<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997
REGISTRATION NO. 333-38489
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCOTSMAN INDUSTRIES, INC.
SCOTSMAN GROUP INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
<TABLE>
<S> <C>
36-3635892
DELAWARE 36-3635935
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
820 FOREST EDGE DRIVE
VERNON HILLS, ILLINOIS 60061
TELEPHONE: (847) 215-4500
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
------------------------
DONALD D. HOLMES
VICE PRESIDENT -- FINANCE AND SECRETARY
SCOTSMAN INDUSTRIES, INC.
820 FOREST EDGE DRIVE
VERNON HILLS, ILLINOIS 60061
(847) 215-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
IMAD I. QASIM, ESQ. JAMES J. JUNEWICZ, ESQ.
SIDLEY & AUSTIN MAYER, BROWN & PLATT
ONE FIRST NATIONAL PLAZA 190 S. LASALLE STREET
CHICAGO, ILLINOIS 60603 CHICAGO, ILLINOIS 60603
(312) 853-7000 (312) 782-0600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box. [
]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two prospectuses, one for a debt
offering (the "Debt Prospectus") and one for an equity offering (the "Equity
Prospectus"). The financial statement pages for the Debt Prospectus and the
Equity Prospectus are identical and are included in this Registration Statement
only as part of the Debt Prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued November 4, 1997
$100,000,000
Scotsman Group Inc.
(a direct wholly owned subsidiary of Scotsman Industries, Inc.)
% SENIOR SUBORDINATED NOTES DUE 2007
Unconditionally guaranteed by
[Scotsman Industries Logo]
------------------------
Interest payable and
------------------------
The Notes are redeemable at the option of Scotsman Group Inc. ("Scotsman Group"
or the "Issuer"), in whole or in part, at any time on or after ,
2002, at % of their principal amount, plus accrued interest, declining
ratably to 100% of their principal amount, plus accrued interest, on or after
, 2004. In addition, at any time prior to 2000,
Scotsman Group may redeem in aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Equity Offerings (as
defined herein), at % of their principal amount, plus accrued interest. Upon
a Change of Control (as defined herein), each holder of Notes will have the
right to require Scotsman Group to purchase all or a portion of such holder's
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued interest, if any, to the date of purchase. See "Description of the
Notes."
Scotsman Industries, Inc. (the "Company" or "Scotsman") will issue a Guaranty
(as defined herein) of the Notes under which Scotsman, as primary obligor and
not merely as a surety, will irrevocably and unconditionally guarantee on a
senior subordinated basis the payment of the Notes when due and the due
performance by the Issuer of its other obligations under the Indenture (as
defined herein).
The Notes and the Guaranty will be unsecured general obligations of Scotsman
Group and the Company, respectively, subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of Scotsman Group
and the Company. As of June 29, 1997, after giving effect to this Offering and
the application of the net proceeds herefrom, Scotsman Group and the Company
would have had approximately $268 million of Senior Indebtedness outstanding and
approximately $139 million available under the Bank Credit Agreement (as defined
herein) which, if borrowed, would constitute Senior Indebtedness.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE % AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note............................................. % % %
Total................................................ $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from , 1997.
(2) The Company and Scotsman Group have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
(3) Before deducting expenses of the Offerings (as defined herein) payable by
the Company estimated at $ .
------------------------
The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Mayer, Brown & Platt, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about , 1997 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER FIRST CHICAGO CAPITAL MARKETS, INC.
, 1997
<PAGE> 4
[GRAPHIC ILLUSTRATION OF THE PERCENTAGE OF THE COMPANY'S
1996 PRO FORMA NET SALES REPRESENTED BY EACH OF THE COMPANY'S
FIVE PRODUCT LINES, TOGETHER WITH PHOTOGRAPHS OF A
REPRESENTATIVE SAMPLING OF PRODUCTS FROM EACH LINE.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION OF SUCH PERSONS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 4
Risk Factors................................ 12
The Company................................. 17
Scotsman Group.............................. 18
Kysor Acquisition........................... 18
Secondary Equity Offering................... 19
Use of Proceeds............................. 19
Capitalization.............................. 20
Selected Consolidated Financial and Other
Information............................... 21
Pro Forma Consolidated Financial
Information............................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.................................... 36
Management.................................. 46
Description of the Notes.................... 48
Certain United States Federal Tax
Considerations............................ 75
Description of Credit Facility.............. 80
Underwriters................................ 82
Legal Matters............................... 83
Experts..................................... 83
Additional Information...................... 83
Index to Financial Statements............... F-1
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference in
this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 30, 1997 and June 29, 1997, respectively; and
3. The Company's Current Reports on Form 8-K dated March 8, 1997 (as
amended by Form 8-K/A filed with the Commission on May 22, 1997), September
29, 1997 and October 22, 1997, respectively.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed documents which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is delivered
upon written or oral request, a copy of any or all of such documents that have
been or may be incorporated by reference into this Prospectus (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to
Corporate Secretary, Scotsman Industries, Inc., 820 Forest Edge Drive, Vernon
Hills, Illinois 60061, telephone number (847) 215-4500.
------------------------
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing or
incorporated by reference in this Prospectus. As used in this Prospectus, the
term the "Company" or "Scotsman" refers to Scotsman Industries, Inc. and, unless
otherwise stated or indicated by the context, its subsidiaries, and the terms
"Scotsman Group" or the "Issuer" refers to Scotsman Group Inc. As used in this
Prospectus, the term "Kysor" refers to Kysor Industrial Corporation and, unless
otherwise stated or indicated by the context, its subsidiaries, after taking
into account the sale of substantially all of the assets and related liabilities
of Kysor's Transportation Products Group described elsewhere in this Prospectus.
Unless otherwise stated, reference to the Company's 1996 "pro forma" net sales
includes Kysor's 1996 sales. Scotsman reports financial information on a 52-53
week fiscal year ending on the Sunday nearest to December 31, which fell on
December 29, 1996, December 31, 1995, January 1, 1995, January 2, 1994 and
January 3, 1993, respectively, for each of Scotsman's last five fiscal years.
Scotsman's first fiscal six months in 1997 and 1996 ended on June 29, 1997 and
June 30, 1996, respectively.
THE COMPANY
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's, Boston Market, WalwMart,
Winn-Dixie, Marriott and Mobil, as well as bottlers affiliated with Coca-Cola
and Pepsi.
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales of approximately $144 million accounted for
approximately 24% of the Company's 1996 pro forma net sales. The Company
believes that its leading market positions, broad product offering, diverse
customer base, extensive distribution network and strong international presence
provide it with significant competitive advantages and position it for continued
growth.
Since its spin-off from Household International, Inc. in 1989, Scotsman has
expanded through internal growth and through a disciplined acquisition program.
The Company's internal growth has been driven primarily by increased sales of
ice machines in the United States and Europe and beverage systems in Europe. In
addition, from 1992 through 1996, the Company successfully completed and
integrated five acquisitions. As a result of these acquisitions and internal
growth, the Company's net sales increased to $356.4 million in 1996 from $168.7
million in 1992, representing a compound annual growth rate of 20.6%. In March
1997, the Company acquired Kysor for a net purchase price of approximately $299
million (the "Kysor Acquisition"). Kysor is a leading supplier of refrigerated
display cases and walk-in coolers and freezers to the supermarket and
convenience store industries. For 1996, Kysor's sales of commercial
refrigeration products were $245.1 million, an increase of 18.3% from 1995. Pro
forma for the Kysor Acquisition, the Company's 1996 net sales were $601.4
million, a 68.7% increase over the Company's reported 1996 net sales. Through
the addition of Kysor's leading market positions and complementary product
lines, the Company expects to benefit from cross-selling opportunities, as well
as synergies related to reduced overhead, increased purchasing power and shared
research and development efforts.
4
<PAGE> 7
STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP. Scotsman seeks to build and
maintain leading market positions in each of its product lines. Scotsman
believes that its leading market positions, broad product offerings, strong
brand recognition and extensive distribution capabilities position it to
compete successfully as its customers consolidate their supplier base and
expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY. To enhance
manufacturing effectiveness, Scotsman has adopted "lean manufacturing"
initiatives that have enhanced product quality, lowered product defects and
inventory costs and reduced lead times for customized products. The
Company's manufacturing processes are designed to produce a range of
different standard or customized models within each manufacturing unit,
thereby increasing efficiency while improving the Company's ability to meet
customers' delivery schedules.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT. By applying
its product design, manufacturing and refrigerant technology expertise,
Scotsman seeks to design and manufacture technically superior, durable and
energy efficient products. Scotsman also dedicates substantial resources to
new product development and customizing existing products to meet the
unique performance, size and appearance specifications of individual
customers.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR
CUSTOMER SERVICE. Scotsman has an extensive sales, distribution and service
network that reaches customers in over 100 countries and is comprised of
approximately 200 employees and approximately 3,300 distributors and
dealers. Scotsman believes that this network, which is designed to meet the
needs of customers from product design and purchase through aftermarket
sales and support, provides it with a competitive advantage.
Scotsman also pursues a growth strategy intended to strengthen its
leadership positions within its product lines. The key elements of this strategy
include:
FOCUSING ON MAJOR NATIONAL CHAINS. Scotsman targets major national
chains within the five principal industries it serves. The Company believes
that these national chains are increasingly gaining market share at the
expense of independents and that, as a large diversified manufacturer,
Scotsman is well positioned to benefit from the trend among national chains
to consolidate their supplier base.
PURSUING CROSS-SELLING OPPORTUNITIES. Scotsman actively pursues
opportunities to cross-sell its broad range of products to existing
customers. The broader product range and increased customer base resulting
from the Kysor Acquisition present significant new cross-selling
opportunities for Scotsman.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES. Over the past several
years, international sales of commercial foodservice and retail food
equipment have grown at rates substantially higher than those for the
United States. The Company expects to use its international marketing,
distribution and manufacturing capabilities as a platform to increase
penetration of growing international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS. Scotsman will continue to
explore strategic acquisitions and joint ventures that broaden the
Company's product lines, offer significant operational synergies or
increase the Company's penetration of international markets.
5
<PAGE> 8
THE OFFERING
Issuer........................ Scotsman Group, a Delaware corporation and a
direct wholly owned subsidiary of Scotsman.
Scotsman conducts its domestic ice machine
business through divisions of Scotsman Group
and all of its other businesses through
subsidiaries of Scotsman Group.
Notes Offered................. $100 million principal amount of % Senior
Subordinated Notes due 2007.
Maturity Date................. , 2007.
Interest Payment Dates........ and of each year, commencing , 1998.
Optional Redemption........... The Notes are redeemable at the option of the
Issuer, in whole or in part, on or after
, 2002, at the redemption prices set
forth herein, together with accrued and unpaid
interest to the date of redemption.
In addition, up to 35% of the original
principal amount of the Notes are redeemable at
the option of the Issuer prior to
, 2000 with the proceeds of
one or more Equity Offerings at the redemption
price set forth herein, together with accrued
and unpaid interest to the date of redemption.
Guaranty...................... Scotsman will issue a Guaranty of the Notes
under which Scotsman, as primary obligor and
not merely as a surety, will irrevocably and
unconditionally guarantee on a senior
subordinated basis the payment of the Notes
when due and the due performance by the Issuer
of its other obligations under the Indenture.
Sinking Fund.................. None.
Change of Control............. Upon the occurrence of a Change of Control,
each holder of the Notes shall have the option
to require the Issuer to repurchase such
holder's Notes at a redemption price equal to
101% of the principal amount thereof, plus
accrued interest to the date of redemption,
pursuant to an Offer to Purchase required to be
made by the Issuer.
Ranking....................... The Notes and the Guaranty are unsecured senior
subordinated obligations of the Issuer and the
Company, respectively, and are subordinated to
all existing and future Senior Indebtedness of
the Issuer and the Company, including
indebtedness under the Bank Credit Agreement.
As of June 29, 1997, after giving pro forma
effect to this Offering and the application of
net proceeds herefrom, the aggregate
outstanding principal amount of Senior
Indebtedness of the Issuer and Scotsman would
have been approximately $268 million. In
addition, the Notes are effectively
subordinated to the obligation of the Issuer's
subsidiaries. As of June 29, 1997, after giving
pro forma effect to this Offering and the
application of net proceeds herefrom, the
Issuer's subsidiaries would have had
approximately $38 million of indebtedness
outstanding. Subject to certain limitations,
Scotsman, the Issuer and their Restricted
Subsidiaries may incur additional
6
<PAGE> 9
indebtedness in the future. See "Risk Factors
-- Leverage" and "Description of the Notes --
Ranking."
Subordination................. Senior Indebtedness (including allowed interest
thereon) of the Issuer or Scotsman, as the case
may be, shall be paid in full in cash or cash
equivalents from any payment of distribution
(except similarly subordinated securities) in
connection with any dissolution, winding up,
liquidation or reorganization (in bankruptcy or
otherwise) before the Notes shall be entitled
to receive such payments or distributions.
In addition, no payment of any kind or
character may be made on the Notes if any
Obligations with respect to any Designated
Senior Indebtedness are not paid when due or if
any other default occurs with respect to any
Designated Senior Indebtedness and the maturity
thereof has been accelerated. During the
continuance of any default with respect to any
Designated Senior Indebtedness which permits
the maturity thereof to be accelerated, the
Issuer may not make any payment of any kind or
character in respect of the Notes, and the
Company may not make any payment in respect
thereof under the Guaranty, for a period of up
to 179 days after receipt of notice thereof by
the Issuer.
Certain Covenants............. The Indenture contains certain covenants,
including, without limitation, covenants with
respect to the following matters: (i)
limitations on indebtedness, (ii) limitation on
other senior subordinated indebtedness; (iii)
limitation on restricted payments; (iv)
limitation on sale or issuance of restricted
subsidiary stock and indebtedness; (v)
limitation on transactions with affiliates;
(vi) limitation on liens; (vii) limitation on
asset sales; (viii) limitation on dividends and
other payment restrictions affecting restricted
subsidiaries; and (ix) restrictions on mergers
and certain transfers of assets. See
"Description of the Notes -- Certain
Covenants."
Use of Proceeds............... The net proceeds of this Offering are intended
to be used to repay a portion of the borrowings
outstanding under the Credit Facility. See "Use
of Proceeds."
For further information regarding the Notes, see "Description of the Notes"
and for definitions of certain capitalized terms used but not defined in this
Summary, see "Description of the Notes -- Certain Definitions."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning
Scotsman's operations, performance and financial condition, including, in
particular, the likelihood of the Company's success in integrating acquisitions.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified under "Risk Factors" and the
Cautionary Statements included as Exhibit 99 to the Company's Form 10-K for the
fiscal year ended December 29, 1996 and elsewhere in this Prospectus. The
forward-looking statements should be considered in light of these factors.
Unless otherwise indicated by the context, when used in this Prospectus or in
the documents incorporated by reference herein, the words "anticipate,"
"believe," "estimate," "intend" and "expect" and similar expressions are
intended to identify forward-looking statements.
7
<PAGE> 10
SECONDARY EQUITY OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale from time to time (the "Equity Offering") of up to 1,611,699
shares of common stock, par value $0.10 per share, of the Company (the "Common
Stock") by Onex Corporation ("Onex") and certain of its affiliates
(collectively, the "Selling Stockholders"), who have the right, pursuant to an
agreement with the Company and certain other persons (the "Registration Rights
Agreement"), to request that the Company include certain shares of Common Stock
in registrations by the Company of its securities under the Securities Act (as
herein defined). The Selling Stockholders have advised the Company, and the
Prospectus relating to the Equity Offering discloses, that they may sell their
shares of Common Stock through an underwritten public offering, in one or more
transactions (including block trades) on the New York Stock Exchange or on the
over-the-counter market or pursuant to privately negotiated transactions. The
Company is obligated under the Registration Rights Agreement to keep the
Registration Statement related to the Equity Offering effective for no more than
90 days. The Company will not receive any proceeds from the sale of Common Stock
in the Equity Offering. This Offering and the Equity Offering (collectively, the
"Offerings") are separate and independent transactions not contingent upon one
another. The Company is obligated to indemnify the Selling Stockholders and any
underwriters of the Equity Offering against certain liabilities, including
certain liabilities arising under the Securities Act.
8
<PAGE> 11
SUMMARY SCOTSMAN CONSOLIDATED FINANCIAL AND OTHER INFORMATION
Scotsman reports financial information on a 52-53 week fiscal year ending
on the Sunday nearest to December 31, which fell on December 29, 1996, December
31, 1995, January 1, 1995, January 2, 1994 and January 3, 1993, respectively,
for each of Scotsman's last five fiscal years. Scotsman's first fiscal six
months in 1997 and 1996 ended on June 29, 1997 and June 30, 1996, respectively,
and such results are unaudited.
<TABLE>
<CAPTION>
FIRST FISCAL SIX MONTHS FISCAL YEAR
--------------------------------- ------------------------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1997(1) 1997(2) 1996 1996(1) 1996 1995 1994 1993 1992
----------- ------- ---- ----------- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Net sales................. $310,688 $271,854 $189,956 $601,435 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales............. 232,463 200,757 135,692 443,787 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............. 78,225 71,097 54,264 157,648 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses................ 46,280 41,103 30,877 89,943 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.... 31,945 29,994 23,387 67,705 40,296 34,454 28,214 17,606 14,860
Interest expense, net..... 14,510 8,781 2,837 31,334 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................... 17,435 21,213 20,550 36,371 35,017 28,128 22,798 13,371 10,185
Income taxes.............. 9,163 10,262 9,866 18,358 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary loss and
cumulative effect of
accounting changes...... 8,272 10,951 10,684 18,013 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of
$422)(3)................ (633) (633) -- -- -- -- -- -- --
Cumulative effect of
accounting changes(4)... -- -- -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income................ $ 7,639 $ 10,318 $ 10,684 $ 18,013 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock
dividends............... -- -- 562 813 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income available to
common shareholders..... $ 7,639 $ 10,318 $ 10,122 $ 17,200 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes,
fully diluted(5)........ $ .77 $ 1.01 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income per share,
fully diluted(5)........ $ .71 $ .95 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)................. $ 41,312 $ 37,393 $ 27,720 $ 86,607 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures...... 10,529 7,433 3,360 13,129 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).............. 2.1x 3.3x 7.4x 2.1x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to
interest expense........ 2.8x 4.3x 9.8x 2.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA.................. -- -- -- 4.2x 1.6x 2.1x 2.6x 1.5x 1.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------------
AS ADJUSTED(8) ACTUAL
-------------- ------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Cash and marketable securities.............................. $ 20,760 $ 20,760
Total assets................................................ 687,128 682,878
Total debt and capitalized lease obligations (including
current maturities)....................................... 367,194 362,944
Working capital............................................. 95,487 95,487
Shareholders' equity........................................ 137,527 137,527
</TABLE>
- -------------------------
(Footnotes on following page)
9
<PAGE> 12
- -------------------------
(1) Pro forma for the Kysor Acquisition and as adjusted for the consummation of
this Offering. For a detailed description of the assumptions used in the
preparation of this pro forma as adjusted financial information, see "Pro
Forma Consolidated Financial Information."
(2) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(3) The extraordinary loss resulted from one-time expenses incurred by the
Company relating to the early retirement of certain debt as part of a
refinancing effected by the Company concurrently with the Kysor Acquisition.
(4) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946; 10,808,946 and 10,700,100 for the pro forma as adjusted first
fiscal six months of 1997 and the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,728,188; 10,649,763; 9,488,965; 7,000,651
and 7,096,976 for the 1996 pro forma as adjusted fiscal year and the fiscal
years 1996, 1995, 1994, 1993 and 1992, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
(8) As adjusted for the consummation of this Offering. See "Use of Proceeds" and
"Capitalization."
10
<PAGE> 13
SUMMARY KYSOR CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales................................................... $245,062 $207,215 $164,606
Cost of sales............................................... 185,253 159,460 128,631
-------- -------- --------
Gross profit................................................ 59,809 47,755 35,975
Selling and administrative expenses......................... 35,075 37,589 32,815
Loss on disposition of foreign operation(1)................. -- 9,335 --
-------- -------- --------
Income from operations...................................... 24,734 831 3,160
Interest expense, net....................................... 956 (26) 489
-------- -------- --------
Income before income taxes.................................. 23,778 857 2,671
Income taxes (benefit)...................................... 8,650 (4,695) 870
-------- -------- --------
Net income.................................................. $ 15,128 $ 5,552 $ 1,801
Preferred stock dividends................................... 966 987 980
-------- -------- --------
Net income available to common shareholders................. $ 14,162 $ 4,565 $ 821
======== ======== ========
OTHER INFORMATION:
EBITDA(2)................................................... $ 29,505 $ 14,061 $ 7,519
Capital expenditures........................................ 6,934 6,420 3,107
</TABLE>
- -------------------------
(1) Represents the loss on disposition of Kysor's German subsidiary. The
transaction resulted in a tax benefit of $8.8 million.
(2) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization and loss on disposition of foreign operations. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and incur debt. EBITDA should not be considered by a
prospective purchaser of Common Stock as an alternative to net income or as
an indicator of Kysor's operating performance or cash flows.
11
<PAGE> 14
RISK FACTORS
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risks set forth below:
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's business strategy includes making acquisitions that will
expand its international presence or offer complementary products and services.
See "Business -- Growth Strategy." In pursuing a strategy of acquiring other
businesses, the Company will face risks commonly encountered with growth through
acquisitions.
In March 1997, Scotsman acquired Kysor for a net purchase price of
approximately $299 million. Including the Kysor Acquisition, Scotsman has made
six acquisitions and entered into one alliance and three joint ventures since
its spin-off from Household International, Inc. in April 1989. As a result of
these acquisitions and internal growth, the Company's net sales increased from
$168.7 million for fiscal 1992 to pro forma net sales of $601.4 million for
fiscal 1996. The Kysor Acquisition is the largest acquisition undertaken by the
Company to date and will require significant integration efforts. There can be
no assurance that the Company will be able to integrate Kysor effectively or in
a timely manner or that the beneficial effects expected will be obtained even if
Kysor is integrated as contemplated. See "Kysor Acquisition."
Acquiring businesses has been and is expected to continue to be an
important element of the Company's strategy for achieving growth. Acquisitions
vary in size and may include acquisitions that are large relative to the
Company. There can be no assurance that suitable acquisition candidates will be
identified, that financing for such acquisitions will be available on
satisfactory terms, that the Company will be able to accomplish its strategic
objectives as a result of any such acquisition, that any business or assets
acquired by the Company will be integrated successfully or that integration of
acquired businesses will not divert management resources or otherwise have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company is continually evaluating possible
acquisitions and engages in discussions with acquisition candidates from time to
time.
ABILITY TO MANAGE GROWTH
Scotsman's growth will place a strain on its managerial and other
resources. From December 1993 through June 1997, the number of Company employees
increased from 915 to approximately 3,800. The Company's continued rapid growth
can be expected to place a significant strain on its management, operations,
employees and resources. There can be no assurance that the Company will be able
to manage effectively its expanding operations or achieve planned growth on a
timely or profitable basis. If the Company is unable to manage growth
effectively, its business, results of operations or financial condition could be
materially adversely affected. See "Business -- Growth Strategy."
LEVERAGE
The Kysor Acquisition significantly increased the Company's debt service
obligations. As of June 29, 1997, on a pro forma basis for this Offering, the
Company's indebtedness, including capitalized leases and current maturities,
would have been approximately $367 million, or approximately 73% of its book
capitalization. Although the Indenture will, and the Credit Facility does,
contain covenants that limit the incurrence by the Company, Scotsman Group and
certain of their subsidiaries of additional indebtedness, such limitations are
subject to a number of important qualifications and exceptions and the Company's
indebtedness could increase if, among other reasons, future acquisitions are
financed through additional borrowings. The Company's ability to make scheduled
payments of principal and interest or to refinance its indebtedness will depend
on the Company's operating performance and cash flows, which are affected by
prevailing economic conditions and financial, competitive and other factors
beyond the Company's control. The level of the Company's leverage from time to
time could have important consequences to holders of the Notes, including
limiting the Company's ability to (i) obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate purposes; (ii)
adjust to changing market conditions, including
12
<PAGE> 15
business downturns; or (iii) compete effectively with competitors who are less
leveraged than the Company. In addition, certain of the Company's borrowings
under the Credit Facility are and may continue to be at variable rates of
interest, which causes the Company to be vulnerable to increases in interest
rates. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources", "Description of the
Notes" and "Description of Credit Facility."
If the Company is unable to generate sufficient cash flows to service its
debt obligations, it will have to adopt one or more alternatives, such as
reducing or delaying planned acquisitions, expansion and capital expenditures,
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these alternatives could be effected on
satisfactory terms.
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY AND THE INDENTURE
The Credit Facility contains, and the Indenture will contain, certain
restrictive covenants, including, among others, covenants with respect to the
following matters: (i) limitations on indebtedness; (ii) limitations on other
senior subordinated indebtedness; (iii) limitations on restricted payments; (iv)
limitations on sale or issuance of restricted subsidiary stock and indebtedness;
(v) limitations on transactions with affiliates; (vi) limitations on liens;
(vii) limitations on asset sales; (viii) limitations on dividends and other
payment restrictions affecting restricted subsidiaries; and (ix) restrictions on
mergers and certain transfers of assets. Although these covenants are subject to
various exceptions that are designed to allow the Company to operate without
undue restraint, there can be no assurance that such covenants will not
adversely affect its ability to finance future operations or capital needs or
engage in other business activities that may be in the interest of the Company.
In addition, the Credit Facility requires the maintenance of specified financial
ratios. The ability of the Company to comply with such provisions may be
affected by events beyond the Company's control. A breach of any of these
covenants or the inability of the Company to comply with the financial ratios
contained in the Credit Facility could result in a default under the Credit
Facility or the Indenture, which could entitle the lenders or the noteholders to
accelerate the maturity of the Credit Facility or the Notes, and could result in
cross-defaults permitting the acceleration of other indebtedness of the Company
and its subsidiaries. Such an event would have a material adverse effect on the
Company and adversely affect the ability of the Issuer or the Company (pursuant
to the Guaranty) to make payments on the Notes. See "Description of the Notes"
and "Description of Credit Facility."
DEPENDENCE ON CERTAIN CUSTOMERS; CUSTOMER PURCHASING PATTERNS
Although no single customer accounted for 10% or more of Scotsman's 1996
net sales on a historical or pro forma basis, some of the Company's operating
units are dependent upon a limited number of major customers, most of which do
not have long-term purchase contracts with the Company. The Company's five
largest customers represented approximately 9% of the Company's net sales in
1996 and approximately 20% of its 1996 pro forma net sales. Sales of certain
products, including, in particular, refrigerated display cases and food
preparation and storage equipment, are largely dependent upon the expansion and
renovation programs of the Company's large chain customers. Any of these
programs can result in significant revenue for the Company over a limited period
of time, followed by a decline in revenues if the customer's expansion or
upgrade program is modified or terminated. For example, the Company believes the
recently announced slowing of expansion plans by Boston Market, a major customer
of the Company, may negatively impact food preparation and storage equipment
sales in the near term. These purchasing patterns are largely beyond the control
of the Company and can result in substantial fluctuations in the Company's
operating results. Although the Company believes that its relationships with its
customers are good, changes in customer purchasing patterns could have a
material adverse effect on the sales of certain operating units and affect the
volume of the Company's sales.
ECONOMIC CONDITIONS
The Company's performance is affected by fluctuations in economic
conditions in the markets in which the Company sells its products, primarily the
United States and Western Europe. The strength or weakness of these economies
may affect the rate of expansion within the restaurant, supermarket, lodging,
healthcare and convenience store industries. In the event of an economic
downturn in any of the economies in which the
13
<PAGE> 16
Company conducts business, the Company's business, financial condition or
operating results could be materially and adversely affected.
COMPETITION
The primary markets for the Company's products are highly competitive. The
most significant competitive factors are product reliability and performance,
service and price, with the relative importance of such factors varying among
product lines. The Company has a number of competitors in each product line that
it offers. Many of the Company's competitors are small, privately owned
companies. Some of the Company's competitors, however, are divisions of larger
companies, and some have greater financial resources than the Company. The
Company's largest competitors include IMI Cornelius, plc, with whom the Company
competes in beverage systems in Europe; Hussmann Corporation, a subsidiary of
Whitman Corporation, with whom the Company competes in refrigerated display
cases and related equipment in the United States; and The Manitowoc Company,
Inc., with whom the Company competes in walk-in coolers and freezers and ice
machines. Furthermore, the Company believes that the commercial foodservice
equipment industry recently has begun to undergo significant consolidation as
foodservice chains and supermarkets reduce their supplier base. If the Company's
competitors are more successful than the Company in exploiting this
consolidation trend, the Company's profitability or market positions could be
adversely affected.
DEPENDENCE ON KEY PERSONNEL
Scotsman's success to date has depended in large part on the skills and
efforts of Richard C. Osborne, Chairman of the Board, President and Chief
Executive Officer, Donald D. Holmes, Vice President-Finance and Secretary, and
the heads of each of the operating units of the Company. While the Company has
employment agreements with certain of its executive officers, including Messrs.
Osborne and Holmes, there can be no assurance that the Company will be able to
retain the services of its officers and key employees. The loss of Messrs.
Osborne, Holmes or any of the heads of the Company's operating units could have
a material adverse effect on the Company's business, results of operations or
financial condition. See "Management."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The volume of sales of Scotsman's ice machines, food preparation and
storage equipment and beverage systems is somewhat higher in the second and
third fiscal quarters than in the first and fourth fiscal quarters. Sales of
Scotsman's refrigerated display cases and walk-in coolers and freezers are also
subject to seasonal fluctuations, with sales being typically somewhat stronger
in the second half of the fiscal year. The Company expects that, including
Kysor, the second and third fiscal quarters generally will account for a greater
portion of the annual net sales than the first and fourth fiscal quarters. As a
result of the seasonal nature of its sales, the operating results of the Company
will fluctuate from quarter to quarter and the Company may experience greater
cash needs in the second and third fiscal quarters, which could increase the
borrowing needs of the Company during these periods.
LITIGATION
The Company's results of operations can be negatively impacted by product
liability or other lawsuits and/or by warranty claims or other returns of goods.
Although the Company does not believe that outstanding claims will have a
material adverse effect on the Company, such claims, as well as any future
claims, are subject to the uncertainties attendant to litigation, and the
ultimate outcome of any such proceedings or claims cannot be predicted.
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
Scotsman sells products in over 100 countries and has manufacturing
operations in the United States, the United Kingdom, Germany and Italy and joint
venture interests in Australia, China, the United Kingdom and Indonesia. Sales
of the Company's products outside of the United States represented approximately
24% of the Company's 1996 pro forma net sales, and the Company anticipates that
international sales will continue to grow. International operations generally
are subject to various political and other risks that are not present in U.S.
operations, including, among other things, the risk of war or civil unrest,
expropriation and nationalization. In addition, certain international
jurisdictions restrict repatriation of the Company's non-U.S.
14
<PAGE> 17
earnings. Various international jurisdictions also have laws limiting the right
and ability of non-U.S. entities to pay dividends and remit earnings to
affiliated companies unless specified conditions are met. In addition, sales in
international jurisdictions typically are made in local currencies, which
subjects the Company to risks associated with currency fluctuations. Currency
devaluations and unfavorable changes in international monetary and tax policies
and other changes in the international regulatory climate could materially
affect the Company's profitability or growth plans.
ENVIRONMENTAL REGULATION
The operations and properties of the Company are subject to various
federal, state, local and foreign environmental regulations and standards
governing, among other things, emissions to air, discharge to waters and the
generation, storage, handling, transportation, treatment and disposal of a
variety of hazardous and non-hazardous substances and wastes. Because the
requirements imposed by those authorities frequently are revised and
supplemented, with a trend towards greater stringency, expenditures for
compliance responsibilities are difficult to estimate and may exceed anticipated
costs.
The Company or its subsidiaries have been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state statutes in
connection with a number of hazardous waste sites, including a number of sites
associated with the former Transportation Products Group of Kysor. See "Kysor
Acquisition." Under existing environmental laws, PRPs are jointly and severally
responsible for the cost of clean-up and other remedial action at these sites,
and each PRP is therefore potentially responsible for the full cost of
remediation. As a practical matter, however, costs generally are shared with
other PRPs, based on each PRP's relative contribution to the problem. Moreover,
the purchaser of the Transportation Products Group has assumed all environmental
liabilities associated with that business. Notwithstanding the assumption of
liabilities by the purchaser, under applicable environmental laws the Company
could incur liabilities related to these and other unknown environmental
matters. Based on the foregoing factors, the relative size of the Company's
contribution to the sites for which it has been named a PRP (including those
sites associated with Kysor's former Transportation Products Group), currently
available information about the cost of remediation at such sites and the
probability that other PRPs, many of which are large, solvent public companies,
will pay the costs apportioned to them, the Company does not believe that any
liability imposed in connection with such environmental proceedings, either
individually or in the aggregate, will have a material adverse effect upon the
Company's financial condition or its results of operations. Furthermore, the
Company believes that compliance with existing and publicly proposed
environmental regulations will not have a material adverse effect on the
business, financial condition or results of operations of the Company. However,
there can be no assurance that the cost of compliance with current or future
regulations or the cost of other environmental obligations will not exceed
current estimates.
GOVERNMENTAL AND OTHER REGULATION
Scotsman's products and manufacturing processes are subject to various
health and safety regulations and standards that are subject to change and from
time to time may require significant changes in products or manufacturing
methods. For example, a new standard issued by the National Sanitation
Foundation that requires the temperature for holding many cold foods to be
lowered from 45 DEGREESF to 41 DEGREESF would, if adopted by state and local
health agencies, require the Company to make various engineering changes to its
refrigerated display cases. Although no assurances can be given, the Company
believes that health and safety matters, including the new temperature
requirement for refrigerated cases, will not have a material adverse effect on
its business, results of operations 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 future problems or new regulatory developments.
SUBORDINATION OF NOTES AND GUARANTY
The payment of principal of, premium, if any, and interest on, and any
other amounts owing in respect of, the Notes and the Guaranty will be
subordinated to the prior payment in full of all existing and future Senior
Indebtedness, which includes all obligations under the Credit Facility.
Furthermore, the Credit Facility is
15
<PAGE> 18
secured by a pledge of Scotsman's interest in the capital stock of the Issuer
and by a pledge of the Issuer's interest in the capital stock of certain of its
subsidiaries. Therefore, in the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding up of the Issuer or Scotsman, the
assets of the Issuer and Scotsman will be available to pay obligations on the
Notes and the Guaranty only after all Senior Indebtedness has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes or the Guaranty. In addition, no payment of any kind or
character may be made on the Notes if any Obligations with respect to any
Designated Senior Indebtedness are not paid when due or if any other default
occurs with respect to any Designated Senior Indebtedness and the maturity
thereof has been accelerated. During the continuance of any default with respect
to any Designated Senior Indebtedness which permits the maturity thereof to be
accelerated, the Issuer may not make any payment of any kind or character in
respect of the Notes, and the Company may not make any payment in respect
thereof under the Guaranty, for a period of up to 179 days after receipt of
notice thereof by the Issuer. As of June 29, 1997, after giving effect to the
application of the estimated net proceeds herefrom, the aggregate amount of
outstanding Senior Indebtedness of the Company and the Issuer would have been
approximately $268 million. In addition, the Issuer would have had up to
approximately $139 million of available credit under the Credit Facility. All
borrowings under the Credit Facility would constitute Senior Indebtedness and
are guaranteed on a senior basis by Scotsman. See "Use of Proceeds,"
"Capitalization," "Description of Notes--Subordination" and "Description of
Credit Facility."
The Notes will also be effectively subordinated to all existing and future
liabilities of the Issuer's subsidiaries. As of June 29, 1997, after giving pro
forma effect to this Offering and the application of net proceeds herefrom, the
Issuer's subsidiaries would have had approximately $38 million of indebtedness
outstanding.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest to the date of repurchase. The Indenture will require that, prior to
such a repurchase, the Company must either repay all outstanding Senior
Indebtedness or obtain any required consents to such repurchase. If a Change of
Control were to occur, the Company may not have the financial resources to repay
all of the Senior Indebtedness, the Notes and any other indebtedness that would
become payable upon the occurrence of such Change of Control. See "Description
of the Notes -- Certain Covenants -- Change of Control."
LACK OF TRADING MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
trading market. The Company does not intend to apply for a listing of the Notes
on a securities exchange. The Underwriters have advised the Company that they
currently intend to make a market in the Notes, although the Underwriters are
not obligated to do so, and any market making with respect to the Notes may be
discontinued at any time without notice. See "Underwriters." There can be no
assurance as to the liquidity of any market that may develop for the Notes, the
ability of the holders of the Notes to sell their Notes or the price at which
such holders would be able to sell their Notes. If a market were to exist, the
Notes could trade at prices that may be lower than the initial offering price
thereof depending on many factors, including prevailing interest rates and the
markets for similar securities, general economic conditions and the financial
condition and performance of, and prospects for, the Company.
16
<PAGE> 19
THE COMPANY
Scotsman was formed in 1989 through a spin-off (the "Spin-off") effected by
Household International, Inc. ("Household") of its commercial food service
equipment operations. As a result of the Spin-off, the Company became publicly
traded on the NYSE in April 1989. At the time of the Spin-off, the Company's
businesses consisted of the ice machine businesses of Scotsman Group Inc., the
beverage systems business of Booth, Inc. ("Booth") and various other businesses,
which since have been sold. Since the Spin-off, the Company has grown both
through internal growth and a series of acquisitions. From 1992 through 1996,
the Company successfully completed and integrated the following five strategic
acquisitions:
Crystal Tips. In April 1992, the Company acquired the assets of Crystal
Tips, Inc., a domestic ice machine manufacturer ("Crystal Tips"). The purchase
enabled Scotsman to: (i) broaden its product offerings and increase its brand
recognition; (ii) improve its penetration in secondary market distribution
channels and under-represented segments such as healthcare; and (iii) combine
and re-engineer the manufacturing operations of Booth and Crystal Tips. Crystal
Tips had sales of approximately $15 million for its fiscal year ended prior to
the acquisition.
Simag. In January 1993, Scotsman acquired Simag, an ice machine
manufacturer in Italy. The Simag acquisition reinforced Scotsman's existing
manufacturing and distribution presence in Europe and provided a third Scotsman
brand in the region. Simag had sales of approximately $7 million for its fiscal
year ended prior to the acquisition.
Delfield. In April 1994, the Company acquired The Delfield Company, a maker
of food preparation and storage equipment ("Delfield"). The acquisition
provided: (i) a leading market position in a new, complementary product line;
(ii) opportunities to cross-sell ice machines and other Scotsman products into
Delfield accounts; (iii) benefits of shared knowledge across similar
technologies used by Scotsman's operating units; and (iv) improved purchasing
economies. Delfield had sales of approximately $94 million for its fiscal year
ended prior to the acquisition.
Whitlenge. Simultaneous with the April 1994 Delfield acquisition, Scotsman
acquired Whitlenge Drink Equipment Limited, a U.K.-based beverage systems
manufacturer ("Whitlenge"). Whitlenge gave the Company a leading market position
in beverage systems in the United Kingdom and enhanced the overall strength of
Scotsman's beverage systems product line. In addition, Whitlenge contributed
significantly to the Company's prominence, reputation, distribution strength and
customer relationships in European markets. Whitlenge had sales of approximately
$24 million for its fiscal year ended prior to the acquisition.
Hartek. In December 1995, Scotsman acquired Hartek Beverage Handling GmbH,
a beverage systems manufacturer based in Germany ("Hartek"). Hartek, with
Whitlenge, established the Company as the second largest manufacturer of
beverage systems in Europe, a region Scotsman believes presents substantial
growth prospects. By coordinating technology, purchasing, production and
distribution with Whitlenge, and developing progressive manufacturing
techniques, the Company improved the profitability of Hartek and expanded sales
of beverage systems in Europe. Hartek had sales of approximately $24 million for
its fiscal year ended prior to the acquisition.
In addition to these acquisitions, the Company has entered into two joint
ventures and one strategic alliance as described below:
China. Scotsman owns a 60% interest in a joint venture with Shenyang Xinle
Precision Machinery Company in Shenyang, China, which manufactures and markets
ice machines for the Chinese market. The joint venture sells its ice machines
primarily to commercial foodservice equipment distributors throughout the
People's Republic of China.
United Kingdom. Scotsman is a 50% partner in SAW Technologies Limited, a
joint venture recently formed to develop technologically advanced beverage
dispensing valves ("SAW Technologies"). The joint venture's Aztec valve, already
being sold to a major soft drink bottler in the United Kingdom, is also targeted
for other customers and markets.
17
<PAGE> 20
Howe Strategic Alliance. Scotsman's strategic alliance with Howe
Corporation ("Howe") includes distribution and trademark licensing agreements,
which give the Company exclusive worldwide rights to distribute Howe industrial
ice flakers. The agreements were executed in November 1992 for an initial
five-year term. The agreements were renewed in January 1996, and renew
automatically for successive three-year terms unless terminated by either party
by giving a notice at least two years before the expiration of the then-current
term.
The Company's principal executive offices are located at 820 Forest Edge
Drive, Vernon Hills, Illinois 60061 and its telephone number is (847) 215-4500.
SCOTSMAN GROUP
Scotsman Group is a Delaware corporation and a direct wholly owned
subsidiary of Scotsman. Scotsman conducts its domestic ice machine business
through divisions of Scotsman Group and all of its other businesses through
subsidiaries of Scotsman Group.
The registered office of Scotsman Group is located at 820 Forest Edge
Drive, Vernon Hills, Illinois 60061 and its telephone number is (847) 215-4500.
KYSOR ACQUISITION
REVIEW OF TRANSACTION
In March 1997, Scotsman acquired Kysor, which at the time was comprised of
the Commercial Products Group, through which Kysor's refrigerated display cases
and walk-in coolers and freezers businesses were conducted, and the
Transportation Products Group, through which Kysor sold a line of products to
the transportation industry. The Company paid approximately $309 million in cash
and assumed $35.0 million in debt, net of cash, for both the Commercial Products
Group and the Transportation Products Group. Concurrently with the Kysor
Acquisition, Scotsman sold substantially all of the assets of the Transportation
Products Group for $86.0 million (approximately $68 million net of taxes) to a
subsidiary of Kuhlman Corporation. Including estimated transaction and severance
costs of $22.5 million, the net purchase price for the Commercial Products Group
was approximately $299 million. The subsidiary of Kuhlman Corporation assumed
substantially all liabilities related to the Transportation Products Group,
including environmental and product liabilities. The Company financed the Kysor
Acquisition through a new unsecured bank facility. See "Description of Certain
Indebtedness."
Kysor's Commercial Products Group operates through its Kysor//Warren and
Kysor Panel Systems divisions. Kysor//Warren is the second largest U.S.
manufacturer of refrigerated display cases, and Kysor Panel Systems is the
leading manufacturer of walk-in coolers and freezers in the United States. In
1996, approximately 80% of Kysor's sales were to supermarket chains, with the
remaining 20% primarily to restaurants and convenience stores. In 1996, Kysor's
Commercial Products Group had sales of $245.1 million, an increase of 18.3% over
1995. This increase was driven primarily by strong demand from supermarket
chains and the inclusion of sales of NAX of North America, which was acquired by
Kysor in March 1996.
In addition, as a result of the Kysor Acquisition, the Company now owns
23.8% of the outstanding shares of Austral Refrigeration Pty. Ltd., the parent
company of Kysor//Warren Australia, Pty. Ltd., a licensee and manufacturer of
Kysor refrigerated display cases primarily in Australia ("Kysor//Warren
Australia"). Kysor//Warren Australia is a leading supplier of refrigerated
display cases in the Australian market. Kysor//Warren Australia owns a 50%
interest in an Indonesian joint venture, which the Company believes is the only
manufacturer of refrigerated display cases in Asia.
STRATEGIC RATIONALE
Scotsman believes the addition of Kysor presents significant opportunities
to increase the Company's sales and profitability. While both Scotsman and Kysor
historically have served a similar customer base, Scotsman generally has had
stronger relationships in the restaurant, lodging and healthcare industries and
18
<PAGE> 21
Kysor has had stronger relationships with supermarket and convenience store
chains. The Company believes that significant cross-selling opportunities exist
to broaden penetration and distribution of Scotsman's products to Kysor's
customers and vice versa. The Company believes that similarities in the
marketing, distribution and product technology employed by the two companies
will facilitate integration. Additional benefits from the transaction include
combined purchasing economies, research and development efficiencies, the
sharing of best practices, particularly in manufacturing, and reductions in
overhead expense.
POST-ACQUISITION INTEGRATION
Scotsman has consolidated Kysor's operations from four divisions to two.
Kysor's Bangor unit, a manufacturer of a specialty line of refrigerated display
cases, was integrated with Kysor//Warren, and Kysor's Kalt and Needham
businesses, which manufacture walk-in coolers and freezers, were combined to
form Kysor Panel Systems. This reorganization and the development of coordinated
national sales efforts are expected to result in cost savings and marketing and
distribution efficiencies. In addition, Scotsman eliminated approximately 20
redundant positions, primarily located at Kysor's former headquarters in
Cadillac, Michigan, which resulted in a cost savings of $5.3 million in 1996 on
a pro forma basis.
SECONDARY EQUITY OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale from time to time of up to 1,611,699 shares of Common Stock by
Onex and certain of its affiliates, who have the right, pursuant to the
Registration Rights Agreement, to request that the Company include certain
shares of Common Stock in registrations by the Company of its securities under
the Securities Act. The Selling Stockholders have advised the Company, and the
Prospectus relating to the Equity Offering discloses, that they may sell their
shares of Common Stock through an underwritten public offering, in one or more
transactions (including block trades) on the New York Stock Exchange or on the
over-the-counter market or pursuant to privately negotiated transactions. The
Company is obligated under the Registration Rights Agreement to keep the
Registration Statement related to the Equity Offering effective for no more than
90 days. The Company will not receive any proceeds from the sale of Common Stock
in the Equity Offering. The Offerings are separate and independent transactions
not contingent upon one another. The Company is obligated to indemnify the
Selling Stockholders and any underwriters of the Equity Offering against certain
liabilities, including certain liabilities arising under the Securities Act.
USE OF PROCEEDS
The net proceeds to Scotsman Group in this Offering are estimated to be
approximately $95,750,000. Scotsman Group intends to apply such net proceeds to
repay $30 million of term loan borrowings outstanding under the Credit Facility
and approximately $65,750,000 of revolving loan borrowings outstanding under the
Credit Facility. See "Capitalization" and "Description of Credit Facility." As
of June 29, 1997, interest on the term loan portion of the Credit Facility and
the revolving loan portion of the Credit Facility accrued at rates ranging from
7.0625% to 7.9375% per annum. At June 29, 1997, there was approximately $150
million of term loan borrowings outstanding under the Credit Facility and
approximately $195 million of revolving loan borrowings outstanding under the
Credit Facility.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the consolidated actual capitalization
of the Company as of June 29, 1997 (including short-term debt and current
maturities of capitalized lease obligations and long-term debt of the Company)
and (ii) the consolidated pro forma capitalization of the Company (including
short-term debt and current maturities of capitalized lease obligations and
long-term debt of the Company) as adjusted for the consummation of this Offering
and the application of the net proceeds to be received by the Company therefrom
as described in "Use of Proceeds," as if such event had occurred on June 29,
1997. This table should be read in conjunction with the consolidated historical
and pro forma financial information included or incorporated by reference
elsewhere in this Prospectus, including the notes thereto.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of capitalized lease
obligations and long-term debt............................ $ 19,410 $ 19,410
Long-term debt and capitalized lease obligations:
Credit Facility........................................ 327,655 231,905
% Senior Subordinated Notes Due 2007.............. -- 100,000
Industrial revenue bonds............................... 12,800 12,800
Foreign and other borrowings........................... 2,801 2,801
Capitalized lease obligations.......................... 278 278
-------- --------
Total long-term debt and capitalized lease
obligations......................................... 343,534 347,784
Shareholders' Equity:
Common stock, $0.10 par value, 50,000,000 shares
authorized; 10,736,463 actual and as adjusted shares
issued................................................ 1,074 1,074
Additional paid in capital............................. 73,320 73,320
Retained earnings...................................... 71,827 71,827
Deferred compensation and unrecognized pension cost.... (177) (177)
Foreign currency translation adjustments............... (7,062) (7,062)
Less: Common stock held in treasury:................... (1,455) (1,455)
-------- --------
Total shareholders' equity........................... 137,527 137,527
-------- --------
Total capitalization (including short-term debt and
current maturities of capitalized lease obligations
and long-term debt)................................. $500,471 $504,721
======== ========
</TABLE>
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The consolidated balance sheet information of the Company presented below
as of the end of each of the 1996 and 1995 fiscal years and the income statement
and other information of the Company presented below for each of the 1996, 1995
and 1994 fiscal years have been derived from, and should be read in conjunction
with, the Company's consolidated financial statements and notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants, and
which are included and incorporated by reference elsewhere in this Prospectus.
The consolidated balance sheet information of the Company presented below as of
the end of each of the 1994, 1993 and 1992 fiscal years and the income statement
and other information of the Company presented below for each of the 1993 and
1992 fiscal years have been derived from audited consolidated financial
statements of the Company not included or incorporated by reference in this
Prospectus. The balance sheet information of the Company presented below as of
June 29, 1997 and the income statement and other information of the Company
presented below for the first fiscal six months ended June 29, 1997 and June 30,
1996, respectively, have been derived from, and should be read in conjunction
with, the Company's unaudited consolidated financial statements which are
included and incorporated by reference elsewhere in this Prospectus. The
unaudited financial information includes all adjustments, consisting of normal
recurring accruals, that the Company considers necessary for a fair presentation
of the consolidated financial position and consolidated results of operations
for the periods reflected therein. All of the consolidated financial information
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
consolidated historical and pro forma financial information included or
incorporated by reference elsewhere in this Prospectus, including the notes
thereto.
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
FIRST FISCAL SIX
MONTHS FISCAL YEAR ENDED
------------------- ----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
------- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales..................... $271,854 $189,956 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales................. 200,757 135,692 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 71,097 54,264 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses.................... 41,103 30,877 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- --------
Income from operations........ 29,994 23,387 40,296 34,454 28,214 17,606 14,860
Interest expense, net......... 8,781 2,837 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.... 21,213 20,550 35,017 28,128 22,798 13,371 10,185
Income taxes.................. 10,262 9,866 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary
loss and effect of
accounting changes.......... 10,951 10,684 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of $422)(2).... (633) -- -- -- -- -- --
Cumulative effect of
accounting changes(3)....... -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- --------
Net income.................... $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock dividends..... -- 562 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- --------
Net income available to common
shareholders................ $ 10,318 $ 10,122 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes:
Primary(4).................. $ 1.01 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ 1.01 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Net income per share:
Primary(4).................. $ .96 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ .95 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)..................... $ 37,393 $ 27,720 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures.......... 7,433 3,360 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).................. 3.3x 7.4x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to interest
expense..................... 4.3x 9.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA...................... -- -- 1.6x 2.1x 2.6x 1.5x 1.7x
BALANCE SHEET INFORMATION:
(AT END OF PERIODS):
Cash and marketable
securities.................. $ 20,760 $ 16,699 $ 16,501 $ 15,808 $ 9,770 $ 8,462 $ 5,202
Total assets.................. 682,878 302,100 283,264 275,943 244,791 103,173 96,103
Total debt and capitalized
lease obligations (including
current maturities)......... 362,944 86,845 76,606 87,756 88,191 32,176 31,454
Working capital............... 95,487 74,488 59,321 54,828 54,565 36,318 32,355
Shareholders' equity.......... 137,527 122,655 131,712 112,319 86,463 33,994 30,146
</TABLE>
- -------------------------
(Footnotes on following page)
22
<PAGE> 25
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(3) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(4) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
The weighted average number of shares of common stock and common stock
equivalents were: 10,799,284 and 9,228,046 for the first fiscal six months
of 1997 and 1996, respectively; and 9,601,422; 8,983,709; 7,980,996;
7,000,651 and 7,096,976 for the 1996, 1995, 1994, 1993 and 1992 fiscal
years, respectively.
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946 and 10,700,100 for the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,649,763; 9,488,965; 7,000,651 and 7,096,976
for the 1996, 1995, 1994, 1993 and 1992 fiscal years, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
23
<PAGE> 26
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial statements for the fiscal
six months ended June 29, 1997 and the fiscal year ended December 29, 1996 are
presented to illustrate the estimated effects of the completion of the Kysor
Acquisition and the financing thereof and the consummation of this Offering as
if such transactions had occurred at the beginning of the periods shown. See
"Use of Proceeds."
The Kysor Acquisition was accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values which are subject to further refinement,
including final appraisals and other analyses, with appropriate recognition
given to the effect of current interest rates and income taxes.
The pro forma consolidated financial statements do not purport to represent
the financial position or results of operations that would have resulted if the
transactions had been consummated on the dates assumed or the results of
operations to be expected in the future. In addition to certain cost savings
reflected in the pro forma consolidated income statements, management believes
that certain additional cost savings and revenue enhancements may be realized
following the Kysor Acquisition. No assurances can be made as to the amount of
cost savings or revenue enhancements, if any, that actually will be realized.
See "Kysor Acquisition -- Strategic Rationale" and "Kysor Acquisition --
Post-Acquisition Integration."
The pro forma consolidated financial information is based on certain
assumptions and adjustments described in the notes thereto. Such financial
information should be read in conjunction with such notes, the discussion under
"Kysor Acquisition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and the consolidated financial
statements and related notes of Scotsman and Kysor included and incorporated by
reference in this Prospectus.
24
<PAGE> 27
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED JUNE 29, 1997
-------------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION OFFERING PRO FORMA
ACTUAL(1) ACTUAL(2) ADJUSTMENTS(3) PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- --------- -------------- --------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $271,854 $38,834 $ -- $310,688 $ -- $310,688
Cost of sales..................... 200,757 31,583 123(4) 232,463 -- 232,463
-------- ------- ------- -------- ------- --------
Gross profit...................... 71,097 7,251 (123) 78,225 -- 78,225
Selling and administrative
expenses........................ 41,103 9,076 (3,899)(5) 46,280 -- 46,280
-------- ------- ------- -------- ------- --------
Income from operations............ 29,994 (1,825) 3,776 31,945 -- 31,945
Interest expense, net............. 8,781 68 4,573(6) 13,422 1,088(7) 14,510
-------- ------- ------- -------- ------- --------
Income before income taxes........ 21,213 (1,893) (797) 18,523 (1,088) 17,435
Income taxes...................... 10,262 (795) 131(8) 9,598 (435)(8) 9,163
-------- ------- ------- -------- ------- --------
Income before extraordinary
loss............................ 10,951 (1,098) (928) 8,925 (653) 8,272
Extraordinary loss (net of income
taxes of $422).................. (633)(9) -- -- (633) -- (633)
-------- ------- ------- -------- ------- --------
Net income........................ $ 10,318 $(1,098) $ (928) $ 8,292 $ (653) $ 7,639
Preferred stock dividends......... -- 176 (176)(10) -- -- --
-------- ------- ------- -------- ------- --------
Net income available to common
shareholders.................... $ 10,318 $(1,274) $ (752) $ 8,292 $ (653) $ 7,639
======== ======= ======= ======== ======= ========
Income per share before
extraordinary loss:
Primary(11)................... $ 1.01 $ .77
-------- --------
Fully diluted(12)............. $ 1.01 $ .77
-------- --------
Net income per share:
Primary(11)................... $ .96 $ .71
-------- --------
Fully diluted(12)............. $ .95 $ .71
-------- --------
</TABLE>
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) Results included for Kysor are those from continuing operations through
March 9, 1997. The results of the discontinued Transportation Products
Group are excluded.
(3) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed.
(4) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(5) Represents the following adjustments:
<TABLE>
<S> <C> <C> <C>
(i) Net decrease in administrative expenses due to the
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(1,489)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (412)
(iii) Net increase in the amortization of goodwill recorded as a
result of the Kysor Acquisition;............................ 874
(iv) One-time costs incurred in anticipation of the completion of
the Kysor Acquisition; and.................................. (2,917)
(v) Incremental depreciation expense resulting from the
recording of property, plant and equipment of Kysor at fair
value....................................................... 45
-------
$(3,899)
=======
</TABLE>
(6) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the Kysor Acquisition and
refinance certain debt of Scotsman and Kysor (the "Kysor Debt") and the
amortization of fees incurred in conjunction with the execution of the
Credit Facility.
(7) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Use of Proceeds."
(8) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and this Offering, net of non-deductible goodwill.
(9) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(10) Represents the elimination of preferred stock dividends for Kysor due to
the purchase of the outstanding preferred stock of Kysor in conjunction
with the Kysor Acquisition.
(11) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 10,799,284 for the
actual and pro forma as adjusted periods.
(12) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,808,946.
25
<PAGE> 28
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1996
----------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION OFFERING PRO FORMA
ACTUAL ACTUAL(1) ADJUSTMENTS(2) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- --------- -------------- --------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $356,373 $245,062 $ -- $601,435 $ -- $601,435
Cost of sales......................... 257,942 185,253 592(3) 443,787 -- 443,787
-------- -------- -------- -------- ------- --------
Gross profit.......................... 98,431 59,809 (592) 157,648 -- 157,648
Selling and administrative expenses... 58,135 35,157 (3,349)(4) 89,943 -- 89,943
-------- -------- -------- -------- ------- --------
Income from operations................ 40,296 24,652 2,757 67,705 -- 67,705
Interest expense, net................. 5,279 874 23,006(5) 29,159 2,175(6) 31,334
-------- -------- -------- -------- ------- --------
Income before income taxes............ 35,017 23,778 (20,249) 38,546 (2,175) 36,371
Income taxes.......................... 16,449 8,650 (5,871)(7) 19,228 (870)(7) 18,358
-------- -------- -------- -------- ------- --------
Net income............................ $ 18,568 $ 15,128 $(14,378) $ 19,318 $(1,305) $ 18,013
Preferred stock dividends............. 813 966 (966)(8) 813 -- 813
-------- -------- -------- -------- ------- --------
Net income available to common
shareholders........................ $ 17,755 $ 14,162 $(13,412) $ 18,505 $(1,305) $ 17,200
======== ======== ======== ======== ======= ========
Net income per share:
Primary(9).......................... $ 1.85 $ 1.79
-------- --------
Fully diluted(10)................... $ 1.73 $ 1.68
-------- --------
</TABLE>
- -------------------------
(1) Results included for Kysor are those from continuing operations. The
results of the discontinued Transportation Products Group are excluded.
(2) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed.
(3) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(4) Represents the following adjustments:
<TABLE>
<S> <C> <C>
(i) Net decrease in administrative expenses due to the
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(5,957)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (1,979)
(iii) Net increase in the amortization of goodwill recorded from
the purchase of Kysor by Scotsman; and...................... 4,374
(iv) Incremental depreciation expense resulting from the
recording of property, plant and equipment of Kysor at fair
value....................................................... 213
-------
$(3,349)
=======
</TABLE>
(5) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the acquisition of Kysor
and refinance certain debt of Scotsman and Kysor and the amortization of
fees incurred in conjunction with the execution of the Credit Facility.
(6) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Use of Proceeds."
(7) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and this Offering, net of non-deductible goodwill.
(8) Represents the elimination of preferred stock dividends for Kysor due to
the purchase of the outstanding preferred stock of Kysor in conjunction
with the Kysor Acquisition.
(9) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 9,601,422 for the actual
and pro forma as adjusted periods.
(10) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,728,188.
26
<PAGE> 29
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 29, 1996
------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION OFFERING PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS(1) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ------ -------------- --------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash
investments................. $ 16,501 $ 8,354 $ -- $ 24,855 $ -- $ 24,855
Trade accounts and notes
receivable, net of
allowances.................. 58,734 34,654 -- 93,388 -- 93,388
Inventories................... 52,530 26,900 -- 79,430 -- 79,430
Deferred income taxes......... 4,708 4,927 14,520(2) 24,155 -- 24,155
Other current assets.......... 5,101 928 1,560(3) 7,589 -- 7,589
-------- -------- -------- -------- -------- --------
Total current assets..... 137,574 75,763 16,080 229,417 -- 229,417
Properties and equipment, net..... 46,659 29,732 6,670(4) 83,061 -- 83,061
Goodwill, net..................... 94,975 6,474 184,553(5) 286,002 -- 286,002
Deferred income taxes............. -- 4,667 14,598(6) 19,265 -- 19,265
Other noncurrent assets........... 4,056 33,770 2,842(7) 40,668 4,250(8) 44,918
Net assets of discontinued
operations...................... -- 38,656 (38,656)(9) -- -- --
-------- -------- -------- -------- -------- --------
Total assets............. $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Short-term debt and current
maturities of capitalized
lease obligations and
long-term debt.............. $ 16,317 $ 5,799 $ (5,799)(10) $ 16,317 $ -- $ 16,317
Trade accounts payable........ 22,344 14,046 -- 36,390 -- 36,390
Accrued income taxes.......... 6,302 1,812 18,000(11) 26,114 -- 26,114
Accrued expenses.............. 33,290 16,928 18,922(12) 69,140 -- 69,140
-------- -------- -------- -------- -------- --------
Total current
liabilities............ 78,253 38,585 31,123 147,961 -- 147,961
% Senior Subordinated Notes Due
2007............................ -- -- -- -- 100,000(13) 100,000
Long-term debt and capitalized
lease obligations............... 60,289 32,822 248,318(14) 341,429 (95,750)(13) 245,679
Deferred income taxes............. 3,710 -- 3,695(6) 7,405 -- 7,405
Other noncurrent liabilities...... 9,300 14,247 6,359(15) 29,906 -- 29,906
-------- -------- -------- -------- -------- --------
Total liabilities........ 151,552 85,654 289,495 526,701 4,250 530,951
Shareholders' Equity:
Preferred stock............... -- 6,244 (6,244)(16) -- -- --
Common stock.................. 1,073 5,935 (5,935)(16) 1,073 -- 1,073
Additional paid in capital.... 73,053 8,742 (8,742)(16) 73,053 -- 73,053
Retained earnings............. 62,036 82,343 (82,343)(16) 62,036 -- 62,036
Deferred compensation and
unrecognized pension cost... (117) -- -- (117) -- (117)
Note receivable -- common
stock....................... -- (1,047) 1,047(16) -- -- --
Foreign currency translation
adjustments................. (2,877) 1,191 (1,191)(16) (2,877) -- (2,877)
Less: common stock held in
treasury.................... (1,456) -- -- (1,456) -- (1,456)
-------- -------- -------- -------- -------- --------
Total shareholders'
equity................. 131,712 103,408 (103,408) 131,712 0 131,712
-------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
</TABLE>
- -------------------------
(Footnotes on following page)
27
<PAGE> 30
- -------------------------
(1) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed.
(2) Represents the tax benefit derived from the exercise of stock options by
former option holders of Kysor prior to the closing of the Kysor
Acquisition.
(3) Represents the estimated settlement of final accounts between Kuhlman
Corporation, the purchaser of Kysor's Transportation Products Group, and
Scotsman.
(4) Represents the adjustment to record the net book value of Kysor's
properties and equipment at their estimated fair values.
(5) Represents the adjustment to record goodwill and other intangible assets
acquired.
(6) Represents the deferred tax effect of purchase accounting and financing
transactions.
(7) Represents the following adjustments:
<TABLE>
<C> <S> <C>
(i) Elimination of previously existing unrecognized net gain,
unrecognized prior service cost, and unrecognized net asset
for Kysor's defined benefit plans;.......................... $ 3,629
(ii) Estimated costs of the Credit Facility; and................. 5,000
(iii) Monetization of cash surrender value of certain life
insurance policies held by Kysor............................ (5,787)
-------
$ 2,842
=======
</TABLE>
(8) Reflects the capitalization of the estimated amount of (i) underwriting
discounts and commissions to be paid by the Company in this Offering, (ii)
fees and expenses to be paid by the Company in connection with the Credit
Facility Amendment, as described under "Description of Credit Facility,"
and (iii) other fees and expenses to be paid by the Company in connection
with the Offerings.
(9) Represents the net assets of the Transportation Products Group of Kysor.
Pre-tax proceeds of $86 million were used to reduce borrowings under the
Credit Facility.
(10) Scotsman retired the short-term debt of Kysor assumed by Scotsman and
refinanced a portion of its short-term debt outstanding at December 29,
1996 through utilization of the Credit Facility.
(11) Represents the estimated tax payment on the gain associated with the sale
of the Transportation Products Group of Kysor.
(12) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(i) The estimated costs of closing Kysor facilities;............ $ 2,359
(ii) Severance and other employee benefits payable to employees
of Kysor; and............................................... 13,267
(iii) Acquisition costs........................................... 3,296
-------
$18,922
=======
</TABLE>
(13) Represents the issuance of the Notes and the use of the net proceeds
therefrom as described under "Use of Proceeds."
(14) Represents the net increase in Credit Facility resulting from (i) the
financing of the Kysor Acquisition, including the application of cash
received from the sale of the Transportation Products Group to reduce
borrowings under the Credit Facility; (ii) the refinancing of approximately
$45 million of Scotsman's long-term debt outstanding as of December 29,
1996, through utilization of the Credit Facility; and (iii) the refinancing
of approximately $33 million of long-term debt of Kysor through utilization
of the Credit Facility.
(15) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(i) Severance and other employee benefits payable;.............. $4,297
(ii) Elimination of previously unrecognized loss, unrecognized
prior service cost and unrecognized net obligation for
Kysor's defined benefit and post-retirement plans; and...... 1,367
(iii) Other....................................................... 695
------
$6,359
======
</TABLE>
(16) Represents the elimination of Kysor equity resulting from the Kysor
Acquisition.
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of results of operations and capital
resources and liquidity should be read in conjunction with the Company's and
Kysor's audited consolidated financial statements and notes thereto included and
incorporated by reference elsewhere in this Prospectus. In addition to
historical information, the following discussion and analysis of financial
condition and results of operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those anticipated as a result of unforeseen factors. For a
discussion of certain factors that could cause actual results to differ from
those anticipated, see "Risk Factors" and the Cautionary Statements included in
Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996, which is incorporated herein by reference. Unless otherwise
indicated by the context, when used in the following discussion or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect," and similar expressions are intended to
identify forward-looking statements.
OVERVIEW
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries. The Company sells its products in over 100
countries through multiple distribution channels and has manufacturing
capabilities in the United States, the United Kingdom, Germany and Italy and
interests in joint ventures in Australia, China, the United Kingdom and
Indonesia.
Kysor Acquisition. In March 1997, the Company acquired Kysor for a net
purchase price of approximately $299 million. Due to the significance of the
Kysor Acquisition, the Company's future operating results and capital structure
will be materially different from, and will not be comparable to, prior periods.
For fiscal year 1996, Kysor's sales of commercial refrigeration products were
$245.1 million, an increase of 18.3% from 1995. Combining Kysor's 1996 sales
with those of the Company for the comparable period results in pro forma net
sales for the Company of $601.4 million, a 68.7% increase over the Company's
reported 1996 sales. The Company's operating income in 1997 is expected to
increase significantly as a result of the Kysor Acquisition and associated
benefits, while amortization of goodwill and interest expense also are expected
to increase significantly. Kysor's results are expected to be accretive to
Scotsman's fully diluted earnings per share in the second half of 1997 and for
the full year. The Company expects that, including Kysor, the second and third
fiscal quarters generally will account for a greater portion of the annual net
sales of the Company than the first and fourth fiscal quarters.
Net Sales. The Company's revenues are diversified among its five product
lines, with ice machines and refrigerated display cases, its two largest product
lines, each representing approximately 29% of the Company's 1996 pro forma net
sales, and food preparation and storage equipment, walk-in coolers and freezers
and beverage systems representing approximately 19%, 12% and 11% of the
Company's 1996 pro forma net sales, respectively. In 1996, international sales
of Scotsman's and Kysor's products were approximately $144 million, which
accounted for approximately 24% of the Company's 1996 pro forma net sales, and
the Company anticipates that international sales will continue to grow.
Cost of Sales. The principal elements of cost of sales are raw materials
(such as stainless steel, galvanized steel, aluminum and copper), labor and
manufacturing overhead. The Company's costs are affected by fluctuating raw
material costs. Because of the large quantities of raw materials purchased by
the Company, it is able to buy raw materials at prices that are competitive. The
Company has a number of manufacturing facilities for its five product lines,
and, accordingly, the Company's overall gross margin is impacted by its product
mix, raw material costs and plant utilization rates.
29
<PAGE> 32
Selling and Administrative Expenses. Selling and administrative expenses
include salaries, wages and related expenses associated with developing,
marketing and selling the Company's products. In addition, selling and
administrative expenses include general corporate overhead and costs associated
with various administrative functions. While certain of these expenses vary with
the level of net sales, many are relatively fixed over wide ranges of unit
volume.
Goodwill. The goodwill associated with the businesses acquired by Scotsman
through 1996 is being amortized over 40 years using the straight-line method.
The Company also will amortize the goodwill associated with the Kysor
Acquisition over 40 years using the straight-line method.
KYSOR ACQUISITION PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated financial information included elsewhere herein
gives effect to, among other things, the Kysor Acquisition. See "Pro Forma
Consolidated Financial Information."
On a pro forma basis, the Company's net sales for fiscal 1996 would have
been $601.4 million, compared to actual net sales of $356.4 million for that
period. Pro forma net sales of the Company include sales by Kysor's Commercial
Products Group, but not sales by Kysor's former Transportation Products Group,
which was sold simultaneously with the closing of the Kysor Acquisition.
Pro forma income from operations for the Company for fiscal 1996 would have
been $67.7 million, compared to actual operating income of $40.3 million for the
same period. The increase in operating income of the Company on a pro forma
basis is the result of the addition of $27.4 million of pro forma Kysor
operating income, reflecting the following: a reduction in administrative
expenses due to the elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two; certain favorable defined
benefit plan adjustments; the effect of the incremental increase in the
amortization of goodwill recorded from the purchase of Kysor by Scotsman; and
the incremental depreciation expense caused by the recording of property, plant
and equipment at fair value. Although the Company's pro forma and actual income
from operations were 11.3% of net sales for fiscal 1996, the Company believes
that potential synergies created by the Kysor Acquisition will improve future
operating margins for the Company.
Pro forma net income for fiscal 1996 would have been $18.5 million,
reflecting the inclusion of Kysor's operating income, incremental interest
expense resulting from additional borrowings related to financing the Kysor
Acquisition and associated income tax expense.
The Kysor Acquisition is being treated for accounting purposes as a
purchase under Accounting Principles Board Opinion No. 16. The excess purchase
price over the fair value of the identifiable assets and liabilities acquired
was approximately $192 million, which was allocated to goodwill and other
intangibles and is being amortized on a straight-line basis over 40 years.
30
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth certain items from Scotsman's historical
statements of income expressed as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
FIRST FISCAL
SIX MONTHS FISCAL YEAR
---------------- ---------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 73.8 71.4 72.4 72.9 71.5
----- ----- ----- ----- -----
Gross profit........................................ 26.2 28.6 27.6 27.1 28.5
Selling and administrative expenses................. 15.2 16.3 16.3 16.5 17.9
----- ----- ----- ----- -----
Income from operations.............................. 11.0 12.3 11.3 10.6 10.6
Interest expense, net............................... 3.2 1.5 1.5 1.9 2.0
----- ----- ----- ----- -----
Income before income taxes.......................... 7.8 10.8 9.8 8.7 8.6
Income taxes........................................ 3.8 5.2 4.6 3.9 3.8
----- ----- ----- ----- -----
Income before extraordinary loss.................... 4.0 5.6 5.2 4.8 4.8
Preferred stock dividends........................... -- .3 .2 .4 .3
Extraordinary loss(1)............................... .2 -- -- -- --
----- ----- ----- ----- -----
Net income.......................................... 3.8% 5.3% 5.0% 4.4% 4.5%
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Net of income taxes.
Six Months ended June 29, 1997, compared to six months ended June 30, 1996
The Company's net sales increased by $81.9 million, or approximately 43%,
to $271.9 million for the six months ended June 29, 1997 from $189.9 for the
first six months of 1996. Results for the first six months of 1997 included
sales from March 10 through June 29 of $87.7 million from the Commercial
Products Group of Kysor, which was acquired by the Company in March 1997.
Sales of refrigerated display cases and walk-in coolers and freezers by
Kysor for the period from March 10, 1997 through June 29, 1997 were $87.7
million, which represented approximately 32% of Scotsman's net sales in the
first half of 1997. On a pro forma basis, sales of refrigerated display cases
and walk-in coolers and freezers by Kysor for the first half of 1997 were $126.5
million, which represented approximately 41% of the Company's pro forma net
sales in the first half of 1997. Kysor's net sales for the first half of 1997
increased by $12.7 million, or approximately 11%, from $113.8 million in the
comparable period of 1996. Management believes that sales of the Kysor business
will remain strong in the second half of 1997, although delivery of orders from
Kysor's supermarket clients has been deferred to future periods at a greater
degree than anticipated.
Ice machine sales, which represented approximately 32% of net sales in the
first half of 1997, decreased by $9.5 million, or approximately 10%, to $86.9
million in the first half of 1997 from $96.4 million in the same period of 1996.
The decline in ice machine sales resulted from lower sales in Europe and the
United States due to soft market conditions in both regions, and high
distributor inventories in Europe at the beginning of the period. Market
conditions for the European businesses appear to be stabilizing and management
believes sales comparisons in that region should improve in the second half of
1997 as compared to 1996. The strong U.S. dollar also adversely impacted
European ice machine sales in U.S. dollar terms. Softness in the U.S. market
appears attributable to cool weather conditions in the spring and early summer,
and some slowdown in U.S. restaurant chain expansion activity.
Food preparation and storage equipment sales, which represented
approximately 22% of the Company's net sales in the first half of 1997,
increased by $8.0 million, or approximately 16%, in the first half of 1997 from
$50.2 million in the same period of 1996. An increase in sales at the Company's
Delfield business to Boston
31
<PAGE> 34
Market, one of Delfield's major customers, was the primary driver of the
increase. Boston Market's announced slowing of expansion plans will likely
soften the rate of sales increase in the near term.
Beverage dispensing equipment sales, which represented approximately 13% of
the Company's net sales in the first half of 1997, decreased by $1.2 million, or
approximately 3%, in the first half of 1997 from $37.7 million in the same
period of 1996. Sales gains by the Company's U.K.-based beverage dispensing
business were offset by soft market conditions for the Company's dispensing
business in Germany and in the United States. The strong U.S. dollar also
adversely impacted beverage dispensing equipment sales in U.S. dollar terms.
The Company's gross profit increased by $16.8 million, or approximately
31%, to $71.1 million in the first half of 1997 from $54.3 million in the first
half of 1996, due to the inclusion of Kysor's results of operations subsequent
to its acquisition by the Company in March 1997. However, the Company's gross
profit margin decreased as a percentage of net sales to 26.2% in the first half
of 1997 from 28.6% in the first half of 1996. The reduction in gross profit
margins is partially due to lower worldwide ice machine sales, and higher
production costs of food preparation and storage equipment. Also contributing to
the decline in gross profit margins was the inclusion of the results of Kysor,
which historically has reported lower gross profit margins. The Company's
Delfield business continues to focus on internal productivity improvement, and
management believes that margin improvement will occur at that unit over the
next 12 months.
Selling and administrative expenses increased by $10.2 million, or
approximately 33%, to $41.1 million in the first half of 1997 from $30.8 million
in the first half of 1996. The increase in selling and administrative expenses
is attributable to the inclusion of Kysor results subsequent to its acquisition
by the Company in March 1997. As a percentage of net sales, selling and
administrative expenses decreased to 15.1% in the first half of 1997 from 16.3%
reported in the first half of 1996. The percentage decrease is primarily
attributable to Kysor business units which, although they have historically
reported lower gross profit margins, also have lower selling and administrative
expenses as a percentage of net sales as compared to the balance of the
Company's businesses.
