein and The First National Bank of Chicago, as Agent, dated as of April 29,
1994 (incorporated herein by reference to the Company's 10-Q for the quarter ended April 3, 1994,
File No. 0-10182).
Exhibit 10.7 - Amended and Restated Note Purchase Agreement dated as of April 29, 1994, as separately entered
into among Scotsman Group Inc., Scotsman Industries, Inc., and each of the following: Connecticut
General Life Insurance Company, individually and for the account of one or more separate accounts,
Cigna Property and Casualty Insurance Company, INA Life Insurance Company of New York, Life
Insurance Company of North America, Ohio National Life Assurance Corporation and Southern Farm
Bureau Life Insurance Company (incorporated herein by reference to the Company's 10-Q for
the quarter ended April 3, 1994, File No. 0-10182).
Exhibit 10.8 - $5,000,000 Amended and Restated Promissory Note made as of April 29, 1994 by Scotsman Group Inc.
to Comerica Bank-Illinois (incorporated herein by reference to the Company's 10-Q for the quarter
ended April 3, 1994, File No. 0-10182).
Exhibit 10.9 - Reimbursement Agreement, dated March 1, 1988, among Household Manufacturing, Inc., King-Seeley
Thermos Co. and the National Westminster Bank PLC, as amended by the Amendments dated as of April
14, 1989, December 12, 1989, June 26, 1992, November 20, 1992, March 17, 1993, among Scotsman
Group Inc., Scotsman Industries, Inc. and PNC Bank (formerly Pittsburgh National Bank)
(incorporated herein by reference to the Company's 10-K for the fiscal year ended
</TABLE>
-17-
<PAGE> 18
<TABLE>
<S> <C> <C>
January 3, 1993, File No. 0-10182) and the Amendment, dated April 29, 1994, among Scotsman Group
Inc., Scotsman Industries, Inc. and The Bank of Nova Scotia (incorporated by reference to the
Company's 10-Q for the quarter ended April 3, 1994, File No. 0-10182).
Exhibit 10.10 - 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. (incorporated herein by reference
to the Company's 10-Q for the quarter ended October 2, 1994, File No. 0-10182).
Exhibit 10.11 - ISDA Master Agreement, dated as of March 3, 1994, including the Schedule and Amended
Confirmation (2) thereto, between The First National Bank of Chicago and Scotsman Group Inc.
Exhibit 10.12* - Long-Term Executive Incentive Compensation Plan of Scotsman Industries, Inc., as amended May 21,
1992 (incorporated herein by reference to the Company's 10-Q for the quarter ended June 28, 1992,
File No. 0-10182).
Exhibit 10.13* - Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans AA, A-1 and A-2
(incorporated herein by reference to the Company's 10-K for the fiscal year ended December 30,
1990, File No. 0-10182) and B-2 (incorporated herein by reference to the Company's 10-K for the
fiscal year ended December 29, 1991, File No. 0-10182).
Exhibit 10.14* - Scotsman Group Inc. Supplemental Tax Reduction Investment Plan, dated as of April 14, 1989
(incorporated herein by reference to the Company's 10-K for the fiscal year ended December 30,
1990, File No. 0-10182).
Exhibit 10.15* - Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Richard C. Osborne
(incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991,
File No. 0-10182).
Exhibit 10.16* - Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Emanuele Lanzani
(incorporated herein by reference to the Company's 10-K for the fiscal year ended December 29,
1991, File No. 0-10182).
Exhibit 10.17* - Employment Agreement dated September 16, 1991 between Scotsman Group, Inc. and Donald D. Holmes
(incorporated herein by reference to the Company's 10-Q for the quarter ended September 29, 1991,
File No. 0-10182).
Exhibit 10.18* - Executive Severance Agreement dated as of September 16, 1991 between Richard C. Osborne and
Scotsman Group, Inc. (incorporated herein by reference to the Company's 10-Q for the
</TABLE>
-18-
<PAGE> 19
<TABLE>
<S> <C> <C>
quarter ended September 29, 1991, File No. 0-10182), as amended by Amendment No. 1 thereto, dated
as of January 11, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal
year ended January 2, 1994, File No. 0-10182).
Exhibit 10.19* - Executive Severance Agreement dated as of September 16, 1991 between Emanuele Lanzani and
Frimont S.p.A (incorporated herein by reference to the Company's 10-K for the fiscal year ended
December 29, 1991, File No. 0-10182), as amended by Amendment No. 1 thereto, dated as of January
11, 1994 (incorporated herein by reference to the Company's 10-K for the fiscal year ended January
2, 1994, File No. 0-10182).
Exhibit 10.20* - Executive Severance Agreement dated as of September 16, 1991 between Donald D. Holmes and
Scotsman Group Inc. (incorporated herein by reference to the Company's 10-Q for the quarter ended
September 29, 1991, File No. 0-10182), as amended by Amendment No. 1 thereto, dated as of
January 11, 1994, between Donald D. Holmes and Scotsman Group, Inc (incorporated herein by
reference to the Company's 10-K for the fiscal year ended January 2, 1994, File No. 0-10182).
Exhibit 10.21* - Retirement Program for Emanuele Lanzani of Frimont, S.p.A., Subsidiary of King-Seeley Thermos Co.
dated July 25, 1984 (incorporated herein by reference to the Company's 10-K for the fiscal year
ended December 31, 1989, File No. 0-10182).
Exhibit 10.22 - Agreement dated March 27, 1981 by and between Emanuele Lanzani and King-Seeley Thermos Co. and
Frimont, S.p.A. (incorporated herein by reference to the Company's 10-K for the fiscal year ended
December 31, 1989, File No. 0-10182), as amended by the Amendment dated March 20, 1990
(incorporated herein by reference to the Company's 10-Q for the quarter ended September 30, 1990,
File No. 0-10182).
Exhibit 10.23 - Industrial Building Lease Agreement dated September 21, 1988 by and between American National
Bank and Trust Company of Chicago, as Trustee under Trust Agreement No. 64661 dated June 17, 1985,
and Household Manufacturing, Inc. (incorporated herein by reference to the Company's 10-K for the
fiscal year ended December 31, 1989, File No. 0-10182).
Exhibit 10.24 - Lease and Purchase Option dated August 21, 1986 by and between Jerome P. Heilweil and Flora P.
Heilweil and Household Manufacturing, Inc. (incorporated herein by referenced to the Company's
10-K for the fiscal year ended December 31, 1989, File No. 0-10182).
</TABLE>
-19-
<PAGE> 20
<TABLE>
<S> <C> <C>
Exhibit 10.25 - Lease Agreement, dated as of April 16, 1993, by and between the Western and Southern Life
Insurance Company and Booth, Inc. together with the related Guaranty by Scotsman Group Inc. dated
as of April 8, 1993 (incorporated herein by reference to the Company's 10-Q for the quarter
ended October 2, 1993, File No. 0- 10182).
Exhibit 10.26 - First Amendment to the Lease Agreement, dated October 27, 1993, by and between the Western and
Southern Life Insurance Company and Booth, Inc.
Exhibit 10.27 - Second Amendment to the Lease Agreement, dated December 3, 1993, by and between the Western and
Southern Life Insurance Company and Booth, Inc.
Exhibit 10.28 - Purchase Agreement between Glenco Holdings Inc. and Scotsman Group Inc., dated as of September
23, 1992 (incorporated herein by reference to the Company's 8-K, dated September 28, 1992, File
No. 0-10182).
Exhibit 10.29 - Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman Industries, Inc.,
Scotsman Acquisition Corporation, DFC Holding Corporation, The Delfield Company, Onex Corporation,
Onex DHC LLC, Pacific Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O.
Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R. McCollom, Anita J. Moffatt
Trust, Anita J. Moffatt, Remo Panella, Teddy F. Reed, Robert L. Schafer, Graham E. Tillotson, John
A. Tilmann Trust, John A. Tilmann, Kevin E. McCrone, Michael P. McCrone, Ronald A. Anderson and
Continental Bank N.A. (incorporated by reference herein to the Company's 8-K, dated January 13,
1994, File No. 0-10182), as amended by the First Amendment thereto, dated as of March 17, 1994
(incorporated herein by reference to the Company's 10-K for the fiscal year ended January 2, 1994,
File No. 0-10182).
Exhibit 10.30 - Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman Industries, Inc.,
Whitlenge Acquisition Limited, Whitlenge Drink Equipment Limited, Timothy C. Collins, Graham F.
Cook, Christopher R.L. Wheeler, Michael de St. Paer and John Rushton (incorporated by
reference herein to the Company's 8-K, dated January 13, 1994, File No. 0-10182), as amended by
the First Amendment thereto, dated as of March 17, 1994 (incorporated herein by reference to the
Company's 10-K for the fiscal year ended January 2, 1994, File No. 0-10182).
Exhibit 13 - Those portions of Scotsman's 1994 Annual Report to Shareholders which are incorporated by
reference under Part I, Item 1, "Financial Information about Foreign and Domestic Operations," and
Part II, Items 5, 6, 7, and 8 of the Form 10-K, consisting of "Management's Discussion and
Analysis of Financial Condition and Results of
</TABLE>
-20-
<PAGE> 21
<TABLE>
<S> <C> <C>
Operations," the report of Arthur Andersen LLP and the consolidated financial statements, together
with the notes thereto (as set forth in the list of financial statements under Item 14(a)(1)),
"Five Year Summary," "Selected Quarterly Financial Data" and "Common Stock."
Exhibit 21 - List of Subsidiaries.
Exhibit 23 - Consent of Arthur Andersen LLP.
Exhibit 27 - Article 5 Financial Data Schedule for the Fiscal Year Ended January 1, 1995.
</TABLE>
Copies of the exhibits referred to above will be furnished to
shareholders upon written request at a cost of fifteen cents per page.
Requests should be made to Scotsman Industries, Inc. 775 Corporate
Woods Parkway, Vernon Hills, Illinois 60061, Attention: Donald D.
Holmes, Secretary.
(B) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the quarterly period ended
January 1, 1995.
(C) EXHIBITS
The exhibits required under this Item 14(c) are filed as a separate section of
this report.
(D) FINANCIAL STATEMENT SCHEDULES
See pages 23 through 24 of this report.
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1995 SCOTSMAN INDUSTRIES, INC.
BY: /s/ R. C. Osborne
----------------------------------
R.C. Osborne,
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Scotsman and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. C. Osborne , Chairman of the Board, President, March 29, 1995
--------------------------------- Chief Executive Officer & Director
(R.C. Osborne) (Principal Executive Officer)
/s/ D. C. Clark , Director March 29, 1995
---------------------------------
(D.C. Clark)
/s/ T. C. Collins , Director March 29, 1995
---------------------------------
(T.C. Collins)
/s/ F. W. Considine , Director March 29, 1995
---------------------------------
(F.W. Considine)
/s/ M.O. Diggs, Jr. , Director March 29, 1995
---------------------------------
(M.O. Diggs, Jr.)
/s/ G.D. Kennedy , Director March 29, 1995
---------------------------------
(G.D. Kennedy)
/s/ J.J. O'Connor , Director March 29, 1995
---------------------------------
(J.J. O'Connor)
/s/ R. G. Rettig , Director March 29, 1995
---------------------------------
(R.G. Rettig)
/s/ D. D. Holmes , Vice President-Finance and Secretary March 29, 1995
--------------------------------- (Principal Financial & Accounting
D. D. Holmes Officer)
</TABLE>
-22-
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Shareholders of Scotsman Industries, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Scotsman Industries, Inc.'s 1994
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 7, 1995. Our report on the
consolidated financial statements includes an explanatory paragraph with
respect to the change in accounting for post-retirement benefits other than
pensions, post-employment expenses and income taxes effective January 4, 1993,
as discussed in Note 11 and Note 12 to the consolidated financial statements.
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedule listed in Item 14(a)(2) Financial Statement
Schedules is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 7, 1995
-23-
<PAGE> 24
SCOTSMAN INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
---------------------------
Charged Charged
Balance at to to Balance
Beginning Costs/ Other at End
of Period Expenses Accounts Deductions of Period
--------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1992 -
Accounts Receivable
Reserves $1,604 $ 423 $(417) $ (350) $1,260
====== ====== ===== ======= ======
1993 -
Accounts Receivable
Reserves $1,260 $ 453 $ 103 $ (268) $1,548
====== ====== ===== ======= ======
1994 -
Accounts Receivable
Reserves $1,548 $ 430 $ 716 $ (398) $2,296
====== ====== ===== ======= ======
</TABLE>
-24-
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company (incorporated herein
by reference to the Company's 10-K for the fiscal year ended December 31,
1989, File No. 0-10182).
3.2 By-Laws of the Company, as amended (incorporated herein by reference to
the Company's 8-K, dated June 21, 1991, File No. 0-10182).
4 Rights Agreement dated as of April 14, 1989 between Scotsman Industries,
Inc. and Harris Trust & Savings Bank (incorporated herein by reference to
the Company's 8-K, dated April 25, 1989, File No. 0-10182), as amended by
Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated herein
by reference to Scotsman Industries, Inc. Amendment No. 4 to General Form
for Registration of Securities on Form 10/A, as filed with the Commission
on January 27, 1994, File No. 0-10182).
10.1 Reorganization and Distribution Agreement dated as of March 15, 1989 by
and among Household International, Inc., Eljer Industries, Inc.,
Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by
reference to the Company's 8-K, dated April 25, 1989, File No. 0-10182).
10.2 Tax Sharing Agreement dated as of March 15, 1989 among Household
International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman
Industries, Inc. (incorporated herein by reference to the Company's 8-K,
dated April 25, 1989, File No. 0-10182).
10.3 Benefits and Labor Agreement dated as of March 15, 1989 among Household
International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman
Industries, Inc. (incorporated herein by reference to the Company's 10-K
for the fiscal year ended December 31, 1989, File No. 0-10182).
10.4 Reimbursement Agreement dated as of April 14, 1989 by and between
Household International, Inc. and Scotsman Group, Inc. (incorporated
herein by reference to the Company's 10-K for the fiscal year ended
December 31, 1989, File No. 0-10182).
10.5 Supplemental Reimbursement Agreement dated as of August 4, 1989 among
Household International, Inc., Scotsman Industries, Inc. and Scotsman
Group, Inc. (incorporated herein by reference to the Company's 10-K for
the fiscal year ended December 31, 1989, File No. 0-10182), as amended by
Amendment No. 1 thereto, dated as of September 20, 1993 (incorporated by
reference to the Company's 10-Q for the quarter ended October 3, 1993).
</TABLE>
-25-
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
10.6 Credit Agreement among Scotsman Group Inc. and the other parties named
therein, as Borrowers, the Lenders named therein and The First National
Bank of Chicago, as Agent, dated as of April 29, 1994 (incorporated herein
by reference to the Company's 10-Q for the quarter ended April 3, 1994,
File No. 0-10182).
10.7 Amended and Restated Note Purchase Agreement dated as of April 29, 1994,
as separately entered into among Scotsman Group Inc., Scotsman Industries,
Inc., and each of the following: Connecticut General Life Insurance
Company, individually and for the account of one or more separate
accounts, Cigna Property and Casualty Insurance Company, INA Life
Insurance Company of New York, Life Insurance Company of North America,
Ohio National Life Assurance Corporation and Southern Farm Bureau Life
Insurance Company (incorporated herein by reference to the Company's 10-Q
for the quarter ended April 3, 1994, File No. 0-10182).
10.8 $5,000,000 Amended and Restated Promissory Note made as of April 29, 1994
by Scotsman Group Inc. to Comerica Bank-Illinois (incorporated herein by
reference to the Company's 10-Q for the quarter ended April 3, 1994, File
No. 0-10182).