Income from operations increased by $6.6 million, or 28.2%, to $30.0
million in the first half of 1997 from $23.4 million in the first half of 1996,
which primarily reflects Kysor's contribution to the Company's profits. As a
percentage of net sales, income from operations decreased to 11.0% in the first
half of 1997 from 12.3% in the same period of 1996. The decline is a result of
the lower gross profit margins and an additional $1.2 million of amortization of
intangibles resulting from the Kysor Acquisition.
Net interest expense increased by $6.0 million to $8.8 million in the first
half of 1997 from $2.8 million in the first half of the prior year as a result
of the increased domestic borrowings incurred by the Company to fund the Kysor
Acquisition.
The Company's overall income tax rate increased to 48.4% in the first half
of 1997 from 48.0% in the first half of 1996. The higher income tax rate is
primarily attributable to the impact of $1.2 million of additional amortization
of intangibles resulting from the Kysor Acquisition.
Net income, before a one-time after-tax charge of $633,000 incurred for the
early retirement of $20 million of 11.43% private placement debt, increased by
$.3 million, or approximately 2%, to $11.0 million in the first half of 1997
from $10.7 million in the first half of 1996. On a fully diluted basis, earnings
per share, before the one-time charge, increased by $.01, or approximately 1%,
to $1.01 in the first half of 1997 from $1.00 in the first half of 1996. Net
income, including the one-time charge, declined by $.4 million, or 3.4%, to
$10.3 million in the first half of 1997 from $10.7 million in the first half of
1996. On a fully diluted basis, earnings per share, including the one-time
charge, declined by $0.05, or 5.0%, to $.95 in the first half of 1997 from $1.00
in the first half of 1996.
Management believes that earnings per share for fiscal 1997 may be slightly
below the $1.73 per share for fiscal 1996, before the one-time charge described
above in the first fiscal quarter of 1997.
32
<PAGE> 35
Year ended December 29, 1996 ("1996"), compared with year ended December
31, 1995 ("1995")
The Company experienced strong operating results in 1996 compared with
1995. Sales increased in many of the Company's businesses and operating income
as a percentage of sales increased as well. These positive operating results
were largely attributable to the inclusion of a full year's operations of
Hartek, which was purchased by the Company on December 31, 1995, strong growth
at Whitlenge, solid sales gains from the Company's European ice machine
businesses and a continued emphasis on cost containment.
The Company's net sales increased by $32.1 million, or 10%, to a record
$356.4 million in 1996 from $324.3 million in 1995.
Ice machine sales, which represented 49% of total sales of the Company in
1996, increased by $6.5 million, or 4%, to $176.0 million in 1996 from $169.5
million in 1995 primarily due to 15% growth in sales from European operations
while domestic sales of ice machines remained relatively constant.
Food preparation and storage equipment sales, which represented 29% of
total sales of the Company in 1996, remained constant compared to 1995,
reflecting a decline in European bakery equipment sales and a modest increase in
sales of food preparation equipment by Delfield, which were limited by a slowing
of the domestic market for such products. Sales in this product category are
expected to increase in 1997 due to Delfield's designation by Boston Market as
sole supplier of serving line equipment and certain related products.
Beverage systems sales, which represented 19% of total sales of the Company
in 1996, increased by $27.6 million, or 69%, to $67.6 million in 1996 from $40.0
million in 1995, driven primarily by the inclusion of the operating results of
Hartek and growth of 24% at Whitlenge due to increasing their export sales and a
strong domestic beer market in the United Kingdom.
Niche products sales, which represented 3% of total company sales in 1996,
decreased by $2.3 million, or 21%, to $9.2 million in 1996 from $11.5 million in
1995, driven primarily by a lower volume of certain contract products and
ventilation equipment.
The Company's gross profit increased by $10.5 million, or 12%, to $98.4
million in 1996 from $87.9 million in 1995. The Company's gross profit margin
increased to 27.6% of total sales in 1996 from 27.1% of total sales in 1995 due
to selling price increases in certain products, moderating material costs and
the impact of higher sales in relation to a base of certain fixed production
costs. These gains were partially offset by higher production costs at Delfield
due to inefficiencies incurred while implementing process improvements and
organizational changes in anticipation of future growth requirements.
Selling and administrative expenses increased by $4.7 million, or 9%, to
$58.1 million in 1996 from $53.4 million in 1995. Although selling and
administrative expenses increased due to the inclusion of Hartek, selling and
administrative expenses as a percentage of total sales of the Company declined
to 16.3% in 1996 from 16.5% in 1995, primarily due to higher overall sales and
lower advertising costs.
Income from operations increased by $5.8 million, or 17%, to $40.3 million
in 1996 from $34.5 million in 1995 primarily due to increased sales with higher
associated gross margins and the continued benefit of cost containment plans
initiated during 1996 and in prior years.
Net interest expense decreased by $1.0 million, or 17%, to $5.3 million in
1996 from $6.3 million in 1995 primarily due to the Company's lower average debt
levels and a favorable interest rate environment.
Income taxes increased by $3.7 million to $16.4 million in 1996 from $12.7
million in 1995 due to higher income from operations and a higher effective tax
rate. The Company's tax rate increased to 47.0% in 1996 from 45.2% in 1995
primarily due to the higher percentages of sales generated from foreign
operations with higher relative tax rates.
Overall, net income increased by $3.2 million, or 21%, to $18.6 million in
1996 from $15.4 million in 1995. On a fully diluted basis, earnings per share
increased by $0.28, or 19%, to $1.73 in 1996 from $1.45 in 1995. Of note, the
effects of fluctuations in currency exchange rates on the Company's results of
operations were immaterial.
33
<PAGE> 36
Year ended December 31, 1995 ("1995"), compared with year ended January 1,
1995 ("1994")
The Company's net sales increased 22% in 1995, to $324.3 million, compared
with $266.6 million in 1994. Strong gains in worldwide ice machine sales and the
inclusion of Delfield and Whitlenge results for the full year were primary
contributors to this growth.
Ice machine sales increased 13% from the prior year and represented 52% of
total sales in 1995. Domestic ice machine sales were up 7%, a significantly
greater gain than the market as a whole. New products and expansion of the
distribution system contributed to the share gain. Sales of ice machines outside
the U.S. increased more than 20% due to improvement in Western European markets
and substantial sales increases to the Asia-Pacific region. In December 1995 the
Company's joint venture in Shenyang, China began production of ice machines to
be sold in the domestic China market.
Sales of food preparation and storage equipment increased 39% from 1994 to
1995 due to the inclusion of results for Delfield for a full year in 1995 versus
a partial year (from April 29, 1994) for 1994. Pro forma full-year sales of
these products, as if Delfield had been acquired at the beginning of 1994, were
up 1%. Reduced sales from Delfield to a few large national accounts were largely
offset by sales to other customers. Food preparation and storage equipment
represented approximately one-third of total Company sales in 1995.
The Company's 1995 worldwide beverage systems sales increased 23% versus
the prior year due to the inclusion of Whitlenge's sales for only eight months
of 1994. On a full-year basis, beverage systems realized increased sales of 5%,
compared with the prior year, primarily due to Whitlenge's increased penetration
of continental European markets. Sales of this equipment accounted for 12% of
1995 Company sales. Niche products, including ventilation equipment and certain
contract products, comprised the balance of the Company's sales.
Gross profit increased significantly in dollars but declined as a
percentage of sales, to 27.1% in 1995 from 28.5% in 1994, as a result of the
full-year inclusion of Delfield and Whitlenge results, which historically have
had lower gross profit margins. The impact of the increases of cost of materials
and a shift in sales mix at Delfield toward customers served by higher-cost
distribution channels also impacted gross profit in 1995.
Selling and administrative expenses for the year were up substantially in
dollars, again due in large measure to acquisitions. As a percentage of sales,
however, selling and administrative costs declined to 16.5% from 18.0% in the
prior year due to lower litigation-related costs, favorable health claims costs
and the full-year inclusion of Delfield and Whitlenge and their historically
lower ratios.
Income from operations increased $6.2 million, or 22%, from the prior year
as a result of the above mentioned factors.
Interest expense, net, increased $0.9 million due to the higher average
debt levels associated with the Delfield and Whitlenge acquisitions. A higher
effective income tax rate of 45.2% in 1995, compared with 43.9% in 1994,
reflects a greater proportion of income from the Company's higher-taxed Italian
subsidiaries.
1995 net income of $15.4 million and fully diluted net income per share of
$1.45 were record highs for Scotsman Industries. Hartek, acquired on December
31, 1995, had no impact on the income statement for the year. The effect of
changes in currency exchange rates was immaterial on the Company's results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's liquidity requirements have arisen primarily
from the need to fund its working capital, capital expenditures, acquisitions
and interest expense, including fixed obligations associated with debt or lease
obligations. The Company has met these liquidity requirements through use of
funds generated from operations, along with financing from various sources.
The Company expects to continue to generate significant cash flow from
operations, which will be used to fund the Company's existing operations and
internal growth. Increased levels of working capital, capital expenditures and
interest expense associated with the Kysor Acquisition are not expected to
adversely impact the Company's liquidity and access to capital.
34
<PAGE> 37
The Company utilized cash flow from operations of $7.5 million for the
first six months of 1997 compared to cash flow provided by operating activities
of $6.0 million for the first six months of 1996.
The following comparison of certain items in the balance sheets as of June
29, 1997 and December 29, 1996 excludes the initial impact of the Kysor
Acquisition in March of 1997 and the impact of changes in foreign exchange rates
on those categories:
Inventory decreased by $1.3 million, which reflects the reduction in
Kysor inventories since the date of acquisition by the Company. This
decrease in Kysor inventories was partially offset by higher inventories at
some of the Company's other domestic businesses.
Accounts receivable were $29.1 million higher, primarily as a result
of the sales increase in the second quarter of 1997 compared to the fourth
quarter of 1996.
Trade accounts payable were $10.8 million higher, which reflects the
impact of seasonal volume.
All asset and liability accounts as of June 29, 1997, were significantly
impacted by the Kysor Acquisition in March of 1997. Goodwill increased from
December 29, 1996, due to the Kysor Acquisition, which added approximately $192
million.
Cash and temporary cash investments of $20.8 million as of June 29, 1997,
increased by $4.3 million from December 29, 1996, reflecting the increase in
cash balances at the Company's foreign subsidiaries and in part due to the Kysor
Acquisition.
Shareholders' equity increased $5.8 million from December 29, 1996, which
reflects net income of $10.3 million for the first half of 1997, which was
partially offset by a reduction in shareholders' equity caused by changes in
accumulated foreign currency translation adjustments and the impact of
dividends.
Capital expenditures, including those funded through capital leases,
increased $4.5 million, or approximately 131%, to $7.9 million for the first six
months of 1997 from $3.4 million for the first six months of 1996. Capital
expenditures in 1997 were made primarily to fund construction of a new Kysor
facility in Columbus, Georgia, along with productivity improvements, new product
tooling and maintenance and replacement items.
Note 3 to the Company's financial statements included and incorporated by
reference herein contains a summary of the changes in the Company's debt
structure as a result of the Kysor Acquisition. Long-term debt increased by
approximately $283 million as of June 29, 1997 primarily due to funding of the
Kysor Acquisition, along with funding of working capital needs. Short-term debt
was reduced by $3.1 million from December 29, 1996 primarily due to short-term
domestic borrowings being replaced with longer-term borrowings. Total debt,
including capital leases, was $362.9 million as of June 29, 1997 compared to
$76.6 million as of December 29, 1996. The debt to capital ratio was
approximately 73% at June 29, 1997, compared with approximately 37% at December
29, 1996.
On February 13, 1997, May 15, 1997 and August 14, 1997, the Company's Board
of Directors declared a dividend of 2 1/2 cents per share payable to common
shareholders of record on March 28, 1997, June 30, 1997 and September 30, 1997,
respectively.
Since its first quarter as a publicly-held company, the Company has paid a
quarterly dividend of 2 1/2 cents per share. The continuation, amount and timing
of this dividend will be determined by the Board of Directors and may change as
conditions warrant.
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BUSINESS
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's Corporation
("McDonald's"), Boston Chicken, Inc. ("Boston Market"), Wal-Mart Stores, Inc.
("WalwMart"), Winn-Dixie Stores, Inc. ("Winn-Dixie"), Marriott International,
Inc. ("Marriott") and Mobil Corporation ("Mobil"), as well as bottlers
affiliated with The Coca-Cola Company ("Coca-Cola") and PepsiCo, Inc. ("Pepsi").
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales by Scotsman and Kysor of approximately $144
million accounted for approximately 24% of the Company's 1996 pro forma net
sales. The Company believes that its leading market positions, broad product
offering, diverse customer base, extensive distribution network and strong
international presence provide it with significant competitive advantages and
position it for continued growth.
Since its Spin-off from Household in 1989, Scotsman has expanded through
internal growth and through a disciplined acquisition program. The Company's
internal growth has been driven primarily by increased sales of ice machines in
the United States and Europe and beverage systems in Europe. In addition, from
1992 through 1996, the Company successfully completed and integrated five
acquisitions. As a result of these acquisitions and internal growth, the
Company's net sales increased to $356.4 million in 1996 from $168.7 million in
1992, representing a compound annual growth rate of 20.6%. In March 1997, the
Company acquired Kysor for a net purchase price of approximately $299 million.
Kysor is a leading supplier of refrigerated display cases and walk-in coolers
and freezers to the supermarket and convenience store industries. For 1996,
Kysor's sales of commercial refrigeration products were $245.1 million, an
increase of 18.3% from 1995. Pro forma for the Kysor Acquisition, the Company's
1996 net sales were $601.4 million, a 68.7% increase over the Company's reported
1996 net sales. Through the addition of Kysor's leading market positions and
complementary product lines, the Company expects to benefit from cross-selling
opportunities, as well as synergies related to reduced overhead, increased
purchasing power and shared research and development efforts.
Scotsman is a market leader in each of its five product lines with well
recognized, premium brand names. The Company believes it is the largest
worldwide manufacturer of commercial ice machines, the largest manufacturer of
food preparation and storage equipment for the foodservice industry in the
United States and the second largest manufacturer of beverage systems in Europe
and refrigerated display cases and walk-in coolers and freezers in the United
States. Scotsman believes these strong market positions will enable it to take
advantage of favorable trends driving global demand for its products.
INDUSTRY OVERVIEW
Sales of the Company's five product lines are driven primarily by demand
from participants in the food and beverage industry. According to a recent
industry report, sales by the food and beverage industry are expected to grow
from $700 billion in 1995 to approximately $800 billion in the year 2005. Much
of this growth is expected to be captured by the foodservice industry (including
supermarket delis), which continues to gain market share from traditional
groceries. According to published industry sources, total U.S. foodservice sales
climbed from approximately $255 billion in 1990 to an estimated $336 billion in
1997.
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According to published industry sources, the commercial foodservice segment of
the foodservice industry, the largest segment of this industry, is expected to
experience real growth of approximately 3.4% per year through 2005. Growth in
the U.S. foodservice market is driven primarily by population growth, economic
growth and demographic changes, including the number of families with two or
more wage-earners and shifting consumer preferences for convenience in food
preparation and consumption.
According to published industry sources, sales by the U.S. commercial
foodservice equipment industry grew 6.4% to approximately $4.5 billion in 1996
and are expected to grow by 6.8% in 1997. While normal replacement of aging
equipment and that for new construction generally drive sales of new commercial
refrigeration products, the Company expects further demand to result from
remodeling due to product upgrades and expanded perishable sections in
supermarkets and convenience stores, the expansion of national restaurant chains
and the replacement of products containing chlorofluorocarbons ("CFCs"). The
Company expects that a significant portion of the installed commercial
refrigeration systems in the United States that are CFC-based will be replaced
or retrofitted over the next decade, as CFCs become increasingly difficult to
obtain.
The commercial foodservice and retail food equipment industries are being
affected by several key industry trends, including expansion by national
restaurant and lodging chains, increased perishable and prepared food offerings
at supermarkets and convenience stores, supplier consolidation and increased
international foodservice demand.
National Chain Expansion. Large chains have a significant impact on the
commercial foodservice and retail food equipment markets as a result of new
store openings, remodeling and upgrading programs and equipment purchases to
support new menu items. The expansion of national chains is being driven by
increased consumer expenditures for dining out and carry-out meals. According to
an independent industry study, expenditures for food prepared outside of the
home have increased from approximately 38% of the average American's food budget
in 1975 to approximately 52% in 1995. Consistent with this trend, restaurant,
convenience store and supermarket chains continue to add new sites through
construction and acquisition. In 1996, for example, according to an independent
industry study, the top 100 restaurant chains grew at a rate of 5.6% compared
with 4.5% for the industry as a whole. Quick service restaurants continue to
expand into non-traditional sites to offer increased consumer convenience and
capture a greater portion of food expenditures. Locations for such
non-traditional outlets include retail stores, supermarkets, department stores
and gas stations. Quick service chains such as McDonald's and Sbarro, Inc., for
example, are moving into airports, hospitals and schools, which increases demand
for commercial foodservice equipment that is suitable for small, kiosk-type
locations. According to an independent industry study, the top 75 supermarket
chains accounted for approximately 78% of total supermarket industry sales in
1996, with the top 10 chains accounting for approximately 30% of total
supermarket industry sales. The Company believes that continued consolidation
will increase significantly that concentration over the next several years.
Expansion of Supermarket and Convenience Store Food Retail and
Foodservice. In 1996, sales of refrigerated display cases and systems to
supermarkets was approximately $700 million, while sales to convenience stores
totaled approximately $300 million, based on an independent industry study. In
an effort to capitalize on home meal replacement trends, convenience stores and
supermarkets continue to increase the portion of their floor space dedicated to
the sale of prepared and perishable foods. At the same time, expansion of
superstores has led to increased remodeling expenditures by existing stores in
order to remain competitive. The Company believes that national chains, in
particular, are placing added emphasis on store modernization to improve and
differentiate product merchandising.
Supplier Consolidation. National chains are demonstrating an increasing
tendency to purchase from fewer suppliers and to form collaborative
relationships with suppliers in order to minimize purchasing efforts and
optimize product design, responsiveness and pricing plans. Criteria for supplier
selection include not only product reliability and performance, service and
price, but also national presence and full-service design, engineering and
product customization capabilities. The Company believes that because these
criteria favor larger, more integrated suppliers, smaller industry participants
are at a competitive disadvantage in competing for contracts.
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<PAGE> 40
Growth in International Foodservice Demand. International foodservice
demand is driven by economic and disposable income growth, increased penetration
of retail foodservice establishments, increased popularity of chilled beverages
and fundamental changes in consumer attitudes toward dining outside the home.
The Company expects these factors to drive significant growth in foodservice
demand in regions such as Asia, Latin America and Eastern Europe over the next
10 years. Furthermore, the Company expects the developing economies in Eastern
Europe, China and other regions of the world to drive expansion of hotels,
restaurant chains and other foodservice establishments to meet increased
business, consumer and tourist demands. Throughout the world, the concentration
of quick service restaurant and lodging chains is substantially lower than in
the United States and provides opportunities for national chains to expand
internationally. As a result, many of the leading national chains have embarked
upon significant international expansion. For example, the top 100 U.S.
restaurant chains increased their number of international operating units and
sales by approximately 16% and 11%, respectively, in 1996 compared with U.S.
domestic unit and sales growth rates of 5.7% and 5.6%, respectively, according
to an independent industry study. As a result, international chains increasingly
are requiring their suppliers to have the capability to manufacture and service
products in multiple geographic markets.
OPERATING STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP
Scotsman seeks to build and maintain leading market positions in each of
its product lines. The Company believes it is the world's largest manufacturer
of commercial ice machines, the largest manufacturer of food preparation and
storage equipment for the foodservice industry in the United States and the
second largest manufacturer of beverage systems in Europe and refrigerated
display cases and walk-in coolers and freezers in the United States. The Company
believes that these leading market positions help to create a heightened
awareness of its product offerings and brands. Scotsman believes that its
leading market positions, broad product offerings, strong brand recognition and
extensive distribution capabilities position it to compete successfully as its
customers consolidate their supplier base and expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY
To enhance manufacturing effectiveness, Scotsman has adopted "lean
manufacturing" initiatives, which include minimizing manufacturing complexity,
standardizing key product subcomponents, adopting cell manufacturing practices
and emphasizing continuous improvement. These efforts throughout the Company
have resulted in enhanced product quality, fewer product defects and lower
inventory costs. Manufacturing flexibility enables each of the Company's
manufacturing facilities to produce a range of standard or customized models
within each manufacturing unit, which increases efficiency while improving the
Company's ability to meet customers' delivery schedules. Scotsman believes that
additional manufacturing efficiencies will result from sharing best practices
among Kysor and Scotsman's other operating units.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT
By applying its product design, manufacturing and refrigerant technology
expertise, Scotsman seeks to provide customers with technically superior,
durable and energy efficient products. Scotsman also dedicates substantial
resources to new product development and customizing existing products to meet
the unique performance, size and appearance specifications of individual
customers. This commitment has resulted in the introduction of numerous
innovative new products and product enhancements, including: (i) the CM(3) ice
machine, which offers greater ice making capacity while using less energy and
having approximately 23% fewer parts than prior models; (ii) an ice dispenser
designed to fit within the limited space requirements of many European hotels;
(iii) customized serving counters for Boston Market, which Scotsman designed to
reduce the waiting time of Boston Market customers at peak periods; and (iv) the
Genesis drink dispensing
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tower, which allows the proprietor to change the dispenser's exterior for
different promotions. In addition, Scotsman was the first manufacturer to
convert its entire line of ice machines to CFC-free refrigerants.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR CUSTOMER
SERVICE
Scotsman has an extensive sales, distribution and service network in over
100 countries that is designed to meet the needs of customers from product
design and purchase through aftermarket sales and support. The Company's
salesforce, sales engineers and distributors work closely with customers to
determine the appropriate product for a given application and, if necessary,
assist in the development of customized products. Following a sale, the Company
or its distributors, depending on the product and geographic market, provide
aftermarket support that includes training, maintenance, service and repair. See
"-- Marketing and Distribution."
GROWTH STRATEGY
The Company also pursues a growth strategy intended to strengthen its
leading market positions within its product lines. The key elements of this
strategy include:
FOCUSING ON MAJOR NATIONAL CHAINS
Scotsman targets major national chains within the five principal industries
it serves. The Company believes that these national chains increasingly are
gaining market share at the expense of independents, and the Company expects
this trend to accelerate in both domestic and international markets. Chain
expansion generates demand for new and replacement equipment through new
construction, non-traditional site development and facility redevelopment or
modernization. Scotsman's customers include many of the largest chains in the
quick service restaurant, supermarket, lodging and convenience store industries,
including McDonald's, Boston Market, WalwMart, Winn-Dixie, Marriott and Mobil.
Through strong brands in each product line, the Company seeks to become the
single supplier to its customers in each of its product lines. The Company will
continue to organize product design and sales teams to work closely with
national chains in developing applications to meet their specific requirements.
Furthermore, given the strength of its current relationships and its
capabilities abroad, the Company believes it is well positioned to benefit as
national chains expand into international markets. For example, Scotsman
provides refrigerated display cases and walk-in coolers and freezers to several
WalwMart locations in South America.
PURSUING CROSS-SELLING OPPORTUNITIES
Scotsman has similar customers in each of its five product lines. While the
Company maintains strong relationships with customers in each of its market
segments, penetration of individual accounts varies by product line. As a
result, the Company believes it has significant opportunities to pursue internal
growth through cross-selling initiatives across product lines. The recently
completed Kysor Acquisition, which expanded the Company's product range to
include refrigerated display cases and walk-in coolers and freezers, has
expanded these opportunities by broadening the Company's range of products and
expanding its existing customer base. Specific cross-selling objectives include
(i) increasing sales of Kysor's refrigerated display cases and walk-in coolers
and freezers to restaurants, where Scotsman historically has had significant
market share and (ii) increasing sales of Scotsman's ice machines and food
preparation and storage equipment to supermarkets, Kysor's strong customer base
historically. The Company also believes that the breadth of its product lines
resulting from the Kysor Acquisition enhances its ability to penetrate the
convenience store market, a market in which the Company and Kysor currently have
relationships with only a limited number of chains.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES
International foodservice equipment markets offer significant opportunities
for growth by the Company. The Company believes, for example, that Western
European foodservice locations have, on a percentage basis, significantly fewer
ice machines than foodservice locations in the United States and that market
penetration of
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ice machines is significantly lower in other international markets. An integral
part of Scotsman's strategy has been to develop production, manufacturing,
marketing and distribution capabilities to serve international markets. The
Company intends to continue to capitalize on the rapid growth of the commercial
foodservice equipment industry in international markets by: (i) taking advantage
of its existing manufacturing presence, including through its joint venture
interests, in Australia, China, Germany, Indonesia, Italy and the United Kingdom
and its extensive distribution network, which extends through over 100
countries; (ii) expanding its presence into new markets through acquisitions,
joint ventures, alliances or startup investments; and (iii) leveraging its
relationships with national chains to participate in their international
expansion. Scotsman believes its brands and those of its subsidiaries are well
recognized internationally, in part from a European presence which dates back to
1963. The scale of the Company's international operations is a competitive
advantage, as most national competitors lack a significant presence in
international markets. In addition, the Company believes that most of its
competitors lack the breadth of international operating, service and
distribution capabilities necessary to meet the needs of large customers in
multiple international markets. The Company believes that it received several
recent contract awards from U.S. chains, in part, because of its ability to meet
such customers' needs across international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS AND JOINT VENTURES
Strategic acquisitions are expected to remain an important element of
Scotsman's growth domestically and internationally. The Company has acquired six
businesses (including Kysor) since 1992 and formed three joint ventures and one
strategic alliance. The Company believes there are significant consolidation
opportunities in most of its product lines, particularly walk-in coolers and
freezers, display cases and food preparation and storage equipment, which are
relatively fragmented in the United States and highly fragmented in
international markets. The Company expects that complementary acquisitions will
provide the opportunity to achieve economies of scale through manufacturing,
purchasing and overhead efficiencies and economies of scope through
cross-selling opportunities and the sharing of product design innovation among
its operating units. Scotsman currently targets acquisitions that: (i) relate
closely to the Company's current technology, markets, customer types or product
categories; (ii) position the Company to take advantage of fundamental market
and industry trends; and (iii) will be non-dilutive to earnings. The Company's
management team has substantial experience and expertise in identifying,
completing and successfully integrating strategic acquisitions. See "The
Company" and "Kysor Acquisition" for a description of the Company's acquisitions
from 1992 to the present.
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PRODUCTS
Scotsman manufactures a diversified line of commercial refrigeration
products, food preparation equipment and beverage systems, including ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage dispensing systems. The Company sells
its key products through the following principal product lines:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRO FORMA
1996 NET
PRODUCT LINE BUSINESS UNIT(S) SALES KEY PRODUCTS KEY BRANDS
------------ ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Ice Machines................... Scotsman Ice Systems 29% Commercial ice machines Scotsman
Frimont that make cube, flake, Icematic
Castel MAC nugget and scale ice. Crystal Tips
Booth/Crystal Tips Modular, self- contained Rapid Freeze
Scotsman China ice dispensing systems and Simag
storage bins.
Refrigerated Display Cases..... Kysor//Warren 29% Refrigerated self-serve Kysor//Warren
display cases. Bangor
Service deli cases.
Custom merchandisers.
Mechanical refrigeration
systems.
Refrigeration houses.
Electrical distribution
houses.
Food Preparation and Storage
Equipment.................... Delfield 19% Food preparation Delfield
Castel MAC workstations. Icematic
Refrigerators and freezers. Tecnomac
Dough retarders and blast Shelleyglas
freezers. Shelleymatic
Mobile cafeteria systems.
Tray and plate dispensers.
Walk-in Coolers and Freezers... Kysor Panel Systems 12% Modular insulated panels Kysor Needham
and insulated doors for Kysor Kalt
refrigerated enclosures.
Environmental rooms.
Walk-in cold rooms and
freezers.
Beverage Systems............... Booth/Crystal Tips 11% Soft beverage systems. Booth
Whitlenge Combination ice and Whitlenge
Hartek beverage dispensing Hartek
SAW Technologies systems. Aztec
Custom beer cooling
systems.
</TABLE>
Ice Machines. Scotsman believes it is the world leader in the sale of
commercial ice machines. The Company's commercial ice machines are sold in the
United States under the Scotsman and Crystal Tip brand names. The Company sells
a diversified line of commercial ice machines that make ice in all forms,
including cube, nugget, flake and scale. Each type of ice machine is designed
and marketed for specific applications and capacity ranges from 300 to 2,000
pounds of ice per day. The Company's 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. Recent new product introductions have further
augmented the Company's full line of commercial ice machine products. For
example, Scotsman's CM(3) line of cuber ice machines, introduced in 1996, offers
greater ice making capacity while using less energy and having approximately 23%
fewer parts than prior models.
Scotsman's expertise in manufacturing, design and refrigerant technology
enables the Company's ice machines generally to meet or exceed customer's
expectations for reliability and durability. Scotsman's ice machines have an
average life of approximately seven to 10 years and replacement sales typically
represent 70% to 80% of the Company's U.S. sales of ice machines.
The Company believes it is the only U.S. commercial ice machine company
with manufacturing facilities in Europe. The Company manufactures and markets
commercial ice machines and related components
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through its Italian subsidiaries, Castel MAC and Frimont, principally under the
Icematic, Scotsman and Simag trademarks, for sale in Italy and for export
primarily to Eastern and Western Europe, the Middle East, Africa and the Far
East. In China, the Company markets its ice machines under the Scotsman name
through its Chinese joint venture. The Company also markets the Crystal Tips
line internationally through three export marketing firms based in the United
States and Canada.
The Company also distributes Howe industrial ice flakers under distribution
and trademark licensing agreements with Howe Corporation. See "The Company."
Refrigerated Display Cases. Through its Kysor//Warren operating unit,
Scotsman designs and manufactures refrigerated display cases and mechanical
refrigeration systems sold primarily to supermarkets. Refrigerated display cases
are used by supermarkets and convenience stores to display perishable food items
such as vegetables, deli items and prepared meals. Mechanical refrigeration
systems are located away from a store's customer area and provide power, air
filtration and circulation and temperature controls to the refrigerated display
cases located within the store.
Food Preparation and Storage Equipment. Scotsman manufactures and markets a
wide range of commercial food preparation and storage equipment through its
wholly owned subsidiary Delfield. Delfield's principal products are 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, all of which are constructed primarily
from stainless steel, as well as wood and other decorative materials. Delfield's
products are customized to address customer requests regarding size, space,
features and performance. Delfield's standard refrigeration products frequently
are incorporated into customers systems or can be sold separately.
Within the Company's food preparation and storage equipment unit, the
Company also manufactures and markets several related products. In Europe,
Castel MAC manufactures and markets a line of refrigerated cabinets under the
Icematic brand name and a line of dough retarders and blast freezers under the
Tecnomac brand name, and Frimont markets a line of refrigerators manufactured by
Castel MAC under the Scotsman brand name.
The Company also manufactures and markets niche products primarily through
Delfield, including air ventilating equipment under the Air Tech trademark, ice
cream dispensing equipment and iced drink mixing and dispensing machines. In
addition, the Company manufactures and markets a limited line of water coolers
through its Italian subsidiaries, Frimont and Castel MAC, and small industrial
applications through Whitlenge.
Walk-in Coolers and Freezers. Scotsman designs, manufactures, markets and
sells walk-in coolers and freezers and environmental control systems through its
Kysor Panel Systems operating unit. Kysor Panel Systems' refrigeration panels
used in the construction of walk-in coolers and freezers are made from all three
primary panel types: wood rail, urethane rail and soft nose. The Company
believes it is the only U.S. panel system supplier that can manufacture any of
the three panel types to meet customer preferences and that Kysor Panel Systems
is the largest supplier in the United States of walk-in coolers and freezers to
the supermarket industry and a leading supplier of walk-in coolers and freezers
to the convenience store industry. Scotsman's environmental control systems are
used in industrial applications to test products under a range of temperatures.
Beverage Systems. In the United States, Scotsman manufactures soft drink
dispensing equipment through its wholly owned subsidiary, Booth. Booth
manufactures and markets a complete line of non-coin operated soft drink
dispensers and accessories. Booth offers both pre-mix and post-mix dispensers,
which can either be ice-cooled or electrically-cooled, as well as ice and drink
dispensers, hand-operated valves and other related accessory products used in
the fountain drink market. Booth is one of only three companies in the United
States that manufacture and market the three major product categories of
beverage systems (mechanically refrigerated, ice cooled and ice/drink) to both
Coca-Cola and Pepsi.
In Europe, Scotsman manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related equipment through its
Whitlenge and Hartek subsidiaries. Whitlenge specializes in
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<PAGE> 45
remote beverage cooling installations, including large installations for
restaurants, and also makes a range of refrigerated over and under-the-counter
soft drink units. Hartek manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related ancillary equipment.
The Company is a 50% partner in SAW Technologies, a joint venture recently
formed to develop technologically advanced beverage dispensing valves. The joint
venture's Aztec valve, already being sold to a major soft drink bottler in the
United Kingdom, is targeted for other customers and markets. The Aztec valve
differentiates between and monitors different types of soft drink syrups,
continuously regulates the flow and mix of syrups and carbonated water and can
dispense other beverages such as fruit juices, where pulp presents difficulties
for most of the current generation of mechanical valves.
MARKETING AND DISTRIBUTION
Scotsman's sales and distribution network, which extends through over 100
countries, uses a combination of direct sales to national accounts, exclusive
and non-exclusive distributors and independent dealers, wholesalers and sales
representatives. Scotsman has approximately 200 sales and marketing employees
and relationships with over 300 exclusive distributors in over 50 countries and
approximately 3,300 independent dealers, distributors, wholesalers and sales
representatives in over 100 countries. Scotsman believes that these multiple
sales and distribution channels allow it to best serve its diverse customer base
across its five product lines.
While each business unit has its own marketing organization which is
responsible for the marketing and distribution of its products certain
salespeople and distributors may handle more than one of the Company's product
lines. The Company expects that in connection with its cross-selling objectives
more salespeople and distributors will handle more than one of the Company's
product lines.
Ice Machines. In the United States, both of the Company's Scotsman and
Crystal Tips brands maintain their own independent distribution networks.
Scotsman Ice Systems has approximately 85 distributors in the United States and
also sells directly to national customers such as large hotel chains, quick
service restaurants and convenience stores. Crystal Tips sells through
approximately 68 distributors in the United States. Outside the United States,
Crystal Tips has over 20 distributors. Outside the United States, Castel MAC and
Frimont combined have approximately 1,200 dealers and distributors in Europe and
Asia. In the majority of countries served, Castel MAC and Frimont each sell
through separate distribution channels. Distributors generally do not carry
competing brands of ice machines.
Refrigerated Display Cases. Kysor//Warren primarily sells refrigerated
display cases directly to large supermarket and convenience store chains through
its 29 person sales force. A smaller portion of Kysor//Warren's sales are made
through independent commercial refrigeration distributors that market to
independent and small chain supermarkets and convenience stores.
Food Preparation and Storage Equipment. Delfield sells its products
directly to national accounts such as large restaurant chains. Delfield also
sells through a network of approximately 1,400 non-exclusive dealers and
approximately 28 independent sales representative firms. In Europe, Castel MAC
sells through dealers and agents.
Walk-in Coolers and Freezers. Kysor Panel Systems sells its walk-in coolers
and freezers directly to large supermarket chains primarily through its 30
person marketing and sales force. Kysor Panel Systems also sells to smaller
independent supermarkets and convenience stores through a network of
approximately 600 distributors, dealers and wholesalers.
Beverage Systems. Booth sells its beverage systems directly to soft drink
bottlers franchised by large customers such as Coca-Cola and Pepsi. Whitlenge
sells directly to soft-drink bottlers and brewers in the United Kingdom, while
Hartek sells directly to soft-drink bottlers and brewers in Germany. Whitlenge
and Hartek jointly export directly to bottlers and brewers through a 10 person
sales force and over 7 distributors and local agents in various markets
throughout Western and Central Europe and the Middle East.
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RESEARCH AND DEVELOPMENT
Scotsman conducts extensive research and development programs in each of
its product lines. These programs seek to develop product improvements and
achieve cost reductions, as well as develop new products. Approximately 65
employees of the Company are engaged in research and development. Scotsman's
total research and development expenditures for fiscal years 1996, 1995 and 1994
were $5.6 million, $4.8 million and $5.1 million, respectively, and Kysor's
total research and development expenditures for 1996, 1995 and 1994 were $.8
million, $.4 million and $.3 million, respectively.
RAW MATERIALS
The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls, and raw materials such as stainless steel, galvanized steel, aluminum,
copper, plastic, glass, foam insulation, brass and wood. These materials are
readily available from several sources, and Scotsman has not experienced
difficulties with respect to their availability.
FACILITIES
The following chart lists the domestic and international active
manufacturing, distribution and office facilities owned or leased by Scotsman or
the joint ventures in which Scotsman has an interest:
DOMESTIC FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Goodyear, Arizona................... Plant and Office; Walk-in Coolers and Freezers Leased
50,000 square feet
Los Angeles, California............. Distribution Ice Machines Leased
Facility;
13,000 square feet
Columbus, Georgia................... Plant and Office; Refrigerated Display Cases Owned
295,826 square feet
Columbus, Georgia................... Plant and Office; Refrigeration Systems Owned
155,000 square feet
Conyers, Georgia.................... Plant and Office; Refrigerated Display Cases Owned
480,000 square feet
Vernon Hills, Illinois.............. Office; Ice Machines Leased
36,000 square feet
Vernon Hills, Illinois.............. Office; Corporate headquarters Leased
8,800 square feet
South Bend, Indiana................. Plant and Office; Refrigerated Display Cases Owned
90,000 square feet
Des Moines, Iowa.................... Plant, Warehouse Refrigerated Display Cases Leased
and Office;
93,000 square feet
Mt. Pleasant, Michigan.............. Plant and Office; Food Preparation and Storage Owned
327,000 square feet Equipment
Portland, Oregon.................... Plant and Office; Walk-in Coolers and Freezers Owned
84,000 square feet
Fairfax, South Carolina............. Plant and Ice Machines Owned
Warehouse;
327,000 square feet
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Covington, Tennessee................ Plant and Office; Food Preparation and Storage Leased
188,000 square feet Equipment
Johnson City, Tennessee............. Plant and Office; Walk-in Coolers and Freezers Leased
60,000 square feet
Dallas, Texas....................... Plant and Office; Ice Machines Leased
170,000 square feet
Fort Worth, Texas................... Plant and Office; Walk-in Coolers and Freezers Owned
118,162 square feet
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Adelaide, Australia.................. Plant and Office; Refrigerated Display Cases *
12,000 square feet
Sydney, Australia.................... Plant and Office; Refrigerated Display Cases *
163,000 square feet
Vienna, Austria...................... Office and Beverage systems Leased
Warehouse;
11,000 square feet
Shenyang, China...................... Plant and Office; Ice Machines *
17,000 square feet
Radevormwald, Germany................ Plant and Office; Beverage systems Owned
35,000 square feet
Jakarta, Indonesia................... Plant and Office; Refrigerated Display Cases *
5,000 square feet
Castelfranco, Italy.................. Plant and Office; Ice Machines Owned
230,000 square feet
Milan, Italy......................... Plant and Office; Ice Machines Leased
152,000 square feet
Halesowen, United Kingdom............ Plant and Office; Beverage systems Leased
76,000 square feet
Irthlingsborough, United Kingdom..... Plant and Office; Beverage systems *
3,900 square feet
</TABLE>
- -------------------------
* Facility owned or leased by a joint venture in which Scotsman has an interest.
Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants, as increased by the
plant under construction in Georgia, to be adequate for the current needs of its
business. Except for a lien on a section of its Mt. Pleasant, Michigan facility
and on its Covington, Tennessee facility, both securing industrial revenue
bonds, none of the principal properties owned by Scotsman are subject to
encumbrances material to the operations of Scotsman.
EMPLOYEES
As of June 29, 1997, Scotsman employed approximately 3,850 employees,
approximately 1,400 of whom are covered by collective bargaining agreements. The
Company believes its relationships with employees are generally good.
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<PAGE> 48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of October 1, 1997) and
positions of all executive officers and directors of Scotsman or its
subsidiaries.
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH COMPANY
------------ ---------------------
<S> <C>
Richard C. Osborne, 53............... Chairman, President, Chief Executive Officer and Director
Paolo Faenza, 58..................... General Manager, Castel MAC
David M. Frase, 50................... Vice President of the Company and President of Kysor Panel
Systems
Richard M. Holden, 47................ Vice President -- Human Resources
Donald D. Holmes, 59................. Vice President -- Finance and Secretary
Christopher D. Hughes, 51............ Vice President of the Company and President of Booth
Ludwig H. Klein, 55.................. Vice President of the Company and Managing Director of
Hartek
Emanuele Lanzani, 63................. Executive Vice President of the Company and Managing
Director, Frimont and Castel MAC
Gerardo Palmieri, 57................. Director -- Sales and Marketing, Frimont
Randall C. Rossi, 45................. Vice President of the Company and President of Scotsman Ice
Systems
William J. Rotenberry, 42............ Vice President -- Business Development
Michael de St. Paer, 52.............. Vice President of the Company and Managing Director of
Whitlenge
Graham E. Tillotson, 46.............. Vice President of the Company and President of Delfield
Logan F. Wernz, 53................... Vice President of the Company and President of Kysor//Warren
Donald C. Clark, 66.................. Director
Timothy C. Collins, 40............... Director
Frank W. Considine, 76............... Director
George D. Kennedy, 71................ Director
Robert G. Rettig, 68................. Director
Richard L. Thomas, 66................ Director
</TABLE>
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.
Mr. Faenza is General Manager, Castel MAC, and has held that position since
1986.
Mr. Frase is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor Panel Systems,
and has held those positions since 1987. From 1982 to 1987, he served as a Vice
President of Kysor's walk-in coolers and freezers business.
Mr. Holden is Vice President -- Human Resources of the Company and has held
that position since January 1990.
Mr. Holmes is Vice President -- Finance and Secretary of the Company and
has held those positions since April 1989.
Mr. Hughes is a Vice President of the Company and has held that position
since June 1994. He 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 engaged in the business of assembling new and overhauling used
passenger rail cars.
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<PAGE> 49
From 1991 to 1993, Mr. Hughes was Vice President of Operations of Scotsman Ice
Systems and Scotsman's former Glenco-Star division.
Mr. Klein is a Vice President of the Company and has held that position
since February 1996. He is also Managing Director of Hartek and has held that
position since February 1995. From June 1994 until February 1995, he worked as
an independent consultant and provided, during that period, consulting services
to Hartek and in the capital goods industry. From July of 1986 until June of
1994, Mr. Klein held the position of General Manager of Haacon Hebetechnik GmbH,
a manufacturer of industrial lifting equipment.
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.
Mr. Palmieri is Director -- Sales and Marketing, Frimont, and has held that
position since 1980.
Mr. Rossi is a Vice President of the Company and has held that position
since January 1995. He 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.
Mr. Rotenberry is Vice President -- Business Development. He has been
employed by the Company since January 1996 and became a Vice President of the
Company in February 1996. From 1990 until January 1996, he was Director of
Corporate Development for Joslyn Corporation, a diversified manufacturer.
Mr. de St. Paer is a Vice President of the Company and has held that
position since April 1994. He 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.
Mr. Tillotson is a Vice President of the Company and President of Delfield.
He has held those positions since June 1997. From January 1997 to June 1997, he
served as Interim President of Delfield. From 1984 to December 1996, he was Vice
President, Sales & Marketing of Delfield.
Mr. Wernz is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor//Warren, and
has held those positions since 1988. From October 1984 to March 1988, he served
as President and General Manager of Kysor//Westran. From January 1967 to June
1984, he served in various managerial and executive positions at Parker Hannifin
and Ardco where he last served as President.
Mr. Clark was Chairman of the Board and a director of Household until his
retirement in 1996. Mr. Clark was Chairman of the Board of Household from 1984
to 1996 and Chief Executive Officer of Household from 1982 to September 1994. He
is also director of Armstrong World Industries, Inc., PMI Group, Inc.,
Ripplewood Holdings L.L.C., Ameritech Corporation and Warner-Lambert Co. and
serves as trustee of Clarkson University and Northwestern University. He has
been a director of the Company since April 1989 and served as Chairman of the
Board of the Company from April 1989 to May 1991.
Mr. Collins is Chief Executive Officer and Senior Managing Director of
Ripplewood Holdings L.L.C., an industrial and investment management holding
company, and has held that position since 1995. Mr. Collins was Senior Managing
Director of Onex Investment Corp. (New York), a management company for the U.S.
investments of Onex Corporation, an Ontario corporation, from 1990 to 1995. He
also serves on the board of directors of Dayton Superior Corporation and
Danielson Holding Corporation. He has been a director of the Company since April
1994.
Mr. Considine is Honorary Chairman of the Board, Chairman of the Executive
Committee and a director of American National Can Company, a packaging
manufacturer, and has held those positions since 1990. He was Chairman of the
Board of American National Can Company from 1983 to 1990, President from 1969 to
1988, and Chief Executive Officer from 1973 to 1988. Mr. Considine is Chairman
of the Board of Trustees of
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<PAGE> 50
Loyola University, Chicago, and serves on the Board of Trustees of the Field
Museum of Natural History, Chicago. Mr. Considine has been a director of the
Company since April 1989.
Mr. Kennedy was Chairman and a director of the Mallinckrodt Group Inc., a
producer of medical products and chemicals, from 1991 until his retirement in
October 1994. He was Chairman and Chief Executive Officer of Mallinckrodt Group
Inc. from 1986 to 1991. Mr. Kennedy is also a director of Brunswick Corporation,
Illinois Tool Works, Inc., American National Can Company, Kemper National
Insurance Company and Stone Container Corporation. He has been a director of the
Company since April 1989.
Mr. Rettig is a consultant to Illinois Tool Works, Inc., a manufacturer of
industrial products and components, and a consultant to, and a director of, The
Tech Group, a custom molding company, and has held those positions since 1990.
He was an Executive Vice President of Illinois Tool Works, Inc. from 1983 to
December 1989. Mr. Rettig is also a director of Lawson Products, Inc. and serves
as a trustee of the Illinois Institute of Technology. He has been a director of
the Company since April 1989.
Mr. Thomas was Chairman of First Chicago NBD Corporation and The First
National Bank of Chicago from 1995 until his retirement in May 1996. He was
Chairman, President and Chief Executive Officer of The First National Bank of
Chicago from 1992 to 1995. Mr. Thomas is currently a director of First Chicago
NBD Corporation, The First National Bank of Chicago, CNA Financial Corporation,
IMC Global Inc., The PMI Group, Inc., The Sabre Group Holdings, Inc. and Sara
Lee Corporation. Mr. Thomas is Chairman of the Board and a trustee of Kenyon
College, a trustee of the Chicago Symphony Orchestra, Northwestern University
and Rush Presbyterian-St. Luke's Medical Center, and is Chairman of the Civic
Committee of The Commercial Club of Chicago. He has been a director of the
Company since August 1997.
EXECUTIVE COMPENSATION
The Company's executive compensation program is structured to provide
meaningful incentives to the executive officers to increase shareholder value.
The program is comprised of a base salary, an annual cash incentive compensation
program and a long-term incentive compensation plan in the form of stock
options, stock appreciation rights, restricted stock and restricted stock
rights.
As of February 15, 1997, the directors and certain officers of the Company,
as a group, beneficially owned, or had the right to acquire within 60 days
pursuant to the exercise of stock options, 1,432,665 shares of Common Stock
representing 13.1% of the shares of Common Stock then issued and outstanding.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued under an Indenture, to be dated as of
, 1997 (the "Indenture"), among the Company, the Issuer and Harris
Trust and Savings Bank, as Trustee (the "Trustee"). A copy of the form of
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Indenture and the Notes including the
definitions of certain terms therein and those terms made a part of the
Indenture by the Trust Indenture Act of 1939, as amended. Whenever particular
defined terms of the Indenture not otherwise defined herein are referred to,
such defined terms are incorporated herein by reference. For definitions of
certain capitalized terms used in the following summary, see "-- Certain
Definitions."
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Issuer,
initially limited to $100 million aggregate principal amount, and will mature on
, 2007. The Notes will bear interest at the rate per annum shown on
the cover page hereof from , 1997, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the or immediately
preceding the interest payment date on and of each
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<PAGE> 51
year, commencing , 1998. Interest on the Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
Principal of and interest on the Notes will be payable, and the Notes may
be exchanged or transferred, at the office or agency of the Issuer in the
Borough of Manhattan, The City of New York (which initially shall be the
corporate trust office of the Trustee, at New York, New York
), except that, at the option of the Issuer, payment of interest may
be made by check mailed to the address of the Holders as such address appears in
the Note Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but the
Issuer may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
From and after , 2002, the Notes will be redeemable, at the
Issuer's option, in whole or in part, at any time or from time to time, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002..................................................... %
2003..................................................... %
2004 and thereafter...................................... 100%
</TABLE>
In addition, at any time and from time to time prior to , 2000,
the Issuer may redeem in the aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Equity Offerings, at a
redemption price (expressed as a percentage of principal amount) of % plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that either (i) at least $
million in aggregate principal amount of the Notes must remain outstanding after
each such redemption or (ii) such redemption must retire the Notes in their
entirety and, in any case, that such redemption occurs within 60 days following
the closing of such Equity Offering.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
On and after the redemption date, interest will cease to accrue on the
Notes or the portion thereof called for redemption.
SINKING FUND
There will be no sinking fund payments for the Notes.
COMPANY GUARANTY
The Company will irrevocably and unconditionally Guarantee on a senior
subordinated basis the performance and the punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all the Obligations of the
Issuer under the Indenture and the Notes (the "Guaranty"). The Guaranty will be
49
<PAGE> 52
limited in amount to an amount not to exceed the maximum amount that can, after
giving effect to all other contingent and fixed liabilities of the Company, be
guaranteed by the Company without rendering the Guaranty void or voidable under
applicable law relating to fraudulent transfer or fraudulent conveyance or
similar laws affecting the rights of creditors generally. In addition, the
Company will agree to pay any and all expenses (including reasonable counsel
fees and expenses) incurred by the Trustee and the Holders in enforcing any
rights under the Guaranty with respect to the Company.
RANKING
The indebtedness evidenced by the Notes and the Guaranty will be unsecured,
general obligations of the Issuer or the Company, as the case may be,
subordinated in right of payment, as set forth in the Indenture, to the prior
payment of all Senior Indebtedness of the Issuer or the Company, as the case may
be, whether outstanding on the Issue Date or thereafter incurred, including the
Issuer's and the Company's respective Obligations under the Bank Credit
Agreement. After giving effect to this Offering and the application of the net
proceeds herefrom, as of June 29, 1997, the Company, the Issuer and the
Restricted Subsidiaries would have had approximately $268 million of Senior
Indebtedness outstanding and would have had up to approximately $139 million
available under the Credit Facility and the Comerica Agreement which, if
borrowed, would be Senior Indebtedness. In addition, the Company has pledged all
outstanding Capital Stock of the Issuer owned by the Company to secure its
obligations under its Guarantee of the Credit Facility.
Only Indebtedness of the Issuer or the Company that is Senior Indebtedness
will rank senior to the Notes or the Guaranty, as the case may be, in accordance
with the provisions of the Indenture. The Notes will in all respects rank pari
passu with all other Senior Subordinated Indebtedness of the Issuer. The Issuer
and the Company have agreed in the Indenture that they will not Incur, directly
or indirectly, any Indebtedness that is subordinate or junior in ranking in
right of payment to its Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinated or junior to Secured Indebtedness merely because it is unsecured.
A significant portion of the operations of the Issuer and all of the
operations of the Company are currently conducted through their respective
Subsidiaries. Claims of creditors of any Subsidiary of the Issuer, including
trade creditors, secured creditors and creditors holding guarantees issued by
such Subsidiaries, and claims of preferred stockholders (if any) of such
Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Issuer or the
Company, including holders of the Notes, even though such obligations would not
constitute Senior Indebtedness of the Issuer or the Company. The Notes and the
Guaranty, therefore, will be effectively subordinated to creditors (including
trade creditors) and preferred stockholders (if any) of Subsidiaries of the
Issuer. After giving effect to this Offering and the application of the net
proceeds herefrom, as of June 29, 1997, the Issuer's Subsidiaries would have had
approximately $38 million of Indebtedness outstanding and owed to Persons other
than to the Company, the Issuer and its Subsidiaries. Although the Indenture
limits the incurrence of Indebtedness and the issuance of capital stock of
certain of the Issuer's Subsidiaries, such limitations are subject to a number
of significant qualifications; moreover, the Indenture does not impose any
limitation on the incurrence by such Subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."
SUBORDINATION
Upon any payment or distribution of assets or securities of the Issuer or
the Company, as the case may be, of any kind or character, whether in cash,
property or securities, in connection with any dissolution or winding up or
total or partial liquidation or reorganization of the Issuer or the Company, as
the case may be, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings or upon any assignment for the benefit of
creditors or any other marshaling of assets for the benefit of creditors, all
amounts due or to become due upon all Senior Indebtedness (including any
interest accruing subsequent to an event of bankruptcy whether or not such
interest is an allowed claim enforceable against the debtor under the United
States Bankruptcy Code) shall first be paid in full, in cash or cash
equivalents, before the Holders or the
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<PAGE> 53
Trustee on their behalf shall be entitled to receive any payment by the Issuer
on account of the Notes, or the Company on the Guaranty, as the case may be, or
any payment to acquire any of the Notes for cash, property or securities, or any
distribution with respect to the Notes of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Issuer on the Notes, or
the Company on the Guaranty, as the case may be, in connection with any such
dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Issuer or the Company, as the case
may be, of any kind or character, whether in cash, property or securities, to
which the Holders or the Trustee on their behalf would be entitled, but for the
subordination provisions of the Indenture, shall be made by the Issuer or the
Company, as the case may be, or by a receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution or by the Holders or the Trustee if received by them or it,
directly to the holders of the Senior Indebtedness (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their representatives or to any trustee or trustees under any indenture
pursuant to which any such Senior Indebtedness may have been issued, as their
respective interests appear, to the extent necessary to pay all Obligations with
respect to such Senior Indebtedness in full, in cash or cash equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
In addition, the Issuer or the Company, as the case may be, may not make
any payment of any kind or character from any source on the Notes or make any
deposit pursuant to the provisions described under "Defeasance" below or may not
repurchase, redeem or otherwise retire any Notes whether pursuant to the terms
of the Notes or upon acceleration or otherwise (collectively, "pay the Notes")
if (i) any Obligations with respect to any Designated Senior Indebtedness of the
Issuer or the Company, as the case may be, are not paid when due or (ii) any
other default on Designated Senior Indebtedness of the Issuer or the Company, as
the case may be, occurs and the maturity of such Designated Senior Indebtedness
is accelerated in accordance with its terms (which acceleration occurs
automatically under certain circumstances) unless, in either case, the default
has been cured or waived and any such acceleration has been rescinded or such
Designated Senior Indebtedness has been paid in full. However, the Issuer or the
Company, as the case may be, may pay the Notes without regard to the foregoing
if the Issuer or the Company, as the case may be, and the Trustee receive
written notice approving such payment from the Representative or Representatives
of all Designated Senior Indebtedness with respect to which either of the events
set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Indebtedness of the Issuer or the Company, as
the case may be, pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Issuer or the Company, as the case may be, may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Issuer or the Company, as the case may be) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Issuer or the Company, as the case may be, from the Person or Persons who gave
such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) because such Designated Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Issuer or the Company, as
the case may be, must resume payments when due on the Notes after the end of
such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness of the Issuer
or the Company, as the case may be, during such period.
If payment of the Notes is accelerated because of an Event of Default, the
Issuer or the Trustee shall promptly notify the holders of all Designated Senior
Indebtedness or the Representatives of such holders of the acceleration. If any
Designated Senior Indebtedness is outstanding, neither of the Issuer or the
Company may pay the Notes until five Business Days after the Representatives of
all the issues of Designated Senior
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<PAGE> 54
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the Indenture otherwise permits payments at that time.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Issuer or the Company, as the case may
be, who are holders of Senior Indebtedness of the Issuer or the Company, as the
case may be, may recover more from the Issuer or the Company, as the case may
be, ratably, than the Noteholders, and creditors of the Issuer or the Company,
as the case may be, who are not holders of Senior Indebtedness of the Issuer or
the Company, as the case may be, may recover less from the Issuer or the
Company, as the case may be, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than Holders of the Notes.
To the extent any payment of Senior Indebtedness (whether by or on behalf
of the Issuer or the Company, as the case may be, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
if such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
Notwithstanding the foregoing, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under "--
Defeasance" below will not be contractually subordinated in right of payment to
any Senior Indebtedness or subject to the restrictions described herein.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is otherwise provided.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person (other than net income (or loss)
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has an ownership interest and the
net income (or loss) of any Unrestricted Subsidiary, except, in each case, to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause 3(A) of paragraph (a) of the "Limitation on Restricted Payments" covenant
described below (and in such case, except to the extent includable pursuant to
clause (i) above), the net income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated with
the Company or any of its Restricted Subsidiaries or all or substantially all of
the property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to paragraph (a) of the
"Limitation on Restricted Payments" covenant described below, any amount paid or
accrued as dividends on Preferred Stock of the Company or any Restricted
Subsidiary that is owned by the Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of
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such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of the
provisions described under "-- Certain Covenants -- Limitation on Restricted
Payments," "-- Certain Covenants -- Limitation on Affiliate Transactions" and
"-- Certain Covenants -- Limitations on Asset Sales" only, "Affiliate" shall
also mean any beneficial owner of Capital Stock representing 10% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Acquisition" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided, however, that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
Investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided, however, that the
property and assets acquired are related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or Sale-Leaseback Transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, except any such disposition of director's qualifying shares or of
shares of Capital Stock of foreign Restricted Subsidiaries to foreign nationals
to the extent required by law, (ii) all or substantially all of the property and
assets of an operating unit or business of the Company or any of its Restricted
Subsidiaries, or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed by
the provisions of the Indenture applicable to mergers, consolidations and sales
of assets and Sale/Leaseback Transactions of the Company or such Restricted
Subsidiary; provided, however, that "Asset Sale" shall not include (v) sales or
other dispositions of inventory, receivables and other current assets, (w) sales
or other dispositions of damaged, worn-out or other obsolete property in the
ordinary course of business so long as such property is not necessary for the
proper conduct of the business of the Company and its Restricted Subsidiaries,
(x) exchanges of property of the Company or any of its Restricted Subsidiaries
for property of any other Person which is related, ancillary or complimentary to
the business of the Company and its Restricted Subsidiaries at the time of such
exchange and where the Board of Directors has determined in good faith that such
exchange is fair and reasonable, (y) creation or assumption of Liens permitted
under the "Limitation on Liens" covenant described below or any foreclosure
thereof, or (z) sales or other dispositions of property or assets with an
aggregate Fair Market Value not in excess of $5 million in any fiscal year.
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction as at
the time of determination, the present value (discounted at the interest rate
implicit in the Sale/Leaseback Transaction, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
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"Bank Credit Agreement" means that certain Credit Agreement, dated as of
March 12, 1997, as amended, by and among the Company, the Issuer and The First
National Bank of Chicago (or any successor thereto or replacement thereof), as
agent and as a lender, and certain other institutions, as lenders, and certain
other parties thereto, providing for up to $450 million of Indebtedness as well
as, with respect to the Company and any Restricted Subsidiary, any other debt
facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
or credit, including in each case any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time by one or more other
agreements, instruments and documents entered into with such Persons and/or
other Persons.
"Board of Directors" means the Board of Directors of the Company or the
Issuer, as the case may be, or any committee thereof duly authorized to act on
behalf of such Board.
"Business Day" means each day which is not a Legal Holiday (as defined in
the Indenture).
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participation or other equivalents of or
interests in equity (however designated) of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, except that
for purposes of this clause (i) such person or group shall be deemed to
have "beneficial ownership" of all shares that such person or group has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; provided, however,
that a person shall not be deemed to be the beneficial owner of, or to own
beneficially, (i) any securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates until such tendered securities are accepted for purchase or
exchange thereunder, or (ii) any securities if such beneficial ownership
(A) arises solely as a result of a revocable proxy delivered in response to
a proxy or consent solicitation made pursuant to applicable law, and (B) is
not also then reportable on Schedule 13D (or any successor schedule) under
the Exchange Act;
(ii) during any period of two consecutive years from and after the
Issue Date, individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office;
(iii) the merger or consolidation of the Company with or into another
Person (other than the Issuer), or the sale of all or substantially all the
assets of the Company to another Person, and, in the case of any such
merger or consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration,
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securities of the surviving corporation that represent, immediately after
such transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation; or
(iv) the Company ceases for any reason to be the beneficial owner,
directly or indirectly, of all Voting Stock of the Issuer, except as a
result of the merger of the Company with and into the Issuer or of the
merger of the Issuer with and into the Company; provided that the pledge of
such Voting Stock (without the transfer of voting rights attributable
thereto) shall not be deemed to transfer the beneficial ownership thereof
by the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Comerica Agreement" means that certain promissory note, dated as of March
12, 1997, by Scotsman Group to Comerica Bank, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part from time to time by one
or more other agreements, instruments and documents entered into with such
Person and/or other Persons.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Issue Date, including, without limitation, all series and
classes of such common stock.
"Consolidated Coverage Ratio" means, on any date of determination, the
ratio of (i) the aggregate amount of Consolidated EBITDA for the then most
recent four fiscal quarters prior to such date for which reports have been filed
with the SEC pursuant to the "SEC Reports and Reports to Holders" covenant (the
"Four Quarter Period") to (ii) Consolidated Interest Expense for such Four
Quarter Period. In making the foregoing computation, (A) pro forma effect shall
be given to any Indebtedness Incurred or repaid during the period (the
"Reference Period") commencing on the first day of the Four Quarter Period and
ending on such date (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement) in
effect on the last day of such Four Quarter Period adjusted, however, to give
pro forma effect to repayments resulting from the reduction in such commitment
or Indebtedness Incurred in excess of such commitment, in each case after the
end of such Four Quarter Period and on or before such date), in each case as if
such Indebtedness had been Incurred or repaid the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on such date (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months or, if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire Reference Period; (C)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; and
(D) pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an asset
acquisition or asset disposition, such pro forma computation shall be based upon
the four full fiscal quarters immediately preceding such date of the Person, or
division or line of business of the Person, that is acquired or disposed for
which financial information is available; and provided further that to the
extent that clause (C) or (D) of this sentence requires that pro forma effect be
given to an asset acquisition, such pro forma computation shall exclude any
expense (net of any expense increase) which, in the good faith estimate of
management, will (in
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accordance with GAAP and the rules, regulations and guidelines of the SEC) be
eliminated as a result of such acquisition.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual or
reserve is, or is required by GAAP to be, made), all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
(without duplication) of (x) interest in respect of Indebtedness of the Company
and its Restricted Subsidiaries (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers' acceptance financings and other
financings to the extent attributable to such period; the net costs associated
with Interest Rate Agreements); (y) interest in respect of Indebtedness (other
than Indebtedness of the Company or the Restricted Subsidiaries) that is
Guaranteed or secured by the Company or any of its Restricted Subsidiaries; and
(z) the interest component of Capital Lease Obligations paid, accrued or
scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period, all as determined on a consolidated basis in
conformity with GAAP; excluding, however, (i) any amount of such interest of any
Restricted Subsidiary if all or a portion of the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income
pursuant to the proviso to the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to the proviso to the
definition thereof), and (ii) any amount of such interest expense of any
Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary if all or
a portion of the Adjusted Consolidated Net Income of such Restricted Subsidiary
is excluded in the calculation of Consolidated EBITDA pursuant to the proviso to
the definition thereof.
"Consolidated Net Worth" means, as of any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 135 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness and the cost of treasury
stock, each item to be determined in conformity with GAAP (excluding the effects
of foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Designated Senior Indebtedness" in respect of the Company or the Issuer,
as the case may be, means (i) all the Obligations of the Company or the Issuer,
as the case may be, under the Credit Agreement, dated as of March 12, 1997, that
is referenced in the definition of "Bank Credit Agreement," as the same may be
amended, restated, modified, renewed, refunded, replaced or refinanced, in whole
or in part, and (ii) any other Senior Indebtedness of the Issuer or the Company,
as the case may be, which, at the date of determination, has an aggregate
principal amount outstanding of, or under which, at the date of determination,
the holders thereof are committed to lend up to, at least $10 million and is
specifically designated by the Issuer or the Company, as the case may be, in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture; provided, however, the
Company shall not designate any Senior Indebtedness as Designated Senior
Indebtedness pursuant to clause (ii) above so long as the Credit Agreement,
dated as of March 12, 1997, that is referenced in the definition of "Bank Credit
Agreement" is in effect, as the same may be amended, restated or modified from
time to time but excluding any refunding, replacement or refinancing thereof or
so long as any Obligations remain outstanding under or in connection with such
Credit Agreement.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
to the extent that by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event, it (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable, in whole or in part, at the option of
the holder thereof, in each case described in the immediately preceding clauses
(i) , (ii) or (iii), on or prior to the Stated Maturity of the Notes; provided,
however, that (x) any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with respect to the
payment of dividends or upon maturity, redemption (pursuant to a sinking fund or
otherwise) or repurchase thereof or otherwise by the delivery of Capital Stock
that is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed to be
Disqualified Stock so long as such Person satisfies its obligations with respect
thereto solely by the delivery of Capital Stock that is not Disqualified Stock
and (y) any Capital Stock of a Subsidiary of such Person that would otherwise
constitute Disqualified Stock shall not be deemed to be Disqualified Stock so
long as such Capital Stock is held by such Person; and provided further,
however, that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" (however designated) occurring prior to the first
anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "-- Certain Covenants --
Limitation on Asset Sales" and "-- Repurchase of Notes upon a Change of Control"
and (y) any such requirement only becomes operative after compliance with such
corresponding terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.
"Equity Offering" means a primary offering, whether public or private, of
shares of common stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by (i) senior management of the Company if the aggregate amount of
the transaction with respect to which Fair Market Value is being determined does
not exceed $10 million in value or (ii) the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a Board Resolution, if
the aggregate amount of the transaction with respect to which Fair Market Value
is being determined exceeds $10 million in value.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements and pronouncements of
the Financial Accounting Standards Board, (iii) such other statements by such
other entity as approved by a
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significant segment of the accounting profession, and (iv) the rules and
regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements from
the accounting staff of the SEC. All ratios and other computations contained or
referred to in the Indenture shall be computed in conformity with GAAP applied
on a consistent basis, except that computations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness of such Person or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security and the accrual of interest
shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) the amount of all Capital Lease
Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property
(which purchase price is due more than six months after the date of taking
delivery of title to such property), including all obligations of such Person
for the deferred purchase price of property under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued and
unpaid dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
first-mentioned Person (whether or not such obligation is assumed by such first-
mentioned Person), the amount of such obligation being deemed to be the lesser
of the value of such property
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or assets or the amount of the obligation so secured; and (viii) to the extent
not otherwise included in this definition, the amount of Hedging Obligations of
such Person. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, assuming the contingency giving rise to the
obligation were to have occurred on such date, of any Guarantees outstanding at
such date. Notwithstanding the foregoing, none of the following shall constitute
Indebtedness: (i) indebtedness arising from agreements providing for
indemnification or adjustment of purchase price or from guarantees securing any
obligations of the Company or any of its Subsidiaries pursuant to such
agreements, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary of the Company, other than guarantees or similar
credit support by the Company or any of its Subsidiaries of Indebtedness
incurred by any Person acquiring all or any portion of such business, assets or
Subsidiary for the purpose of financing such acquisition; (ii) any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business as the deferred purchase price of property; (iii) obligations
arising from guarantees to suppliers, lessors, licensees, contractors,
franchisees or customers incurred in the ordinary course of business; (iv)
obligations (other than Guarantees of indebtedness for borrowed money) in
respect of Indebtedness of other Persons arising in connection with (A) the sale
or discount of accounts receivable, (B) trade acceptances and (C) endorsements
of instruments for deposit in the ordinary course of business; (v) obligations
in respect of performance bonds provided by the Company or its Subsidiaries in
the ordinary course of business and refinancing thereof; (vi) obligations
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument drawn against insufficient funds in the ordinary
course of business, provided, however, that such obligation is extinguished
within two Business Days of its incurrence; and (vii) obligations in respect of
any obligations under workers' compensation laws and similar legislation;
provided that Indebtedness of the Company or its Restricted Subsidiaries that is
Guaranteed by the Company or any of the Restricted Subsidiaries shall only be
counted once in the calculation of the amount of Indebtedness of the Company and
its Restricted Subsidiaries on a consolidated basis.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means (without duplication) any direct or
indirect advance, loan or other extension of credit (including, without
limitation, by way of Guarantee or similar arrangement (but excluding (x)
advances to customers in the ordinary course of business that are, in conformity
with GAAP, recorded as accounts receivable on the balance sheet of the Company
or its Restricted Subsidiaries and (y) Guarantees of Indebtedness of the Company
or any Restricted Subsidiaries and similar arrangements permitted under the
"Limitation on Indebtedness" covenant below)) or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the Fair Market
Value of the Capital Stock (or any other Investment) held by the Company or any
of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant described
below, (i) "Investment" shall include the Fair Market Value of the assets (net
of liabilities (other than liabilities to the Issuer or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the Fair Market Value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments, and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its Fair
Market Value at the time of such transfer.
"Issue Date" means the date on which the Notes are originally issued.
"Lenders" has the meaning specified in the Bank Credit Agreement.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
or, in the case of a Subsidiary not organized under the laws of a state of the
United States or the District of Columbia, fixed charge or floating charge of
any kind (including any conditional sale or other title retention agreement or
lease in the nature thereof).
"Moody's" means Moody's Investor's Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale, (iii) payments
made to repay Indebtedness or any other obligation outstanding at the time of
such Asset Sale that either (x) is secured by a Lien on the property or assets
sold or (y) is required to be paid as a result of such sale, and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commission and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"Obligations" means all obligations of every nature whether for principal,
reimbursements, interest, fees, expenses, indemnities or otherwise, and whether
primary, secondary, direct, indirect, contingent, fixed or otherwise (including
obligations of performance) under the documentation governing any Indebtedness.
"Offer to Purchase" means an offer to purchase Notes by the Issuer from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(i) the covenant pursuant to which the offer is being made and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Issuer defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note duly
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Issuer shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together
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with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Issuer. The Paying Agent shall promptly mail to the Holders
of Notes so accepted for payment an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Issuer will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase. The Issuer
will comply with Rule 14b-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Issuer is required to repurchase Notes to an
Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash
Investment; (iii) commission, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans, transactions and arrangements
or advances to directors, officers, employees and agents made in the ordinary
course of business in accordance with past practice of the Company or its
Restricted Subsidiaries and that do not in the aggregate, in the case of loans
or advances, exceed $3 million at any time outstanding, provided that with
respect to any transaction or arrangement which is reasonably expected to
involve more than $1 million, such transaction or arrangement shall be approved
by a majority of the members of the Board of Directors of the Company having no
personal stake in such transaction or arrangement; (v) Investments existing on
the Issue Date and any extension, renewal or other modification thereof (but not
an increase in the amount thereof, other than as a result of the accrual or
accretion of interest or original issue discount pursuant to the original terms
of such Investment); (vi) Investments in any Person received in any dissolution,
winding up, liquidation or reorganization of such Person in satisfaction of
claims against such Person; (vii) Investments received as consideration from
Asset Sales or Asset Dispositions permitted under the "Limitation on Asset
Sales" covenant described below; (viii) stock, obligations or securities
received in satisfaction of judgments or in settlements; (ix) Investments in
Austral Refrigeration Pty. Ltd. ("Austral Investments"); (x) exchanges of
property permitted pursuant to clause (x) of the definition of "Asset Sales";
and (xi) other Investments in any Persons made with an intention to control at a
subsequent time such Persons (as evidenced by a resolution of the Board of
Directors of the Company or the Issuer, as the case may be, to such effect) in
an aggregate amount outstanding at any time not to exceed $10 million plus the
net reduction in such other Investments and in Austral Investments after the
Issue Date; provided, that the Investment in Austral Refrigeration Pty. Ltd. and
any such Person shall be deemed reduced to zero for purposes of this definition
only, among other things, at such times as Austral Refrigeration Pty. Ltd. or
such other Person becomes a Restricted Subsidiary.
"Permitted Liens" means, with respect to any Person, (a) liens incurred or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar laws, rules, regulations or other governmental requirements, or
good faith liens incurred or deposits made in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
landlord's, carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings or
other Liens arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for nonpayment or which are being contested in good faith and by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business; provided, however, that such
letters of credit do not constitute Indebtedness; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions
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as to the use of real property or leases, subleases or other Liens incidental to
the conduct of the business of such Person or to the ownership of its properties
which were not Incurred in connection with Indebtedness and which do not in the
aggregate materially impair their use in the operation of the business of such
Person; (f) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property of such
Person (including Liens securing Indebtedness of the pollution control or
revenue bond type); provided, however, that the Lien may not extend to any other
property owned by such Person or any of its Subsidiaries at the time the Lien is
Incurred, and the Indebtedness secured by the Lien may not be Incurred more than
180 days after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property subject
to the Lien; (g) Liens to secure Indebtedness permitted under the provisions
described in clauses (a), (b)(1), (b)(4), (b)(7), (b)(8) and (b)(10) under "--
Certain Covenants -- Limitation on Indebtedness"; (h) Liens existing on the
Issue Date; (i) Liens on property or shares of Capital Stock of another Person
at the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other property
owned by such Person or any of its Subsidiaries; (j) Liens on property at the
time such Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (k) Liens
securing Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a wholly owned Subsidiary of such Person (or, in the case of
the Issuer, to a Wholly Owned Subsidiary); (l) Liens securing Hedging
Obligations so long as such Hedging Obligations relate to Indebtedness that is,
and is permitted to be under the Indenture, secured by a Lien on the same
property securing such Hedging Obligations; (m) Liens arising in the ordinary
course of business in favor of the United States, any state thereof, any foreign
country or any department, agency, instrumentality or political subdivision of
any such jurisdiction, to secure partial, progress, advance or other payments
pursuant to any contract or statute; (n) Liens to secure any Refinancing (or
successive Refinancing) as a whole, or in part, of any Indebtedness secured by
any Lien referred to in the foregoing clause (f), (h), (i) and (j), provided,
however, that (x) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements to or on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding principal
amount or, if greater, committed amount of the Indebtedness described under
clause (f), (h), (i) or (j) at the time the original Lien became a Permitted
Lien or the Issue Date, whichever is greater, and (B) an amount necessary to pay
any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement; (o) judgment and attachment Liens
not giving rise to an Event of Default or Liens created by or existing from any
litigation or legal proceeding that are currently being contested in good faith
by appropriate proceedings and for which adequate reserves have been made; (p)
Liens in favor of collecting or payor banks having a right of setoff,
revocation, refund or chargeback with respect to money or instruments of the
Issuer or any Subsidiary on deposit with or in possession of such bank; and (q)
Liens to secure Sale/Leaseback Transactions that are permitted pursuant to the
"Limitation on Sale/Leaseback Transactions" covenant.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock issuer, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
The term "principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
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"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, decease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced or the Notes (whichever is
earlier), (ii) the portion of such Refinancing Indebtedness that has a Stated
Maturity that is earlier than the Stated Maturity of the Notes has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding or committed (plus fees
and expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of April 24, 1994 among the Company and certain former
shareholders of certain Restricted Subsidiaries.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Issuer or the Company, as the case may be.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than (x) dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock), (y)
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and (z) pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation) ), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means the Issuer and any other Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Issuer, Inc.,
and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person; provided that the Fair Market Value of such property
(as reasonably determined by the Board of Directors acting in good faith) is $10
million or more.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Issuer or the Company,
as the case may be, secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Indebtedness" means, with respect to any Person, any Indebtedness
of such Person and all other Obligations with respect thereto, including
interest, whether or not allowed, on such Indebtedness accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to such
Person, including all Obligations of such Person under the Bank Credit
Agreement, the Comerica Agreement and Hedging Obligations, whether outstanding
on the Issue Date or thereafter Incurred, unless such Indebtedness, by its terms
or the terms of any instrument creating or evidencing such Indebtedness, is pari
passu with, or subordinated in right of payment to, the Notes; provided,
however, that Senior Indebtedness shall not include (1) any obligation of such
Person to any Subsidiary, director, officer or employee of such Person, (2) any
liability for federal, state, local or other taxes owed or owing by such Person,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Person (and any
accrued and unpaid interest in respect thereof) which is expressly subordinated
in right of payment in any respect to any other Indebtedness or other obligation
of such Person, (5) that portion of any Indebtedness (other than under the Bank
Credit Agreement) which at the time of Incurrence is Incurred in violation of
the Indenture, and (6) any Indebtedness of such Person that, when Incurred and
without regard to any election under Section 1111(b) of the United States
Bankruptcy Code, was without recourse to such Person.
"Senior Subordinated Indebtedness" means, with respect to the Issuer or the
Company, as the case may be, the Notes, with respect to the Issuer, and the
Guaranty, with respect to the Company, and any other Indebtedness of the Issuer
or the Company, as the case may be, that specifically provides that such
Indebtedness is to rank pari passu with the Notes or such Guaranty, as the case
may be, in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Issuer or the Company, as
the case may be, which is not Senior Indebtedness of the Issuer or the Company,
as the case may be.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or the
Issuer (whether outstanding on the Issue Date or thereafter Incurred), as the
case may be, which is subordinate or junior in right of payment to the Notes or
the Guaranty, as the case may be, pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America, or in the case of a
Subsidiary not organized under the laws of a state of the United States or the
District of Columbia, any foreign government, or any agency thereof or
obligations guaranteed or insured by the United States of America, or in the
case of a Subsidiary not organized under the laws of a state of the United
States or the District of Columbia, any foreign government, or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money-market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $100 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by Moody's, S&P or at least one
nationally recognized statistical
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rating organization (as defined in Rule 436 under the Securities Act) or any
money market fund sponsored by a registered broker dealer or mutual fund
distributor, provided that a foreign Subsidiary of the Company may also make
deposits with any central bank of the jurisdiction in which such Subsidiary is
organized, (iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above or (v) below
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a Person (other than an Affiliate of
the Issuer) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-2" (or
higher) according to Moody's or "A-2" (or higher) according to S&P, (v)
investments in securities with maturities of twelve months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or Moody's and (vi)
interests in any investment company which invests solely in instruments of the
type described in clauses (i) through (v).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company other
than the Issuer that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors of the Company in the manner
provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors of the Company may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments." The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
of the Company shall be evidenced by the Company to the Trustee by promptly
filing with the Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
(other than the Notes and Indebtedness existing on the Issue Date); provided,
however, that the Company or a Restricted Subsidiary (in the case of such
Restricted Subsidiary other than the Issuer to the extent permitted under the
"Limitation on the Sale or Issuance of Capital Stock or Indebtedness of
Restricted Subsidiaries" covenant below) may Incur such Indebtedness if,
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on the date of such Incurrence and after giving effect thereto, the Consolidated
Coverage Ratio equals or exceeds (x) for the period from the Issue Date and
ending on the third anniversary thereof, 2.0:1.0, and (y) thereafter, 2.25:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and any
Restricted Subsidiary (in the case of such Restricted Subsidiary other than the
Issuer to the extent permitted under the "Limitation on the Sale or Issuance of
Capital Stock or Indebtedness of Restricted Subsidiaries" covenant below) may
Incur the following Indebtedness:
(1) (x) Indebtedness Incurred pursuant to the Bank Credit Agreement,
so long as the aggregate principal amount of all Indebtedness outstanding
under the Bank Credit Agreement does not, at any time, exceed the aggregate
amount of borrowing availability from time to time allowed under the Bank
Credit Agreement that determine availability on the basis of a borrowing
base or other asset-based calculation, if available and (y) other
Indebtedness up to $150 million in aggregate principal amount outstanding
at any time; provided, however, that in no event shall the aggregate
principal amount of such indebtedness exceed $450 million as of the date of
such Incurrence minus the aggregate amount of Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant described
below;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Restricted Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Company or
another Wholly Owned Restricted Subsidiary) shall be deemed, in each case,
to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Notes;
(4) Indebtedness Incurred pursuant to the Comerica Agreement, so long
as the aggregate principal amount of all Indebtedness outstanding
thereunder does not exceed $15 million at any time;
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (5) above or clause
(9) below, or this clause (6);
(7) Indebtedness consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company and its
Restricted Subsidiaries pursuant to the Indenture;
(8) Indebtedness under Currency Agreements entered into in the
ordinary course of business for the purpose of limiting risks that arise in
the ordinary course of business of the Company and its Restricted
Subsidiaries;
(9) Indebtedness Incurred to finance capital expenditures in an
aggregate principal amount not to exceed $20 million in any fiscal year;
and
(10) Indebtedness in an aggregate principal amount which, together
with the principal amount of all other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the date of such Incurrence (other
than Indebtedness permitted by clauses (1) through (9) above or paragraph
(a)), does not exceed $40 million.
(c) Notwithstanding the foregoing, the Company and the Issuer shall not
Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds
thereof are used, directly or indirectly, to Refinance any Subordinated
Obligations unless such Indebtedness shall be subordinated to the Notes or the
Guaranty, as the case may be, at least to the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company,
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in its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above.
Limitation on Senior Subordinated Indebtedness. The Issuer or the Company,
as the case may be, will not Incur any Indebtedness that is expressly made
subordinate in right of payment to any Senior Indebtedness of the Issuer or the
Company, as the case may be, unless such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the Notes, with respect to the Issuer, or the Guaranty with respect
to the Company; provided that the foregoing limitation shall not apply to
distinctions between categories of Senior Indebtedness of the Issuer or the
Company that exist by reason of any Liens or Guarantees arising or created in
respect of some but not all of such Senior Indebtedness.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Adjusted Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which the
Notes are originally issued to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Adjusted Consolidated Net Income shall be a deficit,
minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Company from
the issue or sale subsequent to the Issue Date of its Capital Stock
(other than Disqualified Stock) to an employee stock ownership plan;
provided, however, that if such employee stock ownership plan incurs any
Indebtedness with respect thereto, such aggregate amount shall be
limited to an amount equal to any increase in the Consolidated Net Worth
of the Company resulting from principal repayments made by such employee
stock ownership plan with respect to such Indebtedness;
(D) the amount by which Indebtedness of the Company or any
Restricted Subsidiary is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or any
Restricted Subsidiary convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange);
and
(E) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to the Company or any Restricted Subsidiary from or with respect to
Unrestricted Subsidiaries, and (ii) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value
of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of
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Investments previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company or a Restricted Subsidiary made by exchange for,
or out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company); provided, however,
that (A) such purchase or redemption shall be excluded in the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above (but only to the extent that such Net Cash
Proceeds were used to purchase or redeem such Capital Stock as provided in
this clause (i));
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Refinancing Indebtedness which is permitted to be Incurred pursuant to
clause (b)(6) of the covenant described under "-- Limitation on
Indebtedness;" provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or result
therefrom); and provided further, however, that such dividends shall be
included in the calculation of the amount of Restricted Payments;
(iv) dividends paid from the Net Cash Proceeds received by the Company
from the issue or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issue or sale to a Subsidiary
of the Company and other than an issue or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) in an aggregate amount not
to exceed 6% of such Net Cash Proceeds in any calendar year; provided,
however, that such dividends shall be included in the calculation of the
amount of Restricted Payments;
(v) the repurchase of shares of, or options to purchase shares of,
common stock or stock equivalents of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock or stock equivalents; provided, however, that
the aggregate amount of such repurchases shall not exceed $1 million in any
calendar year and $5 million in the aggregate; provided further, however,
that such repurchases shall be excluded in the calculation of the amount of
Restricted Payments; or
(vi) other Restricted Payments in an aggregate amount not to exceed
$10 million; provided, however, that such Restricted Payments shall be
excluded in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
other than the Issuer. The Company shall not, and shall not permit any
Restricted Subsidiary other than the Issuer to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary other than the Issuer (a) to pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Issuer or another Restricted Subsidiary, (b) to make
any loans or advances to the Issuer or another Restricted Subsidiary or (c) to
transfer any of its property or assets to the Issuer or another Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a
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Restricted Subsidiary other than the Issuer pursuant to an agreement relating to
any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date
on which such Restricted Subsidiary was acquired by the Issuer (other than
Indebtedness Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Issuer) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant or this clause (iii) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this covenant or
this clause (iii); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the Noteholders than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary nonassignment provisions related to intellectual
property and in leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease or the property leased thereunder;
(v) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary other
than the Issuer to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; (vi) any restriction
with respect to a Restricted Subsidiary other than the Issuer imposed pursuant
to an agreement entered into for the sale or disposition of all or substantially
all the Capital Stock or assets of such Restricted Subsidiary pending the
closing of such sale or disposition; and (vii) any encumbrance or restriction
pursuant to an agreement relating to Indebtedness permitted by clause (iii) of
paragraph (b) under the "Limitation on this Sale or Issuance of Capital Stock
and Indebtedness of Restricted Subsidiaries" covenant below.
Limitation on the Sale or Issuance of Capital Stock and Indebtedness of
Restricted Subsidiaries. (a) The Company will not sell, and will not permit any
Restricted Subsidiary other than the Issuer, directly or indirectly, to issue or
sell, any shares of Capital Stock of such Restricted Subsidiary (including
options, warrants or other rights to purchase shares of such Capital Stock),
except (i) to the Company, the Issuer or a Wholly Owned Restricted Subsidiary
other than the Issuer; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; and (iii) as Asset Sales
and Asset Dispositions permitted under the "Limitation on Asset Sales" covenant
described below.
(b) The Company will not permit any Restricted Subsidiary other than the
Issuer, directly or indirectly, to Incur any Indebtedness except (i)
Indebtedness of such Restricted Subsidiary existing on the Issue Date or the
time such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred in connection with or anticipation of such acquisition);
(ii) Indebtedness permitted pursuant to clause (1), (2), (4), (5), (6) (to the
extent that such Refinancing Indebtedness Refinances any Indebtedness of such
Restricted Subsidiary), (7), (8) or (9) of paragraph (b) of the "Limitation on
Indebtedness" covenant; and (iii) other Indebtedness in an aggregate principal
amount which, together with all other Indebtedness of all Restricted
Subsidiaries other than the Issuer outstanding on the date of such Incurrence
(other than Indebtedness permitted by clause (i) or (ii) of this paragraph (b)),
does not exceed $50 million or an amount equal to 1.5 times the aggregate amount
of Consolidated EBITDA for the then most recent four fiscal quarters prior to
the date of such Incurrence for which reports have been filed with the SEC
pursuant to the "SEC Reports and Reports to Holders" covenant (whichever is
greater).
(c) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by the Company or such Restricted Subsidiary is at least
equal to the Fair Market Value of the assets sold or disposed of, and (ii) at
least 75% of the consideration received consists of cash or Temporary Cash
Investments; provided, that the amount of any
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liabilities of the Company or any Subsidiary that are assumed by the transferee
in such Asset Sale shall be deemed to be cash or cash equivalents, as the case
may be, for purposes of this provision, provided further that this clause (ii)
shall not apply to any sale or other disposition of assets as a result of a
foreclosure (or a secured party taking ownership of such assets in lieu thereof)
or any involuntary proceeding in which the Company and its Restricted
Subsidiaries cannot, directly or indirectly, determine the type of proceeds
received from such sale or other disposition. In the event and to the extent
that the Net Cash Proceeds received by the Company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Issue Date
in any period of 12 consecutive months exceed $20 million, then the Company
shall or shall cause the relevant Restricted Subsidiary to (i)(A) within twelve
months after the date Net Cash Proceeds so received exceed $20 million, apply an
amount equal to such excess Net Cash Proceeds to permanently repay Senior
Indebtedness of the Company or Indebtedness of any Restricted Subsidiary (and to
the extent that such Senior Indebtedness or Indebtedness, as the case may be,
was Incurred under a revolving credit or similar arrangement, the permanent
reduction or cancellation of the commitment thereunder), in each case owing to a
Person other than the Company or any of its Restricted Subsidiaries or (B)(x)
within twelve months after the date Net Cash Proceeds so received exceed $20
million, invest an equal amount, or the amount not so applied pursuant to clause
(A) or (y) within eighteen months after the date Net Cash Proceeds so received
exceed $20 million, enter into a definitive agreement committing to so invest
not later than 24 months after the date Net Cash Proceeds so received exceed $20
million, in property or assets (other than current assets) of a nature or type
or that are used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment and (iii) apply
(no later than the end of the 12-month period referred to in clause (i) or the
24-month period referred to in clause (ii)(B)(y)) such excess Net Cash Proceeds
(to the extent not applied or committed to be applied pursuant to clause (i)) as
provided in the following paragraph of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period or 24-month period,
as the case may be, of the preceding sentence and not applied (or committed to
be applied) as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $20 million, the Issuer
must commence, not later than the fifteenth Business Day of such month, and
consummate a similar offer to purchase from the Holders and the holders of any
Senior Indebtedness or any other Indebtedness ranking pari passu with, the Notes
which by its terms requires the Issuer to make an Offer to Purchase, on a pro
rata basis, an aggregate principal amount of Notes, Senior Indebtedness or such
other Indebtedness (if any) equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Notes, Senior
Indebtedness or such other Indebtedness (if any), plus, in each case, accrued
interest (if any) to the date of purchase.
There can be no assurance that the Issuer will have sufficient funds
available at the time of debt payment (including repurchases of Notes) required
by the foregoing covenant (as well as any contained in the Bank Credit Agreement
or other securities of the Issuer which might be outstanding at the time). The
above covenant requiring the Issuer to repurchase the Notes will, unless
appropriate consents are obtained, require the Issuer to repay all indebtedness
then outstanding which by its terms would prohibit such Note repurchase, either
prior to or concurrently with such Note repurchase.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could reasonably be expected to be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) if such Affiliate Transaction involves an amount in excess of $10 million,
is set forth in writing and has been approved by a majority of the members of
the Board of Directors of the Company or the Issuer, as the case may be, having
no personal stake in such Affiliate Transaction or (3) if such Affiliate
Transaction involves an amount in
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excess of $20 million, has been determined by a nationally recognized investment
banking firm or other qualified independent appraiser to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
transactions between or among the Company and/or its Restricted Subsidiaries;
(ii) Restricted Payments, Permitted Investments and other transactions and
payments that are permitted by the provisions of the Indenture described above
under the caption "-- Limitation on Restricted Payments"; (iii) loans,
transactions and arrangements or advances to officers, directors, employees and
agents in the ordinary course of business in an aggregate principal amount not
to exceed, in the case of loans or advances, $3 million outstanding at any one
time, provided that with respect to any transaction or arrangement which is
reasonably be expected to involve more than $1 million, such transaction or
arrangement shall be approved by a majority of the members of the Board of
Directors of the Company having no personal stake in such transaction or
arrangement; (iv) compensation, indemnification and other benefits paid or made
available (x) pursuant to employment and consultant agreements, (y) for and in
connection with services actually rendered and generally comparable to those
paid or made by entities engaged in the same or similar business (including,
reimbursement for advancement of out-of-pocket expenses and directors' and
officers' liability insurance, or (z) indemnification under the Company's and
any Subsidiary's charter, by-laws or other organizational documents; (v)
transactions, expenses and payments pursuant to the Registration Rights
Agreement; (vi) transactions between and among the Company and its Subsidiaries
or between or among Subsidiaries of the Company, provided that any ownership
interest in any such Subsidiary which is not beneficially owned directly or
indirectly by the Company or any of its Subsidiaries is not beneficially owned
by an Affiliate of the Company other than by virtue of the direct or indirect
ownership interest in such Subsidiary held (in the aggregate) by the Company
and/or one or more of its Subsidiaries; (vii) transactions between or among the
Company and its Affiliates not involving in excess of $1 million during any
fiscal year; and (viii) any acquisition by the Company of Capital Stock (other
than Disqualified Stock) of the Company or any Subsidiary thereof and any
capital contribution by the Company to any Restricted Subsidiary.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien (other than Permitted Liens) of any nature whatsoever on any of its
properties (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, to secure any Indebtedness of the
Company or the Issuer, without effectively providing that the Notes or the
Guaranty, as the case may be, shall be secured equally and ratably with (or
prior to) the obligations so secured for so long as such obligations are so
secured.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "-- Limitation on Indebtedness" and (B)
create a Lien on such property securing such Attributable Debt without equally
and ratably securing the Notes pursuant to the covenant described under "--
Limitation on Liens," (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the Fair Market Value of such property and (iii) the Company or
the Issuer, as the case may be, applies the proceeds of such transaction in
compliance with the covenant described under "-- Limitation on Asset Sales."
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Issuer must commence, within 30 days of the occurrence of a Change of
Control, and within 60 days thereof consummate, an Offer to Purchase for all
Notes then outstanding, at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest (if any) to the date of
purchase.
There can be no assurance that the Issuer will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any contained in the Bank Credit Agreement or other securities of the Issuer
which might be
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outstanding at the time). The above covenant requiring the Issuer to repurchase
the Notes will, unless appropriate consents are obtained, require the Issuer to
repay all indebtedness then outstanding which by its terms would prohibit such
Note repurchase, either prior to or concurrently with such Note repurchase.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is required to file reports with the SEC, for so
long as any Notes are outstanding, the Company shall file with the SEC all such
reports and other information as it would be required to file with the SEC by
Sections 13(a) or 15(d) under the Exchange Act, if it were subject thereto. See
"Additional Information." The Company shall supply the Trustee and, subject to
certain limitations, each Holder or shall supply to the Trustee for forwarding
to each such Holder, without cost to such Holder, copies of such reports and
other information.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company or the Issuer to comply with their respective
obligations under "Consolidation, Merger and Sale of Assets" below, (iv) the
failure by the Company or the Issuer to comply for 30 days after notice with any
of their respective obligations in the covenants described above under "--
Certain Covenants," "-- Limitation on Indebtedness," "-- Limitation on
Restricted Payments," "-- Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "-- Limitation on Asset Sales" (other than a failure
to purchase Notes), "-- Limitation on Affiliate Transactions," "-- Limitation on
the Sale or Issuance of Capital Stock and Indebtedness of Restricted
Subsidiaries," "-- Change of Control" (other than a failure to purchase Notes),
"-- Limitation on Liens," "-- Limitation on Sale/Leaseback Transactions" or "--
SEC Reports," (v) the failure by the Company or the Issuer to comply for 60 days
after notice with their respective other agreements contained in the Indenture,
(vi) Indebtedness of the Company or the Issuer is not paid within any applicable
grace period after final maturity or the maturity of such Indebtedness is
accelerated by the holders thereof because of a default (and such acceleration
is not rescinded or annulled) and the total amount of such Indebtedness unpaid
or accelerated exceeds $10 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Company, the
Issuer or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any
judgment or decree for the payment of money in excess of $10 million is rendered
against the Company, the Issuer or a Significant Subsidiary, remains outstanding
for a period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after notice (the "judgment default provision") or (ix)
the Guaranty of the Company ceases to be in full force and effect (other than in
accordance with the terms of such Guaranty) or the Company denies or disaffirms
its obligations under its Guaranty if such default continues for a period of ten
days after notice thereof to the Issuer. However, a default under clauses (iii),
(iv), (v), (vi), (viii) and (ix) will not constitute an Event of Default until
the Trustee or the holders of 25% in principal amount of the outstanding Notes
notify the Issuer of the default and the Issuer does not cure such default
within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately; provided such acceleration shall not be effective until
after five (5) Business Days after the Representatives of Designated Senior
Indebtedness shall have been notified of such acceleration. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Issuer occurs and is continuing, the principal of and interest on all the
Notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the Notes.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers
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under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Issuer and the Company are required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Issuer and the Company also are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action the
Issuer or the Company is taking or proposes to take in respect thereof.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Issuer and the Company will not consolidate with, merge with or into,
or sell, convey, transfer, lease or otherwise dispose of all or substantially
all of their respective property and assets (as an entirety or substantially as
an entirety in one transaction or a series of related transactions) to, any
Person or permit any Person to merge with or into the Issuer or the Company, as
the case may be, unless: (i) the Company or the Issuer, as the case may be,
shall be the continuing Person, or the Person (if other than the Issuer or the
Company) formed by such consolidation or into which the Company or the Issuer is
merged or that acquired or leased such property and assets of the Company or the
Issuer shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Issuer on all of the Notes or all of the obligations
of the Company on the Guaranty, as the case may be, and under the Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis the Company or the Issuer or any
Person becoming the successor obligor of the Notes or the Guaranty shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company or the Issuer immediately prior to such transaction; (iv)
immediately after giving effect to such transaction on a pro forma basis the
Company, the Issuer, or any Person becoming the successor obligor of the Notes,
as the case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; and (v) the Company or
the Issuer, as the case may be, delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with the
clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; provided, however, that (x) clauses
(iii) and (iv) above do not apply if, in the good faith determination of the
Board of Directors of the Company or the Issuer, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction is to
change the state of incorporation of the Company or the Issuer; and provided
further, however, that any such
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transaction shall not have as one of its purposes the evasion of the foregoing
limitations; and (y) clauses (iii) and (iv) above do not apply to any
transaction between the Issuer and any Wholly Owned Restricted Subsidiary or
between the Company and the Issuer.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) \reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company, the Issuer and
the Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company or the Issuer under the Indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes (provided
that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated Notes
are described in Section 163(f)(2)(B) of the Code), to add guarantees with
respect to the Notes, to secure the Notes, to add to the covenants of the
Company or the Issuer for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company or the Issuer, to make
any change that does not adversely affect the rights of any holder of the Notes
or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Issuer may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuer at any time may terminate its obligations under the covenants
described under "-- Certain Covenants," the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment
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default provision described under "-- Defaults" above and the limitations
contained in clauses (iii) and (iv) under Consolidation above ("covenant
defeasance").
If the Issuer exercises its legal defeasance option or its covenant
defeasance option, the Company will be released from all of its obligations
under the Guaranty to the extent the Issuer's obligations under the Notes and
the Indenture have been terminated.
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Issuer to comply with clause (iii) or (iv) under "Consolidation,
Merger and Sale of Assets" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
Harris Trust and Savings Bank is to be the Trustee under the Indenture and
has been appointed by the Issuer as Registrar and Paying Agent with regard to
the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it (including the Guaranty) and the Notes will
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal
income and estate tax considerations relevant to the purchase, ownership and
disposition of the Notes by the beneficial owners thereof ("Holders"). The
discussion is limited to initial purchasers of the Notes and does not address
the tax consequences to subsequent purchasers of Notes. This summary does not
purport to be a complete analysis of all the potential federal income tax
effects relating to the purchase, ownership and disposition of the Notes. There
can be no assurance that the Internal Revenue Service (the "Service") will take
a similar view of such consequences. Further, the discussion does not address
all aspects of taxation that might be relevant to particular purchasers in light
of their individual circumstances (including the effect of any state, local,
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non-United States or other tax laws) or to certain types of purchasers
(including dealers in securities, insurance companies, financial institutions
and tax-exempt entities) subject to special treatment under United States
federal income tax laws. The discussion below assumes that the Notes are held as
capital assets.
The discussion of the United States federal income tax consequences set
forth below is based upon provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, and administrative interpretations,
all in effect as of the date hereof, all of which are subject to change at
anytime, and any such change may be applied retroactively. Because individual
circumstances may differ, each prospective purchaser of the Notes is strongly
urged to consult its own tax advisor with respect to its particular tax
situation and the particular tax effects of any state, local, non-United States,
or other tax laws and possible changes in the tax laws.
As used herein, the term "United States Holder" means a Holder of a Note
who or which is for United States federal income tax purposes either (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in the United States or organized under the
laws of the United States or of any State thereof, (iii) an estate the income of
which is subject to United States federal income taxation regardless of its
source, or (iv) a trust described in Section 7701(a)(30) of the Code (taking
into account changes thereto and associated with effective dates, elections and
transition rules). The term "United States Holder" also includes certain former
citizens and residents of the United States whose income and gain on the Notes
will be subject to United States taxation. As used herein, the term "Foreign
Holder" means a Holder of a Note who or which is not a United States Holder.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
Payments of Interest
Interest paid on a Note will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in accordance
with the United States Holder's method of accounting for United States federal
income tax purposes.
Sale, Exchange or Retirement of Notes
Upon the sale, exchange, redemption or retirement of a Note, a United
States Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange, redemption or retirement (not
including any amount attributable to accrued but unpaid interest) and such
Holder's adjusted tax basis in the Note. To the extent attributable to accrued
but unpaid interest, the amount realized by the United States Holder will be
treated as a payment of interest. See "Payments of Interest" above. A United
States Holder's adjusted tax basis in a Note will equal the cost of the Note to
such Holder, reduced by any principal payments received by such Holder.
Gain or loss realized on the sale, exchange, redemption or retirement of a
Note by a United States Holder generally will be capital gain or loss. The
recently enacted Taxpayer Relief Act of 1997 made certain changes to the Code
with respect to the taxation of capital gains of taxpayers other than
corporations. Under the Taxpayer Relief Act of 1997, capital gain realized by a
non-corporate taxpayer on the disposition of a capital asset held for more than
one year but not more than 18 months is taxed at a maximum rate of 28% and
capital gain realized on the disposition of a capital asset held for more than
18 months generally is taxed at a maximum rate of 20%. Capital gain on the
disposition of assets by non-corporate taxpayers held for not more than one year
continues to be taxed at the rates applicable to ordinary income (i.e., up to
39.6%). The distinction between capital gain or loss and ordinary income or loss
is also relevant for purposes of, among other things, limitations on the
deductibility of capital losses.
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TAX CONSEQUENCES TO FOREIGN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal and interest on the Notes by the Issuer or
any paying agent to a Foreign Holder, as defined above, will not be subject
to withholding of United States federal income tax, provided that, in the
case of interest, (i) such Foreign Holder does not own, actually or
constructively, 10 percent or more of the total combined voting power of
all classes of stock of the Issuer entitled to vote, (ii) such Foreign
Holder is not, for United States federal income tax purposes, a controlled
foreign corporation related, directly or indirectly, to the Issuer through
stock ownership, (iii) such Foreign Holder is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code and (iv) the certification
requirements under Section 871(h) or Section 881(c) of the Code and
Treasury regulations thereunder (summarized below) are met;
(b) a Foreign Holder will not be subject to United States federal
income tax on gain realized on the sale, exchange or other disposition of a
Note, unless (i) such holder is an individual who is present in the United
States for 183 days or more in the taxable year of sale, exchange or other
disposition, and certain conditions are met or (ii) such gain is
effectively connected with the conduct by such Holder of a trade or
business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of
the United States (as defined for United States federal estate tax
purposes) at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that,
at the time of such individual's death, the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of the Issuer entitled to vote and payments
with respect to such Note, if received at the time of the individual's
death, would not have been effectively connected to the conduct by such
individual of a trade or business in the United States.
Certification Requirements
Sections 871(h) and 881(c) of the Code and Treasury Regulations relating
thereto require that, in order to obtain the exemption from withholding tax
described in paragraph (a) above, either (i) the beneficial owner of a Note must
certify, under penalties of perjury, to the Issuer or paying agent, as the case
may be, that such owner is a Foreign Holder and must provide such owner's name
and address, and United States taxpayer identification number, if any, or (ii) a
securities clearing organization, bank or other financial institution that holds
customers securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the Note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to the Issuer or paying agent,
as the case may be, that such certificate has been received from the beneficial
owner by it or by a Financial Institution between it and the beneficial owner
and must furnish the payor with a copy thereof. A certificate described in this
paragraph is effective only with respect to payments of interest made to the
certifying Foreign Holder after delivery of the certificate in the calendar year
of its delivery and the two immediately succeeding calendar years. Such
requirement will be fulfilled if the beneficial owner of a Note certifies on
Internal Revenue Service Form W-8, under penalties of perjury, that it is a
Foreign Holder and provides its name and address, and any Financial Institution
holding the Note on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such a statement from the
beneficial owner (and furnishes the withholding agent with a copy thereof).
The United States Treasury Department recently adopted new Treasury
Regulations (the "New Regulations") with respect to withholding and backup
withholding generally effective, subject to certain transition rules described
below, for payments after December 31, 1998, regardless of the issue date of the
instrument with respect to which such payments are made.
The New Regulations provide documentation procedures designed to simplify
compliance by withholding agents. The New Regulations generally do not affect
the documentation rules described above, but add other certification options.
Under one such option, a withholding agent will be allowed to rely on an
intermediary withholding certificate furnished by a "qualified intermediary" (as
defined below) on behalf of one or more
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beneficial owners (or other intermediaries) without the withholding agent having
to obtain the beneficial owner certificate described above. "Qualified
intermediaries" include: (i) foreign financial institutions or foreign clearing
organizations (other than a United States branch or United States office of such
institution or organization) or (ii) foreign branches or offices of United
States financial institutions or foreign branches of offices of United States
clearing organizations, which, as to both (i) and (ii), have entered into
withholding agreements with the Service. In addition to certain other
requirements, qualified intermediaries must obtain withholding certificates,
such as revised Internal Revenue Service Form W-8 (see below), from each
beneficial owner. Under another option, an authorized foreign agent of a United
States withholding agent will be permitted to act on behalf of the United States
withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the New Regulations
generally treat as the beneficial owners of payments on a Note those persons
that, under United States tax principles, are the taxpayers with respect to such
payments, rather than persons such as nominees or agents legally entitled to
such payments. In the case of payments to an entity classified as a foreign
partnership under United States tax principles, the partners, rather than the
partnership, generally will be required to provide the required certifications
to qualify for the withholding exemption described above. A payment to a United
States partnership, however, is treated for these purposes as payment to a
United States payee, even if the partnership has one or more foreign partners.
The New Regulations provide certain presumptions with respect to withholding for
beneficial owners not furnishing the required certifications to qualify for the
withholding exemption described above. In addition, the New Regulations will
replace a number of current tax certification forms (including Internal Revenue
Service Form W-8, Form 1001 (treaty exemptions) and possibly Form 4224 (United
States effectively connected income)) with a single, revised Internal Revenue
Service Form W-8 (which, in certain circumstances, will require information in
addition to that previously required). Under the New Regulations, this Internal
Revenue Service Form W-8 will remain valid until the last day of the third
calendar year following the year in which the certificate is signed.
Under the New Regulations, withholding of United States federal income tax
may apply to payments on a taxable sale or other disposition of a Note by a
Foreign Holder who does not provide appropriate certification to the withholding
agent with respect to such transaction.
The New Regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1998 will generally remain valid
until the earlier of December 31, 1999 or the date of expiration of the
certificate under the law in effect prior to January 1, 1999. Further,
certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
United States Trade or Business
If a Foreign Holder is engaged in a trade or business in the United States,
and if interest on the Note, or gain realized on the sale, exchange or other
disposition of the Note, is effectively connected with the conduct of such trade
or business, the Foreign Holder, although exempt from United States withholding
tax, will generally be subject to United States income tax on such interest or
gain in the same manner as if it were a United States Holder. See "Tax
Consequences to United States Holders" above. In lieu of the certificates
described above, such a Foreign Holder will be required to provide the Issuer a
properly executed Internal Revenue Service Form 4224 (Statement Claiming
Exemption of Tax on Income Effectively Connected with the Conduct of Business in
the United States) in order to claim an exemption from withholding tax. The New
Regulations, though, might require a revised Form W-8 in place of the Form 4224.
If such Foreign Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments. For purposes of the branch profits tax, interest on and
any gain recognized on the sale, exchange or other disposition of a Note will be
included in the earnings and profits of such Foreign Holder if such interest or
gain is effectively connected with the conduct by the Foreign Holder of a trade
or business in the United States.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% backup
withholding tax requirement applies to certain payments of interest on, and the
proceeds of a sale, exchange or redemption of, the Notes. In addition, certain
persons making such payments are required to submit information returns (i.e.,
Internal Revenue Service Forms 1099) to the Service with regard to those
payments.
Backup withholding and information reporting will generally not apply with
respect to payments made to certain "exempt recipients" such as corporations or
certain tax-exempt entities. In the case of a non-corporate United States
Holder, backup withholding generally will apply only if such Holder (i) fails to
furnish to the payor in the manner required its Taxpayer Identification Number
("TIN") which, for an individual, would be his Social Security number, (ii)
furnishes an incorrect TIN and the payor is so notified by the Service, (iii) is
notified by the Service that it has failed to properly report payments of
interest and dividends and the payor is so notified by the Service or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that it has
furnished a correct TIN and has not been notified by the Service that it is
subject to backup withholding for failure to report interest and dividend
payments.
In the case of a Foreign Holder, under current United States federal income
tax law, information reporting on Internal Revenue Service Form 1099 (including
Internal Revenue Service Form 1099B) and backup withholding will not apply to
payments of principal or interest made by the Issuer or any paying agent thereof
on a Note if such holder has provided the required certification on Internal
Revenue Service Form W-8 (as described above under "Tax Consequences to Foreign
Holders") under penalties of perjury that it is not a United States Holder or
has otherwise established an exemption, provided in each case that the Issuer or
such paying agent, as the case may be, does not have actual knowledge that the
payee is a United States Holder. However, interest on a Note beneficially owned
by a Foreign Holder will be required to be reported annually on Internal Revenue
Service Form 1042S.
Under current United States federal income tax laws, if payments of
principal or interest on a Note are made to or through a foreign office of a
custodian, nominee, broker or other agent acting on behalf of a beneficial owner
of a Note, such custodian, nominee, broker or other agent will not be required
to apply backup withholding to such payments made to such beneficial owner.
However, if such custodian, nominee, broker or other agent is a United States
person for United States federal income tax purposes, a controlled foreign
corporation for United States federal income tax purposes, or a foreign person
50% or more of whose gross income is effectively connected with the conduct of a
United States trade or business for a specified three-year period, such
custodian, nominee, broker or other agent may be subject to certain information
reporting requirements with respect to such payments unless it has in its
records documentary evidence that the beneficial owner is a Foreign Holder and
certain conditions are met or the beneficial owner otherwise establishes an
exemption.
Under current United States federal income tax law, payments on the sale,
exchange, retirement or other disposition of a Note made to or through a foreign
office of a broker generally will not be subject to backup withholding. Such
payments, however, will be subject to information reporting if the broker is a
United States person for United States federal income tax purposes, a controlled
foreign corporation for United States federal income tax purposes, or a foreign
person 50% or more of whose gross income is effectively connected with the
conduct of a United States trade or business for a specified three year period,
unless the broker has in its records documentary evidence that the beneficial
owner is not a United States person and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption.
Under the New Regulations, in the case of a Foreign Holder, backup
withholding and information reporting will not apply to payments of principal
and interest with respect to a Note if such Holder provides the required
certification to establish an exemption from the withholding of United States
federal income tax or otherwise establishes an exemption.
Under the New Regulations, payments of principal and interest with respect
to a Note made to a custodian, nominee or broker will not be subject to backup
withholding or information reporting, irrespective of the place of payment or
the location of the office of the custodian, nominee or broker, although
payments of
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interest with respect to a Note paid to a foreign intermediary (whether or not a
qualified intermediary) will be subject to withholding of United States federal
income tax at the rate of 30% unless the beneficial owner (whether or not a
United States person) establishes an exemption by furnishing a withholding
certificate or other appropriate documentation. Unless the beneficial owner
establishes an exemption, a payment by a custodian, nominee or broker may be
subject to information reporting and to backup withholding as well, although no
backup withholding will apply if (i) the payment has been subject to withholding
of United States federal income tax at the rate of 30% or (ii) the payment is
made outside the United States to an offshore account in a financial institution
that maintains certain procedures related to account documentation.
Under the New Regulations, payment on the sale, exchange, redemption or
retirement of a Note to or through a broker may be subject to information
reporting and backup withholding unless (i) the transaction is effected outside
the United States and the broker is not a United States person, a controlled
foreign corporation for United States federal income tax purposes, a United
States branch of a foreign bank or foreign insurance company, a foreign
partnership controlled by United States persons or engaged in a United States
trade or business or a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business for
a specified three-year period or (ii) the beneficial owner otherwise establishes
an exemption. If the broker in the transaction described in clause (i) above is
not described therein, the payments on the sale, exchange, redemption or
retirement of the Note will be subject to information reporting if the broker
does not receive an appropriate certification or documentary evidence
establishing an exception, but will not be subject to backup withholding in the
absence of such certification or documentary evidence unless the broker has
actual knowledge that the owner is a United States person.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
Holders should consult their tax advisors regarding the application of
backup withholding in their particular situations, the availability of an
exemption therefrom, and the procedure for obtaining such an exemption, if
available.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-UNITED STATES INCOME TAX
LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
DESCRIPTION OF CREDIT FACILITY
The following summary description of the Credit Facility does not purport
to be complete and is subject in all respects to the provisions thereof, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and is incorporated herein by reference.
In connection with the closing of the Kysor Acquisition in March 1997, the
Company, Scotsman Group, certain other subsidiaries of the Company, certain
financial institutions ("Lenders") and The First National Bank of Chicago, as
agent for the Lenders ("First Chicago"), entered into a loan agreement providing
for a credit facility in the aggregate principal amount of $415 million and, in
contemplation of this Offering, the Company has entered into negotiations with
First Chicago and the Lenders to amend such loan agreement to, among other
things, permit the consummation of the Debt Offering and change certain
covenants (the "Credit Facility Amendment" and, together with such loan
agreement, as amended to date, the "Credit Facility"). The following description
of the Credit Facility assumes the effectiveness of the Credit Facility
Amendment and the application of the net proceeds of this Offering to repay $30
million of term loan borrowings outstanding under the Credit Facility. The
Credit Facility consists of a $120 million term loan facility (the "Term
Facility") and a $265 million revolving loan facility (the "Revolving
Facility").
80
<PAGE> 83
The Revolving Facility will mature on March 12, 2004 (unless otherwise
earlier terminated or extended in accordance with the terms of the Credit
Facility). The aggregate principal amount which may be borrowed thereunder will
be reduced on December 31, 1998 by $10 million and by $15 million on each
December 31 thereafter until maturity, at which time the remaining commitment
amount under the Revolving Facility will be reduced to zero. The Term Facility
will mature on December 31, 2002 and be amortized with semi-annual principal
payments (in varying amounts) starting on December 31, 1997 and continuing
thereafter until maturity.
Borrowings under the Credit Facility bear interest at a floating rate based
upon, at the borrower's option, (i) the higher of First Chicago's corporate base
rate or the Federal funds rate plus 1/2% per annum, or (ii) the rate offered by
First Chicago for deposits in the relevant Eurocurrency, plus, in each case, an
applicable margin. As of June 29, 1997, borrowings under the Term Facility and
the Revolving Facility accrued interest at rates ranging from 7.0625% to 7.9375%
per annum (equal to 1.375% above Eurocurrency rates, but the applicable margin
will vary depending upon the "Debt/Earnings Ratio" (as defined below)).
The Credit Facility is guaranteed by Scotsman and certain of its
subsidiaries and secured by a pledge of stock of certain subsidiaries of
Scotsman.
The Credit Facility contains conditions precedent, representations and
warranties, covenants, events of default and other provisions customary for such
financings. Financial covenants in the Credit Facility require Scotsman to
maintain: (a) net worth on a consolidated basis of not less than the sum of $120
million plus 60% of Scotsman's consolidated net income for all quarters ending
after December 31, 1996 plus 60% of the proceeds of any equity issuances by
Scotsman less certain other adjustment amounts identified therein; (b) a ratio
(the "Debt/Earnings Ratio") of total indebtedness to EBITDA (net income, plus
income tax expense, minus equity in net income of affiliates (net of cash
dividends received), plus interest expense, plus depreciation expense, plus
amortization expense, plus other non-cash charges, minus interest income) of not
more than certain specified amounts measured on a rolling four-quarter basis for
each quarter end (such ratio for the period ending December 28, 1997 not to
exceed 5.0 to 1.00); (c) a ratio of EBITDAR (EBITDA plus rents) minus capital
expenditures to "Fixed Charges" (interest expense, plus scheduled principal
repayments (including mandatory Revolving Facility reductions), plus income tax
expense, plus rents, plus dividends paid) of not less than 1.0 to 1 for all
fiscal quarters ending in 1997 and 1.05 to 1 thereafter; and (d) a ratio of
total senior indebtedness to EBITDA of not more than certain specified amounts
measured on a rolling four quarter basis for each quarter end (such ratio for
the period ending December 28, 1997 not to exceed 4.25 to 1.00). The covenant
described in (a) above could restrict the Company's ability to make future
distributions to its stockholders if such distributions would cause the Company
to violate the net worth maintenance requirement. At June 29, 1997, consolidated
stockholders' equity of the Company was $137.5 million. The Company is also
precluded from paying dividends to its stockholders (other than dividends
payable in its own capital stock) if a default or an unmatured default under the
agreement has occurred and is continuing or would occur after giving effect to
the payment of such dividends.
The Credit Facility requires that a notional amount of $150 million be
hedged to reduce interest rate exposure until March 12, 2000. Subsequent to the
Kysor Acquisition, the Company entered into interest rate swap agreements to
hedge its interest rate exposure on the $150 million until March 27, 2000. One
of the interest rate swap agreements is extendable for an additional two years
at First Chicago's option at the end of three years.
81
<PAGE> 84
UNDERWRITERS
Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters") have severally agreed to purchase, and the Company
has agreed to sell to them, severally, the respective principal amounts of Notes
set forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated........................... $
First Chicago Capital Markets, Inc..........................
------------
Total............................................. $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Notes is subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all the Notes if
any are taken.
The Underwriters initially propose to offer the Notes directly to the
public at the public offering price set forth on the cover page hereof and to
certain dealers at a price that represents a concession not in excess of %
of the principal amount of the Notes. Each Underwriter may allow, and such
dealers may reallow, a concession to certain other dealers not in excess of
% of the principal amount of the Notes. After the initial offering of the
Notes, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Company does not intend to apply for listing of the Notes on any
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at any time at the
sole discretion of the Underwriters. Accordingly, no assurance can be given as
to the liquidity of, or the existence of trading markets for, the Notes.
In order to facilitate this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot in connection with this
Offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, shares of Notes in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an underwriter or a dealer for distributing the Notes in this Offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Company and Scotsman Group, on the one hand, and the Underwriters, on
the other hand, have agreed to indemnify each other against certain liabilities,
including certain liabilities under the Securities Act.
In the ordinary course of its business, Morgan Stanley & Co. Incorporated
("Morgan Stanley") has from time to time performed investment banking services
for the Company. In particular, Morgan Stanley served as financial advisor to
the Company in the Kysor Acquisition.
The rules of the National Association of Securities Dealers, Inc. (the
"NASD") provide that no NASD member shall participate in a public offering of an
issuer's securities where more than 10% of the net offering proceeds are
intended to be paid to members participating in the distribution of the offering
or associated or affiliated persons of such members, unless a "qualified
independent underwriter" shall have been engaged on the terms provided in such
rules. First Chicago Capital Markets, Inc. ("FCCM") may be deemed to be
participating in such a transaction since it is anticipated that greater than
10% of the net proceeds from the
82
<PAGE> 85
sale of the Notes will be used to repay outstanding indebtedness of the Company
to First Chicago, an affiliate of FCCM, under the Credit Facility.
In view of such anticipated use of proceeds, this Offering is being
conducted in accordance with the rules of the NASD and Morgan Stanley is acting
as "qualified independent underwriter" within the meaning of such rules. In
connection therewith, Morgan Stanley has participated in the preparation of the
Registration Statement of which this Prospectus forms a part. It has exercised
its usual standards of "due diligence" with respect thereto and has recommended
the maximum price at which the Notes may be offered hereby. Morgan Stanley will
receive no separate fee for its services as qualified independent underwriter,
although the Company has agreed to reimburse its expenses incurred as a result
of such engagement.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Sidley & Austin, Chicago, Illinois and for the Underwriters by Mayer,
Brown & Platt, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company at December 29, 1996
and December 31, 1995 and for each of the three years ended December 29, 1996,
December 31, 1995 and January 1, 1995, respectively, included and incorporated
by reference elsewhere in this Prospectus have been audited by Arthur Andersen
LLP, independent public auditors, as set forth in their report thereon included
and incorporated by reference elsewhere herein. The financial statements
referred to above are included and incorporated by reference herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated balance sheet of Kysor Industrial Corporation and
Subsidiaries as of December 31, 1996 and 1995 and the consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand, L.L.P., independent
public accountants, given on the authority of that firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission;
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Northeast Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy information statements and
other information regarding companies which file electronically with the
Commission. In addition, reports, proxy and information statements and other
information concerning the Company may also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
83
<PAGE> 86
Booth(R), Delfield(R), Kysor(R), Kysor//Warren(R), Scotsman(R),
Shelleyglas(R) and Simag(R), are registered trademarks or trade names of the
Company or its subsidiaries. Boston Market(R) is a registered trademark of
Boston Chicken, Inc. Coca-Cola(R) is a registered trademark of The Coca-Cola
Company. Howe(R) and Rapid Freeze(R) are registered trademarks of Howe
Corporation. Marriott(R) is a registered trademark of Marriott International,
Inc. McDonald's(R) is a registered trademark of McDonald's Corporation. Mobil(R)
is a registered trademark of Mobil Corporation. Pepsi(R) is a trademark of
Pepsico, Inc. WalwMart(R) is a registered trademark of Wal-Mart Stores, Inc.
Winn-Dixie(R) is a registered trademark of Winn-Dixie Stores, Inc.
84
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Income Financial Statements of Scotsman
Industries, Inc.:
Report of Independent Public Accountants.................. F-2
Unaudited Consolidated Statement of Income for the Fiscal
Six Months Ended June 29, 1997 and June 30, 1996 and
Audited Consolidated Statement of Income for the Fiscal
Years Ended December 29, 1996, December 31, 1995 and
January 1, 1995........................................ F-3
Unaudited Consolidated Balance Sheet as of June 29, 1997
and Audited Consolidated Balance Sheet as of December
29, 1996 and December 31, 1995......................... F-4
Unaudited Consolidated Statement of Cash Flows for the
Fiscal Six Months Ended June 29, 1997 and June 30, 1996
and Audited Consolidated Statement of Cash Flows for
the Fiscal Years Ended December 29, 1996, December 31,
1995 and January 1, 1995............................... F-5
Unaudited Consolidated Statement of Shareholders' Equity
for the Fiscal Six Months Ended June 29, 1997 and
Audited Consolidated Statement of Shareholders' Equity
for the Fiscal Years Ended December 29, 1996, December
31, 1995 and January 1, 1995........................... F-6
Notes to Consolidated Financial Statements................ F-7
Financial Statements of Completed Acquisition:
Kysor Industrial Corporation
Report of Independent Accountants...................... F-25
Consolidated Balance Sheet as of December 31, 1996 and
1995.................................................. F-26
Consolidated Statement of Income for the Years Ended
December 31, 1996, 1995 and 1994...................... F-27
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.......... F-28
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994................ F-30
Notes to Consolidated Financial Statements............. F-31
F-1
<PAGE> 88
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 December 29,
1996, and December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 29, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Scotsman Industries, Inc.
and subsidiaries as of December 29, 1996, and December 31, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 29, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
February 4, 1997
F-2
<PAGE> 89
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL
SIX MONTHS ENDED FOR THE FISCAL YEARS ENDED
-------------------- ------------------------------------------------
JUNE 29, JUNE 30, DECEMBER 29, DECEMBER 31, JANUARY 1,
1997 1996 1996 1995 1995
-------- -------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $271,854 $189,956 $356,373 $324,291 $266,632
Cost of sales..................... 200,757 135,692 257,942 236,402 190,518
-------- -------- -------- -------- --------
Gross profit...................... 71,097 54,264 98,431 87,889 76,114
Selling and administrative
expenses........................ 41,103 30,877 58,135 53,435 47,900
-------- -------- -------- -------- --------
Income from operations............ 29,994 23,387 40,296 34,454 28,214
Interest expense, net............. 8,781 2,837 5,279 6,326 5,416
-------- -------- -------- -------- --------
Income before income taxes........ 21,213 20,550 35,017 28,128 22,798
Income taxes...................... 10,262 9,866 16,449 12,720 10,013
-------- -------- -------- -------- --------
Income before extraordinary
loss............................ 10,951 10,684 18,568 15,408 12,785
Extraordinary loss (net of income
taxes of $422).................. (633) -- -- -- --
-------- -------- -------- -------- --------
Net income........................ $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785
Preferred stock dividends......... -- 562 813 1,240 885
-------- -------- -------- -------- --------
Net income available to common
shareholders.................... $ 10,318 $ 10,122 $ 17,755 $ 14,168 $ 11,900
======== ======== ======== ======== ========
Income per share before
extraordinary loss:
Primary......................... $ 1.01 $ 1.10 $ 1.85 $ 1.58 $ 1.49
-------- -------- -------- -------- --------
Fully diluted................... $ 1.01 $ 1.00 $ 1.73 $ 1.45 $ 1.35
-------- -------- -------- -------- --------
Net income per share:
Primary......................... $ .96 $ 1.10 $ 1.85 $ 1.58 $ 1.49
-------- -------- -------- -------- --------
Fully diluted................... $ .95 $ 1.00 $ 1.73 $ 1.45 $ 1.35
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 90
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29, DECEMBER 31,
1997 1996 1995
-------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments................... $ 20,760 $ 16,501 $ 15,808
Trade accounts and notes receivable, net of allowances
of $4,862 in 1997, $2,778 in 1996 and $2,960 in
1995............................................... 120,768 58,734 54,500
Inventories........................................... 80,507 52,530 52,251
Deferred income taxes................................. 14,491 4,708 5,690
Other current assets.................................. 7,295 5,101 3,093
-------- -------- --------
Total current assets............................. 243,821 137,574 131,342
Properties and equipment, net........................... 87,496 46,659 46,373
Goodwill, net........................................... 284,547 94,975 94,732
Deferred Income Taxes................................... 26,589 -- --
Other noncurrent assets................................. 40,425 4,056 3,496
-------- -------- --------
Total assets..................................... $682,878 $283,264 $275,943
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current maturities of capitalized
lease obligations and long-term debt............... $ 19,410 $ 16,317 $ 13,037
Trade accounts payable................................ 52,349 22,344 24,174
Accrued income taxes.................................. 17,551 6,302 4,491
Accrued expenses...................................... 59,024 33,290 34,812
-------- -------- --------
Total current liabilities........................ 148,334 78,253 76,514
Long-term debt and capitalized lease obligations........ 343,534 60,289 74,719
Deferred income taxes................................... 7,506 3,710 3,814
Other noncurrent liabilities............................ 45,977 9,300 8,577
-------- -------- --------
Total liabilities................................ 545,351 151,552 163,624
Shareholders' Equity:
Common stock, $.10 par value, authorized 50,000,000
shares; issued 10,736,463 shares, 10,729,513 shares
and 9,153,014 shares, respectively................. 1,074 1,073 915
Preferred stock, $1.00 par value, authorized
10,000,000 shares; issued 0 shares, 0 shares and
1,999,992 shares, respectively..................... -- -- 2,000
Additional paid in capital............................ 73,320 73,053 70,514
Retained earnings..................................... 71,827 62,036 45,232
Deferred compensation and unrecognized pension cost... (177) (117) (88)
Foreign currency translation adjustments.............. (7,062) (2,877) (4,911)
Less: Common stock held in treasury; 182,175 shares,
187,049 shares and 188,040 shares, respectively.... (1,455) (1,456) (1,343)
-------- -------- --------
Total shareholders' equity....................... 137,527 131,712 112,319
-------- -------- --------
Total liabilities and shareholders' equity....... $682,878 $283,264 $275,943
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 91
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL
SIX MONTHS ENDED FOR THE FISCAL YEARS ENDED
-------------------- ----------------------------------------
JUNE 29, JUNE 30, DECEMBER 29, DECEMBER 31, JANUARY 1,
1997 1996 1996 1995 1995
-------- -------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 7,399 4,333 8,870 7,594 6,019
Loss (gain) on property dispositions............. -- -- (82) (39) 45
Change in assets and liabilities:
Trade accounts receivable........................ (29,147) (22,235) (3,310) (2,607) (7,779)
Inventories...................................... 1,251 (2,290) 237 2,006 (3,815)
Trade accounts payable and other liabilities..... 2,647 15,577 (1,877) (2,074) 10,290
Other, net....................................... 77 (113) 1,101 3,162 (1,369)
--------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities....................................... (7,455) 5,956 23,507 23,450 16,176
Cash flows from investing activities:
Investment in properties and equipment............. (7,433) (3,360) (6,195) (6,513) (5,434)
Proceeds from dispositions of properties and
equipment........................................ 72 178 230 215 34
Acquisition of Delfield and Whitlenge.............. -- -- -- -- (28,689)
Investment in U.K. joint venture................... -- -- (2,024) -- --
Investment in China joint venture, net............. -- -- (399) (665) --
Acquisition of Hartek.............................. -- (231) (991) (1,491) --
Acquisition of Kysor Industrial Corp. ............. (264,768) -- -- -- --
--------- -------- -------- -------- --------
Net cash used in investing activities.............. (272,129) (3,413) (9,379) (8,454) (34,089)
Cash flows from financing and capital activities:
Short-term debt, net............................... (4,852) (9,755) (6,524) 3,616 (74)
Issuance of long-term debt......................... 349,607 14,517 16,074 17,806 63,000
Principal payments under long-term debt and
capitalized leases............................... (59,290) (5,340) (21,128) (28,071) (42,831)
Dividends paid to shareholders..................... (528) (1,068) (2,035) (2,118) (1,339)
--------- -------- -------- -------- --------
Net cash provided by (used in) financing and
capital activities............................... 284,937 (1,646) (13,613) (8,767) 18,756
Effect of exchange rate changes on cash and temporary
cash investments................................... (1,094) (6) 178 (191) 465
--------- -------- -------- -------- --------
Net increase in cash and temporary cash
investments........................................ 4,259 891 693 6,038 1,308
Cash and temporary cash investments at beginning of
period............................................. 16,501 15,808 15,808 9,77 8,462
--------- -------- -------- -------- --------
Cash and temporary cash investments at end of
period............................................. $ 20,760 $ 16,699 $ 16,501 $ 15,808 $ 9,770
========= ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 9,418 $ 3,758 $ 6,812 $ 7,431 $ 4,566
========= ======== ======== ======== ========
Income taxes..................................... $ 6,043 $ 3,711 $ 14,957 $ 10,992 $ 10,685
========= ======== ======== ======== ========
Supplemental schedule of noncash investing and
financing activities:
Investment in properties and equipment through
issuance of capitalized lease obligations...... $ (419) $ (42) $ (42) $ (96) $ (56)
========= ======== ======== ======== ========
Issuance of stock for acquisition of Delfield and
Whitlenge...................................... $ -- $(12,089) $(39,000)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 92
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
NUMBER PAR VALUE PAR VALUE CAPITAL EARNINGS OTHER(a) ADJUSTMENTS
-------- --------- --------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1994............ 202,295 $ 721 $ -- $20,557 $20,855 $ (54) $(6,741)
------- ------ ------- ------- ------- ----- -------
Net income.......................... -- -- -- -- 12,785 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- 1,710
Issuance of deferred compensation... (8,038) -- -- 118 -- (119) --
Amortization of deferred
compensation...................... -- -- -- -- -- 99 --
Dividends declared to common
shareholders...................... -- -- -- -- (796) -- --
Dividends declared to preferred
shareholders...................... -- -- -- -- (885) -- --
Issuance of common and preferred
stock relating to acquisition of
Delfield and Whitlenge............ -- 120 2,000 36,880 -- -- --
Stock options exercised............. -- 5 -- 530 -- -- --
Unrecognized pension cost........... -- -- -- -- -- 21 --
Other............................... 2 -- -- -- -- -- --
------- ------ ------- ------- ------- ----- -------
Balance at January 1, 1995............ 194,259 $ 846 $ 2,000 $58,085 $31,959 $ (53) $(5,031)
======= ====== ======= ======= ======= ===== =======
Net income.......................... -- -- -- -- 15,408 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- 120
Issuance of deferred compensation... (6,219) -- -- 120 -- (120) --
Amortization of deferred
compensation...................... -- -- -- -- -- 129 --
Dividends declared to common
shareholders...................... -- -- -- -- (895) -- --
Dividends declared to preferred
shareholders...................... -- -- -- -- (1,240) -- --
Issuance of common stock relating to
acquisition of Delfield and
Whitlenge......................... -- 67 -- 12,022 -- -- --
Stock options exercised............. -- 2 -- 287 -- -- --
Unrecognized pension cost........... -- -- -- -- -- (44) --
------- ------ ------- ------- ------- ----- -------
Balance at December 31, 1995.......... 188,040 $ 915 $ 2,000 $70,514 $45,232 $ (88) $(4,911)
Net income.......................... -- -- -- -- 18,568 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- 2,034
Issuance of deferred compensation... (5,965) -- -- 119 -- (119) --
Amortization of deferred
compensation...................... -- -- -- -- -- 120 --
Dividends declared to common
shareholders...................... -- -- -- -- (951) -- --
Dividends declared to preferred
shareholders...................... -- -- -- -- (813) -- --
Conversion of preferred stock into
common stock...................... -- 153 (2,000) 1,847 -- -- --
Stock options exercised............. 4,974 5 -- 573 -- -- --
Unrecognized pension cost........... -- -- -- -- -- (30) --
------- ------ ------- ------- ------- ----- -------
Balance at December 29, 1996.......... 187,049 $1,073 $ -- $73,053 $62,036 $(117) $(2,877)
Net income.......................... -- -- -- -- 10,318 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- (4,185)
Issuance of deferred compensation... (4,874) -- -- 120 -- (120) --
Amortization of deferred
compensation...................... -- -- -- -- -- 60 --
Dividends declared to common
shareholders...................... -- -- -- -- (527) -- --
Conversion of preferred stock into
common stock...................... -- -- -- -- -- -- --
Stock options exercised............. -- 1 -- 147 -- -- --
Unrecognized pension cost........... -- -- -- -- -- -- --
------- ------ ------- ------- ------- ----- -------
Balance at June 29, 1997
(unaudited)......................... 182,175 $1,074 $ -- $73,320 $71,827 $(177) $(7,062)
======= ====== ======= ======= ======= ===== =======
<CAPTION>
TREASURY
STOCK TOTAL
-------- -----
<S> <C> <C>
Balance at January 2, 1994............ $(1,344) $ 33,994
------- --------
Net income.......................... -- 12,785
Foreign currency translation
adjustments....................... -- 1,710
Issuance of deferred compensation... 1 --
Amortization of deferred
compensation...................... -- 99
Dividends declared to common
shareholders...................... -- (796)
Dividends declared to preferred
shareholders...................... -- (885)
Issuance of common and preferred
stock relating to acquisition of
Delfield and Whitlenge............ -- 39,000
Stock options exercised............. -- 535
Unrecognized pension cost........... -- 21
Other............................... -- --
------- --------
Balance at January 1, 1995............ $(1,343) $ 86,463
======= ========
Net income.......................... -- 15,408
Foreign currency translation
adjustments....................... -- 120
Issuance of deferred compensation... -- --
Amortization of deferred
compensation...................... -- 129
Dividends declared to common
shareholders...................... -- (895)
Dividends declared to preferred
shareholders...................... -- (1,240)
Issuance of common stock relating to
acquisition of Delfield and
Whitlenge......................... -- 12,089
Stock options exercised............. -- 289
Unrecognized pension cost........... -- (44)
------- --------
Balance at December 31, 1995.......... $(1,343) $112,319
Net income.......................... -- 18,568
Foreign currency translation
adjustments....................... -- 2,034
Issuance of deferred compensation... -- --
Amortization of deferred
compensation...................... -- 120
Dividends declared to common
shareholders...................... -- (951)
Dividends declared to preferred
shareholders...................... -- (813)
Conversion of preferred stock into
common stock...................... -- --
Stock options exercised............. (113) 465
Unrecognized pension cost........... -- (30)
------- --------
Balance at December 29, 1996.......... $(1,456) $131,712
Net income.......................... -- 10,318
Foreign currency translation
adjustments....................... -- (4,185)
Issuance of deferred compensation... 1 1
Amortization of deferred
compensation...................... -- 60
Dividends declared to common
shareholders...................... -- (527)
Conversion of preferred stock into
common stock...................... -- --
Stock options exercised............. -- 148
Unrecognized pension cost........... -- --
------- --------
Balance at June 29, 1997
(unaudited)......................... $(1,455) $137,527
======= ========
</TABLE>
- -------------------------
(a) Other shareholders' equity includes deferred compensation and unrecognized
pension cost.
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
<PAGE> 93
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Scotsman
Industries, Inc. ("Scotsman" or "the Company") 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 1996.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements as of June 29, 1997 and
for the six month periods ended June 29, 1997 and June 30, 1996, are unaudited
condensed statements and have been prepared on a basis consistent with the
accounting policies used in preparing the annual financial statements. In the
opinion of management, the interim financial statements reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of such financial information. The results of such interim periods are not
necessarily indicative of the results to be expected for a full year.
See Note 16 for information regarding the acquisition of Kysor Industrial
Corporation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
FISCAL YEAR
The Company reports on a 52-53 week fiscal year ending on the Sunday
nearest to December 31. Fiscal years 1996, 1995 and 1994 had 52 weeks.
CASH MANAGEMENT
The Company considers all highly liquid investments with original
maturities of three months or less to be temporary cash investments.
Temporary cash investments, primarily Eurodollar deposits or repurchase
agreements with maturities of 90 days or less, are carried at cost, which
approximates market. Interest income (in thousands) included in interest
expense, net was $791, $633 and $277 for fiscal years 1996, 1995 and 1994,
respectively.
TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable at December 29, 1996, and December 31,
1995, included notes of $7.5 million and $7.3 million, respectively.
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.
F-7
<PAGE> 94
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
GOODWILL
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 $2.5 million, $2.4 million and $1.5 million
for the fiscal years 1996, 1995 and 1994, respectively. At December 29, 1996,
and December 31, 1995, accumulated amortization was $8.0 million and $5.4
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.
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 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
1996, 1995 and 1994 were $5.6 million, $4.8 million and $5.1 million,
respectively.
FOREIGN CURRENCY TRANSLATION
The Company has foreign subsidiaries located in Italy, Germany, Austria,
China 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.
F-8
<PAGE> 95
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
STOCK OPTIONS
In 1995 the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"). Currently, when stock options are exercised proceeds from the sale of
common stock issued under those options are credited to common stock and
additional paid in capital. Therefore, under the method used by the Company, no
charges or credits are made to income for stock options. As permitted by SFAS
123, the Company will continue to account for stock options as described above.
The financial statement effect of this new standard is limited to additional
required footnote disclosure in 1996 which is provided in Note 12.
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. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Finished goods........................................ $23,207 $21,604
Work-in-process....................................... 9,052 8,023
Raw materials......................................... 20,271 22,624
------- -------
Total inventories................................ $52,530 $52,251
======= =======
</TABLE>
Approximately $7.0 million and $7.5 million of total Company inventories
were valued on the LIFO method in fiscal 1996 and 1995, respectively. In 1996
there were reductions in levels of inventory valued on LIFO which reduced cost
of sales by $0.1 million. If inventories valued on the LIFO method had been
valued using the FIFO method, they would have been $3.9 million and $4.1 million
higher at December 29, 1996, and December 31, 1995, respectively.
F-9
<PAGE> 96
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTIES AND EQUIPMENT
Properties and equipment consisted of assets owned and leased under capital
lease arrangements as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Owned:
Land...................................................... $ 1,966 $ 1,995
Buildings and leasehold improvements...................... 28,521 28,046
Machinery, fixtures and equipment......................... 54,564 49,294
Accumulated depreciation and amortization................. (43,000) (37,949)
-------- --------
Owned, net................................................ 42,051 41,386
-------- --------
Leased:
Buildings and leasehold improvements...................... 5,141 5,029
Machinery, fixtures and equipment......................... 1,121 1,540
Accumulated depreciation and amortization................. (1,654) (1,582)
-------- --------
Leased, net............................................... 4,608 4,987
-------- --------
Properties and equipment, net............................. $ 46,659 $ 46,373
======== ========
</TABLE>
4. SHORT-TERM DEBT
Short-term debt (in thousands) at December 29, 1996, and December 31, 1995,
was $6,115 and $12,767, respectively, and principally related to amounts owed
under lines of credit. The weighted average interest rate based on short-term
debt outstanding as of December 29, 1996, and December 31, 1995, was 6.1 percent
and 7.3 percent, respectively. Average borrowings (in thousands) and the related
weighted average interest rates were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bank and other borrowings................................... $4,888 $2,463
Weighted average interest rate.............................. 6.4% 7.9%
====== ======
</TABLE>
The maximum aggregate short-term debt outstanding (in thousands) at the end
of any month during fiscal years 1996 and 1995 was $11,109 and $12,767,
respectively.
5. LINES OF CREDIT
The Company maintains various credit agreements which are used primarily to
fund the Company's working capital needs. At December 29, 1996, these agreements
(in thousands) included foreign and domestic lines of credit of $18,472 and
$11,000, respectively. Lines of credit are reviewed annually, with amounts
borrowed under lines of credit included in short-term debt.
At December 29, 1996, foreign and domestic lines of credit not in use were
(in thousands) $18,216 and $5,141, 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.
F-10
<PAGE> 97
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Payroll and employee benefits............................... $ 7,818 $ 6,394
Current portion of product warranties....................... 6,673 5,994
Reserve for customer allowances............................. 4,264 3,446
Other current liabilities................................... 14,535 18,978
------- -------
Total accrued expenses...................................... $33,290 $34,812
======= =======
</TABLE>
7. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Credit Agreement with floating interest rates; due 2000..... $35,473 $41,765
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 3,150
Isabella County Industrial Revenue Bonds with floating
interest rate; due 1996-2003.............................. 450 500
Foreign borrowings with various interest rates; due
1997-2011................................................. 2,047 --
Capital lease obligations with various interest rates; due
1996-1998................................................. 121 324
------- -------
Total.................................................. $70,491 $74,989
Current portion........................................ 10,202 270
------- -------
Long-term portion...................................... $60,289 $74,719
======= =======
</TABLE>
In April 1994 a $90 million reducing revolving credit agreement ("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 acquisitions, and transaction costs associated with
the acquisitions. Under the terms of the Credit Agreement, the revolving credit
facility reduces 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 years four and five, with the
remaining balance due at the end of year six. As of December 29, 1996, of the
$76.0 million of credit available under this agreement, $30.4 million was
unused.
Borrowings under the 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 varies between 0.50 percent and
1.0 percent per annum, depending upon the Company's ratio of earnings before
interest, taxes and amortization to total interest. As of December 29, 1996,
interest rates under the Credit Agreement ranged from approximately 6.1 percent
for Eurodollar loans to approximately 6.9 percent for borrowings denominated in
pounds sterling. Commitment fees on the Credit Agreement vary from 0.175 percent
to 0.25 percent per annum on the unused portion.
F-11
<PAGE> 98
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 0.50 percent to 1.0 percent on outstanding principal and
interest depending on the Company's interest coverage ratio as defined in the
Credit Agreement as described above. The interest rate applicable to the
Allendale County Industrial Revenue Bonds was 4.21 percent and 5.23 percent at
December 29, 1996, and December 31, 1995, 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 $4.4 million as of December 29, 1996. The Isabella County
Industrial Revenue Bonds are secured by a building section with a net book value
of $0.8 million as of December 29, 1996. The interest rates for these two
industrial revenue bonds as of December 29, 1996, were 5.16 percent and 5.94
percent, respectively. The interest rates for these two industrial revenue bonds
as of December 31, 1995, were 5.31 percent and 6.12 percent, respectively.
The Company also has various capital lease obligations which are
collateralized by properties and equipment with a net book value of
approximately $0.2 million.
The weighted average effective interest rate was 7.5 percent and 7.7
percent at December 29, 1996, and December 31, 1995, respectively. Future
required maturities of long-term debt and capital leases assuming letters of
credit are outstanding at the same level as December 29, 1996, were as follows
(in thousands):
<TABLE>
<S> <C>
1997........................................................ $10,202
1998........................................................ 10,710
1999........................................................ 415
2000........................................................ 35,888
2001........................................................ 9,320
Thereafter.................................................. 3,956
-------
Total....................................................... $70,491
=======
</TABLE>
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 December 29, 1996.
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, $45.4 million of
retained earnings was restricted as of December 29, 1996. 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 Credit Agreement has occurred and is continuing or would
occur after giving effect to the payment of such dividends.
8. OPERATING LEASES
The Company leases certain of its offices, buildings, and machinery and
equipment for periods up to 10 years with various renewal options. Rental
expense under operating leases was $2.5 million in 1996, $2.4 million in 1995
and $2.0 million in 1994.
F-12
<PAGE> 99
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease commitments under noncancelable operating leases with
initial lease terms greater than one year at December 29, 1996, were as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997........................................................ $1,584
1998........................................................ 1,390
1999........................................................ 979
2000........................................................ 1,019
2001........................................................ 1,000
Thereafter.................................................. 1,955
------
Total minimum lease commitments............................. $7,927
======
</TABLE>
9. 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 institutional mutual funds which contain both equities and fixed
investments. 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. ("Household") in 1989, Household became responsible for all domestic
salaried pension benefits accrued prior to March 31, 1989.
The Company adopted a supplemental executive retirement plan ("SERP") for
certain employees in 1994.
Net periodic pension cost included in the Consolidated Statement of Income
was as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Service cost............................................... $ 1,141 $ 919 $ 815
Interest cost.............................................. 790 667 475
Actual return on plan assets............................... (1,050) (797) (213)
Net amortization and deferral.............................. 519 365 (60)
------- ------ ------
Net periodic pension cost.................................. $ 1,400 $1,154 $1,017
======= ====== ======
</TABLE>
F-13
<PAGE> 100
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Company's pension plans (in thousands), excluding
the Italian and German pension plans, was as follows:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
PLAN ASSETS PLAN ASSETS
EXCEED ACCUMULATED EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS PLAN ASSETS BENEFITS PLAN ASSETS
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits obligation........................... $(4,425) $(4,435) $(1,688) $(5,193)
Non-vested benefits obligation....................... (419) (586) -- (1,542)
------- ------- ------- -------
Accumulated benefit obligation....................... (4,844) (5,021) (1,688) (6,735)
Effects of anticipated future compensation levels.... (1,838) (612) (292) (1,607)
------- ------- ------- -------
Projected benefit obligation......................... (6,682) (5,633) (1,980) (8,342)
Plan assets at fair value............................ 5,115 3,771 1,772 5,393
------- ------- ------- -------
Projected benefit obligation in excess of plan
assets............................................. (1,567) (1,862) (208) (2,949)
Unrecognized net asset............................... -- (9) -- (12)
Unrecognized prior service cost...................... 464 835 -- 1,289
Unrecognized net (gain) or loss...................... (396) 74 (79) 1
Adjustment required to recognize minimum liability... -- (344) -- (482)
------- ------- ------- -------
Accrued pension cost................................. $(1,499) $(1,306) $ (287) $(2,153)
======= ======= ======= =======
</TABLE>
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Discount rate........................................... 7.5 - 9.0% 7.5 - 9.0% 8.0 - 9.0%
Rate of increase in compensation levels................. 4.0 - 7.0% 4.0 - 7.0% 4.0 - 7.0%
Expected long-term rate of return on assets............. 8.5 - 10.0% 8.5 - 10.0% 9.0 - 10.0%
</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 $895, $888, and $785 in
fiscal years 1996, 1995 and 1994, respectively. The unfunded liability for these
plans included in the Consolidated Balance Sheet at December 29, 1996, and
December 31, 1995, (in thousands) was $4,578 and $4,286, respectively. The
Company also has a Hartek pension plan in Germany which covers only a former
employee and his spouse. Information for the Hartek pension plan has not been
included in the tables presented as the amounts were immaterial as of December
29, 1996.
The Company also sponsors defined contribution benefit plans. Participation
in one of these plans is available to substantially all domestic 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) $742, $568, and
$643 for fiscal years 1996, 1995 and 1994, 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.
F-14
<PAGE> 101
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic post-retirement benefit cost for the fiscal years ended
December 29, 1996, December 31, 1995, and January 1, 1995, included the
following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Service cost on benefits earned............................ $146 $132 $161
Interest cost on accumulated post-retirement benefit
obligation............................................... 148 139 142
Amortization of net loss subsequent to transition.......... -- -- 4
---- ---- ----
Net periodic post-retirement benefit cost.................. $294 $271 $307
==== ==== ====
</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>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.................................................. $ 755 $ 820
Fully-eligible active plan participants................... 171 141
Other active plan participants............................ 1,110 1,161
------ ------
Total....................................................... $2,036 $2,122
Unrecognized net (loss) gain................................ 64 (126)
------ ------
Accrued post-retirement benefit cost recognized in the
balance sheet............................................. $2,100 $1,996
====== ======
</TABLE>
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate............................................... 7.5% 7.5%
Projected health care cost trend rates:
Pre-65 benefits........................................... 8.5% 12.6%
Post-65 benefits.......................................... 8.5% 11.3%
Ultimate health care cost trend rates:
Pre-65 benefits........................................... 5.0% 5.5%
Post-65 benefits.......................................... 5.0% 5.5%
</TABLE>
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) $360 for 1996 and $378 for 1995, and the
aggregate of the service and interest cost components of net periodic
post-retirement benefit cost by approximately (in thousands) $64 for 1996, $57
for 1995 and $63 for 1994.
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.
F-15
<PAGE> 102
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Temporary Cash Investments
Temporary cash investments consist principally of investments in
short-term, interest-bearing instruments. The carrying amount approximates
fair market value.
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 December 29, 1996. The Company pays
letter of credit fees to its bank group that range from 0.50 to 1.0 percent
based upon the Company's interest coverage ratio as defined in the 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
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 London Interbank Offered Rate.
These agreements will expire in May 1997. These two swap agreements are
accounted for as hedges. The Company had a forward exchange contract
outstanding as of December 29, 1996, to hedge exposure relating to an
intercompany transaction. The Company had no forward exchange contracts
outstanding as of December 31, 1995.
The fair value of interest rate swaps and forward exchange contracts
is the estimated amount that the Company would receive or pay to terminate
the agreements as of the balance sheet date.
F-16
<PAGE> 103
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of the Company's financial instruments at December
29, 1996, (in thousands) was as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Assets:
Cash and temporary cash investments....................... $16,501 $16,501
Trade accounts and notes receivable....................... 58,734 58,734
Forward exchange contract................................. -- 229
Liabilities:
Short-term debt........................................... 6,115 6,115
Trade accounts payable.................................... 22,344 22,344
Long-term debt............................................ 70,370 71,535
Interest rate swap agreements............................. -- 44
</TABLE>
The estimated fair value of the Company's financial instruments at December
31, 1995, (in thousands) was as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Assets:
Cash and temporary cash investments....................... $15,808 $15,808
Trade accounts and notes receivable....................... 54,500 54,500
Liabilities:
Short-term debt........................................... 12,767 12,767
Trade accounts payable.................................... 24,174 24,174
Long-term debt............................................ 74,665 76,675
Interest rate swap agreements............................. -- 176
</TABLE>
F-17
<PAGE> 104
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The components of the consolidated net deferred tax assets and liabilities
as of December 29, 1996, and December 31, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Gross deferred tax assets:
Tax credits due to Italian reorganization................. $ 530 $ 556
Warranty accruals......................................... 3,110 2,907
Reserve for Delfield and Whitlenge........................ 291 1,055
Hartek reserve............................................ 461 1,091
Receivable allowances..................................... 812 797
Inventory reserves........................................ 720 754
Reserve for post-retirement medical costs................. 823 791
Tax benefit of German net operating loss carry forwards... 3,562 4,851
Other..................................................... 3,502 2,989
------- -------
Total gross deferred tax assets........................... 13,811 15,791
Valuation allowance....................................... (3,681) (4,991)
------- -------
Total deferred tax assets................................. $10,130 $10,800
======= =======
Gross deferred tax liabilities:
Properties and equipment.................................. $(6,102) $(5,702)
Inventory related items................................... (180) (909)
Simag goodwill amortization............................... (1,611) (1,186)
Other..................................................... (1,239) (1,157)
------- -------
Total gross deferred tax liabilities...................... $(9,132) $(8,954)
======= =======
</TABLE>
Deferred taxes reflected in the accompanying balance sheets as of December
29, 1996, and December 31, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current portion of deferred tax asset....................... $ 4,708 $ 5,690
Noncurrent portion of deferred tax asset (included in other
noncurrent assets)........................................ -- 22
Current portion of deferred tax liability (included in
accrued expenses)......................................... -- (52)
Noncurrent portion of deferred tax liability................ (3,710) (3,814)
</TABLE>
The valuation allowance as of December 29, 1996, includes $3.6 million to
entirely offset the tax asset established for Hartek pre-acquisition net
operating loss carry forwards which might not be realized due to the terms of
the purchase agreement of Hartek (see Note 14) which requires substantial
repayment to the seller if utilized and due to a pending decision of the Supreme
Tax Court in Germany which may result in such carry forwards being not
utilizable by the Company. The German net operating loss carry forwards, if
realized, will result in a reduction of goodwill and the benefit of utilizing
the net operating loss carry forwards will not flow through the income
statement.