10.9 Reimbursement Agreement, dated March 1, 1988, among Household
Manufacturing, Inc., King-Seeley Thermos Co. and the National Westminster
Bank PLC, as amended by the Amendments dated as of April 14, 1989,
December 12, 1989, June 26, 1992, November 20, 1992, March 17, 1993, among
Scotsman Group Inc., Scotsman Industries, Inc. and PNC Bank (formerly
Pittsburgh National Bank) (incorporated herein by reference to the
Company's 10-K for the fiscal year ended January 3, 1993, File No. 0-0182)
and the Amendment, dated April 29, 1994 among Scotsman Group Inc.,
Scotsman Industries, Inc. and The Bank of Nova Scotia (incorporated by
reference to the Company's 10-Q for the quarter ended April 3, 1994, File
No. 0-10182).
10.10 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. (incorporated herein by reference to the
Company's 10-Q for the quarter ended October 2, 1994, File No. 0-10182).
10.11 ISDA Master Agreement, dated as of March 3, 1994, including the Schedule
and Amended Confirmation (2) thereto, between The First National Bank of
Chicago and Scotsman Group Inc.
</TABLE>
-26-
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
10.12 Long-Term Executive Incentive Compensation Plan of Scotsman Industries,
Inc., as amended May 21, 1992 (incorporated herein by reference to the
Company's 10-Q for the quarter ended June 28, 1992, File No. 0-10182).
10.13 Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans
AA, A-1 and A-2 (incorporated herein by reference to the Company's 10-K
for the fiscal year ended December 30, 1990, File No. 0-10182) and B-2
(incorporated herein by reference to the Company's 10-K for the fiscal
year ended December 29, 1991, File No. 0-10182).
10.14 Scotsman Group Inc. Supplemental Tax Reduction Investment Plan, dated as
of April 14, 1989 (incorporated herein by reference to the Company's 10-K
for the fiscal year ended December 30, 1990, File No. 0-10182).
10.15 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and Richard C. Osborne (incorporated herein by reference to the Company's
10-Q for the quarter ended September 29, 1991, File No. 0-10182).
10.16 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and Emanuele Lanzani (incorporated herein by reference to the Company's
10-K for the fiscal year ended December 29, 1991, File No. 0-10182).
10.17 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and Donald D. Holmes (incorporated herein by reference to the Company's
10-Q for the quarter ended September 29, 1991, File No. 0-10182).
10.18 Executive Severance Agreement dated as of September 16, 1991 between
Richard C. Osborne and Scotsman Group, Inc. (incorporated herein by
reference to the Company's 10-Q for the quarter ended September 29, 1991,
File No. 0-10182), as amended by Amendment No. 1 thereto, dated as of
January 11, 1994 (incorporated herein by reference to the Company's 10-K
for the fiscal year ended January 2, 1994, File No. 0-10182).
10.19 Executive Severance Agreement dated as of September 16, 1991 between
Emanuele Lanzani and Frimont S.p.A (incorporated herein by reference to
the Company's 10-K for the fiscal year ended December 29, 1991, File No.
0-10182), as amended by Amendment No. 1 thereto, dated as of January 11,
1994 (incorporated herein by reference to the Company's 10-K for the
fiscal year ended January 2, 1994, File No. 0-10182).
</TABLE>
-27-
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
10.20 Executive Severance Agreement dated as of September 16, 1991 between
Donald D. Holmes and Scotsman Group Inc. (incorporated herein by reference
to the Company's 10-Q for the quarter ended September 29, 1991, File No.
0-10182), as amended by Amendment No. 1 thereto, dated as of January 11,
1994, between Donald D. Holmes and Scotsman Group, Inc (incorporated
herein by reference to the Company's 10-K for the fiscal year ended
January 2, 1994, File No. 0-10182).
10.21 Retirement Program for Emanuele Lanzani of Frimont, S.p.A., Subsidiary of
King-Seeley Thermos Co. dated July 25, 1984 (incorporated herein by
reference to the Company's 10-K for the fiscal year ended December 31,
1989, File No. 0-10182).
10.22 Agreement dated March 27, 1981 by and between Emanuele Lanzani and King-
Seeley Thermos Co. and Frimont, S.p.A. (incorporated herein by reference
to the Company's 10-K for the fiscal year ended December 31, 1989, File
No. 0-10182), as amended by the Amendment dated March 20, 1990
(incorporated herein by reference to the Company's 10-Q for the quarter
ended September 30, 1990, File No. 0-10182).
10.23 Industrial Building Lease Agreement dated September 21, 1988 by and
between American National Bank and Trust Company of Chicago, as Trustee
under Trust Agreement No. 64661 dated June 17, 1985, and Household
Manufacturing, Inc. (incorporated herein by reference to the Company's 10-
K for the fiscal year ended December 31, 1989, File No. 0-10182).
10.24 Lease and Purchase Option dated August 21, 1986 by and between Jerome P.
Heilweil and Flora P. Heilweil and Household Manufacturing, Inc.
(incorporated herein by referenced to the Company's 10-K for the fiscal
year ended December 31, 1989, File No. 0-10182).
10.25 Lease Agreement, dated as of April 16, 1993, by and between the Western
and Southern Life Insurance Company and Booth, Inc. together with the
related Guaranty by Scotsman Group Inc. dated as of April 8, 1993
(incorporated herein by reference to the Company's 10-Q for the quarter
ended October 2, 1993, File No. 0-10182).
10.26 First Amendment to the Lease Agreement, dated October 27, 1993, by and
between the Western and Southern Life Insurance Company and Booth, Inc.
</TABLE>
-28-
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
10.27 Second Amendment to the Lease Agreement, dated December 3, 1993, by and
between the Western and Southern Life Insurance Company and Booth, Inc.
10.28 Purchase Agreement between Glenco Holdings Inc. and Scotsman Group Inc.,
dated as of September 23, 1992 (incorporated herein by reference to the
Company's 8-K, dated September 28, 1992, File No. 0-10182).
10.29 Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman
Industries, Inc., Scotsman Acquisition Corporation, DFC Holding
Corporation, The Delfield Company, Onex Corporation, Onex DHC LLC, Pacific
Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O.
Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R. McCollom,
Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella, Teddy F. Reed,
Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust, John A.
Tilmann, Kevin E. McCrone, Michael P. McCrone, Ronald A. Anderson and
Continental Bank N.A. (incorporated by reference herein to the Company's
8-K, dated January 13, 1994, File No. 0-10182), as amended by the First
Amendment thereto, dated as of March 17, 1994 (incorporated herein by
reference to the Company's 10-K for the fiscal year ended January 2, 1994,
File No. 0-10182).
10.30 Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman
Industries, Inc., Whitlenge Acquisition Limited, Whitlenge Drink Equipment
Limited, Timothy C. Collins, Graham F. Cook, Christopher R.L. Wheeler,
Michael de St. Paer and John Rushton (incorporated by reference herein to
the Company's 8-K, dated January 13, 1994, File No. 0-10182), as amended
by the First Amendment thereto, dated as of March 17, 1994 (incorporated
herein by reference to the Company's 10-K for the fiscal year ended
January 2, 1994, File No. 0-10182).
13 Those portions of Scotsman's 1994 Annual Report to Shareholders which are
incorporated by reference under Part I, Item 1, "Financial Information
about Foreign and Domestic Operations," and Part II, Items 5, 6, 7, and 8
of the Form 10-K, consisting of "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the report of Arthur
Andersen LLP and the consolidated financial statements, together with the
notes thereto (as set forth in the list of financial statements under Item
14(a)(1)), "Five Year Summary," "Selected Quarterly Financial Data" and
"Common Stock."
21 List of Subsidiaries.
</TABLE>
-29-
<PAGE> 30
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
23 Consent of Arthur Andersen LLP.
27 Article 5 Financial Data Schedule for the Fiscal Year Ended January 1,
1995.
</TABLE>
-30-
<PAGE> 1
EXHIBIT 10.11
(Multicurrency--Cross Border)
ISDA
INTERNATIONAL SWAP DEALERS ASSOCIATION, INC.
MASTER AGREEMENT
dated as of March 3, 1994.
SCOTSMAN GROUP INC. and THE FIRST NATIONAL BANK OF CHICAGO 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 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
<PAGE> 2
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;
(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;
-2-
<PAGE> 3
(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 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
-3-
<PAGE> 4
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
(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.
-4-
<PAGE> 5
(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;
(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.
-5-
<PAGE> 6
(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 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
-6-
<PAGE> 7
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 (1)
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
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 other similar official for it or for all or substantially
-7-
<PAGE> 8
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 (1) 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 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;
-8-
<PAGE> 9
(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 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
-9-
<PAGE> 10
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)( l) 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).
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,
-10-
<PAGE> 11
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).
(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 (1) 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
-11-
<PAGE> 12
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.
(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:-
-12-
<PAGE> 13
(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
(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.
-13-
<PAGE> 14
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 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.
(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.
-14-
<PAGE> 15
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.
(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
-15-
<PAGE> 16
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 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.
-16-
<PAGE> 17
(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.
(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.
-17-
<PAGE> 18
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;
(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.
-18-
<PAGE> 19
"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 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
-19-
<PAGE> 20
before the relevant Early Termination Date and not made, except, so as to avoid
duplication, if Section 6(e)(i)(l) 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 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.
-20-
<PAGE> 21
"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 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.
-21-
<PAGE> 22
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"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 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
-22-
<PAGE> 23
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.
THE FIRST NATIONAL BANK
SCOTSMAN GROUP INC. OF CHICAGO
------------------------ -----------------------------------------
(Name of Party) (Name of Party)
By: /s/ Donald D. Holmes By: /s/ Robert T. Coats, Jr.
--------------------------- --------------------------------------
Name: Donald D. Holmes Name: Robert T. Coats, Jr. 8033
Title: Title: Managing Director
Date: Date: 11/22/94
-23-
<PAGE> 24
SCHEDULE
to the
MASTER AGREEMENT
dated as of March 3, 1994 between
THE FIRST NATIONAL BANK OF CHICAGO ("Party A")
and SCOTSMAN GROUP INC. ("Party B")
I. TERMINATION PROVISIONS
(a) "SPECIFIED ENTITY" none specified.
(b) "DEFAULT UNDER SPECIFIED TRANSACTION" excludes any default under a
Specified Transaction if caused solely by the general unavailability of
the currency in which payments under such Specified Transaction are
denominated due to exchange controls or other governmental action.
"Specified Transaction" will have the meaning specified in Section 14.
(c) "CROSS DEFAULT" applies to Party A, provided that Cross Default excludes
Force Majeure. "Force Majeure" means nonpayment resulting solely from wire
transfer difficulties or an error or omission of an administrative or
operational nature (so long as sufficient funds are available), or from
the general unavailability of the currency in which Specified
Indebtedness is denominated due to exchange controls or other similar
governmental action, but only if payment is made within three Business
Days after such transfer difficulties have been corrected, the error or
omission has been discovered or such currency becomes available.
"THRESHOLD AMOUNT" means, with respect to Party A, an amount (including its
equivalent in another currency) equal to the higher of $10,000,000 or 3%
of Party A's stockholder's equity as reflected on its most recent financial
statements or call reports.
(d) "CROSS DEFAULT" as applied to Party B shall not have its meaning as
defined in this Agreement, but shall mean any default (however described),
after giving effect to any applicable notice requirement or grace period,
under the Loan Agreement (hereinafter defined).
(e) "CREDIT EVENT UPON MERGER" applies to both parties.
(f) "AUTOMATIC EARLY TERMINATION" will not apply to either party.
(g) "MARKET QUOTATION" and the "SECOND METHOD" apply if the Early Termination
Date results from a Termination Event.
"MARKET QUOTATION" and the "SECOND METHOD" apply if the Early Termination
Date results from an Event of Default, provided that the Non- defaulting
Party shall be entitled, at its option upon the occurrence of an Early
Termination Date, to offset payments due by it under this Agreement (or
under any Specified Transaction) against, and apply such payments to the
satisfaction of, any obligations owing by the Defaulting Party (including
any Office of the Defaulting Party) to the Non-defaulting Party or any of
the Non-defaulting
Page 1
<PAGE> 25
Party's Affiliates (including any Office of the Non-defaulting Party or its
Affiliates) whether or not such obligations shall then be due, and it shall
be a condition precedent to the Non-defaulting Party's obligation to make
any such payments that such obligations of the Defaulting Party have been
paid in full or satisfied by offset as contemplated hereunder.
(h) "TERMINATION CURRENCY" means United States Dollars.
(i) "MARKET QUOTATION" in respect of any Terminated Transaction that is or is
subject to any option to be exercised shall be determined such that the
quotation obtained from Reference Market-makers for a Replacement
Transaction takes into account, or is made in respect of, the economic
equivalent of the right or rights granted pursuant to such option.
II. TAX REPRESENTATIONS
(a) Party A is a national banking association organized or formed under the
laws of the United States of America.
(b) Party B is a corporation organized or formed under the laws of the state
of Delaware.
(c) PAYER TAX REPRESENTATIONS: none specified.
(d) PAYEE TAX REPRESENTATIONS: none specified.
III. 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
executing this Agreement and each Confirmation hereto on its behalf and any
Credit Support Document.
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.
Page 2
<PAGE> 26
(c) With respect to any Transaction (after the initial Transaction evidenced
by the Amended Confirmation (2) between the parties dated March 3, 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.
IV. MISCELLANEOUS
(a) ADDRESSES FOR NOTICES.
TO PARTY A: TO PARTY B:
THE FIRST NATIONAL BANK OF CHICAGO SCOTSMAN GROUP INC.
One First National Plaza 775 Corporate Woods Parkway
Chicago, Illinois 60670 Vernon Hills, Illinois 60061
Attention: Risk Insurance Department Attention: Judy Peltekian
Suite 0045
Telex No.: 190201 Telex No.: N/A
Answerback: FNBC UT Answerback: N/A
Fax No.: (312) 732-5645 Fax No.: (708) 913-9844
Section 12(a) is amended by changing the words "may not be given" appearing in
the second line to "shall not be effective if given".
(b) PROCESS AGENT. Party A appoints as its Process Agent: none. Party B
appoints as its Process Agent: none.
(c) OFFICES. Section 10(a) applies.
(d) MULTIBRANCH PARTY. Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) "CALCULATION AGENT" means Party A.
(f) "CREDIT SUPPORT DOCUMENT" means each of the following documents and any
other document which by its terms secures, guarantees or otherwise
supports Party B's obligations hereunder from time to time:
(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.
Page 3
<PAGE> 27
(iv) That certain Note Pledge Agreement, dated as of April 29, 1994,
between Party B and Party A, 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" means in relation to Party B: 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, and in relation to Party A: none
specified.
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Illinois applicable to contracts
made and wholly performed in such jurisdiction. Section 13(b)(i) of this
Agreement is hereby amended and restated in its entirety and shall read as
follows:
"(i) submits to the non-exclusive jurisdiction of the courts of the State
of Illinois located in the City of Chicago and the United States District
Court for the Northern District of Illinois; and"
(i) WAIVER OF JURY TRIAL. Each party irrevocably waives any and all right to
trial by jury in any legal proceeding in connection with this Agreement or
any Transaction.
(j) 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.
(k) ESCROW. If payments denominated in different currencies are due hereunder
by both parties on the same day and a party has reasonable cause to
believe that the other party will not meet its payment obligation, then as
reasonable assurance of performance the party may make its payment in
escrow through reasonable escrow arrangements by providing notice thereof
prior to the time that the latter of the two payments is due. The party
electing such escrow shall bear the costs thereof.
(l) RECORDED CONVERSATIONS. Each party may electronically record all
telephonic conversations between them in connection with this Agreement or
any Transaction and that any such recordings may be submitted in evidence
to any court or in any proceeding for the purpose of establishing any
matters pertinent to this Agreement or any such Transaction.
V. ISDA DEFINITIONS
(a) INCORPORATION. This Agreement and each Transaction are subject to the
1991 ISDA Definitions (as published by the International Swap Dealers
Association, Inc.) and will be governed by the provisions of the ISDA
Definitions, without regard to any amendments to the ISDA Definitions
subsequent to the date hereof. The provisions of the ISDA
Page 4
<PAGE> 28
Definitions are incorporated by reference in, and shall be deemed to be
part of, this document and each Confirmation.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of this document and the ISDA Definitions, this document will prevail.
VI. ADDITIONAL TERMS
(a) LOAN AGREEMENT. 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 to Party B's obligations under this Agreement.
"Credit Agreement" means that certain Credit Agreement dated as of April
29, 1994 by and among Party B, the other borrowers and lenders named
therein, and Party A, 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, 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 or
payment of all indebtedness incurred thereunder or otherwise, unless such
agreement is terminated and replaced by a successor agreement.
(b) 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.
Page 5
<PAGE> 29
(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.
(c) ADDITIONAL REPRESENTATIONS. With respect to each Transaction based upon
the price of a commodity, if any, each party represents to the other party
on the date such Transaction is entered into that (i) it is entering into
such 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. Section 35.1 (b)(2).
IN WITNESS WHEREOF, the parties have executed this Schedule by their duly
authorized officers as of the date hereof.
SCOTSMAN GROUP INC.
By: /s/ Donald D. Holmes
--------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Robert T. Coats, Jr.
--------------------------------------
Name: Robert T. Coats, Jr. 8033
Title: Managing Director
Page 6
<PAGE> 30
FIRST CHICAGO
THE FIRST NATIONAL BANK OF CHICAGO
AMENDED CONFIRMATION (2)**
DATED AS OF MARCH 3, 1994
FIRST CHICAGO DEAL #94062.1.5099.A
SCOTSMAN GROUP INC.
775 CORPORATE WOODS PARKWAY
VERNON HILLS, IL 60061
ATTENTION: MS. JUDY PELTEKIAN
DEAR JUDY:
WE ARE PLEASED TO CONFIRM THE TERMS OF THE TRANSACTION DESCRIBED BELOW BETWEEN
SCOTSMAN GROUP INC. ("SCOTSMAN") AND THE FIRST NATIONAL BANK OF CHICAGO ("FIRST
CHICAGO") AS FOLLOWS:
TYPE OF TRANSACTION: INTEREST RATE SWAP
--------------------
CURRENCY FOR PAYMENTS: U.S. DOLLARS
----------------------
NOTIONAL AMOUNT: $10,000,000
----------------
TERM
----
TRADE DATE: MARCH 3, 1994
EFFECTIVE DATE: MAY 3, 1994
TERMINATION DATE: MAY 3, 1997, SUBJECT TO ADJUSTMENT IN
ACCORDANCE WITH THE MODIFIED FOLLOWING
BUSINESS DAY CONVENTION
FIXED AMOUNTS
-------------
FIXED RATE PAYOR: SCOTSMAN
PAYMENT DATES: THE 3RD DAY OF FEBRUARY, MAY, AUGUST AND
NOVEMBER OF EACH YEAR
BUSINESS DAY CONVENTION: MODIFIED FOLLOWING
FIXED RATE: 5.64%
FIXED RATE DAY COUNT FRACTION: ACTUAL/360
Page 1
<PAGE> 31
FLOATING AMOUNTS
FLOATING RATE PAYOR: FIRST CHICAGO
PAYMENT DATES: THE 3RD DAY OF FEBRUARY, MAY, AUGUST AND
NOVEMBER OF EACH YEAR
BUSINESS DAY CONVENTION: MODIFIED FOLLOWING
INITIAL FLOATING RATE
(INCLUDING SPREAD): 4.25%**
FLOATING RATE OPTION: USD-LIBOR-LIBO
DESIGNATED MATURITY: 3 MONTHS
SPREAD: NONE
FLOATING RATE
DAY COUNT FRACTION: ACTUAL/360
FLOATING RATE DETERMINED: 2 LONDON BANKING DAYS PRIOR TO EACH RESET DATE
RESET DATES (VALUE DATES): THE FIRST DAY OF EACH CALCULATION PERIOD
COMPOUNDING: INAPPLICABLE
AVERAGING: INAPPLICABLE
ROUNDING CONVENTION: 5 PLACES AS PER ISDA
BUSINESS DAYS: NEW YORK AND LONDON
-------------
BANK ACCOUNTS
-------------
PAYMENTS TO SCOTSMAN: COMERICA BANK, ABA 072000096, A/C 1076111614,
A/C SCOTSMAN GROUP, INC.
PAYMENTS TO FIRST CHICAGO: THE FIRST NATIONAL BANK OF CHICAGO,
ABA 071000013, ACCT NUMBER 48115380, ATTN: FRED GLATZ
DOCUMENTATION**
THIS TRANSACTION SHALL BE GOVERNED BY THE MASTER AGREEMENT DATED MARCH 3, 1994
BETWEEN THE PARTIES AND THIS LETTER SHALL CONSTITUTE A CONFIRMATION THEREUNDER.
Page 2
<PAGE> 32
PLEASE CONFIRM THAT THE FOREGOING CORRECTLY SETS FORTH THE TERMS OF OUR
AGREEMENT BY EXECUTING THIS LETTER AND RETURNING IT TO:
MR. STEVEN BUTTERS
DOCUMENTATION UNIT
PRODUCT RISK MANAGEMENT
SUITE 0107, 8TH FLOOR
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60670
(312) 732-4172 (FAX)
IT HAS BEEN A PLEASURE WORKING ON THIS TRANSACTION WITH YOU AND WE LOOK FORWARD
TO COMPLETING SIMILAR TRANSACTIONS WITH YOU IN THE NEAR FUTURE.
VERY TRULY YOURS,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /S/ Katherine DePauw Graham
---------------------------------------------------
NAME: Katherine DePauw Graham
TITLE: Vice President
BY: /s/ Joy Fiorini
---------------------------------------------------
NAME: Joy Fiorini
TITLE: Vice President
ACCEPTED AND CONFIRMED AS
OF THE DATE HEREOF:
SCOTSMAN GROUP INC.
BY: /s/ Donald D. Holmes
------------------------------------
NAME: Donald D. Holmes
TIME:
FIRST CHICAGO DEAL #94062.1.5099.A
CC: KRZYSZTOF SZREMSKI
JULIA BRISTOW
Page 3
<PAGE> 1
EXHIBIT 10.26
FIRST LEASE AMENDMENT
The First Lease Amendment, dated for reference purposes, the 27th day of
October 1993, by and between The Western and Southern Life Insurance Company,
(hereinafter referred to as "Lessor") and Booth, Inc., (hereinafter referred to
as "Lessee").
WITNESSETH:
WHEREAS, by a Lease Agreement, dated as of the 16th day of April, 1993
(hereinafter referred to as the "Lease"), Lessor leased to Lessee certain
premises therein described as the Royal Commerce Center, 2007 Royal Lane,
Dallas, Texas, 75229, consisting of 169,807 square feet and as more
particularly described in the Lease, and
WHEREAS, the parties desire to amend the Lease.
NOW, THEREFORE, in consideration of the foregoing premises and the terms and
conditions hereinafter set forth, the parties do hereby agreed as follows:
1. Lessee shall be responsible for any and all costs charged to the Lessor or
Building and associated with the installation, maintenance and removal of
the electrical facilities as described in the License and/or Easement
Agreement attached as Exhibit "A", between Lessor and TU Electric.
2. Lessee shall defend, indemnify, and hold harmless Lessor and the Asset
Manager and/or their successors and assigns, from and against all claims
or liabilities arising out of or in connection with the License and/or
Easement Agreement attached as Exhibit "A", between Lessor and TU
Electric and/or any work related to the installation, maintenance and
removal of the electrical facilities described therein.
IN WITNESS WHEREOF, Lessor and Lessee have dully executed this Lease
Amendment, in triplicate, as of the day of the year first above written.
Lessee:
Booth, Inc.
By: /s/ David W. Campbell
---------------------------------------
David W. Campbell, President
Lessor:
The Western and Southern Life Insurance Company
By: /s/ Mario San Marco
---------------------------------------
Mario San Marco, Vice President
By: /s/ D.J. Wuebbling
---------------------------------------
D.J. Wuebbling, Vice President
<PAGE> 2
EXHIBIT A
EASEMENT AND RIGHT OF WAY
THE STATE OF TEXAS
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DALLAS
That THE WESTERN AND SOUTHERN LIFE INSURANCE COMPANY, an Ohio corporation,
hereinafter called "Grantor," whether one or more, for and in consideration of
Ten Dollars ($10.00) and other valuable consideration to Grantor in hand paid
by Texas Utilities Electric Company, a Texas Corporation, 2001 Bryan Street,
Dallas, Texas 75201, hereinafter referred to as "Grantee", has granted, sold
and conveyed and by these presents does grant, sell and convey unto said
Grantee, its successors and assigns, an easement and right-of-way for
underground electric supply and communications lines, consisting of a variable
number of wires and cables, surface mounted equipment, conduits, manholes,
vaults, transformers, switches, protection, sectionalizing devices and all
necessary or desirable appurtenances over, under, across and upon Grantor's
land described as follows:
Lying and situated in the City and County of Dallas, Texas, and being more
particularly described as LOT 1-A in BLOCK 2/6554 of ROYAL COMMERCE CENTER,
an addition to the City of Dallas, Texas, according to the map or plat
thereof recorded in Volume 80175, Page 579, Deed Records of Dallas County,
Texas.
See attached Exhibit "A" for a description of the easement area.
Grantor recognizes that the general course of said lines, or the metes and
bounds as above described, is based on preliminary surveys only, and Grantor
hereby agrees that the easement and right-of-way and its general dimensions
hereby granted shall apply to the actual location of said lines when
constructed.
Together with the right of ingress and egress along and upon said easement
and right-of-way and over and across Grantor's adjoining properties for the
purpose of and with the right to construct, maintain, operate, remove and
reconstruct said lines; the right to relocate along the same general direction
of said lines; the right to relocate said lines in the same relative position
to any adjacent road if and as such road is widened in the future; the right to
lease wire space for the purpose of permitting others to string or lay wire or
cable along said lines; the right to prevent excavation within the easement
area or for a distance of 7.5 feet on each side of the actual center of said
lines; the right to prevent construction of, within the easement area or for a
distance of 7.5 feet on each side of the actual center of said lines, any and
all buildings, structures or other obstructions which, in the sole judgment of
Grantee, may endanger or interfere with the efficiency, safety, and/or
convenient operation of said lines and their appurtenances and the right to
trim or remove trees or shrubbery within, but not limited to, said 15 foot
space, to the extent in the sole judgment of Grantee, as may be necessary to
prevent possible interference with the operation of said lines or to remove
possible hazard thereto. Grantor shall not make changes in grade, elevation or
contour of the land within the easement area as described above without prior
written consent of Grantee.
<PAGE> 3
Grantor reserves the right to use the land within the above described
easement area for purposes not inconsistent with Grantee's use of such
property, provided such use shall not, in the sole judgment of Grantee,
interfere with the exercise by Grantee of the rights hereby granted.
The installation of certain electrical facilities as shown on Exhibit "A"
shall not substantially deviate from said plans with respect to scope or
location without the written approval of Owner. Construction associated with
the installation of certain electrical facilities as shown on Exhibit "A" shall
be completed within a 30 day period from the commencement of said work. Upon
completion of the installation, TU Electric shall reasonably return the
property to its original condition prior to said installation.
Notwithstanding anything contained herein, Grantor reserves the right to
construct any improvements it deems necessary, on, over or around said easement
and right of way, so long as the improvements do not endanger or in any way
interfere with the construction, efficiency or convenient operation and
maintenance of said lines and equipment. Said easement and right of way shall
not unreasonably interfere with the operation of businesses on Grantor's land.
The easement and right of way shall terminate at Grantor's option and subject
to Grantor providing reimbursement to Grantee for the cost of removal of the
affected electrical facilities and restoration of the ground therein.
TO HAVE AND TO HOLD the above described easement and rights unto the said
Grantee, its successors and assigns, until all of said lines shall be
abandoned, and in that event said easement and right-of-way shall cease and all
rights herein granted shall terminate and revert to Grantor and Grantor's
heirs, successors or assigns.
And Grantor does hereby bind itself, its successors, legal representatives
and assigns, to warrant and forever defend all and singular the above described
easement and rights unto the said Grantee, its successors and assigns, against
every person whomsoever lawfully claiming or to claim the same or any part
thereof.
WITNESS _________ hand(s) this __________ day of_____________________, 1993.
TEXAS UTILITIES ELECTRIC COMPANY
By:
--------------------------------------------------
Paul D. Williams
Senior Vice President
THE WESTERN AND SOUTHERN LIFE
INSURANCE COMPANY, an Ohio corporation
By:
--------------------------------------------------
Mario San Marco, Vice President
By: /s/ D.J. Wuebbling
--------------------------------------------------
D.J. Wuebbling, Vice President
2
<PAGE> 4
STATE OF TEXAS
COUNTY OF TARRANT
BEFORE ME, the undersigned authority, on this day personally appeared PAUL D.
WILLIAMS, Senior Vice President of Texas Utilities Electric Company, known to
me to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that he executed the same as the act and deed of the said
Texas Utilities Electric Company, and for the purposes and consideration
therein expressed and in the capacity therein stated, and that he was
authorized to do so.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this __________________________ day of
_______________________________________, A.D., 1993.
______________________________________________________________
Notary Public in and for the State of Texas
______________________________________________________________
(Print Name of Notary Public Here)
My Commission Expires:
______________________________
STATE OF ________________
COUNTY OF _______________
BEFORE ME, the undersigned authority, on this day personally appeared MARIO
SAN MARCO, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same as the
act and deed of THE WESTERN AND SOUTHERN INSURANCE COMPANY, an Ohio corporation
as the Vice President thereof, and for the purposes and consideration therein
expressed and in the capacity therein stated, and that he was authorized to do
so.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this __________________________ day of
_______________________________________, A.D., 1993.
_____________________________________________________________
Notary Public in and for the State of Texas
_____________________________________________________________
(Print Name of Notary Public Here)
My Commission Expires:
______________________________
3
<PAGE> 5
STATE OF ________________
COUNTY OF _______________
BEFORE ME, the undersigned authority, on this day personally appeared D.J.
WUEBBLING, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same as the
act and deed of THE WESTERN AND SOUTHERN LIFE INSURANCE COMPANY, an Ohio
corporation, as the Vice President thereof, and for the purposes and
consideration therein expressed and in the capacity therein stated, and that he
was authorized to do so.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this __________________________ day of
_______________________________________, A.D., 1993.
____________________________________________________________
Notary Public in and for the State of Texas
____________________________________________________________
(Print Name of Notary Public Here)
My Commission Expires:
______________________________
4
<PAGE> 6
EXHIBIT "A"
FIELD NOTE DESCRIPTION
Lying and situated in the City and County of Dallas, Texas, the William M.