The valuation allowance also includes $0.1 million 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 for the
Italian tax asset due to the limited carry forward life of net operating losses
in Italy.
F-18
<PAGE> 105
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
United States:
Current............................................. $ 7,518 $ 7,431 $ 7,300
Deferred............................................ 837 855 (746)
------- ------- -------
8,355 8,286 6,554
------- ------- -------
Foreign:
Current............................................. 7,407 3,605 2,412
Deferred............................................ 687 829 1,047
------- ------- -------
8,094 4,434 3,459
------- ------- -------
Provision for income taxes............................ $16,449 $12,720 $10,013
======= ======= =======
</TABLE>
The provision (benefit) for deferred income taxes included the following
(in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Amortization of Italian reorganization benefits....... $ 58 $ 122 $ 535
Depreciation.......................................... 458 307 203
Reserve for Glenco-Star disposition................... -- 249 56
Reserve for swap loss................................. -- -- 38
Warranty reserve...................................... (311) (33) (304)
Inventory adjustments................................. (732) 913 (95)
Reserve for relocation of Crystal Tips................ -- -- 167
Valuation allowance changes........................... (27) (51) (117)
Reserve for Delfield and Whitlenge.................... 727 -- --
Utilization of German net operating loss carry
forwards............................................ 952 -- --
Other, net............................................ 399 177 (182)
------ ------ -----
Total................................................. $1,524 $1,684 $ 301
====== ====== =====
</TABLE>
Income before income taxes from foreign operations was $15.7 million in
1996, $8.9 million in 1995, and $6.9 million in 1994. 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
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Statutory federal income tax rate..................... 35.0% 35.0% 35.0%
Increase in rate resulting from:
State and local income taxes, net of federal tax
benefit.......................................... 1.7 2.9 2.7
Foreign tax effect.................................. 7.6 4.9 4.9
Other............................................... 2.7 2.4 1.3
---- ---- ----
47.0% 45.2% 43.9%
==== ==== ====
</TABLE>
In accordance with the Company's accounting policy, provision for U.S.
income taxes has not been made on $38.6 million of undistributed earnings of
foreign subsidiaries at December 29, 1996.
F-19
<PAGE> 106
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK-BASED COMPENSATION PLANS
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
10 years and one day from the date of the grant.
In August 1994 the Board of Directors adopted, subject to shareholder
approval, the Non-Employee Directors Stock Option Plan. The plan was approved by
the shareholders at the 1995 Annual Meeting of Shareholders. 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
10 years and one day from the date of the grant.
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123 ("SFAS 123"), the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income:
As reported............................................... $18,568 $15,408
Pro forma................................................. 18,306 15,281
Primary net income per share:
As reported............................................... $ 1.85 $ 1.58
Pro forma................................................. $ 1.82 $ 1.56
Fully diluted net income per share:
As reported............................................... $ 1.73 $ 1.45
Pro forma................................................. $ 1.71 $ 1.43
</TABLE>
A summary of the status of the Company's two stock option plans at December
29, 1996, December 31, 1995, and January 1, 1995, and changes during the years
then ended is presented in the following table:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 525 $12 473 $10 472 $ 9
Granted..................................... 92 18 79 18 71 16
Exercised................................... (51) 10 (24) 9 (52) 9
Forfeited................................... (6) 17 (3) 16 (18) 11
--- --- ---
Outstanding at end of year.................. 560 13 525 12 473 10
--- --- ---
Exercisable at end of year.................. 377 10 357 10 294 9
Weighted average fair value of options
granted during the year................... $9.74 $10.73 --
</TABLE>
F-20
<PAGE> 107
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 29, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------------------------
NUMBER OUTSTANDING CONTRACTUAL WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AT 12/29/96 LIFE(YEARS) EXERCISE PRICE AT 12/29/96 EXERCISE PRICE
- ------------------------ ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$7 to $9................. 224,187 3.2 $ 8 224,187 $ 8
$11 to $15............... 121,300 3.8 $12 104,645 $12
$16 to $20............... 214,675 8.2 $18 48,525 $18
-------- --------
$7 to $20................ 560,162 4.3 $13 377,357 $10
======== ========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.93 percent and 7.56 percent for the executive options and 6.86
percent and 6.77 percent for the Non-Employee Directors Plan options; expected
dividend yields of 0.60 percent for the executive plan options for both years
and 0.50 percent for the Non-Employee Directors plan options for both years;
expected lives of 10.01 for both plans in both years; and expected volatility of
36.60 percent for both plans in both years.
The Company issued from treasury 5,965, 6,219, and 8,038 shares of common
stock in fiscal years 1996, 1995 and 1994, respectively, as annual Board of
Directors fees. Costs relating to these fees (in thousands) of $120, $129, and
$99 were recorded in fiscal years 1996, 1995 and 1994, respectively.
13. ACQUISITION OF DELFIELD AND WHITLENGE
On April 29, 1994, the Company completed the acquisition of The Delfield
Company, a maker of food preparation and storage equipment, and Whitlenge Drink
Equipment Limited, a U.K.-based beverage systems manufacturer, for an aggregate
price of 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.
The initial 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 were convertible into 1,525,393 shares of common stock. (If such
conversion had taken place on January 1, 1996, primary earnings per share would
have been $1.73.) All the cumulative convertible preferred stock was converted
to common stock during 1996. Also, the acquisition price of $69.3 million was
increased by $12.1 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 7.)
The results of Delfield and Whitlenge are included in the income statements for
the Company beginning after April 29, 1994.
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 the period presented.
F-21
<PAGE> 108
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
----------------------
TWELVE MONTHS ENDED
JANUARY 1, 1995
-------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Net sales............................................. $304,144
Net income............................................ 13,547
Net income per share, fully diluted................... $ 1.28
</TABLE>
14. ACQUISITION OF HARTEK
The Company's Scotsman Group Inc. subsidiary acquired on December 31, 1995,
the stock of Hartek Beverage Handling GmbH and the stock of Hartek Awagem
Vertriebsges. m.b.H., a beverage dispensing manufacturer and a small distributor
of Hartek and other products located in Radevormwald, Germany and Vienna,
Austria, respectively (collectively, "Hartek"). Hartek had 1995 annual sales of
approximately $24 million. The method of accounting used for the combination was
the purchase method. The results of the Hartek businesses have been included in
the income statements for the Company beginning on the date of acquisition,
December 31, 1995. Hartek was acquired for an initial cost of $5.8 million,
including acquisition costs. No shares of stock were or will be issued as a
result of these acquisitions. The cash outlay was partially offset by cash on
the books of Hartek at closing of $3.3 million. Goodwill of $1.9 million has
been recorded as of December 29, 1996. The amount of goodwill from this
acquisition will be amortized for book purposes over 40 years using the
straight-line method.
Under the terms of the agreement governing the purchase of the Hartek
businesses, the Company is required to pay to the seller 75 percent of the
actual amount of any tax saving realized by Hartek in respect of each of its
financial years 1996 through 1998 through the use of the amount of any tax loss
carry forward available to Hartek as of December 31, 1995, in reduction of
taxable profits for those financial years 1996 through 1998. This additional
consideration is not to exceed an amount of 2.2 million deutsche marks or, as of
December 29, 1996, approximately $1.4 million. In addition, at the date of
acquisition, Scotsman also assumed Hartek debt of approximately $6.4 million.
Pro forma unaudited 1995 net sales of the Company, as if Hartek were
acquired on the first day of the fiscal year 1995 would have been $349 million.
Pro forma information relating to net income and earnings per share has not been
presented as the pro forma impact of those numbers on the Company's results was
not material. 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.
F-22
<PAGE> 109
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GEOGRAPHIC INFORMATION
The Company's geographic data, based on the locations of operations, are as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States....................................... $235,302 $239,110 $201,746
Europe.............................................. 121,071 85,181 64,886
-------- -------- --------
Total.......................................... $356,373 $324,291 $266,632
======== ======== ========
Operating profit:
United States....................................... $ 24,248 $ 25,309 $ 20,773
Europe.............................................. 16,048 9,145 7,441
-------- -------- --------
Total.......................................... $ 40,296 $ 34,454 $ 28,214
======== ======== ========
Identifiable assets:
United States....................................... $181,259 $181,994 $172,608
Europe.............................................. 102,005 93,949 72,183
-------- -------- --------
Total.......................................... $283,264 $275,943 $244,791
======== ======== ========
</TABLE>
Export sales from the United States were less than 10 percent of
consolidated net sales for all years presented.
16. SUBSEQUENT EVENT (UNAUDITED)
In March of 1997 the Company completed the acquisition of Kysor Industrial
Corporation ("Kysor"), a leading supplier of refrigerated display cases and
walk-in coolers and freezers to the supermarket and convenience store
industries. The Company purchased Kysor's common and preferred stock
(hereinafter referred to as the "Kysor Acquisition") for an aggregate purchase
price of $309 million. Concurrent with the purchase, the Company sold
substantially all of the assets of Kysor's Transportation Products Group to a
third party for $86 million (approximately $68 million net of taxes). The
Company retained possession of Kysor's Commercial Products Group. Goodwill
relating to the Kysor Acquisition will be finalized within 12 months of the
acquisition date and will be amortized for book purposes over 40 years using the
straight-line method.
Kysor, headquartered in Cadillac, Michigan, reported total sales in 1996 of
$381 million, of which $245 million related to commercial refrigeration
products.
The Kysor Acquisition, after giving effect to the divestiture of the
Transportation Products Group and other acquisition related transactions, was
financed through a $415 million loan facility between the Company, Scotsman
Group Inc. and the other parties named therein and The First National Bank of
Chicago (the "FNBC Facility"). The FNBC Facility consists of a $150 million term
loan and a $265 million revolving loan facility, both with an initial interest
rate of 1.375 percent above Eurocurrency rates. The interest rates on both
facilities adjust based on a certain ratio tied to the strength of the Company's
balance sheet.
The agreement governing the FNBC Facility includes various financial
covenants. One of those covenants has the effect of restricting the amount of
the Company's dividends to its shareholders by requiring the Company to maintain
consolidated stockholders' equity of at least $120 million (without giving
effect to the cumulative effect of future changes in accumulated translation
adjustments), plus 60 percent of (i) the cumulative net income of the Company
from December 30, 1996, forward and (ii) the net cash proceeds from any future
issuance of equity securities by the Company after the closing of the FNBC
Facility. At
F-23
<PAGE> 110
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 29, 1996, consolidated stockholders' equity of the Company was $131.7
million. The Company is also precluded from paying dividends to its shareholders
(other than dividends payable in its own capital stock) if a default or an
unmatured default under the agreement has occurred and is continuing or would
occur after giving effect to the payment of such dividends.
Subsequent to the acquisition of Kysor, the Company entered into interest
rate swap agreements to hedge its interest rate exposure on $150 million of the
aggregate borrowing under the FNBC Facility for a three-year period. One of the
interest rate swap agreements, covering a notional amount of $50 million, is
extendable for an additional two years at the bank's option.
F-24
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Scotsman Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Kysor
Industrial Corporation and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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 from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kysor
Industrial Corporation and Subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in the subsequent event note (Note 12), Kysor Industrial
Corporation's common stock and preferred stock were acquired in March 1997 for
an aggregate purchase price of approximately $309 million.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 3, 1997
F-25
<PAGE> 112
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents........................................ $ 8,353,855 $ 15,746,157
Accounts receivable less $1,212,000 and $1,431,000 allowance
for doubtful accounts..................................... 34,654,123 31,534,632
Inventory................................................... 26,899,996 19,421,832
Prepaid expenses............................................ 928,351 1,445,000
Deferred income taxes....................................... 4,927,000 6,182,000
------------ ------------
TOTAL CURRENT ASSETS........................................ 75,763,325 74,329,621
PROPERTY, PLANT AND EQUIPMENT
Land........................................................ 2,590,094 2,565,775
Buildings................................................... 22,136,202 21,248,181
Machinery and equipment..................................... 34,613,964 29,384,546
------------ ------------
59,340,260 53,198,502
Less accumulated depreciation............................... (29,608,379) (26,084,694)
------------ ------------
TOTAL PROPERTY, PLANT AND EQUIPMENT......................... 29,731,881 27,113,808
INVESTMENT IN AFFILIATE..................................... 18,844,774 --
OTHER ASSETS
Goodwill, patents and other intangibles, net of amortization
of $1,310,310 and $625,987................................ 6,474,085 3,001,722
Cash value of officers' life insurance...................... 11,929,773 11,003,100
Deferred income taxes....................................... 4,667,000 3,902,000
Miscellaneous receivables and other assets.................. 2,995,387 1,818,545
------------ ------------
TOTAL OTHER ASSETS.......................................... 26,066,245 19,725,367
------------ ------------
NET ASSETS OF DISCONTINUED TRANSPORTATION PRODUCTS
SEGMENT................................................... 38,655,539 34,798,818
------------ ------------
TOTAL ASSETS................................................ $189,061,764 $155,967,614
============ ============
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 5,798,924 $ 4,256,636
Accounts payable............................................ 14,045,982 14,041,687
Accrued income taxes payable................................ 1,811,602 --
Accrued expenses and contingent liabilities................. 16,928,179 19,429,190
------------ ------------
TOTAL CURRENT LIABILITIES................................... 38,584,687 37,727,513
Long-term debt, less current maturities..................... 32,821,534 25,388,991
Accumulated postretirement benefit obligation............... 2,891,879 2,731,806
Other long-term liabilities................................. 11,354,940 9,883,751
------------ ------------
TOTAL LIABILITIES........................................... 85,653,040 75,732,061
PREFERRED SHAREHOLDERS' EQUITY
Employee Stock Ownership Plan Preferred Stock, shares
authorized 5,000,000; outstanding 786,869 and 797,517
stated value of $24.375 per share......................... 19,179,931 19,439,472
Unearned deferred compensation under Employee Stock
Ownership Plan............................................ (12,935,432) (14,446,112)
------------ ------------
TOTAL PREFERRED SHAREHOLDERS' EQUITY........................ 6,244,499 4,993,360
COMMON SHAREHOLDERS' EQUITY
Common stock, $1 par value, shares authorized 30,000,000,
outstanding 5,934,724 and 5,639,028....................... 5,934,724 5,639,028
Additional paid-in capital.................................. 8,741,604 3,645,084
Retained earnings........................................... 82,343,144 66,530,997
Translation adjustment...................................... 1,191,456 483,343
Notes receivable-common stock 77,288 and 78,009 shares...... (1,046,703) (1,056,259)
------------ ------------
TOTAL COMMON SHAREHOLDERS' EQUITY........................... 97,164,225 75,242,193
------------ ------------
TOTAL EQUITY.............................................. 103,408,724 80,235,553
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $189,061,764 $155,967,614
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE> 113
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES AND REVENUES
Net sales........................................ $245,062,236 $207,215,463 $164,606,458
Interest and other revenues...................... 2,399,334 2,395,323 1,718,786
------------ ------------ ------------
TOTAL SALES AND REVENUES.................... 247,461,570 209,610,786 166,325,244
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales.................................... 185,253,069 159,460,217 128,630,810
Selling and administrative expenses.............. 39,035,732 37,329,235 32,253,125
Interest expense................................. 1,335,865 913,921 1,175,547
Loss on disposition of foreign operation......... -- 9,335,104 --
Other (income) expense........................... (1,941,616) 1,714,893 1,595,026
------------ ------------ ------------
TOTAL COSTS AND EXPENSES.................... 223,683,050 208,753,370 163,654,508
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES.......................................... 23,778,520 857,416 2,670,736
Income taxes..................................... 8,650,000 (4,695,000) 870,000
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS................ 15,128,520 5,552,416 1,800,736
Operations of Discontinued Transportation
Segment, net of income taxes of $2,650,000,
$6,810,000 and $7,180,000, respectively........ 5,416,360 11,876,247 11,473,845
------------ ------------ ------------
NET INCOME....................................... $ 20,544,880 $ 17,428,663 $ 13,274,581
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
<PAGE> 114
KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
DEFERRED ADDITIONAL
PREFERRED COMPENSATION COMMON PAID-IN RETAINED TRANSLATION
STOCK ESOP STOCK CAPITAL EARNINGS ADJUSTMENT
--------- ------------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993........ $19,747,731 $(16,174,952) $5,467,840 $ 3,386,004 $43,997,461 $ 285,705
Employee Stock Ownership Plan,
deferred compensation earned.... -- 864,420 -- -- -- --
Purchase of common stock, returned
to an unissued status (24,292
shares)......................... -- -- (24,292) (468,710) -- --
Preferred stock distributions
(6,610 shares for 9,463 shares
of common)...................... (161,134) -- 9,463 156,735 -- --
Exercise of employee stock
options, 187,870 shares
issued.......................... -- -- 187,870 2,312,307 -- --
Collections of notes receivable... -- -- -- -- -- --
Translation adjustment on
investments in foreign
subsidiaries.................... -- -- -- -- -- 521,246
Net income........................ -- -- -- -- 13,274,581 --
Preferred stock dividends (net of
income tax benefit of
$598,000)....................... -- -- -- -- (979,580) --
Common dividends declared, $.51
per share....................... -- -- -- -- (2,849,427) --
----------- ------------ ---------- ----------- ----------- ----------
BALANCE, DECEMBER 31, 1994........ $19,586,597 $(15,310,532) $5,640,881 $ 5,386,336 $53,443,035 $ 806,951
Employee Stock Ownership Plan,
deferred compensation earned.... -- 864,420 -- -- -- --
Purchase of common stock, returned
to an unissued status (276,178
shares)......................... -- -- (276,178) (5,528,670) -- --
Preferred stock distributions
(6,036 shares for 7,148 shares
of common)...................... (147,125) -- 7,148 139,545 -- --
Exercise of employee stock
options, 267,177 shares
issued.......................... -- -- 267,177 3,647,873 -- --
Collections of notes receivable... -- -- -- -- -- --
Translation adjustment on
investments in foreign
subsidiaries.................... -- -- -- -- -- (323,608)
Net income........................ -- -- -- -- 17,428,663 --
Preferred stock dividends (net of
income tax benefit of
$580,000)....................... -- -- -- -- (987,047) --
Common dividends declared, $.60
per share....................... -- -- -- -- (3,353,654) --
----------- ------------ ---------- ----------- ----------- ----------
BALANCE, DECEMBER 31, 1995........ $19,439,472 $(14,446,112) $5,639,028 $ 3,645,084 $66,530,997 $ 483,343
Employee Stock Ownership Plan,
deferred compensation earned.... -- 1,510,680 -- -- -- --
Preferred stock distributions
(10,648 shares for 10,803 shares
of common)...................... (259,541) -- 10,803 259,394 -- --
Exercise of employee stock
options, 284,893 shares
issued.......................... -- -- 284,893 4,837,126 -- --
Collections of notes receivable... -- -- -- -- -- --
Translation adjustment on
investments in foreign
subsidiaries and affiliates..... -- -- -- -- -- 708,113
Net income........................ -- -- -- -- 20,544,880 --
Preferred stock dividends (net of
income tax benefit of
$590,000)....................... -- -- -- -- (966,179) --
Common dividends declared, $.645
per share....................... -- -- -- -- (3,766,554) --
----------- ------------ ---------- ----------- ----------- ----------
BALANCE, DECEMBER 31, 1996........ $19,179,931 $(12,935,432) $5,934,724 $ 8,741,604 $82,343,144 $1,191,456
=========== ============ ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-28
<PAGE> 115
KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
NOTES UNEARNED
RECEIVABLE - DEFERRED TOTAL
COMMON COMPENSATION SHAREHOLDERS'
STOCK ESOP EQUITY
------------ ------------ -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.................................. $(1,319,260) $(697,453) $ 54,693,076
Employee Stock Ownership Plan, deferred compensation
earned.................................................... -- 348,727 1,213,147
Purchase of common stock, returned to an unissued status
(24,292 shares)........................................... -- -- (493,002)
Preferred stock distributions (6,610 shares for 9,463 shares
of common)................................................ -- -- 5,064
Exercise of employee stock options, 187,870 shares issued... -- -- 2,500,177
Collections of notes receivable............................. 32,852 -- 32,852
Translation adjustment on investments in foreign
subsidiaries.............................................. -- -- 521,246
Net income.................................................. -- -- 13,274,581
Preferred stock dividends (net of income tax benefit of
$598,000)................................................. -- -- (979,580)
Common dividends declared, $.51 per share................... -- -- (2,849,427)
----------- --------- ------------
BALANCE, DECEMBER 31, 1994.................................. $(1,286,408) $(348,726) $ 67,918,134
Employee Stock Ownership Plan, deferred compensation
earned.................................................... -- 348,726 1,213,146
Purchase of common stock, returned to an unissued status
(276,178 shares).......................................... -- -- (5,804,848)
Preferred stock distributions (6,036 shares for 7,148 shares
of common)................................................ -- -- (432)
Exercise of employee stock options, 267,177 shares issued... -- -- 3,915,050
Collections of notes receivable............................. 230,149 -- 230,149
Translation adjustment on investments in foreign
subsidiaries.............................................. -- -- (323,608)
Net income.................................................. -- -- 17,428,663
Preferred stock dividends (net of income tax benefit of
$580,000)................................................. -- -- (987,047)
Common dividends declared, $.60 per share................... -- -- (3,353,654)
----------- --------- ------------
BALANCE, DECEMBER 31, 1995.................................. $(1,056,259) -- $ 80,235,553
Employee Stock Ownership Plan, deferred compensation
earned.................................................... -- -- 1,510,680
Preferred stock distributions (10,648 shares for 10,803
shares of common)......................................... -- -- 10,656
Exercise of employee stock options, 284,893 shares issued... -- -- 5,122,019
Collections of notes receivable............................. 9,556 -- 9,556
Translation adjustment on investments in foreign
subsidiaries and affiliates............................... -- -- 708,113
Net income.................................................. -- -- 20,544,880
Preferred stock dividends (net of income tax benefit of
$590,000)................................................. -- -- (966,179)
Common dividends declared, $.645 per share.................. -- -- (3,766,554)
----------- --------- ------------
BALANCE, DECEMBER 31, 1996.................................. $(1,046,703) -- $103,408,724
=========== ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE> 116
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Income from continuing operations......................... $ 15,128,520 $ 5,552,416 $ 1,800,736
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization........................... 4,852,585 3,944,499 4,388,663
Provision for losses on accounts receivable............. 368,474 276,983 688,281
(Gain) Loss on sales of fixed assets.................... 64,975 15,560 (129,961)
Undistributed earnings of affiliate..................... (1,747,766) -- --
Deferred compensation (ESOP)............................ 1,510,680 1,213,146 1,213,147
Deferred income taxes................................... 490,000 (2,647,000) (1,432,000)
Changes in assets and liabilities providing (consuming)
cash:
Accounts receivable................................... (1,544,323) (4,356) (4,019,570)
Inventories........................................... (5,028,023) 923,692 (3,050,632)
Prepaid expenses...................................... 543,944 108,037 (542,702)
Accounts payable...................................... (3,861,193) (422,984) 2,093,555
Accrued expenses and contingent liabilities........... (3,766,788) 2,614,862 658,159
Accrued income taxes payable.......................... 4,210,458 694,591 41,901
Other long-term liabilities........................... 2,621,653 2,359,203 1,178,144
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING
OPERATIONS................................................ 13,843,196 14,628,649 2,887,721
Cash provided (used) by operating activities of discontinued
operations................................................ 11,994,531 18,290,625 10,999,658
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................................................ 25,837,727 32,919,274 13,887,379
------------ ------------ ------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (6,934,360) (6,420,318) (3,107,202)
Proceeds from sales of property and equipment............. 735,235 3,821,016 897,954
Acquisitions, net of cash acquired........................ 9,316 (3,372,448) (4,127,916)
Investment in affiliate................................... (18,315,732) -- --
Dividends received from foreign affiliate................. 2,218,723 -- --
(Increase) in other long-term assets...................... (2,603,514) (376,119) (1,799,644)
Unrealized translation gain (loss)........................ -- (374,582) 403,761
Investing activities of discontinued operations........... (10,235,072) (7,963,078) (6,211,792)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ (35,125,404) (14,685,529) (13,944,839)
------------ ------------ ------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Current borrowings........................................ 13,000,000 4,482,120 625,510
Principal payments against long-term debt................. (9,381,656) (14,009,858) (3,348,726)
Proceeds from issuance of common stock.................... 3,466,231 2,802,766 1,767,093
Purchase of common stock.................................. -- (5,804,848) (493,002)
Common stock and preferred stock dividends paid........... (5,197,493) (4,813,484) (4,353,866)
Financing activities of discontinued operations........... 8,293 (1,682,102) 1,303,334
------------ ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............ 1,895,375 (19,025,406) (4,499,657)
------------ ------------ ------------
NET (DECREASE) IN CASH AND EQUIVALENTS...................... (7,392,302) (791,661) (4,557,117)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR................... 15,746,157 16,537,818 21,094,935
------------ ------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 8,353,855 $ 15,746,157 $ 16,537,818
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 117
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Kysor Industrial Corporation is a leading supplier of
refrigerated display cases, walk-in coolers and freezers to the supermarket and
convenience store industries and a producer of components for the medium- and
heavy-duty commercial vehicle market. The principal markets for the Company's
products include the United States, Europe, South America and the Pacific Rim.
Sales to major customers aggregated approximately $104 million, $72 million and
$27 million for the years ended December 31, 1996, 1995 and 1994 respectively.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Kysor Industrial Corporation and all of its subsidiaries
("Kysor" or "Company").
BASIS OF PRESENTATION. In connection with the sale of the Company (see
footnote 12), the net assets of the transportation products group (which was
formerly accounted for as a segment) were simultaneously sold. The measurement
date occurred after the balance sheet date and before the issuance of the
Company's financial statements and, accordingly, this segment has been reflected
as a discontinued operation in the consolidated financial statements for all
years presented.
CASH AND EQUIVALENTS. Kysor considers all highly-liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of FIFO (first in, first
out) cost or market.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION. Property, plant and
equipment are stated at cost. Depreciation is computed by the straight-line
method based on the estimated useful lives of the assets which range from 3 to
40 years.
GOODWILL. Goodwill, resulting from the excess of cost over the net assets
of purchased companies, is amortized on a straight-line basis over periods not
exceeding 20 years.
INCOME TAXES. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
FOREIGN CURRENCY TRANSLATION. Translation adjustments have been accumulated
as a separate component of Shareholders' Equity.
FINANCIAL INSTRUMENTS. The Company has cash, cash equivalents, and
long-term debt which are considered financial instruments. The fair values of
these financial instruments, as determined through information obtained from
banking sources and management estimates, approximate their carrying values.
PENSION AND RETIREMENT PLANS. Annual provisions for pension and retirement
plan costs recognize amortization of prior service costs over the expected
service period of active employees. Accrued pension costs are funded annually to
the extent deductible for federal income tax purposes.
Postretirement health and life insurance benefits are accounted for in
accordance with Statement of Financial Accounting Standards No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions".
ENVIRONMENTAL COSTS. Environmental expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenues, are expensed. Liabilities are recorded when environmental assessments
and/or cleanups are probable and the costs can be reasonably estimated.
Generally, the timing of these accruals coincides with Kysor's commitment to a
formal plan of action.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-31
<PAGE> 118
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECENT PROFESSIONAL ACCOUNTING STANDARDS. The Company adopted the
provisions of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of",
and SFAS No. 123, "Accounting for Stock-Based Compensation", effective January
1, 1996. As permitted by SFAS 123, the Company has elected to continue to
measure stock-based compensation using the intrinsic value method in accordance
with APB Opinion No. 25 "Accounting for Stock Issued to Employees". The adoption
of SFAS 121 and SFAS 123 did not have a material impact on the financial
position or the results of operations of the Company.
NOTE 2. INVENTORY
Components of Inventory are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Finished goods............................................. $ 6,381 $ 4,406
Work-in-process............................................ 7,631 5,512
Raw materials.............................................. 12,887 9,504
------- -------
$26,899 $19,422
======= =======
</TABLE>
NOTE 3. ACCRUED EXPENSES AND CONTINGENT LIABILITIES
Components of Accrued Expenses and Contingent Liabilities are as follows at
December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Workers' compensation and liability insurance.............. $ 4,491 $ 4,341
Compensation............................................... 5,348 4,664
Warranty................................................... 1,317 1,220
Litigation................................................. 1,010 1,682
Other...................................................... 4,762 7,622
------- -------
Total Accrued Expenses and Contingent Liabilities..... $16,928 $19,429
======= =======
</TABLE>
F-32
<PAGE> 119
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. FINANCING
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Long-term debt consists of the following:
Term note, $750 quarterly principal payments, plus fixed
interest rate at 9.9%..................................... $ 6,000 $ 9,000
Loan agreement for Kysor Industrial Corporation Employee
Stock Ownership Plan, $1,250 semiannual principal
payments, plus fixed interest rate at 8.36%............... 18,750 20,000
Revolving Credit Facility................................... 13,000 --
Other, principal payments due in 1997, plus interest at
rates ranging from 5.0% to 9.2%........................... 871 646
------- -------
38,621 29,646
Less current maturities..................................... 5,799 4,257
------- -------
Total Long-Term Debt................................... $32,822 $25,389
======= =======
</TABLE>
At December 31, 1996, the Company maintained revolving credit agreements
with two banks which provide for borrowings up to $30 million. Interest rates
are fixed at the date of borrowing based on current LIBOR rates plus a spread of
.375%. An annual commitment fee of .1875% is paid on the unused balance. The
Company has an interest rate swap under which the variable rate of interest on
the term note is converted to a fixed rate of 9.4% plus a spread of .50%. The
weighted average variable rate of interest received and paid is equal to the
three-month LIBOR (5.56% at December 31, 1996) and is reset quarterly. The term
of the swap matches the maturity of the corresponding term note.
During the years ended December 31, 1996 and 1995, there was no short-term
debt.
Aggregate maturities of obligations under long-term debt, during the next
five years ended December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Maturities of long-term debt........................ $5,799 $5,974 $2,996 $2,596 $2,500
</TABLE>
Interest paid was $1,953,000, $1,763,000, and $2,105,000 for the years
ended December 31, 1996, 1995, and 1994 respectively.
NOTE 5. STOCK OPTION PLANS
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective with the 1996 financial statements. The Company,
however, has elected to measure compensation cost using the intrinsic value
method, in accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees."
As of December 31, 1996, Kysor administered its 1980 Nonqualified Stock
Option Plan; 1983 Incentive Stock Option Plan; 1984 Stock Option Plan; 1987
Stock Option and Restricted Stock Plan; and 1993 Long-Term Incentive Plan. All
outstanding options granted prior to January 1, 1990 are currently exercisable.
All options granted after January 1, 1990 vest at the rate of 20% at date of
grant and 20% each year thereafter, except for the final 20% which vests only
upon exercise and retention for one year of the entire vested 80%.
Under the 1987 Stock Option and Restricted Stock Plan, the Company granted
key employees and directors 13,500 and 6,000 shares of common stock during 1996
and 1995, respectively. Under the 1993 Long-term Incentive Plan, the Company has
made available for key employees and directors 225,250 and 226,000
F-33
<PAGE> 120
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. STOCK OPTION PLANS -- (CONTINUED)
shares of common stock during 1996 and 1995, respectively. Under the 1987 Stock
Option Plan, 9,316 and 1,516 remained available for grant as of December 31,
1996 and 1995, respectively. Under the 1993 Long-Term Incentive Plan, 459,100
and 639,000 remained available for grant as of December 31, 1996 and 1995,
respectively.
Information concerning stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
1996 EXERCISE 1995 EXERCISE 1994 EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period........... 1,582,120 $15.65 1,731,000 $14.19 1,732,300 $13.40
New grants (based on fair value of Common
Stock at dates of grant)................... 238,750 22.89 232,000 22.61 221,000 16.63
Terminated and expired....................... (71,970) 17.66 (9,510) 11.97 (8,030) 8.60
Exercised*................................... (327,670) 14.02 (371,370) 13.29 (214,270) 10.54
Outstanding at end of period**............... 1,421,230 17.14 1,582,120 15.65 1,731,000 14.19
Outstanding but not exercisable.............. 530,850 19.07 552,590 18.05 571,070 14.78
Exercisable at end of period................. 890,380 15.83 1,029,530 14.36 1,159,930 13.90
</TABLE>
- -------------------------
* Exercised at option prices ranging from $7.25 to $22.5625 during 1996, $7.25
to $22.5625 during 1995, and $7.25 to $18.9375 during 1994.
** Outstanding shares have option prices ranging from $7.25 to $29.00 per share.
At December 31, 1996, the weighted-average remaining contractual life
relating to the outstanding shares was 5.80 years.
The fair value of each option grant was estimated as of date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
options granted in:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Estimated fair value per share of options granted during the
year...................................................... $ 6.70 $ 7.48
Assumptions:
Annualized dividend yield................................. 2.50% 2.50%
Common Stock price volatility............................. 27.17% 27.19%
Risk-free rate of return.................................. 5.71% 7.33%
Expected option term (in years)........................... 6.25 6.25
</TABLE>
The Company has elected to continue applying the provisions of APB 25 and,
accordingly, no stock option compensation cost is included in income for the
1980, 1983, 1984, 1987, and 1993 Plans. Had stock option compensation cost for
these Plans been determined based on the fair value at the 1996 and 1995 grant
dates for awards under those Plans consistent with the methodology of SFAS 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Net income (in thousands)................. $20,545 $20,102 $17,429 $16,775
</TABLE>
NOTE 6. ACQUISITIONS AND DIVESTITURES
On March 19, 1996, Kysor acquired certain assets and assumed certain
liabilities of Nax of North America (NAX), located in Des Moines, Iowa. NAX is a
manufacturer and assembler of European style deli cases and hot food cases sold
to the supermarket and fast food industries.
F-34
<PAGE> 121
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACQUISITIONS AND DIVESTITURES -- (CONTINUED)
On February 14, 1996, the Company purchased 24.255% of the outstanding
shares of Austral Refrigeration Pty. Ltd. (Austral), headquartered in Sydney,
Australia. Austral is the parent company of Kysor/Warren Australia Pty. Ltd.
which has been a licensee and manufacturer of Kysor refrigerated display cases
for over 25 years. Also included as a part of Austral is a group of businesses
that perform installation and maintenance of refrigeration products throughout
Australia and other Asian markets.
The following unaudited proforma consolidated information gives effect to
the acquisition of Austral as if the acquisition had occurred on January 1 of
the respective period. Unaudited consolidated proforma income from operations
before income taxes approximates $24 million and $5.2 million for the year ended
December 31, 1996 and 1995 and proforma consolidated net income approximates
$20.7 million and $20.0 million for the respective periods.
The Company's share of Austral's income is recorded using the "equity
method" of accounting and aggregated $1.7 million in 1996 and is included in
other (income)/expense in the accompanying consolidated statement of income.
Summarized financial information of the unconsolidated company as of and
for the year ended December 31, 1996: (amounts in thousands)
<TABLE>
<S> <C>
Current assets.............................................. $35,804
Non-current assets.......................................... 17,354
Current liabilities......................................... 22,298
Non-current liabilities..................................... 1,259
Revenues.................................................... 98,579
Income before taxes......................................... 15,187
Net income.................................................. 9,380
</TABLE>
The difference between the Company's recorded investment in affiliate and
it's proportionate share of Austral's net assets relates primarily to goodwill
included in the investment.
On October 2, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of Cooler Technology, Inc. (Cool-Tech) located
in Puyallup, Washington. Cool-Tech manufactures insulated panels and doors for
the supermarket and food service industries. On October 4, 1995, Kysor acquired
certain assets and assumed certain liabilities of Bangor Refrigeration
Corporation (Bangor) located in South Bend, Indiana. Bangor is a manufacturer of
specialty refrigeration display cases and walk-in coolers for grocery stores,
convenience stores and the food service industry. The 1995 acquisitions did not
have a material impact on the operations of the Company.
On February 4, 1994, Kysor acquired certain assets and assumed certain
liabilities of Kalt Manufacturing Company, Inc. (Kalt), located in Portland,
Oregon. Kalt manufactures insulated panels and doors for the supermarket and
convenience store industries and also has a manufacturing facility in Goodyear,
Arizona. The acquisition did not have a material impact on the operations of the
Company.
The NAX, Kalt, Cool-Tech and Bangor acquisitions were all accounted for as
purchases and, accordingly, the results of operations of each entity have been
included in the Consolidated Statement of Income since their respective
acquisition dates. The excess of the purchase price over the estimated fair
value of the net assets acquired for each transaction is being amortized on a
straight-line basis over periods ranging from 10 to 15 years.
On December 14, 1995, Kysor sold the assets of its German subsidiary,
Kysor/Warren Refrigeration, GmbH, in exchange for the assumption of certain
liabilities. After several years of significant operating losses,
F-35
<PAGE> 122
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACQUISITIONS AND DIVESTITURES -- (CONTINUED)
the operation was sold to existing German management. The transaction resulted
in a loss on disposition of $9.3 million and a tax benefit of $8.8 million.
NOTE 7. PREFERRED STOCK
On February 24, 1989, Kysor sold 820,513 shares of newly issued 8%
cumulative Series A Convertible Voting preferred stock, $24.375 stated value per
share (the "convertible stock"), to the Kysor Industrial Corporation Employee
Stock Ownership Plan (the "ESOP"). The convertible stock may be voluntarily
converted at the option of the holder, unless previously redeemed, into shares
of Kysor Industrial Corporation common stock (the "common stock") on a
one-for-one basis, subject to certain antidilution adjustments, and will convert
automatically into common stock (in certain instances subject to a conversion
floor equal to liquidation value of $24.375 per share, plus accrued and unpaid
dividends) if transferred to a holder other than the ESOP or another Kysor
Industrial Corporation employee benefit plan. The convertible stock is subject
to redemption by the Company. Each share of convertible stock entitles its
holder to one vote on all matters submitted for a vote of shareholders, again
subject to possible antidilution adjustments. The convertible stock ranks senior
to the common stock and is at least on a parity with any other series of
preferred stock that may be subsequently issued.
Preferred Stock issued and outstanding was 786,869 and 797,517 shares at
December 31, 1996 and 1995, respectively. Preferred shares allocated to ESOP
participants were 61,977 and 35,463 for each of the years ended December 31,
1996 and 1995, respectively.
NOTE 8. PENSION AND RETIREMENT PLANS
Kysor has several noncontributory defined benefit pension plans and defined
contribution plans covering substantially all of its domestic employees. The
defined benefit plans provide benefits based on the participants' years of
service and compensation or stated amounts for each year's service. The
Company's funding policy is to make annual contributions as required by contract
or applicable regulations.
The pension cost components were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Defined Benefit Plans:
Service cost benefits earned during period....... $ 1,558 $ 1,247 $ 1,327
Interest cost on projected benefit obligation.... 2,731 2,458 2,255
Actual investment return on plan assets.......... (3,420) (6,019) 731
Net amortization and deferral.................... 1,989 5,415 (3,069)
------- ------- -------
Net periodic pension cost................... $ 2,858 $ 3,101 $ 1,244
======= ======= =======
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rates............................................ 7.5% 7.5% 8.0%
Rates of increase in compensation levels.................. 4.8% 4.8% 4.9%
Expected long-term rate of return on assets............... 8.0% 8.0% 8.0%
</TABLE>
F-36
<PAGE> 123
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION AND RETIREMENT PLANS -- (CONTINUED)
The following table sets forth the funded status and amounts recognized in
the Company's statement of financial position for defined benefit plans:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995
------------------- -------------------
PLANS IN WHICH PLANS IN WHICH
------------------- -------------------
ASSETS ACCUM. ASSETS ACCUM.
EXCEED BENEFITS EXCEED BENEFITS
ACCUM. EXCEED ACCUM. EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $(21,048) $ (7,881) $(18,191) $ (6,617)
======== ======== ======== ========
Accumulated benefit obligation.................... $(22,624) $(10,637) $(19,414) $ (8,590)
======== ======== ======== ========
Projected benefit obligation...................... $(26,993) $(12,300) $(22,710) $(10,156)
Plan assets at fair market value.................. 33,487 -- 30,387 --
-------- -------- -------- --------
Projected benefit obligation (in excess of) or
less than plan assets.......................... 6,494 (12,300) 7,677 (10,156)
Unrecognized net (gain) or loss................... (4,051) 3,340 (5,061) 2,810
Prior service cost not yet recognized in net
periodic pension cost.......................... 973 284 653 334
Unrecognized net (asset) obligation at January
1,............................................. (551) 352 (661) 440
-------- -------- -------- --------
Pension asset (liability) recognized in the
statement of financial position................ $ 2,865 $ (8,324) $ 2,608 $ (6,572)
======== ======== ======== ========
</TABLE>
At both December 31, 1996 and 1995, 100 percent of plan assets was invested
in publicly traded stocks, bonds, and money market investments.
In 1985, Kysor adopted a nonqualified, unfunded supplemental executive
retirement plan for senior management. Kysor has purchased life insurance
policies on the lives of participants and is the sole owner and beneficiary of
such policies. The amount of coverage is designed to provide sufficient revenues
to cover all costs of the plan if the assumptions made as to mortality
experience, policy earnings, and other factors are realized. The Company is
charging earnings with the present value of the future cost of the plan over the
remaining working life of the participants. The above tables include information
related to this plan.
In September 1985, Kysor established an Employee Stock Ownership Plan
("ESOP") and trust for its domestic salaried employees. The ESOP authorized the
trust to borrow $3,487,000 from a bank in September 1985. The proceeds were used
to purchase 357,668 shares of common stock at $9.75 per share, that being the
mean market price on the New York Stock Exchange on August 22, 1985, the day
preceding the date the transaction was agreed upon. The loan obligation was paid
in full during 1996.
In February 1989, Kysor expanded the ESOP with the sale to the ESOP of $20
million of newly issued Series A Convertible Voting preferred stock from the
Company (see Note 7). The ESOP purchase of preferred stock was financed by a
loan from the Company which issued a $20 million, 15-year ESOP note to raise the
necessary funds. In 1996, 1995 and 1994, dividends on Preferred Stock of
$1,556,000, $1,567,000, and $1,578,000 plus interest expense of $116,000,
$111,000, and $101,000, respectively, were used to service the debt obligation
related to the ESOP. The Company amortized unearned deferred compensation
relating to the shares allocated for the year as a percentage of the total
shares to be allocated of $1,512,000 in 1996 and $864,000 in 1995 and 1994.
F-37
<PAGE> 124
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION AND RETIREMENT PLANS -- (CONTINUED)
POSTRETIREMENT HEALTH AND LIFE INSURANCE BENEFITS
Kysor provides certain defined health care and life insurance benefits for
retired employees. All salaried and certain hourly employees may become eligible
for these benefits if they reach retirement age while working for the Company.
Retiree benefit payments under these programs were $187,000, $307,000 and
$164,000 in 1996, 1995, and 1994, respectively.
The components of periodic expenses for the postretirement benefits were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Service cost -- benefits earned during the year.......... $118 $ 91
Interest cost on accumulated postretirement benefit
obligation............................................. 252 253
Net amortization......................................... (10) (7)
---- ----
Net periodic benefit costs.......................... $360 $337
==== ====
</TABLE>
The actuarial and recorded liabilities for those postretirement benefits,
none of which have been funded, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees.................................................. $1,503 $1,580
Fully eligible active plan participants................... 661 575
Other active participants................................. 1,403 966
------ ------
Total APBO................................................ 3,567 3,121
Fair market value of plan assets.......................... -- --
------ ------
Accumulated postretirement benefit obligation in excess of
plan assets............................................ 3,567 3,121
Unrecognized net (loss)................................... (856) (389)
------ ------
Accrued postretirement benefit liability at December 31,.... $2,892 $2,732
====== ======
</TABLE>
Assumptions used to determine the net periodic postretirement benefit cost
were:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Discount rate............................................... 7.5% 7.5%
Present health care trend rate (decreasing uniformly to the
year 2005)
Under age 65.............................................. 8.45% 8.9%
Age 65 and older.......................................... 7.12% 7.4%
Ultimate trend rate in 2005................................. 5.0% 5.5%
===== ====
</TABLE>
A 1% increase each year in the health care cost trend rate used would have
resulted in a 10.6% increase in the aggregate service and interest components of
expense for the year ended December 31, 1996, and a 8.2% increase in the
accumulated postretirement benefit obligation at December 31, 1996.
F-38
<PAGE> 125
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION AND RETIREMENT PLANS -- (CONTINUED)
The Company has a continuing deferred compensation arrangement with Raymond
A. Weigel, former chairman, which provides for annual payments of $350,000.
NOTE 9. LEASE COMMITMENTS
Kysor leases certain real estate and equipment. In most cases, management
expects that in the normal course of business these leases will be renewed and
replaced by other leases. Kysor has future minimum rental payments required
through 2001 under operating leases that have initial or remaining noncancelable
lease terms in excess of one year in the following amounts, for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Future minimum rental payments............... $961 $850 $699 $616 $150
</TABLE>
In addition to fixed rentals, certain of these leases requires Kysor to pay
maintenance, property taxes, and insurance. Rental expense charged to operations
is as follows, for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals....................................... $1,749 $1,739 $1,758
</TABLE>
NOTE 10. INCOME TAXES
The provision (credit) for income tax consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Currently payable
Federal................................................... $7,056 $(2,896) $ 1,525
State and local........................................... 997 727 275
Foreign................................................... 107 121 102
------ ------- -------
Total currently payable................................ 8,160 (2,048) 1,902
------ ------- -------
Deferred
Federal................................................... 479 (2,381) (908)
State, local and foreign.................................. (11) (266) (124)
------ ------- -------
Total deferred......................................... 490 (2,647) (1,032)
------ ------- -------
Total Provision........................................ $8,650 $(4,695) $ 870
====== ======= =======
</TABLE>
F-39
<PAGE> 126
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES -- (CONTINUED)
The components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
GROSS DEFERRED TAX ASSETS:
Employee benefit plans...................................... $ 5,750 $ 4,798 $ 3,891
Postretirement health care.................................. 1,096 1,035 983
Workers' compensation/liability insurance................... 1,659 1,603 1,549
Warranty.................................................... 471 462 353
Service contract............................................ 777 829 876
Bad debts................................................... 360 530 453
Vacation pay................................................ 374 329 295
Slow-moving inventory....................................... 576 288 286
Alternative minimum tax..................................... -- 400 --
Litigation.................................................. 269 286 357
Other....................................................... 1,365 2,565 1,217
------- ------- -------
Total Deferred Tax Assets.............................. 13,297 13,125 10,260
------- ------- -------
GROSS DEFERRED TAX LIABILITIES:
Depreciation................................................ 2,125 2,169 1,984
Pension..................................................... 969 872 838
Other....................................................... 9 -- 1
------- ------- -------
Total Deferred Tax Liabilities......................... 3,103 3,041 2,823
------- ------- -------
Net Deferred Income Tax Asset............................... $ 9,594 $15,084 $ 7,437
======= ======= =======
</TABLE>
Major differences between the income taxes computed, using the United
States statutory tax rate and the actual income tax expense, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate...................... $8,332 $ 292 $936
Net nondeductible losses (nontaxable income) related to
foreign subsidiaries and other foreign expenses........... -- 3,959 376
Tax benefit related to disposition of foreign operation..... -- (8,842) --
State and local income taxes (net of federal benefit)....... 645 301 98
Life insurance.............................................. (150) (147) (172)
Other....................................................... (177) (258) (368)
------ ------- ----
Provision for Income Taxes............................. $8,650 $ 4,695 $870
====== ======= ====
</TABLE>
Income taxes paid (net of refunds) were $6,861,548, $4,273,000, and
$10,195,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Domestic operations contributed a profit of $28,998,000, $24,911,000, and
$23,321,000 to income before income taxes for 1996, 1995 and 1994, respectively.
Foreign operations contributed a profit (loss) of $1,099,000, ($5,368,000), and
($1,996,000), for the same periods. Income tax benefits of $1,676,000,
$1,342,000, and $771,000 have been credited to shareholders' equity for the
years ended December 31, 1996, 1995, and 1994, respectively, for deemed
compensation deductions attributable to stock options. Income tax benefits of
$590,000, $580,000, and $598,000 for preferred stock
F-40
<PAGE> 127
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES -- (CONTINUED)
dividends related to the Company's ESOP have been credited to shareholders'
equity in 1996, 1995, and 1994, respectively.
NOTE 11. CONTINGENT LIABILITIES
As previously reported, the Company has been involved in ongoing
proceedings relating to environmental contamination at the Cadillac Industrial
Park in Cadillac, Michigan (the "Site"). A U.S. EPA administrative order was
issued in 1995 to the Company and other potentially responsible parties (PRPs)
requiring soil and groundwater remediation at the Site. It is intended that the
remediation will be conducted through a joint effort involving other PRPs and a
Local Development Finance Authority established by the City of Cadillac
("LDFA"), which has sold approximately $7 million of nonrecourse bonds to pay
the anticipated capital costs of constructing an area-wide environmental cleanup
facility. The Company believes that the bond proceeds received by the LDFA will
be adequate to cover the capital costs of the area-wide cleanup facility. If the
proceeds are insufficient to pay the required capital costs, Kysor and the other
PRPs would be responsible for the additional costs pursuant to the pending
administrative order. It is anticipated that operating and maintenance costs of
the cleanup facility will be shared primarily by the PRPs, including Kysor, as
well as other parties within the Cadillac Industrial Park pursuant to a special
assessment district proposed by the City of Cadillac. The extent of any
assessment to Kysor cannot be determined at the present time. The Company has
reserved its right to seek mixed funding for certain costs related to the
cleanup, and will continue to pursue insurance coverage for any costs it may
incur at the Site. There still has been no determination as to the availability
or extent of such funding or insurance coverage.
Other contingent liabilities include various legal actions, proceedings and
claims which are pending or which may be instituted or asserted in the future
against the Company. For example, in 1994 the Company settled a lawsuit filed by
the State of Michigan seeking to recover past response costs, penalties and
natural resource damages concerning the Site described above. That settlement
did not affect the State's right to pursue additional claims for natural
resource damages if certain additional contamination is discovered. To the
Company's knowledge, at this juncture such additional contamination has not been
detected. Litigation is subject to many uncertainties, the outcome of individual
matters is not predictable with assurance and it is reasonably possible that
some of these other legal actions, proceedings and claims could be decided
unfavorable to the Company. Although the liability with regard to these matters
at December 31, 1996 cannot be ascertained, it is the opinion of management,
after conferring with counsel, that any liability resulting from these other
matters should not materially affect the consolidated financial position,
results of operation, or liquidity of the Company and its subsidiaries at
December 31, 1996.
NOTE 12. SUBSEQUENT EVENT (UNAUDITED)
In March of 1997, the Company's common and preferred stock was acquired by
Scotsman Industries, Inc. ("Scotsman") for an aggregate purchase price of $309
million. Concurrent with the transaction, Scotsman sold the Transportation
Products Group (which was formerly reported as a segment) to a third party for
an aggregate purchase price of $86 million plus the assumption of certain
liabilities. The Transportation Products Group ("TPG") had revenues of
$136,229,237, $154,690,727, and $148,054,042 at December 31, 1996, 1995 and
1994, respectively. Interest expense of Kysor has been allocated to TPG based on
the ratio of net assets of TPG to the sum of consolidated net assets and debt of
Kysor.
F-41
<PAGE> 128
KYSOR INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. SUBSEQUENT EVENT (UNAUDITED) -- (CONTINUED)
The following is a summary of assets and liabilities of the TPG which have
been classified as a discontinued operation in the accompanying consolidated
financial statements:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Current assets............................................. $34,177 $34,507
Net fixed assets........................................... 27,986 21,447
Other noncurrent assets.................................... 8,713 10,250
------- -------
Subtotal assets.......................................... 70,876 66,204
------- -------
Current liabilities........................................ 19,035 19,069
Noncurrent liabilities..................................... 13,785 12,936
------- -------
Subtotal liabilities..................................... 32,820 32,005
------- -------
Net assets of discontinued Transportation segment.......... $38,056 $34,199
======= =======
</TABLE>
F-42
<PAGE> 129
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 4, 1997
1,611,699 SHARES
SCOTSMAN INDUSTRIES, INC.
COMMON STOCK
PAR VALUE, $0.10 PER SHARE
------------------------
All of the 1,611,699 shares of Common Stock offered hereby (the "Shares")
which may be offered from time to time are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will not receive any
proceeds from the sale of the Shares.
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions (which may be block transactions)
on the New York Stock Exchange ("NYSE") or otherwise, in special offerings,
exchange distributions or secondary distributions pursuant to and in accordance
with the rules of the NYSE, in the over-the-counter-market, in negotiated
transactions, through the writing of options on shares (whether such options are
listed on an options exchange or otherwise), or a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions directly or to or through underwriters, broker-dealers
or agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders and/or purchasers of
shares for whom they may act (which compensation may be in excess of customary
commissions). See "Plan of Distribution." The Company will bear the costs of
this Offering, except that the Selling Stockholders will pay all brokerage
commissions and charges as well as fees and expenses of any counsel retained by
them.
On November 3, 1997, the last reported sale price of the Common Stock on
the NYSE was $26 5/16 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 130
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET
MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
2
<PAGE> 131
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION OF SUCH PERSONS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 4
Risk Factors................................ 10
The Company................................. 15
Kysor Acquisition........................... 16
Debt Offering............................... 17
Use of Proceeds............................. 17
Price Range of Common Stock and Dividends... 18
Capitalization.............................. 19
Selected Consolidated Financial and Other
Information............................... 20
Pro Forma Consolidated Financial
Information............................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.................................... 35
Management.................................. 45
Certain Transactions........................ 48
Selling Stockholders........................ 50
Description of Capital Stock................ 51
Description of Certain Indebtedness......... 54
Plan of Distribution........................ 56
Legal Matters............................... 56
Experts..................................... 56
Additional Information...................... 57
Index to Financial Statements............... F-1
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference in
this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 30, 1997 and June 29, 1997, respectively;
3. The Company's Current Reports on Form 8-K dated March 8, 1997 (as
amended by Form 8-K/A filed with the Commission on May 22, 1997), September
29, 1997 and October 22, 1997, respectively; and
4. The description of the Company's Common Stock, par value $0.10 per
share, and the Common Stock Purchase Rights contained in the Company's
Registration Statement on Form 10, filed with the Commission on February
14, 1989, as amended by Amendment No. 1 on Form 8, filed with the
Commission on March 14, 1989, Amendment No. 2 on Form 8, filed with the
Commission on March 23, 1989, Amendment No. 3 on Form 8, filed with the
Commission on March 27, 1989, and Amendment No. 4 on Form 10/A, filed with
the Commission on January 27, 1994.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed documents which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is delivered
upon written or oral request, a copy of any or all of such documents that have
been or may be incorporated by reference into this Prospectus (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to
Corporate Secretary, Scotsman Industries, Inc., 820 Forest Edge Drive, Vernon
Hills, Illinois 60061, telephone number (847) 215-4500.
------------------------
3
<PAGE> 132
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing or
incorporated by reference in this Prospectus. As used in this Prospectus, the
term the "Company" or "Scotsman" refers to Scotsman Industries, Inc. and, unless
otherwise stated or indicated by the context, its subsidiaries. As used in this
Prospectus, the term "Kysor" refers to Kysor Industrial Corporation and, unless
otherwise stated or indicated by the context, its subsidiaries, after taking
into account the sale of substantially all of the assets and related liabilities
of Kysor's Transportation Products Group described elsewhere in this Prospectus.
Unless otherwise stated, reference to the Company's 1996 "pro forma" net sales
includes Kysor's 1996 sales. Scotsman reports financial information on a 52-53
week fiscal year ending on the Sunday nearest to December 31, which fell on
December 29, 1996, December 31, 1995, January 1, 1995, January 2, 1994 and
January 3, 1993, respectively, for each of Scotsman's last five fiscal years.
Scotsman's first fiscal six months in 1997 and 1996 ended on June 29, 1997 and
June 30, 1996, respectively. Unless otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's, Boston Market, WalwMart,
Winn-Dixie, Marriott and Mobil, as well as bottlers affiliated with Coca-Cola
and Pepsi.
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales of approximately $144 million accounted for
approximately 24% of the Company's 1996 pro forma net sales. The Company
believes that its leading market positions, broad product offering, diverse
customer base, extensive distribution network and strong international presence
provide it with significant competitive advantages and position it for continued
growth.
Since its spin-off from Household International, Inc. in 1989, Scotsman has
expanded through internal growth and through a disciplined acquisition program.
The Company's internal growth has been driven primarily by increased sales of
ice machines in the United States and Europe and beverage systems in Europe. In
addition, from 1992 through 1996, the Company successfully completed and
integrated five acquisitions. As a result of these acquisitions and internal
growth, the Company's net sales increased to $356.4 million in 1996 from $168.7
million in 1992, representing a compound annual growth rate of 20.6%. In March
1997, the Company acquired Kysor for a net purchase price of approximately $299
million (the "Kysor Acquisition"). Kysor is a leading supplier of refrigerated
display cases and walk-in coolers and freezers to the supermarket and
convenience store industries. For 1996, Kysor's sales of commercial
refrigeration products were $245.1 million, an increase of 18.3% from 1995. Pro
forma for the Kysor Acquisition, the Company's 1996 net sales were $601.4
million, a 68.7% increase over the Company's reported 1996 net sales. Through
the addition of Kysor's leading market positions and complementary product
lines, the Company expects to benefit from cross-selling opportunities, as well
as synergies related to reduced overhead, increased purchasing power and shared
research and development efforts.
4
<PAGE> 133
STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP. Scotsman seeks to build and
maintain leading market positions in each of its product lines. Scotsman
believes that its leading market positions, broad product offerings, strong
brand recognition and extensive distribution capabilities position it to
compete successfully as its customers consolidate their supplier base and
expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY. To enhance
manufacturing effectiveness, Scotsman has adopted "lean manufacturing"
initiatives that have enhanced product quality, lowered product defects and
inventory costs and reduced lead times for customized products. The
Company's manufacturing processes are designed to produce a range of
different standard or customized models within each manufacturing unit,
thereby increasing efficiency while improving the Company's ability to meet
customers' delivery schedules.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT. By applying
its product design, manufacturing and refrigerant technology expertise,
Scotsman seeks to design and manufacture technically superior, durable and
energy efficient products. Scotsman also dedicates substantial resources to
new product development and customizing existing products to meet the
unique performance, size and appearance specifications of individual
customers.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR
CUSTOMER SERVICE. Scotsman has an extensive sales, distribution and service
network that reaches customers in over 100 countries and is comprised of
approximately 200 employees and approximately 3,300 distributors and
dealers. Scotsman believes that this network, which is designed to meet the
needs of customers from product design and purchase through aftermarket
sales and support, provides it with a competitive advantage.
Scotsman also pursues a growth strategy intended to strengthen its
leadership positions within its product lines. The key elements of this strategy
include:
FOCUSING ON MAJOR NATIONAL CHAINS. Scotsman targets major national
chains within the five principal industries it serves. The Company believes
that these national chains are increasingly gaining market share at the
expense of independents and that, as a large diversified manufacturer,
Scotsman is well positioned to benefit from the trend among national chains
to consolidate their supplier base.
PURSUING CROSS-SELLING OPPORTUNITIES. Scotsman actively pursues
opportunities to cross-sell its broad range of products to existing
customers. The broader product range and increased customer base resulting
from the Kysor Acquisition present significant new cross-selling
opportunities for Scotsman.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES. Over the past several
years, international sales of commercial foodservice and retail food
equipment have grown at rates substantially higher than those for the
United States. The Company expects to use its international marketing,
distribution and manufacturing capabilities as a platform to increase
penetration of growing international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS. Scotsman will continue to
explore strategic acquisitions and joint ventures that broaden the
Company's product lines, offer significant operational synergies or
increase the Company's penetration of international markets.
5
<PAGE> 134
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Selling
Stockholders............................ 1,611,699 shares
Common Stock outstanding.................. 10,555,038 shares(1)
Use of proceeds........................... The Company will not receive any proceeds from the sale
of shares of Common Stock in this Offering by the
Selling Stockholders.
New York Stock Exchange ("NYSE") symbol... SCT
</TABLE>
- -------------------------
(1) Based on the shares outstanding as of August 8, 1997 and excluding 637,287
shares then issuable upon the exercise of outstanding stock options and
942,022 shares of Common Stock that were then reserved for future grants
under the Company's stock option plans.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning
Scotsman's operations, performance and financial condition, including, in
particular, the likelihood of the Company's success in integrating acquisitions.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified under "Risk Factors" and the
Cautionary Statements included as Exhibit 99 to the Company's Form 10-K for the
fiscal year ended December 29, 1996 and elsewhere in this Prospectus. The
forward-looking statements should be considered in light of these factors.
Unless otherwise indicated by the context, when used in this Prospectus or in
the documents incorporated by reference herein, the words "anticipate,"
"believe," "estimate," "intend" and "expect" and similar expressions are
intended to identify forward-looking statements.
DEBT OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale (the "Debt Offering" and, together with this Offering, the
"Offerings") by the Company's direct wholly owned subsidiary, Scotsman Group
Inc. ("Scotsman Group"), of $100 million aggregate principal amount of its
Senior Subordinated Notes Due 2007 (the "Notes").
6
<PAGE> 135
SUMMARY SCOTSMAN CONSOLIDATED FINANCIAL AND OTHER INFORMATION
Scotsman reports financial information on a 52-53 week fiscal year ending
on the Sunday nearest to December 31, which fell on December 29, 1996, December
31, 1995, January 1, 1995, January 2, 1994 and January 3, 1993, respectively,
for each of Scotsman's last five fiscal years. Scotsman's first fiscal six
months in 1997 and 1996 ended on June 29, 1997 and June 30, 1996, respectively,
and such results are unaudited.
<TABLE>
<CAPTION>
FIRST FISCAL SIX MONTHS FISCAL YEAR
--------------------------------- ------------------------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1997(1) 1997(2) 1996 1996(1) 1996 1995 1994 1993 1992
----------- ------- ---- ----------- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Net sales................. $310,688 $271,854 $189,956 $601,435 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales............. 232,463 200,757 135,692 443,787 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............. 78,225 71,097 54,264 157,648 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses................ 46,280 41,103 30,877 89,943 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.... 31,945 29,994 23,387 67,705 40,296 34,454 28,214 17,606 14,860
Interest expense, net..... 14,510 8,781 2,837 31,334 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................... 17,435 21,213 20,550 36,371 35,017 28,128 22,798 13,371 10,185
Income taxes.............. 9,163 10,262 9,866 18,358 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary loss and
cumulative effect of
accounting changes...... 8,272 10,951 10,684 18,013 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of
$422)(3)................ (633) (633) -- -- -- -- -- -- --
Cumulative effect of
accounting changes(4)... -- -- -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income................ $ 7,639 $ 10,318 $ 10,684 $ 18,013 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock
dividends............... -- -- 562 813 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income available to
common shareholders..... $ 7,639 $ 10,318 $ 10,122 $ 17,200 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes,
fully diluted(5)........ $ .77 $ 1.01 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income per share,
fully diluted(5)........ $ .71 $ .95 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)................. $ 41,312 $ 37,393 $ 27,720 $ 86,607 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures...... 10,529 7,433 3,360 13,129 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).............. 2.1x 3.3x 7.4x 2.1x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to
interest expense........ 2.8x 4.3x 9.8x 2.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA.................. -- -- -- 4.2x 1.6x 2.1x 2.6x 1.5x 1.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------------
AS ADJUSTED(8) ACTUAL
-------------- ------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Cash and marketable securities.............................. $ 20,760 $ 20,760
Total assets................................................ 687,128 682,878
Total debt and capitalized lease obligations (including
current maturities)....................................... 367,194 362,944
Working capital............................................. 95,487 95,487
Shareholders' equity........................................ 137,527 137,527
</TABLE>
- -------------------------
(Footnotes on following page)
7
<PAGE> 136
(1) Pro forma for the Kysor Acquisition and as adjusted for the consummation of
the Debt Offering. For a detailed description of the assumptions used in the
preparation of this pro forma as adjusted financial information, see "Pro
Forma Consolidated Financial Information."
(2) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(3) The extraordinary loss resulted from one-time expenses incurred by the
Company relating to the early retirement of certain debt as part of a
refinancing effected by the Company concurrently with the Kysor Acquisition.
(4) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946; 10,808,946 and 10,700,100 for the pro forma as adjusted first
fiscal six months of 1997 and the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,728,188; 10,649,763; 9,488,965; 7,000,651
and 7,096,976 for the 1996 pro forma as adjusted fiscal year and the fiscal
years 1996, 1995, 1994, 1993 and 1992, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
(8) As adjusted for the consummation of the Debt Offering. See "Debt Offering"
and "Capitalization."
8
<PAGE> 137
SUMMARY KYSOR CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales................................................... $245,062 $207,215 $164,606
Cost of sales............................................... 185,253 159,460 128,631
-------- -------- --------
Gross profit................................................ 59,809 47,755 35,975
Selling and administrative expenses......................... 35,075 37,589 32,815
Loss on disposition of foreign operation(1)................. -- 9,335 --
-------- -------- --------
Income from operations...................................... 24,734 831 3,160
Interest expense, net....................................... 956 (26) 489
-------- -------- --------
Income before income taxes.................................. 23,778 857 2,671
Income taxes (benefit)...................................... 8,650 (4,695) 870
-------- -------- --------
Net income.................................................. $ 15,128 $ 5,552 $ 1,801
Preferred stock dividends................................... 966 987 980
-------- -------- --------
Net income available to common shareholders................. $ 14,162 $ 4,565 $ 821
======== ======== ========
OTHER INFORMATION:
EBITDA(2)................................................... $ 29,505 $ 14,061 $ 7,519
Capital expenditures........................................ 6,934 6,420 3,107
</TABLE>
- -------------------------
(1) Represents the loss on disposition of Kysor's German subsidiary. The
transaction resulted in a tax benefit of $8.8 million.
(2) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization and loss on disposition of foreign operations. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and incur debt. EBITDA should not be considered by a
prospective purchaser of Common Stock as an alternative to net income or as
an indicator of Kysor's operating performance or cash flows.
9
<PAGE> 138
RISK FACTORS
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risks set forth below:
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's business strategy includes making acquisitions that will
expand its international presence or offer complementary products and services.
See "Business -- Growth Strategy." In pursuing a strategy of acquiring other
businesses, the Company will face risks commonly encountered with growth through
acquisitions.
In March 1997, Scotsman acquired Kysor for a net purchase price of
approximately $299 million. Including the Kysor Acquisition, Scotsman has made
six acquisitions and entered into one alliance and three joint ventures since
its spin-off from Household International, Inc. in April 1989. As a result of
these acquisitions and internal growth, the Company's net sales increased from
$168.7 million for fiscal 1992 to pro forma net sales of $601.4 million for
fiscal 1996. The Kysor Acquisition is the largest acquisition undertaken by the
Company to date and will require significant integration efforts. There can be
no assurance that the Company will be able to integrate Kysor effectively or in
a timely manner or that the beneficial effects expected will be obtained even if
Kysor is integrated as contemplated. See "Kysor Acquisition."
Acquiring businesses has been and is expected to continue to be an
important element of the Company's strategy for achieving growth. Acquisitions
vary in size and may include acquisitions that are large relative to the
Company. There can be no assurance that suitable acquisition candidates will be
identified, that financing for such acquisitions will be available on
satisfactory terms, that the Company will be able to accomplish its strategic
objectives as a result of any such acquisition, that any business or assets
acquired by the Company will be integrated successfully or that integration of
acquired businesses will not divert management resources or otherwise have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company is continually evaluating possible
acquisitions and engages in discussions with acquisition candidates from time to
time.
ABILITY TO MANAGE GROWTH
Scotsman's growth will place a strain on its managerial and other
resources. From December 1993 through June 1997, the number of Company employees
increased from 915 to approximately 3,800. The Company's continued rapid growth
can be expected to place a significant strain on its management, operations,
employees and resources. There can be no assurance that the Company will be able
to manage effectively its expanding operations or achieve planned growth on a
timely or profitable basis. If the Company is unable to manage growth
effectively, its business, results of operations or financial condition could be
materially adversely affected. See "Business -- Growth Strategy."
LEVERAGE
The Kysor Acquisition significantly increased the Company's debt service
obligations. As of June 29, 1997, on a pro forma basis for the Debt Offering,
the Company's indebtedness, including capitalized leases and current maturities,
would have been approximately $367 million, or approximately 73% of its book
capitalization. As of June 29, 1997, without giving effect to the Debt Offering,
the Company's indebtedness, including capitalized leases and current maturities,
was approximately $363 million, or approximately 72% of its book capitalization.
Although the indenture to be executed in conjunction with the Debt Offering (the
"Indenture") will, and the Credit Facility does, contain covenants that limit
the incurrence by the Company, Scotsman Group and certain of their subsidiaries
of additional indebtedness, such limitations are subject to a number of
important qualifications and exceptions and the Company's indebtedness could
increase if, among other reasons, future acquisitions are financed through
additional borrowings. The Company's ability to make scheduled payments of
principal and interest or to refinance its indebtedness will depend on the
Company's operating performance and cash flows, which are affected by prevailing
economic conditions and financial, competitive and other factors beyond the
Company's control. The level of the Company's leverage from time
10
<PAGE> 139
to time could have important consequences to holders of the Common Stock,
including limiting the Company's ability to (i) obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes; (ii) adjust to changing market conditions, including business
downturns; or (iii) compete effectively with competitors who are less leveraged
than the Company. In addition, certain of the Company's borrowings under the
Credit Facility are and may continue to be at variable rates of interest, which
causes the Company to be vulnerable to increases in interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
If the Company is unable to generate sufficient cash flows to service its
debt obligations, it will have to adopt one or more alternatives, such as
reducing or delaying planned acquisitions, expansion and capital expenditures,
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these alternatives could be effected on
satisfactory terms.
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY AND THE INDENTURE
The Credit Facility contains, and the Indenture will contain, certain
restrictive covenants, including, among others, covenants with respect to the
following matters: (i) limitations on indebtedness; (ii) limitations on other
senior subordinated indebtedness; (iii) limitations on restricted payments; (iv)
limitations on sale or issuance of restricted subsidiary stock and indebtedness;
(v) limitations on transactions with affiliates; (vi) limitations on liens;
(vii) limitations on asset sales; (viii) limitations on dividends and other
payment restrictions affecting restricted subsidiaries; and (ix) restrictions on
mergers and certain transfers of assets. Although these covenants are subject to
various exceptions that are designed to allow the Company to operate without
undue restraint, there can be no assurance that such covenants will not
adversely affect its ability to finance future operations or capital needs or
engage in other business activities that may be in the interest of the Company.
In addition, the Credit Facility requires the maintenance of specified financial
ratios. The ability of the Company to comply with such provisions may be
affected by events beyond the Company's control. A breach of any of these
covenants or the inability of the Company to comply with the financial ratios
contained in the Credit Facility could result in a default under the Credit
Facility or the Indenture, which could entitle the lenders or the noteholders to
accelerate the maturity of the Credit Facility or the Notes, and could result in
cross-defaults permitting the acceleration of other indebtedness of the Company
and its subsidiaries. Such an event would have a material adverse effect on the
Company. See "Description of Certain Indebtedness."
DEPENDENCE ON CERTAIN CUSTOMERS; CUSTOMER PURCHASING PATTERNS
Although no single customer accounted for 10% or more of Scotsman's 1996
net sales on a historical or pro forma basis, some of the Company's operating
units are dependent upon a limited number of major customers, most of which do
not have long-term purchase contracts with the Company. The Company's five
largest customers represented approximately 9% of the Company's net sales in
1996 and approximately 20% of its 1996 pro forma net sales. Sales of certain
products, including, in particular, refrigerated display cases and food
preparation and storage equipment, are largely dependent upon the expansion and
renovation programs of the Company's large chain customers. Any of these
programs can result in significant revenue for the Company over a limited period
of time, followed by a decline in revenues if the customer's expansion or
upgrade program is modified or terminated. For example, the Company believes the
recently announced slowing of expansion plans by Boston Market, a major customer
of the Company, may negatively impact food preparation and storage equipment
sales in the near term. These purchasing patterns are largely beyond the control
of the Company and can result in substantial fluctuations in the Company's
operating results. Although the Company believes that its relationships with its
customers are good, changes in customer purchasing patterns could have a
material adverse effect on the sales of certain operating units and affect the
volume of the Company's sales.
11
<PAGE> 140
ECONOMIC CONDITIONS
The Company's performance is affected by fluctuations in economic
conditions in the markets in which the Company sells its products, primarily the
United States and Western Europe. The strength or weakness of these economies
may affect the rate of expansion within the restaurant, supermarket, lodging,
healthcare and convenience store industries. In the event of an economic
downturn in any of the economies in which the Company conducts business, the
Company's business, financial condition or operating results could be materially
and adversely affected.
COMPETITION
The primary markets for the Company's products are highly competitive. The
most significant competitive factors are product reliability and performance,
service and price, with the relative importance of such factors varying among
product lines. The Company has a number of competitors in each product line that
it offers. Many of the Company's competitors are small, privately owned
companies. Some of the Company's competitors, however, are divisions of larger
companies, and some have greater financial resources than the Company. The
Company's largest competitors include IMI Cornelius, plc, with whom the Company
competes in beverage systems in Europe; Hussmann Corporation, a subsidiary of
Whitman Corporation, with whom the Company competes in refrigerated display
cases and related equipment in the United States; and The Manitowoc Company,
Inc., with whom the Company competes in walk-in coolers and freezers and ice
machines. Furthermore, the Company believes that the commercial foodservice
equipment industry recently has begun to undergo significant consolidation as
foodservice chains and supermarkets reduce their supplier base. If the Company's
competitors are more successful than the Company in exploiting this
consolidation trend, the Company's profitability or market positions could be
adversely affected.
DEPENDENCE ON KEY PERSONNEL
Scotsman's success to date has depended in large part on the skills and
efforts of Richard C. Osborne, Chairman of the Board, President and Chief
Executive Officer, Donald D. Holmes, Vice President-Finance and Secretary, and
the heads of each of the operating units of the Company. While the Company has
employment agreements with certain of its executive officers, including Messrs.
Osborne and Holmes, there can be no assurance that the Company will be able to
retain the services of its officers and key employees. The loss of Messrs.
Osborne, Holmes or any of the heads of the Company's operating units could have
a material adverse effect on the Company's business, results of operations or
financial condition. See "Management."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The volume of sales of Scotsman's ice machines, food preparation and
storage equipment and beverage systems is somewhat higher in the second and
third fiscal quarters than in the first and fourth fiscal quarters. Sales of
Scotsman's refrigerated display cases and walk-in coolers and freezers are also
subject to seasonal fluctuations, with sales being typically somewhat stronger
in the second half of the fiscal year. The Company expects that, including
Kysor, the second and third fiscal quarters generally will account for a greater
portion of the annual net sales than the first and fourth fiscal quarters. As a
result of the seasonal nature of its sales, the operating results of the Company
will fluctuate from quarter to quarter and the Company may experience greater
cash needs in the second and third fiscal quarters, which could increase the
borrowing needs of the Company during these periods.