Cochran Survey, Abstract No. 279 and being a part of Lot 1-A, Block 2/6554 of
Royal Commerce Center, an addition to the City of Dallas, Texas, according to
the map or plat thereof recorded in Volume 80175, page 0579, Deed Records of
Dallas County, Texas, and being part of that certain tract of land conveyed to
The Western and Southern Life Insurance Company by Royal Commerce Center
Associates by a General Warranty Deed dated January 28, 1985, of record in
Volume 85020, page 4634, Deed Records of Dallas County, Texas, and being more
particulary described by metes and bounds as follows:
COMMENCING at the intersection of the west right of way line of Newkirk Street
(a variable width) with the north line of the above described addition, 17.00
feet, N 89 degrees 52' 50" W from a 3/8-inch iron rod found for an offset
corner in said right of way line, and being 797.37 feet S 89 degrees 52, 50" E
from a 1/2- inch iron rod found at the intersection of the westerly
prolongation of said north addition line with the easterly right of way line of
the Burlington Northern Railroad (50 feet from its centerline at this point);
Thence S 00 degrees 14' 00" W along the west right of way line of Newkirk
Street, 851.99 feet to the POINT OF BEGINNING;
THENCE S 00 degrees 14' 00" W, along said right of way line of Newkirk Street,
16.79 feet;
THENCE S 36 degrees 46' 56" W, 17.65 feet;
THENCE S 88 degrees 32' 49" W, 363.76 feet;
THENCE N 83 degrees 47' 12" W, 120.28 feet;
THENCE N 52 degrees 38' 57" W, 42.28 feet;
THENCE N 30 degrees 07' 08" W, 33.44 feet;
THENCE N 80 degrees 16' 11" W, 16.01 feet to a point on the southeast wall of a
building;
THENCE N 09 degrees 43' 49" E, along said building wall, 19.50 feet;
THENCE S 80 degrees 16' 11" E, leaving said building wall, 22.68 feet;
THENCE S 09 degrees 43' 49" W, 11.89 feet;
THENCE S 30 degrees 07' 08" E, 33.02 feet;
THENCE S 52 degrees 38' 57" E, 37.50 feet;
THENCE S 83 degrees 47' 12" E, 116.82 feet;
THENCE N 88 degrees 32' 49" E, 358.24 feet;
<PAGE> 7
THENCE N 36 degrees 46' 56" E, 26.29 feet to the point of beginning and
containing 6,163 square feet of land, more or less.
KNOW ALL MEN BY THESE PRESENTS
That I, William S. Ward, Registered Professional Land Surveyor,
do hereby certify that this survey was made on the ground under my
personal supervision on October 13, 1993 and that this plat or field
notes do accurately represent the boundary lines of the subject
property and that there are no apparent encroachments, conflicts or
protrusions except as shown hereon. This certification is revoked and
the survey null and void if used for any purposes other than this
transaction.
/s/ William S. Ward
----------------------
William S. Ward, R.P.L.S. No. 4238
MAP IS ALSO ATTACHED
<PAGE> 1
EXHIBIT 10.27
SECOND LEASE AMENDMENT
This Second Lease Amendment, dated for reference purposes, the 3rd day of
December 1993, by and between The Western and Southern Life Insurance Company,
(hereinafter referred to as "Lessor") and Booth, Inc., (hereinafter referred to
as "Lessee").
WITNESSETH:
WHEREAS, by a Lease Agreement, dated as of the 16th day of April, 1993 and as
amended by First Lease Amendment dated the 27th day of October (hereinafter
collectively referred to as the "Lease"), Lessor leased to Lessee certain
premises therein described as the Royal Commerce Center, 2007 Royal Lane,
Dallas, Texas, 75229, consisting of 169,807 square feet and as more
particularly described in the Lease, and
WHEREAS, the parties desire to amend the Lease.
NOW, THEREFORE, in consideration of the foregoing premises and the terms and
conditions hereinafter set forth, the parties do hereby agree as follows:
1. Parking - Lessor has agreed to pay $1,000 to Lessee as a contribution for
the lease of a 3.77 acre adjacent parcel of land (as identified on the
attached Exhibit A), for parking for Lessee, which both Lessee and Lessor
acknowledge is necessary for the operation of Lessee's facility. As part
of this agreement the following is agreed to:
A. Lessee shall at all times throughout its lease term require its plant
personnel to park on the west side of the Royal Commerce Center, as
indicated on the site plan attached as Exhibit B. In the event the
number of the Lessee's plant personnel exceeds the number of spaces
available on the west side, the additional employees shall park in the
common parking area east of their demised premises.
B. At any time during the term of the Lease, after the 1st of January,
1995, Lessor may require Lessee to deliver upon written notice to Lessor
a written statement of the total number of individuals employed by
Lessee in connection with their demised premises. In the event that
said number of employees exceeds 220, Lessor at Lessor's sole option may
require Lessee to provide additional parking spaces to the 3.77 acre
parcel of land in an amount not to exceed the amount of employees in
excess of 220. The additional parking spaces shall be created or paved
at Lessee's sole cost in a manner acceptable to all appropriate
governmental authorities.
C. Lessee acknowledges that the terms of the Lease or the approval of any
of its plans shall in no way limit Lessor's rights to re-stripe any
parking within the Royal Commerce Center at any time.
2. Land Lease - Lessee agrees to give Lessor the right of first refusal to
assume its land lease of the 3.77 acre parcel of land in the event it
should cease its use of the parcel for any reason.
<PAGE> 2
IN WITNESS WHEREOF, Lessor and Lessee have dully executed this Lease
Amendment, in triplicate, as of the day of the year first above written.
Lessee:
Booth, Inc.
By: /s/ David W. Campbell
------------------------------------------
David W. Campbell, President
Guarantor:
Scotsman Group, Inc.
By: /s/ David W. Campbell
------------------------------------------
David W. Campbell, Vice President
Lessor:
The Western and Southern Life Insurance Company
By: /s/ Mario San Marco
------------------------------------------
Mario San Marco, Vice President
By: /s/ D.J. Wuebbling
------------------------------------------
D.J. Wuebbling, Vice President
<PAGE> 3
EXHIBIT A
PROPERTY DESCRIPTION
STATE OF TEXAS:
COUNTY OF DALLAS:
BEING a tract or parcel of land out of the W. M. Cochran Survey, Abstract No.
279, and being a portion of the C.R.J.&P. Railroad right-of-way, in the City of
Farmers Branch, Dallas County, Texas, and being more particularly described as
follows:
BEGINNING at a hole found for corner in the North right-of-way line of Royal
Lane, said point being the Southwest corner of Lot 1-A, Block 2/6554, of Royal
Commerce Center Addition, an Addition to the City of Dallas, as recorded in
Volume 80175, Page 0579, Map Records of Dallas County, Texas:
THENCE South 89 deg. 52 min. West along the North right-of-way of Royal Lane,
124.77 East to an iron rod found for corner;
THENCE North 09 deg. 34 min 10 sec. East, 1314.86 feet to an iron rod found for
corner;
THENCE North 89 deg. 52 min. 50 sec. East, 126.71 feet to a bolt found for
corner, being the Northwest corner of said Lot 1-A Block 2/6554;
THENCE South 09 deg. 34 min. 10 sec. West, along the West line of said Lot 1-A
and the East line of the C.R.J.&P. Railroad right-of-way, same line being the
division line between the City of Farmers Branch and the City of Dallas, a
distance of 1314.52 feet to the PLACE OF BEGINNING and containing 3.77 Acres of
Land.
MAPS ARE ALSO ATTACHED
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Company generated cash from operating activities of $16.2 million in the
fiscal year ended January 1, 1995 ("1994"), compared with $11.7 million in the
prior year. Net income plus depreciation and amortization totaled $18.8
million in 1994, an increase of $7.7 million over the prior-year amount of
$11.1 million. Changes in assets and liabilities utilized $2.7 million, due
primarily to working capital changes.
The Company's balance sheet and statement of cash flows for the year ended
January 1, 1995, were impacted substantially by the acquisitions in April 1994
of The Delfield Company ("Delfield") and Whitlenge Drink Equipment Limited
("Whitlenge"). As described further in the notes to the financial statements,
Delfield and Whitlenge were acquired 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
approximately $3.9 million. The Company also had paid as of January 1, 1995,
approximately $2.2 million in acquisition-related expenses.
The acquisition price of the acquired businesses included (a) $30.4 million in
cash, (b) 1.2 million shares of common stock (with a market value, at the time
of the acquisition, of approximately $16.5 million) and (c) 2.0 million shares
of Series A $0.62 cumulative convertible preferred stock, with an aggregate
liquidation preference of $22.5 million, which are convertible into 1,525,393
shares of common stock. The acquisition price also will include 667,000 shares
of additional common stock to be issued in the first quarter of 1995 based on
Delfield and Whitlenge having achieved a specified level of earnings before
interest, income taxes, depreciation and amortization ("EBITDA") in fiscal year
1994. The Company also assumed $35 million of Delfield and Whitlenge debt as a
result of the acquisitions. The preliminary amount of goodwill as a result of
these acquisitions before recognition of the additional 667,000 shares was
$73.7 million.
<PAGE> 2
Accounts receivable, excluding the effects of changes in exchange rates
and the addition of approximately $13.0 million resulting from the acquisitions
of Delfield and Whitlenge, increased by $7.8 million compared with year-end
1993 due to increased balances in the Company's European businesses reflecting
strong fourth quarter sales growth and also the effects of volume increases in
some of the domestic businesses. Inventories, excluding the effect of changes
in exchange rates and the addition of approximately $18.3 million resulting
from the Delfield and Whitlenge acquisitions, increased $3.8 million. This
increase in inventory levels reflects higher balances at Scotsman Ice Systems,
which were partially attributable to production related to new product
introductions, and Delfield (since its acquisition in April 1994), partially
offset by a lower balance at an Italian unit. Trade accounts payable and other
liabilities increased by $10.3 million, excluding the effects of changes in
exchange rates and the addition of $18.9 million from the Delfield and
Whitlenge acquisitions, primarily due to increases in trade accounts payable in
all of the businesses, which was partially attributable to higher production
levels, along with increases in reserves for customer allowances at Delfield
(since its acquisition in April 1994) and reserves established for certain
litigation matters.
Capital expenditures, including those financed through capital lease
obligations, were $5.5 million, compared with $3.3 million in the prior year.
Expenditures for the Company were made for productivity improvements, new
product tooling, normal maintenance and replacement items, and capital
requirements associated with the relocation of Crystal Tips and Booth, Inc. to
a single facility in Dallas, Texas. Capital expenditures in 1995 may increase
moderately from 1994 levels and are expected to be financed from
internally-generated funds.
Cash and temporary cash investments of $9.8 million, primarily held in foreign
subsidiaries, increased by $1.3 million. This increase was the result of cash
generated from operating activities, which was offset by cash applied to the
purchase of Delfield and Whitlenge and investments in properties and equipment.
Short-term debt, net, excluding the effect of changes in exchange rates,
decreased by $0.1 million, reflecting a reduction in Italian borrowings,
largely offset by an increase in borrowings under a short-term domestic demand
note.
<PAGE> 3
Long-term debt outstanding at January 1, 1995, of $85.0 million increased from
the prior year by $55.7 million. Of this amount, $52.0 million of indebtedness
was outstanding as of January 1, 1995, under a $90.0 million credit agreement
with a bank group. The Company also used a portion of this agreement to provide
for letters of credit totaling $10.1 million as of January 1, 1995. Long-term
debt at January 1, 1995, also included a private placement agreement and
industrial revenue bonds. The interest rates attributable to the credit
agreement and the industrial revenue bonds are floating, whereas the interest
rate relating to the private placement agreement is fixed. The Company has
entered into interest rate swap agreements to reduce the impact of changes in
interest rates on its floating-rate long-term debt. The Company's long-term
debt is maintained under agreements which require compliance with specified
financial ratios. As of January 1, 1995, the Company was in compliance with all
debt covenants.
Total debt, including capital leases, of $88.2 million, compared with year-end
shareholders' equity of $86.5 million, resulted in a debt-to-capital ratio of
50 percent, compared with 49 percent at the end of the prior year. This ratio
reflects both the debt and equity increases attributable to the acquisitions of
Delfield and Whitlenge. While the debt-to-capital ratio is slightly higher
than the ratio at the end of fiscal 1993, it reflects a substantial decrease
from the ratio of 55 percent at June 1994, the end of the quarter in which
Delfield and Whitlenge were acquired.
Scotsman initiated a quarterly dividend of 2 1/2 cents per share in its first
quarter as a public company, which it has maintained. However, the decision to
pay dividends, and the amount of such dividends, is determined by the Scotsman
Board of Directors from time to time, and may change as conditions warrant.
The Company believes that its available cash resources and cash flows are
adequate to finance its future internal growth.
<PAGE> 4
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 1, 1995 ("1994"), COMPARED WITH YEAR ENDED JANUARY 2, 1994
("1993")
Worldwide sales for 1994 were $266.6 million, compared with $164.0 million in
the prior year, which represents an increase of 63 percent. Delfield and
Whitlenge contributed approximately $93 million to the Company's sales since
their acquisition in April 1994.
Current year sales of ice machines increased 7 percent from the prior year and
excluding the effects of foreign currency changes were up 8 percent. Domestic
ice machine sales increased 6 percent due to the continuing strong economy and
the resulting increased market demand. Sales of the Company's Crystal Tips
brand ice machines were essentially level with the prior year, impacting the
overall domestic growth rate. Start-up production issues associated with the
December 1993 relocation of the Crystal Tips business and several 1994
distribution changes, as well as a prior-year build up of inventory in the
distribution system in anticipation of the move, negatively impacted 1994
Crystal Tips sales.
Ice machine sales from the Company's European operations increased 10 percent
in 1994 in local currency, 7 percent in dollars, compared with the prior year.
Sales from these operations increased 4 percent in local currency in the first
six months of 1994 compared with the similar period of the prior year, while
sales in the second half of 1994 were up 19 percent in local currency from the
prior-year period, reflecting the beginning of economic recovery after
approximately four years of recession in the Western European markets.
<PAGE> 5
Markets for the Company's ice machines in Europe are expected to continue to
improve through 1995.
Sales of the Company's Tecnomac brand refrigeration equipment for bakeries
increased 19 percent in local currency in 1994, 15 percent in dollars, versus
the prior year as the markets for those products, primarily in Italy, began to
rebound from the extended European recession.
The Company's 1994 worldwide drink dispensing sales increased 94 percent versus
the prior year, due to the inclusion of Whitlenge sales for the eight months
since its acquisition. Whitlenge, on a 1994 full-year basis, realized
increased sales of 5 percent in U.S. dollars, 2 percent in local currency,
compared with the prior year. Sales of Booth soft drink dispensers declined 3
percent from 1993 levels.
Delfield's sales of food preparation, storage and related equipment contributed
over $76 million to the Company's sales since its acquisition. For the full
year 1994 on a pro forma basis, Delfield's sales were up 16 percent over 1993,
reflecting broad-based demand increases through the dealer network and with
national accounts.
The Company's 1994 sales on a pro forma basis, as if Delfield and Whitlenge had
been acquired as of the beginning of the year, were $304.1 million.
<PAGE> 6
Gross profit increased significantly in dollars but declined as a percent of
sales, to 28.5 percent in 1994 from 30.2 percent in 1993, as a result of the
acquisitions of Delfield and Whitlenge. The historically lower gross profit
margins of those businesses, compared with the average of the other operations,
caused a reduction in the overall ratio of the consolidated businesses. Gross
profit margins of Booth/Crystal Tips declined in 1994 due to the higher costs
associated with the relocation and consolidation of those businesses. The
impact of those higher costs on the Company's overall margin was offset by the
positive effect of productivity improvements at other operations, primarily at
Scotsman Ice Systems, the largest of the Company's domestic ice machine
businesses.
Selling and administrative expenses for the year were up substantially, again
due in large measure to the acquisitions. Increased investment in research and
development resources and the costs associated with certain litigation matters
also contributed to the higher selling and administrative costs. As a
percentage of sales, however, selling and administrative costs declined, to
18.0 percent from 19.4 percent in the prior year, due to the historically lower
ratios at the acquired businesses.
Income from operations increased $10.6 million, or 60 percent, from the prior
year as a result of the above mentioned factors. Income from operations
increased for all of the businesses except Booth/Crystal Tips which incurred an
operating loss for the year due to consolidation costs and start-up
inefficiencies. Productivity improvements are expected in
<PAGE> 7
1995 which should have a positive effect on the operating results of that
business. The inclusion of the operating results of Delfield and Whitlenge
for the full year 1995 should have a significant favorable impact on income
from operations as well.
Interest expense, net, increased $1.2 million as a result of higher debt levels
associated with the acquisitions. An unfavorable interest rate swap agreement
established in 1989, which also contributed to 1994 interest expense, expired
in April 1994.
Income tax expense of $10.0 million reflects an effective tax rate of 43.9
percent, down from 44.8 percent in the prior year. This rate is influenced by
the proportion of highly-taxed Italian income and the non-tax deductible
goodwill amortization arising from the acquisitions.
Net income of $12.8 million was reported for 1994, compared with $7.4 million
in 1993, an increase of 73 percent. Net income per share increased by 27
percent, from $1.06 in 1993 to $1.35 in 1994 on a fully-diluted basis,
including the effect of convertible preferred shares and 667,000 contingent
shares to be issued in the first quarter of 1995.
Pro forma net income and fully-diluted net income per share, as if the
acquisitions had been consummated at the beginning of the year, were $13.5
million and $1.28, respectively.
<PAGE> 8
YEAR ENDED JANUARY 2, 1994 ("1993"), COMPARED WITH YEAR ENDED
JANUARY 3, 1993 ("1992")
Net income of $7.4 million was reported for 1993, compared with $6.4 million
for 1992, which represented an increase of 16 percent. 1993 net income
included a net favorable amount of $29,000 from the cumulative effect of
accounting changes adopted in the first quarter of the year. 1993 results were
achieved on sales of $164.0 million compared with $168.7 million in the prior
year. 1992 sales included $10.2 million from the Glenco-Star business which
was divested in September 1992. 1993 sales were up 3 percent compared with
sales from the 1992 operations excluding Glenco-Star. The comparison to prior
year was also impacted by approximately $12 million due to the translation
effect of a weakening Italian lira during 1993.
Sales from ongoing U.S. businesses were $119.1 million, up 12 percent from the
previous year. Domestic ice machine sales increased 15 percent as the result
of an improved domestic market, the January 1993 addition of the Howe flaker
product line and the full-year effect of sales of the products of Crystal Tips,
a U.S.-based ice machine business acquired in April 1992. Sales of Booth soft
drink dispensers were essentially the same as the prior year.
Sales from the Company's European operations increased 10 percent in local
currency in 1993 compared with the prior year. This increase was due to the
sales of the products of
<PAGE> 9
Simag, an Italian ice machine business acquired in January 1993.
European operations' sales, excluding the products of Simag, were essentially
flat with the prior year. Increased sales to the Far East and the Middle East
offset declines in sales to Western European countries where the markets
continued to suffer from a major recession. Due to the devaluation of the
Italian lira relative to the U.S. dollar during 1993, sales from European
operations, when translated into U.S. dollars, declined 14 percent.
Gross profit increased $3.0 million representing 30.2 percent of sales in 1993
compared with 27.5 percent in 1992. This improvement was due in part to
productivity improvements and warranty expense reductions, primarily in the
U.S. commercial ice machine business. Cost reductions in the European
operations, reflecting the partial-year benefits of a significant work force
reduction early in the year at Frimont, the Company's larger Italian operation,
and the incremental margin derived from the addition of the Simag business also
contributed to the improvement in gross profit margin.
Selling and administrative expenses for 1993 were up $0.3 million, or 1
percent, from the prior year. A 10 percent increase in research and
development expenditures was incurred in 1993, reflecting resources applied to
conversion of products to incorporate non-ozone depleting refrigerants as well
as new product development efforts. Increased legal costs were recorded
related to a certain matter in litigation. A full year of Crystal Tips'
expenses also added to the 1993 totals compared with the prior year. These
increases were offset by the elimination of Glenco-Star expenses incurred in
1992 prior to its divestiture and by the
<PAGE> 10
translation of Italian operations' expenses at stronger U.S.-dollar exchange
rates.
Income from operations increased $2.7 million, or 18 percent, as a result of
the above mentioned factors. As a percent of sales, income from operations
improved to 10.7 percent, a 1.9 point increase over the prior year.
Interest expense, net, declined $0.4 million due primarily to lower interest
rates. Income tax expense of $6.0 million reflected an effective tax rate of
44.8 percent, up from a rate of 37.2 percent in the prior year which included a
tax benefit of $0.6 million arising from a prior reorganization within the
European operations. In 1993 all remaining tax benefits relating to this
reorganization were reflected in the net deferred tax asset resulting from the
first quarter 1993 adoption of SFAS No. 109, "Accounting for Income Taxes."
<PAGE> 11
Scotsman Industries, Inc.
Consolidated Statement of Income
(Amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
<S> <C> <C> <C>
Net sales $266,632 $163,952 $168,674
Cost of sales 190,518 114,472 122,226
-------- -------- --------
Gross profit 76,114 49,480 46,448
Selling and administrative expenses 47,900 31,874 31,588
-------- -------- --------
Income from operations 28,214 17,606 14,860
Interest expense, net 5,416 4,235 4,675
-------- -------- --------
Income before income taxes 22,798 13,371 10,185
Income taxes 10,013 5,989 3,793
-------- -------- --------
Net income before cumulative effect of accounting changes 12,785 7,382 6,392
Cumulative effect of accounting changes -- 29 --
-------- -------- --------
Net income $ 12,785 $ 7,411 $ 6,392
Preferred stock dividends 885 -- --
-------- -------- --------
Net income available to common shareholders $ 11,900 $ 7,411 $ 6,392
======== ======== ========
Net income per share before cumulative effect
of accounting changes:
Primary $ 1.49 $ 1.06 $ 0.90
-------- -------- --------
Fully diluted $ 1.35 $ 1.06 $ 0.90
-------- -------- --------
Net income per share:
Primary $ 1.49 $ 1.06 $ 0.90
-------- -------- --------
Fully diluted $ 1.35 $ 1.06 $ 0.90
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
<PAGE> 12
Scotsman Industries, Inc.
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
Jan. 1, Jan. 2,
1995 1994
<S> <C> <C>
Assets
Current Assets:
Cash and temporary cash investments $ 9,770 $ 8,462
Trade accounts and notes receivable, net of allowances
of $2,296 in 1994 and $1,548 in 1993 50,102 28,578
Inventories 48,613 25,693
Deferred income taxes 4,642 3,748
Other current assets 3,255 1,701
-------- --------
Total current assets 116,382 68,182
Properties and equipment, net 40,657 19,867
Cost of investments in acquired businesses in excess of
net assets at acquisition, net 84,038 11,320
Other noncurrent assets 3,714 3,804
-------- --------
Total assets $244,791 $103,173
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt and current maturities of capitalized
lease obligations and long-term debt $ 3,030 $ 2,707
Trade accounts payable 24,290 11,743
Accrued income taxes 4,173 2,087
Deferred income taxes 288 --
Accrued expenses 30,036 15,327
-------- --------
Total current liabilities 61,817 31,864
Capitalized lease obligations 261 219
Long-term debt 84,900 29,250
Deferred income taxes 2,917 435
Other noncurrent liabilities 8,433 7,411
-------- --------
Total liabilities 158,328 69,179
Shareholders' Equity:
Common stock, $.10 par value, authorized 50,000,000 shares;
issued 8,462,197 shares and 7,210,549 shares, respectively 846 721
Preferred stock, $1.00 par value, authorized 10,000,000 shares;
issued 1,999,992 shares and 0 shares, respectively 2,000 --
Additional paid in capital 58,085 20,557
Retained earnings 31,959 20,855
Deferred compensation and unrecognized pension cost (53) (54)
Foreign currency translation adjustments (5,031) (6,741)
Less: Common stock held in treasury;
194,259 and 202,295 shares, respectively (1,343) (1,344)
-------- --------
Total shareholders' equity 86,463 33,994
-------- --------
Total liabilities and shareholders' equity $244,791 $103,173
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
<PAGE> 13
Scotsman Industries, Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,785 $ 7,411 $ 6,392
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,019 3,674 3,562
Loss (gain) on property dispositions 45 (52) 201
Change in assets and liabilities:
Trade accounts receivable (7,779) (677) (285)
Inventories (3,815) 1,018 3,293
Trade accounts payable and other liabilities 10,290 2,248 (2,491)
Other, net (1,369) (1,962) 611
-------- -------- --------
Net cash provided by operating activities 16,176 11,660 11,283
Cash flows from investing activities:
Investment in properties and equipment (5,434) (3,264) (2,012)
Proceeds from dispositions of properties and equipment 34 67 32
Acquisition of Delfield and Whitlenge (28,689) -- --
Proceeds received from disposal of Glenco-Star -- -- 2,856
Acquisition of Crystal Tips -- -- (5,341)
Acquisition of Simag -- (5,506) --
-------- -------- --------
Net cash used in investing activities (34,089) (8,703) (4,465)
Cash flows from financing and capital activities:
Short-term debt, net (74) 1,662 (4,729)
Issuance of long-term debt 63,000 -- --
Principal payments under long-term debt
and capitalized leases (42,831) (115) (245)
Purchase of Scotsman Industries, Inc. common stock -- (38) (1,299)
Dividends paid to shareholders (1,339) (700) (710)
-------- -------- --------
Net cash provided by (used in) financing
and capital activities 18,756 809 (6,983)
Effect of exchange rate changes on cash and
temporary cash investments 465 (506) (777)
-------- -------- --------
Net increase (decrease) in cash and temporary cash investments 1,308 3,260 (942)
Cash and temporary cash investments at beginning of year 8,462 5,202 6,144
--------- -------- --------
Cash and temporary cash investments at end of year $ 9,770 $ 8,462 $ 5,202
========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4,566 $ 4,356 $ 4,944
======== ======== ========
Income taxes $ 10,685 $ 5,048 $ 3,142
======== ======== ========
Supplemental schedule of noncash investing and financing
activities:
Investment in properties and equipment through
issuance of capitalized lease obligations $ (56) $ -- $ (7)
======== ======== ========
Issuance of stock for acquisition of Delfield and Whitlenge $ (39,000) $ -- $ --
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
<PAGE> 14
Scotsman Industries, Inc.
Consolidated Statement of Shareholders' Equity
(Amounts in thousands, except number of shares)
<TABLE>
<CAPTION>
Foreign
Treasury Common Preferred Additional Currency
Stock Stock Stock Paid in Retained Translation Treasury
Number Par Value Par Value Capital Earnings Other (a) Adjustments Stock Total
----- -------- -------- -------- ------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1991 83,485 $ 719 $ -- $ 20,167 $ 8,460 $ (76) $ 1,940 $ (9) $ 31,201
Net income -- -- -- -- 6,392 -- -- -- 6,392
Foreign currency translation
adjustments -- -- -- -- -- -- (5,693) -- (5,693)
Issuance of deferred
compensation (9,660) -- -- 101 -- (103) -- 2 --
Amortization of deferred
compensation -- -- -- -- -- 145 -- -- 145
Dividends declared to common
shareholders -- -- -- -- (708) -- -- -- (708)
Stock options exercised -- 1 -- 107 -- -- -- -- 108
Purchase of Scotsman
Industries, Inc. common
stock for treasury 135,752 -- -- -- -- -- -- (1,299) (1,299)
------- ----- ------ -------- -------- ------ ------ ------- ---------
Balance at January 3, 1993 209,577 $ 720 $ -- $ 20,375 $14,144 $ (34) $(3,753) $(1,306) $ 30,146
------- ----- ------ -------- -------- ------ ------- ------- ---------
Net income -- -- -- -- 7,411 -- -- -- 7,411
Foreign currency translation
adjustments -- -- -- -- -- -- (2,988) -- (2,988)
Issuance of deferred
compensation (7,282) -- -- 85 -- (85) -- -- --
Amortization of deferred
compensation -- -- -- -- -- 91 -- -- 91
Dividends declared to common
shareholders -- -- -- -- (700) -- -- -- (700)
Additional costs relating to
prior-year purchase of
Scotsman Industries, Inc.
common stock for treasury -- -- -- -- -- -- -- (38) (38)
Stock options exercised -- 1 -- 97 -- -- -- -- 98
Unrecognized pension cost -- -- -- -- -- (26) -- -- (26)
------- ----- ------ -------- ------- ------ ------- ------- --------
Balance at January 2, 1994 202,295 $ 721 -- $ 20,557 $20,855 $ (54) $(6,741) $(1,344) $ 33,994
======= ===== ====== ======== ======= ====== ======= ======= ========
Net income -- -- -- -- 12,785 -- -- -- 12,785
Foreign currency translation
adjustments -- -- -- -- -- -- 1,710 -- 1,710
Issuance of deferred
compensation (8,038) -- -- 118 -- (119) -- 1 --
Amortization of deferred
compensation -- -- -- -- -- 99 -- -- 99
Dividends declared to common
shareholders -- -- -- -- (796) -- -- -- (796)
Dividends declared to
preferred shareholders -- -- -- -- (885) -- -- -- (885)
Issuance of common and
preferred stock relating to
acquisition of Delfield -- 120 2,000 36,880 -- -- -- -- 39,000
and Whitlenge
Stock options exercised -- 5 -- 530 -- -- -- -- 535
Unrecognized pension cost -- -- -- -- -- 21 -- -- 21
Other 2 -- -- -- -- -- -- -- --
------- ----- ------ -------- -------- ------ ------- ------ --------
Balance at January 1, 1995 194,259 $ 846 $2,000 $ 58,085 $ 31,959 $ (53) $(5,031) $(1,343) $ 86,463
======= ===== ====== ======== ======== ====== ======= ======= ========
</TABLE>
(a) Other shareholder's equity includes deferred compensation and
unrecognized pension cost.
The accompanying notes to consolidated financial statements are an
integral part of this statement.
<PAGE> 15
SCOTSMAN INDUSTRIES, INC.
DESCRIPTION OF BUSINESS
The Company is engaged in the manufacture and marketing of refrigeration
products primarily for the foodservice industry, including ice machines, food
preparation and storage equipment, and drink dispensing equipment.
Scotsman's commercial ice machine business accounted for 57 percent, 83 percent
and 76 percent of sales in fiscal years 1994, 1993 and 1992, respectively.
Scotsman ice machines are sold both through a system of distributors and
directly by Scotsman to national customers and governmental and military
buyers. Scotsman also manufactures and markets a line of consumer ice machines
primarily for the luxury home market.
Scotsman manufactures and markets drink dispensing equipment in Europe through
its United Kingdom subsidiary, Whitlenge, which was acquired in April 1994.
Whitlenge's products are sold to soft drink bottlers and breweries.
Domestically, Scotsman also manufactures, through its Booth, Inc. subsidiary,
soft drink dispensing equipment which is sold primarily in the United States to
soft drink bottlers. Drink dispensing equipment accounted for 12 percent, 10
percent and 10 percent of sales in fiscal years 1994, 1993 and 1992,
respectively.
Scotsman manufactures and markets a line of food preparation and storage
equipment through its Delfield subsidiary which was acquired in April 1994.
Delfield's products are sold primarily to U.S. commercial foodservice
establishments. Scotsman also manufactures and markets a line of bakery
equipment and commercial refrigerators and freezers through its European
businesses. Scotsman formerly manufactured and marketed a line of commercial
refrigerators and freezers through its Glenco-Star division, which was sold in
September 1992. Food preparation and storage equipment accounted for 28
percent, 4 percent and 11 percent of Scotsman's business in fiscal years 1994,
1993 and 1992, respectively.
Scotsman also manufactures and markets a line of niche products primarily
through its Delfield subsidiary which includes air ventilating equipment and
contract manufactured point of purchase merchandisers. Scotsman also
manufactures and markets water coolers through its European businesses.