LITIGATION
The Company's results of operations can be negatively impacted by product
liability or other lawsuits and/or by warranty claims or other returns of goods.
Although the Company does not believe that outstanding claims will have a
material adverse effect on the Company, such claims, as well as any future
claims, are subject to the uncertainties attendant to litigation, and the
ultimate outcome of any such proceedings or claims cannot be predicted.
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<PAGE> 141
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
Scotsman sells products in over 100 countries and has manufacturing
operations in the United States, the United Kingdom, Germany and Italy and joint
venture interests in Australia, China, the United Kingdom and Indonesia. Sales
of the Company's products outside of the United States represented approximately
24% of the Company's 1996 pro forma net sales, and the Company anticipates that
international sales will continue to grow. International operations generally
are subject to various political and other risks that are not present in U.S.
operations, including, among other things, the risk of war or civil unrest,
expropriation and nationalization. In addition, certain international
jurisdictions restrict repatriation of the Company's non-U.S. earnings. Various
international jurisdictions also have laws limiting the right and ability of
non-U.S. entities to pay dividends and remit earnings to affiliated companies
unless specified conditions are met. In addition, sales in international
jurisdictions typically are made in local currencies, which subjects the Company
to risks associated with currency fluctuations. Currency devaluations and
unfavorable changes in international monetary and tax policies and other changes
in the international regulatory climate could materially affect the Company's
profitability or growth plans.
ENVIRONMENTAL REGULATION
The operations and properties of the Company are subject to various
federal, state, local and foreign environmental regulations and standards
governing, among other things, emissions to air, discharge to waters and the
generation, storage, handling, transportation, treatment and disposal of a
variety of hazardous and non-hazardous substances and wastes. Because the
requirements imposed by those authorities frequently are revised and
supplemented, with a trend towards greater stringency, expenditures for
compliance responsibilities are difficult to estimate and may exceed anticipated
costs.
The Company or its subsidiaries have been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state statutes in
connection with a number of hazardous waste sites, including a number of sites
associated with the former Transportation Products Group of Kysor. See "Kysor
Acquisition." Under existing environmental laws, PRPs are jointly and severally
responsible for the cost of clean-up and other remedial action at these sites,
and each PRP is therefore potentially responsible for the full cost of
remediation. As a practical matter, however, costs generally are shared with
other PRPs, based on each PRP's relative contribution to the problem. Moreover,
the purchaser of the Transportation Products Group has assumed all environmental
liabilities associated with that business. Notwithstanding the assumption of
liabilities by the purchaser, under applicable environmental laws the Company
could incur liabilities related to these and other unknown environmental
matters. Based on the foregoing factors, the relative size of the Company's
contribution to the sites for which it has been named a PRP (including those
sites associated with Kysor's former Transportation Products Group), currently
available information about the cost of remediation at such sites and the
probability that other PRPs, many of which are large, solvent public companies,
will pay the costs apportioned to them, the Company does not believe that any
liability imposed in connection with such environmental proceedings, either
individually or in the aggregate, will have a material adverse effect upon the
Company's financial condition or its results of operations. Furthermore, the
Company believes that compliance with existing and publicly proposed
environmental regulations will not have a material adverse effect on the
business, financial condition or results of operations of the Company. However,
there can be no assurance that the cost of compliance with current or future
regulations or the cost of other environmental obligations will not exceed
current estimates.
GOVERNMENTAL AND OTHER REGULATION
Scotsman's products and manufacturing processes are subject to various
health and safety regulations and standards that are subject to change and from
time to time may require significant changes in products or manufacturing
methods. For example, a new standard issued by the National Sanitation
Foundation that requires the temperature for holding many cold foods to be
lowered from 45 DEGREESF to 41 DEGREESF would, if adopted by state and local
health agencies, require the Company to make various engineering changes to its
refrigerated display cases. Although no assurances can be given, the Company
believes that health and safety matters,
13
<PAGE> 142
including the new temperature requirement for refrigerated cases, will not have
a material adverse effect on its business, results of operations 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 future problems or
new regulatory developments.
PRICE VOLATILITY
The market price of the Common Stock may be highly volatile and could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of significant new contracts or contract cancellations,
announcements of technological innovations or new products or services offered
by the Company or its competitors, changes in financial estimates by securities
analysts or other events or factors. The market price of the Common Stock also
may be affected by the Company's ability to meet analysts' expectations, and any
failure to meet such expectations, even if minor, could have a material adverse
effect on the market price of the Common Stock. In addition, the stock market
has recently experienced significant price and volume fluctuations that have
affected the market prices of equity securities of many companies and that have
often been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Common Stock.
Periods of volatility in the market price of a company's securities increase the
likelihood of securities class action litigation. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's business, results of operations or financial condition. See
"Price Range of Common Stock and Dividends."
ANTI-TAKEOVER PROVISIONS
Certain provisions in Scotsman's Restated Certificate of Incorporation,
By-Laws, Rights Agreement, Delaware law and the Indenture could have the effect
of making more difficult or discouraging an acquisition of the Company deemed
undesirable by its Board of Directors. These provisions include: (i) a
classified Board of Directors; (ii) the existence of authorized but unissued
preferred stock, which could be issued by the Company's Board of Directors
without stockholder approval, containing such terms as the Board of Directors
may approve; (iii) provisions permitting the Board of Directors to amend the
By-Laws without stockholder vote; (iv) provisions permitting the Board to
increase or decrease the size of the Board; (v) removal of directors only for
cause; (vi) a prohibition against stockholder action by written consent; (vii)
provisions prohibiting stockholders from calling a special meeting; (viii)
advance notice provisions governing stockholder proposals and stockholder
nominations of directions; (ix) the Fair Price Provision of the Company's
Restated Certificate of Incorporation; (x) the Rights Plan; and (xi) the option
granted to holders of the Notes that allows such holders to require Scotsman
Group to repurchase Notes at a redemption price equal to 101% of the principal
amount thereof, plus accrued interest to the date of redemption, upon a Change
of Control (as defined in the Indenture). In addition, certain provisions of
Delaware law applicable to the Company, including Section 203 of the Delaware
General Corporation Law, could have the effect of delaying, deferring or
preventing a change of control of the Company. For a discussion of the foregoing
provisions, see "Description of Capital Stock" and "Description of Certain
Indebtedness -- Senior Subordinated Notes."
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<PAGE> 143
THE COMPANY
Scotsman was formed in 1989 through a spin-off (the "Spin-off") effected by
Household International, Inc. ("Household") of its commercial food service
equipment operations. As a result of the Spin-off, the Company became publicly
traded on the NYSE in April 1989. At the time of the Spin-off, the Company's
businesses consisted of the ice machine businesses of Scotsman Group Inc., the
beverage systems business of Booth, Inc. ("Booth") and various other businesses,
which since have been sold. Since the Spin-off, the Company has grown both
through internal growth and a series of acquisitions. From 1992 through 1996,
the Company successfully completed and integrated the following five strategic
acquisitions:
Crystal Tips. In April 1992, the Company acquired the assets of Crystal
Tips, Inc., a domestic ice machine manufacturer ("Crystal Tips"). The purchase
enabled Scotsman to: (i) broaden its product offerings and increase its brand
recognition; (ii) improve its penetration in secondary market distribution
channels and under-represented segments such as healthcare; and (iii) combine
and re-engineer the manufacturing operations of Booth and Crystal Tips. Crystal
Tips had sales of approximately $15 million for its fiscal year ended prior to
the acquisition.
Simag. In January 1993, Scotsman acquired Simag, an ice machine
manufacturer in Italy. The Simag acquisition reinforced Scotsman's existing
manufacturing and distribution presence in Europe and provided a third Scotsman
brand in the region. Simag had sales of approximately $7 million for its fiscal
year ended prior to the acquisition.
Delfield. In April 1994, the Company acquired The Delfield Company, a maker
of food preparation and storage equipment ("Delfield"). The acquisition
provided: (i) a leading market position in a new, complementary product line;
(ii) opportunities to cross-sell ice machines and other Scotsman products into
Delfield accounts; (iii) benefits of shared knowledge across similar
technologies used by Scotsman's operating units; and (iv) improved purchasing
economies. Delfield had sales of approximately $94 million for its fiscal year
ended prior to the acquisition.
Whitlenge. Simultaneous with the April 1994 Delfield acquisition, Scotsman
acquired Whitlenge Drink Equipment Limited, a U.K.-based beverage systems
manufacturer ("Whitlenge"). Whitlenge gave the Company a leading market position
in beverage systems in the United Kingdom and enhanced the overall strength of
Scotsman's beverage systems product line. In addition, Whitlenge contributed
significantly to the Company's prominence, reputation, distribution strength and
customer relationships in European markets. Whitlenge had sales of approximately
$24 million for its fiscal year ended prior to the acquisition.
Hartek. In December 1995, Scotsman acquired Hartek Beverage Handling GmbH,
a beverage systems manufacturer based in Germany ("Hartek"). Hartek, with
Whitlenge, established the Company as the second largest manufacturer of
beverage systems in Europe, a region Scotsman believes presents substantial
growth prospects. By coordinating technology, purchasing, production and
distribution with Whitlenge, and developing progressive manufacturing
techniques, the Company improved the profitability of Hartek and expanded sales
of beverage systems in Europe. Hartek had sales of approximately $24 million for
its fiscal year ended prior to the acquisition.
In addition to these acquisitions, the Company has entered into two joint
ventures and one strategic alliance as described below:
China. Scotsman owns a 60% interest in a joint venture with Shenyang Xinle
Precision Machinery Company in Shenyang, China, which manufactures and markets
ice machines for the Chinese market. The joint venture sells its ice machines
primarily to commercial foodservice equipment distributors throughout the
People's Republic of China.
United Kingdom. Scotsman is a 50% partner in SAW Technologies Limited, a
joint venture recently formed to develop technologically advanced beverage
dispensing valves ("SAW Technologies"). The joint venture's Aztec valve, already
being sold to a major soft drink bottler in the United Kingdom, is also targeted
for other customers and markets.
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<PAGE> 144
Howe Strategic Alliance. Scotsman's strategic alliance with Howe
Corporation ("Howe") includes distribution and trademark licensing agreements,
which give the Company exclusive worldwide rights to distribute Howe industrial
ice flakers. The agreements were executed in November 1992 for an initial
five-year term. The agreements were renewed in January 1996, and renew
automatically for successive three-year terms unless terminated by either party
by giving a notice at least two years before the expiration of the then-current
term.
The Company's principal executive offices are located at 820 Forest Edge
Drive, Vernon Hills, Illinois 60061 and its telephone number is (847) 215-4500.
KYSOR ACQUISITION
REVIEW OF TRANSACTION
In March 1997, Scotsman acquired Kysor, which at the time was comprised of
the Commercial Products Group, through which Kysor's refrigerated display cases
and walk-in coolers and freezers businesses were conducted, and the
Transportation Products Group, through which Kysor sold a line of products to
the transportation industry. The Company paid approximately $309 million in cash
and assumed $35.0 million in debt, net of cash, for both the Commercial Products
Group and the Transportation Products Group. Concurrently with the Kysor
Acquisition, Scotsman sold substantially all of the assets of the Transportation
Products Group for $86.0 million (approximately $68 million net of taxes) to a
subsidiary of Kuhlman Corporation. Including estimated transaction and severance
costs of $22.5 million, the net purchase price for the Commercial Products Group
was approximately $299 million. The subsidiary of Kuhlman Corporation assumed
substantially all liabilities related to the Transportation Products Group,
including environmental and product liabilities. The Company financed the Kysor
Acquisition through a new unsecured bank facility. See "Description of Certain
Indebtedness."
Kysor's Commercial Products Group operates through its Kysor//Warren and
Kysor Panel Systems divisions. Kysor//Warren is the second largest U.S.
manufacturer of refrigerated display cases, and Kysor Panel Systems is the
leading manufacturer of walk-in coolers and freezers in the United States. In
1996, approximately 80% of Kysor's sales were to supermarket chains, with the
remaining 20% primarily to restaurants and convenience stores. In 1996, Kysor's
Commercial Products Group had sales of $245.1 million, an increase of 18.3% over
1995. This increase was driven primarily by strong demand from supermarket
chains and the inclusion of sales of NAX of North America, which was acquired by
Kysor in March 1996.
In addition, as a result of the Kysor Acquisition, the Company now owns
23.8% of the outstanding shares of Austral Refrigeration Pty. Ltd., the parent
company of Kysor//Warren Australia, Pty. Ltd., a licensee and manufacturer of
Kysor refrigerated display cases primarily in Australia ("Kysor//Warren
Australia"). Kysor//Warren Australia is a leading supplier of refrigerated
display cases in the Australian market. Kysor//Warren Australia owns a 50%
interest in an Indonesian joint venture, which the Company believes is the only
manufacturer of refrigerated display cases in Asia.
STRATEGIC RATIONALE
Scotsman believes the addition of Kysor presents significant opportunities
to increase the Company's sales and profitability. While both Scotsman and Kysor
historically have served a similar customer base, Scotsman generally has had
stronger relationships in the restaurant, lodging and healthcare industries and
Kysor has had stronger relationships with supermarket and convenience store
chains. The Company believes that significant cross-selling opportunities exist
to broaden penetration and distribution of Scotsman's products to Kysor's
customers and vice versa. The Company believes that similarities in the
marketing, distribution and product technology employed by the two companies
will facilitate integration. Additional benefits from the transaction include
combined purchasing economies, research and development efficiencies, the
sharing of best practices, particularly in manufacturing, and reductions in
overhead expense.
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<PAGE> 145
POST-ACQUISITION INTEGRATION
Scotsman has consolidated Kysor's operations from four divisions to two.
Kysor's Bangor unit, a manufacturer of a specialty line of refrigerated display
cases, was integrated with Kysor//Warren, and Kysor's Kalt and Needham
businesses, which manufacture walk-in coolers and freezers, were combined to
form Kysor Panel Systems. This reorganization and the development of coordinated
national sales efforts are expected to result in cost savings and marketing and
distribution efficiencies. In addition, Scotsman eliminated approximately 20
redundant positions, primarily located at Kysor's former headquarters in
Cadillac, Michigan, which resulted in a cost savings of $5.3 million in 1996 on
a pro forma basis.
DEBT OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale by the Company's direct wholly owned subsidiary, Scotsman Group,
of $100 million aggregate principal amount of its Senior Subordinated Notes Due
2007 to the public. The payment of principal and interest in respect of the
Notes is unconditionally guaranteed by the Company. The Indenture will contain
certain covenants, including covenants with respect to the following matters:
(i) limitations on indebtedness; (ii) limitations on other senior subordinated
indebtedness; (iii) limitations on restricted payments; (iv) limitations on sale
or issuance of restricted subsidiary stock and indebtedness; (v) limitations on
transactions with affiliates; (vi) limitations on liens; (vii) limitations on
asset sales; (viii) limitations on dividends and other payment restrictions
affecting restricted subsidiaries; and (ix) restrictions on mergers and certain
transfers of assets. See "Description of Certain Indebtedness -- Senior
Subordinated Notes." The Offerings are separate and independent transactions not
contingent upon one another. There can be no assurance that the Debt Offering
will be consummated concurrently with this Offering or at all.
The net proceeds to Scotsman Group in the Debt Offering are estimated to be
approximately $95,750,000. Scotsman Group intends to apply such net proceeds to
repay $30 million of term loan borrowings outstanding under the Credit Facility
and approximately $65,750,000 of revolving loan borrowings outstanding under the
Credit Facility. See "Capitalization" and "Description of Certain Indebtedness."
As of June 29, 1997, interest on the term loan portion of the Credit Facility
and the revolving loan portion of the Credit Facility accrued at rates ranging
from 7.0625% to 7.9375% per annum. At June 29, 1997, there was approximately
$150 million of term loan borrowings outstanding under the Credit Facility and
approximately $195 million of revolving loan borrowings outstanding under the
Credit Facility.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders in this Offering.
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<PAGE> 146
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed and traded on the NYSE under the symbol "SCT."
The following table sets forth the high and low sale prices of the Common Stock
for the periods indicated and the cash dividends per share of Common Stock
declared and paid during such periods.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
FISCAL YEAR 1995:
First Quarter............................................... $18 5/8 $16 7/8 $0.025
Second Quarter.............................................. 19 3/4 17 0.025
Third Quarter............................................... 20 15 1/8 0.025
Fourth Quarter.............................................. 17 3/4 16 0.025
FISCAL YEAR 1996:
First Quarter............................................... $18 $17 $0.025
Second Quarter.............................................. 21 17 7/8 0.025
Third Quarter............................................... 24 19 1/2 0.025
Fourth Quarter.............................................. 24 7/8 22 3/4 0.025
FISCAL YEAR 1997:
First Quarter............................................... $29 3/8 $23 $0.025
Second Quarter.............................................. 28 1/2 24 1/2 0.025
Third Quarter............................................... 28 11/16 25 1/4 0.025
Fourth Quarter (through November 3, 1997)................... 27 9/16 25 3/16
</TABLE>
For a recent sale price of the Common Stock, see the cover page of this
Prospectus. On September 9, 1997, there were approximately 4,200 holders of
record of the Common Stock.
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<PAGE> 147
CAPITALIZATION
The following table sets forth (i) the consolidated actual capitalization
of the Company as of June 29, 1997 (including short-term debt and current
maturities of capitalized lease obligations and long-term debt of the Company)
and (ii) the consolidated pro forma capitalization of the Company (including
short-term debt and current maturities of capitalized lease obligations and
long-term debt of the Company) as adjusted for the consummation of the Debt
Offering and the application of the net proceeds to be received by the Company
therefrom as described in "Debt Offering," as if such event had occurred on June
29, 1997. This table should be read in conjunction with the consolidated
historical and pro forma financial information included or incorporated by
reference elsewhere in this Prospectus, including the notes thereto.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of capitalized lease
obligations and long-term debt............................ $ 19,410 $ 19,410
Long-term debt and capitalized lease obligations:
Credit Facility........................................ 327,655 231,905
Senior Subordinated Notes Due 2007..................... -- 100,000
Industrial revenue bonds............................... 12,800 12,800
Foreign and other borrowings........................... 2,801 2,801
Capitalized lease obligations.......................... 278 278
-------- --------
Total long-term debt and capitalized lease
obligations......................................... 343,534 347,784
Shareholders' Equity:
Common stock, $0.10 par value, 50,000,000 shares
authorized; 10,736,463 actual and as adjusted shares
issued................................................ 1,074 1,074
Additional paid in capital............................. 73,320 73,320
Retained earnings...................................... 71,827 71,827
Deferred compensation and unrecognized pension cost.... (177) (177)
Foreign currency translation adjustments............... (7,062) (7,062)
Less: Common stock held in treasury:................... (1,455) (1,455)
-------- --------
Total shareholders' equity........................... 137,527 137,527
-------- --------
Total capitalization (including short-term debt and
current maturities of capitalized lease obligations
and long-term debt)................................. $500,471 $504,721
======== ========
</TABLE>
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<PAGE> 148
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The consolidated balance sheet information of the Company presented below
as of the end of each of the 1996 and 1995 fiscal years and the income statement
and other information of the Company presented below for each of the 1996, 1995
and 1994 fiscal years have been derived from, and should be read in conjunction
with, the Company's consolidated financial statements and notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants, and
which are included and incorporated by reference elsewhere in this Prospectus.
The consolidated balance sheet information of the Company presented below as of
the end of each of the 1994, 1993 and 1992 fiscal years and the income statement
and other information of the Company presented below for each of the 1993 and
1992 fiscal years have been derived from audited consolidated financial
statements of the Company not included or incorporated by reference in this
Prospectus. The balance sheet information of the Company presented below as of
June 29, 1997 and the income statement and other information of the Company
presented below for the first fiscal six months ended June 29, 1997 and June 30,
1996, respectively, have been derived from, and should be read in conjunction
with, the Company's unaudited consolidated financial statements which are
included and incorporated by reference elsewhere in this Prospectus. The
unaudited financial information includes all adjustments, consisting only of
normal recurring accruals, that the Company considers necessary for a fair
presentation of the consolidated financial position and consolidated results of
operations for the periods reflected therein. All of the consolidated financial
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other consolidated historical and pro forma financial information included
or incorporated by reference elsewhere in this Prospectus, including the notes
thereto.
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<PAGE> 149
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
FIRST FISCAL SIX
MONTHS FISCAL YEAR ENDED
------------------- ----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
------- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales..................... $271,854 $189,956 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales................. 200,757 135,692 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 71,097 54,264 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses.................... 41,103 30,877 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- --------
Income from operations........ 29,994 23,387 40,296 34,454 28,214 17,606 14,860
Interest expense, net......... 8,781 2,837 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.... 21,213 20,550 35,017 28,128 22,798 13,371 10,185
Income taxes.................. 10,262 9,866 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary
loss and effect of
accounting changes.......... 10,951 10,684 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of $422)(2).... (633) -- -- -- -- -- --
Cumulative effect of
accounting changes(3)....... -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- --------
Net income.................... $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock dividends..... -- 562 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- --------
Net income available to common
shareholders................ $ 10,318 $ 10,122 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes:
Primary(4).................. $ 1.01 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ 1.01 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Net income per share:
Primary(4).................. $ .96 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ .95 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)..................... $ 37,393 $ 27,720 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures.......... 7,433 3,360 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).................. 3.3x 7.4x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to interest
expense..................... 4.3x 9.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA...................... -- -- 1.6x 2.1x 2.6x 1.5x 1.7x
BALANCE SHEET INFORMATION:
(AT END OF PERIODS):
Cash and marketable
securities.................. $ 20,760 $ 16,699 $ 16,501 $ 15,808 $ 9,770 $ 8,462 $ 5,202
Total assets.................. 682,878 302,100 283,264 275,943 244,791 103,173 96,103
Total debt and capitalized
lease obligations (including
current maturities)......... 362,944 86,845 76,606 87,756 88,191 32,176 31,454
Working capital............... 95,487 74,488 59,321 54,828 54,565 36,318 32,355
Shareholders' equity.......... 137,527 122,655 131,712 112,319 86,463 33,994 30,146
</TABLE>
- -------------------------
(Footnotes on following page)
21
<PAGE> 150
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(3) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(4) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
The weighted average number of shares of common stock and common stock
equivalents were: 10,799,284 and 9,228,046 for the first fiscal six months
of 1997 and 1996, respectively; and 9,601,422; 8,983,709; 7,980,996;
7,000,651 and 7,096,976 for the 1996, 1995, 1994, 1993 and 1992 fiscal
years, respectively.
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946 and 10,700,100 for the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,649,763; 9,488,965; 7,000,651 and 7,096,976
for the 1996, 1995, 1994, 1993 and 1992 fiscal years, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
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<PAGE> 151
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial statements for the fiscal
six months ended June 29, 1997 and the fiscal year ended December 29, 1996 are
presented to illustrate the estimated effects of the completion of the Kysor
Acquisition and the financing thereof and the consummation of the Debt Offering
as if such transactions had occurred at the beginning of the periods shown. See
"Debt Offering."
The Kysor Acquisition was accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values which are subject to further refinement,
including final appraisals and other analyses, with appropriate recognition
given to the effect of current interest rates and income taxes.
The pro forma consolidated financial statements do not purport to represent
the financial position or results of operations that would have resulted if the
transactions had been consummated on the dates assumed or the results of
operations to be expected in the future. In addition to certain cost savings
reflected in the pro forma consolidated income statements, management believes
that certain additional cost savings and revenue enhancements may be realized
following the Kysor Acquisition. No assurances can be made as to the amount of
cost savings or revenue enhancements, if any, that actually will be realized.
See "Kysor Acquisition -- Strategic Rationale" and "Kysor Acquisition --
Post-Acquisition Integration."
The pro forma consolidated financial information is based on certain
assumptions and adjustments described in the notes thereto. Such financial
information should be read in conjunction with such notes, the discussion under
"Kysor Acquisition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and the consolidated financial
statements and related notes of Scotsman and Kysor included and incorporated by
reference in this Prospectus.
23
<PAGE> 152
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED JUNE 29, 1997
-----------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION DEBT OFFERING PRO FORMA
ACTUAL(1) ACTUAL(2) ADJUSTMENTS(3) PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- --------- -------------- --------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $271,854 $38,834 $ -- $310,688 $ -- $310,688
Cost of sales....................... 200,757 31,583 123(4) 232,463 -- 232,463
-------- ------- ------- -------- ------- --------
Gross profit........................ 71,097 7,251 (123) 78,225 -- 78,225
Selling and administrative
expenses.......................... 41,103 9,076 (3,899)(5) 46,280 -- 46,280
-------- ------- ------- -------- ------- --------
Income from operations.............. 29,994 (1,825) 3,776 31,945 -- 31,945
Interest expense, net............... 8,781 68 4,573(6) 13,422 1,088(7) 14,510
-------- ------- ------- -------- ------- --------
Income before income taxes.......... 21,213 (1,893) (797) 18,523 (1,088) 17,435
Income taxes........................ 10,262 (795) 131(8) 9,598 (435)(8) 9,163
-------- ------- ------- -------- ------- --------
Income before extraordinary loss.... 10,951 (1,098) (928) 8,925 (653) 8,272
Extraordinary loss (net of income
taxes of $422).................... (633)(9) -- -- (633) -- (633)
-------- ------- ------- -------- ------- --------
Net income.......................... $ 10,318 $(1,098) $ (928) $ 8,292 $ (653) $ 7,639
Preferred stock dividends........... -- 176 (176)(10) -- -- --
-------- ------- ------- -------- ------- --------
Net income available to common
shareholders...................... $ 10,318 $(1,274) $ (752) $ 8,292 $ (653) $ 7,639
======== ======= ======= ======== ======= ========
Income per share before
extraordinary loss:
Primary(11)..................... $ 1.01 $ .77
-------- --------
Fully diluted(12)............... $ 1.01 $ .77
-------- --------
Net income per share:
Primary(11)..................... $ .96 $ .71
-------- --------
Fully diluted(12)............... $ .95 $ .71
-------- --------
</TABLE>
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) Results included for Kysor are those from continuing operations through
March 9, 1997. The results of the discontinued Transportation Products
Group are excluded.
(3) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed.
(4) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(5) Represents the following adjustments:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(i) Net decrease in administrative expenses due to the
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(1,489)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (412)
(iii) Net increase in the amortization of goodwill recorded as a
result of the Kysor Acquisition;............................ 874
(iv) One-time costs incurred in anticipation of the completion of
the Kysor Acquisition; and.................................. (2,917)
(v) Incremental depreciation expense resulting from the
recording of property, plant and equipment of Kysor at fair
value....................................................... 45
-------
$(3,899)
=======
</TABLE>
(6) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the Kysor Acquisition and
refinance certain debt of Scotsman and Kysor (the "Kysor Debt") and the
amortization of fees incurred in conjunction with the execution of the
Credit Facility.
(7) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Debt Offering."
(8) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and the Debt Offering, net of non-deductible goodwill.
(9) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(10) Represents the elimination of preferred stock dividends for Kysor due to
the purchase of the outstanding preferred stock of Kysor in conjunction
with the Kysor Acquisition.
(11) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 10,799,284 for the
actual and pro forma as adjusted periods.
(12) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,808,946.
24
<PAGE> 153
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1996
----------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION DEBT OFFERING PRO FORMA
ACTUAL ACTUAL(1) ADJUSTMENTS(2) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- --------- -------------- --------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $356,373 $245,062 $ -- $601,435 $ -- $601,435
Cost of sales......................... 257,942 185,253 592(3) 443,787 -- 443,787
-------- -------- -------- -------- ------- --------
Gross profit.......................... 98,431 59,809 (592) 157,648 -- 157,648
Selling and administrative expenses... 58,135 35,157 (3,349)(4) 89,943 -- 89,943
-------- -------- -------- -------- ------- --------
Income from operations................ 40,296 24,652 2,757 67,705 -- 67,705
Interest expense, net................. 5,279 874 23,006(5) 29,159 2,175(6) 31,334
-------- -------- -------- -------- ------- --------
Income before income taxes............ 35,017 23,778 (20,249) 38,546 (2,175) 36,371
Income taxes.......................... 16,449 8,650 (5,871)(7) 19,228 (870)(7) 18,358
-------- -------- -------- -------- ------- --------
Net income............................ $ 18,568 $ 15,128 $(14,378) $ 19,318 $(1,305) $ 18,013
Preferred stock dividends............. 813 966 (966)(8) 813 -- 813
-------- -------- -------- -------- ------- --------
Net income available to common
shareholders........................ $ 17,755 $ 14,162 $(13,412) $ 18,505 $(1,305) $ 17,200
======== ======== ======== ======== ======= ========
Net income per share:
Primary(9).......................... $ 1.85 $ 1.79
-------- --------
Fully diluted(10)................... $ 1.73 $ 1.68
-------- --------
</TABLE>
- -------------------------
(1) Results included for Kysor are those from continuing operations. The
results of the discontinued Transportation Products Group are excluded.
(2) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed.
(3) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(4) Represents the following adjustments:
<TABLE>
<S> <C> <C>
(i) Net decrease in administrative expenses due to the
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(5,957)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (1,979)
(iii) Net increase in the amortization of goodwill recorded from
the purchase of Kysor by Scotsman; and...................... 4,374
(iv) Incremental depreciation expense resulting from the
recording of property, plant and equipment at fair value.... 213
-------
$(3,349)
=======
</TABLE>
(5) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the acquisition of Kysor
and refinance certain debt of Scotsman and Kysor and the amortization of
fees incurred in conjunction with the execution of the Credit Facility.
(6) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Debt Offering."
(7) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and the Debt Offering, net of non-deductible goodwill.
(8) Represents the elimination of preferred stock dividends for Kysor due to
the purchase of the outstanding preferred stock of Kysor in conjunction
with the Kysor Acquisition.
(9) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 9,601,422 for the actual
and pro forma as adjusted periods.
(10) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,728,188.
25
<PAGE> 154
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 29, 1996
------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION DEBT OFFERING PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS(1) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ------ -------------- --------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash
investments................. $ 16,501 $ 8,354 $ -- $ 24,855 $ -- $ 24,855
Trade accounts and notes
receivable, net of
allowances.................. 58,734 34,654 -- 93,388 -- 93,388
Inventories................... 52,530 26,900 -- 79,430 -- 79,430
Deferred income taxes......... 4,708 4,927 14,520(2) 24,155 -- 24,155
Other current assets.......... 5,101 928 1,560(3) 7,589 -- 7,589
-------- -------- -------- -------- -------- --------
Total current assets..... 137,574 75,763 16,080 229,417 -- 229,417
Properties and equipment, net..... 46,659 29,732 6,670(4) 83,061 -- 83,061
Goodwill, net..................... 94,975 6,474 184,553(5) 286,002 -- 286,002
Deferred income taxes............. -- 4,667 14,598(6) 19,265 -- 19,265
Other noncurrent assets........... 4,056 33,770 2,842(7) 40,668 4,250(8) 44,918
Net assets of discontinued
operations...................... -- 38,656 (38,656)(9) -- -- --
-------- -------- -------- -------- -------- --------
Total assets............. $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Short-term debt and current
maturities of capitalized
lease obligations and
long-term debt.............. $ 16,317 $ 5,799 $ (5,799)(10) $ 16,317 $ -- $ 16,317
Trade accounts payable........ 22,344 14,046 -- 36,390 -- 36,390
Accrued income taxes.......... 6,302 1,812 18,000(11) 26,114 -- 26,114
Accrued expenses.............. 33,290 16,928 18,922(12) 69,140 -- 69,140
-------- -------- -------- -------- -------- --------
Total current
liabilities............ 78,253 38,585 31,123 147,961 -- 147,961
Senior Subordinated Notes Due
2007............................ -- -- -- -- 100,000(13) 100,000
Long-term debt and capitalized
lease obligations............... 60,289 32,822 248,318(14) 341,429 (95,750)(13) 245,679
Deferred income taxes............. 3,710 -- 3,695(6) 7,405 -- 7,405
Other noncurrent liabilities...... 9,300 14,247 6,359(15) 29,906 -- 29,906
-------- -------- -------- -------- -------- --------
Total liabilities........ 151,552 85,654 289,495 526,701 4,250 530,951
Shareholders' Equity:
Preferred stock............... -- 6,244 (6,244)(16) -- -- --
Common stock.................. 1,073 5,935 (5,935)(16) 1,073 -- 1,073
Additional paid in capital.... 73,053 8,742 (8,742)(16) 73,053 -- 73,053
Retained earnings............. 62,036 82,343 (82,343)(16) 62,036 -- 62,036
Deferred compensation and
unrecognized pension cost... (117) -- -- (117) -- (117)
Note receivable -- common
stock....................... -- (1,047) 1,047(16) -- -- --
Foreign currency translation
adjustments................. (2,877) 1,191 (1,191)(16) (2,877) -- (2,877)
Less: Common stock held in
treasury.................... (1,456) -- -- (1,456) -- (1,456)
-------- -------- -------- -------- -------- --------
Total shareholders'
equity................. 131,712 103,408 (103,408) 131,712 0 131,712
-------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
</TABLE>
- -------------------------
(Footnotes on following page)
26
<PAGE> 155
- -------------------------
(1) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed.
(2) Represents the tax benefit derived from the exercise of stock options by
former option holders of Kysor prior to the closing of the Kysor
Acquisition.
(3) Represents the estimated settlement of final accounts between Kuhlman
Corporation, the purchaser of Kysor's Transportation Products Group, and
Scotsman.
(4) Represents the adjustment to record the net book value of Kysor's
properties and equipment at their estimated fair values.
(5) Represents the adjustment to record goodwill and other intangible assets
acquired.
(6) Represents the deferred tax effect of purchase accounting and financing
transactions.
(7) Represents the following adjustments:
<TABLE>
<C> <S> <C>
(i) Elimination of previously existing unrecognized net gain,
unrecognized prior service cost, and unrecognized net asset
for Kysor's defined benefit plans;.......................... $ 3,629
(ii) Estimated costs of the Credit Facility; and................. 5,000
(iii) Monetization of cash surrender value of certain life
insurance policies held by Kysor............................ (5,787)
-------
$ 2,842
=======
</TABLE>
(8) Reflects the capitalization of the estimated amount of (i) underwriting
discounts and commissions to be paid by the Company in the Debt Offering,
(ii) fees and expenses to be paid by the Company in connection with the
Credit Facility Amendment, as described under "Description of Certain
Indebtedness -- Credit Facility," and (iii) other fees and expenses to be
paid by the Company in connection with the Offerings.
(9) Represents the net assets of the Transportation Products Group of Kysor.
Pre-tax proceeds of $86 million were used to reduce borrowings under the
Credit Facility.
(10) Scotsman retired the short-term debt of Kysor assumed by Scotsman and
refinanced a portion of its short-term debt outstanding at December 29,
1996 through utilization of the Credit Facility.
(11) Represents the estimated tax payment on the gain associated with the sale
of the Transportation Products Group of Kysor.
(12) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(i) The estimated costs of closing Kysor facilities;............ $ 2,359
(ii) Severance and other employee benefits payable to employees
of Kysor; and............................................... 13,267
(iii) Acquisition costs........................................... 3,296
-------
$18,922
=======
</TABLE>
(13) Represents the issuance of the Notes and the use of the net proceeds
therefrom as described under "Debt Offering."
(14) Represents the net increase in Credit Facility resulting from (i) the
financing of the Kysor Acquisition, including the application of cash
received from the sale of the Transportation Products Group to reduce
borrowings under the Credit Facility; (ii) the refinancing of approximately
$45 million of Scotsman's long-term debt outstanding as of December 29,
1996, through utilization of the Credit Facility; and (iii) the refinancing
of approximately $33 million of long-term debt of Kysor through utilization
of the Credit Facility.
(15) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(i) Severance and other employee benefits payable;.............. $4,297
(ii) Elimination of previously unrecognized loss, unrecognized
prior service cost and unrecognized net obligation for
Kysor's defined benefit and post-retirement plans; and...... 1,367
(iii) Other....................................................... 695
------
$6,359
======
</TABLE>
(16) Represents the elimination of Kysor equity resulting from the Kysor
Acquisition.
27
<PAGE> 156
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of results of operations and capital
resources and liquidity should be read in conjunction with the Company's and
Kysor's audited consolidated financial statements and notes thereto included and
incorporated by reference elsewhere in this Prospectus. In addition to
historical information, the following discussion and analysis of financial
condition and results of operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those anticipated as a result of unforeseen factors. For a
discussion of certain factors that could cause actual results to differ from
those anticipated, see "Risk Factors" and the Cautionary Statements included in
Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996, which is incorporated herein by reference. Unless otherwise
indicated by the context, when used in the following discussion or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect," and similar expressions are intended to
identify forward-looking statements.
OVERVIEW
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries. The Company sells its products in over 100
countries through multiple distribution channels and has manufacturing
capabilities in the United States, the United Kingdom, Germany and Italy and
interests in joint ventures in Australia, China, the United Kingdom and
Indonesia.
Kysor Acquisition. In March 1997, the Company acquired Kysor for a net
purchase price of approximately $299 million. Due to the significance of the
Kysor Acquisition, the Company's future operating results and capital structure
will be materially different from, and will not be comparable to, prior periods.
For fiscal year 1996, Kysor's sales of commercial refrigeration products were
$245.1 million, an increase of 18.3% from 1995. Combining Kysor's 1996 sales
with those of the Company for the comparable period results in pro forma net
sales for the Company of $601.4 million, a 68.7% increase over the Company's
reported 1996 sales. The Company's operating income in 1997 is expected to
increase significantly as a result of the Kysor Acquisition and associated
benefits, while amortization of goodwill and interest expense also are expected
to increase significantly. Kysor's results are expected to be accretive to
Scotsman's fully diluted earnings per share in the second half of 1997 and for
the full year. The Company expects that, including Kysor, the second and third
fiscal quarters generally will account for a greater portion of the annual net
sales of the Company than the first and fourth fiscal quarters.
Net Sales. The Company's revenues are diversified among its five product
lines, with ice machines and refrigerated display cases, its two largest product
lines, each representing approximately 29% of the Company's 1996 pro forma net
sales, and food preparation and storage equipment, walk-in coolers and freezers
and beverage systems representing approximately 19%, 12% and 11% of the
Company's 1996 pro forma net sales, respectively. In 1996, international sales
of Scotsman's and Kysor's products were approximately $144 million, which
accounted for approximately 24% of the Company's 1996 pro forma net sales, and
the Company anticipates that international sales will continue to grow.
Cost of Sales. The principal elements of cost of sales are raw materials
(such as stainless steel, galvanized steel, aluminum and copper), labor and
manufacturing overhead. The Company's costs are affected by fluctuating raw
material costs. Because of the large quantities of raw materials purchased by
the Company, it is able to buy raw materials at prices that are competitive. The
Company has a number of manufacturing facilities for its five product lines,
and, accordingly, the Company's overall gross margin is impacted by its product
mix, raw material costs and plant utilization rates.
28
<PAGE> 157
Selling and Administrative Expenses. Selling and administrative expenses
include salaries, wages and related expenses associated with developing,
marketing and selling the Company's products. In addition, selling and
administrative expenses include general corporate overhead and costs associated
with various administrative functions. While certain of these expenses vary with
the level of net sales, many are relatively fixed over wide ranges of unit
volume.
Goodwill. The goodwill associated with the businesses acquired by Scotsman
through 1996 is being amortized over 40 years using the straight-line method.
The Company also will amortize the goodwill associated with the Kysor
Acquisition over 40 years using the straight-line method.
KYSOR ACQUISITION PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated financial information included elsewhere herein
gives effect to, among other things, the Kysor Acquisition. See "Pro Forma
Consolidated Financial Information."
On a pro forma basis, the Company's net sales for fiscal 1996 would have
been $601.4 million, compared to actual net sales of $356.4 million for that
period. Pro forma net sales of the Company include sales by Kysor's Commercial
Products Group, but not sales by Kysor's former Transportation Products Group,
which was sold simultaneously with the closing of the Kysor Acquisition.
Pro forma income from operations for the Company for fiscal 1996 would have
been $67.7 million, compared to actual operating income of $40.3 million for the
same period. The increase in operating income of the Company on a pro forma
basis is the result of the addition of $27.4 million of pro forma Kysor
operating income, reflecting the following: a reduction in administrative
expenses due to the elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two; certain favorable defined
benefit plan adjustments; the effect of the incremental increase in the
amortization of goodwill recorded from the purchase of Kysor by Scotsman; and
the incremental depreciation expense caused by the recording of property, plant
and equipment at fair value. Although the Company's pro forma and actual income
from operations were 11.3% of net sales for fiscal 1996, the Company believes
that potential synergies created by the Kysor Acquisition will improve future
operating margins for the Company.
Pro forma net income for fiscal 1996 would have been $18.5 million,
reflecting the inclusion of Kysor's operating income, incremental interest
expense resulting from additional borrowings related to financing the Kysor
Acquisition and associated income tax expense.
The Kysor Acquisition is being treated for accounting purposes as a
purchase under Accounting Principles Board Opinion No. 16. The excess purchase
price over the fair value of the identifiable assets and liabilities acquired
was approximately $192 million, which was allocated to goodwill and other
intangibles and is being amortized on a straight-line basis over 40 years.
29
<PAGE> 158
RESULTS OF OPERATIONS
The following table sets forth certain items from Scotsman's historical
statements of income expressed as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
FIRST FISCAL
SIX MONTHS FISCAL YEAR
---------------- ---------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 73.8 71.4 72.4 72.9 71.5
----- ----- ----- ----- -----
Gross profit........................................ 26.2 28.6 27.6 27.1 28.5
Selling and administrative expenses................. 15.2 16.3 16.3 16.5 17.9
----- ----- ----- ----- -----
Income from operations.............................. 11.0 12.3 11.3 10.6 10.6
Interest expense, net............................... 3.2 1.5 1.5 1.9 2.0
----- ----- ----- ----- -----
Income before income taxes.......................... 7.8 10.8 9.8 8.7 8.6
Income taxes........................................ 3.8 5.2 4.6 3.9 3.8
----- ----- ----- ----- -----
Income before extraordinary loss.................... 4.0 5.6 5.2 4.8 4.8
Preferred stock dividends........................... -- .3 .2 .4 .3
Extraordinary loss(1)............................... .2 -- -- -- --
----- ----- ----- ----- -----
Net income.......................................... 3.8% 5.3% 5.0% 4.4% 4.5%
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Net of income taxes.
Six Months ended June 29, 1997, compared to six months ended June 30, 1996
The Company's net sales increased by $81.9 million, or approximately 43%,
to $271.9 million for the six months ended June 29, 1997 from $189.9 for the
first six months of 1996. Results for the first six months of 1997 included
sales from March 10 through June 29 of $87.7 million from the Commercial
Products Group of Kysor, which was acquired by the Company in March 1997.
Sales of refrigerated display cases and walk-in coolers and freezers by
Kysor for the period from March 10, 1997 through June 29, 1997 were $87.7
million, which represented approximately 32% of Scotsman's net sales in the
first half of 1997. On a pro forma basis, sales of refrigerated display cases
and walk-in coolers and freezers by Kysor for the first half of 1997 were $126.5
million, which represented approximately 41% of the Company's pro forma net
sales in the first half of 1997. Kysor's net sales for the first half of 1997
increased by $12.7 million, or approximately 11%, from $113.8 million in the
comparable period of 1996. Management believes that sales of the Kysor business
will remain strong in the second half of 1997, although delivery of orders from
Kysor's supermarket clients has been deferred to future periods at a greater
degree than anticipated.
Ice machine sales, which represented approximately 32% of net sales in the
first half of 1997, decreased by $9.5 million, or approximately 10%, to $86.9
million in the first half of 1997 from $96.4 million in the same period of 1996.
The decline in ice machine sales resulted from lower sales in Europe and the
United States due to soft market conditions in both regions, and high
distributor inventories in Europe at the beginning of the period. Market
conditions for the European businesses appear to be stabilizing and management
believes sales comparisons in that region should improve in the second half of
1997 as compared to 1996. The strong U.S. dollar also adversely impacted
European ice machine sales in U.S. dollar terms. Softness in the U.S. market
appears attributable to cool weather conditions in the spring and early summer,
and some slowdown in U.S. restaurant chain expansion activity.
Food preparation and storage equipment sales, which represented
approximately 22% of the Company's net sales in the first half of 1997,
increased by $8.0 million, or approximately 16%, in the first half of 1997 from
$50.2 million in the same period of 1996. An increase in sales at the Company's
Delfield business to Boston
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Market, one of Delfield's major customers, was the primary driver of the
increase. Boston Market's announced slowing of expansion plans will likely
soften the rate of sales increase in the near term.
Beverage dispensing equipment sales, which represented approximately 13% of
the Company's net sales in the first half of 1997, decreased by $1.2 million, or
approximately 3%, in the first half of 1997 from $37.7 million in the same
period of 1996. Sales gains by the Company's U.K.-based beverage dispensing
business were offset by soft market conditions for the Company's dispensing
business in Germany and in the United States. The strong U.S. dollar also
adversely impacted beverage dispensing equipment sales in U.S. dollar terms.
The Company's gross profit increased by $16.8 million, or approximately
31%, to $71.1 million in the first half of 1997 from $54.3 million in the first
half of 1996, due to the inclusion of Kysor's results of operations subsequent
to its acquisition by the Company in March 1997. However, the Company's gross
profit margin decreased as a percentage of net sales to 26.2% in the first half
of 1997 from 28.6% in the first half of 1996. The reduction in gross profit
margins is partially due to lower worldwide ice machine sales, and higher
production costs of food preparation and storage equipment. Also contributing to
the decline in gross profit margins was the inclusion of the results of Kysor,
which historically has reported lower gross profit margins. The Company's
Delfield business continues to focus on internal productivity improvement, and
management believes that margin improvement will occur at that unit over the
next 12 months.
Selling and administrative expenses increased by $10.2 million, or
approximately 33%, to $41.1 million in the first half of 1997 from $30.8 million
in the first half of 1996. The increase in selling and administrative expenses
is attributable to the inclusion of Kysor results subsequent to its acquisition
by the Company in March 1997. As a percentage of net sales, selling and
administrative expenses decreased to 15.1% in the first half of 1997 from 16.3%
reported in the first half of 1996. The percentage decrease is primarily
attributable to Kysor business units which, although they have historically
reported lower gross profit margins, also have lower selling and administrative
expenses as a percentage of net sales as compared to the balance of the
Company's businesses.
Income from operations increased by $6.6 million, or 28.2%, to $30.0
million in the first half of 1997 from $23.4 million in the first half of 1996,
which primarily reflects Kysor's contribution to the Company's profits. As a
percentage of net sales, income from operations decreased to 11.0% in the first
half of 1997 from 12.3% in the same period of 1996. The decline is a result of
the lower gross profit margins and an additional $1.2 million of amortization of
intangibles resulting from the Kysor Acquisition.
Net interest expense increased by $6.0 million to $8.8 million in the first
half of 1997 from $2.8 million in the first half of the prior year as a result
of the increased domestic borrowings incurred by the Company to fund the Kysor
Acquisition.
The Company's overall income tax rate increased to 48.4% in the first half
of 1997 from 48.0% in the first half of 1996. The higher income tax rate is
primarily attributable to the impact of $1.2 million of additional amortization
of intangibles resulting from the Kysor Acquisition.
Net income, before a one-time after-tax charge of $633,000 incurred for the
early retirement of $20 million of 11.43% private placement debt, increased by
$.3 million, or approximately 2%, to $11.0 million in the first half of 1997
from $10.7 million in the first half of 1996. On a fully diluted basis, earnings
per share, before the one-time charge, increased by $.01, or approximately 1%,
to $1.01 in the first half of 1997 from $1.00 in the first half of 1996. Net
income, including the one-time charge, declined by $.4 million, or 3.4%, to
$10.3 million in the first half of 1997 from $10.7 million in the first half of
1996. On a fully diluted basis, earnings per share, including the one-time
charge, declined by $0.05, or 5.0%, to $.95 in the first half of 1997 from $1.00
in the first half of 1996.
Management believes that earnings per share for fiscal 1997 may be slightly
below the $1.73 per share for fiscal 1996, before the one-time charge described
above in the first fiscal quarter of 1997.
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Year ended December 29, 1996 ("1996"), compared with year ended December
31, 1995 ("1995")
The Company experienced strong operating results in 1996 compared with
1995. Sales increased in many of the Company's businesses and operating income
as a percentage of sales increased as well. These positive operating results
were largely attributable to the inclusion of a full year's operations of
Hartek, which was purchased by the Company on December 31, 1995, strong growth
at Whitlenge, solid sales gains from the Company's European ice machine
businesses and a continued emphasis on cost containment.
The Company's net sales increased by $32.1 million, or 10%, to a record
$356.4 million in 1996 from $324.3 million in 1995.
Ice machine sales, which represented 49% of total sales of the Company in
1996, increased by $6.5 million, or 4%, to $176.0 million in 1996 from $169.5
million in 1995 primarily due to 15% growth in sales from European operations
while domestic sales of ice machines remained relatively constant.
Food preparation and storage equipment sales, which represented 29% of
total sales of the Company in 1996, remained constant compared to 1995,
reflecting a decline in European bakery equipment sales and a modest increase in
sales of food preparation equipment by Delfield, which were limited by a slowing
of the domestic market for such products. Sales in this product category are
expected to increase in 1997 due to Delfield's designation by Boston Market as
sole supplier of serving line equipment and certain related products.
Beverage systems sales, which represented 19% of total sales of the Company
in 1996, increased by $27.6 million, or 69%, to $67.6 million in 1996 from $40.0
million in 1995, driven primarily by the inclusion of the operating results of
Hartek and growth of 24% at Whitlenge due to increasing their export sales and a
strong domestic beer market in the United Kingdom.
Niche products sales, which represented 3% of total company sales in 1996,
decreased by $2.3 million, or 21%, to $9.2 million in 1996 from $11.5 million in
1995, driven primarily by a lower volume of certain contract products and
ventilation equipment.
The Company's gross profit increased by $10.5 million, or 12%, to $98.4
million in 1996 from $87.9 million in 1995. The Company's gross profit margin
increased to 27.6% of total sales in 1996 from 27.1% of total sales in 1995 due
to selling price increases in certain products, moderating material costs and
the impact of higher sales in relation to a base of certain fixed production
costs. These gains were partially offset by higher production costs at Delfield
due to inefficiencies incurred while implementing process improvements and
organizational changes in anticipation of future growth requirements.
Selling and administrative expenses increased by $4.7 million, or 9%, to
$58.1 million in 1996 from $53.4 million in 1995. Although selling and
administrative expenses increased due to the inclusion of Hartek, selling and
administrative expenses as a percentage of total sales of the Company declined
to 16.3% in 1996 from 16.5% in 1995, primarily due to higher overall sales and
lower advertising costs.
Income from operations increased by $5.8 million, or 17%, to $40.3 million
in 1996 from $34.5 million in 1995 primarily due to increased sales with higher
associated gross margins and the continued benefit of cost containment plans
initiated during 1996 and in prior years.
Net interest expense decreased by $1.0 million, or 17%, to $5.3 million in
1996 from $6.3 million in 1995 primarily due to the Company's lower average debt
levels and a favorable interest rate environment.
Income taxes increased by $3.7 million to $16.4 million in 1996 from $12.7
million in 1995 due to higher income from operations and a higher effective tax
rate. The Company's tax rate increased to 47.0% in 1996 from 45.2% in 1995
primarily due to the higher percentages of sales generated from foreign
operations with higher relative tax rates.
Overall, net income increased by $3.2 million, or 21%, to $18.6 million in
1996 from $15.4 million in 1995. On a fully diluted basis, earnings per share
increased by $0.28, or 19%, to $1.73 in 1996 from $1.45 in 1995. Of note, the
effects of fluctuations in currency exchange rates on the Company's results of
operations were immaterial.
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Year ended December 31, 1995 ("1995"), compared with year ended January 1,
1995 ("1994")
The Company's net sales increased 22% in 1995, to $324.3 million, compared
with $266.6 million in 1994. Strong gains in worldwide ice machine sales and the
inclusion of Delfield and Whitlenge results for the full year were primary
contributors to this growth.
Ice machine sales increased 13% from the prior year and represented 52% of
total sales in 1995. Domestic ice machine sales were up 7%, a significantly
greater gain than the market as a whole. New products and expansion of the
distribution system contributed to the share gain. Sales of ice machines outside
the U.S. increased more than 20% due to improvement in Western European markets
and substantial sales increases to the Asia-Pacific region. In December 1995 the
Company's joint venture in Shenyang, China began production of ice machines to
be sold in the domestic China market.
Sales of food preparation and storage equipment increased 39% from 1994 to
1995 due to the inclusion of results for Delfield for a full year in 1995 versus
a partial year (from April 29, 1994) for 1994. Pro forma full-year sales of
these products, as if Delfield had been acquired at the beginning of 1994, were
up 1%. Reduced sales from Delfield to a few large national accounts were largely
offset by sales to other customers. Food preparation and storage equipment
represented approximately one-third of total Company sales in 1995.
The Company's 1995 worldwide beverage systems sales increased 23% versus
the prior year due to the inclusion of Whitlenge's sales for only eight months
of 1994. On a full-year basis, beverage systems realized increased sales of 5%,
compared with the prior year, primarily due to Whitlenge's increased penetration
of continental European markets. Sales of this equipment accounted for 12% of
1995 Company sales. Niche products, including ventilation equipment and certain
contract products, comprised the balance of the Company's sales.
Gross profit increased significantly in dollars but declined as a
percentage of sales, to 27.1% in 1995 from 28.5% in 1994, as a result of the
full-year inclusion of Delfield and Whitlenge results, which historically have
had lower gross profit margins. The impact of the increases of cost of materials
and a shift in sales mix at Delfield toward customers served by higher-cost
distribution channels also impacted gross profit in 1995.
Selling and administrative expenses for the year were up substantially in
dollars, again due in large measure to acquisitions. As a percentage of sales,
however, selling and administrative costs declined to 16.5% from 18.0% in the
prior year due to lower litigation-related costs, favorable health claims costs
and the full-year inclusion of Delfield and Whitlenge and their historically
lower ratios.
Income from operations increased $6.2 million, or 22%, from the prior year
as a result of the above mentioned factors.
Interest expense, net, increased $0.9 million due to the higher average
debt levels associated with the Delfield and Whitlenge acquisitions. A higher
effective income tax rate of 45.2% in 1995, compared with 43.9% in 1994,
reflects a greater proportion of income from the Company's higher-taxed Italian
subsidiaries.
1995 net income of $15.4 million and fully diluted net income per share of
$1.45 were record highs for Scotsman Industries. Hartek, acquired on December
31, 1995, had no impact on the income statement for the year. The effect of
changes in currency exchange rates was immaterial on the Company's results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's liquidity requirements have arisen primarily
from the need to fund its working capital, capital expenditures, acquisitions
and interest expense, including fixed obligations associated with debt or lease
obligations. The Company has met these liquidity requirements through use of
funds generated from operations, along with financing from various sources.
The Company expects to continue to generate significant cash flow from
operations, which will be used to fund the Company's existing operations and
internal growth. Increased levels of working capital, capital expenditures and
interest expense associated with the Kysor Acquisition are not expected to
adversely impact the Company's liquidity and access to capital.
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The Company utilized cash flow from operations of $7.5 million for the
first six months of 1997 compared to cash flow provided by operating activities
of $6.0 million for the first six months of 1996.
The following comparison of certain items in the balance sheets as of June
29, 1997 and December 29, 1996 excludes the initial impact of the Kysor
Acquisition in March of 1997 and the impact of changes in foreign exchange rates
on those categories:
Inventory decreased by $1.3 million, which reflects the reduction in
Kysor inventories since the date of acquisition by the Company. This
decrease in Kysor inventories was partially offset by higher inventories at
some of the Company's other domestic businesses.
Accounts receivable were $29.1 million higher, primarily as a result
of the sales increase in the second quarter of 1997 compared to the fourth
quarter of 1996.
Trade accounts payable were $10.8 million higher, which reflects the
impact of seasonal volume.
All asset and liability accounts as of June 29, 1997, were significantly
impacted by the Kysor Acquisition in March of 1997. Goodwill increased from
December 29, 1996, due to the Kysor Acquisition, which added approximately $192
million.
Cash and temporary cash investments of $20.8 million as of June 29, 1997,
increased by $4.3 million from December 29, 1996, reflecting the increase in
cash balances at the Company's foreign subsidiaries and in part due to the Kysor
Acquisition.
Shareholders' equity increased $5.8 million from December 29, 1996, which
reflects net income of $10.3 million for the first half of 1997, which was
partially offset by a reduction in shareholders' equity caused by changes in
accumulated foreign currency translation adjustments and the impact of
dividends.
Capital expenditures, including those funded through capital leases,
increased $4.5 million, or approximately 131%, to $7.9 million for the first six
months of 1997 from $3.4 million for the first six months of 1996. Capital
expenditures in 1997 were made primarily to fund construction of a new Kysor
facility in Columbus, Georgia, along with productivity improvements, new product
tooling and maintenance and replacement items.
Note 3 to the Company's financial statements included and incorporated by
reference herein contains a summary of the changes in the Company's debt
structure as a result of the Kysor Acquisition. Long-term debt increased by
approximately $283 million as of June 29, 1997 primarily due to funding of the
Kysor Acquisition, along with funding of working capital needs. Short-term debt
was reduced by $3.1 million from December 29, 1996 primarily due to short-term
domestic borrowings being replaced with longer-term borrowings. Total debt,
including capital leases, was $362.9 million as of June 29, 1997 compared to
$76.6 million as of December 29, 1996. The debt to capital ratio was
approximately 73% at June 29, 1997, compared with approximately 37% at December
29, 1996.
On February 13, 1997, May 15, 1997 and August 14, 1997, the Company's Board
of Directors declared a dividend of 2 1/2 cents per share payable to common
shareholders of record on March 28, 1997, June 30, 1997 and September 30, 1997,
respectively.
Since its first quarter as a publicly-held company, the Company has paid a
quarterly dividend of 2 1/2 cents per share. The continuation, amount and timing
of this dividend will be determined by the Board of Directors and may change as
conditions warrant.
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BUSINESS
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's Corporation
("McDonald's"), Boston Chicken, Inc. ("Boston Market"), Wal-Mart Stores, Inc.
("WalwMart"), Winn-Dixie Stores, Inc. ("Winn-Dixie"), Marriott International,
Inc. ("Marriott") and Mobil Corporation ("Mobil"), as well as bottlers
affiliated with The Coca-Cola Company ("Coca-Cola") and PepsiCo, Inc. ("Pepsi").
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales by Scotsman and Kysor of approximately $144
million accounted for approximately 24% of the Company's 1996 pro forma net
sales. The Company believes that its leading market positions, broad product
offering, diverse customer base, extensive distribution network and strong
international presence provide it with significant competitive advantages and
position it for continued growth.
Since its Spin-off from Household in 1989, Scotsman has expanded through
internal growth and through a disciplined acquisition program. The Company's
internal growth has been driven primarily by increased sales of ice machines in
the United States and Europe and beverage systems in Europe. In addition, from
1992 through 1996, the Company successfully completed and integrated five
acquisitions. As a result of these acquisitions and internal growth, the
Company's net sales increased to $356.4 million in 1996 from $168.7 million in
1992, representing a compound annual growth rate of 20.6%. In March 1997, the
Company acquired Kysor for a net purchase price of approximately $299 million.
Kysor is a leading supplier of refrigerated display cases and walk-in coolers
and freezers to the supermarket and convenience store industries. For 1996,
Kysor's sales of commercial refrigeration products were $245.1 million, an
increase of 18.3% from 1995. Pro forma for the Kysor Acquisition, the Company's
1996 net sales were $601.4 million, a 68.7% increase over the Company's reported
1996 net sales. Through the addition of Kysor's leading market positions and
complementary product lines, the Company expects to benefit from cross-selling
opportunities, as well as synergies related to reduced overhead, increased
purchasing power and shared research and development efforts.
Scotsman is a market leader in each of its five product lines with well
recognized, premium brand names. The Company believes it is the largest
worldwide manufacturer of commercial ice machines, the largest manufacturer of
food preparation and storage equipment for the foodservice industry in the
United States and the second largest manufacturer of beverage systems in Europe
and refrigerated display cases and walk-in coolers and freezers in the United
States. Scotsman believes these strong market positions will enable it to take
advantage of favorable trends driving global demand for its products.
INDUSTRY OVERVIEW
Sales of the Company's five product lines are driven primarily by demand
from participants in the food and beverage industry. According to a recent
industry report, sales by the food and beverage industry are expected to grow
from $700 billion in 1995 to approximately $800 billion in the year 2005. Much
of this growth is expected to be captured by the foodservice industry (including
supermarket delis), which continues to gain market share from traditional
groceries. According to published industry sources, total U.S. foodservice sales
climbed from approximately $255 billion in 1990 to an estimated $336 billion in
1997.
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According to published industry sources, the commercial foodservice segment of
the foodservice industry, the largest segment of this industry, is expected to
experience real growth of approximately 3.4% per year through 2005. Growth in
the U.S. foodservice market is driven primarily by population growth, economic
growth and demographic changes, including the number of families with two or
more wage-earners and shifting consumer preferences for convenience in food
preparation and consumption.
According to published industry sources, sales by the U.S. commercial
foodservice equipment industry grew 6.4% to approximately $4.5 billion in 1996
and are expected to grow by 6.8% in 1997. While normal replacement of aging
equipment and that for new construction generally drive sales of new commercial
refrigeration products, the Company expects further demand to result from
remodeling due to product upgrades and expanded perishable sections in
supermarkets and convenience stores, the expansion of national restaurant chains
and the replacement of products containing chlorofluorocarbons ("CFCs"). The
Company expects that a significant portion of the installed commercial
refrigeration systems in the United States that are CFC-based will be replaced
or retrofitted over the next decade, as CFCs become increasingly difficult to
obtain.
The commercial foodservice and retail food equipment industries are being
affected by several key industry trends, including expansion by national
restaurant and lodging chains, increased perishable and prepared food offerings
at supermarkets and convenience stores, supplier consolidation and increased
international foodservice demand.
National Chain Expansion. Large chains have a significant impact on the
commercial foodservice and retail food equipment markets as a result of new
store openings, remodeling and upgrading programs and equipment purchases to
support new menu items. The expansion of national chains is being driven by
increased consumer expenditures for dining out and carry-out meals. According to
an independent industry study, expenditures for food prepared outside of the
home have increased from approximately 38% of the average American's food budget
in 1975 to approximately 52% in 1995. Consistent with this trend, restaurant,
convenience store and supermarket chains continue to add new sites through
construction and acquisition. In 1996, for example, according to an independent
industry study, the top 100 restaurant chains grew at a rate of 5.6% compared
with 4.5% for the industry as a whole. Quick service restaurants continue to
expand into non-traditional sites to offer increased consumer convenience and
capture a greater portion of food expenditures. Locations for such
non-traditional outlets include retail stores, supermarkets, department stores
and gas stations. Quick service chains such as McDonald's and Sbarro, Inc., for
example, are moving into airports, hospitals and schools, which increases demand
for commercial foodservice equipment that is suitable for small, kiosk-type
locations. According to an independent industry study, the top 75 supermarket
chains accounted for approximately 78% of total supermarket industry sales in
1996, with the top 10 chains accounting for approximately 30% of total
supermarket industry sales. The Company believes that continued consolidation
will increase significantly that concentration over the next several years.
Expansion of Supermarket and Convenience Store Food Retail and
Foodservice. In 1996, sales of refrigerated display cases and systems to
supermarkets was approximately $700 million, while sales to convenience stores
totaled approximately $300 million, based on an independent industry study. In
an effort to capitalize on home meal replacement trends, convenience stores and
supermarkets continue to increase the portion of their floor space dedicated to
the sale of prepared and perishable foods. At the same time, expansion of
superstores has led to increased remodeling expenditures by existing stores in
order to remain competitive. The Company believes that national chains, in
particular, are placing added emphasis on store modernization to improve and
differentiate product merchandising.
Supplier Consolidation. National chains are demonstrating an increasing
tendency to purchase from fewer suppliers and to form collaborative
relationships with suppliers in order to minimize purchasing efforts and
optimize product design, responsiveness and pricing plans. Criteria for supplier
selection include not only product reliability and performance, service and
price, but also national presence and full-service design, engineering and
product customization capabilities. The Company believes that because these
criteria favor larger, more integrated suppliers, smaller industry participants
are at a competitive disadvantage in competing for contracts.
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Growth in International Foodservice Demand. International foodservice
demand is driven by economic and disposable income growth, increased penetration
of retail foodservice establishments, increased popularity of chilled beverages
and fundamental changes in consumer attitudes toward dining outside the home.
The Company expects these factors to drive significant growth in foodservice
demand in regions such as Asia, Latin America and Eastern Europe over the next
10 years. Furthermore, the Company expects the developing economies in Eastern
Europe, China and other regions of the world to drive expansion of hotels,
restaurant chains and other foodservice establishments to meet increased
business, consumer and tourist demands. Throughout the world, the concentration
of quick service restaurant and lodging chains is substantially lower than in
the United States and provides opportunities for national chains to expand
internationally. As a result, many of the leading national chains have embarked
upon significant international expansion. For example, the top 100 U.S.
restaurant chains increased their number of international operating units and
sales by approximately 16% and 11%, respectively, in 1996 compared with U.S.
domestic unit and sales growth rates of 5.7% and 5.6%, respectively, according
to an independent industry study. As a result, international chains increasingly
are requiring their suppliers to have the capability to manufacture and service
products in multiple geographic markets.
OPERATING STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP
Scotsman seeks to build and maintain leading market positions in each of
its product lines. The Company believes it is the world's largest manufacturer
of commercial ice machines, the largest manufacturer of food preparation and
storage equipment for the foodservice industry in the United States and the
second largest manufacturer of beverage systems in Europe and refrigerated
display cases and walk-in coolers and freezers in the United States. The Company
believes that these leading market positions help to create a heightened
awareness of its product offerings and brands. Scotsman believes that its
leading market positions, broad product offerings, strong brand recognition and
extensive distribution capabilities position it to compete successfully as its
customers consolidate their supplier base and expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY
To enhance manufacturing effectiveness, Scotsman has adopted "lean
manufacturing" initiatives, which include minimizing manufacturing complexity,
standardizing key product subcomponents, adopting cell manufacturing practices
and emphasizing continuous improvement. These efforts throughout the Company
have resulted in enhanced product quality, fewer product defects and lower
inventory costs. Manufacturing flexibility enables each of the Company's
manufacturing facilities to produce a range of standard or customized models
within each manufacturing unit, which increases efficiency while improving the
Company's ability to meet customers' delivery schedules. Scotsman believes that
additional manufacturing efficiencies will result from sharing best practices
among Kysor and Scotsman's other operating units.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT
By applying its product design, manufacturing and refrigerant technology
expertise, Scotsman seeks to provide customers with technically superior,
durable and energy efficient products. Scotsman also dedicates substantial
resources to new product development and customizing existing products to meet
the unique performance, size and appearance specifications of individual
customers. This commitment has resulted in the introduction of numerous
innovative new products and product enhancements, including: (i) the CM(3) ice
machine, which offers greater ice making capacity while using less energy and
having approximately 23% fewer parts than prior models; (ii) an ice dispenser
designed to fit within the limited space requirements of many European hotels;
(iii) customized serving counters for Boston Market, which Scotsman designed to
reduce the waiting time of Boston Market customers at peak periods; and (iv) the
Genesis drink dispensing
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tower, which allows the proprietor to change the dispenser's exterior for
different promotions. In addition, Scotsman was the first manufacturer to
convert its entire line of ice machines to CFC-free refrigerants.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR CUSTOMER
SERVICE
Scotsman has an extensive sales, distribution and service network in over
100 countries that is designed to meet the needs of customers from product
design and purchase through aftermarket sales and support. The Company's
salesforce, sales engineers and distributors work closely with customers to
determine the appropriate product for a given application and, if necessary,
assist in the development of customized products. Following a sale, the Company
or its distributors, depending on the product and geographic market, provide
aftermarket support that includes training, maintenance, service and repair. See
"-- Marketing and Distribution."
GROWTH STRATEGY
The Company also pursues a growth strategy intended to strengthen its
leading market positions within its product lines. The key elements of this
strategy include:
FOCUSING ON MAJOR NATIONAL CHAINS
Scotsman targets major national chains within the five principal industries
it serves. The Company believes that these national chains increasingly are
gaining market share at the expense of independents, and the Company expects
this trend to accelerate in both domestic and international markets. Chain
expansion generates demand for new and replacement equipment through new
construction, non-traditional site development and facility redevelopment or
modernization. Scotsman's customers include many of the largest chains in the
quick service restaurant, supermarket, lodging and convenience store industries,
including McDonald's, Boston Market, WalwMart, Winn-Dixie, Marriott and Mobil.
Through strong brands in each product line, the Company seeks to become the
single supplier to its customers in each of its product lines. The Company will
continue to organize product design and sales teams to work closely with
national chains in developing applications to meet their specific requirements.
Furthermore, given the strength of its current relationships and its
capabilities abroad, the Company believes it is well positioned to benefit as
national chains expand into international markets. For example, Scotsman
provides refrigerated display cases and walk-in coolers and freezers to several
WalwMart locations in South America.
PURSUING CROSS-SELLING OPPORTUNITIES
Scotsman has similar customers in each of its five product lines. While the
Company maintains strong relationships with customers in each of its market
segments, penetration of individual accounts varies by product line. As a
result, the Company believes it has significant opportunities to pursue internal
growth through cross-selling initiatives across product lines. The recently
completed Kysor Acquisition, which expanded the Company's product range to
include refrigerated display cases and walk-in coolers and freezers, has
expanded these opportunities by broadening the Company's range of products and
expanding its existing customer base. Specific cross-selling objectives include
(i) increasing sales of Kysor's refrigerated display cases and walk-in coolers
and freezers to restaurants, where Scotsman historically has had significant
market share and (ii) increasing sales of Scotsman's ice machines and food
preparation and storage equipment to supermarkets, Kysor's strong customer base
historically. The Company also believes that the breadth of its product lines
resulting from the Kysor Acquisition enhances its ability to penetrate the
convenience store market, a market in which the Company and Kysor currently have
relationships with only a limited number of chains.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES
International foodservice equipment markets offer significant opportunities
for growth by the Company. The Company believes, for example, that Western
European foodservice locations have, on a percentage basis, significantly fewer
ice machines than foodservice locations in the United States, and that market
penetration
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of ice machines is significantly lower in other international markets. An
integral part of Scotsman's strategy has been to develop production,
manufacturing, marketing and distribution capabilities to serve international
markets. The Company intends to continue to capitalize on the rapid growth of
the commercial foodservice equipment industry in international markets by: (i)
taking advantage of its existing manufacturing presence, including through its
joint venture interests, in Australia, China, Germany, Indonesia, Italy and the
United Kingdom and its extensive distribution network, which extends through
over 100 countries; (ii) expanding its presence into new markets through
acquisitions, joint ventures, alliances or startup investments; and (iii)
leveraging its relationships with national chains to participate in their
international expansion. Scotsman believes its brands and those of its
subsidiaries are well recognized internationally, in part from a European
presence which dates back to 1963. The scale of the Company's international
operations is a competitive advantage, as most national competitors lack a
significant presence in international markets. In addition, the Company believes
that most of its competitors lack the breadth of international operating,
service and distribution capabilities necessary to meet the needs of large
customers in multiple international markets. The Company believes that it
received several recent contract awards from U.S. chains, in part, because of
its ability to meet such customers' needs across international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS AND JOINT VENTURES
Strategic acquisitions are expected to remain an important element of
Scotsman's growth domestically and internationally. The Company has acquired six
businesses (including Kysor) since 1992 and formed three joint ventures and one
strategic alliance. The Company believes there are significant consolidation
opportunities in most of its product lines, particularly walk-in coolers and
freezers, display cases and food preparation and storage equipment, which are
relatively fragmented in the United States and highly fragmented in
international markets. The Company expects that complementary acquisitions will
provide the opportunity to achieve economies of scale through manufacturing,
purchasing and overhead efficiencies and economies of scope through
cross-selling opportunities and the sharing of product design innovation among
its operating units. Scotsman currently targets acquisitions that: (i) relate
closely to the Company's current technology, markets, customer types or product
categories; (ii) position the Company to take advantage of fundamental market
and industry trends; and (iii) will be non-dilutive to earnings. The Company's
management team has substantial experience and expertise in identifying,
completing and successfully integrating strategic acquisitions. See "The
Company" and "Kysor Acquisition" for a description of the Company's acquisitions
from 1992 to the present.
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<PAGE> 168
PRODUCTS
Scotsman manufactures a diversified line of commercial refrigeration
products, food preparation equipment and beverage systems, including ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage dispensing systems. The Company sells
its key products through the following principal product lines:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRO FORMA
1996 NET
PRODUCT LINE BUSINESS UNIT(S) SALES KEY PRODUCTS KEY BRANDS
------------ ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Ice Machines................... Scotsman Ice Systems 29% Commercial ice machines Scotsman
Frimont that make cube, flake, Icematic
Castel MAC nugget and scale ice. Crystal Tips
Booth/Crystal Tips Modular, self- contained Rapid Freeze
Scotsman China ice dispensing systems and Simag
storage bins.
Refrigerated Display Cases..... Kysor//Warren 29% Refrigerated self-serve Kysor//Warren
display cases. Bangor
Service deli cases.
Custom merchandisers.
Mechanical refrigeration
systems.
Refrigeration houses.
Electrical distribution
houses.
Food Preparation and Storage
Equipment.................... Delfield 19% Food preparation Delfield
Castel MAC workstations. Icematic
Refrigerators and freezers. Tecnomac
Dough retarders and blast Shelleyglas
freezers. Shelleymatic
Mobile cafeteria systems.
Tray and plate dispensers.
Walk-in Coolers and Freezers... Kysor Panel Systems 12% Modular insulated panels Kysor Needham
and insulated doors for Kysor Kalt
refrigerated enclosures.
Environmental rooms.
Walk-in cold rooms and
freezers.
Beverage Systems............... Booth/Crystal Tips 11% Soft beverage systems. Booth
Whitlenge Combination ice and Whitlenge
Hartek beverage dispensing Hartek
SAW Technologies systems. Aztec
Custom beer cooling
systems.
</TABLE>
Ice Machines. Scotsman believes it is the world leader in the sale of
commercial ice machines. The Company's commercial ice machines are sold in the
United States under the Scotsman and Crystal Tip brand names. The Company sells
a diversified line of commercial ice machines that make ice in all forms,
including cube, nugget, flake and scale. Each type of ice machine is designed
and marketed for specific applications and capacity ranges from 300 to 2,000
pounds of ice per day. The Company's 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. Recent new product introductions have further
augmented the Company's full line of commercial ice machine products. For
example, Scotsman's CM(3) line of cuber ice machines, introduced in 1996, offers
greater ice making capacity while using less energy and having approximately 23%
fewer parts than prior models.
Scotsman's expertise in manufacturing, design and refrigerant technology
enables the Company's ice machines generally to meet or exceed customer's
expectations for reliability and durability. Scotsman's ice machines have an
average life of approximately seven to 10 years and replacement sales typically
represent 70% to 80% of the Company's U.S. sales of ice machines.
The Company believes it is the only U.S. commercial ice machine company
with manufacturing facilities in Europe. The Company manufactures and markets
commercial ice machines and related components
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<PAGE> 169
through its Italian subsidiaries, Castel MAC and Frimont, principally under the
Icematic, Scotsman and Simag trademarks, for sale in Italy and for export
primarily to Eastern and Western Europe, the Middle East, Africa and the Far
East. In China, the Company markets its ice machines under the Scotsman name
through its Chinese joint venture. The Company also markets the Crystal Tips
line internationally through three export marketing firms based in the United
States and Canada.
The Company also distributes Howe industrial ice flakers under distribution
and trademark licensing agreements with Howe Corporation. See "The Company."