Geographic information for Scotsman can be found in Note 19 in Notes to
Consolidated Financial Statements.
<PAGE> 16
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Effective April 14, 1989, Scotsman Industries, Inc. ("Scotsman" or "the
Company") was spun-off from Household International, Inc. ("Household")
through the issuance of one share of Scotsman common stock for every
five shares of Household common stock then outstanding to Household
shareholders. Scotsman became a publicly traded company listed on the
New York Stock Exchange and its operations ceased to be owned by
Household.
Basis of Consolidation
The consolidated financial statements include the accounts of Scotsman
Industries, Inc. and its consolidated subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for previous
years have been reclassified to conform to the presentation used for
fiscal year 1994.
Fiscal Year
The Company reports on a 52-53 week fiscal year ending on the Sunday
nearest to December 31. Fiscal years 1994 and 1993 had 52 weeks; fiscal
year 1992 had 53 weeks.
Cash Management
Scotsman uses a centralized cash management system to provide financing
for the majority of its domestic operations.
Temporary cash investments, primarily Eurodollar deposits with
maturities of ninety days or less, are carried at cost, which
approximates market. Interest income (in thousands) included in
interest expense, net was $277, $125 and $136 for fiscal years 1994,
1993 and 1992, respectively.
Trade Accounts and Notes Receivable
Trade accounts and notes receivable at January 1, 1995, and January 2,
1994, included notes of $7.9 million and $6.5 million, respectively.
<PAGE> 17
Inventories
Inventories are stated at the lower of cost or market and include the
appropriate elements of material, labor and manufacturing overhead
expenses. Cost is determined using the last-in, first-out ("LIFO")
method for a portion of domestic inventories and the first-in, first-out
("FIFO") method for the balance of domestic and all foreign inventories.
Properties and Equipment
Properties and equipment, including capitalized leases, are recorded at
cost to the Company at date of acquisition and depreciated over either
their estimated useful lives, ranging from 3 to 40 years, or lease
terms, whichever is shorter, using principally the straight-line method
for financial reporting purposes and accelerated methods for tax
reporting purposes.
Cost of Businesses Acquired
Cost of investments in excess of net assets of businesses acquired after
October 1970 is being amortized using the straight-line method over 40
years. The related amortization expense was $1.5 million, $0.3 million
and $0.2 million for the fiscal years 1994, 1993 and 1992, respectively.
At January 1, 1995, and January 2, 1994, accumulated amortization was
$3.0 million and $1.5 million, respectively. After an acquisition, the
Company continually reviews whether subsequent events and circumstances
have occurred that indicate that the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable. If events and circumstances indicate that
goodwill related to a particular business should be reviewed for
possible impairment, the Company uses projections to assess whether
future operating income of the business on a non-discounted basis is
likely to exceed the goodwill amortization over the remaining life of
the goodwill, to determine whether a writedown of goodwill to
recoverable value (as determined by the same projections) is
appropriate.
<PAGE> 18
Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company's
participation in derivatives is limited primarily to interest rate
swap agreements and forward exchange contracts. The Company enters into
interest rate swap agreements to reduce the impact of changes in
interest rates on its floating-rate long-term debt. The difference
between the fixed and floating rates, which is to be paid or received,
is accrued as interest rates change and is recognized over the life of
the swap agreements. The Company also entered into a forward exchange
contract to provide for the intercompany note receivable that it has
with its United Kingdom subsidiary. The difference between the spot
rate on the date of issuance and the forward rate for this contract is
being amortized over the life of the contract. The cash impacts of these
instruments are included with the cash flows of the items to which
they relate in the Consolidated Statement of Cash Flows.
Interest Expense
Interest expense included in the consolidated statement of income is
related to private placement debt, debt covered under a credit
agreement, Industrial Development Revenue Bonds, capitalized lease
obligations, and borrowings on domestic lines of credit and foreign
lines of credit.
Research and Development Costs
Research and development costs related to both present and future
products are expensed currently. Research and development expenditures
for fiscal years 1994, 1993 and 1992 were $5.1 million, $3.9 million and
$3.5 million, respectively.
<PAGE> 19
Foreign Currency Translation
The Company has foreign subsidiaries located in Italy and the United
Kingdom. Foreign subsidiary income and expenses are translated into
United States dollars at the average rates of exchange prevailing during
the year. The assets and liabilities are translated into U.S. dollars
at the rates of exchange on the balance sheet date, and the related
translation adjustments are accumulated as a separate component of
shareholders' equity. As the Company intends to maintain its
investments in these subsidiaries indefinitely, ultimate realization of
these translation adjustments is highly uncertain. Foreign currency
transaction gains and losses are minimal and are recorded in income as
they occur.
Income Taxes
Federal and state income taxes are not provided on undistributed
earnings of foreign subsidiaries that have been or are intended to be
reinvested indefinitely.
Earnings Per Share
Primary earnings per share are computed based on income after
preferred stock dividends. The number of shares includes common stock
and common stock equivalents.
The calculation of fully-diluted net income per share is based on net
income before preferred stock dividends. The number of shares includes
common stock and common stock equivalents, assumes conversion of the
convertible preferred stock from the date of issue and also includes the
dilutive impact, as if issuance had occurred on the acquisition date of
Delfield and Whitlenge, of contingent shares that were issued subsequent
to January 1, 1995.
2. CUMULATIVE EFFECT OF ACCOUNTING CHANGES
In the first quarter of 1993 the Company implemented changes in
accounting principles for post-retirement health care benefits, post-
employment expenses and income taxes. 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. (See Note 11 of Notes to
Consolidated Financial Statements.)
Unfavorable cumulative effect of accounting change due to other
post-employment benefits (in thousands) of $(508) pre-tax and $(243)
after-tax. (See Note 11 of Notes to Consolidated Financial
Statements.)
<PAGE> 20
Favorable cumulative effect of accounting change relating to income
taxes (in thousands) of $1,301. (See Note 12 of Notes to
Consolidated Financial Statements.)
3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 1, 1995 Jan. 2, 1994
<S> <C> <C>
Finished goods 19,450 $14,755
Work-in-process 9,805 2,232
Raw materials 19,358 8,706
------- -------
Total inventories $48,613 $25,693
======= =======
</TABLE>
Approximately $10.7 million and $7.2 million of total Company
inventories were valued on the LIFO method in fiscal 1994 and 1993,
respectively. In 1994 there were no reductions in levels of inventory
valued on LIFO which reduced cost of sales. If inventories valued on the
LIFO method had been valued using the FIFO method, they would have been
$3.8 million and $3.7 million higher at January 1, 1995, and January 2,
1994, respectively.
4. PROPERTIES AND EQUIPMENT
Properties and equipment consisted of assets owned and leased under
capital lease arrangements as follows (in thousands):
<PAGE> 21
<TABLE>
<CAPTION>
Jan. 1, 1995 Jan. 2, 1994
------------ ------------
<S> <C> <C>
Owned:
Land $ 1,669 $ 1,354
Buildings and leasehold
improvements 28,402 15,728
Machinery, fixtures and
equipment 41,014 25,525
Accumulated depreciation
and amortization (31,030) (23,087)
-------- --------
Owned, net 40,055 19,520
-------- --------
Leased:
Machinery, fixtures and 1,388 852
equipment
Accumulated depreciation
and amortization (786) (505)
-------- --------
Leased, net 602 347
-------- --------
Properties and equipment,
net $ 40,657 $ 19,867
======== =========
</TABLE>
5. SHORT-TERM DEBT
Short-term debt (in thousands) at January 1, 1995, and January 2, 1994,
was $2,780 and $2,594, respectively, and principally related to amounts
owed under lines of credit. The weighted average interest rate based on
short-term debt outstanding as of January 1, 1995, and January 2, 1994,
was 6.7 percent and 7.9 percent, respectively. Average borrowings (in
thousands) and the related weighted average interest rates were as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Bank and other borrowings $3,404 $6,905
Weighted average interest rate 8.0% 10.9%
</TABLE>
The maximum aggregate short-term debt outstanding (in thousands) at the
end of any month during fiscal years 1994 and 1993 was $3,472 and
$10,601, respectively.
<PAGE> 22
6. LINES OF CREDIT
The Company maintains various credit agreements. At January 1, 1995,
these agreements (in thousands) included foreign and domestic lines of
credit of $15,256 and $5,000, respectively. Lines of credit are
reviewed annually, with amounts borrowed under lines of credit included
in short-term debt.
At January 1, 1995, foreign and domestic lines of credit not in use were
(in thousands) $13,976 and $3,500, respectively. Borrowings under these
agreements are available at the prime rate or other prevailing market
rates. There are no fees or compensating balance requirements on the
lines of credit.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 1, 1995 Jan. 2, 1994
------------ -------------
<S> <C> <C>
Payroll and employee benefits $ 6,498 $ 2,843
Reserve for relocation of
Crystal Tips - 890
Casualty insurance 890 794
Current portion of product
warranties 5,918 4,400
Reserve for customer allowances 3,366 69
Reserve for Delfield & Whitlenge 2,258 --
Other current liabilities 11,106 6,331
------- -------
Total accrued expenses $30,036 $15,327
======= =======
</TABLE>
<PAGE> 23
8. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 1, Jan. 2,
1995 1994
------------ ------------
<S> <C> <C>
Credit agreement
with floating interest rate;
due 1998-2000 $52,000 $ --
11.43% Private Placement
Agreement; due 1997-1998 20,000 20,000
Allendale County Industrial
Revenue Bonds with floating
interest rate; due 2001 9,250 9,250
Town of Covington
Industrial Revenue Bonds
with floating interest rate;
due 2002 - 2006 3,150 --
Isabella County
Industrial Revenue Bonds;
with floating interest rate;
due 1995 - 2003 550 --
------- ---------
Total $84,950 $ 29,250
Current portion 50 --
------- ---------
Long-term portion $84,900 $ 29,250
======= =========
</TABLE>
In April 1994 a new $90 million reducing revolving credit agreement
("New Credit Agreement") was established to provide the financing for
the cash consideration paid in connection with the acquisitions of
Delfield and Whitlenge, the refinancing of the majority of approximately
$35 million in existing indebtedness of Delfield and Whitlenge,
replacement of letters of credit of approximately $10.1 million, working
capital for the Company and its subsidiaries following the acquisition,
and transaction costs associated with the acquisition. 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, $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. As of January 1,
1995, the Company had approximately $27.9 million of unused credit
available under this agreement. This reducing revolving credit agreement
replaced a $25.0 million credit agreement which was created in November
1992.
<PAGE> 24
Borrowings under the New Credit Agreement will bear interest at a
floating rate based upon, at the Company's option, (a) the higher of the
agent bank's corporate base rate or the federal funds rate plus 0.5
percent per annum, or (b) the rate offered by the agent bank 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. Commitment fees on the New
Credit Agreement are 0.25 percent per annum on the unused portion.
In 1989 the Company issued $20.0 million of private placement debt held
primarily by insurance companies.
The Allendale County Industrial Revenue Bonds are secured by a bank
letter of credit for $9.6 million. The current cost of the commitment
fee on the letter of credit ranges from 0.75 percent to 1.125 percent on
outstanding principal and interest depending on the Company's interest
coverage ratio as defined in the $90 million reducing revolving credit
agreement as described above. The interest rate applicable to the
Allendale County Industrial Revenue Bonds was 5.695 percent and 3.2
percent at January 1, 1995, and January 2, 1994, respectively.
Delfield had two Industrial Revenue bonds outstanding which the Company
assumed as of the acquisition in April 1994. One series was issued by
the town of Covington, Tennessee and the other was issued by Isabella
County, Michigan. The town of Covington Industrial Revenue Bonds are
secured by a building with a net book value of $4.5 million as of
January 1, 1995. The Isabella County Industrial Revenue Bonds are
secured by a building section with a net book value of $0.8 million as
of January 1, 1995. The interest rates for these two Industrial Revenue
bonds as of January 1, 1995, were 5.3125 percent and 6.12 percent,
respectively.
The weighted average effective interest rate was 7.7 percent at January
1, 1995, and 11.0 percent at January 2, 1994. Future required
maturities of long-term debt assuming letters of credit are outstanding
at the same level as January 1, 1995, were as follows (in thousands):
<TABLE>
<S> <C>
1995 $ 50
1996 50
1997 10,050
1998 13,148
1999 5,070
Thereafter 56,582
-------
Total long-term debt $84,950
=======
</TABLE>
<PAGE> 25
The credit agreement and private placement agreement contain 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 Company was in compliance with
these covenants as of January 1, 1995. Among other restrictions, one of
the Company's covenants has the effect of restricting the amount of the
Company's dividends to its shareholders to an amount equal to $2.0
million 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, $26.8 million
of retained earnings was restricted as of January 1, 1995. The Company
is precluded from paying dividends to its shareholders if a default or
an event which, but for the lapse of time or 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 dividends.
9. LEASES
The Company leases certain of its offices, buildings, and machinery and
equipment for periods up to 20 years with various renewal options.
Rental expense under operating leases was $2.0 million in 1994, $1.4
million in 1993 and $1.7 million in 1992. Capital lease obligations
vary in amounts (in thousands) up to $214 with various interest rates,
both fixed and floating.
<PAGE> 26
Future minimum lease commitments under noncancelable operating and
capital leases (together with the present value of the net minimum lease
commitments) at January 1, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- -------
<S> <C> <C>
1995 $1,363 $222
1996 1,347 208
1997 1,287 63
1998 1,145 -
1999 757 -
Thereafter 3,518 -
------ ----
Total minimum lease
commitments $9,417 $493
====== ====
Amounts representing
interest (32)
---
Present value of net
minimum lease commitments 461
Current portion (200)
---
Long-term portion $261
====
</TABLE>
Certain capital lease obligations are collateralized by properties and
equipment with a net book value (in thousands) of approximately $602.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1994 the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," ("SFAS 107") and Statement of Financial Accounting
Standards No. 119, "Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments"("SFAS 119"). These statements
require certain disclosures about the fair value of financial
instruments, including derivative financial instruments, for which it is
practicable to estimate fair value.
The following methods and assumptions were used to estimate the fair
market value of each class of financial instrument for which it is
practicable to estimate that value:
Cash and Marketable Securities
Marketable securities consist principally of investments in
short-term, interest bearing instruments. The carrying amount
approximates fair market value.
<PAGE> 27
Trade Accounts and Notes Receivable and Payable
The carrying amount of the Company's trade accounts and
notes receivable and payable approximates market value.
Long-Term Debt
The carrying amount of most of the Company's long-term debt and the
Company's short-term debt approximates market value since rates on
those debt agreements are variable and are set periodically based on
current rates during the year. An exception would be the private
placement agreement which has a fixed interest rate of 11.43
percent. The fair value of the private placement agreement was
estimated based on the current rates quoted to the Company for debt
with the same maturities.
Letters of Credit
As collateral for the Company's industrial revenue bonds and for
certain of its insurance programs, the Company had a total of $10.1
million of letters of credit outstanding as of January 1, 1995. The
Company pays letter of credit fees to its bank group that range from
0.75 to 1.125 percent based upon the Company's interest coverage
ratio as defined in the New Credit Agreement. It is the Company's
opinion that the replacement costs for such letters of credit would
not significantly vary from the present fee structure. No material
loss is anticipated due to nonperformance by counterparties to these
agreements.
Swap Agreements and Forward Contracts
The Company had an interest rate swap agreement which was entered
into in April 1989 with a notional principal amount of $15 million
with a fixed interest rate of 10.29 percent. In return for this
agreement, the Company received floating-rate interest payments
based on six-month London Interbank Offered Rate ("LIBOR"). This
interest rate swap agreement matured in April 1994.
<PAGE> 28
Effective May 1994, the Company entered into two interest rate swap
agreements to reduce the impact of changes in interest rates on its
domestic floating-rate long-term debt. Both of the interest rate
swap agreements had a notional principal amount of $10 million and
interest payable was at a fixed rate of 5.64 percent and 6.33
percent, respectively. In return for both of these agreements, the
Company will receive floating rate interest payments based on
three-month LIBOR. These agreements will expire in May 1997.
The Company also entered into a forward exchange contract in 1994 to
hedge an intercompany note receivable that the Company has with its
United Kingdom subsidiary.
The fair value of interest rate swaps and forward contracts is the
estimated amount that the Company would receive or pay to terminate
the agreements as of January 1, 1995.
The estimated fair value of the Company's financial instruments at
January 1, 1995, (in thousands) was as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
--------- -------
<S> <C> <C>
Assets:
Cash and marketable securities $ 9,770 $ 9,770
Trade accounts
and notes receivable 50,102 50,102
Liabilities:
Short-term debt 2,780 2,780
Trade accounts payable 24,290 24,290
Long-term debt 84,950 86,277
Interest rate
swap agreements -- (866)
Forward exchange contract -- 350
</TABLE>
<PAGE> 29
11. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans for certain salaried
and hourly employees. Plans covering salaried employees provide
benefits that are based on years of service and compensation. Plans
covering hourly employees provide benefits of stated amounts for each
year of service. The pension assets are invested in various equity and
bond mutual funds, guaranteed insurance contracts, deferred insurance
policies and money market funds. The Company complies with funding
requirements under the Employee Retirement Income Security Act.
As a result of the spin-off of the Company from Household International,
Inc. in 1989, Household became responsible for all domestic salaried
pension benefits accrued prior to March 31, 1989.
For the year ended January 1, 1995, net periodic pension cost and the
funded status of the Company's pension plans presented below includes
information for The Delfield Company defined benefit pension plan which
covers its Mt. Pleasant union hourly employees and the Whitlenge Drink
Equipment Limited Retirement Benefit Scheme which covers certain of its
salaried employees.
The Company adopted a supplemental executive retirement plan ("SERP")
for certain employees in 1994. For the year ended January 1, 1995, net
periodic pension cost and the funded status of the Company's pension
plans presented below includes information for the SERP.
In the fourth quarter of 1992 the Company incurred a pension curtailment
due to the sale of Glenco-Star. The result was a loss (in thousands)
of $37 which is included in net periodic pension cost for 1992.
<PAGE> 30
Net periodic pension cost (in thousands) included in the consolidated
statement of income was $1,017 in 1994, $524 in 1993 and $554 in 1992.
The components of net periodic pension cost are (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended
----------------------------------------
Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 815 $442 $404
Interest cost 475 175 165
Actual return on
plan assets (213) (116) (90)
Net amortization
and deferral (60) 23 38
Curtailment loss - - 37
------ ---- ----
Net periodic
pension cost $1,017 $524 $554
====== ==== ====
</TABLE>
<PAGE> 31
The funded status of the Company's pension plans (in thousands),
excluding the Italian pension plans, was as follows:
<TABLE>
<CAPTION>
Jan. 1, 1995 Jan. 2, 1994
---------------------- -----------------------
Plan Accumulated Plan Accumulated
Assets Benefits Assets Benefits
Exceed Exceed Exceed Exceed
Accumulated Plan Accumulated Plan
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present
value of:
Vested benefits
obligation $(2,804) $(2,717) $(1,069) $(189)
Non-vested
benefits
obligation (360) (431) (343) (56)
------- ------- ------- -----
Accumulated
benefit
obligation (3,164) (3,148) (1,412) (245)
Effects of
anticipated
future
compensation
levels (1,363) (330) (1,076) -
------- ------- ------- -----
Projected
benefit
obligation (4,527) (3,478) (2,488) (245)
Plan assets
at fair
value 3,295 2,154 1,519 174
------- ------- ------- -----
Projected
benefit
obligation
(in excess
of) plan
assets (1,232) (1,324) (969) (71)
Unrecognized
liability
(net asset) 3 (14) - (16)
Unrecognized
prior
service cost 484 841 469 12
Unrecognized
net (gain)
or loss (309) (321) (24) 36
Adjustment
required
to recognize
minimum
liability - (208) - (34)
------- ------- ------- -----
Accrued
pension
cost $(1,054) $(1,026) $ (524) $ (73)
======= ======= ======== =====
</TABLE>
<PAGE> 32
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Discount rate 8.0 - 9.0% 7.5% 8.5%
Rate of increase
in compensation
levels 4.0 - 7.0% 4.0% 5.0%
Expected long-term
rate of return
on assets 9.0 - 10.0% 8.5% 9.0%
</TABLE>
The Company has pension plans covering employees in its Italian
subsidiaries. These plans combine aspects of both government mandated
and non-contributory plans. Total pension expense under these plans
included in the Consolidated Statement of Income (in thousands) was
$785, $828 and $1,021 in fiscal years 1994, 1993 and 1992,
respectively. The unfunded liability for these plans included in the
Consolidated Balance Sheet at January 1, 1995, and January 2, 1994,
(in thousands) was $4,046 and $3,817, respectively.
The Company also sponsors defined contribution pension plans.
Participation in one of these plans is available to substantially all
domestic salaried employees and to certain groups of domestic hourly
employees. Company contributions to these plans are based on either a
percentage of employee contributions or a specified amount depending
on the provisions of the plan. Total costs incurred under the plans
were (in thousands) $643, $203 and $180 for fiscal years 1994, 1993
and 1992, respectively.
The Company maintains plans that provide certain health care benefits
to certain employees retiring from the Company on or after attaining
age 55 who have rendered at least 10 years of service to the Company.
These plans are unfunded. The Company reserves the right to change or
terminate the benefits at any time.
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 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.
<PAGE> 33
The cumulative effect of this accounting change was to decrease income
for the twelve months ended January 2, 1994, by (in thousands) $1,660
($1,029, 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 flow because the
Company plans to continue paying the cost of post-retirement benefits
when incurred. Financial statements for the prior years have not been
restated to reflect the adoption of SFAS 106.
Net periodic post-retirement benefit cost for the fiscal years ended
January 1, 1995, and January 2, 1994, included the following
components (in thousands):
<TABLE>
<CAPTION>
Jan. 1, Jan. 2,
1995 1994
------- ------
<S> <C> <C>
Service cost on benefits earned $161 $108
Interest cost on accumulated
post-retirement benefit obligation 142 135
Amortization of net loss subsequent to
transition 4 -
---- ----
Net periodic post-retirement benefit cost $307 $243
==== ====
</TABLE>
The following table sets forth the status of the plan, reconciled to
the accrued post-retirement benefit cost recognized in the Company's
balance sheet (in thousands):
<TABLE>
<CAPTION>
Jan. 1, Jan. 2,
1995 1994
------- -------
<S> <C> <C>
Accumulated post-retirement
benefit obligation:
Retirees $ 837 $1,071
Fully-eligible active plan
participants 134 81
Other active plan
participants 1,020 878
------ ------
Total $1,991 $2,030
Unrecognized loss (118) (367)
------ ------
Accrued post-retirement
benefit cost recognized
in the balance sheet $1,873 $1,663
====== ======
</TABLE>
<PAGE> 34
The accumulated post-retirement benefit obligation was determined
using a discount rate of 8.0 percent in 1994 and 7.5 percent in 1993.
The health care cost trend rates were assumed to be 13.0 percent and
8.1 percent in 1995 and 15.0 percent and 8.6 percent in 1994 for
pre-65 and post-65 benefits, respectively, with both rates gradually
declining to 5.5 percent and remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage
point in each year would increase the accumulated post-retirement
benefit obligation by approximately (in thousands) $341 for 1994 and
$335 for 1993, and the aggregate of the service and interest cost
components of net periodic post-retirement benefit cost by
approximately (in thousands) $63 for 1994 and $47 for 1993.
Prior to the adoption of SFAS 106, the cost of post-retirement
benefits was recognized as an expense when the benefits were paid to
retirees or payments were made to insurance companies or other third
parties. The total cost of these post-retirement benefits charged to
income (in thousands) was approximately $414 for 1992.
Effective January 4, 1993, the Company also adopted 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) in 1993. Other than the effect of the
cumulative catch-up, the impact on pre-tax income of this accounting
change for 1993 and 1994 was not material. Financial statements for
the prior years have not been restated to reflect the adoption of SFAS
112.
12. INCOME TAXES
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. Financial statements for the prior years have not
been restated to reflect the adoption of SFAS 109.
<PAGE> 35
In accordance with SFAS 109, net deferred tax assets and liabilities
related to different tax jurisdictions are not offset in the Company's
balance sheet. The components of the consolidated net deferred tax
assets and liabilities as of January 1, 1995, and January 2, 1994,
were as follows (in thousands):
<TABLE>
<CAPTION>
Jan. 1, 1995 Jan. 2, 1994
------------ ------------
<S> <C> <C>
Gross deferred tax assets:
Foreign tax credits $ - $ 2,302
Tax credits due to Italian
reorganization 681 930
Warranty accruals 2,883 2,511
Relocation accrual for
Crystal Tips - 163
Reserve for bad debts 787 646
Inventory accruals 876 850
Reserve for post-retirement
medical costs 743 632
Other 3,099 1,861
------- -------
Total gross deferred tax assets 9,069 9,895
------- -------
Gross deferred tax liabilities:
Properties and equipment (4,984) (2,396)
Inventory related items (157) (256)
Other (2,302) (1,339)
------- -------
Total gross deferred tax liabilities (7,443) (3,991)
------- -------
Valuation allowance (189) (2,591)
------- -------
Net deferred tax asset $ 1,437 $ 3,313
======= =======
</TABLE>
The components of the net deferred tax asset at January 1, 1995, and
January 2, 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
Jan. 1, 1995 Jan. 2, 1994
------------ ------------
<S> <C> <C>
Current portion of deferred
tax asset $4,642 $3,748
Current portion of deferred
tax liability (288) -
Noncurrent portion of deferred
tax liability (2,917) (435)
------- ------
Net deferred tax asset $1,437 $3,313
====== ======
</TABLE>
<PAGE> 36
As of January 2, 1994, the Company had $2,302,000 of foreign tax
credits which expired in 1994. The Company had established a full
valuation allowance against these tax assets as of the end of fiscal
year 1993, due to the improbability of using these credits within the
carryforward period. The Company was able to utilize $140,000 of
these credits before they expired. The valuation allowance as of
January 1, 1995, includes $189,000 to partially offset the tax asset
in Italy relating to a prior-year reorganization of one of the
Company's Italian subsidiaries. The Company established this reserve
due to the limited carryforward life of net operating losses in Italy.
The provision (benefit) for income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended
----------------------------------------
Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
United States:
Current $ 7,300 $ 4,209 $ 1,606
Deferred (746) (327) 1,772
-------- -------- -------
6,554 3,882 3,378
-------- -------- -------
Foreign:
Current 2,412 2,055 166
Deferred 1,047 52 249
-------- -------- -------
3,459 2,107 415
-------- -------- -------
Provision for
income taxes $ 10,013 $ 5,989 $3,793
======== ======== ======
</TABLE>
<PAGE> 37
The provision (benefit) for deferred income taxes included the
following (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended
----------------------------------------
Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Amortization
of Italian
reorganization
benefits $ 535 $ 507 $ -
Depreciation 203 43 343
Reserve for Glenco-Star
disposition 56 (108) 2,894
Reserve for Halsey Taylor
costs 92 54 146
Reserve for swap loss 38 143 197
Warranty reserve (304) (553) (284)
Inventory adjustments (95) (619) 444
Water cooler reserve 18 33 130
Reserve for relocation
of Crystal Tips 167 673 (837)
Fixed asset disposals (12) - (1,118)
Valuation allowance
reduction (117) (157) -
Other, net (280) (291) 106
------- ----- ------
Total $ 301 $ (275) $2,021
====== ====== ======
</TABLE>
Income before income taxes from foreign operations was $6.9 million in
1994, $3.4 million in 1993 and $1.5 million in 1992. The differences
between the Company's effective tax rate and the statutory federal
income tax rate were as follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended
--------------------------------------
Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal
income tax rate 35.0% 34.0% 34.0%
Increase (decrease)
in rate resulting from:
State and local income
taxes, net of federal
tax benefit 2.7 3.1 3.5
Foreign tax effect 4.9 7.0 (0.9)
Foreign withholding taxes - 0.2 -
Other 1.3 0.5 0.6
---- ---- ----
43.9% 44.8% 37.2%
==== ==== ====
</TABLE>
<PAGE> 38
In accordance with the Company's accounting policy, provision for U.S.
income taxes has not been made on $19.0 million of undistributed
earnings of foreign subsidiaries at January 1, 1995.
13. STOCK OPTIONS AND DEFERRED COMPENSATION
The Company has a long-term executive incentive program which provides
for granting key employees options to purchase the Company's common
stock. Under the program, options are exercisable at a rate set by
the Compensation Committee of the Board of Directors of the Company.
To date, options have been exercisable in cumulative annual increments
of 25 percent commencing one year after the date of grant. The option
price per share is not less than the fair market value of one share
on the date of the grant. An option may not be exercisable after more
than ten years and one day from the date of the grant. Information
with respect to the plan is as follows:
<TABLE>
<CAPTION>
Option Option Price
Shares Range Per Share
------ ---------------
<S> <C> <C>
Outstanding at
December 29, 1991 376,850 $7.25 - $12.88
Granted 89,000 $ 9.06
Exercised (13,786) $7.25 - $ 8.61
Forfeited (26,720) $7.25 - $12.88
------- -------------
Outstanding at
January 3, 1993 425,344 $7.25 - $12.88
Granted 77,250 $11.19
Exercised (9,888) $7.25 - $12.88
Forfeited (20,820) $7.25 - $12.88
------- -------------
Outstanding at
January 2, 1994 471,886 $7.25 - $12.88
Granted 56,550 $16.50
Exercised (51,656) $7.25 - $12.88
Forfeited (18,195) $7.25 - $16.50
-------- -------------
Outstanding at
January 1, 1995 458,585 $7.25 - $16.50
Exercisable at
January 1, 1995 293,845 $7.25 - $12.88
======== ==============
</TABLE>
<PAGE> 39
On August 11, 1994, the Board of Directors adopted, subject to
shareholder approval at the 1995 Annual Meeting of Shareholders, the
Non-Employee Directors Stock Option Plan. The plan provides for (a)
an automatic award of options to purchase shares of the Company's
common stock to non-employee directors as of the effective date of the
plan, (b) automatic awards to non-employee directors who are elected
or appointed to the Board of Directors after the effective date and
(c) automatic annual awards thereafter. The options will vest 100
percent on the date preceding the first annual meeting of shareholders
following the date of the grant of the options. The option price per
share may not be less than the fair market value of one share on the
date of the grant. An option may not be exercisable after more than
ten years and one day from the date of the grant.
If approved by the shareholders, each of the seven non-employee
directors of the Company will be deemed to have been granted an option
to purchase 2,000 shares of the Company's common stock as of August
11, 1994, the effective date of the plan. The above table does not
include the grant of these options which are effective only upon
shareholder approval.
In 1989 the Company issued from treasury 34,625 shares of restricted
common stock as additional compensation to the Chief Executive
Officer. These shares could not be exercised for a period of three
years from the date of grant at which point such shares became non-
forfeitable. The cost relating to this benefit (in thousands) of $43
was recorded in fiscal year 1992. The Company also issued from
treasury 8,038, 7,282 and 9,660 shares of common stock in fiscal years
1994, 1993 and 1992, respectively, as annual Board of Directors fees.