Refrigerated Display Cases. Through its Kysor//Warren operating unit,
Scotsman designs and manufactures refrigerated display cases and mechanical
refrigeration systems sold primarily to supermarkets. Refrigerated display cases
are used by supermarkets and convenience stores to display perishable food items
such as vegetables, deli items and prepared meals. Mechanical refrigeration
systems are located away from a store's customer area and provide power, air
filtration and circulation and temperature controls to the refrigerated display
cases located within the store.
Food Preparation and Storage Equipment. Scotsman manufactures and markets a
wide range of commercial food preparation and storage equipment through its
wholly owned subsidiary Delfield. Delfield's principal products are 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, all of which are constructed primarily
from stainless steel, as well as wood and other decorative materials. Delfield's
products are customized to address customer requests regarding size, space,
features and performance. Delfield's standard refrigeration products frequently
are incorporated into customers systems or can be sold separately.
Within the Company's food preparation and storage equipment unit, the
Company also manufactures and markets several related products. In Europe,
Castel MAC manufactures and markets a line of refrigerated cabinets under the
Icematic brand name and a line of dough retarders and blast freezers under the
Tecnomac brand name, and Frimont markets a line of refrigerators manufactured by
Castel MAC under the Scotsman brand name.
The Company also manufactures and markets niche products primarily through
Delfield, including air ventilating equipment under the Air Tech trademark, ice
cream dispensing equipment and iced drink mixing and dispensing machines. In
addition, the Company manufactures and markets a limited line of water coolers
through its Italian subsidiaries, Frimont and Castel MAC, and small industrial
applications through Whitlenge.
Walk-in Coolers and Freezers. Scotsman designs, manufactures, markets and
sells walk-in coolers and freezers and environmental control systems through its
Kysor Panel Systems operating unit. Kysor Panel Systems' refrigeration panels
used in the construction of walk-in coolers and freezers are made from all three
primary panel types: wood rail, urethane rail and soft nose. The Company
believes it is the only U.S. panel system supplier that can manufacture any of
the three panel types to meet customer preferences and that Kysor Panel Systems
is the largest supplier in the United States of walk-in coolers and freezers to
the supermarket industry and a leading supplier of walk-in coolers and freezers
to the convenience store industry. Scotsman's environmental control systems are
used in industrial applications to test products under a range of temperatures.
Beverage Systems. In the United States, Scotsman manufactures soft drink
dispensing equipment through its wholly owned subsidiary, Booth. Booth
manufactures and markets a complete line of non-coin operated soft drink
dispensers and accessories. Booth offers both pre-mix and post-mix dispensers,
which can either be ice-cooled or electrically-cooled, as well as ice and drink
dispensers, hand-operated valves and other related accessory products used in
the fountain drink market. Booth is one of only three companies in the United
States that manufacture and market the three major product categories of
beverage systems (mechanically refrigerated, ice cooled and ice/drink) to both
Coca-Cola and Pepsi.
In Europe, Scotsman manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related equipment through its
Whitlenge and Hartek subsidiaries. Whitlenge specializes in
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<PAGE> 170
remote beverage cooling installations, including large installations for
restaurants, and also makes a range of refrigerated over and under-the-counter
soft drink units. Hartek manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related ancillary equipment.
The Company is a 50% partner in SAW Technologies, a joint venture recently
formed to develop technologically advanced beverage dispensing valves. The joint
venture's Aztec valve, already being sold to a major soft drink bottler in the
United Kingdom, is targeted for other customers and markets. The Aztec valve
differentiates between and monitors different types of soft drink syrups,
continuously regulates the flow and mix of syrups and carbonated water and can
dispense other beverages such as fruit juices, where pulp presents difficulties
for most of the current generation of mechanical valves.
MARKETING AND DISTRIBUTION
Scotsman's sales and distribution network, which extends through over 100
countries, uses a combination of direct sales to national accounts, exclusive
and non-exclusive distributors and independent dealers, wholesalers and sales
representatives. Scotsman has approximately 200 sales and marketing employees
and relationships with over 300 exclusive distributors in over 50 countries and
approximately 3,300 independent dealers, distributors, wholesalers and sales
representatives in over 100 countries. Scotsman believes that these multiple
sales and distribution channels allow it to best serve its diverse customer base
across its five product lines.
While each business unit has its own marketing organization which is
responsible for the marketing and distribution of its products certain
salespeople and distributors may handle more than one of the Company's product
lines. The Company expects that in connection with its cross-selling objectives
more salespeople and distributors will handle more than one of the Company's
product lines.
Ice Machines. In the United States, both of the Company's Scotsman and
Crystal Tips brands maintain their own independent distribution networks.
Scotsman Ice Systems has approximately 85 distributors in the United States and
also sells directly to national customers such as large hotel chains, quick
service restaurants and convenience stores. Crystal Tips sells through
approximately 68 distributors in the United States. Outside the United States,
Crystal Tips has over 20 distributors. Outside the United States, Castel MAC and
Frimont combined have approximately 1,200 dealers and distributors in Europe and
Asia. In the majority of countries served, Castel MAC and Frimont each sell
through separate distribution channels. Distributors generally do not carry
competing brands of ice machines.
Refrigerated Display Cases. Kysor//Warren primarily sells refrigerated
display cases directly to large supermarket and convenience store chains through
its 29 person sales force. A smaller portion of Kysor//Warren's sales are made
through independent commercial refrigeration distributors that market to
independent and small chain supermarkets and convenience stores.
Food Preparation and Storage Equipment. Delfield sells its products
directly to national accounts such as large restaurant chains. Delfield also
sells through a network of approximately 1,400 non-exclusive dealers and
approximately 28 independent sales representative firms. In Europe, Castel MAC
sells through dealers and agents.
Walk-in Coolers and Freezers. Kysor Panel Systems sells its walk-in coolers
and freezers directly to large supermarket chains primarily through its 30
person marketing and sales force. Kysor Panel Systems also sells to smaller
independent supermarkets and convenience stores through a network of
approximately 600 distributors, dealers and wholesalers.
Beverage Systems. Booth sells its beverage systems directly to soft drink
bottlers franchised by large customers such as Coca-Cola and Pepsi. Whitlenge
sells directly to soft-drink bottlers and brewers in the United Kingdom, while
Hartek sells directly to soft-drink bottlers and brewers in Germany. Whitlenge
and Hartek jointly export directly to bottlers and brewers through a 10 person
sales force and over 7 distributors and local agents in various markets
throughout Western and Central Europe and the Middle East.
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<PAGE> 171
RESEARCH AND DEVELOPMENT
Scotsman conducts extensive research and development programs in each of
its product lines. These programs seek to develop product improvements and
achieve cost reductions, as well as develop new products. Approximately 65
employees of the Company are engaged in research and development. Scotsman's
total research and development expenditures for fiscal years 1996, 1995 and 1994
were $5.6 million, $4.8 million and $5.1 million, respectively, and Kysor's
total research and development expenditures for 1996, 1995 and 1994 were $.8
million, $.4 million and $.3 million, respectively.
RAW MATERIALS
The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls, and raw materials such as stainless steel, galvanized steel, aluminum,
copper, plastic, glass, foam insulation, brass and wood. These materials are
readily available from several sources, and Scotsman has not experienced
difficulties with respect to their availability.
FACILITIES
The following chart lists the domestic and international active
manufacturing, distribution and office facilities owned or leased by Scotsman or
the joint ventures in which Scotsman has an interest:
DOMESTIC FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Goodyear, Arizona................... Plant and Office; Walk-in Coolers and Freezers Leased
50,000 square feet
Los Angeles, California............. Distribution Ice Machines Leased
Facility;
13,000 square feet
Columbus, Georgia................... Plant and Office; Refrigerated Display Cases Owned
295,826 square feet
Columbus, Georgia................... Plant and Office; Refrigeration Systems Owned
155,000 square feet
Conyers, Georgia.................... Plant and Office; Refrigerated Display Cases Owned
480,000 square feet
Vernon Hills, Illinois.............. Office; Ice Machines Leased
36,000 square feet
Vernon Hills, Illinois.............. Office; Corporate headquarters Leased
8,800 square feet
South Bend, Indiana................. Plant and Office; Refrigerated Display Cases Owned
90,000 square feet
Des Moines, Iowa.................... Plant, Warehouse Refrigerated Display Cases Leased
and Office;
93,000 square feet
Mt. Pleasant, Michigan.............. Plant and Office; Food Preparation and Storage Owned
327,000 square feet Equipment
Portland, Oregon.................... Plant and Office; Walk-in Coolers and Freezers Owned
84,000 square feet
Fairfax, South Carolina............. Plant and Ice Machines Owned
Warehouse;
327,000 square feet
</TABLE>
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<PAGE> 172
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Covington, Tennessee................ Plant and Office; Food Preparation and Storage Leased
188,000 square feet Equipment
Johnson City, Tennessee............. Plant and Office; Walk-in Coolers and Freezers Leased
60,000 square feet
Dallas, Texas....................... Plant and Office; Ice Machines Leased
170,000 square feet
Fort Worth, Texas................... Plant and Office; Walk-in Coolers and Freezers Owned
118,162 square feet
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Adelaide, Australia.................. Plant and Office; Refrigerated Display Cases *
12,000 square feet
Sydney, Australia.................... Plant and Office; Refrigerated Display Cases *
163,000 square feet
Vienna, Austria...................... Office and Beverage systems Leased
Warehouse;
11,000 square feet
Shenyang, China...................... Plant and Office; Ice Machines *
17,000 square feet
Radevormwald, Germany................ Plant and Office; Beverage systems Owned
35,000 square feet
Jakarta, Indonesia................... Plant and Office; Refrigerated Display Cases *
5,000 square feet
Castelfranco, Italy.................. Plant and Office; Ice Machines Owned
230,000 square feet
Milan, Italy......................... Plant and Office; Ice Machines Leased
152,000 square feet
Halesowen, United Kingdom............ Plant and Office; Beverage systems Leased
76,000 square feet
Irthlingsborough, United Kingdom..... Plant and Office; Beverage systems *
3,900 square feet
</TABLE>
- -------------------------
* Facility owned or leased by a joint venture in which Scotsman has an interest.
Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants, as increased by the
plant under construction in Georgia, to be adequate for the current needs of its
business. Except for a lien on a section of its Mt. Pleasant, Michigan facility
and on its Covington, Tennessee facility, both securing industrial revenue
bonds, none of the principal properties owned by Scotsman are subject to
encumbrances material to the operations of Scotsman.
EMPLOYEES
As of June 29, 1997, Scotsman employed approximately 3,850 employees,
approximately 1,400 of whom are covered by collective bargaining agreements. The
Company believes its relationships with employees are generally good.
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<PAGE> 173
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of October 1, 1997) and
positions of all executive officers and directors of Scotsman or its
subsidiaries.
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH COMPANY
------------ ---------------------
<S> <C>
Richard C. Osborne, 53............... Chairman, President, Chief Executive Officer and Director
Paolo Faenza, 58..................... General Manager, Castel MAC
David M. Frase, 50................... Vice President of the Company and President of Kysor Panel
Systems
Richard M. Holden, 47................ Vice President -- Human Resources
Donald D. Holmes, 59................. Vice President -- Finance and Secretary
Christopher D. Hughes, 51............ Vice President of the Company and President of Booth
Ludwig H. Klein, 55.................. Vice President of the Company and Managing Director of
Hartek
Emanuele Lanzani, 63................. Executive Vice President of the Company and Managing
Director, Frimont and Castel MAC
Gerardo Palmieri, 57................. Director -- Sales and Marketing, Frimont
Randall C. Rossi, 45................. Vice President of the Company and President of Scotsman Ice
Systems
William J. Rotenberry, 42............ Vice President -- Business Development
Michael de St. Paer, 52.............. Vice President of the Company and Managing Director of
Whitlenge
Graham E. Tillotson, 46.............. Vice President of the Company and President of Delfield
Logan F. Wernz, 53................... Vice President of the Company and President of Kysor//Warren
Donald C. Clark, 66.................. Director
Timothy C. Collins, 40............... Director
Frank W. Considine, 76............... Director
George D. Kennedy, 71................ Director
Robert G. Rettig, 68................. Director
Richard L. Thomas, 66................ Director
</TABLE>
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.
Mr. Faenza is General Manager, Castel MAC, and has held that position since
1986.
Mr. Frase is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor Panel Systems,
and has held those positions since 1987. From 1982 to 1987, he served as a Vice
President of Kysor's walk-in coolers and freezers business.
Mr. Holden is Vice President -- Human Resources of the Company and has held
that position since January 1990.
Mr. Holmes is Vice President -- Finance and Secretary of the Company and
has held those positions since April 1989.
Mr. Hughes is a Vice President of the Company and has held that position
since June 1994. He 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 engaged in the business of assembling new and overhauling used
passenger rail cars.
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<PAGE> 174
From 1991 to 1993, Mr. Hughes was Vice President of Operations of Scotsman Ice
Systems and Scotsman's former Glenco-Star division.
Mr. Klein is a Vice President of the Company and has held that position
since February 1996. He is also Managing Director of Hartek and has held that
position since February 1995. From June 1994 until February 1995, he worked as
an independent consultant and provided, during that period, consulting services
to Hartek and in the capital goods industry. From July of 1986 until June of
1994, Mr. Klein held the position of General Manager of Haacon Hebetechnik GmbH,
a manufacturer of industrial lifting equipment.
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.
Mr. Palmieri is Director -- Sales and Marketing, Frimont, and has held that
position since 1980.
Mr. Rossi is a Vice President of the Company and has held that position
since January 1995. He 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.
Mr. Rotenberry is Vice President -- Business Development. He has been
employed by the Company since January 1996 and became a Vice President of the
Company in February 1996. From 1990 until January 1996, he was Director of
Corporate Development for Joslyn Corporation, a diversified manufacturer.
Mr. de St. Paer is a Vice President of the Company and has held that
position since April 1994. He 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.
Mr. Tillotson is a Vice President of the Company and President of Delfield.
He has held those positions since June 1997. From January 1997 to June 1997, he
served as Interim President of Delfield. From 1984 to December 1996, he was Vice
President, Sales & Marketing of Delfield.
Mr. Wernz is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor//Warren, and
has held those positions since 1988. From October 1984 to March 1988, he served
as President and General Manager of Kysor//Westran. From January 1967 to June
1984, he served in various managerial and executive positions at Parker Hannifin
and Ardco where he last served as President.
Mr. Clark was Chairman of the Board and a director of Household until his
retirement in 1996. Mr. Clark was Chairman of the Board of Household from 1984
to 1996 and Chief Executive Officer of Household from 1982 to September 1994. He
is also director of Armstrong World Industries, Inc., PMI Group, Inc.,
Ripplewood Holdings L.L.C., Ameritech Corporation and Warner-Lambert Co. and
serves as trustee of Clarkson University and Northwestern University. He has
been a director of the Company since April 1989 and served as Chairman of the
Board of the Company from April 1989 to May 1991.
Mr. Collins is Chief Executive Officer and Senior Managing Director of
Ripplewood Holdings L.L.C., an industrial and investment management holding
company, and has held that position since 1995. Mr. Collins was Senior Managing
Director of Onex Investment Corp. (New York), a management company for the U.S.
investments of Onex Corporation, an Ontario corporation, from 1990 to 1995. He
also serves on the board of directors of Dayton Superior Corporation and
Danielson Holding Corporation. He has been a director of the Company since April
1994.
Mr. Considine is Honorary Chairman of the Board, Chairman of the Executive
Committee and a director of American National Can Company, a packaging
manufacturer, and has held those positions since 1990. He was Chairman of the
Board of American National Can Company from 1983 to 1990, President from 1969 to
1988, and Chief Executive Officer from 1973 to 1988. Mr. Considine is Chairman
of the Board of Trustees of
46
<PAGE> 175
Loyola University, Chicago, and serves on the Board of Trustees of the Field
Museum of Natural History, Chicago. Mr. Considine has been a director of the
Company since April 1989.
Mr. Kennedy was Chairman and a director of the Mallinckrodt Group Inc., a
producer of medical products and chemicals, from 1991 until his retirement in
October 1994. He was Chairman and Chief Executive Officer of Mallinckrodt Group
Inc. from 1986 to 1991. Mr. Kennedy is also a director of Brunswick Corporation,
Illinois Tool Works, Inc., American National Can Company, Kemper National
Insurance Company and Stone Container Corporation. He has been a director of the
Company since April 1989.
Mr. Rettig is a consultant to Illinois Tool Works, Inc., a manufacturer of
industrial products and components, and a consultant to, and a director of, The
Tech Group, a custom molding company, and has held those positions since 1990.
He was an Executive Vice President of Illinois Tool Works, Inc. from 1983 to
December 1989. Mr. Rettig is also a director of Lawson Products, Inc. and serves
as a trustee of the Illinois Institute of Technology. He has been a director of
the Company since April 1989.
Mr. Thomas was Chairman of First Chicago NBD Corporation and The First
National Bank of Chicago from 1995 until his retirement in May 1996. He was
Chairman, President and Chief Executive Officer of The First National Bank of
Chicago from 1992 to 1995. Mr. Thomas is currently a director of First Chicago
NBD Corporation, The First National Bank of Chicago, CNA Financial Corporation,
IMC Global Inc., The PMI Group, Inc., The Sabre Group Holdings, Inc. and Sara
Lee Corporation. Mr. Thomas is Chairman of the Board and a trustee of Kenyon
College, a trustee of the Chicago Symphony Orchestra, Northwestern University
and Rush Presbyterian-St. Luke's Medical Center, and is Chairman of the Civic
Committee of The Commercial Club of Chicago. He has been a director of the
Company since August 1997.
EXECUTIVE COMPENSATION
The Company's executive compensation program is structured to provide
meaningful incentives to the executive officers to increase shareholder value.
The program is comprised of a base salary, an annual cash incentive compensation
program and a long-term incentive compensation plan in the form of stock
options, stock appreciation rights, restricted stock and restricted stock
rights.
As of February 15, 1997, the directors and certain officers of the Company,
as a group, beneficially owned, or had the right to acquire within 60 days
pursuant to the exercise of stock options, 1,432,665 shares of Common Stock
representing 13.1% of the shares of Common Stock then issued and outstanding.
47
<PAGE> 176
CERTAIN TRANSACTIONS
Timothy C. Collins and Matthew O. Diggs, Jr. (who resigned from the Board
of Directors on August 13, 1997) were appointed directors of the Company,
effective April 29, 1994, pursuant to the terms and conditions of the agreements
pursuant to which Scotsman acquired Delfield and Whitlenge (the "Acquisition
Agreements"). Pursuant to the Acquisition Agreements, the Company also agreed
that, (i) so long as certain former shareholders of Delfield and Whitlenge,
together in each case, with certain permitted transferees (collectively, the
"New Scotsman Shareholders") own at least 1,688,578 shares of Common Stock
(appropriately adjusted for any subsequent recapitalization, stock dividend,
split or other change in the capital stock), they will be entitled to designate
the persons nominated by the Board of Directors to fill the directorships
currently held by Mr. Collins and formerly held by Mr. Diggs, and (ii) so long
as the New Scotsman Shareholders own at least 1,114,462 shares of Common Stock
(appropriately adjusted for any subsequent recapitalization, stock dividend,
split or other change in the capital stock), they will be entitled to designate
one such nominee.
Certain of the New Scotsman Shareholders entered into a Stockholders'
Agreement dated as of January 11, 1994 (the "Stockholders' Agreement"), under
which they have, among other things, allocated among themselves the power to
designate the person or persons to be nominated as directors. The Stockholders'
Agreement provides that, (i) so long as the New Scotsman Shareholders are
entitled to designate directors pursuant to the Acquisition Agreements, Onex
Corporation ("Onex"), so long as it and its affiliates, Onex DHC LLC and Onex
U.S. Investments (the "Onex Affiliates"), hold Common Stock, will have the right
to designate (and remove) one such director, and EJJM, an Ohio general
partnership of which Mr. Diggs is the sole managing general partner ("EJJM"), so
long as it holds Common Stock, will have the right to designate (and remove) the
other such director, (ii) if the New Scotsman Shareholders are entitled to
designate only one nominee to the Board of Directors, whichever of Onex and the
Onex Affiliates or EJJM owns the higher percentage of Common Stock at the time
of such designation will be entitled to designate the nominee, and (iii) in all
other cases, the holders of a majority of the Common Stock held by the New
Scotsman Shareholders at the time that they are entitled to designate one or
more nominees to the Board of Directors shall make such designation. Scotsman is
not a party to the Stockholders' Agreement.
Under the Stockholders' Agreement, Onex and the Onex Affiliates have also
been granted an irrevocable proxy (the "Onex Proxy") to vote all of the shares
of Common Stock held by the New Scotsman Shareholders. The Onex Proxy includes
the right to vote for the transaction of any and all business that may come
before an annual, general or special meeting of the Company's shareholders,
including the right to vote for the sale of all or any part of the assets, the
liquidation or the dissolution of the Company. The Onex Proxy will terminate
automatically on January 10, 1999 or at such time that Onex, together with the
Onex Affiliates, holds less than 30% of the number of shares of Common Stock
initially acquired by it pursuant to the merger provided for in the Acquisition
Agreement related to Delfield. The Onex Proxy will also terminate with respect
to specific shares of Common Stock upon the transfer of such shares to any
person other than certain specified types of affiliates or associates of certain
former Delfield and Whitlenge shareholders that have granted Onex and the Onex
Affiliates the Onex Proxy.
According to the information provided in a Schedule 13D, as amended by
Amendment No. 4, dated August 13, 1997 (the "New Scotsman Shareholders 13D"),
filed by certain of the New Scotsman Shareholders, on August 13, 1997, EJJM
assigned to Onex all of its rights under the Stockholders' Agreement to
designate a nominee to the Board of Directors of Scotsman, and Onex released
EJJM and all of the shares of capital stock of Scotsman owned by EJJM and its
affiliates from the Onex Proxy. According to the New Scotsman Shareholders 13D,
EJJM and The Diggs Family Foundation sold substantially all of the shares of
Common Stock that were subject to the Stockholders' Agreement and held by EJJM
and its affiliates.
The agreements regarding the rights of the New Scotsman Shareholders to
designate one or two nominees to the Board of Directors are expected to become
inapplicable after the consummation of this Offering because of the sale of
shares by certain of the New Scotsman Shareholders. See "Selling Stockholders."
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<PAGE> 177
So long as the New Scotsman Shareholders are entitled to designate at least
one nominee to the Board of Directors, (i) the Company has agreed that, subject
to the right of the holders of preferred stock, if any, to elect directors under
certain circumstances, it will not increase the number of directors to more than
eight directors, and (ii) the New Scotsman Shareholders have agreed to vote, to
cause any affiliate or associates controlled by them to vote, and to use
reasonable efforts to cause any other affiliates or associates to vote, all
shares of capital stock of the Company owned by them in favor of all of the
nominees to the Board of Directors recommended by the Board of Directors.
The right of the New Scotsman Shareholders to designate one or more
nominees to the Company's Board of Directors will terminate on January 11, 2004
unless such obligation is extended by written agreement among the Company and
the New Scotsman Shareholders after January 11, 2002 but before the termination
date. Upon termination of the right of the New Scotsman Shareholders to
designate one or more nominees to the Board of Directors at a time when any
designee of the New Scotsman Shareholders is currently on the Board and upon the
request of the Company, (i) any such designee who is a New Scotsman Shareholder
shall promptly resign as a director, and (ii) the New Scotsman Shareholders will
use their best efforts to cause any such designee or designees who are not New
Scotsman Shareholders to promptly resign.
As a condition to the obligations of each party to consummate the
transactions contemplated by the Acquisition Agreements, Scotsman and the New
Scotsman Shareholders entered into a Registration Rights Agreement (the
"Registration Rights Agreement"). Under the Registration Rights Agreement, New
Scotsman Shareholders who (together with their affiliates and associates) hold
not less than 250,000 shares of the Common Stock may, subject to certain
limitations, require Scotsman to effect up to three registrations of such shares
under the Securities Act of 1933, as amended (the "Securities Act"). Under the
Registration Rights Agreement, New Scotsman Shareholders who, in the aggregate,
hold not less than 100,000 shares of the Common Stock also have rights, subject
to certain exemptions and limitations, to request that Scotsman include such
shares in other registrations by Scotsman of its securities under the Securities
Act (the "Piggy Back Registration Rights"). All expenses incident to such
registrations (other than underwriting discounts and selling commissions
applicable to the sale of such shareholders' shares and fees and expenses of
counsel to the selling shareholders) are to be borne by Scotsman.
The foregoing summary description of the Acquisition Agreements, the
Stockholders' Agreement and the Registration Rights Agreement does not purport
to be complete and is subject in all respects to the provisions of such
agreements, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part and are incorporated herein by reference.
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<PAGE> 178
SELLING STOCKHOLDERS
The following table sets forth information concerning the identity of the
persons who propose to sell shares of Common Stock in this Offering
(individually, a "Selling Stockholder" and, collectively, the "Selling
Stockholders"):
<TABLE>
<CAPTION>
SHARES BEING
SELLING STOCKHOLDERS(1) OFFERED
----------------------- ------------
<S> <C>
Onex DHC LLC and/or OMI Quebec FCI LLC or another subsidiary
of Onex................................................... 1,611,699
---------
1,611,699
=========
</TABLE>
- -------------------------
(1) Onex DHC LLC and/or one or more Onex Affiliates are participating in this
Offering pursuant to the exercise of their Piggy Back Registration Rights in
respect of the Debt Offering. See "Certain Transactions."
Based on information included in Form 4s filed with the Commission by Onex
DHC LLC and other information available to the Company, Onex DHC LLC owns
1,611,699 shares of Common Stock (15.3% of the 10,555,038 shares outstanding as
of August 8, 1997). Onex DHC LLC has indicated that prior to selling shares in
this Offering, it may transfer all or a part of such shares to OMI Quebec FCI
LLC or to another subsidiary of Onex. After giving effect to the sale of shares
of Common Stock to be sold in this Offering, Onex and Onex Affiliates will own
no shares of Common Stock.
The New Scotsman Shareholders, including the Selling Stockholders, are
parties to agreements with the Company and among themselves that govern the
appointment and future nomination of certain directors to the Board of Directors
of the Company. See "Certain Transactions."
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<PAGE> 179
DESCRIPTION OF CAPITAL STOCK
The following summary description of Scotsman's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Restated Certificate of Incorporation of the
Company (the "Company Certificate"), the By-Laws of the Company, as amended (the
"Company By-Laws"), and the Rights Agreement (as defined below), copies of which
are exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, $0.10 par value per share, and (ii) 10,000,000 shares of
Preferred Stock, par value $1.00 per share (the "Preferred Stock"). 10,555,038
shares of Common Stock were issued and outstanding as of August 8, 1997, and no
shares of Preferred Stock were issued and outstanding as of such date.
COMMON STOCK
The holders of Common Stock of the Company are entitled to one vote for
each share on all matters voted on by stockholders of the Company, including the
election of directors, and, except for such voting rights as may be granted by
the board of directors of the Company with respect to any series of Preferred
Stock of the Company, the holders of such shares possess all voting power
applicable to the Company's capital stock. The Company Certificate does not
provide for cumulative voting for the election of directors. Subject to any
preferential rights of any outstanding series of Preferred Stock of the Company
designated by the board of directors of the Company from time to time, the
holders of Common Stock of the Company are entitled to such dividends as may be
declared from time to time by the board of directors from funds available
therefor, and upon liquidation will be entitled to receive pro rata all assets
of the Company available for distribution to such holders.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company in this Offering will be, when issued and paid for, fully
paid and nonassessable. The Company will apply for the listing of the Common
Stock offered hereby on the NYSE, effective upon official notice of issuance.
PREFERRED STOCK
The Company Certificate authorizes the board of directors of the Company to
provide for the issue of shares of Preferred Stock of the Company, in one or
more series, and to fix for each such series such voting powers, designations,
preferences, and relative, participating, optional and other special rights, and
such qualifications, limitations or restrictions, as are stated in the
resolution adopted by the board of directors of the Company providing for the
issue of such series and as are permitted by the Delaware General Corporation
Law (the "DGCL").
CLASSIFIED BOARD OF DIRECTORS
The Company Certificate provides for the board of directors of the Company
to be divided into three classes serving staggered terms so that one class of
directors is elected each year for a three-year term.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Company Certificate and the Company By-Laws provide that the number of
directors will be fixed from time to time exclusively by the board of directors
of the Company. In addition, the Company Certificate and the Company By-Laws
provide that, subject to any rights of the holders of Preferred Stock of the
Company and unless the board of directors of the Company otherwise determines, a
majority of the board of directors of the Company then in office may fill any
vacancies on the board of directors and directors so chosen to fill a vacancy
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
Accordingly, the board of directors of the Company could prevent any stockholder
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<PAGE> 180
of the Company from obtaining majority representation on the board of directors
of the Company by enlarging the board and filling the new directorships with its
own nominees.
Moreover, the DGCL, the Company Certificate and the Company By-Laws provide
that directors may be removed only for cause. The Company Certificate and the
Company By-Laws also provide that directors may be removed only by affirmative
vote of holders of at least a majority of the voting power of all the then
outstanding shares of Voting Stock (as defined) voting together as a single
class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETING
The Company Certificate and the Company By-Laws provide that stockholder
action can be taken only at an annual or special meeting of stockholders and
prohibit stockholder action by written consent in lieu of a meeting. The Company
Certificate and the Company By-laws provide that, subject to the rights of
holders of any series of Preferred Stock of the Company, special meetings of
stockholders can be called only by a majority of the total number of directors
which the board of directors of the Company would have if there were no
vacancies (the "Whole Board"). Stockholders are not permitted to call a special
meeting or to require that the board of directors of the Company call a special
meeting of stockholders. Moreover, the business permitted to be conducted at any
special meeting of stockholders is limited to the business brought before the
meeting by or at the direction of the board of directors of the Company.
ADVANCE NOTICE PROVISIONS OF STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The Company By-Laws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the board of directors of
the Company, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of shareholders of the Company.
Any such notice must contain certain specified information.
FAIR PRICE PROVISION
The Company is able to merge or consolidate with other corporations, sell
or transfer all or substantially all of its assets or adopt a plan of
recapitalization, liquidation or dissolution ("Business Combinations") with the
approval of the holders of a majority of the outstanding shares of Common Stock
of the Company, subject to the "fair price" provision in the Company
Certificate.
In general, the fair price provision requires the approval of the holders
of 80% of the voting power of the outstanding capital stock of the Company
entitled to vote generally in the election of directors as a condition for
Business Combinations involving any beneficial holder of more than 10% of such
voting power (an "Interested Stockholder"), unless the transaction is either
approved by at least a majority of the members of the Board of Directors who are
unaffiliated with the Interested Stockholder and were directors before the
Interested Stockholder became an Interested Stockholder (the "Continuing
Directors") or certain minimum price and procedural requirements are met. The
term Continuing Directors also includes certain successors to Continuing
Directors if unaffiliated with the Interested Stockholder. The term "Interested
Stockholder" also refers to certain assignees of Interested Stockholders and to
affiliates of the Company who, within two years prior to the date in question,
beneficially held 10% or more of the voting power of the outstanding stock of
the Company entitled to vote generally in the election of directors.
SECTION 203
The Company is subject to Section 203 of the DGCL. Section 203 of the DGCL
prevents an "interested stockholder" (defined in Section 203, generally, as a
person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless: (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting
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<PAGE> 181
stock of the corporation outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the corporation and
by employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) at or subsequent to the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder.
THE RIGHTS PLAN
Pursuant to the Rights Agreement dated April 14, 1989, as amended (the
"Rights Agreement"), with Harris Trust and Savings Bank, as Rights Agent, upon
the occurrence of certain events described below, each holder of a share of
Common Stock of the Company outstanding as of the date of this Prospectus has
received and each holder of a share of Common Stock offered hereby will receive,
one Common Stock purchase right (a "Right") for each share of Common Stock held
by such holder entitling such holder until the earlier of May 1, 1999 (the
"Final Expiration Date") or the redemption of the Rights (the "Redemption Date")
to purchase shares of Common Stock of the Company at a price of $48 per share
(the "Purchase Price"), subject to adjustment.
Until the earlier of (i) 10 days after a public announcement that a Person
(other than a Scotsman related entity) has become the Beneficial Owner (as
defined in the Rights Agreement) of 20% (or such lower threshold not less than
10% as may be established by the Board of Directors of the Company) or more of
the outstanding shares of Common Stock of the Company or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any Person becomes an Acquiring Person (as
defined in the Rights Agreement)) following the commencement of, or announcement
of an intention to commence, an offer the consummation of which would result in
a Person beneficially owning 20% (or such lower threshold not less than 10% as
may be established by the Board of Directors of the Company) or more of the
outstanding shares of Common Stock of the Company (the earlier of (i) or (ii)
being called the "Rights Distribution Date"), the Rights are represented by the
certificates for the Common Stock of the Company, are not exercisable and are
not transferable apart from the Common Stock of the Company. After the Rights
Distribution Date, the Rights become exercisable, and separate certificates for
the Rights will be mailed to holders of record of the shares of Common Stock as
of such date. Such separate certificates will thereafter constitute the sole
evidence of the Rights.
In the event that on or after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold in one or a series
of transactions (other than in the ordinary course of business), proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
Purchase Price of the Right. Subject to certain exceptions, in the event that
any Person, together with its Affiliates and Associates (as such terms are
defined in the Rights Agreement), has become the Beneficial Owner of 20% (or
such lower threshold not less than 10% as may be established by the Board of
Directors of the Company) or more of the shares of Common Stock of the Company
then outstanding, proper provision will be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Common Stock of the Company having a market value of
two times the Purchase Price of the Right. Under no circumstances may a Right be
exercised following the occurrence of the event set forth in the preceding
sentence prior to the expiration of the Company's right of redemption.
Under certain circumstances, the Company may (i) exchange the Rights (other
than those Rights owned by the Acquiring Person or its Affiliates or Associates
which have become void), in whole or in part, for additional shares of Common
Stock of the Company at an exchange ratio of one share of Common Stock of
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<PAGE> 182
the Company per Right or (ii) redeem the Rights in whole, but not in part, at
the price of $0.01 per Right, in each case subject to adjustment.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on the Final Expiration Date, unless earlier redeemed or
exchanged or unless such expiration date is extended. Until a Right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
The following summary description of the Credit Facility does not purport
to be complete and is subject in all respects to the provisions thereof, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and is incorporated herein by reference.
In connection with the closing of the Kysor Acquisition in March 1997, the
Company, Scotsman Group, certain other subsidiaries of the Company, certain
financial institutions ("Lenders") and The First National Bank of Chicago, as
agent for the Lenders ("First Chicago"), entered into a loan agreement providing
for a credit facility in the aggregate principal amount of $415 million and, in
contemplation of the Debt Offering, the Company has entered into negotiations
with First Chicago to amend such loan agreement to, among other things, permit
the consummation of the Debt Offering and change certain covenants (the "Credit
Facility Amendment" and, together with such loan agreement, as amended to date,
the "Credit Facility"). The following description of the Credit Facility assumes
the effectiveness of the Credit Facility Amendment and the application of the
net proceeds from this Offering to repay $30 million of term loan borrowings
outstanding under the Credit Facility. The Credit Facility consists of a $120
million term loan facility (the "Term Facility") and a $265 million revolving
loan facility (the "Revolving Facility").
The Revolving Facility will mature on March 12, 2004 (unless otherwise
earlier terminated or extended in accordance with the terms of the Credit
Facility). The aggregate principal amount which may be borrowed thereunder will
be reduced on December 31, 1998 by $10 million and by $15 million on each
December 31 thereafter until maturity, at which time the remaining commitment
amount under the Revolving Facility will be reduced to zero. The Term Facility
will mature on December 31, 2002 and be amortized with semi-annual principal
payments (in varying amounts) starting on December 31, 1997 and continuing
thereafter until maturity.
Borrowings under the Credit Facility bear interest at a floating rate based
upon, at the borrower's option, (i) the higher of First Chicago's corporate base
rate or the Federal funds rate plus 1/2% per annum, or (ii) the rate offered by
First Chicago for deposits in the relevant Eurocurrency, plus, in each case, an
applicable margin. As of June 29, 1997, borrowings under the Term Facility and
the Revolving Facility accrued interest at rates ranging from 7.0625% to 7.9375%
per annum (equal to 1.375% above Eurocurrency rates, but the applicable margin
will vary depending upon the "Debt/Earnings Ratio" (as defined below)).
The Credit Facility is guaranteed by Scotsman and certain of its
subsidiaries and secured by a pledge of stock of certain subsidiaries of
Scotsman.
The Credit Facility contains conditions precedent, representations and
warranties, covenants, events of default and other provisions customary for such
financings. Financial covenants in the Credit Facility require Scotsman to
maintain: (a) net worth on a consolidated basis of not less than the sum of $120
million plus 60% of Scotsman's consolidated net income for all quarters ending
after December 31, 1996 plus 60% of the proceeds of any equity issuances by
Scotsman less certain other adjustment amounts identified therein; (b) a ratio
(the "Debt/Earnings Ratio") of total indebtedness to EBITDA (net income, plus
income tax expense,
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<PAGE> 183
minus equity in net income of affiliates (net of cash dividends received), plus
interest expense, plus depreciation expense, plus amortization expense, plus
other non-cash charges, minus interest income) of not more than certain
specified amounts measured on a rolling four-quarter basis for each quarter end
(such ratio for the period ending December 28, 1997 not to exceed 5.0 to 1.00);
(c) a ratio of EBITDAR (EBITDA plus rents) minus capital expenditures to "Fixed
Charges" (interest expense, plus scheduled principal repayments (including
mandatory Revolving Facility reductions), plus income tax expense, plus rents,
plus dividends paid) of not less than 1.0 to 1 for all fiscal quarters ending in
1997 and 1.05 to 1 thereafter; and (d) a ratio of total senior indebtedness to
EBITDA of not more than certain specified amounts measured on a rolling four
quarter basis for each quarter end (such ratio for the period ending December
28, 1997 not to exceed 4.25 to 1.00). The covenant described in (a) above could
restrict the Company's ability to make future distributions to its stockholders
if such distributions would cause the Company to violate the net worth
maintenance requirement. At June 29, 1997, consolidated stockholders' equity of
the Company was $137.5 million. The Company is also precluded from paying
dividends to its stockholders (other than dividends payable in its own capital
stock) if a default or an unmatured default under the agreement has occurred and
is continuing or would occur after giving effect to the payment of such
dividends.
The Credit Facility requires that a notional amount of $150 million be
hedged to reduce interest rate exposure until March 12, 2000. Subsequent to the
Kysor Acquisition, the Company entered into interest rate swap agreements to
hedge its interest rate exposure on the $150 million until March 27, 2000. One
of the interest rate swap agreements is extendable for an additional two years
at First Chicago's option at the end of three years.
SENIOR SUBORDINATED NOTES
The Company's direct wholly owned subsidiary, Scotsman Group, is offering
up to $100 million aggregate principal amount of its Senior Subordinated Notes
Due 2007, pursuant to the Debt Offering. The following is a summary of certain
terms of the Notes and is qualified in its entirety by reference to the
Indenture. A copy of the proposed form of Indenture has been filed with the
Registration Statement of which this Prospectus is a part. Scotsman will
irrevocably and unconditionally guarantee on a senior subordinated basis the
payment of principal and interest in respect of the Notes and the performance by
Scotsman Group of its other obligations under the Indenture (the "Parent
Guarantee").
The Notes and the Parent Guarantee will be unsecured senior subordinated
obligations of Scotsman Group and the Company, respectively, and will rank pari
passu in right of payment with all existing and future senior subordinated
indebtedness of Scotsman Group and the Company, respectively, and will be
subordinated to existing and future senior indebtedness of Scotsman Group and
the Company, respectively.
The Indenture will contain certain covenants, including without limitation,
covenants with respect to the following matters: (i) limitations on
indebtedness; (ii) limitations on other senior subordinated indebtedness; (iii)
limitations on restricted payments; (iv) limitations on sale or issuance of
restricted subsidiary stock and indebtedness; (v) limitations on transactions
with affiliates; (vi) limitations on liens; (vii) limitations on asset sales;
(viii) limitations on dividends and other payment restrictions affecting
restricted subsidiaries; and (ix) restrictions on mergers and certain transfers
of assets.
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<PAGE> 184
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions (which may be block transactions)
on the NYSE or otherwise, in special offerings, exchange distributions or
secondary distributions pursuant to and in accordance with the rules of the
NYSE, in the over-the-counter-market, in negotiated transactions, through the
writing of options on shares (whether such options are listed on an options
exchange or otherwise), or a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Stockholders may effect such
transactions directly or to or through underwriters, broker-dealers or agents
who may receive compensation in the form of underwriting discounts, concessions
or commissions from the Selling Stockholders and/or purchasers of shares for
whom they may act (which compensation may be in excess of customary
commissions). The Selling Stockholders and underwriters, broker-dealers and
agents that participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act, and any commissions received by them and any profit on the
resale of the Shares may be deemed to be underwriting compensation. At the time
a particular offer of shares of Common Stock is made, to the extent required, a
supplement to this Prospectus will be distributed which will set forth, to the
extent required, the number of shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation and any
discounts, commissions or concessions allowed or reallowed or paid to dealers
and the proposed selling price to the public.
There is no assurance that the Selling Stockholders will sell any or all of
the Shares described herein and they may transfer, devise or gift the Shares by
other means not described herein, including, without limitation, pursuant to
Rule 144 or Rule 145 under the Securities Act.
Under the contractual arrangements between the Company and the Selling
Stockholders, the Company is obligated to indemnify the Selling Stockholders and
any underwriters of the Shares, and the Selling Stockholders are obligated to
indemnify the Company and any such underwriters, in each case against certain
civil liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company at December 29, 1996
and December 31, 1995 and for each of the three years ended December 29, 1996,
December 31, 1995 and January 1, 1995, respectively, included and incorporated
by reference elsewhere in this Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report thereon
included and incorporated by reference elsewhere herein. The financial
statements referred to above are included and incorporated by reference herein
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated balance sheet of Kysor Industrial Corporation and
Subsidiaries as of December 31, 1996 and 1995 and the consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand, L.L.P., independent
public accountants, given on the authority of that firm as experts in accounting
and auditing.
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<PAGE> 185
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission;
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Northeast Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy information statements and
other information regarding companies which file electronically with the
Commission. In addition, reports, proxy and information statements and other
information concerning the Company may also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Booth(R), Delfield(R), Kysor(R), Kysor//Warren(R), Scotsman(R),
Shelleyglas(R) and Simag(R), are registered trademarks or trade names of the
Company or its subsidiaries. Boston Market(R) is a registered trademark of
Boston Chicken, Inc. Coca-Cola(R) is a registered trademark of The Coca-Cola
Company. Howe(R) and Rapid Freeze(R) are registered trademarks of Howe
Corporation. Marriott(R) is a registered trademark of Marriott International,
Inc. McDonald's(R) is a registered trademark of McDonald's Corporation. Mobil(R)
is a registered trademark of Mobil Corporation. Pepsi(R) is a trademark of
Pepsico, Inc. WalwMart(R) is a registered trademark of Wal-Mart Stores, Inc.
Winn-Dixie(R) is a registered trademark of Winn-Dixie Stores, Inc.
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[OUTSIDE BACK COVER OF THE DEBT PROSPECTUS]
[GRAPHIC ILLUSTRATION OF MATERIAL DESCRIBED ELSEWHERE IN
THIS PROSPECTUS REGARDING THE COMPANY'S FIVE PRODUCT LINES]
<PAGE> 187
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (other than underwriting discounts and commissions) payable in
connection with the sale of the Common Stock and the Notes offered hereby
(including the Common Stock which may be issued pursuant to an over allotment
option) are as follows:
<TABLE>
<CAPTION>
AMOUNT*
-------
<S> <C>
SEC Registration fee........................................ $ 43,247
NASD fee.................................................... 15,652
NYSE fee.................................................... 29,500
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 150,000
Blue sky fees and expenses (including legal fees and
expenses)................................................. 2,500
Transfer agent, trustee and registrar fees and expenses..... 15,000
Rating agency fees.......................................... 62,500
Miscellaneous............................................... 31,601
--------
Total.................................................. $850,000
========
</TABLE>
- -------------------------
* All amounts are estimated, except the SEC Registration fee, the NASD fee and
the NYSE fee.
The Company will bear all expenses shown above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (the "DGCL") permits a corporation to
indemnify officers, directors, employees and agents for actions taken in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, and with respect to any criminal action,
which they had no reasonable cause to believe was unlawful. The DGCL provides
that a corporation may pay expenses (including attorneys' fees) incurred by an
officer or Director in defending any civil, criminal, administrative or
investigative action (upon receipt of a written undertaking to reimburse the
corporation if indemnification is not appropriate), and must reimburse a
successful defendant for expenses, including attorney's fees, actually and
reasonably incurred, and permits a corporation to purchase and maintain
liability insurance for its directors and officers. The DGCL provides that
indemnification may be made for any claim, issue or matter as to which a person
has been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the corporation, unless and only to the
extent a court determines that the person is entitled to indemnity for such
expenses as the court deems proper.
Article Ninth of the Restated Certificate of Incorporation of the Company
("Article Ninth") provides that each person who was or is made a party to, or is
involved in, any action, suit or proceeding by reason of the fact that he or she
is or was a director, officer or employee of the Company (or was serving at the
request of the Company as a director, officer, employee or agent for another
entity) will be indemnified and held harmless by the Company, to the full extent
authorized by the DGCL, as currently in effect (or, to the extent
indemnification is broadened, as it may be amended) against all expense,
liability or loss (including attorneys' fees, judgments, fines, Employee
Retirement Income Security Act excise taxes or penalties and amounts to be paid
in settlement) reasonably incurred by such person in connection therewith.
Article Ninth provides that the rights conferred thereby are contract rights and
will include the right to be paid by the Company for the expenses incurred in
defending the proceedings specified above, in advance of their final
disposition, except that, if the DGCL so requires, such payment will only be
made upon delivery to the Company by the indemnified party of an undertaking to
repay all amounts so advanced if it is ultimately determined that the person
receiving such payments is not entitled to be indemnified under such provision
or otherwise. Article
II-1
<PAGE> 188
Ninth provides that the Company may, by action of its board of directors,
provide indemnification to its agents with the same scope and effect as the
foregoing indemnification of directors, officers and employees.
Article Ninth provides that persons indemnified thereunder may bring suit
against the Company to recover unpaid amounts claimed thereunder, and that if
such suit is successful, the expense of bringing such a suit will be reimbursed
by the Company. Article Ninth further provides that while it is a defense to
such a suit that the person claiming indemnification has not met the applicable
standards of conduct making indemnification permissible under the DGCL, the
burden of proving the defense will be on the Company and neither the failure of
the Company's board of directors to have made a determination that
indemnification is proper nor an actual determination that the claimant has not
met the applicable standard of conduct will be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Article Ninth provides that the rights to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred therein will not be exclusive of any other right which any
person may have or acquire under any statute, provision of the Company's
Restated Certificate of Incorporation or By-Laws, or otherwise. Finally, Article
Ninth provides that the Company may maintain insurance, at its expense, to
protect itself and any of its directors, officers, employees or agents against
any expense, liability or loss, whether or not the Company would have the power
to indemnify such person against such expense, liability or loss under the DGCL.
The Company has insurance which insures directors and officers of the
Company for acts committed in their capacity as directors and officers or claims
made against them by reason of their status as directors or officers, except for
and to the extent the Company has indemnified the directors or officers.
ITEM 16. EXHIBITS
Exhibits: Unless otherwise indicated, all documents incorporated by
reference to prior filings have been filed under Commission File No. 1-10182.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement for Notes.
2.1** Agreement and Plan of Merger dated as of February 2, 1997
among the Company, K Acquisition Corp. and Kysor
(incorporated herein by reference to Exhibit (c)(1) of the
Company's Schedule 14D-1 filed with the Commission on
February 7, 1997), as amended by the First Amendment to
Agreement and Plan of Merger dated as of March 7, 1997
(incorporated herein by reference to Exhibit (2) of the
Company's Form 8-K dated March 8, 1997).
2.2** Asset Purchase Agreement dated as of February 2, 1997 among
Kuhlman, Transpro, Kysor and certain subsidiaries of Kysor
(incorporated herein by reference to Exhibit (c)(2) of the
Company's Schedule 14D-1 filed with the Commission on
February 7, 1997).
2.3** 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 herein by reference to
the Company's 8-K, dated January 13, 1994), 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).
</TABLE>
II-2
<PAGE> 189
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.4** 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 herein by
reference to the Company's 8-K, dated January 13, 1994), 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).
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company Form 10-K
for the fiscal year ended December 31, 1989).
3.2 By-Laws of the Company, as amended (incorporated herein by
reference to the Company Form 8-K dated June 21, 1991).
4.1 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), 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).
4.2* Form of Indenture for Notes (including the form of Note).
5.1* Opinion of Sidley & Austin in respect of the Common Stock.
5.2* Opinion of Sidley & Austin in respect of the Notes.
10.1** Credit Agreement dated March 12, 1997 among Scotsman Group
Inc. and the other parties named therein, as Borrower,
Scotsman Industries, Inc., the Lenders named therein and The
First National Bank of Chicago, as Agent (incorporated
herein by reference to the Company's 10-K for the fiscal
year ended December 29, 1996).
12.1*** Statement of computation of ratios.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of Sidley & Austin (included in Exhibit 5.1).
24.1*** Powers of attorney.
25.1* Statement of Eligibility of Trustee.
99.1*** Registration Rights Agreement dated as of April 29, 1994
among Scotsman Industries, Inc. and the persons and entities
listed in Schedule A thereto.
99.2 Stockholders' Agreement dated as of January 11, 1994 among
shareholders of DFC Holding Corporation and Whitlenge
Acquisition Limited (incorporated herein by reference to
Exhibit K of the Schedule 13D filed by Onex Corporation and
certain other persons and entities on December 30, 1994).
</TABLE>
- -------------------------
* Filed herewith.
** The Company hereby undertakes to provide the Commission supplementally with
any omitted exhibits or schedules to these agreements upon request.
*** Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE> 190
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
provided, however, that paragraphs (l)(i) and (l)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 15 above, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 191
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANTS CERTIFY THAT THEY HAVE REASONABLE GROUNDS TO BELIEVE THAT THEY MEET
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAVE DULY CAUSED THIS
REGISTRATION STATEMENT AMENDMENT ON FORM S-3 TO BE SIGNED ON THEIR BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN VERNON HILLS, ILLINOIS ON NOVEMBER 4,
1997.
SCOTSMAN INDUSTRIES, INC.
By: /s/ R.C. OSBORNE
------------------------------------
Chairman and Chief Executive Officer
SCOTSMAN GROUP INC.
By: /s/ R.C. OSBORNE
------------------------------------
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT AMENDMENT HAS BEEN SIGNED ON NOVEMBER 4, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ R.C. OSBORNE Chairman of the Board, President,
- --------------------------------------------- Chief Executive Officer &
(R.C. Osborne) Director of the Registrants
(Principal Executive Officer)
/s/ D.D. HOLMES Vice President-Finance and
- --------------------------------------------- Secretary (Principal Financial &
(D.D. Holmes) Accounting Officer) of the
Registrants & Director of
Scotsman Group Inc.
* Director of Scotsman Industries,
- --------------------------------------------- Inc.
(D.C. Clark)
* Director of Scotsman Industries,
- --------------------------------------------- Inc.
(T.C. Collins)
* Director of Scotsman Industries,
- --------------------------------------------- Inc.
(F.W. Considine)
* Director of Scotsman Industries,
- --------------------------------------------- Inc.
(G.D. Kennedy)
* Director of Scotsman Industries,
- --------------------------------------------- Inc.
(R.G. Rettig)
* Director of Scotsman Industries,
- --------------------------------------------- Inc.
(R.L. Thomas)
*By: /s/ D.D. HOLMES
---------------------------------------
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
MBP Draft 11/3/97
$100,000,000
SCOTSMAN GROUP INC.
__% SENIOR SUBORDINATED NOTES DUE 2007
UNCONDITIONALLY GUARANTEED BY
SCOTSMAN INDUSTRIES, INC.
FORM OF
UNDERWRITING AGREEMENT
________, 1997
<PAGE> 2
______, 1997
Morgan Stanley & Co. Incorporated
First Chicago Capital Markets, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Scotsman Industries, Inc., a Delaware corporation (the "GUARANTOR"), and
Scotsman Group Inc., a Delaware corporation (the "ISSUER"), propose to issue
and sell to the several Underwriters named in Schedule I hereto (the
"UNDERWRITERS") $100,000,000 aggregate principal amount of the Issuer's __%
Senior Subordinated Notes Due 2007 (the "NOTES") unconditionally guaranteed by
the Guarantor (the "GUARANTY") to be issued pursuant to the provisions of an
Indenture dated as of _____, 1997 (the "INDENTURE") among the Issuer, the
Guarantor and Harris Trust and Savings Bank, as Trustee (the "TRUSTEE"). The
Notes and the Guaranty are collectively referred to as the "SECURITIES."
The Issuer and the Guarantor have filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement, including two
prospectuses (one of which relates to the Securities and the other of which
relates to shares of common stock, par value $.10 per share, of the Guarantor
(the "Common Stock") to be offered and sold by certain stockholders of the
Guarantor named therein). The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and any
documents incorporated by reference therein as of the date of this Agreement, is
hereinafter referred to as the "REGISTRATION STATEMENT"; the prospectus in the
form first used to confirm sales of Securities, and any documents incorporated
by reference therein as of the date of this Agreement, is hereinafter referred
to as the "PROSPECTUS." If the Issuer and the Guarantor have filed an
abbreviated registration statement to register additional Notes, including the
related Guaranty, pursuant to Rule 462(b) under the Securities Act (the "RULE
462 REGISTRATION STATEMENT"), then any reference herein to the term
"REGISTRATION STATEMENT" shall be deemed to include such Rule 462 Registration
Statement.
1. Representations and Warranties. The Issuer and the Guarantor represent
and warrant to and agree with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
-2-
<PAGE> 3
(b) (i) Each document, if any filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
incorporated by reference in the Prospectus complied or will comply when
so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) the
Registration Statement, when it became effective, did not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply
to (A) statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished
to the Guarantor in writing by such Underwriter through you expressly for
use therein or (B) that part of the Registration Statement that
constitutes the Statement of Eligibility (Form T-1) under the Trust
Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"), of the
Trustee.
(c) The consolidated financial statements included in the
Registration Statement present fairly in all material respects the
financial position of the Guarantor and its subsidiaries as of the dates
indicated and the consolidated results of the operations and cash flows
of the Guarantor and its subsidiaries for the periods specified. Such
financial statements (except as disclosed in the notes thereto or
otherwise stated therein) have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout
the entire periods involved. The financial statement schedules, if any,
included in the Registration Statement present fairly in all material
respects the information stated therein. The selected financial data
included in the Prospectus present fairly in all material respects the
information shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements included in
the Registration Statement. The pro forma financial statements and other
pro forma financial information, if any, included in the Registration
Statement present fairly in all material respects the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been
properly compiled on the pro forma bases described therein, and, in the
opinion of the Guarantor and the Issuer, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred
to therein.
(d) Each of the Guarantor and the Issuer has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct
-3-
<PAGE> 4
its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be
so qualified or be in good standing would not have a material adverse
effect on (i) the Guarantor and its subsidiaries (as defined in Rule
1-02(x) of the Commission's Regulation S-X), taken as a whole (a
"Material Adverse Effect").
(e) Each subsidiary of the Issuer has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect; all of the issued shares of
capital stock of each subsidiary of the Issuer have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Issuer (other than directors' qualifying shares and
shares held by other persons to the extent such shares are required by
applicable law to be held by a person other than the Issuer), free and
clear of all liens, encumbrances, equities or claims.
(f) This Agreement has been duly authorized, executed and delivered
by the Issuer and the Guarantor.
(g) The Indenture has been duly qualified under the Trust Indenture
Act and has been duly authorized, executed and delivered by the Issuer
and the Guarantor and is a valid and binding agreement of the Issuer and
the Guarantor, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity.
(h) (i) The Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Issuer,
enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws affecting creditors' rights generally and
general principles of equity; and (ii) the Guaranties have been duly
authorized and, will be, when the Notes have been executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, valid and binding obligations of the Guarantor,
enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws affecting creditors' rights generally and
general principles of equity.
-4-
<PAGE> 5
(i) The execution and delivery by the Issuer and the Guarantor of,
and the performance by the Issuer and the Guarantor of their respective
obligations under, this Agreement, the Indenture, the Notes and the
Guaranties will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Issuer or the Guarantor or
any agreement or other instrument binding upon the Issuer or the
Guarantor or any of their respective subsidiaries that is material to the
Issuer or the Guarantor and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Issuer or the Guarantor or any of their
respective subsidiaries, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by the Issuer or the Guarantor of their respective
obligations under this Agreement, the Indenture, the Notes or the
Guaranties, except such as may be required by any securities or Blue Sky
laws other than the federal securities laws in connection with the offer
and sale of the Securities.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Guarantor and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or, to
the knowledge of the Issuer and the Guarantor, threatened to which the
Guarantor or any of its subsidiaries is a party or to which any of the
properties of the Guarantor or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus related to the Securities filed as
part of the registration statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the Securities
Act, complied when so filed in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder.
(m) Neither the Issuer nor the Guarantor is and, after giving
effect to the offering and sale of the Securities and the application of
the net proceeds thereof as described in the Prospectus, will be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(n) The Guarantor and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection
-5-
<PAGE> 6
of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"),
(ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance
with Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a Material Adverse Effect.
(o) The Issuer and the Guarantor have complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
2. Agreements to Sell and Purchase. The Issuer hereby agrees to sell to
the several Underwriters, the Guarantor agrees to guarantee, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from the Issuer the respective principal amounts
of the Notes set forth in Schedule I hereto opposite its name at ___% of their
principal amount plus accrued interest, if any, from ___, 199_ to the date of
payment and delivery.
3. Terms of Public Offering. The Issuer and the Guarantor are advised
by you that the Underwriters propose to make a public offering of their
respective portions of the Securities as soon after the Registration Statement
and this Agreement have become effective as in your judgment is advisable. The
Issuer and the Guarantor are further advised by you that the Securities are to
be offered to the public initially at ___% of their principal amount (the
"PUBLIC OFFERING PRICE") plus accrued interest, if any, from _____, 1997 to the
date of payment and delivery and to certain dealers selected by you at a price
that represents a concession not in excess of ___% of their principal amount
and that any Underwriter may allow, and such dealers may reallow, a concession,
not in excess of ___% of their principal amount, to any Underwriter or to
certain other dealers.
4. Payment and Delivery. Payment for the Securities shall be made to the
Issuer in Federal or other funds immediately available in Chicago, Illinois at
9:00 a.m., Chicago, Illinois time, on _____, 199_, or at such other time on the
same or such other date, not later than _____, 199_, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "CLOSING DATE."
Payment for the Securities shall be made against delivery to you on the
Closing Date for the respective accounts of the several Underwriters of the
Securities registered in such names and in such denominations as you shall
request in writing not less than one full business day prior to the Closing
Date with any transfer taxes payable in connection with the transfer of the
Securities to the Underwriters duly paid.
-6-
<PAGE> 7
5. Conditions to the Underwriters' Obligations. The obligations of the
Issuer and the Guarantor to sell the Securities to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Securities
are subject to the condition that the Registration Statement shall have become
effective not later than [____] (Chicago, Illinois time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) All the representations and warranties of the Issuer and the
Guarantor contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the
Closing, and the Issuer and the Guarantor each shall have complied in all
material respects with all of the agreements and satisfied all of the
conditions on its respective part to be performed or satisfied hereunder
on or before the Closing Date.
(b) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded the
Guarantor or the Issuer or any of the Guarantor's or the Issuer's
securities or in the rating outlook for the Guarantor or the Issuer
by any "nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Guarantor and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Securities on the terms and in the
manner contemplated in the Prospectus.
(c) The Underwriters shall have received on the Closing Date
certificates, dated the Closing Date and signed respectively by an
executive officer of the Issuer and the Guarantor, to the effect set
forth in Section 5(b)(i) above and to the effect that the representations
and warranties of the Issuer and the Guarantor contained in this
Agreement are true and correct as of the Closing Date and that the Issuer
and the Guarantor have complied with all of the agreements and satisfied
all of the conditions on the part of the Issuer and the Guarantor to be
performed or satisfied hereunder on or before the Closing Date.
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<PAGE> 8
Any officer signing and delivering such certificates may rely upon
the best of his or her knowledge as to proceedings threatened.
(d) The Underwriters shall have received on the Closing Date an
opinion of Sidley & Austin, special counsel to the Issuer and the
Guarantor, dated the Closing Date, to the effect that:
(i) each of the Issuer and the Guarantor is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect (in rendering
the foregoing opinion, Sidley & Austin may rely upon certificates of
the Issuer and the Guarantor as to what jursidictions the Issuer and
the Guarantor are required to be qualified in to the extent Sidley &
Austin believes the reliance upon such certificate is reasonable);
(ii) each significant subsidiary (as defined in Rule 1-02(w)
of the Commission's Regulation S-X) (hereafter a "Subsidiary") of
the Guarantor (other than the Issuer) is validly existing as a
corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect (in rendering the
foregoing opinion, Sidley & Austin may rely upon a certificate of
the Guarantor as to what jursidictions the Subsidiaries are required
to be qualified in to the extent Sidley & Austin believes the
reliance upon such certificate is reasonable);
(iii) this Agreement has been duly authorized, executed and
delivered by each of the Issuer and the Guarantor;
(iv) the Indenture has been duly qualified under the Trust
Indenture Act and has been duly authorized, executed and delivered
by each of the Issuer and the Guarantor and, assuming it has been
duly executed and delivered by the Trustee and is the valid and
binding agreement of the Trustee, is a valid and binding agreement
of each of the Issuer and the Guarantor, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent
-8-
<PAGE> 9
transfer or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether considered in
a proceeding in equity or at law).
(v) the Notes have been duly authorized and, when executed
and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Underwriters in accordance with
the terms of this Agreement, will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Issuer,
enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(vi) the Guaranties have been duly authorized and, will be,
when the Notes have been executed and authenticated in
accordance with the provisions of the Indenture and delivered to and
paid for by the Underwriters in accordance with the terms of this
Agreement, valid and binding obligations of the Guarantor,
enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(vii) the execution and delivery by each of the Issuer and the
Guarantor of, and the performance by each of the Issuer and the
Guarantor of their respective obligations under, this Agreement, the
Indenture, the Notes and the Guaranties will not contravene any
provision of applicable law or the certificate of incorporation or
by-laws of the Issuer or the Guarantor or, to such counsel's
knowledge after reasonable inquiry, any agreement or other
instrument binding upon the Guarantor or any of its subsidiaries
that is material to the Guarantor and its subsidiaries, taken as a
whole, or, to such counsel's knowledge after reasonable inquiry, any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Guarantor or any of its subsidiaries,
and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Issuer or the Guarantor of their respective
obligations under this Agreement, the Indenture, the Notes and the
Guaranties, except such as may be required by any securities or Blue
Sky laws other than the federal securities laws in connection with
the offer and sale of the Securities;
(viii) the statements (A) in the Prospectus under the caption
"Description of Credit Facility" and (B) in the Registration
Statement in Items 14
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<PAGE> 10
and 15, in each case insofar as such statements constitute summaries
of the legal matters, documents or proceedings referred to therein,
fairly present in all material respects the information called for
with respect to such legal matters, documents and proceedings by
the Securities Act;
(ix) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Issuer, the Guarantor
or any Subsidiary is a party or to which any of the properties of
the Issuer, the Guarantor or any Subsidiary is subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in
the Registration Statement or the Prospectus (or required to be
filed under the Exchange Act) if upon such filing they would be
incorporated, in whole or in part, by reference therein) or to be
filed as exhibits to the Registration Statement that are not
described or filed as required;
(x) In addition, such counsel shall state that in the course
of the preparation of the Registration Statement and the Prospectus,
such counsel has considered the information set forth therein in
light of the matters required to be set forth therein and
participated in conferences with representatives of the Underwriters
and officers and representatives of the Issuer and the Guarantor,
including their counsel and independent public accountants, during
the course of which the contents of the Registration Statement and
the Prospectus and related matters were discussed, and, although
such counsel has not independently checked the accuracy or
completeness of, or otherwise verified, and accordingly is not
passing upon, and does not assume responsibility for, the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except as set forth in
paragraph (viii) above, and such counsel has relied as to factual
aspects of materiality, to the extent such counsel may reasonably do
so in the discharge of such counsel's professional responsibility,
upon the judgment of officers and representatives of the Issuer and
the Guarantor, as a result of such consideration and participation,
nothing has come to such counsel's attention which causes it to
believe that the Registration Statement (other than the financial
statements, financial data, statistical data and supporting
schedules, as to which such counsel need not express a belief), at
the time it became effective (but after giving effect to Rule 430A
under the Securities Act, if applicable) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus (other than the
financial statements, financial data, statistical data and
supporting schedules, as to which such counsel need not express a
belief), as of its date or the Closing Date, included any untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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<PAGE> 11
In rendering such opinion, such counsel may (i) state that (A)
its opinion is limited to the laws of the United States of America,
the laws of the States of Illinois and New York and the General
Corporation Law of the State of Delaware and (B) any opinion or
statement that is expressed to be "to its knowledge" or is
otherwise qualified by words of like import means that the lawyers
currently practicing law with such counsel who have had an active
involvement in the transactions contemplated hereby have no current
conscious awareness of any facts or information contrary to such
opinion or statement and (ii) rely as to matters of fact upon the
representations contained in this Agreement and certificates of
officers of the Issuer and the Guarantor and of public officials,
provided that such counsel believes such reliance is reasonable.
(e) The Underwriters shall have received on the Closing Date an
opinion of Mayer, Brown & Platt, counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in Sections 5(d)(iii),
5(d)(iv), 5(d)(v), 5(d)(vi) and 5(d)(x). In addition the opinion will
provide that the statements in the Prospectus under the captions
"Description of the Notes" and "Underwriters", in each case insofar as
such statements constitute summaries of the legal matters, documents and
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein.
With respect to Section 5(d)(x) above, Sidley & Austin may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and documents incorporated therein by
reference and review and discussion of the contents thereof, but is
without independent check or verification except as specified. With
respect to section 5(d)(x) above, Mayer, Brown & Platt may state that
their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto (other than the documents incorporated
by reference) and review and discussion of the contents thereof
(including documents incorporated therein by reference), but are without
independent check or verification except as specified.
The opinion of Sidley & Austin described in Section 5(d) above shall
be rendered to the Underwriters at the request of the Issuer and the
Guarantor and shall so state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Arthur Andersen LLP and Coopers & Lybrand LLP,
each independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information
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<PAGE> 12
contained in or incorporated by reference into the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing
Date shall use a "cut-off date" not earlier than the date hereof.
6. Covenants of the Issuer and the Guarantor. In further consideration
of the agreements of the Underwriters herein contained, the Issuer and the
Guarantor covenant with each Underwriter as follows:
(a) To furnish you, without charge, 3 signed copies of the
Registration Statement (including exhibits thereto and, upon your
request, documents incorporated therein by reference) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto but including, upon your request, documents
incorporated therein by reference) and to furnish you in New York City,
without charge, prior to 10:00 a.m. New York City time on the business
day next succeeding the date of this Agreement and during the period
mentioned in Section 6(c) below, as many copies of the Prospectus, any
documents incorporated therein by reference and any supplements and
amendments thereto as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement
to which you reasonably object, and to file with the Commission within
the applicable period specified in Rule 424(b) under the Securities Act
any prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Securities as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall occur
or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Guarantor)
to which Securities may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so that
the Prospectus, as amended or supplemented, will comply with law.
(d) To cooperate with you to qualify the Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request; provided that in connection therewith neither
the Issuer nor the Guarantor shall be required to qualify as a foreign
corporation or to file a general consent to service of
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<PAGE> 13
process in any jurisdiction or to subject itself to taxation in respect
of doing business in any jurisdiction in which it is not otherwise
subject.
(e) To make generally available to the Guarantor's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending December 31, 1998 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) During the period beginning on the date hereof and continuing
to and including the Closing Date, not to offer, sell, contract to sell
or otherwise dispose of any debt securities of the Issuer or warrants to
purchase or otherwise acquire debt securities of the Issuer substantially
similar to the Securities (other than (i) the Securities and (ii)
commercial paper issued in the ordinary course of business), without the
prior written consent of Morgan Stanley & Co. Incorporated ("Morgan
Stanley").
(g) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses of
the Issuer's and the Guarantor's counsel and the Issuer's and the
Guarantor's accountants in connection with the registration and delivery
of the Securities under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Registration
Statement, any preliminary prospectus related to the Securities, the
Prospectus and amendments and supplements to any of the foregoing,
including all printing costs associated therewith, and the mailing and
delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to
the authentication and delivery of the Securities to the Underwriters,
including any transfer or other taxes payable thereon, (iii) the cost of
printing or producing any Blue Sky memorandum in connection with the
offer and sale of the Securities under state securities laws and all
expenses in connection with the qualification of the Securities for offer
and sale under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with any Blue Sky memorandum, (iv) all filing fees and
disbursements of counsel to the Underwriters incurred in connection with
the review and qualification of the offering of the Securities by the
National Association of Securities Dealers, Inc., including without
limitation any counsel fees incurred on behalf of or disbursements by
Morgan Stanley in its capacity as "qualified independent underwriter",
(v) any fees charged by the rating agencies for the rating of the
Securities, (vi) any costs and expenses incident to listing the
Securities on national securities exchanges and foreign stock exchanges,
(vii) the cost of printing certificates representing the Notes, (viii)
the costs and charges of any trustee, transfer agent, registrar or
depositary, (ix) the costs and expenses of the Guarantor relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the offering of the Securities including, without
limitation, expenses associated with the production of road show slides
and
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<PAGE> 14
graphics, fees and expenses of any consultants engaged in connection with
the road show presentations with the prior approval of the Guarantor,
travel and lodging expenses of the representatives and officers of the
Guarantor and any such consultants, and the cost of any aircraft
chartered in connection with the road show, and (x) all other costs and
expenses incident to the performance of the obligations of the Issuer and
the Guarantor hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 9 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel,
transfer taxes payable on resale of any of the Securities by them and any
advertising expenses connected with any offers they may make.
7. Indemnity and Contribution. (a) The Issuer and the Guarantor
jointly and severally agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
any amendment thereof, any preliminary prospectus related to the
Securities or the Prospectus (as amended or supplemented), or caused by
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
any Underwriter furnished to the Guarantor in writing by such Underwriter
through you expressly for use therein; provided that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased Notes, or any
person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Issuer or the Guarantor shall have
furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale
of the Notes to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of
noncompliance by the Issuer and the Guarantor with Section 6(a) hereof.
The Issuer and the Guarantor jointly and severally also agree to
indemnify and hold harmless Morgan Stanley and each person, if any, who
controls Morgan Stanley within the meaning of either Section 15 of the
Securities Act, or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and judgments incurred as a
result of Morgan Stanley's participation as a "qualified independent
underwriter" within the meaning of Rule 2720 of the National Association
of Securities Dealers' Conduct Rules in connection with the offering of
the Securities, except for any losses, claims, damages,
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<PAGE> 15
liabilities, and judgments resulting from Morgan Stanley's, or such
controlling person's willful misconduct.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Issuer, the Guarantor, their respective directors
and officers who sign the Registration Statement and each person, if any,
who controls the Issuer or the Guarantor within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Issuer and the Guarantor
to such Underwriter, but only with reference to information relating to
such Underwriter furnished to the Issuer or the Guarantor in writing by
such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus related to the Securities, the
Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity
may be sought pursuant to Section 7(a) or 7(b), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses
of more than one separate firm (in addition to any local counsel) for all
such indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley, in the case of parties indemnified pursuant to
Section 7(a), and by the Guarantor, in the case of parties indemnified
pursuant to Section 7(b). The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement
or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding.
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<PAGE> 16
Notwithstanding anything contained herein to the contrary, if indemnity
may be sought pursuant to Section 7(a) hereof in respect of such action
or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees
and expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley in its capacity as a "qualified independent
underwriter" and all persons, if any, who control Morgan Stanley within
the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act.
(d) To the extent the indemnification provided for in Section 7(a)
or 7(b) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Issuer and the Guarantor on
the one hand and the Underwriters on the other hand from the offering of
the Securities or (ii) if the allocation provided by clause 7(d)(i) above
is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 7(d)(i)
above but also the relative fault of the Issuer and the Guarantor on the
one hand and of the Underwriters on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Issuer and the Guarantor on the one
hand and the Underwriters on the other hand in connection with the
offering of the Securities shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Securities
(before deducting expenses) received by the Issuer and the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear
to the aggregate Public Offering Price of the Notes. The relative fault
of the Issuer and the Guarantor on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Issuer or the Guarantor or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective
principal amounts of Notes they have purchased hereunder, and not joint.
(e) The Issuer and the Guarantor and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in Section 7(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above,
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<PAGE> 17
any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages
that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Issuer and the Guarantor contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination
of this Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter or by or on behalf
of the Issuer or the Guarantor, its officers or directors or any person
controlling the Issuer or the Guarantor and (iii) acceptance of and
payment for any of the Notes.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Guarantor, if (a) after the execution and
delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of the Issuer or
the Guarantor shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New
York State authorities or (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and
(b) in the case of any of the events specified in clauses 8(a)(i) through
8(a)(iv), such event, singly or together with any other such event, makes
it, in your judgment, impracticable to market the Securities on the terms
and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Underwriters shall
fail or refuse to purchase Notes that it has or they have agreed to
purchase hereunder on such date, and the aggregate principal amount of
Notes which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the
-17-
<PAGE> 18
aggregate principal amount of the Notes to be purchased on such date, the
other Underwriters shall be obligated severally in the proportions that
the principal amount of Notes set forth opposite their respective names
in Schedule I bears to the principal amount of Securities set forth
opposite the names of all such non-defaulting Underwriters, or in such
other proportions as you may specify, to purchase the Notes which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; provided that in no event shall the principal
amount of Notes that any Underwriter has agreed to purchase pursuant to
this Agreement be increased pursuant to this Section 9 by an amount in
excess of one-ninth of such principal amount of Notes without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Notes and the aggregate
principal amount of Notes with respect to which such default occurs is
more than one-tenth of the aggregate principal amount of Notes to be
purchased on such date, and arrangements satisfactory to you and the
Guarantor for the purchase of such Securities are not made within 36
hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Issuer or
the Guarantor. In any such case either you or the Guarantor shall have
the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Issuer or the
Guarantor to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Issuer or the Guarantor shall be
unable to perform their respective obligations under this Agreement, the
Issuer and the Guarantor will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees
and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering
contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
-18-
<PAGE> 19
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
Scotsman Industries, Inc.
By: _________________________
Name:
Title:
Scotsman Group Inc.
By: _________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
First Chicago Capital Markets, Inc.
Acting on behalf of itself and
the several Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: ______________________________________
Name:
Title:
-19-
<PAGE> 20
SCHEDULE I
PRINCIPAL AMOUNT OF
SECURITIES TO BE
UNDERWRITER PURCHASED
- -------------------------------------- -------------------------
Morgan Stanley & Co. Incorporated
First Chicago Capital Markets, Inc.
[NAMES OF OTHER UNDERWRITERS]...
-------------------
Total: ..................... $
===================
-20-
<PAGE> 1
EXHIBIT 4.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCOTSMAN GROUP INC.,
as Issuer
SCOTSMAN INDUSTRIES, INC.
as Guarantor
and
as Trustee
------------------------------------------------
FORM OF INDENTURE
-------------------------------------------------
Dated as of 1997
% Senior Subordinated Notes due 2007
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Sections Indenture Sections
<TABLE>
<S> <C>
Section 310(a)(1)..............................................................................................7.09
(a)(2)..............................................................................................7.09
(b).................................................................................................7.07
Section 313(c)..........................................................................................7.05; 11.02
Section 314(a)..........................................................................................4.17; 11.02
(a)(4).......................................................................................4.16; 11.02
(c)(1).............................................................................................11.03
(c)(2).............................................................................................11.03
(e)................................................................................................11.04
Section 315(b)..........................................................................................7.04; 11.02
Section 316(a)(1)(A)...........................................................................................6.05
(a)(1)(B)...........................................................................................6.04
(b).................................................................................................6.07
Section 317(a)(1)..............................................................................................6.08
(a)(2)..............................................................................................6.09
Section 318(a)................................................................................................11.01
(c)................................................................................................11.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
PAGE
----
<S> <C> <C>
SECTION 1.01 Definitions...............................................................................1
SECTION 1.02 Incorporation by Reference of Trust Indenture Act........................................23
SECTION 1.03 Rules of Construction....................................................................23
ARTICLE II
The Notes
SECTION 2.01 Form and Dating..........................................................................24
SECTION 2.02 Global Note Legends......................................................................24
SECTION 2.03 Execution, Authentication and Denominations..............................................25
SECTION 2.04 Registrar and Paying Agent...............................................................26
SECTION 2.05 Payment Agent to Hold Money in Trust.....................................................26
SECTION 2.06 Transfer and Exchange....................................................................27
SECTION 2.07 Book-Entry Provisions for Global Notes...................................................28
SECTION 2.08 Replacement Notes........................................................................29
SECTION 2.09 Outstanding Notes........................................................................29
SECTION 2.10 Temporary Notes..........................................................................30
SECTION 2.11 Cancellation.............................................................................30
SECTION 2.12 CUSIP Numbers............................................................................30
SECTION 2.13 Defaulted Interest.......................................................................30
ARTICLE III
Redemption
SECTION 3.01 Right of Redemption......................................................................31
SECTION 3.02 Notices to Trustee.......................................................................31
SECTION 3.03 Selection of Notes to Be Redeemed........................................................31
SECTION 3.04 Notice of Redemption.....................................................................32
SECTION 3.05 Effect of Notice of Redemption...........................................................33
SECTION 3.06 Deposit of Redemption Price..............................................................33
SECTION 3.07 Payment of Notes Called for Redemption...................................................33
SECTION 3.08 Notes Redeemed in Part...................................................................33
ARTICLE IV
Covenants
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 4.01 Payment of Notes.........................................................................34
SECTION 4.02 Maintenance of Office or Agency..........................................................34
SECTION 4.03 Limitation on Indebtedness...............................................................35
SECTION 4.04 Limitation on Senior Subordinated Indebtedness...........................................36
SECTION 4.05 Limitation on Restricted Payments........................................................36
SECTION 4.06 Limitation on Restrictions on Distributions from Restricted
Subsidiaries.............................................................................39
SECTION 4.07 Limitation on the Sale or Issuance of Capital Stock and
Indebtedness of Restricted Subsidiaries..................................................40
SECTION 4.08 Limitation on Affiliate Transactions.....................................................40
SECTION 4.09 Limitation on Asset Sales................................................................41
SECTION 4.10 Limitation on Liens......................................................................42
SECTION 4.11 Limitation on Sale/Leaseback Transactions................................................43
SECTION 4.12 Repurchase of Notes upon a Change of Control.............................................43
SECTION 4.13 Existence................................................................................43
SECTION 4.14 Payment of Taxes and Other Claims........................................................43
SECTION 4.15 Maintenance of Properties and Insurance..................................................44
SECTION 4.16 Notices of Defaults......................................................................44
SECTION 4.17 Compliance Certificates..................................................................44
SECTION 4.18 SEC Reports and Reports to Holders.......................................................45
SECTION 4.19 Waivers of Stay, Extension or Usury Laws.................................................45
ARTICLE V
Successor Corporation
SECTION 5.01 When Guarantor or Company May Merge, Etc.................................................45
SECTION 5.02 Successor Substituted....................................................................46
ARTICLE VI
Default and Remedies
SECTION 6.01 Events of Default........................................................................47
SECTION 6.02 Acceleration.............................................................................48
SECTION 6.03 Other Remedies...........................................................................49
SECTION 6.04 Waiver of Past Defaults..................................................................49
SECTION 6.05 Control by Majority......................................................................50
SECTION 6.06 Limitation on Suits......................................................................50
SECTION 6.07 Rights of Holders to Receive Payment.....................................................51
SECTION 6.08 Collection Suit by Trustee...............................................................51
SECTION 6.09 Trustee May File Proofs of Claim.........................................................51
SECTION 6.10 Priorities...............................................................................51
SECTION 6.11 Undertaking for Costs....................................................................52
SECTION 6.12 Restoration of Rights and Remedies.......................................................52
SECTION 6.13 Rights and Remedies Cumulative...........................................................52
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 6.14 Delay or Omission Not Waiver.............................................................52
ARTICLE VII
Trustee
SECTION 7.01 Rights of Trustee........................................................................53
SECTION 7.02 Individual Rights of Trustee.............................................................55
SECTION 7.03 Trustee's Disclaimer.....................................................................55
SECTION 7.04 Notice of Default........................................................................55
SECTION 7.05 Reports by Trustee to Holders............................................................55
SECTION 7.06 Compensation and Indemnity...............................................................55
SECTION 7.07 Replacement of Trustee...................................................................56
SECTION 7.08 Successor Trustee by Merger, Etc.........................................................57
SECTION 7.09 Eligibility..............................................................................57
SECTION 7.10 Money Held in Trust......................................................................57
ARTICLE VIII
Discharge of Indenture
SECTION 8.01 Termination of Company's Obligations.....................................................58
SECTION 8.02 Defeasance and Discharge of Indenture....................................................59
SECTION 8.03 Defeasance of Certain Obligations........................................................61
SECTION 8.04 Application of Trust Money...............................................................63
SECTION 8.05 Repayment to Company.....................................................................63
SECTION 8.06 Reinstatement............................................................................63
SECTION 8.07 Parent Guarantee.........................................................................63
ARTICLE IX
Amendments, Supplements and Waivers
SECTION 9.01 Without Consent of Holders...............................................................64
SECTION 9.02 With Consent of Holders..................................................................64
SECTION 9.03 Renovation and Effect of Consent.........................................................65
SECTION 9.04 Notation on or Exchange of Notes.........................................................66
SECTION 9.05 Trustee to Sign Amendments, Etc..........................................................66
SECTION 9.06 Conformity with Trust Indenture Act......................................................66
ARTICLE X
Subordination of Notes
SECTION 10.01 Notes Subordinated to Senior Indebtedness...............................................66
SECTION 10.02 No Payment on Notes in Certain Circumstances............................................67
SECTION 10.03 Payment over Proceeds upon Dissolution, Etc.............................................68
SECTION 10.04 Subrogation.............................................................................70
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 10.05 Obligations of Company Unconditional....................................................70
SECTION 10.06 Notice to Trustee.......................................................................71
SECTION 10.07 Reliance on Judicial Order or Certificate of Liquidating Agent..........................71
SECTION 10.08 Trustee's Relation to Senior Indebtedness...............................................72
SECTION 10.09 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness...........................................72
SECTION 10.10 Holders Authorize Trustee to Effectuate Subordination of
Notes...................................................................................72
SECTION 10.11 Not to Prevent Events of Default........................................................73
SECTION 10.12 Trustee's Compensation Not Prejudiced...................................................73
SECTION 10.13 No Waiver of Subordination Provisions...................................................73
SECTION 10.14 Payments May Be Paid Prior to Dissolution...............................................73
SECTION 10.15 Trust Moneys Not Subordinated...........................................................73
<CAPTION> ARTICLE XI
<S> <C> <C>
Parent Guarantee
SECTION 11.01 Parent Guarantee........................................................................74
SECTION 11.02 Parent Guarantee Subordinated to Senior Indebtedness....................................75
SECTION 11.03 No Payment under Parent Guarantee in Certain Circumstances..............................76
SECTION 11.04 Payment over Proceeds upon Dissolution, Etc.............................................77
SECTION 11.05 Obligations of Guarantor Unconditional..................................................79
SECTION 11.06 Notice to Trustee.......................................................................79
SECTION 11.07 Reliance on Judicial Order or Certificate of Liquidating Agent..........................80
SECTION 11.08 Trustee's Relation to Senior Indebtedness...............................................80
SECTION 11.09 Subordination Rights Not Impaired by Acts or Omissions of
the Guarantor or Holders of Senior Indebtedness.........................................80
SECTION 11.10 Holders Authorize Trustee to Effectuate Subordination of
Parent Guarantee........................................................................81
SECTION 11.11 Not to Prevent Events of Default........................................................81
SECTION 11.12 Trustee's Compensation Not Prejudiced...................................................81
SECTION 11.13 No Waiver of Subordination Provisions...................................................81
SECTION 11.14 Payments May Be Paid Prior to Dissolution...............................................81
SECTION 11.15 Trust Moneys Not Subordinated...........................................................82
SECTION 11.16 Limitation of Guarantor's Liability.....................................................82
<CAPTION>
ARTICLE XII
<S> <C> <C>
Miscellaneous
SECTION 12.01 Trust Indenture Act of 1959.............................................................82
SECTION 12.02 Notices.................................................................................82
SECTION 12.03 Certificate and Opinion as to Conditions Precedent......................................84
SECTION 12.04 Statements Required in Certificate or Opinion...........................................84
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 12.05 Acts of Holders.........................................................................84
SECTION 12.06 Rules by Trustee, Paying Agent or Registrar.............................................85
SECTION 12.07 Payment Date Other Than a Business Day..................................................85
SECTION 12.08 Governing Law...........................................................................85
SECTION 12.09 No Adverse Interpretation of Other Agreements...........................................86
SECTION 12.10 No Recourse Against Others..............................................................86
SECTION 12.11 Successors..............................................................................86
SECTION 12.12 Duplicate Originals.....................................................................86
SECTION 12.13 Separability............................................................................86
SECTION 12.14 Table of Contents, Headings, Etc........................................................86
</TABLE>
v
<PAGE> 8
INDENTURE, dated as of ____, 1997, between SCOTSMAN GROUP INC., a
Delaware corporation, as Issuer (the "Company"), SCOTSMAN INDUSTRIES, INC, a
Delaware corporation, as Guarantor (the "Guarantor") and ____, as Trustee (the
"Trustee").
RECITALS OF THE COMPANY AND THE GUARANTOR
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of up to $100,000,000 aggregate principal
amount of the Company's ____% Senior Subordinated Notes due 2007 (the "Notes")
issuable as provided in this Indenture. All things necessary to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been done, and the Company has done all things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee hereunder
and duly issued by the Company, the valid obligations of the Company as
hereinafter provided.
The Guarantor has duly authorized the execution and delivery of this
Indenture and its guarantee of the Notes (the "Parent Guarantee"). All things
necessary to make this Indenture a valid agreement of the Company, in accordance
with its terms, have been done, and the Guarantor has done all things necessary
to make the Parent Guarantee, when executed by the Guarantor, the valid
obligation of the Guarantor as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, as follows.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
"Acceleration Notice" has the meaning specified in Section 6.02.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of the Guarantor and its Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (or loss) of any Person (other
1
<PAGE> 9
than net income (or loss) attributable to a Restricted Subsidiary) in which any
Person (other than the Guarantor or any of its Restricted Subsidiaries) has an
ownership interest and the net income (or loss) of any Unrestricted Subsidiary,
except, in each case, to the extent of the amount of dividends or other
distributions actually paid to the Guarantor or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (3)(A) of paragraph (a) of Section
4.05 (and in such case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Guarantor or any of its Restricted Subsidiaries or all or substantially all of
the property and assets of such Person are acquired by the Guarantor or any of
its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to the
paragraph (a) of Section 4.05, any amount paid or accrued as dividends on
Preferred Stock of the Guarantor or any Restricted Subsidiary that is owned by
Persons other than the Guarantor and any of its Restricted Subsidiaries; and
(vi) all extraordinary gains and extraordinary losses.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Section 4.05, Section 4.08 and Section 4.09 only, "Affiliate" shall
also mean any beneficial owner of Capital Stock representing 10% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the
Guarantor or of rights or warrants to purchase such Capital Stock (whether or
not currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Agent" means any Registrar, Paying Agent or authenticating agent.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an Investment by the Guarantor or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Guarantor or any of its Restricted Subsidiaries; provided, however,
that such Person's primary business is related, ancillary or complementary to
the businesses of the Guarantor and its Restricted Subsidiaries on the date of
such Investment or (ii) an acquisition by the Guarantor or any of its
Restricted Subsidiaries of the property and assets of any Person other than the
Guarantor or any of its Restricted Subsidiaries
2
<PAGE> 10
that constitute substantially all of a division or line of business of
such Person; provided, however, that the property and assets acquired are
related, ancillary or complementary to the businesses of the Guarantor and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the
Guarantor or any of its Restricted Subsidiaries (other than to the Guarantor or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (ii) all or substantially all of the
assets that constitute a division or line of business of the Guarantor or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or Sale-Leaseback Transaction) in one
transaction or a series of related transactions by the Guarantor or any of its
Restricted Subsidiaries to any Person other than the Guarantor or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, except any such disposition of director's qualifying shares or
shares of Capital Stock of foreign Restricted Subsidiaries to foreign nationals
to the extent required by law, (ii) all or substantially all of the property and
assets of an operating unit or business of the Guarantor or any of its
Restricted Subsidiaries, or (iii) any other property and assets of the Guarantor
or any of its Restricted Subsidiaries outside the ordinary course of business of
the Guarantor or such Restricted Subsidiary and, in each case, that is not
governed by the provisions of Section 4.09, Section 4.11 and Article Five of the
Guarantor, the Company or such Restricted Subsidiary; provided, however, that
"Asset Sale" shall not include (v) sales or other dispositions of inventory,
receivables and other current assets, (w) sales or other dispositions of
damaged, wornout or other obsolete property in the ordinary course of business
so long as such property is not necessary for the proper conduct of the business
of the Guarantor and its Restricted Subsidiaries, (x) exchanges of property of
the Guarantor or any of its Restricted Subsidiaries for property of any other
Person which is related, ancillary or complimentary to the business of the
Guarantor and its Restricted Subsidiaries at the time of such exchange and where
the Board of Directors has determined in good faith that such exchange is fair
and reasonable, (y) creation or assumption of Liens permitted under Section 4.10
or any foreclosure thereof, or (z) sales or other dispositions of property or
assets with an aggregate Fair Market Value not in excess of $5 million in any
fiscal year.
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction
as at the time of determination, the present value (discounted at the interest
rate implicit in the Sale/Leaseback Transaction, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
3
<PAGE> 11
"Bank Credit Agreement" means that certain Credit Agreement, dated as
of March 12, 1997, as amended, by and among the Guarantor, the Company and The
First National Bank of Chicago (or any successor thereto or replacement
thereof), as agent and as a lender, and certain other institutions, as lenders,
and certain other parties thereto, providing for up to $450 million of
Indebtedness as well as, with respect to the Guarantor and any Restricted
Subsidiary, any other debt facilities or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters or credit, including in each case any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part, from time to time by one
or more other agreements, instruments and documents entered into with such
Persons and/or other Persons.
"Board of Directors" means the Board of Directors of the Guarantor or
the Company, as the case may be, or any committee thereof duly authorized to act
on behalf of such Board.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of the Guarantor or the Company, as the case may be, to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participation or other equivalents of or
interests in equity (however designated) of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
(i) any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act) is or becomes the "beneficial
owner" (within the meaning of Rules 13d-3 and l3d-5 under the Exchange
Act, except that for purposes of this clause (i) such person or group
shall be deemed to have "beneficial ownership" of all shares that such
person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of
4
<PAGE> 12
the total voting power of the Voting Stock of the Guarantor; provided,
however, that a person shall not be deemed to be the beneficial owner
of, or to own beneficially, (i) any securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of
such Person's Affiliates until such tendered securities are accepted
for purchase or exchange thereunder, or (ii) any securities if such
beneficial ownership (A) arises solely as a result of a revocable
proxy delivered in response to a proxy or consent solicitation made
pursuant to applicable law, and (B) is not also then reportable on
Schedule 13D (or any successor schedule) under the Exchange Act;
(ii) during any period of two consecutive years from and after
the Issue Date, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors
whose election by such Board of Directors or whose nomination for
election by the shareholders of the Guarantor was approved by a vote of
a majority of the directors of the Guarantor then still in office who
were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in
office;
(iii) the merger or consolidation of the Guarantor with or
into another Person (other than the Company), or the sale of all or
substantially all the assets of the Guarantor to another Person, and,
in the case of any such merger or consolidation, the securities of the
Guarantor that are outstanding immediately prior to such transaction
and which represent 100% of the aggregate voting power of the Voting
Stock of the Guarantor are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent,
immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving
corporation; or
(iv) the Guarantor ceases for any reason to be the beneficial
owner, directly or indirectly, of all Voting Stock of the Company,
except as a result of the merger of the Guarantor with and into the
Company or of the merger of the Company with and into the Guarantor;
provided that the pledge of such Voting Stock (without the transfer of
voting rights attributable thereto) shall not be deemed to transfer the
beneficial ownership thereof by the Guarantor.
"Closing Date" means the date on which up to $100,000,000 aggregate
principal amount of the Notes are originally issued under this Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Comerica Agreement" means that certain promissory note, dated as of
March 12, 1997, by the Company to Comerica Bank, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as
5
<PAGE> 13
amended, restated, modified, renewed, refunded, replaced or refinanced, in
whole or in part from time to time by one or more other agreements, instruments
and documents entered into with such Person and/or other Persons.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Issue Date, including, without limitation, all series and
classes of such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to Article Five of this Indenture and thereafter
means the successor.
"Company Order" means a written request or order signed in the name of
the Company (i) by its Chairman, a Vice Chairman, its President or a Vice
President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary and delivered to the Trustee; provided, however, that such
written request or order may be signed by any two of the Persons listed in
clause (i) above in lieu of being signed by one of such Persons listed in such
clause (i) and one of the officers listed in clause (ii) above.
"Consolidated Coverage Ratio" means, on any date of determination,
the ratio of (i) the aggregate amount of Consolidated EBITDA for the then
most recent four fiscal quarters prior to such date for which reports have been
filed with the SEC pursuant to Section 4.18 (the "Four Quarter Period") to (ii)
Consolidated Interest Expense for such Four Quarter Period. In making the
foregoing computation, (A) pro forma effect shall be given to any Indebtedness
Incurred or repaid during the period (the "Reference Period") commencing on the
first day of the Four Quarter Period and ending on such date (other than
Indebtedness Incurred or repaid under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under any predecessor revolving
credit or similar arrangement) in effect on the last day of such Four Quarter
Period adjusted, however, to give pro forma effect to repayments resulting from
the reduction in such commitment or Indebtedness Incurred in excess of such
commitment, in each case after the end of such Four Quarter Period and on or
before such date), in each case as if such Indebtedness had been Incurred or
repaid the first day of such Reference Period; (B) Consolidated Interest Expense
attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on such date (taking into account any
Interest Rate Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term in excess of 12 months or, if shorter, at least
equal to the remaining term of such Indebtedness) had been the applicable rate
for the entire Reference Period; (C) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur during such
Reference Period as if they had occurred and such proceeds had been applied on
the first day of such Reference Period; and (D) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Subsidiary or has been merged with or
into the Guarantor or
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<PAGE> 14
any Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (C) or (D) of this sentence requires that pro forma effect be
given to an asset acquisition or asset disposition, such pro forma computation
shall be based upon the four full fiscal quarters immediately preceding such
date of the Person, or division or line of business of the Person, that is
acquired or disposed for which financial information is available; and provided
further that to the extent that clause (C) or (D) of this sentence requires that
pro forma effect be given to an asset acquisition, such pro forma computation
shall exclude any expense (net of any expense increase) which, in the good faith
estimate of management, will (in accordance with GAAP and the rules, regulations
and guidelines of the SEC) be eliminated as a result of such acquisition.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual or
reserve is, or is required by GAAP to be, made), all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Guarantor or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount (without duplication) of (x) interest in respect of Indebtedness of the
Guarantor and its Restricted Subsidiaries (including amortization of original
issue discount on any Indebtedness and the interest portion of any deferred
payment obligation, calculated in accordance with the effective interest method
of accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers' acceptance financings and other
financings to the extent attributable to such period; the net costs associated
with Interest Rate Agreements); (y) interest in respect of Indebtedness (other
than Indebtedness of the Guarantor or the Restricted
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<PAGE> 15
Subsidiaries) that is Guaranteed or secured by the Guarantor or any of its
Restricted Subsidiaries; and (z) the interest component of Capital Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Guarantor and its Restricted Subsidiaries during such period, all as determined
on a consolidated basis in conformity with GAAP; excluding, however, (i) any
amount of such interest of any Restricted Subsidiary if all or a portion of the
net income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to the proviso to the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to the proviso to the definition thereof), and (ii) any amount of such
interest expense of any Restricted Subsidiary that is not a Wholly Owned
Restricted Subsidiary if all or a portion of the Adjusted Consolidated Net
Income of such Restricted Subsidiary is excluded in the calculation of
Consolidated EBITDA pursuant to the proviso to the definition thereof.
"Consolidated Net Worth" means, as of any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Guarantor and its Restricted
Subsidiaries (which shall be as of a date not more than 135 days prior to the
date of such computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Disqualified Stock or any equity
security convertible into or exchangeable for Indebtedness and the cost of
treasury stock, each item to be determined in conformity with GAAP (excluding
the effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at _____.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors until a successor Depositary shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Depositary" shall mean or include each Person who is then a Depositary
hereunder.
"Designated Senior Indebtedness" in respect of the Guarantor or the
Company, as the case may be, means (i) all the Obligations of the Guarantor or
the Company, as the case may be, under the Credit Agreement, dated as of March
12, 1997, that is referenced in the definition of
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<PAGE> 16
"Bank Credit Agreement," as the same may be amended, restated, modified,
renewed, refunded, replaced or refinanced, in whole or in part, and (ii) any
other Senior Indebtedness of the Company or the Guarantor, as the case may be,
which, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $10 million and is specifically
designated by the Company or the Guarantor, as the case may be, in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture; provided, however, the
Guarantor shall not designate any Senior Indebtedness as Designated Senior
Indebtedness pursuant to clause (ii) above so long as the Credit Agreement,
dated as of March 12, 1997, that is referenced in the definition of "Bank Credit
Agreement" is in effect, as the same may be amended, restated or modified from
time to time but excluding any refunding, replacement or refinancing thereof or
so long as any Obligations remain outstanding under or in connection with such
Credit Agreement.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
to the extent that by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event, it (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable, in whole or in part, at the option of
the holder thereof, in each case described in the immediately preceding clauses
(i) , (ii) or (iii), on or prior to the Stated Maturity of the Notes; provided,
however, that (x) any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with respect to the
payment of dividends or upon maturity, redemption (pursuant to a sinking fund or
otherwise) or repurchase thereof or otherwise by the delivery of Capital Stock
that is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed to be
Disqualified Stock so long as such Person satisfies its obligations with respect
thereto solely by the delivery of Capital Stock that is not Disqualified Stock
and (y) any Capital Stock of a Subsidiary of such Person that would otherwise
constitute Disqualified Stock shall not be deemed to be Disqualified Stock so
long as such Capital Stock is held by such Person; and provided further,
however, that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" (however designated) occurring prior to the first
anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions in Section 4.09 and Section 4.12 and (y) any
such requirement only becomes operative after compliance with such corresponding
terms applicable to the Notes, including the purchase of any Notes tendered
pursuant thereto.
"Equity Offering" means a primary offering, whether public or private, of
shares of common stock of the Guarantor.
"Event of Default" has the meaning provided in Section 6.01.
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<PAGE> 17
"Excess Proceeds" has the meaning provided in Section 4.09.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by (i) senior management of the Guarantor if the aggregate amount of
the transaction with respect to which Fair Market Value is being determined does
not exceed $10 million in value or (ii) the Board of Directors of the Guarantor,
whose determination shall be conclusive and evidenced by a Board Resolution, if
the aggregate amount of the transaction with respect to which Fair Market Value
is being determined exceeds $10 million in value.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements and pronouncements of
the Financial Accounting Standards Board, (iii) such other statements by such
other entity as approved by a significant segment of the accounting profession,
and (iv) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC. All ratios and other
computations contained or referred to in this Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that computations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of this Indenture shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the offering of
the Notes and (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness of such Person or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means the party named as such in this Indenture until a
successor replaces it pursuant to Article Five of this Indenture and thereafter
means the successor.
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"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security and the accrual of interest
shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) the amount of all Capital Lease
Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property
(which purchase price is due more than six months after the date of taking
delivery of title to such property), including all obligations of such Person
for the deferred purchase price of property under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued and
unpaid dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
first-mentioned Person (whether or not such obligation is assumed by such
first-mentioned Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition,
the amount of Hedging Obligations of such Person. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, assuming
the contingency giving rise to the
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<PAGE> 19
obligation were to have occurred on such date, of any Guarantees outstanding
at such date. Notwithstanding the foregoing, none of the following shall
constitute Indebtedness: (i) indebtedness arising from agreements providing
for indemnification or adjustment of purchase price or from guarantees securing
any obligations of the Guarantor or any of its Subsidiaries pursuant to such
agreements, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary of the Guarantor, other than guarantees or
similar credit support by the Guarantor or any of its Subsidiaries of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
(ii) any trade accounts payable and other accrued current liabilities incurred
in the ordinary course of business as the deferred purchase price of property;
(iii) obligations arising from guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers incurred in the ordinary course of
business; (iv) obligations (other than Guarantees of indebtedness for borrowed
money) in respect of Indebtedness of other Persons arising in connection with
(A) the sale or discount of accounts receivable, (B) trade acceptances and (C)
endorsements of instruments for deposit in the ordinary course of business; (v)
obligations in respect of performance bonds provided by the Guarantor or its
Subsidiaries in the ordinary course of business and refinancing thereof; (vi)
obligations arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument drawn against insufficient funds in the
ordinary course of business, provided, however, that such obligation is
extinguished within two Business Days of its incurrence; and (vii) obligations
in respect of any obligations under workers' compensation laws and similar
legislation; provided that Indebtedness of the Guarantor or its Restricted
Subsidiaries that is Guaranteed by the Guarantor or any of the Restricted
Subsidiaries shall only be counted once in the calculation of the amount of
Indebtedness of the Guarantor and its Restricted Subsidiaries on a consolidated
basis.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Interest Payment Date" means each semiannual interest payment date on
____ and ____ of each year, commencing ____.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
to protect the Guarantor or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means (without duplication) any direct or
indirect advance, loan or other extension of credit (including, without
limitation, by way of Guarantee or similar arrangement; (but excluding (x)
advances to customers in the ordinary course of business that are, in conformity
with GAAP, recorded as accounts receivable on the balance sheet of the Guarantor
or its Restricted Subsidiaries and (y) Guarantees of Indebtedness of the
Guarantor or any Restricted Subsidiaries permitted under Section 4.03)) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
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<PAGE> 20
debentures or other similar instruments issued by, such Person and shall include
(i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the Fair Market Value of the Capital Stock (or any other Investment) held
by the Guarantor or any of its Restricted Subsidiaries, of (or in) any Person
that has ceased to be a Restricted Subsidiary. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.05, (i) "Investment" shall include the
Fair Market Value of the assets (net of liabilities (other than liabilities to
the Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the Fair Market Value of the assets (net of liabilities (other
than liabilities to the Guarantor or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments, and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of
such transfer.
"Issue Date" means the date on which the Notes are originally issued.
"Legal Holiday" means any Saturday, Sunday or other day on which
commercial banks in The City of New York, or in the city of the Corporate Trust
Office of the Trustee, are authorized by law to close.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien, or, in the case of a Subsidiary not organized under the laws of the United
States or the District of Columbia, fixed charge or floating charge of any kind
(including any conditional sale or other title retention agreement or lease in
the nature thereof).
"Moody's" means Moody's Investor's Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Guarantor or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale, (iii)
payments made to repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (x) is secured by a Lien on the property or
assets sold or (y) is required to be paid as a result of such sale, and (iv)
appropriate amounts to be provided by the Guarantor or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash
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<PAGE> 21
or cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents (except
to the extent such obligations are financed or sold with recourse to the
Guarantor or any Restricted Subsidiary) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commission and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture.
Obligations" means all obligations of every nature whether for
principal, reimbursements, interest, fees, expenses, indemnities or otherwise,
and whether primary, secondary, direct, indirect, contingent, fixed or otherwise
(including obligations of performance) under the documentation governing any
Indebtedness.
"Offer to Purchase" means an offer to purchase Notes by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant of this Indenture pursuant to which the offer is being
made and that all Notes validly tendered will be accepted for payment on a pro
rata basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note duly completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately preceding
the Payment Date; (vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted for
payment an amount equal to the purchase price, and the Trustee shall promptly
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<PAGE> 22
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14b-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Officer" means, with respect to the Company or the Guarantor, as the
case may be, (i) the Chairman of the Board, the President, any Vice President,
the Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer,
or the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof. Each Officers' Certificate (other than
certificates provided pursuant to TIA Section 314(a)(4)) shall include the
statements provided for in TIA Section 314(e).
"Opinion of Counsel" means a written opinion signed by legal counsel
who is reasonably acceptable to the Trustee. Such counsel may be an employee of
or counsel to the Company or the Guarantor, as the case may be, or the Trustee.
Each such Opinion of Counsel shall include the statements provided for in TIA
Section 314(e). Opinions of Counsel required to be delivered may have
qualifications customary for opinions of the type required.
"Parent Guarantee" means the Guarantee granted by the Guarantor, as
defined in the second paragraph of the recitals hereof.
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Guarantor
or the Company or a Subsidiary of the Guarantor or the Company or an Affiliate
of any of them. The term "Paying Agent" includes any additional Paying Agent.
"Payment Blockage Period" has the meaning provided in Section 10.02.
"Permitted Investment" means (i) an Investment in the Guarantor or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Guarantor
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the business of the Guarantor and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash
Investment; (iii) commission, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans, transactions and arrangements
or advances to directors, officers, employees and agents made in the ordinary
course of business in accordance with the past practice of the Guarantor or its
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Restricted Subsidiaries and that do not in the aggregate, in the case of loans
or advances, exceed $3 million at any time outstanding, provided that with
respect to any transaction or arrangement which is reasonably expected to
involve more than $1 million, such transaction or arrangement shall be approved
by a majority of the members of the Board of Directors of the Company having no
personal stake in such transaction or arrangement; (v) Investments existing on
the Issue Date and any extension, renewal or other modification thereof (but not
an increase in the amount thereof, other than as a result of the accrual or
accretion of interest or original issue discount pursuant to the original terms
of such Investment); (vi) Investments in any Person received in any dissolution,
winding up, liquidation or reorganization of such Person in satisfaction of
claims against such Person; (vii) Investments received as consideration from
Asset Sales or Asset Dispositions permitted under Section 4.09, (viii) stock,
obligations or securities received in satisfaction of judgments or in
settlements; (ix) Investments in Austral Refrigeration Pty. Ltd. ("Austral
Investments"); (x) exchanges of property permitted pursuant to clause (x) of the
definition of "Asset Sales"; and (xi) other Investments in any Persons made with
an intention to control at a subsequent time such Persons (as evidenced by a
resolution of the Board of Directors of the Guarantor or the Company, as the
case may be, to such effect) in an aggregate amount outstanding at any time not
to exceed $10 million plus the net reduction in such other Investments and in
Austral Investments after the Issue Date; provided, that the Investment in
Austral Refrigeration Pty. Ltd. and any such Person shall be deemed reduced to
zero for purposes of this definition only, among other things, at such times as
Austral Refrigeration Pty. Ltd. or such other Person becomes a Restricted
Subsidiary.
"Permitted Liens" means, with respect to any Person, (a) liens incurred
or deposits by such Person under worker's compensation laws, unemployment
insurance laws or similar laws, rules, regulations or other governmental
requirements, or good faith liens incurred or deposits made in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as landlord's, carriers', warehousemen's and mechanics' Liens, in each case
for sums not yet due or being contested in good faith by appropriate proceedings
or other Liens arising out of judgments or awards against such Person with
respect to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for nonpayment or which are being contested in good faith and by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business; provided, however, that such
letters of credit do not constitute Indebtedness; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real property or leases, subleases or other Liens incidental to the conduct of
the business of such Person or to the ownership of its properties which were not
Incurred in connection with Indebtedness and which do not in the aggregate
materially impair their use in the operation of the business of such Person; (f)
Liens
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securing Indebtedness Incurred to finance the construction, purchase or
lease of, or repairs, improvements or additions to, property of such Person
(including Liens securing Indebtedness of the pollution control or revenue bond
type); provided, however, that the Lien may not extend to any other property
owned by such Person or any of its Subsidiaries at the time the Lien is
Incurred, and the Indebtedness secured by the Lien may not be Incurred more than
180 days after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property subject
to the Lien; (g) Liens to secure Indebtedness permitted under the provisions
described in clauses (a), (b)(i), (b)(iv), (b)(vii), (b)(viii) and (b)(x) of
Section 4.03; (h) Liens existing on the Issue Date; (i) Liens on property or
shares of Capital Stock of another Person at the time such other Person becomes
a Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such Lien may
not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; provided further,
however, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries; (k) Liens securing Indebtedness or other
obligations of a Subsidiary of such Person owing to such Person or a wholly
owned Subsidiary of such Person (or, in the case of the Company, to a Wholly
Owned Subsidiary); (l) Liens securing Hedging Obligations so long as such
Hedging Obligations relate to Indebtedness that is, and is permitted to be under
the Indenture, secured by a Lien on the same property securing such Hedging
Obligations; (m) Liens arising in the ordinary course of business in favor of
the United States, any state thereof, any foreign country or any department,
agency, instrumentality or political subdivision of any such jurisdiction, to
secure partial, progress, advance or other payments pursuant to any contract or
statute; (n) Liens to secure any Refinancing (or successive Refinancing) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clause (f), (h), (i) and (j), provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clause (f), (h), (i) or (j)
at the time the original Lien became a Permitted Lien or the Issue Date,
whichever is greater, and (B) an amount necessary to pay any fees and expenses,
including premiums, related to such refinancing, refunding, extension, renewal
or replacement; (o) judgment and attachment Liens not giving rise to an Event of
Default or Liens created by or existing from any litigation or legal proceeding
that are currently being contested in good faith by appropriate proceedings and
for which adequate reserves have been made; (p) Liens in favor of collecting or
payor banks having a right of setoff, revocation, refund or chargeback with
respect to money or instruments of the Company or any Subsidiary on deposit with
or in possession of such bank; and (q) Liens to secure Sale/Leaseback
Transactions that are permitted pursuant to Section 4.11.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-
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stock issuer, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal", with respect to any Note, means the principal of the Note
plus the premium, if any, payable on the Note which is due or overdue or is to
become due at the relevant time.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which such Note is to be redeemed pursuant to this Indenture.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, decease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Guarantor or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced or the Notes (whichever is
earlier), (ii) the portion of such Refinancing Indebtedness that has a Stated
Maturity that is earlier than the Stated Maturity of the Notes has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding or committed (plus fees
and expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include Indebtedness of the Guarantor or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means that certain Registration Rights
Agreement
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dated as of April 24, 1994 among the Guarantor and certain former shareholders
of certain Restricted Subsidiaries.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the ____ or ____ (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company or the Guarantor, as the case
may be.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the direct
or indirect holders of its Capital Stock (other than (x) dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock), (y) dividends or distributions payable solely to the Guarantor or a
Restricted Subsidiary, and (z) pro rata dividends or other distributions made by
a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation) ), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Guarantor held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Guarantor (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Guarantor that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment)..
"Restricted Subsidiary" means the Company and any other Subsidiary of
the Guarantor that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Issuer,
Inc., and its
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successors.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Guarantor or a Restricted Subsidiary
transfers such property to a Person and the Guarantor or a Restricted Subsidiary
leases it from such Person; provided that the Fair Market Value of such property
(as reasonably determined by the Board of Directors acting in good faith) is $10
million or more.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company or the
Guarantor, as the case may be, secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning provided in Section 2.04.
"Senior Indebtedness" means, with respect to any Person, any
Indebtedness of such Person and all other Obligations with respect thereto,
including interest, whether or not allowed, on such Indebtedness accruing on or
after the filing of any petition in bankruptcy or for reorganization relating to
such Person, including all Obligations of such Person under the Bank Credit
Agreement, the Comerica Agreement and Hedging Obligations, whether outstanding
on the Issue Date or thereafter Incurred, unless such Indebtedness, by its terms
or the terms of any instrument creating or evidencing such Indebtedness, is pari
passu with, or subordinated in right of payment to, the Notes; provided,
however, that Senior Indebtedness shall not include (1) any obligation of such
Person to any Subsidiary, director, officer or employee of such Person, (2) any
liability for federal, state, local or other taxes owed or owing by such Person,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Person (and any
accrued and unpaid interest in respect thereof) which is expressly subordinated
in right of payment in any respect to any other Indebtedness or other obligation
of such Person, (5) that portion of any Indebtedness (other than under the Bank
Credit Agreement) which at the time of Incurrence is Incurred in violation of
the Indenture, and (6) any Indebtedness of such Person that, when Incurred and
without regard to any election under Section 1111(b) of the United States
Bankruptcy Code, was without recourse to such Person.
"Senior Subordinated Indebtedness" means, with respect to the Company
or the Guarantor, as the case may be, the Notes, with respect to the Company,
and the Parent Guarantee, with respect to the Guarantor, and any other
Indebtedness of the Company or the Guarantor, as the case may be, that
specifically provides that such Indebtedness is to rank pari passu with the
Notes or such Parent Guarantee, as the case may be, in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company or the Guarantor, as the case may be, which is not
Senior Indebtedness of the Company or the Guarantor, as the case may be.
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"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Guarantor within the meaning of Rule 1-02
under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Guarantor or
the Company (whether outstanding on the Issue Date or thereafter Incurred), as
the case may be, which is subordinate or junior in right of payment to the Notes
or the Parent Guarantee, as the case may be, pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America, or in the case
of a Subsidiary not organized under the laws of a state of the United States or
the District of Columbia, any foreign government, or any agency thereof or
obligations guaranteed or insured by the United States of America, or in the
case of a Subsidiary not organized under the laws of a state of the United
States or the District of Columbia, any foreign government, or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money-market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $100 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by Moody's, S&P or at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money market fund sponsored by a registered
broker dealer or mutual fund distributor, provided that a foreign Subsidiary of
the Guarantor may also make deposits with any central bank of the jurisdiction
in which such Subsidiary is organized, (iii) repurchase obligations with a term
of not more than 30 days for underlying securities of the types described in
clause (i) above or (v) below entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 270 days after the date of acquisition, issued by
a Person (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America or any foreign country recognized
by the United States of America with a rating at the time as of which
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any investment therein is made of "P-2" (or higher) according to
Moody's or "A-2" (or higher) according to S&P, (v) investments in securities
with maturities of twelve months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or Moody's and (vi) interests in any investment company
which invests solely in instruments of the type described in clauses (i) through
(v).
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended (15 U.S. Code Sections 77aaa-77bbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Guarantor
other than the Company that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors of the Guarantor in the manner
provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors of the Guarantor may designate any Subsidiary of the Guarantor
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or owns or holds any Lien on any property of, the
Guarantor or any other Subsidiary of the Guarantor that is not a Subsidiary of
the Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.05. The Board of Directors of the Guarantor may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Guarantor could
Incur $1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors of the Guarantor shall be evidenced by the Guarantor to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests
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(including partnership interests) of such Person then outstanding and normally
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Guarantor or a Restricted Subsidiary) is owned by the
Guarantor or one or more Wholly Owned Subsidiaries.
SECTION 1.02 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any obligor
on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the SEC and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03 Rules of Construction.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
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<PAGE> 31
(vi) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or
other subdivision.
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP
set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE II
The Notes
SECTION 2.01 Form and Dating. The Notes and the Trustee's certificate
of authentication shall be substantially in the form annexed hereto as Exhibit
A. The Notes may have notations, legends or endorsements required by law, stock
exchange agreements to which the Company is subject or usage. The Company shall
approve the form of the Notes and any notation, legend or endorsement on the
Notes. Each Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance in global form ("Global Notes")
shall be substantially in the form of Exhibit A attached hereto (including the
bracketed text). Notes issued in physical form ("Physical Notes") shall be
substantially in the form of Exhibit A attached hereto (but without including
the bracketed text). Each Global Note shall be deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of the
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depository or its nominee,
as hereinafter provided.
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02 Global Note Legends. Each Global Note shall bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK
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<PAGE> 32
CORPORATION ("DTC"), TO SCOTSMAN GROUP INC. OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE INDENTURE.
SECTION 2.03 Execution, Authentication and Denominations. The Notes
shall be executed by an Officer of the Company listed in clause (i) of the
definition of Officer herein and attested by its Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer. The signature of any of
these Officers on the Notes may be by facsimile or manual signature in the name
and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nonetheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee or an authenticating agent shall upon receipt of a Company
Order authenticate for original issue Notes in the aggregate principal amount of
up to $100,000,000. The Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company in connection with such
authentication and delivery of Notes. Such Company Order shall specify the
amount of Notes to be authenticated and the date on which the original issue of
Notes is to be authenticated. The aggregate principal amount of Notes
outstanding at any time may not exceed the amount set forth above except for
Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Section 2.06, 2.08 or 2.10.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an
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Affiliate of the Company.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple of
$1,000 in excess thereof.
SECTION 2.04 Registrar and Paying Agent. The Company shall maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
for payment (the "Paying Agent") and an office or agency where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Security Register"). The Company may have one or
more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Payment Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. If, at any
time, the Trustee is not the Registrar, the Registrar shall make available to
the Trustee on or before each Interest Payment Date and at such other times as
the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Security Register.
SECTION 2.05 Payment Agent to Hold Money in Trust. Not later than each
due date of the principal, premium, if any, and interest on any Notes, the
Company shall deposit with the Paying Agent by 11:00 a.m., New York time, in
immediately available funds, money sufficient to pay such principal, premium, if
any, and interest so becoming due. The Company shall require each Paying Agent
other than the Trustee to agree in writing that such Paying Agent shall hold in
trust for the benefit of the Holders or the Trustee all money held by the Paying
Agent for the payment of principal of, premium, if any, and interest on the
Notes (whether such money has been paid to it by the Company or any other
obligor on the Notes), and such Paying Agent shall
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promptly notify the Trustee of any default by the Company (or any other
obligor on the Notes) in making any such payment. The Company at anytime may
require a Paying Agent to pay all money held by it to the Trustee and account
for any funds disbursed, and the Trustee may at any time during the continuance
of any payment default, upon written request to a Paying Agent, require such
Paying Agent to pay all money held by it to the Trustee and to account for any
funds disbursed. Upon doing so, the Paying Agent shall have no further liability
for the money so paid over to the Trustee. If the Company or any Subsidiary of
the Company or any Affiliate of any of them acts as Paying Agent, it will, on or
before each due date of any principal of, premium, if any, or interest on the
Notes, segregate and hold in a separate trust fund for the benefit of the
Holders a sum of money sufficient to pay such principal, premium, if any, or
interest so becoming due until such sum of money shall be paid to such Holders
or otherwise disposed of as provided in this Indenture, and will promptly notify
the Trustee of its action or failure to act.
SECTION 2.06 Transfer and Exchange. The Notes are issuable only in
registered form. A Holder may transfer a Note by written application to the
Registrar stating the name of the proposed transferee and otherwise complying
with the terms of this Indenture. No such transfer shall be effected until, and
such transferee shall succeed to the rights of a Holder only upon, final
acceptance and registration of the transfer by the Registrar in the Security
Register. Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any Agent of the Company shall treat the
Person in whose name the Note is registered as the owner thereof for all
purposes whether or not the Note shall be overdue, and neither the Company, the
Trustee, nor any such Agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are presented
to the Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount of Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met. To permit
registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Notes at the Registrar's request. No service charge
shall be made to a Holder or its transferee for any registration of transfer or
exchange or redemption of the Notes, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or other similar
governmental charge payable upon exchanges pursuant to Section 2.10, 3.08 or
9.04).
The Registrar shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
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SECTION 2.07 Book-Entry Provisions for Global Notes. (a) A Global Note
initially shall (i) be registered in the name of the Depositary for such Global
Note or the nominee of such Depositary, (ii) be delivered to the Trustee as
custodian for such Depositary and (iii) bear legends as set forth in Section
2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any Agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any Agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary. In
addition, Physical Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Note, if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Note and a successor depositary is not appointed by
the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request to the
foregoing effect from the Depositary.
(c) Any beneficial interest in a Global Note that is transferred to a
Person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
(d) In connection with any transfer of a portion of the beneficial
interests in a Global Note to beneficial owners pursuant to paragraph (b) of
this Section, the Registrar shall reflect on its books and records the date and
a decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and amount.
(e) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to paragraph (b) of this Section, the Global Note, as
the case may be, shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the Global Note an equal aggregate principal
amount of Physical Notes of authorized denominations.
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(f) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to this Section 2.07. The Company
shall have the right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the giving of
reasonable written notice to the Registrar.
SECTION 2.08 Replacement Notes. If a mutilated Note is surrendered to
the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding. If required by the Trustee or the Company, an
indemnity bond must be furnished that is sufficient in the judgment of both the
Trustee and the Company to protect the Company, the Trustee or any Agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge such Holder for its expenses and the expenses of the Trustee in replacing
a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has
become or is about to become due and payable, the Company in its discretion may
pay such Note instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.
SECTION 2.09 Outstanding Notes. Notes outstanding at any time are all
Notes that have been authenticated by the Trustee except for those canceled by
it, those delivered to it for cancellation and those described in this Section
2.09 as not outstanding.
If a Note is replaced pursuant to Section 2.08, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of
its Affiliates holds such Note, provided, however, that, in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded.
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Notes so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor.
SECTION 2.10 Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes, the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 2.11 Cancellation. The Company at any time may deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure. The Company may not issue new Notes to
replace Notes it has paid in full or delivered to the Trustee for cancellation.
SECTION 2.12 CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall use
CUSIP numbers or CINS numbers, as the case may be, in notices of redemption or
exchange as a convenience to Holders; provided that any such notice shall state
that no representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice of redemption or exchange and
that reliance may be placed only on the other identification numbers printed on
the Notes.
SECTION 2.13 Defaulted Interest. If the Company defaults in a payment
of interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.13 with respect to the payment of any
defaulted interest, shall mean the fifteenth day next preceding the date fixed
by the Company for the payment of defaulted interest, whether or not such day is
a Business Day. At least 15 days
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before the subsequent special record date, the Company shall mail to each
Holder and to the Trustee a notice that states the subsequent special record
date, the payment date and the amount of defaulted interest to be paid.
ARTICLE III
Redemption
SECTION 3.01 Right of Redemption. (a) The Notes may be redeemed at the
election of the Company, in whole or in part, at any time and from time to time
on or after __, 2002 and prior to maturity, upon not less than 30 nor more than
60 days' prior notice mailed by first class mail to each Holder's last address
as it appears in the Security Register, at the following Redemption Prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on an Interest Payment Date) if redeemed during the
12-month period commencing on __ of the years set forth below:
Redemption
Year Price
2002.................... _____%
2003.................... _____%
2004 and thereafter..... 100.0%
In addition, at any time and from time to time prior to __, 2000, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Equity Offerings, at a redemption
price (expressed as a percentage of principal amount) of __ % plus accrued and
unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that either (i) at least $__ million
in aggregate principal amount of the Notes must remain outstanding after each
such redemption or (ii) such redemption must retire the Notes in their entirety
and, in any case, that such redemption occurs within 60 days following the
closing of any such Equity Offering.
SECTION 3.02 Notices to Trustee. If the Company elects to redeem Notes
pursuant to Section 3.01, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.02 in
an Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
SECTION 3.03 Selection of Notes to Be Redeemed. If less than all of the
Notes are to be redeemed at any time, the Trustee shall select the Notes to be
redeemed in compliance with
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the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as
the Trustee in its sole discretion shall deem fair and appropriate.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04 Notice of Redemption. At least 30 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered
to the Paying Agent in order to collect the
Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the Redemption Price plus accrued and
unpaid interest to the Redemption Date upon surrender of the Notes to
the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion
of the principal amount (equal to $1,000 in principal amount or any
integral multiple thereof) of such Note to be redeemed and that, on and
after the Redemption Date, upon surrender of such Note, a new Note or
Notes in principal amount equal to the unredeemed portion thereof will
be reissued;
(vii) that, if any Note contains a CUSIP or CINS number as
provided in Section 2.12, no representation is being made as to the
correctness of the CUSIP or CINS number either as printed on the Notes
or as contained in the notice of redemption and that reliance may be
placed only on the other identification numbers printed on the Notes;
and
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(viii) the aggregate principal amount of Notes being redeemed.
At the Company's request (which request may be revoked by the Company
at any time prior to the date which is two Business Days prior to the date on
which the Trustee shall have given such notice to the Holders), made in writing
to the Trustee at least 45 days (or such shorter period as shall be satisfactory
to the Trustee) before a Redemption Date, the Trustee shall give the notice of
redemption in the name and at the expense of the Company. Concurrently with the
giving of such notice by the Company to the Holders, the Company shall deliver
to the Trustee an Officers' Certificate stating that such notice has been given.
SECTION 3.05 Effect of Notice of Redemption. Once notice of redemption
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued and unpaid
interest to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Notes held by Holder to whom such notice was properly
given.
SECTION 3.06 Deposit of Redemption Price. On or prior to any Redemption
Date, the Company shall deposit with the Paying Agent (or, if the Company is
acting as its own Paying Agent, shall segregate and hold in trust as provided in
Section 2.05) by 11:00 a.m., New York time, in immediately available funds,
money sufficient to pay the Redemption Price of and accrued and unpaid interest
on all Notes to be redeemed on that date other than Notes or portions thereof
called for redemption on that date that have been delivered by the Company to
the Trustee for cancellation.
SECTION 3.07 Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued and unpaid interest to such Redemption Date, and on and after such date
(unless the Company shall default in the payment of such Notes at the Redemption
Price and accrued and unpaid interest to the Redemption Date, in which case the
principal, until paid, shall bear interest from the Redemption Date at the rate
prescribed in the Notes), such Notes shall cease to accrue interest. Upon
surrender of any Note for redemption in accordance with a notice of redemption,
such Note shall be paid and redeemed by the Company at the Redemption Price,
together with accrued and unpaid interest to the Redemption Date; provided that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders registered as such at the close of business
on the relevant Regular Record Date.
SECTION 3.08 Notes Redeemed in Part. Upon surrender of any Note that is
redeemed
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in part, the Company shall execute and the Trustee shall authenticate
and deliver to the Holder a new Note equal in principal amount of the unredeemed
portion of such surrendered Note.
ARTICLE IV
Covenants
SECTION 4.01 Payment of Notes. The Company shall pay the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money in immediately available
funds designated for and sufficient to pay the installment. If the Company or
any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, an installment of principal, premium, if any, or interest shall be
considered paid on the due date if the entity acting as Paying Agent complies
with the last sentence of Section 2.05. As provided in Section 6.09, upon any
bankruptcy or reorganization procedure relative to the Company, the Trustee
shall serve as the Paying Agent and conversion agent, if any, for the Notes.
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02 Maintenance of Office or Agency. The Company will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the office of the Trustee,
located in the Borough of Manhattan, The City of New York, as such office of the
Company in accordance with Section 2.04.
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SECTION 4.03 Limitation on Indebtedness. (a) The Guarantor shall not,
and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness (other than the Notes and Indebtedness existing on
the Issue Date); provided, however, that the Guarantor or a Restricted
Subsidiary (in the case of such Restricted Subsidiary other than the Company to
the extent permitted under Section 4.07) may Incur such Indebtedness if, on the
date of such Incurrence and after giving effect thereto, the Consolidated
Coverage Ratio equals or exceeds (x) for the period from the Issue Date and
ending on the third anniversary thereof, 2.0:1.0 and (y) thereafter, 2.25:1.
(b) Notwithstanding the foregoing paragraph (a), the Guarantor and any
Restricted Subsidiary (in the case of such Restricted Subsidiary other than the
Company to the extent permitted under Section 4.07) may Incur the following
Indebtedness:
(i) (x) Indebtedness Incurred pursuant to the Bank Credit
Agreement, so long as the aggregate principal amount of all
Indebtedness outstanding under the Bank Credit Agreement does not, at
any time, exceed the aggregate amount of borrowing availability from
time to time allowed under the Bank Credit Agreement that determine
availability on the basis of a borrowing base or other asset-based
calculation, if available and (y) other Indebtedness up to $150 million
in aggregate principal amount outstanding at any time; provided,
however, that in no event shall the aggregate principal amount of such
indebtedness exceed $450 million as of the date of such Incurrence
minus the aggregate amount of Indebtedness permanently repaid as
provided under Section 4.09;
(ii) Indebtedness owed to and held by the Guarantor or a
Wholly Owned Restricted Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in
any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly
Owned Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Guarantor or another Wholly Owned
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(iii) the Notes;
(iv) Indebtedness Incurred pursuant to the Comerica Agreement,
so long as the aggregate principal amount of all Indebtedness
outstanding thereunder does not exceed $15 million at any time;
(v) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (i), (ii), (iii) or (iv) of this
Section 4.03);
(vi) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to clause (iii) or (v)
above or clause (ix) below, or this clause (vi);
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(vii) Indebtedness consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the
Guarantor and its Restricted Subsidiaries pursuant to the Indenture;
(viii) Indebtedness under Currency Agreements entered into in
the ordinary course of business for the purpose of limiting risks that
arise in the ordinary course of business of the Guarantor and its
Restricted Subsidiaries;
(ix) Indebtedness Incurred to finance capital expenditures in
an aggregate principal amount not to exceed $20 million in any fiscal
year; and
(x) Indebtedness in an aggregate principal amount which,
together with the principal amount of all other Indebtedness of the
Guarantor and its Restricted Subsidiaries outstanding on the date of
such Incurrence (other than Indebtedness permitted by clauses (i)
through (ix) above or paragraph (a)), does not exceed $40 million.
(c) Notwithstanding the foregoing, the Guarantor and the Company shall
not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the
proceeds thereof are used, directly or indirectly, to Refinance any Subordinated
Obligations unless such Indebtedness shall be subordinated to the Notes or the
Parent Guarantee, as the case may be, at least to the same extent as such
Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.03, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Guarantor, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
SECTION 4.04 Limitation on Senior Subordinated Indebtedness. The
Company or the Guarantor, as the case may be, will not Incur any Indebtedness
that is expressly made subordinate in right of payment to any Senior
Indebtedness of the Company or the Guarantor, as the case may be, unless such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is outstanding, is expressly made pari passu
with, or subordinate in right of payment to, the Notes, with respect to the
Company, or the Parent Guarantee with respect to the Guarantor; provided that
the foregoing limitation shall not apply to distinctions between categories of
Senior Indebtedness of the Company or the Guarantor that exist by reason of any
Liens or Guarantees arising or created in respect of some but not all of such
Senior Indebtedness.
SECTION 4.05 Limitation on Restricted Payments. (a) The Guarantor shall
not, and shall not permit any Restricted Subsidiary, directly or indirectly, to
make a Restricted Payment if
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at the time the Guarantor or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or
would result therefrom);
(2) the Guarantor is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of Section 4.03; or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Adjusted Consolidated Net Income
accrued during the period (treated as one accounting period)
from the beginning of the fiscal quarter immediately following
the fiscal quarter during which the Notes are originally
issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment
(or, in case such Adjusted Consolidated Net Income shall be a
deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the
Guarantor from the issuance or sale of its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the
Guarantor and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the
Guarantor or any of its Subsidiaries for the benefit of their
employees);
(C) the aggregate Net Cash Proceeds received by the
Guarantor from the issue or sale subsequent to the Issue Date
of its Capital Stock (other than Disqualified Stock) to an
employee stock ownership plan; provided, however, that if such
employee stock ownership plan incurs any Indebtedness with
respect thereto, such aggregate amount shall be limited to an
amount equal to any increase in the Consolidated Net Worth of
the Guarantor resulting from principal repayments made by such
employee stock ownership plan with respect to such
Indebtedness;
(D) the amount by which Indebtedness of the Guarantor
or any Restricted Subsidiary is reduced on the Guarantor's
balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Guarantor) subsequent to the Issue Date, of
any Indebtedness of the Guarantor or any Restricted Subsidiary
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Guarantor (less the amount of any
cash, or the fair value of any other property, distributed by
the Guarantor or any Restricted Subsidiary upon such
conversion or exchange); and
(E) an amount equal to the sum of (i) the net
reduction in Investments
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in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets,
in each case to the Guarantor or any Restricted Subsidiary
from or with respect to Unrestricted Subsidiaries, and (ii)
the portion (proportionate to the Guarantor's equity interest
in such Subsidiary) of the Fair Market Value of the net
assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall
not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a
Restricted Payment) by the Guarantor or any Restricted
Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not
prohibit:
(i) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Guarantor or a Restricted Subsidiary
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Guarantor (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Guarantor); provided, however, that (A) such purchase
or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above (but only to the extent that such Net Cash Proceeds
were used to purchase or redeem such Capital Stock as provided in this
clause (i));
(ii) any purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value of Subordinated Obligations
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Refinancing Indebtedness which is permitted to be
Incurred pursuant to clause (b)(vi) of Section 4.03; provided, however,
that such purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this covenant; provided, however, that at the time
of payment of such dividend, no other Default shall have occurred and
be continuing (or result therefrom); and provided further, however,
that such dividends shall be included in the calculation of the amount
of Restricted Payments;
(iv) dividends paid from the Net Cash Proceeds received by the
Guarantor from the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an issue
or sale to a Subsidiary of the Guarantor and other than an issue or
sale to an employee stock ownership plan or to a trust established by
the Guarantor or any of its Subsidiaries for the benefit of their
employees) in an aggregate amount not to exceed 6% of such Net Cash
Proceeds in any calendar year; provided, however, that such dividends
shall be included in the calculation of the amount of
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Restricted Payments;
(v) the repurchase of shares of, or options to purchase shares
of, common stock or stock equivalents of the Guarantor or any of its
Subsidiaries from employees, former employees, directors or former
directors of the Guarantor or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock or
stock equivalents; provided, however, that the aggregate amount of such
repurchases shall not exceed $1 million in any calendar year and $5
million in the aggregate; provided further, however, that such
repurchases shall be excluded in the calculation of the amount of
Restricted Payments; or
(vi) other Restricted Payments in an aggregate amount not to
exceed $10 million; provided, however, that such Restricted Payments
shall be excluded in the calculation of the amount of Restricted
Payments.
SECTION 4.06 Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Guarantor shall not, and shall not permit any
Restricted Subsidiary other than the Company to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary other than the Company; (a) to pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Company or another Restricted Subsidiary, (b) to make
any loans or advances to the Company or another Restricted Subsidiary or (c) to
transfer any of its property or assets to the Company or another Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date; (iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or (ii) of
this Section 4.06 or this clause (iii); provided, however, that the encumbrances
and restrictions with respect to such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the Noteholders
than encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary nonassignment provisions related to intellectual
property and in leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease or the property leased thereunder;
(v) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary other
than the
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Company to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; (vi) any restriction
with respect to a Restricted Subsidiary other than the Company imposed pursuant
to an agreement entered into for the sale or disposition of all or substantially
all the Capital Stock or assets of such Restricted Subsidiary pending the
closing of such sale or disposition; and (vii) any encumbrance or restriction
pursuant to an agreement relating to Indebtedness permitted by clause (iii) of
paragraph (b) of Section 4.07.
SECTION 4.07 Limitation on the Sale or Issuance of Capital Stock and
Indebtedness of Restricted Subsidiaries. (a) The Guarantor will not sell, and
will not permit any Restricted Subsidiary other than the Company, directly or
indirectly, to issue or sell, any shares of Capital Stock of such Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock), except (i) to the Guarantor, the Company or a Wholly Owned
Restricted Subsidiary other than the Company; (ii) issuances of director's
qualifying shares or sales to foreign nationals of shares of Capital Stock of
foreign Restricted Subsidiaries, to the extent required by applicable law; and
(iii) as Asset Sales and Asset Dispositions permitted under Section 4.09.
(b) The Guarantor will not permit any Restricted Subsidiary other than
the Company, directly or indirectly, to Incur any Indebtedness except (i)
Indebtedness of such Restricted Subsidiary existing on the Issue Date or the
time such Restricted Subsidiary was acquired by the Guarantor (other than
Indebtedness Incurred in connection with or anticipation of such acquisition);
(ii) Indebtedness permitted pursuant to clause (i), (ii), (iv), (v), (vi) (to
the extent that such Refinancing Indebtedness Refinances any Indebtedness of
such Restricted Subsidiary), (vii), (viii) or (ix) of paragraph (b) of Section
4.03; and (iii) other Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of all Restricted Subsidiaries other than
the Company outstanding on the date of such Incurrence (other than Indebtedness
permitted by clause (i) or (ii) of this paragraph (b)), does not exceed $50
million or an amount equal to 1.5 times the aggregate amount of Consolidated
EBITDA for the then most recent four fiscal quarters prior to the date of such
Incurrence for which reports have been filed with the SEC pursuant to Section
4.18 (whichever is greater).
(c) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Guarantor, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
SECTION 4.08 Limitation on Affiliate Transactions. (a) The Guarantor
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Guarantor (an "Affiliate Transaction") unless
the terms thereof (1) are no less favorable to the Guarantor or such
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Restricted Subsidiary than those that could reasonably be expected to
be obtained at the time of such transaction in arm's-length dealings with a
Person who is not such an Affiliate, (2) if such Affiliate Transaction involves
an amount in excess of $10 million, is set forth in writing and has been
approved by a majority of the members of the Board of Directors of the Guarantor
or the Company, as the case may be, having no personal stake in such Affiliate
Transaction or (3) if such Affiliate Transaction involves an amount in excess of
$20 million, has been determined by a nationally recognized investment banking
firm or other qualified independent appraiser to be fair, from a financial
standpoint, to the Guarantor and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) transactions between or among the Guarantor and/or its Restricted
Subsidiaries; (ii) Restricted Payments, Permitted Investments and other
transactions and payments that are permitted by Section 4.05; (iii) loans,
transactions and arrangements or advances to officers, directors, employees and
agents in the ordinary course of business in an aggregate principal amount not
to exceed, in the case of loans or advances, $3 million outstanding at any one
time, provided that with respect to any transaction or arrangement which is
reasonably expected to involve more than $1 million, such transaction or
arrangement shall be approved by a majority of the members of the Board of
Directors of the Guarantor having no personal stake in such transaction or
arrangement; (iv) compensation, indemnification and other benefits paid or made
available (x) pursuant to employment and consultant agreements, (y) for and in
connection with services actually rendered and generally comparable to those
paid or made by entities engaged in the same or similar business (including,
reimbursement for advancement of out-of-pocket expenses and directors' and
officers' liability insurance, or (z) indemnification under the Guarantor's and
any Subsidiary's charter, by-laws or other organizational documents; (v)
transactions, expenses and payments pursuant to the Registration Rights
Agreement; (vi) transactions between and among the Guarantor and its
Subsidiaries or between or among Subsidiaries of the Guarantor, provided that
any ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Guarantor or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Guarantor other than by virtue of the
direct or indirect ownership interest in such Subsidiary held (in the aggregate)
by the Company and/or one or more of its Subsidiaries; (vii) transactions
between or among the Guarantor and its Affiliates not involving in excess of $1
million during any fiscal year; and (viii) any acquisition by the Guarantor of
Capital Stock (other than Disqualified Stock) of the Guarantor or any Subsidiary
thereof and any capital contribution by the Guarantor to any Restricted
Subsidiary.
SECTION 4.09 Limitation on Asset Sales. The Guarantor will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless
(i) the consideration received by the Guarantor or such Restricted Subsidiary is
at least equal to the Fair Market Value of the assets sold or disposed of, and
(ii) at least 75% of the consideration received consists of cash or Temporary
Cash Investments; provided, that the amount of any liabilities of the Guarantor
or any Subsidiary that are assumed by the transferee in such Asset Sale shall be
deemed to be cash or cash equivalents, as the case may be, for purposes of this
Section 4.09, provided further that this clause (ii) shall not apply to any sale
or other disposition of assets as a result of a foreclosure (or a secured party
taking ownership of such assets in lieu thereof) or any involuntary proceeding
in
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which the Guarantor and its Restricted Subsidiaries cannot, directly or
indirectly, determine the type of proceeds received from such sale or other
disposition. In the event and to the extent that the Net Cash Proceeds received
by the Guarantor or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed $20 million, then the Guarantor shall or shall cause the relevant
Restricted Subsidiary to (i) (A) within twelve months after the date Net Cash
Proceeds so received exceed $20 million, apply an amount equal to such excess
Net Cash Proceeds to permanently repay Senior Indebtedness of the Guarantor or
Indebtedness of any Restricted Subsidiary (and to the extent that such Senior
Indebtedness or Indebtedness, as the case may be, was Incurred under a
revolving credit or similar arrangement, the permanent reduction or cancellation
of the commitment thereunder), in each case owing to a Person other than the
Guarantor or any of its Restricted Subsidiaries or (B)(x) within twelve months
after the date Net Cash Proceeds so received exceed $20 million, invest an equal
amount, or the amount not so applied pursuant to clause (A) or (y) within
eighteen months after the Net Cash Proceeds so received exceed $20 million,
enter into a definitive agreement committing to so invest not later than 24
months after the date Net Cash Proceeds so received exceeded $20 million, in
property or assets (other than current assets) of a nature or type or that are
used in a business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Guarantor and its Restricted
Subsidiaries existing on the date of such investment and (iii) apply (no later
than the end of the 12-month period referred to in clause (i) or the 24-month
period referred to in clause (ii)(B)(y)) such excess Net Cash Proceeds (to the
extent not applied or committed to be applied pursuant to clause (i)) as
provided in the following paragraph of this Section 4.09. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period or 24-month period, as the case may be, of
the preceding sentence and not applied (or committed to be applied) as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.09 totals at least $20 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate a similar offer to
purchase from the Holders and the holders of any Senior Indebtedness or any
other Indebtedness ranking pari passu with, the Notes which by its terms
requires the Company to make an Offer to Purchase, on a pro rata basis, an
aggregate principal amount of Notes, Senior Indebtedness or such other
Indebtedness (if any) equal to the Excess Proceeds on such date, at a purchase
price equal to 100% of the principal amount of the Notes, Senior Indebtedness or
such other Indebtedness (if any), plus, in each case, accrued interest (if any)
to the date of purchase.
SECTION 4.10 Limitation on Liens. The Guarantor shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit
to exist any Lien (other than Permitted Liens) of any nature whatsoever on any
of its properties (including Capital Stock of a Restricted Subsidiary), whether
owned at the Issue Date or thereafter acquired, to secure any Indebtedness of
the Guarantor or the Issuer, without effectively providing that the Notes or the
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Parent Guarantee, as the case may be, shall be secured equally and ratably with
(or prior to) the obligations so secured for so long as such obligations are so
secured.
SECTION 4.11 Limitation on Sale/Leaseback Transactions. The Guarantor
shall not, and shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (i) the Guarantor
or such Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an
amount equal to the Attributable Debt with respect to such Sale/Leaseback
Transaction pursuant to Section 4.03 and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the Notes
pursuant to Section 4.10, (ii) the net proceeds received by the Guarantor or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the Fair Market Value of such property and (iii) the Guarantor or
the Company, as the case may be, applies the proceeds of such transaction in
compliance with Section 4.09.
SECTION 4.12 Repurchase of Notes upon a Change of Control. The Company
must commence, within 30 days of the occurrence of a Change of Control, and
within 60 days thereof consummate, an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest (if any) to the date of purchase.
SECTION 4.13 Existence. Subject to Articles Four and Five of this
Indenture, the Guarantor will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of the Restricted Subsidiaries in accordance with the respective
organizational documents of the Guarantor and each such Restricted Subsidiary
and the rights (whether pursuant to charter, partnership certificate, agreement,
statute or otherwise), licenses and franchises of the Guarantor and each
Restricted Subsidiary; provided that the Guarantor shall not be required to
preserve any such right, license or franchise, or the existence of any
Restricted Subsidiary, if the maintenance or preservation thereof is no longer
desirable in the conduct of the business of the Guarantor and its Restricted
Subsidiaries taken as a whole; and provided further that any Restricted
Subsidiary may consolidate with, merge into, or sell, convey, transfer, lease or
otherwise dispose of all or part of its property and assets to the Guarantor,
the Company or any Wholly Owned Restricted Subsidiary.
SECTION 4.14 Payment of Taxes and Other Claims. The Guarantor will pay
or discharge and shall cause each of its Subsidiaries to pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent (i) all
material taxes, assessments and governmental charges levied or imposed upon (a)
the Guarantor or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Guarantor or any
such Subsidiary and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Guarantor or any such Subsidiary; provided that the Guarantor shall not be
required to pay or discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established.
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SECTION 4.15 Maintenance of Properties and Insurance. The Guarantor
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Guarantor
may be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.15 shall prevent the Guarantor or any such Restricted Subsidiary
from discontinuing the use, operation or maintenance of any of such properties
or disposing of any of them, if such discontinuance or disposal thereof is no
longer desirable in the conduct of the business of the Guarantor or such
Restricted Subsidiary.
The Guarantor will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as the Guarantor in good faith shall determine to be reasonable and
appropriate in the circumstances.
SECTION 4.16 Notices of Defaults. In the event that the Guarantor or
the Company becomes aware of any Default or Event of Default, the Guarantor or
the Company, as the case may be, promptly after it becomes aware thereof, will
give written notice thereof to the Trustee.
SECTION 4.17 Compliance Certificates. (a) The Company and the Guarantor
shall deliver to the Trustee each year, within 105 days after the last day of
the Company's immediately preceding fiscal year, an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal year. Such certificate shall contain a certification
from the principal executive officer, principal financial officer or principal
accounting officer of the Company and the Guarantor that a review has been
conducted of the activities of the Guarantor, Company and its Restricted
Subsidiaries, as applicable, and the Guarantor's, the Company's and its
Restricted Subsidiaries', as applicable, performance under this Indenture and
that the Guarantor or the Company, as the case may be, has complied with all
conditions and covenants under this Indenture. For purposes of this Section
4.17(a), such compliance shall be determined without regard to any period of
grace or requirement of notice provided under this Indenture. If they do know of
such a Default or Event of Default, the certificate shall describe any such
Default or Event of Default and its status.
(b) The Company and the Guarantor shall deliver to the Trustee, within
120 days after the end of each fiscal year of the Company, a certificate signed
by the Guarantor's independent certified public accountants stating (i) that
their audit examination has included a review of the terms of this Indenture and
the Notes as they relate to accounting matters, and (ii) whether, in connection
with their audit examination, anything came to their attention that caused
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them to believe that the Guarantor or the Company was not in compliance
with any of the terms, covenants, provisions or conditions of Article Four
and Section 5.01 of this Indenture as they pertain to accounting matters and,
if any Default or Event of Default has come to their attention, specifying the
nature and period of existence thereof; provided that such independent
certified public accountants shall not be liable in respect of such statement
by reason of any failure to obtain knowledge of any such Default or Event of
Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards in effect at
the date of such examination.
SECTION 4.18 SEC Reports and Reports to Holders. Whether or not the
Guarantor is required to file reports with the SEC, for so long as any Notes are
outstanding, the Guarantor shall file with the SEC all such reports and other
information as it would be required to file with the SEC by Sections 13(a) or
15(d) under the Exchange Act, if it were subject thereto. The Guarantor shall
supply the Trustee and each Holder or shall supply to the Trustee for forwarding
to each such Holder, without cost to such Holder, copies of such reports and
other information.
SECTION 4.19 Waivers of Stay, Extension or Usury Laws. Each of the
Guarantor and the Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Guarantor or the
Company, as the case may be, from paying all or any portion of the principal of,
premium, if any, or interest on the Notes as contemplated herein, wherever
enacted, now or at any time hereafter in force, or that may affect the covenants
or the performance of this Indenture; and (to the extent that it may lawfully do
so) each of the Guarantor and Company hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE V
Successor Corporation
SECTION 5.01 When Guarantor or Company May Merge, Etc. Each of the
Guarantor and the Company, as the case may be, will not consolidate with, merge
with or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially as
an entirety in one transaction or a series of regulated transactions) to, any
Person or permit any Person to merge with or into the Guarantor or the Company,
as the case may be, unless:
(i) the Guarantor or the Company, as the case may be, shall be
the continuing Person, or the Person (if other than the Guarantor or
the Company) formed by such consolidation or into which the Guarantor
or the Company is merged or that acquired or
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leased such property and assets of the Guarantor or the Company shall
be a corporation organized and validly existing under the laws of the
United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered
to the Trustee, all of the obligations of the Company on all of the
Notes or all of the obligation of the Guarantor on the Parent
Guarantee, as the case may be, and under this Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a
pro forma basis, the Guarantor or the Company or any Person becoming
the successor obligor of the Notes or the Parent Guarantee shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Guarantor or the Company immediately prior to such
transaction;
(iv) immediately after giving effect to such transaction on a
pro forma basis the Guarantor, the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at
least $1.00 of Indebtedness under the first paragraph of Section
4.03(a) without violating the terms thereof; and
(v) the Guarantor or the Company, as the case may be, delivers
to the Trustee an Officer's Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and (iv)) and
Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein
relating to such transaction have been complied with;
provided, however, that (x) clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Guarantor or the
Company, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of incorporation of
the Guarantor or the Company; and provided further, however, that any such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations and (y) clauses (iii) and (iv) above do not apply to any transaction
between the Company and any Wholly Owned Restricted Subsidiary or between the
Guarantor and the Company.
SECTION 5.02 Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Guarantor or the Company in
accordance with Section 5.01 of this Indenture, the successor Person formed by
such consolidation or into which the Guarantor or the Company is merged or to
which such sale, conveyance, transfer, lease or other disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Guarantor or the Company under this Indenture with the same effect as if
such successor Person had been named as the Guarantor or the Company herein.
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ARTICLE VI
Default and Remedies
SECTION 6.01 Events of Default. An "Event of Default" shall occur with
respect to the Notes if:
(a) the Company defaults in the payment of the principal of
(or premium, if any, on) any Note when the same becomes due and payable
at maturity, upon acceleration, redemption or otherwise, whether or not
such payment is prohibited by Article Ten;
(b) the Company defaults in the payment of interest on any
Note when the same becomes due and payable, and such default continues
for a period of 30 days, whether or not such payment is prohibited by
Article Ten;
(c) the Company or the Guarantor, as the case may be, defaults
in the performance of or breaches the provisions of Article Five and
such default or breach continues for a period of 30 consecutive days
after written notice to the Company or the Guarantor, as the case may
be, by the Trustee or the Holders of 25% or more in aggregate principal
amount of the Notes;
(d) the Company or the Guarantor, as the case may be, defaults
in the performance of or breaches the provisions of Section 4.03,
Section 4.05, Section 4.06, Section 4.07, Section 4.08, Section 4.09
(other than a failure to purchase the Notes), Section 4.10, Section
4.11, Section 4.12 (other than a failure to purchase the Notes) and
Section 4.18 and such default or breach continues for a period of 30
consecutive days after written notice to the Company by the Trustee or
the Holders of 25% or more in aggregate principal amount of the Notes
(e) the Company or the Guarantor, as the case may be, defaults
in the performance of or breaches any other covenant or agreement of
the Company or the Guarantor, as the case may be, in this Indenture or
under the Notes or the Parent Guarantee (other than a default specified
in clause (a), (b), (c) or (d) above) and such default or breach
continues for a period of 60 consecutive days after written notice to
the Company or the Guarantor, as the case may be, by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes;
(f) there occurs with respect to any issue or issues of
Indebtedness of the Company or the Guarantor having an outstanding
principal amount of $10 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or
shall hereafter be created, (I) an event of default that has caused the
holder
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thereof to declare such Indebtedness to be due and payable prior
to its Stated Maturity and such Indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within any
applicable grace period and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within
any applicable grace period;
(g) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company, the Guarantor or any Restricted
Subsidiary and shall remain outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within
10 days after notice by the Trustee or the Holders of 25% or more in
aggregate principal amount of the Notes;
(h) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company, the Guarantor
or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company,
the Guarantor or any Significant Subsidiary or for all or substantially
all of the property and assets of the Company, the Guarantor or any
Significant Subsidiary or (C) the winding up or liquidation of the
affairs of the Company, the Guarantor or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days;
(i) the Company, the Guarantor or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company, the Guarantor or any Significant
Subsidiary or for all or substantially all of the property and assets
of the Company, the Guarantor or any Significant Subsidiary or (C)
effects any general assignment for the benefit of creditors; or
(j) the Parent Guarantee ceases to be in full force and effect
(other than in accordance with the terms of the Parent Guarantee) or
the Guarantor denies or disaffirms its obligations under the Parent
Guarantee if such default continues for a period of 10 days after
notice thereof to the Company by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes.