Costs relating to these fees (in thousands) of $99, $91 and $102 were
recorded in fiscal years 1994, 1993 and 1992, respectively.
14. SALE OF GLENCO-STAR BUSINESS
In fiscal year 1991 the Company recorded a reserve of $7.8 million
related to the decision to dispose of the assets of its Glenco-Star
division ("Glenco-Star"), and reduced Glenco-Star's goodwill balance
of $0.2 million to its market value of $0. The Company completed the
sale of Glenco-Star in the fourth quarter of 1992. Excess
restructuring reserves for the Glenco-Star disposition were utilized
to establish a relocation reserve for Crystal Tips (See Note 16).
<PAGE> 40
15. ACQUISITION OF CRYSTAL TIPS AND SIMAG BUSINESSES
The Company's Booth, Inc. subsidiary acquired on April 28, 1992, the
assets of Crystal Tips, an ice machine manufacturer located in Spirit
Lake, Iowa. The method of accounting used for the combination was the
purchase method. The results of Crystal Tips are included in the
income statements for the Company beginning after April 28, 1992.
Crystal Tips was acquired for a total cost of $5.3 million. No shares
of stock were or will be issued as a result of this acquisition.
Goodwill of $0.5 million resulted from the Crystal Tips acquisition
and will be amortized for book purposes over 40 years using the
straight-line method. No contingent payments, options or commitments
were specified in the acquisition agreement of Crystal Tips.
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
statement 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 for book
purposes over 40 years using the straight-line method. No contingent
payments, options or commitments were specified in the acquisition
agreement of Simag. This acquisition did not have a material effect
on the Company's results of operations.
16. RESERVE FOR RELOCATION OF CRYSTAL TIPS
In the fall of 1993 the Company closed the Spirit Lake, Iowa plant
occupied by the Crystal Tips division of Booth, Inc. and began to
consolidate its manufacturing with Booth, Inc. in facilities located
in Dallas, Texas. As discussed in Note 14, the Company used excess
restructuring reserves originally established for the planned
disposition of Glenco-Star to provide for these relocation costs.
This relocation was completed in fiscal year 1994.
<PAGE> 41
17. ACQUISITION OF DELFIELD AND WHITLENGE
On April 29, 1994, the Company completed the acquisition of The
Delfield Company and Whitlenge Drink Equipment Limited 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 on April
28, 1994.
The method of accounting 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 $73.7 million and is being amortized over 40 years
using the straight-line method. The acquisition price included: (a)
$30.4 million in cash, (b) 1.2 million shares of common stock (with a
market value of approximately $16.5 million on the acquisition date)
and (c) 2.0 million shares of Series A $0.62 cumulative convertible
preferred stock with an aggregate liquidation preference of $22.5
million which are convertible into 1,525,393 shares of common stock.
Also, the acquisition price of $69.3 million will be increased by
approximately $11 million to include 667,000 shares of additional
common stock based upon the businesses of Delfield and Whitlenge
meeting a specified level of earnings before interest, income taxes,
depreciation and amortization in fiscal year 1994. These additional
shares were issued subsequent to January 1, 1995. In addition,
Scotsman also assumed Delfield and Whitlenge debt of approximately $35
million which was substantially repaid on the acquisition date. (See
Note 8.) 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 the Company as if the
acquisitions of Delfield and Whitlenge had occurred as of the first
day of each period presented.
<PAGE> 42
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 unaudited 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.
(Amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
PRO FORMA (Unaudited)
Twelve Months Ended Jan. 1, 1995 Jan. 2, 1994
<S> <C> <C>
Net sales $304,144 $278,557
Net income before
extraordinary item
and cumulative effect
of accounting changes 13,547 10,010
Net income per share
before extraordinary item
and cumulative effect
of accounting changes (a) $ 1.28 $ 0.96
Average number of common
shares outstanding (b) 10,570 10,393
</TABLE>
<PAGE> 43
(a) Pro forma net income per share includes the dilutive effect of the
667,000 additional shares of common stock which were contingently
issuable as described above. When all contingent shares are issued,
approximately $11 million of additional purchase price and
approximately $284,000 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 1994, the full-year impact of the additional 1.2 million common
shares, 1,525,393 common stock equivalents for the convertible
preferred shares outstanding, and the 667,000 contingently issuable
shares of common stock. The computation for the twelve months ended
January 2, 1994, does not include the dilutive effect of stock options
outstanding as the dilutive effect is immaterial.
18. CONTINGENCIES
On March 26, 1993, Remcor Products Company 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 judgment 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
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.
<PAGE> 44
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 ice/drink
dispensers accounted for less than 5 percent of the Company's
consolidated net sales in 1993 and 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.
<PAGE> 45
19. GEOGRAPHIC INFORMATION
The Company's geographic data, based on the locations of the
Company's operations, are as follows (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 1, Jan. 2, Jan. 3,
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Sales to unaffiliated
customers:
United States $201,746 $119,127 $116,517
Europe 64,886 44,825 52,157
-------- -------- --------
Total $266,632 $163,952 $168,674
======== ======== ========
Operating profit:
United States $ 20,773 $ 13,450 $ 12,670
Europe 7,441 4,156 2,190
-------- -------- --------
Total $ 28,214 $ 17,606 $ 14,860
======== ======== ========
Identifiable assets:
United States $172,608 $ 66,069 $ 59,682
Europe 72,183 37,104 36,421
------- ------- -------
Total $244,791 $103,173 $ 96,103
======== ======== ========
</TABLE>
Export sales were less than 10 percent of consolidated net sales for all years
presented.
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Scotsman Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Scotsman
Industries, Inc. (a Delaware Corporation) and subsidiaries as of January 1,
1995, and January 2, 1994, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 1, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scotsman Industries, Inc. and
subsidiaries as of January 1, 1995, and January 2, 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended January 1, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 11 and Note 12 to the consolidated financial statements,
the Company changed its methods of accounting for post-retirement benefits
other than pensions, post-employment expenses and income taxes effective January
4, 1993.
Arthur Andersen LLP
Chicago, Illinois,
February 7, 1995
<PAGE> 47
Scotsman Industries, Inc.
Selected Quarterly Financial Data
(Unaudited)
(Amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
Fiscal year 1994 (a) Fiscal year 1993
------------------------------------------- ----------------------------------------------
For The Three Months Ended Jan. 1, Oct. 2, July 3, Apr. 3, Jan. 2, Oct. 3, July 4, Apr. 4,
1995 1994 1994 1994 1994 1993 1993 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 66,565 $ 86,282 $ 75,799 $ 37,986 $ 32,123 $ 45,247 $ 48,686 $ 37,896
Cost of sales 49,677 61,125 52,916 26,800 23,168 31,339 33,707 26,258
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 16,888 25,157 22,883 11,186 8,955 13,908 14,979 11,638
Selling and administrative expenses 12,660 15,064 12,700 7,476 7,569 8,285 8,118 7,902
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations 4,228 10,093 10,183 3,710 1,386 5,623 6,861 3,736
Interest expense, net 1,495 1,615 1,399 907 907 1,069 1,156 1,103
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 2,733 8,478 8,784 2,803 479 4,554 5,705 2,633
Income taxes 1,043 3,799 3,912 1,259 270 1,971 2,563 1,185
-------- -------- -------- -------- -------- -------- -------- --------
Net income before cumulative effect
of accounting changes $ 1,690 $ 4,679 $ 4,872 $ 1,544 $ 209 $ 2,583 $ 3,142 $ 1,448
Cumulative effect of accounting
changes (b) -- -- -- -- -- -- -- 29
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 1,690 $ 4,679 $ 4,872 $ 1,544 $ 209 $ 2,583 $ 3,142 $ 1,477
======== ======== ======== ======== ======== ======== ======== ========
Net income per share before
cumulative effect of accounting
changes (c):
Primary $ 0.16 $ 0.52 $ 0.58 $ 0.22 $ 0.03 $ 0.37 $ 0.45 $ 0.21
======== ======== ======== ======== ======== ======== ======== ========
Fully diluted $ 0.16 $ 0.44 $ 0.51 $ 0.22 $ 0.03 $ 0.37 $ 0.45 $ 0.21
======== ======== ======== ======== ======== ======== ======== ========
Net income per share (c):
Primary $ 0.16 $ 0.52 $ 0.58 $ 0.22 $ 0.03 $ 0.37 $ 0.45 $ 0.21
======== ======== ======== ======== ======== ======== ======== ========
Fully diluted $ 0.16 $ 0.44 $ 0.51 $ 0.22 $ 0.03 $ 0.37 $ 0.45 $ 0.21
======== ======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding:
Primary 8,397,481 8,379,719 8,010,699 7,136,085 7,006,668 7,005,273 6,999,224 6,991,438
Fully diluted 10,595,294 10,583,355 9,601,544
</TABLE>
<PAGE> 48
(a) The results for fiscal year 1994 included the results of Delfield and
Whitlenge subsequent to their acquisitions on April 29, 1994.
(b) Changes in accounting principles relating to post-retirement health care
benefits, post-employment expenses and income taxes were implemented in the
first quarter of 1993. These accounting changes had a cumulative after-tax
impact (in thousands) of $(1,029), $(243) and $1,301, respectively.
(c) The net income per share calculations for quarters during fiscal year 1993
excluded the dilutive effect of stock options outstanding as the dilutive
effect was immaterial. For quarters during 1994 the dilutive effect of
stock options outstanding was included in the weighted average common
shares outstanding. For quarters ending subsequent to April 29, 1994, net
income per share on a primary basis was computed to be net income after
preferred stock dividends. For quarters ending subsequent to April 29,
1994, fully-diluted net income per share was based on net income before
preferred stock dividends and the number of shares assumed the conversion
of convertible preferred stock from the date of issue and also included
the dilutive impact, as if issuance had occurred on the acquisition date,
of contingent shares that have been distributed to the sellers of Delfield
and Whitlenge subsequent to January 1, 1995, based on those businesses
having achieved a specified combined level of earnings during fiscal year
1994.
<PAGE> 49
Scotsman Industries, Inc.
Five Year Summary
(Amounts in thousands, except per-share data)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 1, Jan. 2, Jan. 3, Dec. 29, Dec. 30,
1995 (a) 1994 1993 1991 (b) 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $266,632 $163,952 $168,674 $164,126 $179,857
Income before income taxes 22,798 13,371 10,185 936 12,320
Net income (loss) 12,785 7,411 6,392 (1,674) 7,412
Net income (loss) per share:
fully diluted (c) 1.35 1.06 0.90 (0.24) 1.05
Total assets (d) 244,791 103,173 96,103 112,808 133,706
Long-term debt and capitalized
lease obligations, excluding
current portion (d) 85,161 29,469 29,589 29,807 48,663
Cash dividends declared per
common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
======== ======== ======== ======== ========
</TABLE>
(a) The results for the fiscal year ended January 1, 1995, include the results
from Delfield and Whitlenge as of the date of their acquisitions,
April 29, 1994.
(b) The results for the fiscal year ended December 29, 1991, included a $1.0
million after-tax loss recognized from the sale of the assets of the Halsey
Taylor business in July 1991 and a $5.0 million after-tax reserve
established for the then planned disposition of the Glenco-Star division.
Net income on an unaudited pro forma basis for the fiscal year ended
December 29, 1991, adjusted to exclude the losses of $6.0 million described
above and the results of operations of Glenco-Star and Halsey Taylor, would
have been $5.6 million, or $.79 per share. Pro forma results are based on
assumptions and estimates and are not necessarily indicative of the results
of the Company as they might have been had the transaction occurred as
discussed above.
(c) The calculation of net income per share for the fiscal years 1994, 1993,
1992, 1991 and 1990 was based on 9,488,965, 7,000,651, 7,096,976, 7,098,968
and 7,086,825 weighted average shares of common stock, respectively. The
calculation of fully-diluted net income per share for the fiscal year ended
January 1, 1995, is based on net income before preferred stock dividends.
The number of shares assumes 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 which were
subsequently distributed to the sellers of Delfield and Whitlenge based on
those businesses having achieved a specified combined level of earnings
during fiscal year 1994, and also includes the dilutive impact of common
stock options outstanding. The net income per share calculation for fiscal
years ended prior to January 1, 1995, did not reflect the dilutive effect
of stock options outstanding as the dilutive effect was immaterial.
(d) At year end
<PAGE> 50
Scotsman Industries, Inc.
Common Stock
Scotsman Industries, Inc. common stock is listed on the New York Stock
Exchange. The common stock ticker symbol is SCT.
<TABLE>
<CAPTION>
Dividends
1993 High Low Last Declared
---- ------ ------ ------ ---------
<S> <C> <C> <C> <C>
1st Quarter 11 3/4 9 1/8 11 1/8 $0.025
2nd Quarter 13 1/4 11 12 1/8 $0.025
3rd Quarter 13 7/8 11 1/8 12 3/4 $0.025
4th Quarter 14 3/8 11 3/4 14 1/8 $0.025
---------
Total dividends declared $0.100
Shares outstanding at January 2, 1994 7,008,254
Shareholders of record at January 2, 1994 5,564
</TABLE>
<TABLE>
<CAPTION>
Dividends
1994 High Low Last Declared
---- ------ ------ ------ ---------
<S> <C> <C> <C> <C>
1st Quarter 16 7/8 14 14 3/8 $0.025
2nd Quarter 15 13 13 1/4 $0.025
3rd Quarter 16 1/2 13 3/8 16 3/8 $0.025
4th Quarter 18 1/4 15 3/8 17 1/8 $0.025
--------
Total dividends declared $0.100
Shares outstanding at January 1, 1995 8,267,938
Shareholders of record at January 1, 1995 5,321
</TABLE>
<PAGE> 1
EXHIBIT 21
List of Subsidiaries of the Registrant
<TABLE>
<CAPTION>
JURISDICTION OF OTHER NAMES UNDER WHICH
NAME OF SUBSIDIARY INCORPORATION SUBSIDIARY DOES BUSINESS
------------------ ------------- ------------------------
<S> <C> <C>
Scotsman Group Inc. Delaware Scotsman
Scotsman Ice Systems
Scotsman of Los Angeles
Booth, Inc. Texas Crystal Tips
Castel MAC, S.p.A. Italy None
DFC Holding Corporation Delaware None
The Delfield Company Delaware None
Frimont, S.p.A. Italy None
Scotsman Drink Equipment Limited England None
Whitlenge Acquisition Limited England None
Whitlenge Drink Equipment Limited England None
Whitlenge Drink Equipment, N.V. Belgium None
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in, or incorporated by reference to, this
Form 10-K into the Company's previously filed Registration Statements, File
Nos. 33-35870, 33-35871, 33-53482, 33-57219, and 33-56353.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Scotsman Industries, Inc. Condensed Balance Sheet as of January 1, 1995 and
January 2, 1994 and the Scotsman Industries, Inc. Consolidated Statement of
Income for each of the three years ended January 1, 1995, January 2, 1994 and
January 3, 1993 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> JAN-01-1995
<CASH> 9,770
<SECURITIES> 0
<RECEIVABLES> 50,102
<ALLOWANCES> 2,296
<INVENTORY> 48,613
<CURRENT-ASSETS> 116,382
<PP&E> 40,657
<DEPRECIATION> 31,816
<TOTAL-ASSETS> 244,791
<CURRENT-LIABILITIES> 61,817
<BONDS> 85,161
<COMMON> 846
0
2,000
<OTHER-SE> 83,617
<TOTAL-LIABILITY-AND-EQUITY> 244,791
<SALES> 266,632
<TOTAL-REVENUES> 266,632
<CGS> 190,518
<TOTAL-COSTS> 190,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,416
<INCOME-PRETAX> 22,798
<INCOME-TAX> 10,013
<INCOME-CONTINUING> 12,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,785
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.35
</TABLE>