SECTION 6.02 Acceleration. If an Event of Default (other than an Event
of Default specified in clause (h) or (i) of Section 6.01 that occurs with
respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company (and to the
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Trustee if such notice is given by the Holders (the "Acceleration
Notice")), may, and the Trustee at the request of such Holders shall, declare
the principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable;
provided such acceleration shall not be effective until after five (5) Business
Days after the Representatives of Designated Senior Indebtedness shall have
been notified of such acceleration. In the event of a declaration of
acceleration because an Event of Default set forth in clause (f) of Section
6.01 has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company or the Guarantor or waived by the holders of the relevant Indebtedness
within 30 days after the declaration of acceleration with respect thereto. If
an Event of Default specified in clause (h) or (i) of Section 6.01 occurs with
respect to the Company, the principal of, premium, if any, and accrued interest
on the Notes then outstanding shall ipso facto became and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder.
At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in principal amount of the
outstanding Notes by written notice to the Company and to the Trustee may waive
all past Defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and accrued interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or waived
and (ii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
SECTION 6.03 Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04 Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
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SECTION 6.05 Control by Majority. The Holders of at least a majority in
aggregate principal amount of the outstanding Notes may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee; provided that the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders not joining in the giving of such direction; and provided further that
the Trustee may take any other action it deems proper that is not inconsistent
with any such direction received from Holders of Notes pursuant to this Section
6.05.
SECTION 6.06 Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) such Holder has previously given to the Trustee
written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal
amount of outstanding Notes shall have made written request to the
Trustee to pursue the remedy;
(iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against any costs,
liabilities or expenses to be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to comply with such
request; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes have not given the
Trustee a direction that is inconsistent with such written request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
The limitations set forth in this Section 6.06 shall not apply to the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on, such Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the Holder.
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SECTION 6.07 Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on such Holder's Note
on or after the respective due dates expressed on such Note, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08 Collection Suit by Trustee. If an Event of Default in
payment of principal, premium, if any, or interest specified in clause (a) or
(b) of Section 6.01 occurs and is continuing, the Trustee may recover judgment
in its own name and as trustee of an express trust against the Company or any
other obligor of the Notes for the whole amount of principal, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal, premium, if any, and, to the extent that payment of such interest is
lawful, interest on overdue installments of interest, in each case at the rate
specified in the Notes, and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09 Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.06) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.06. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10 Priorities. If the Trustee collects any money pursuant to
this Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.06;
Second: to the holders of Senior Indebtedness, as and to the
extent required by Article Ten;
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Third: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of
which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal, premium, if any,
and interest, respectively; and
Fourth: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit having due regard to the
merits and good faith of the claims or defenses made by the party litigant. This
Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 of this Indenture, or a suit by Holders of more than
25% in principal amount of the outstanding Notes.
SECTION 6.12 Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then, and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Company, Trustee and the Holders shall continue as though no such proceeding had
been instituted.
SECTION 6.13 Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.08, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14 Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the
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Trustee or by the Holders, as the case may be.
ARTICLE VII
Trustee
SECTION 7.01 Rights of Trustee. (a) Except during the continuance of an
Event of Default,
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and certificates
or opinions furnished to it and conforming to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, in its own negligent
failure to act, or its own willful misconduct, except that:
(i) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(ii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a majority in principal amount of
the outstanding Notes, relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture with respect to the Notes.
(d) Subject to TIA Sections 315(a) through (d):
(i) the Trustee may rely upon any document believed by it to
be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the
document;
(ii) before the Trustee acts or refrain from acting, it may
require an Officers'
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Certificate or an Opinion of Counsel, which shall conform to Section
12.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or
opinion;
(iii) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(iv) the Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or
within its rights or powers; provided that the Trustee's conduct does
not constitute negligence or bad faith;
(v) no provision of the Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it;
(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed), may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(vii) the Trustee may consult with counsel and the advice of
such counsel or any opinion of counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance
thereon;
(viii) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled,
during normal business hours and upon reasonable advance notice to the
Company, to examine the books, records and premises of the Company,
personally or by agent or attorney;
(ix) the Trustee may execute any of the trusts or powers
hereunder either directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it
hereunder; and
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(x) the Trustee shall not be deemed to have notice of the
occurrence of a Change of Control or of events which would require an
Offer to Purchase until such time as the Trustee receives notice
thereof from the Company as required in Sections 4.09 and 4.12,
respectively.
SECTION 7.02 Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.03 Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.04 Notice of Default. If any Default or any Event of Default
occurs and is continuing and if such Default or Event of Default is known to the
Trustee, the Trustee shall mail to each Holder in the manner and to the extent
provided in TIA Section 313(c) notice of the Default or Event of Default within
90 days after it occurs, unless such Default or Event of Default has been cured;
provided, however, that, except in the case of a default in the payment of the
principal of, premium, if any, or interest on any Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders.
SECTION 7.05 Reports by Trustee to Holders. Within 60 days after each,
beginning with, the Trustee shall mail to each Holder as provided in TIA
Section 313(c) a brief report dated as of such May 15, if required by TIA
Section 313(a).
SECTION 7.06 Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of--pocket expenses and advances incurred or made
by it. Such expenses shall include the reasonable compensation and expenses of
the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense incurred by it without negligence or
bad faith on its part in connection with the acceptance or administration of
this Indenture and its duties under this Indenture and the Notes, including the
costs and expenses of defending itself against any claim or liability and of
complying with any process served upon it or any of its officers in connection
with the exercise or performance of any of its powers or duties under this
Indenture and the Notes. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the
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defense. The Trustee may have separate counsel and the Company shall
pay reasonable fees and expenses of such counsel. The Company need not pay for
any settlements made without its consent; provided that such consent shall not
be unreasonably withheld. The Company need not reimburse any expense or
indemnify or hold harmless against any loss or liability incurred by the Trustee
through negligence or bad faith.
The Trustee shall have a claim prior to the Notes on all money or
property held or collected by the Trustee, in its capacity as Trustee, for any
amount owing it pursuant to this Section 7.06, except money or property held in
trust to pay principal of, premium, if any, and interest on particular Notes.
If the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in clause (h) or (i) of Section 6.01, the
expenses and the compensation for the services will be intended to constitute
expenses of administration under Title 11 of the United States Bankruptcy Code
or any applicable federal or state law for the relief of debtors.
The provisions of this Section 7.06 shall survive the termination of
this Indenture.
SECTION 7.07 Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.07.
The Trustee may resign by so notifying the Company in writing at least
30 days prior to the date of the proposed resignation. The Holders of a majority
in principal amount of the outstanding Notes may remove the Trustee by so
notifying the Trustee in writing and may appoint a successor Trustee with the
consent of the Company. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.09;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance pursuant to this
Section 7.07 within 30 days after the retiring Trustee resigns or is removed,
the retiring Trustee, the Company or the Holders of a majority in principal
amount of the outstanding Notes may
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petition any court of competent jurisdiction for the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.06, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee fails to comply with Section 7.09, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give written notice of any resignation and any
removal of the Trustee and each appointment of a successor Trustee to all
Holders and the Representatives. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.07, the Company's obligation under Section 7.06 shall continue for the benefit
of the retiring Trustee.
SECTION 7.08 Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.09 Eligibility. Any Trustee serving hereunder shall (a)
satisfy the requirements of TIA Section 310(a)(1) and (b) be a bank or trust
company, within or without the state, which is authorized by law to perform all
of the duties imposed upon it hereby and which either (i) has a reported capital
and surplus aggregating at least $50,000,000 or (ii) is a wholly owned
subsidiary of a bank, a trust company or a bank holding company having a
reported capital and surplus aggregating at least $50,000,000.
SECTION 7.10 Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
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ARTICLE VIII
Discharge of Indenture
SECTION 8.01 Termination of Company's Obligations. Except as otherwise
provided in this Section 8.01, the Company may terminate its obligations under
the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment money
or securities have theretofore been held in trust and thereafter repaid
to the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by
it hereunder; or
(ii) (A) the Notes have become due and payable, mature within
one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption, (B) the Company irrevocably deposits in trust with the
Trustee during such one-year period, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee, as
trust funds solely for the benefit of the Holders for that purpose,
money or U.S. Government Obligations sufficient (in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee), without
consideration of any reinvestment of any interest thereon, to pay
principal, premium, if, any, and interest on the Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by it
hereunder, (C) no Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit, (D)
such deposit will not result in a breach or violation of, or constitute
a default under, this Indenture or any other agreement or instrument to
which the Company is a party or by which it is bound and (E) the
Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.06 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.09,
2.13, 4.01, 4.02, 7.06, 7.07, 8.04, 8.05, 8.06 and Article Ten (with respect to
payments in respect of the Notes other than with the assets held in trust with
the Trustee as described in the foregoing clause (ii)) shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.06, 8.04, 8.05 and 8.06 shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
the Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
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SECTION 8.02 Defeasance and Discharge of Indenture. The Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the date of the deposit referred to
in clause (i) of this Section 8.02, and the provisions of this Indenture will no
longer be in effect with respect to the Notes, and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same, except
as to (A) rights of registration of transfer and exchange, (B) substitution of
apparently mutilated, defaced, destroyed, lost or stolen Notes, (C) rights of
Holders to receive payments of principal thereof and interest thereon, (D) the
Company's obligations under Section 4.02, (E) the rights, obligations and
immunities of the Trustee hereunder and (F) the rights of the Holders as
beneficiaries of this Indenture with respect to the property so deposited with
the Trustee payable to all or any of them; provided that the following
conditions shall have been satisfied:
(i) with reference to this Section 8.02, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.09) and conveyed all right, title and interest for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and
interest, if any, on the Notes, and dedicated solely to, the benefit of
the Holders, in and to (1) money in an amount, (2) U.S. Government
Obligations that, through the payment of interest, premium, if any, and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount or (3) a combination
thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and accrued interest on the outstanding
Notes at the Stated Maturity of such principal or interest; provided
that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect
to the Notes;
(ii) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and
is permitted by Article Ten;
(iii) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or during the period ending on
the 123rd day after such date of deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
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(iv) the Company shall have delivered to the Trustee (1)
either (x) a ruling directed to the Trustee received from the Internal
Revenue Service to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this Section 8.02 and will be
subject to federal income taxon the same amount and in the same manner
and at the same times as would have been the case if such option had
not been exercised or (y) an Opinion of Counsel to the same effect as
the ruling described in clause (x) above based upon and accompanied by
a ruling to that effect published by the Internal Revenue Service,
unless there has been a change in the applicable federal income tax law
since the date of this Indenture such that a ruling from the Internal
Revenue Service is no longer required and (2) an Opinion of Counsel to
the effect that (x) the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and (y) after the passage of
123 days following the deposit (except, with respect to any trust funds
for the account of any Holder who may be deemed to be an "insider" for
purposes of the United States Bankruptcy Code, after one year following
the deposit), the trust funds will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law in a case commenced by or against the
Company under either such statute, and either (I) the trust funds will
no longer remain the property of the Company (and therefore will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally)
or (II) if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Company, (a)
assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and
perfected security interest in such trust funds that is not voidable in
bankruptcy or otherwise except for the effect of Section 552(b) of the
United States Bankruptcy Code on interest on the trust funds accruing
after the commencement of a case under such statute and (b) the Holders
will be entitled to receive adequate protection of their interests in
such trust funds if such trust funds are used in such case or
proceeding;
(v) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit defeasance and discharge will
not cause the Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (iv)(2)(y) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.13, 4.01, 4.02, 7.06, 7.07, 8.04, 8.05, 8.06 and Article Ten (with respect to
payments in respect of the Notes other than with the assets held in trust as
described in this
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Section 8.02) shall survive until the Notes are no longer outstanding.
Thereafter, only the Company's obligations in Sections 7.06, 8.05 and 8.06 shall
survive. If and when a ruling from the Internal Revenue Service or an Opinion of
Counsel referred to in clause (iv)(1) of this Section 8.02 is able to be
provided specifically without regard to, and not in reliance upon, the
continuance of the Company's obligations under Section 4.01, then the Company's
obligations under such Section 4.01 shall cease upon delivery to the Trustee of
such ruling or Opinion of Counsel and compliance with the other conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03 Defeasance of Certain Obligations. The Company may omit to
comply with any term, provision or condition set forth in clauses (iii) and (iv)
of Section 5.01 and Sections 4.03 through 4.18, and clause (c) of Section 6.01
with respect to clauses (iii) and (iv) of Section 5.01, clauses (d) and (e) of
Section 6.01 with respect to Sections 4.03 through 4.18, clauses (f) and (g) of
Section 6.01, and clauses (h) and (i) of Section 6.01 with respect to
Significant Subsidiaries shall be deemed not to be Events of Default, and
Article Ten and Article Eleven shall not apply to the money and/or U.S.
Government Obligations held by the trust referred to in clause (i) below, in
each case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.09) and conveyed all right, title and interest to the Trustee for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Notes, and dedicated solely to, the
benefit of the Holders, in and to (A) money in an amount, (B) U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount or (C) a combination
thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and interest on the outstanding Notes on
the Stated Maturity of such principal or interest; provided that the
Trustee shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of,
or constitute a
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default under, this Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound and is
permitted by Article Ten;
(iii) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or during the period ending on
the 123rd day after such date of deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(iv) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Company Act of 1940, (B) the Holders
have a valid security interest in the trust funds, (C) the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will
be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and (D) after the passage of
123 days following the deposit (except, with respect to any trust funds
for the account of any Holder who may be deemed to be an "insider" for
purposes of the United States Bankruptcy Code, after one year following
the deposit), the trust funds will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law in a case commenced by or against the
Company under either such statute, and either (1) the trust funds will
no longer remain the property of the Company (and therefore will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally)
or (2) if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Company, (x)
assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and
perfected security interest in such trust funds that is not voidable in
bankruptcy or otherwise (except for the effect of Section 552(b) of the
United States Bankruptcy Code on interest on the trust funds accruing
after the commencement of a case under such statute), (y) the Holders
will be entitled to receive adequate protection of their interests in
such trust funds if such trust funds are used in such case or
proceeding and (z) no property, rights in property or other interests
granted to the Trustee or the Holders in exchange for, or with respect
to, such trust funds will be subject to any prior rights of holders of
other Indebtedness of the Company or any of its Subsidiaries;
(v) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit defeasance and discharge will
not cause the Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein
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relating to the defeasance contemplated by this Section 8.03 have been
complied with.
SECTION 8.04 Application of Trust Money. Subject to Sections 8.05 and
8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.05 Repayment to Company. Subject to Sections 7.06, 8.01, 8.02
and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company
upon request set forth in an Officers' Certificate any excess money held by them
at any time and thereupon shall be relieved from all liability with respect to
such money. The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal, premium, if any, or
interest that remains unclaimed for two years; provided that the Trustee or such
Paying Agent before being required to make any payment may cause to be published
at the expense of the Company once in a newspaper of general circulation in the
City of New York or mail to each Holder entitled to such money at such Holder's
address (as set forth in the Security Register) notice that such money remains
unclaimed and that after a date specified therein (which shall be at least 30
days from the date of such publication or mailing) any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person, and all
liability of all Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.06 Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with Section 8.01,
8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or
8.03, as the case may be; provided that, if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
SECTION 8.07 Parent Guarantee. If the Company exercises its options
under this Article VIII, the Guarantor will be released from all of its
obligations with respect to the Parent Guarantee unless the Company's
obligations under this Indenture are reinstated pursuant to Section 8.06.
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ARTICLE IX
Amendments, Supplements and Waivers
SECTION 9.01 Without Consent of Holders. The Company and the Guarantor,
when authorized by a resolution of their respective Board of Directors, and the
Trustee may amend or supplement this Indenture or the Notes without notice to or
the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; provided
that such amendments or supplements shall not adversely affect the
interests of the Holders;
(2) to comply with Article Five;
(3) to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163 (f) of the Code,
or in a manner such that the uncertificated Notes are described in
Section 163(f)(2)(B) of the Code);
(4) to add guarantees with respect to the Notes;
(5) to secure the Notes;
(6) to add to the covenants of the Guarantor or the
Company for the benefit of the Holders of the Notes or to surrender
any right or power conferred upon the Guarantor or the Company;
(7) to comply with any requirements of the SEC in
connection with the qualification of this Indenture under the TIA;
(8) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee;
(9) to make any change that does not adversely affect the
rights of any Holder.
SECTION 9.02 With Consent of Holders. Subject to Sections 2.09, 6.04
and 6.07 and without prior notice to the Holders, the Company and the Guarantor,
when authorized by their respective Board of Directors (as evidenced by a Board
Resolution), and the Trustee may amend this Indenture and the Notes with the
written consent of the Holders of not less than a majority in principal amount
of the Notes then outstanding, and the Holders of not less than a majority in
principal amount of the Notes then outstanding by written notice to the Trustee
may waive future compliance by the Guarantor or the Company with any provision
of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder
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affected, an amendment or waiver, including a waiver pursuant to Section 6.04,
may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or adversely affect any right of repayment at the
option of any Holder of any Note, or change any place of payment where,
or the currency in which, any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(ii) reduce the percentage in principal amount of
outstanding Notes the consent of whose Holders is required for any
such supplemental indenture, for any waiver of compliance with certain
provisions of this Indenture or certain Defaults and their
consequences provided for in this Indenture;
(iii) waive a Default in the payment of principal of,
premium, if any, or interest on, any Note;
(iv) modify any of the provisions of this Section 9.02, except
to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby; or
(v) modify any of the provisions of Article Ten (or the
definition of Senior Indebtedness) in a manner adverse to the Holders.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03 Renovation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver
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shall become effective on receipt by the Trustee of written consents from the
Holders of the requisite percentage in principal amount of the outstanding
Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (v) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (v) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04 Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter authenticated.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue, and the Trustee shall authenticate, a new
Note that reflects the changed terms.
SECTION 9.05 Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not affect the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.06 Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE X
Subordination of Notes
SECTION 10.01 Notes Subordinated to Senior Indebtedness. The Company
and the Trustee each covenants and agrees, and each Holder, by its acceptance of
a Note, likewise
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covenants and agrees that all Notes shall be issued subject to
the provisions of this Article Ten; and each Person holding any Note, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees that the Notes shall, to the extent and in the manner set forth in
this Article Ten, be unsecured, general obligations of the Company, subordinated
in right of payment to all existing and future Senior Indebtedness of the
Company, pari passu in right of payment with any future senior subordinated
indebtedness of the Company and senior in right of payment to any existing or
future subordinated indebtedness of the Company.
SECTION 10.02 No Payment on Notes in Certain Circumstances. (a) The
Company may not make any payment of any kind or character from any source on the
Notes or make any deposit pursuant to Article VIII or repurchase, redeem or
otherwise retire any Notes whether pursuant to the terms of the Notes or upon
acceleration or otherwise if (i) any Obligations with respect to any Designated
Senior Indebtedness of the Company are not paid when due or (ii) any other
default on Designated Senior Indebtedness of the Company occurs and the maturity
of such Designated Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative or Representatives or all Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
(b) During the continuance of any default (other than a default
described in clause (i) or (ii) of paragraph (a) of this Section 10.02) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Notes for a period (a "Payment Blockage
Period") commencing upon receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from Representative for the
holders of such Designated Senior Indebtedness specifying an election to effect
a Payment Blockage Period and ending 179 days thereafter (unless, in each case,
such Payment Blockage Period shall be terminated by (i) written notice to the
Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice is not
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness or
the Representative of such holders have accelerated the maturity of such
Designated Senior Indebtedness, the Company must resume payments when due on the
Notes after the end of such Payment Blockage Period. Notwithstanding anything in
this Indenture to the contrary, there must be 180 consecutive days in any
360-day period in which no Payment Blockage Period is in effect. For all
purposes of this Section 10.02(b), no event of default that existed or was
continuing (it being acknowledged that any subsequent event or condition that
would give rise to an event of default pursuant to any provision under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose) on the date of the commencement of any
Payment
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Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or shall be made, the basis
for the commencement of a second Payment Blockage Period by the representative
for, or the holders of, such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such event of default shall have
been cured or waived for a period of not less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee or any holder when such payment is prohibited by
Section 10.02(a) or 10.02(b) of this Indenture, the Trustee shall promptly
notify the holders of Designated Senior Indebtedness of such prohibited payment
and such payment shall be held in trust for the benefit of, and shall be paid
over or delivered to, the holders of Designated Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Designated Senior Indebtedness may have been
issued, as their respective interests may appear, but only to the extent that,
upon notice from the Trustee to the holders of Designated Senior Indebtedness
that such prohibited payment has been made, the holders of the Designated Senior
Indebtedness (or their representative or representatives of a trustee) within 30
days of receipt of such notice from the Trustee notify the Trustee of the
amounts then due and owing on the Senior Indebtedness, if any, and only the
amounts specified in such notice to the Trustee shall be paid to the holders of
Senior Indebtedness and any excess above such amounts due and owing on Senior
Indebtedness shall be paid to the Company.
SECTION 10.03 Payment over Proceeds upon Dissolution, Etc. (a) Upon any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities, in connection with any
dissolution or winding up or total or partial liquidation or reorganization of
the Company whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings or upon any assignment for the benefit of
creditors or any other marshaling of assets for the benefit of creditors, all
amounts due or to become due upon all Senior Indebtedness (including any
interest accruing subsequent to an event of bankruptcy whether or not such
interest is an allowed claim enforceable against the debtor under the United
States Bankruptcy Code) shall first be paid in full, in cash or cash
equivalents, before the Holders or the Trustee on their behalf shall be entitled
to receive any payment by the Company on account of the Notes or any payment to
acquire any of the Notes for cash, property or securities, or any distribution
with respect to the Notes of any cash, property or securities. Before any
payment may be made by, or on behalf of, the Company on any Notes in connection
with any such dissolution, winding up, liquidation or reorganization, any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities, to which the Holders or the
Trustee on their behalf would be entitled, but for the provisions of this
Article Ten, shall be made by the Company or by a receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making such
payment or distribution or by the Holders or the Trustee if received by them or
it, directly to the holders of Senior Indebtedness (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their representatives or to any trustee or trustees under any other indenture
pursuant to which any such Senior Indebtedness may have been issued, as their
respective interests appear, to the extent necessary to pay all Obligations with
respect to such
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Senior Indebtedness in full, in cash or cash equivalents, after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
(b) To the extent any payment of Senior Indebtedness of the Company
(whether by or on behalf of the Company as proceeds of security or enforcement
of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
if such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred. To the
extent the obligation to repay any Senior Indebtedness is declared to be
fraudulent, invalid, or otherwise set aside under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then the obligation so
declared fraudulent, invalid or otherwise set aside (and all other amounts that
would come due with respect thereto had such obligation not been affected) shall
be deemed to be reinstated and outstanding as Senior Indebtedness for all
purposes hereof as if such declaration, invalidity or setting aside had not
occurred.
(c) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder at a time when
such payment or distribution is prohibited by Section 10.03(a) of this Indenture
and before all obligations in respect of Senior Indebtedness are paid in full,
in cash or Cash equivalents, such payment or distribution shall be received and
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Indebtedness (pro rata to such holders on the basis of such
respective amount of Senior Indebtedness held by such holders) or their
representatives, or to the trustee or trustees under any indenture pursuant to
which any such Senior Indebtedness may have issued, as their respective
interests appear, for application to the payment of Senior Indebtedness
remaining unpaid until all such Senior Indebtedness has been paid in full, in
cash or Cash equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(d) For purposes of this Section 10.03, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of this clause
is not to cause the Notes to be treated in any case or proceeding or similar
event described in this Section 10.03 as part of the same class of claims as the
Senior Indebtedness or any class of claims pari passu with, or senior to, the
Senior Indebtedness for any payment or distribution, securities of the Company
or any other corporation provided for by a plan of reorganization or
readjustment that are subordinated, at least to the extent that the Notes are
subordinated, to the payment of all Senior Indebtedness then outstanding;
provided that (1) if a new corporation results from such reorganization or
readjustment, such corporation assumes the Senior Indebtedness and (2) the
rights of the holders of the Senior Indebtedness are not, without the consent of
such holders, altered by such reorganization or readjustment. The consolidation
of the Company with, or the merger of the Company with or into, another
corporation or the liquidation or dissolution of the Company
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following the sale, conveyance, transfer, lease or other disposition of all or
substantially all of its property and assets to another corporation upon the
terms and conditions provided in Article Five of this Indenture shall not be
deemed a dissolution, winding up, liquidation or reorganization for the purposes
of this Section 10.03 if such other corporation shall, as a part of such
consolidation, merger, sale, conveyance, transfer, lease or other disposition,
comply (to the extent required) with the conditions stated in Article Five of
this Indenture.
SECTION 10.04 Subrogation. (a) Upon the payment in full of all Senior
Indebtedness in cash or Cash equivalents, the Holders shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of, premium, if any, and interest on the Notes
shall be paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Holders or the Trustee on their behalf would be entitled
except for the provisions of this Article Ten, and no payment pursuant to the
provisions of this Article Ten to the holders of Senior Indebtedness by Holders
or the Trustee on their behalf shall, as between the Company, its creditors
other than holders of Senior Indebtedness, and the holders, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness. It is
understood that the provisions of this Article Ten are intended solely for the
purpose of defining the relative rights of the Holders, on the one hand, and the
Holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Ten shall have been
applied, pursuant to the provisions of this Article Ten, to the payment of all
amounts payable under Senior Indebtedness, then, and in such case, the Holders
shall be entitled to receive from the holders of such Senior Indebtedness any
payments or distributions received by such holders of Senior Indebtedness in
excess of the amount required to make payment in full, in cash or Cash
equivalents, of such Senior Indebtedness of such holders.
SECTION 10.05 Obligations of Company Unconditional. (a) Nothing
contained in this Article Ten or elsewhere in this Indenture or in the Notes is
intended to or shall impair, as among the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of, premium, if any, and interest on the Notes as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders and creditors of
the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Holders or the Trustee on their behalf
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article Ten of
the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing, nothing contained
in this Article Ten will restrict the right of the Trustee or the Holders to
take any action to declare the Notes to be due and payable prior to their Stated
Maturity pursuant to Section 6.01 of this Indenture or to pursue any rights or
remedies hereunder; provided, however, that all Senior Indebtedness then
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due and payable or thereafter declared to be due and payable shall first be paid
in full, in cash or Cash equivalents, before the Holders or the Trustee are
entitled to receive any direct or indirect payment from the Company on the
Notes.
SECTION 10.06 Notice to Trustee. (a) The Company shall give prompt
written notice to the Trustee of any fact known to the Company that would
prohibit the making of any payment to or by the Trustee in respect of the Notes
pursuant to the provisions of this Article Ten. The Trustee shall not be charged
with the knowledge of the existence of any default or event of default with
respect to any Senior Indebtedness or of any other facts that would prohibit the
making of any payment to or by the Trust unless and until the Trust shall have
received notice in writing at its Corporate Trust Office to that effect signed
by an Officer of the Company, or by a holder of Senior Indebtedness or trustee
or agent thereof; and prior to the receipt of any such written notice, the
Trustee shall, subject to Article Seven, be entitled to assume that no such
facts exist; provided that, if the Trustee shall not have received the notice
provided for in this Section 10.06 at least two Business Days prior to the date
upon which, by the terms of this Indenture, any monies shall become payable for
any purpose (including, without limitation, the payment of the principal of,
premium, if any, or interest on any Note), then, notwithstanding anything herein
to the contrary, the Trustee shall have full power and authority to receive any
monies from the Company and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary that may be
received by it on or after such prior date except for an acceleration of the
Notes prior to such application. Nothing contained in this Section 10.06 shall
limit the right of the holders of Senior Indebtedness to recover payments as
contemplated by this Article Ten. The foregoing shall not apply if the Paying
Agent is the Company. The Trustee shall be entitled to rely on the delivery to
it of a written notice by a Person representing himself or itself to be a holder
of any Senior Indebtedness (or a trustee on behalf of, or other representative
of, such holder) to establish that such notice has been given by a holder of
such Senior Indebtedness or a trustee or representative on behalf of any such
holder.
(b) In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Ten and, if such evidence is not furnished to the
Trustee, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 10.07 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article Ten, the Trustee and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person making such payment or distribution,
delivered to the
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Trustee or to the Holders for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Ten.
SECTION 10.08 Trustee's Relation to Senior Indebtedness. (a) The
Trustee and any Paying Agent shall be entitled to all the rights set forth in
this Article Ten with respect to any Senior Indebtedness that may at any time be
held by it in its individual or any other capacity to the same extent as any
other holder of Senior Indebtedness and nothing in this Indenture shall deprive
the Trustee or any Paying Agent of any of its rights as such holder.
(b) With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Sections 10.02(c) and 10.03(c) of this Indenture) and shall not be liable to any
such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Notes or to the Company or to any other person cash,
property or securities to which any holders of Senior Indebtedness shall be
entitled by virtue of this Article Ten or otherwise.
SECTION 10.09 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided in this
Article Ten will at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company with the
terms of this Indenture, regardless of any knowledge thereof that any such
holder may have or otherwise be charged with. The provisions of this Article Ten
are intended to be for the benefit of, and shall be enforceable directly by, the
holders of Senior Indebtedness.
SECTION 10.10 Holders Authorize Trustee to Effectuate Subordination of
Notes. Each Holder by his acceptance of any Notes authorizes and expressly
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article Ten, and
appoints the Trustee his attorney-in-fact for such purposes, including, in the
event of any dissolution, winding up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assignment for the benefit of creditors or
otherwise) tending towards liquidation of the property and assets of the
Company, the filing of a claim for the unpaid balance of its Notes in the form
required in those proceedings. If the Trustee does not file a proper claim or
proof of indebtedness in the form required in such proceeding at least 30 days
before the expiration of the time to file such claim or claims, each holder of
Senior Indebtedness is hereby authorized to file an appropriate claim for and on
behalf of the Holders.
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SECTION 10.11 Not to Prevent Events of Default. The failure to make a
payment on account of principal of, premium, if any, or interest on the Notes by
reason of any provision of this Article Ten will not be construed as preventing
the occurrence of an Event of Default.
SECTION 10.12 Trustee's Compensation Not Prejudiced. Nothing in this
Article Ten will apply to amounts due to the Trustee pursuant to other sections
of this Indenture, including Section 7.06.
SECTION 10.13 No Waiver of Subordination Provisions. Without in any way
limiting the generality of Section 10.09, the holders of Senior Indebtedness
may, at any time and from time to time, without the consent of or notice to the
Trustee or the Holders, without incurring responsibility to the Holders and
without impairing or releasing the subordination provided in this Article Ten or
the obligations hereunder of the Holders to the holders of Senior Indebtedness,
do any one or more of the following: (a) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding or secured; (b) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 10.14 Payments May Be Paid Prior to Dissolution. Nothing
contained in this Article Ten or elsewhere in this Indenture shall prevent (i)
the Company except under the conditions described in Section 10.02 or 10.03,
from making payments of principal of, premium, if any, and interest on the
Notes, or from depositing with the Trustee any money for such payments, or (ii)
the application by the Trustee of any money deposited with it for the purpose of
making such payments of principal of, premium, if any, and interest on the Notes
to the holders entitled thereto unless, at least two Business Days prior to the
date upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 10.02(b) of this Indenture
(or there shall have been an acceleration of the Notes prior to such
application) or in Section 10.06 of this Indenture. The Company shall give
prompt written notice to the Trustee of any dissolution, winding up, liquidation
or reorganization of the Company.
SECTION 10.15 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article Eight by the Trustee for the
payment of principal of, premium, if any, and interest on the Notes shall not be
subordinated to the prior payment of any Senior Indebtedness (provided that at
the time deposited, such deposit did not violate any then outstanding Senior
Indebtedness), and none of the Holders shall be obligated to pay over any such
amount to any holder of Senior Indebtedness.
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ARTICLE XI
Parent Guarantee
SECTION 11.01 Parent Guarantee. The Guarantor hereby unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
or enforceability of this Indenture, the Notes or the obligations of the Company
under this Indenture or the Notes, that: (i) the principal of, premium (if any)
and interest on the Notes will be paid in full when due, whether at the maturity
or interest payment date, by acceleration, call for redemption or otherwise, and
interest on the overdue principal of, interest on the Notes and all other
obligations of the Company to the Holders or the Trustee under this Indenture or
the Notes will be promptly paid in full or performed, all in accordance with the
terms of this Indenture and the Notes; and (ii) in case of any extension of time
in payment or renewal of any Notes or any of such other obligations, they will
be paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed for whatever reason, the Guarantor
will be obligated to pay the same whether or not such failure to pay has become
an Event of Default which could cause acceleration pursuant to Section 6.02
hereof. The Guarantor agrees that this is a guarantee of payment not a guarantee
of collection.
The Guarantor hereby agrees that its obligations with regard to this
Parent Guarantee shall be unconditional, irrespective of the validity or
enforceability of the Notes or the obligations of the Company under this
Indenture, the absence of any action to enforce the same, the recovery of any
judgment against the Company or any other obligor with respect to this
Indenture, the Notes or the obligations of the Company under this Indenture or
the Notes, any action to enforce the same or any other circumstances (other than
complete performance) which might otherwise constitute a legal or equitable
discharge or defense of the Guarantor. The Guarantor further, to the extent
permitted by law, waives and relinquishes all claims, rights and remedies
accorded by applicable law to guarantors and agrees not to assert or take
advantage of any such claims, rights or remedies, including but not limited to:
(a) any right to require the Trustee, the Holders or the Company (each, a
"Benefitted Party") to proceed against the Company or any other Person or to
proceed against or exhaust any security held by a Benefitted Party at any time
or to pursue any other remedy in any Benefitted Party's power before proceeding
against the Guarantor; (b) the defense of the statute of limitations in any
action hereunder or in any action for the collection of any Indebtedness or the
performance of any obligation hereby guaranteed; (c) any defense that may arise
by reason of the incapacity, lack of authority, death or disability of any other
Person or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy or any other proceeding) of any other
Person; (d) demand, protest and notice of any kind including but not limited to
notice of the existence, creation or incurring of any new or additional
Indebtedness or obligation or of any action or non-action on the part of the
Guarantor, the Company, any Benefitted Party, any creditor of the Guarantor, the
Company or on the part of any other Person whomsoever in
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connection with any Indebtedness or obligations hereby guaranteed; (e) any
defense based upon an election of remedies by a Benefitted Party, including but
not limited to an election law which provides that the obligation of a surety
must be neither larger in amount nor in other respects more burdensome than that
of the principal; (g) any defense arising because of a Benefitted Party's
election, in any proceeding instituted under Bankruptcy Law, of the application
of 11 U.S.C. Section 1111(b)(2); or (h) any defense based on any borrowing or
grant of a security interest under 11 U.S.C. Section 364. The Guarantor hereby
covenants that its Parent Guarantee will not be discharged except by complete
performance of the obligations contained in its Parent Guarantee and this
Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to either the Company or the Guarantor, or any custodian acting in
relation to either the Company or the Guarantor, any amount paid by the Company
or the Guarantor to the Trustee or such Holder, the Parent Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect. The
Guarantor agrees that it will not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.
The Guarantor further agrees that, as between the Guarantor, on the one
hand, and the Holders and the Trustee, on the other hand, (i) the maturity of
the obligations guaranteed hereby may be accelerated as provided in Section 6.02
hereof for the purposes of this Parent Guarantee, or any other obligor on the
Notes of the obligations guaranteed hereby, and (ii) in the event of any
declaration of acceleration of those obligations as provided in Section 6.02
hereof, those obligations (whether or not due and payable) will forthwith become
due and payable by the Guarantor for the purpose of this Parent Guarantee.
To evidence its Parent Guarantee, the Guarantor hereby agrees that a
notation of the Parent Guarantee substantially in the form of Exhibit A-1 hereby
shall be endorsed by an officer of the Guarantor on each Note authenticated and
delivered by the Trustee and that this Indenture shall be executed on behalf of
the Guarantor by its President or one of its Vice Presidents and attested to by
an Officer.
SECTION 11.02 Parent Guarantee Subordinated to Senior Indebtedness. The
Guarantor and the Trustee each covenants and agrees, and each Holder, by its
acceptance of a Note and the corresponding Parent Guarantee, likewise covenants
and agrees that the indebtedness evidenced by the Parent Guarantee is subject to
the provisions of this Article Eleven; and each Person holding any Note, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees that the indebtedness evidenced by the Parent Guarantee shall, to the
extent and in the manner set forth in this Article Eleven, be unsecured, general
obligations of the Guarantor, subordinated in right of payment to all existing
and future Senior Indebtedness of the Guarantor, pari passu in right of payment
with any future senior subordinated indebtedness of the Guarantor and senior in
right of payment to any existing or future subordinated indebtedness of the
Guarantor.
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SECTION 11.03 No Payment under Parent Guarantee in Certain
Circumstances. (a) The Guarantor may not make any payment of any kind or
character from any source on the Notes or make any deposit pursuant toArticle
VIII or repurchase, redeem or otherwise retire any Notes whether pursuant to the
terms of the Notes and the Parent Guarantee or upon acceleration or otherwise if
(i) any Obligations with respect to any Designated Senior Indebtedness of the
Guarantor are not paid when due or (ii) any other default on Designated Senior
Indebtedness of the Guarantor occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded or such Designated Senior Indebtedness has been paid in full. However,
the Guarantor may pay the Notes pursuant to the Parent Guarantee without regard
to the foregoing if the Guarantor and the Trustee receive written notice
approving such payment from the Representative or Representatives or all
Designated Senior Indebtedness with respect to which either of the events set
forth in clause (i) or (ii) of the immediately preceding sentence has occurred
and is continuing.
(b) During the continuance of any default (other than a default
described in clause (i) or (ii) of paragraph (a) of this Section 11.03) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Guarantor may not pay the Notes for a Payment Blockage Period
commencing upon receipt by the Trustee (with a copy to the Guarantor) of a
Blockage Notice of such default from Representative for the holders of such
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (unless, in each case, such
Payment Blockage Period shall be terminated by (i) written notice to the Trustee
and the Guarantor from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is not longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Guarantor must resume payments when due on the Notes if
required pursuant to the Parent Guarantee after the end of such Payment Blockage
Period. Notwithstanding anything in this Indenture to the contrary, there must
be 180 consecutive days in any 360-day period in which no Payment Blockage
Period is in effect. For all purposes of this Section 11.03(b), no event of
default that existed or was continuing (it being acknowledged that any
subsequent event or condition that would give rise to an event of default
pursuant to any provision under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose) on the
date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period shall be,
or shall be made, the basis for the commencement of a second Payment Blockage
Period by the representative for, or the holders of, such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment shall
be received by
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the Trustee or any holder when such payment is prohibited by Section 11.03(a) or
11.03(b) of this Indenture, the Trustee shall promptly notify the holders of
Designated Senior Indebtedness of such prohibited payment and such payment shall
be held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Desiganted Senior Indebtedness or their respective representatives,
or to the trustee or trustees under any indenture pursuant to which any of such
Desiganted Senior Indebtedness may have been issued, as their respective
interests may appear, but only to the extent that, upon notice from the Trustee
to the holders of Designated Senior Indebtedness that such prohibited payment
has been made, the holders of the Designated Senior Indebtedness (or their
representative or representatives of a trustee) within 30 days of receipt of
such notice from the Trustee notify the Trustee of the amounts then due and
owing on the Desiganted Senior Indebtedness, if any, and only the amounts
specified in such notice to the Trustee shall be paid to the holders of
Designated Senior Indebtedness and any excess above such amounts due and owing
on Designated Senior Indebtedness shall be paid to the Guarantor.
SECTION 11.04 Payment over Proceeds upon Dissolution, Etc. (a) Upon any
payment or distribution of assets or securities of the Guarantor of any kind or
character, whether in cash, property or securities, in connection with any
dissolution or winding up or total or partial liquidation or reorganization of
the Guarantor, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings or upon any assignment for the benefit of
creditors or any other marshaling of assets for the benefit of creditors, all
amounts due or to become due upon all Senior Indebtedness (including any
interest accruing subsequent to an event of bankruptcy whether or not such
interest is an allowed claim enforceable against the debtor under the United
States Bankruptcy Code) shall first be paid in full, in cash or Cash
equivalents, before the Holders or the Trustee on their behalf shall be entitled
to receive any payment by the Guarantor on the Parent Guarantee, or any payment
to acquire any of the Notes for cash, property or securities, or any
distribution with respect to the Notes of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Guarantor on the Parent
Guarantee in connection with any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or securities of the
Guarantor of any kind or character, whether in cash, property or securities, to
which the Holders or the Trustee on their behalf would be entitled, but for the
provisions of this Article Eleven, shall be made by the Guarantor or by a
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person making such payment or distribution, or by the holders or the Trustee if
received by them or it, directly to the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their representatives or to any trustee or trustees
under any other indenture pursuant to which any such Senior Indebtedness may
have been issued, as their respective interests appear, to the extent necessary
to pay all Obligations with respect to such Senior Indebtedness in full, in cash
or Cash equivalents, after giving effect to any concurrent payment, distribution
or provision therefor to or for the holders of such Senior Indebtedness.
(b) To the extent any payment of Senior Indebtedness of the Guarantor
(whether by or on behalf of the Guarantor as proceeds of security or enforcement
of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any
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receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then if such payment is recovered by, or paid over to, such
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person, the Senior Indebtedness or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior Indebtedness
is declared to be fraudulent, invalid, or otherwise set aside under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
the obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
(c) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder at a time
when such payment or distribution is prohibited by Section 11.03(a) of this
Indenture and before all obligations in respect of Senior Indebtedness are paid
in full, in cash or Cash equivalents, such payment or distribution shall be
received and held in trust for the benefit of, and shall be paid over or
delivered to, the holders of Senior Indebtedness (pro rata to such holders on
the basis of such respective amount of Senior Indebtedness held by such holders)
or their representatives, or to the trustee or trustees under any indenture
pursuant to which any such Senior Indebtedness may have issued, as their
respective interests appear, for application to the payment of Senior
Indebtedness remaining unpaid until all such Senior Indebtedness has been paid
in full, in cash or Cash equivalents, after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(d) For purposes of this Section 11.04, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of this clause
is not to cause the Parent Guarantee to be treated in any case or proceeding or
similar event described in this Section 11.04 as part of the same class of
claims as the Senior Indebtedness or any class of claims pari passu with, or
senior to, the Senior Indebtedness for any payment or distribution, securities
of the Guarantor or any other corporation provided for by a plan of
reorganization or readjustment that are subordinated, at least to the extent
that the Parent Guarantee is subordinated, to the payment of all Senior
Indebtedness then outstanding; provided that (1) if a new corporation results
from such reorganization or readjustment, such corporation assumes the Senior
Indebtedness and (2) the rights of the holders of the Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Guarantor with, or the merger of the
Guarantor with or into, another corporation or the liquidation or dissolution of
the Guarantor following the sale, conveyance, transfer, lease or other
disposition of all or substantially all of its property and assets to another
corporation upon the terms and conditions provided in Article Five of this
Indenture shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purposes of this Section 11.04 if such other corporation
shall, as a part of such consolidation, merger, sale, conveyance, transfer,
lease or other disposition, comply (to the extent required) with the conditions
stated in Article Five of this
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Indenture.
SECTION 11.05 Obligations of Guarantor Unconditional. (a) Nothing
contained in this Article Eleven or elsewhere in this Indenture or in the Notes
is intended to or shall impair, as among the Guarantor and the Holders, the
obligation of the Guarantor, which is absolute and unconditional, to pay to the
Holders the principal of, premium, if any, and interest on the Notes in
accordance with the Parent Guarantee as and when the same shall become due and
payable in accordance with the terms of the Parent Guarantee, or is intended to
or shall affect the relative rights of the Holders and the respective creditors
of the Guarantor, other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Holders or the Trustee on their behalf
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article Eleven
of the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing, nothing contained
in this Article Eleven will restrict the right of the Trustee or the Holders to
take any action to declare the Notes to be due and payable prior to their Stated
Maturity pursuant to Section 6.01 of this Indenture or to pursue any rights or
remedies hereunder; provided, however, that all Senior Indebtedness then due and
payable or thereafter declared to be due and payable shall first be paid in
full, in cash or Cash equivalents, before the Holders or the Trustee are
entitled to receive any direct or indirect payment from the Guarantor of Senior
Subordinated Indebtedness.
SECTION 11.06 Notice to Trustee. (a) The Guarantor shall give prompt
written notice to the Trustee of any fact known to the Guarantor that would
prohibit the making of any payment to or by the Trustee in respect of the Parent
Guarantee pursuant to the provisions of this Article Eleven. The Trustee shall
not be charged with the knowledge of the existence of any default or event of
default with respect to any Senior Indebtedness or of any other facts that would
prohibit the making of any payment to or by the Trust unless and until the Trust
shall have received notice in writing at its Corporate Trust Office to that
effect signed by an Officer of the Guarantor or by a holder of Senior
Indebtedness or trustee or agent thereof; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided that, if the Trustee shall not have
received the notice provided for in this Section 11.06 at least two Business
Days prior to the date upon which, by the terms of this Indenture, any monies
shall become payable for any purpose (including, without limitation, the payment
of the principal of, premium, if any, or interest on any Note), then,
notwithstanding anything herein to the contrary, the Trustee shall have full
power and authority to receive any monies from the Guarantor and to apply the
same to the purpose for which they were received, and shall not be affected by
any notice to the contrary that may be received by it on or after such prior
date except for an acceleration of the Notes prior to such application. Nothing
contained in this Section 11.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by this Article Eleven. The
foregoing shall not apply if the Paying Agent is the Company or the Guarantor.
The Trustee shall be entitled to rely on the delivery to it of a written notice
by a Person representing himself or itself to be a holder of any Senior
Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been
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given by a holder of such Senior Indebtedness or a trustee or representative on
behalf of any such holder.
(b) In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Eleven, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Eleven and, if such evidence is not
furnished to the Trustee, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 11.07 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article Eleven, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings
are pending, or upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution, delivered to the Trustee or to the Holders for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other Indebtedness of the Guarantor the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Eleven.
SECTION 11.08 Trustee's Relation to Senior Indebtedness. (a) The
Trustee and any Paying Agent shall be entitled to all the rights set forth in
this Article Eleven with respect to any Senior Indebtedness that may at any time
be held by it in its individual or any other capacity to the same extent as any
other holder of Senior Indebtedness and nothing in this Indenture shall deprive
the Trustee or any Paying Agent of any of its rights as such holder.
(b) With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eleven, and no implied covenants
or obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Sections 11.02(c) and 11.03(c) of this Indenture) and shall not be liable to any
such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Notes or to the Company or to any other person cash,
property or securities to which any holders of Senior Indebtedness shall be
entitled by virtue of this Article Eleven or otherwise.
SECTION 11.09 Subordination Rights Not Impaired by Acts or Omissions of
the Guarantor or Holders of Senior Indebtedness. No right of any present or
future holders of any Senior Indebtedness to enforce subordination as provided
in this Article Ten will at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Guarantor or by
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any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Guarantor with the terms of this Indenture, regardless of
any knowledge thereof that any such holder may have or otherwise be charged
with. The provisions of this Article Eleven are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Indebtedness.
SECTION 11.10 Holders Authorize Trustee to Effectuate Subordination of
Parent Guarantee. Each Holder by his acceptance of any Notes authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Eleven, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
property and assets of the Guarantor, the filing of a claim for the unpaid
balance of its Notes under the Parent Guarantee in the form required in those
proceedings. If the Trustee does not file a proper claim or proof of
indebtedness in the form required in such proceeding at least 30 days before the
expiration of the time to file such claim or claims, each holder of Senior
Indebtedness is hereby authorized to file an appropriate claim for and on behalf
of the Holders.
SECTION 11.11 Not to Prevent Events of Default. The failure to make a
payment on account of principal of, premium, if any, or interest on the Notes
under the Parent Guarantee by reason of any provision of this Article Eleven
will not be construed as preventing the occurrence of an Event of Default.
SECTION 11.12 Trustee's Compensation Not Prejudiced. Nothing in this
Article Eleven will apply to amounts due to the Trustee pursuant to other
sections of this Indenture, including Section 7.06.
SECTION 11.13 No Waiver of Subordination Provisions. Without in any way
limiting the generality of Section 11.14, the holders of Senior Indebtedness
may, at any time and from time to time, without the consent of or notice to the
Trustee or the Holders, without incurring responsibility to the Holders and
without impairing or releasing the subordination provided in this Article Eleven
or the obligations hereunder of the Holders to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Guarantor and any other Person.
SECTION 11.14 Payments May Be Paid Prior to Dissolution. Nothing
contained in this Article Eleven or elsewhere in this Indenture shall prevent
(i) the Guarantor, except under the
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conditions described in Section 11.03 or 11.04, from making payments of
principal of, premium, if any, and interest on the Notes, or from depositing
with the Trustee any money for such payments, or (ii) the application by the
Trustee of any money deposited with it for the purpose of making such payments
of principal of, premium, if any, and interest on the Notes to the holders
entitled thereto unless, at least two Business Days prior to the date upon which
such payment becomes due and payable, the Trustee shall have received the
written notice provided for in Section 11.03(b) of this Indenture (or there
shall have been an acceleration of the Notes prior to such application) or in
Section 11.07 of this Indenture. The Guarantor shall give prompt written notice
to the Trustee of any dissolution, winding up, liquidation or reorganization of
the Guarantor.
SECTION 11.15 Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article Eight by the Trustee for the
payment of principal of, premium, if any, and interest on the Notes shall not be
subordinated to the prior payment of any Senior Indebtedness (provided that at
the time deposited, such deposit did not violate any then outstanding Senior
Indebtedness), and none of the Holders shall be obligated to pay over any such
amount to any holder of Senior Indebtedness.
SECTION 11.16 Limitation of Guarantor's Liability. The Guarantor and by
its acceptance hereof, each beneficiary hereof, hereby confirms that it is its
intention that the Parent Guarantee of the Guarantor not constitute a fraudulent
transfer or conveyance for purposes of the Bankruptcy Law, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to the Parent Guarantee. To
effectuate the foregoing intention, each such person hereby irrevocably agrees
that the obligation of the Guarantor under the Parent Guarantee under this
Article Eleven shall be limited to the maximum amount as will, after giving
effect to such maximum amount and all other (contingent or otherwise)
liabilities of the Guarantor that are relevant under such laws, result in the
obligations of the Guarantor in respect of such maximum amount not constituting
a fraudulent conveyance. Each beneficiary under the Parent Guarantee, by
accepting the benefits hereof, confirms its intention that, in the event of a
bankruptcy, reorganization or other similar proceeding of the Company or the
Guarantor in which concurrent claims are made upon the Guarantor hereunder, to
the extent such claims will not be fully satisfied, each such claimant with a
valid claim against the Company shall be entitled to a ratable share of all
payments by the Guarantor in respect of such concurrent claims.
ARTICLE XII
Miscellaneous
SECTION 12.01 Trust Indenture Act of 1959. This Indenture shall be
subject to the provisions of the TIA that are required to be a part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
SECTION 12.02 Notices. Any notice or communication shall be
sufficiently given if in
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writing and delivered in person or mailed by first class mail addressed as
follows:
if to the Company:
Scotsman Group Inc.
820 Forest Edge Drive
Vernon Hills, Illinois 60061
Attention:
if to the Guarantor:
Scotsman Industries, Inc.
820 Forest Edge Drive
Vernon Hills, Illinois 60061
Attention:
if to the Trustee:
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications. The
Trustee shall promptly notify the Representatives of all changes of addresses
for notices or communications pursuant to this Section 12.02.
Any notice or communication to the Representatives shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
or to such additional or different addresses as the Representatives may
designate by notice to the Company and the Trustee.
Any notice or communication mailed to a Holder shall be mailed to him
at his address as it appears on the Security Register by first class mail and
shall be sufficiently given to him if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for a
notice to the Trustee, which is deemed given only when received, and except as
otherwise provided in this Indenture, if a notice or communication is mailed in
the manner provided in this Section 12.02, it is duly given, whether or not the
addressee receives it.
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SECTION 12.03 Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such Counsel, all such conditions precedent have been complied with.
SECTION 12.04 Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or
delivering such opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each
such person, such condition or covenant has been complied with, and
such other opinions as the Trustee may reasonably request;
provided, however, that, with respect to matters of fact, an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public officials.
SECTION 12.05 Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture and
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The ownership of Notes shall be proved by the Security
Register.
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(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holders of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the transfer thereof or
in exchange therefor or in lieu thereof, in respect of anything done, suffered
or omitted to be done by the Trustee, any Paying Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
(d) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of such Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other act, but the
Company shall have no obligation to do so. Notwithstanding Trust Indenture Act
Section 316(c), any such record date shall be the record date specified in or
pursuant to such Board Resolution, which shall be a date not more than 30 days
prior to the first solicitation of Holders generally in connection therewith and
no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Notes then outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other act, and for this purpose the Notes
then outstanding shall be computed as of such record date; provided that no such
request, demand, authorization, direction, notice, consent, waiver or other act
by the Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
SECTION 12.06 Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 12.07 Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Change of Control Payment Date, Excess Proceeds
Payment Date, Stated Maturity or date of maturity of any Note shall not be a
Business Day at any place of payment, then payment of principal of, premium, if
any, or interest on such Note, as the case may be, need not be made on such
date, but may be made on the next succeeding Business Day at such place of
payment with the same force and effect as if made on the Interest Payment Date,
Change of Control Payment Date, Excess Proceeds Payment Date, or Redemption
Date, or at the Stated Maturity or date of maturity of such Note; provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Change of Control Payment Date, Excess Proceeds Payment Date, Redemption
Date, Stated Maturity or date of maturity, as the case may be.
SECTION 12.08 Governing Law. The laws of the State of New York shall
govern this Indenture and the Notes.
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SECTION 12.09 No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loss or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 12.10 No Recourse Against Others. No recourse for the payment
of the principal of, premium, if any, or interest on any of the Notes, or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company contained in this
Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 12.11 Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 12.12 Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 12.13 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.14 Table of Contents, Headings, Etc. The Table of Contents,
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
SCOTSMAN GROUP INC.,
as Issuer
By:______________________
Name:______________
Title:_____________
SCOTSMAN INDUSTRIES, INC.,
as Guarantor
By:______________________
Name:______________
Title:_____________
By:______________________
Name:______________
Title:_____________
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EXHIBIT A
[FACE OF NOTE]
SCOTSMAN GROUP INC.
____% Senior Subordinated Notes due 2007
[CUSIP] [CINS]
No. $
SCOTSMAN GROUP INC., a Delaware corporation (the "Company", which term
includes any successor under the Indenture hereinafter referred to), for value
received, promises to pay to___________, or its registered assigns, the
principal sum of ($ ) on ____, 2007.
Interest Payment Dates: _____ and _____, commencing _____.
Regular Record Dates: o and o.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
SCOTSMAN GROUP INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS
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MADE IN ACCORDANCE WITH THE INDENTURE.]
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: SCOTSMAN GROUP INC.
By:___________________
Name:___________
Title:__________
By:___________________
Name:___________
Title:__________
(Form of Trustee's Certificate of Authentication)
This is one of the ____% Senior Subordinated Notes due 2007 described in the
within-mentioned Indenture.
as Trustee
By:____________________
Authorized Signatory
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[REVERSE SIDE OF NOTE]
SCOTSMAN GROUP INC.
% Senior Subordinated Note due 2007
1. Principal and Interest.
The Company will pay the principal of this Note on ____, 2007.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the or immediately preceding the Interest
Payment Date) on each Interest Payment Date, commencing _____.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from _____; provided
that, if there is no existing default in the payment of interest and if this
Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue
from such Interest Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each _____ and _____ to the
persons who are Holders (as reflected in the Security Register at the close of
____ business on such _____ and _____ immediately preceding the Interest Payment
Date), in each case, even if the Note is canceled on registration of transfer
or registration of exchange after such record date; provided that, with respect
to the payment of principal, the Company will make payment to the Holder that
surrenders this Note to a Paying Agent on or after _____, 2007.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as
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reflected in the Security Register). If a payment date is a date other than a
Business Day at a place of payment, payment may be made at that place on the
next succeeding day that is a Business Day and no interest shall accrue for the
intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of ____, 1997
(the "Indenture"), between the Company and ____ (the "Trustee"). Capitalized
terms herein are used as defined in the Indenture unless otherwise indicated.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of all such terms. To the extent permitted
by applicable law, in the event of any inconsistency between the terms of this
Note and the terms of the Indenture, the terms of the Indenture shall control.
The Notes are unsecured, general obligations of the Company. The
Indenture limits the original aggregate principal amount of the Notes to
$120,000,000.
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time on or after____, 2002 and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first class mail to each
Holder's last address as it appears in the Security Register, at the following
Redemption Prices (expressed in percentages of their principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on an Interest Payment
Date) if redeemed during the 12-month period commencing on ____ of the
applicable year set forth below:
Redemption
Year Price
2002...................... %
2003...................... %
2004 and thereafter 100.0%
Notice of any optional redemption will be mailed at least 30 days but
not more than 60
91
<PAGE> 99
days before the Redemption Date to each Holder of Notes to be redeemed at his
last address as it appears in the Security Register. Notes in original
denominations larger than $1,000 may be redeemed in part. On and after the
Redemption Date, interest ceases to accrue on Notes or portions of Notes called
for redemption, unless the Company defaults in the payment of the Redemption
Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, the Company must commence
and consummate an Offer to Purchase all Notes outstanding as described in the
Indenture at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Payment").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at his last address as its appears
in the Security Register. Notes in original denominations larger than $1,000 may
be sold to the Company in part. On and after the payment date, interest ceases
to accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
92
<PAGE> 100
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not adversely
affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
suffer to exist restrictions on the ability of Restricted Subsidiaries to make
certain payments to the Company, issue Capital Stock of Restricted Subsidiaries,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Each year, within 105 days after the last day
of the Company's immediately preceding fiscal year, the Company must report to
the Trustee on compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) the Company defaults in the payment of the principal of (or
premium, if any, on) any Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise, whether or not such payment is
prohibited by Article Ten; (b) the Company defaults in the payment of interest
on any Note when the same becomes due and payable, and such default continues
for a period of 30 days, whether or not such payment is prohibited by Article
Ten; (c) the Company or the Guarantor, as the case may be, defaults in the
performance of or breaches the provisions of
93
<PAGE> 101
Article Five and such default or breach continues for a period of 30
consecutive days after written notice to the Company or the Guarantor, as the
case may be, by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes; (d) the Company or the Guarantor, as the case
may be, defaults in the performance of or breaches the provisions of
Section 4.03, Section 4.05, Section 4.06, Section 4.07, Section 4.08, Section
4.09 (other than a failure to purchase the Notes), Section 4.10, Section 4.11,
Section 4.12 (other than a failure to purchase the Notes) and Section 4.18 and
such default or breach continues for a period of 30 consecutive days after
written notice to the Company by the Trustee or the Holders of 25% or more in
aggregate principal amount of the Notes; (e) the Company or the Guarantor, as
the case may be, defaults in the performance of or breaches any other covenant
or agreement of the Company or the Guarantor, as the case may be, in the
Indenture or under the Notes or the Parent Guarantee (other than a default
specified in clause (a), (b) (c) or (d) above) and such default or breach
continues for a period of 60 consecutive days after written notice to the
Company or the Guarantor, as the case may be, by the Trustee or the Holders of
25% or more in aggregate principal amount of the Notes; (f) there occurs with
respect to any issue or issues of Indebtedness of the Company or the Guarantor
having an outstanding principal amount of $10 million or more in the aggregate
for all such issues of all such Persons, whether such Indebtedness now exists or
shall hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within any applicable grace
period and/or (II) the failure to make a principal payment at the final (but not
any interim) fixed maturity and such defaulted payment shall not have been made,
waived or extended within any applicable grace period; (g) any final judgment or
order (not covered by insurance) for the payment of money in excess of $10
million in the aggregate for all such final judgments or orders against all such
Persons (treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against the Company, the Guarantor or any Restricted
Subsidiary and shall remain outstanding for a period of 60 days following such
judgment and is not discharged, waived or stayed within 10 days after notice by
the Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (h) a court having jurisdiction in the premises enters a decree or order
for (A) relief in respect of the Company, the Guarantor or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company, the Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company, the Guarantor or
any Significant Subsidiary or (C) the winding up or liquidation of the affairs
of the Company, the Guarantor or any Significant Subsidiary and, in each case,
such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; (i) the Company, the Guarantor or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company, the
Guarantor or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company, the Guarantor or any Significant Subsidiary
or (C) effects any general assignment for the benefit of creditors; or (j) the
94
<PAGE> 102
Parent Guarantee ceases to be in full force and effect (other than in accordance
with the terms of the Parent Guarantee) or the Guarantor denies or disaffirms
its obligations under the Parent Guarantee if such default continues for a
period of 10 days after notice thereof to the Company by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes.
If an Event of Default, as defined in the Indenture (other than an
Event of Default specified in clause (h) or (i) above), occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Notes may declare all the Notes to be due and payable as provided in the
Indenture. If an Event of Default under clause (h) or (i) above occurs, the
Notes automatically become due and payable as provided in the Indenture. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture
and acceleration of the Notes may be rescinded as provided therein. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of at least a majority in
principal amount of the Notes then outstanding may direct the Trustee in its
exercise of any trust or power.
15. Subordination.
The payment of the Notes will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash or Cash equivalents, of all Senior Indebtedness.
16. Guarantee.
The due and punctual payment of the principal of, premium, if any, and
interest on the Notes, whether at the maturity or interest payment date, by
acceleration, call for redemption or otherwise, and of interest on the overdue
principal of and interest on the Notes and all other obligations of the Company
to the Holders or the Trustee under the Indenture or the Notes is guaranteed on
an unsecured, senior subordinated basis by the Guarantor pursuant to Article 11
of the Indenture. Each Holder of a Note, by accepting the same, agrees to be
bound by such provisions, authorizes and directs the Trustee, on behalf of such
Holder, to take such action as may be necessary or appropriate to effectuate
such subordination and appoints the Trustee to act as such Holder's attorney-in
fact for such purpose.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
95
<PAGE> 103
18. No Recourse Against Others.
No recourse for the payment of the principal of, premium, if any, or
interest on any of the Notes, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligations, covenant or
agreement of the Company contained in the Indenture, or in any of the Notes, or
because of any Indebtedness represented thereby, shall be had against any
incorporator or any past, present or future partner, shareholder, other
equityholder, officer, director, employee or controlling person, as such, of the
Company or of any successor Person thereof. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
19. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to Scotsman Group Inc., 820
Forest Edge Drive, Vernon Hills, Illinois 60061, Attention:.
96
<PAGE> 104
{FORM OF TRANSFER NOTICE}
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
____________________________________
____________________________________
Please print or typewrite name and address including zip code of assignee
____________________________________
____________________________________
the within Note and all rights thereunder, hereby irrevocably constituting
and appointing ______________ attorney to transfer said Note on
the books of the Company with full power of substitution in the premises.
97
<PAGE> 105
EXHIBIT A-1
FORM OF NOTATION ON NOTE RELATING TO PARENT GUARANTEE
The Guarantor set forth below unconditionally guarantees (i) the due
and punctual payment of the principal of, premium, if any, and interest on the
Notes, whether at the maturity or interest payment date, by acceleration, call
for redemption or otherwise, and of interest on the overdue principal of and
interest on the Notes and all other obligations of the Company to the Holders or
the Trustee under the Indenture or the Notes and (ii) in case of any extension
of time or payment or renewal of any Notes or any of such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at maturity, by acceleration
or otherwise.
The obligations of the Guarantor to the Holder and to the Trustee
pursuant to this Guarantee and the Indenture are as expressly set forth in
Article 11 of the Indenture and in such other provisions of the Indenture as are
applicable to the Guarantor, and reference is hereby made to such Indenture for
the precise terms of this Parent Guarantee. The terms of Article 11 of the
Indenture and such other provisions of the Indenture as are applicable to the
Guarantor are incorporated herein by reference.
This is a continuing guarantee and shall remain in full force and
effect and shall be binding upon the Guarantor and its successors and assigns
until full and final payment of all of the Company's obligations under the Notes
and the Indenture and shall inure to the benefit of the successors and assigns
of the Trustee and the Holders and, in the event of any transfer or assignment
of rights by any Holder or the Trustee, the rights and privileges herein
conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof. This is
a guarantee of payment and not a guarantee of collection.
This Parent Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Parent
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
SCOTSMAN INDUSTRIES, INC.
By:______________________
Name:
Title:
98
<PAGE> 1
EXHIBIT 5.1
[SIDLEY & AUSTIN LETTERHEAD]
November 4, 1997
Scotsman Industries, Inc.
820 Forest Edge Drive
Vernon Hills, Illinois 60061-3112
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (File No.
333-38489) filed on October 22, 1997 by Scotsman Industries, Inc., a Delaware
corporation (the "Company"), and its wholly owned subsidiary, Scotsman Group
Inc., a Delaware corporation ("Scotsman Group"), with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), to register: (i) $100,000,000 aggregate
principal amount of __% Senior Subordinated Notes Due 2007 (the "Notes") of
Scotsman Group; (ii) the full and unconditional guaranty on a senior
subordinated basis of the Notes by the Company; and (iii) 1,611,699 shares of
Common Stock, $0.10 par value (the "Shares"), together with the associated
Common Stock Purchase Rights (the "Rights"), which may be offered from time to
time by the current stockholders of the Company named in the equity prospectus
constituting a part of such registration statement, as amended by Amendment No.
1 filed with the Commission on November 4, 1997 (the "Registration Statement").
The terms of the Rights are set forth in the Rights Agreement dated as of April
14, 1989, as amended (the "Rights Agreement"), between the Company and Harris
Trust and Savings Bank, as Rights Agent.
We are familiar with the proceedings to date with respect to
the proposed sale of the Shares and the Rights, as described in the
Registration Statement, and have examined such records, documents and questions
of law, and satisfied ourselves as to such matters of fact, as we have
considered relevant and necessary as a basis for the opinions hereinafter
expressed.
<PAGE> 2
EXHIBIT 5.1 CONT'D
[SIDLEY & AUSTIN LETTERHEAD]
Based on the foregoing, we are of the opinion that:
(1) The Company had corporate power to issue the Shares
and the Rights.
(2) The Shares have been legally issued and are fully
paid and nonassessable.
(3) The Rights have been validly issued under the Rights
Agreement.
We do not find it necessary for the purposes of this letter to
cover, and accordingly we express no opinion as to, the application of the
securities or blue sky laws of the various states or the District of Columbia
to the sale of the Shares and the Rights.
This letter is limited to the General Corporation Law of the
State of Delaware and the federal laws of the United States of America.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and to all references to our Firm included in or
made a part of the Registration Statement. In giving such consent, we do not
thereby admit that we are within the category of persons for whom consent is
required by Section 7 of the Securities Act or the related rules promulgated by
the Commission thereunder.
Very truly yours,
/s/ Sidley & Austin
<PAGE> 1
EXHIBIT 5.2
[SIDLEY & AUSTIN LETTERHEAD]
November 4, 1997
Scotsman Industries, Inc.
820 Forest Edge Drive
Vernon Hills, Illinois 60061-3112
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (File No. 333-38489)
filed on October 22, 1997 by Scotsman Industries, Inc., a Delaware corporation
(the "Guarantor"), and its wholly owned subsidiary, Scotsman Group Inc., a
Delaware corporation (the "Issuer"), with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), to register: (i) $100,000,000 aggregate principal amount of
__% Senior Subordinated Notes Due 2007 (the "Notes") of the Issuer; (ii) the
full and unconditional guaranty on a senior subordinated basis (the "Guaranty")
of the Notes by the Guarantor; and (iii) 1,611,699 shares of Common Stock,
$0.10 par value, together with the associated Common Stock Purchase Rights,
which may be offered from time to time by the current stockholders of the
Guarantor named in the equity prospectus constituting a part of such
registration statement, as amended by Amendment No. 1 filed with the Commission
on November 4, 1997 (the "Registration Statement"). The Notes will be issued
by the Issuer and guaranteed by the Guarantor pursuant to an indenture (the
"Indenture") to be entered into among the Issuer, the Guarantor and Harris
Trust and Savings Bank, as trustee (the "Trustee").
We are familiar with the proceedings to date with respect to the proposed
issuance and sale of the Notes and have examined such records, documents and
questions of law, and satisfied ourselves as to such matters of fact, as we
have considered relevant and necessary as a basis for the opinions hereinafter
expressed.
<PAGE> 2
EXHIBIT 5.2 (cont.)
Scotsman Industries, Inc.
November 4, 1997
Page 2
Based on the foregoing, we are of the opinion that:
(1) Each of the Issuer and the Guarantor has corporate power to execute
and deliver the Indenture; the Issuer has corporate power to authorize, execute
and sell the Notes; and the Guarantor has corporate power to execute and
deliver the Guaranties.
(2) The Notes will constitute legal, valid and binding obligations of the
Issuer enforceable against the Issuer in accordance with their respective terms
and the Guaranties will constitute legal, valid and binding obligations of the
Guarantor enforceable against the Guarantor in accordance with their terms
(subject, in each case, to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws affecting the enforcement
of creditors' rights and to general principles of equity, regardless of whether
considered in a proceeding in equity or at law) when (i) the Registration
Statement, as finally amended, shall have become effective under the Securities
Act and the Indenture shall have been qualified under the Trust Indenture Act
of 1939, as amended, and duly executed and delivered by the Issuer, the
Guarantor and the Trustee; (ii) the Boards of Directors or duly authorized
committees thereof of the Issuer and the Guarantor shall have duly adopted
final resolutions authorizing the issuance and sale of the Notes and the
issuance and delivery of the Guaranties, respectively, as contemplated by the
Registration Statement and the Indenture; and (iii) the Notes shall have been
duly executed and authenticated and the Guarantees shall have been duly
executed as provided in the Indenture and such resolutions and shall have been
duly delivered to the purchasers thereof against payment of the agreed
consideration therefor.
We do not find it necessary for the purposes of this letter to cover, and
accordingly we express no opinion as to, the application of the securities or
blue sky laws of the various states or the District of Columbia to the sale of
the Notes.
This letter is limited to the General Corporation Law of the State of
Delaware, the laws of the State of New York and the federal laws of the United
States of America.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to all references to our Firm included in or made a
part of the Registration Statement. In giving such consent, we do not thereby
admit that we are within the category of persons for whom consent is required
by Section 7 of the Securities Act or the related rules promulgated by the
Commission thereunder.
Very truly yours,
/s/ Sidley & Austin
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion or
incorporation by reference in this registration statement of our reports dated
February 4, 1997 included or incorporated by reference in Scotsman Industries,
Inc. Form 10-K for the year ended December 29, 1996 and to all references to our
Firm included in this registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
November 3, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Scotsman
Industries, Inc. on Form S-3 (File No. 333-38489) of our report dated February
3, 1997, on our audits of the consolidated financial statements of Kysor
Industrial Corporation and Subsidiaries as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996.
We also consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND LLP
Detroit, Michigan
November 3, 1997
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Judith Bartolini, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2527 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
SCOTSMAN INDUSTRIES, INC.
SCOTSMAN GROUP, INC.
(Name of obligor)
Delaware 36-3635892
Delaware 36-3635935
(State of Incorporation) (I.R.S. Employer Identification No.)
820 Forest Edge Drive
Vernon Hills Illinois 60061
(Address of principal executive offices)
Senior Subordinated Notes due 2007
(Title of indenture securities)
<PAGE> 2
1. GENERAL INFORMATION. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164
West Jackson Boulevard, Chicago, Illinois; Federal Deposit
Insurance Corporation, Washington, D.C.; The Board of Governors of
the Federal Reserve System,Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the
Trustee, describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in
effect which includes the authority of the trustee to commence
business and to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between
Harris Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc.
which constitutes the articles of association of the Trustee as now
in effect and includes the authority of the Trustee to commence
business and to exercise corporate trust powers was filed in
connection with the Registration Statement of Louisville Gas and
Electric Company, File No. 2-44295, and is incorporated herein by
reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation,
File No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the
Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its supervising or
examining authority.
(included as Exhibit B on page 3 of this statement)
1
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 3rd day of November, 1997.
HARRIS TRUST AND SAVINGS BANK
By: J. Bartolini
--------------------------
J. Bartolini
Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents
that reports of examinations of said trustee by Federal and State authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
HARRIS TRUST AND SAVINGS BANK
By: J. Bartolini
--------------------------
J. Bartolini
Vice President
2
<PAGE> 4
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of June 30, 1997, as published in accordance with a
call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[HARRIS BANK LOGO]
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on June 30, 1997, a state banking institution organized and operating
under the banking laws of this State and a member of the Federal Reserve
System. Published in accordance with a call made by the Commissioner of Banks
and Trust Companies of the State of Illinois and by the Federal Reserve Bank
of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin................... $ 1,707,824
Interest bearing balances............................................. $ 628,916
Securities:.......................................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 3,766,727
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement
subsidiaries, and in IBF's:
Federal funds sold........................................................ $ 275,425
Securities purchased under agreements to resell........................... $ 0
Loans and lease financing receivables:
Loans and leases, net of unearned income.............................. $ 8,346,198
LESS: Allowance for loan and lease losses............................ $ 110,230
-----------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b).................................................. $ 8,235,968
Assets held in trading accounts................................................... $ 164,281
Premises and fixed assets (including capitalized leases).......................... $ 199,292
Other real estate owned........................................................... $ 524
Investments in unconsolidated subsidiaries and associated companies............... $ 69
Customer's liability to this bank on acceptances outstanding...................... $ 46,107
Intangible assets................................................................. $ 287,575
Other assets...................................................................... $ 670,230
-----------
TOTAL ASSETS $15,982,938
===========
</TABLE>
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<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices....................................................................... $ 9,243,162
Non-interest bearing............................................................... $3,411,145
Interest bearing................................................................... $5,832,017
In foreign offices, Edge and Agreement subsidiaries, and IBF's............................... $ 1,738,871
Non-interest bearing............................................................... $ 34,386
Interest bearing................................................................... $1,704,485
Federal funds purchased and securities sold under agreements to repurchase in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
Federal funds purchased.& securites sold under agreements to repurchase................. $ 2,985,911
Trading Liabilities 62,083
Other borrowed money:.........................................................................
a. With remaining maturity of one year or less $ 244,781
b. With remaining maturity of more than one year $ 0
Bank's liability on acceptances executed and outstanding $ 46,107
Subordinated notes and debentures............................................................. $ 325,000
Other liabilities............................................................................. $ 119,695
------------------------
TOTAL LIABILITIES $14,765,610
========================
EQUITY CAPITAL
Common stock.................................................................................. $ 100,000
Surplus....................................................................................... $ 600,715
a. Undivided profits and capital reserves.................................................... $ 534,395
b. Net unrealized holding gains (losses) on available-for-sale securities ($17,782)
------------------------
TOTAL EQUITY CAPITAL $ 1,217,328
========================
Total liabilities, limited-life preferred stock, and equity capital........................... $15,982,938
========================
</TABLE>
I, Steve Neudecker, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with
the instructions issued by the Board of Governors of the Federal Reserve
System and is true to the best of my knowledge and belief.
STEVE NEUDECKER
7/30/97
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and, to the best of
our knowledge and belief, has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System
and the Commissioner of Banks and Trust Companies of the State of Illinois and
is true and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD JAFFEE
Directors.
4
